What is classified as 'Safety Stock' in inventory management?

Safety stock is defined as extra inventory that is maintained to mitigate the risk of stockouts caused by uncertainties in supply and demand. The primary purpose of safety stock is to ensure that a company can continue to meet customer demands even in the face of sudden increases in demand or unexpected delays in supply. By keeping this additional inventory on hand, businesses can safeguard against the fluctuations that may compromise their ability to deliver products on time.

In contrast, inventory held for seasonal demand is organized to address predictable changes in customer purchasing behavior based on the season, which does not serve the same protective role as safety stock. Similarly, materials set aside for promotional events are allocated explicitly for marketing activities and do not function as a buffer to prevent shortages. Lastly, mismatched inventory pertains to the disparity between the quantities needed for different production cycles, which may lead to inefficiencies rather than acting as a hedge against stockout risks. Thus, safety stock’s key characteristic is its role in preventing stockouts, making the identification of it as extra inventory for this specific purpose entirely fitting.