Why is it important to establish a proper safety stock level?

Establishing a proper safety stock level is crucial primarily for managing fluctuations in customer demand. Safety stock acts as a buffer against variability in demand and lead times. When customer orders increase unexpectedly or when supply chain disruptions occur, having sufficient safety stock ensures that a company can continue to meet customer needs without experiencing stockouts. This capability is essential for maintaining customer satisfaction and protecting the company's reputation.

In environments where demand is unpredictable, relying solely on just-in-time inventory can be risky. Proper safety stock levels help businesses mitigate the repercussions of sudden spikes or dips in demand, thus allowing for smoother operations and enhanced flexibility in responding to market changes. This approach ultimately contributes to a more resilient supply chain capable of sustaining service levels in various conditions.