CPIM Practice Exam

What is the primary use of safety stock in inventory systems?

1. To minimize carrying costs

2. To meet varied customer demands

3. To prevent stockouts

4. To reduce lead times

The correct answer is: To prevent stockouts

Safety stock is primarily used in inventory systems to prevent stockouts. This extra inventory serves as a buffer against uncertainties in demand and supply, such as unexpected increases in customer orders or delays in receiving new stock from suppliers. By holding safety stock, a business ensures that it can continue to meet customer demand even when unpredictable situations arise, thus safeguarding its service level and maintaining customer satisfaction. While safety stock may have secondary implications related to minimizing carrying costs, meeting varied customer demands, and potentially influencing lead times, its main goal is to ensure that there is sufficient inventory available to fulfill orders without interruption. This focus on avoiding stockouts helps businesses operate smoothly and maintains their reputation for reliability in fulfilling customer needs.