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Buffer Stock in Supply Chain Management

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Questions and Answers

How can buffer stocks help prevent stockouts?

By causing delays in the supply chain

By selling goods when there's high demand and low availability from suppliers (correct)

By decreasing storage space requirements

By reducing costs through increased expenses

What additional resources are required when implementing a buffer stock strategy?

Reduced need for insurance against price increases

No additional resources needed

Storage space and staffing (correct)

Decreased expenses for carrying costs

What is the purpose of a buffer stock in supply chain management?

To reduce costs by increasing expenses

To balance demand and supply by maintaining surplus inventory (correct)

To create shortages by limiting availability

To minimize storage space and staffing requirements

How does buffer stock help companies manage risk in the supply chain?

<p>By avoiding losing sales due to shortages and major disruptions</p> Signup and view all the answers

What is one drawback of using buffer stocks in supply chain management?

<p>Increased expenses for carrying costs and potential obsolescence expenses</p> Signup and view all the answers

Study Notes

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.

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Description

Explore how buffer stocks are utilized in supply chain management to balance demand and supply, prevent stockouts, reduce costs, and manage risks effectively. Learn about the benefits and challenges of maintaining surplus inventory as a strategic tool in today's competitive marketplace.