[citation needed] Safety stock is held to account for variability, either upstream in supplier lead time, or downstream in customer demand.
[2] It provides an idea of how long the inventory could be held before the company makes a loss, which also tells the manager how much to order.
Safety inventory This would act like a buffer to make sure that the company would have excess products for sale if consumer demands exceed their expectation.
For example, candy companies can start to produce extra sweets that have long duration period.
Build up seasonal inventory gradually to match people's sharply increasing demand before Halloween.
While customer order a significant quantities of products, cycle inventory would be able to save cost and act as a buffer for the company to purchase more supplies.
Purchase in bulk will save them a lot transportation cost from overseas shipment fees.
Also the supplier might be willing to decrease the time period of delivery their products to the warehouse, for example from once a month to once a week.
Hence, the company would be able to switch to a smaller warehouse, as they don't need to stock that much products at a time.
For example, if the manager want to hold a big discount event to clear the products that have been left in stock for a long time.
The manager would be able to forecast the budget and make some improvements base on the past events’ record.