Buffer Stock in Supply Chain Management

A buffer stock is part of the strategy used in supply chain management to balance demand and supply by maintaining a surplus inventory. Essentially, it’s extra goods purchased with the purpose of selling them when there's high demand and low availability from suppliers. Buffer stocks can help prevent stockouts if a supplier experiences delays. This type of strategy can also reduce costs because of bulk discounts and offer insurance against price increases. However, they require additional resources like storage space and staffing along with increased expenses for carrying costs and potential obsolescence expenses. In terms of risk reduction, buffer stock helps companies avoid losing sales due to shortages and major disruptions. For example, during holidays, supermarkets often buy more chocolate to ensure a steady flow of sale despite increasing customer demand. Overall, buffer stock serves as a strategic tool to manage inventory levels effectively in today's highly competitive marketplace.