Hey students...
I am back with an important concept i.e. safety stock. Safety stock is a buffer to meet some unanticipated increase in usage. It fluctuates over a period of time. The demand for material may fluctuate & delivery of inventory may also be delayed and in such a situation the firm can face a stockout. The stock out can prove costly be affecting the smooth working of the firm. In order to protect against the stock out arising out of usage fluctuations, firms usually maintains a margin of safety i.e. safety stocks. Two costs are involved in determination of this stock i.e. opportunity cost of stock outs & the carrying costs. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. On the other hand, the larger quantity of safety stocks involves higher carrying costs.
The amount of safety stock is the level where the total costs, associated with safety are at a minimum.
NITIN BHALLA
09873029766
09958641376
