Buffer inventories, Business Management

Buffer inventories are held to protect against the uncertainties of demand and supply. An organizationgenerally knows the average demand for various items that it needs. However, the actual may not exactly match the average and could well exceed it. To meet this kind of a situation , inventories may be held in excess of the average for expected demand. Similarly teh average delivery time ( that is the time elapsing between placing an order and having the goods in stock ready for use ,and technically called as the lead time) may be known. But unpredictable events could cause the actual delivery time to be more than the average. Thus excess stocks might be kept in order to meet the demand during the time for which the delivery is delayed. These inventories which are in excess of those necessary just to meet the average demand ( during the average lead time period) held for protecting against the fluctuation in demand and lead time are know also by the terms safety stocks.

Posted Date: 3/25/2013 6:22:00 AM | Location : United States







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