CPIM Practice Exam

The safety stock in inventory management is used to:

1. Prevent falls in inventory accuracy

2. Mitigate risks of stockouts due to demand variability

3. Encourage overstocking

4. Analyze competitors’ inventory levels

The correct answer is: Mitigate risks of stockouts due to demand variability

Safety stock serves a vital role in inventory management by acting as a buffer against uncertainties that could impact stock levels. The primary purpose of safety stock is to mitigate the risks associated with demand variability. Demand can fluctuate due to various factors such as seasonality, market trends, or unexpected surges in customer interest. When these fluctuations occur, having safety stock ensures that a company can meet customer demand without interruption, thereby preventing stockouts. Stockouts can lead to lost sales, dissatisfied customers, and potential harm to the company's reputation. By maintaining a carefully calculated amount of safety stock, businesses aim to provide a safeguard against these unpredictable elements. This approach balances the need to be responsive to customer demand while also managing the costs associated with holding excess inventory. The other options do not accurately capture the essence of safety stock's purpose in inventory management. Safety stock does not focus on preventing falls in inventory accuracy or encouraging overstocking, and it certainly does not pertain to analyzing competitors’ inventory levels. Instead, its primary focus is protecting against the variability inherent in demand.