Buffer Stock is not a Boon!

One of the most important aspects of every product industry is inventory. Your inventory is the main source of your revenue as well as cost and blocked working capital, so it is essential to be smart about making decisions on how much inventory you have, how much you should store, and how much to reorder.

Safety stock is an additional quantity of an item held by a company in inventory to reduce the risk that the item will be out of stock.

Why do Brands/Retailers need to keep safety stock?

1. To improve the Order Fulfillment rate - Always having inventory on hand means always having inventory to sell when there are opportunities. This results in higher conversions and improved consumer experience.
2. To reduce Cost by Bulk Purchase / Manufacturing - Most businesses will see savings when purchasing supplies in bulk quantities, as most suppliers offer discounts to customers who order larger quantities. Businesses can also save on shipping costs for one large order instead of adding up shipping and handling costs from multiple smaller batch orders.

Disadvantages of holding Safety Stock - 

1. High Carrying Cost & Opportunity Cost - If a Brand/Retailer holds a high level of inventory, it ties up business funds that the Brand could use in other areas such as research and development or marketing. New product development and marketing can bring additional business to the company, but holding high inventory levels does not. The cost of the inventory is not recouped by the organization until the company sells the inventory or uses it to build customer orders. There is also an opportunity cost in carrying large quantities of slower turning products. These products eat up space in your warehouse when the Brand could be holding faster moving, higher demand products instead.
2. Increase Storage Costs - Inventory storage is another cost of holding excess stock in a business. The cost of warehousing can include the warehouse space, utilities and maintenance of the storage area. Brands that reduce inventory levels can store materials in a smaller area in the business and use the extra space for new product development.
3. Quality Reduction & Product Degradation - Storing excess stock can lead to quality problems such as degradation and potential obsolescence.

In the new age Omnichannel Strategy “Buffer Stock” is directly linked to “Consumer Experience”. Optimum the “Buffer Stock”, better the Consumer Experience. 

The need for Buffer Stock can be dramatically reduced by giving a “Single View of Inventory” to all the sales channels simultaneously. Products like “Assure” ensure that even the last piece of inventory is exposed to multiple channels,  thus eliminating the need for Buffer Stock and leading to an Improved Order Fulfillment Rate and Enhanced Consumer Experience.