Buffer Inventory Guide: How It Can Affect Your Business

Inventory — it’s the lifeblood of your business! However, there’s always a chance that unforeseen circumstances will occur; no matter how well you plan your inventory and stock refills. 

Whether it’s a sudden spike in demand or a shortage of critical materials, when your inventory lags, it can cause you to miss out on sales and even lose customers. But as the old saying goes, “An ounce of prevention is worth a pound of cure.”

The best way to avoid risk? Keep buffer inventory on hand at all times!

In this guide, we’ll take a look at the basic concepts behind buffer inventory. Also, we’ll give you some tips on the best ways to keep your inventory under control.

What Is Safety Stock Inventory?

If you’ve been in a business for a while, you may have heard the term “safety stock inventory” thrown around.

Safety stock inventory consists of any extra materials that are kept available in order to prevent sudden sell-outs.  Usually, safety stock includes raw materials that companies can use; these materials can be used to create more inventory on demand if the need should arise. 

Safety stock provides a sense of security for brands; they can trust that new products can be created quickly should a shortage or sales run occur.

For this reason, safety stock inventory is an important aspect of inventory management. 

What Is Buffer Inventory? 

Buffer inventory, or buffer stock, is similar to safety stock in that it can include raw materials that can be used in the event of a shortage. 

However, buffer inventory also includes finished products that are ready to ship as they are, with no assembly required. Generally, companies should keep some type of inventory material ready at all steps of the supply chain in order to prevent slowdowns during busy sales seasons. 

Buffer Inventory vs. Safety Stock 

The terms buffer inventory and safety stock are often used interchangeably. Though safety stock usually refers to raw materials, not every eCommerce company regularly handles raw materials within their supply chain. Therefore, the term is sometimes used to refer to finished products, too, depending on the brand. 

Whichever term is used, the general purpose of both buffer inventories and safety stock is to protect companies from sales losses or poor customer relations in the event of an unforeseen sales rush.

Buffer stock can also be kept on hand for an expected season of increased business activity, such as the end-of-year holiday season or a planned sales event. 

The Importance of Keeping Buffer Inventory

Most businesses would see a sudden uptick in sales as a positive thing. However, this exciting occurrence can quickly turn sour if you find that your supply chain isn’t equipped to meet the increase in demand. 

Inventory Forecasting 

Even if your brand practices inventory forecasting — the collection of data surrounding your brand’s sales history and potential future — your projections are unlikely to be completely accurate 100% of the time. 

The last thing you should be thinking about during a sales bump is whether your company will be able to fulfill that exciting influx of orders it’s receiving! 

Pros and Cons of Buffer Inventory 

Some companies see significant benefits from keeping buffer inventory, but others may not experience those same benefits. Here are the things to keep in mind:

Protection Against Supply and Demand Fluctuations 

The demand for your company’s products isn’t the only factor that could fluctuate unexpectedly; changes or errors in your supply chain could also cause unexpected reductions in the amount of product available on hand. 

Buffer inventory helps to protect brands from issues that stem from either supply or demand. 

Smoothing the Supply Chain 

Oftentimes, a change in demand can cause an interruption in a company’s supply chain if the company is unprepared for such a change. Keeping extra materials or finished products available can help to prevent supply chain issues. 

Keeping Revenue Stable 

Fulfillment issues can lead to losses in revenue, which is never a good thing for a business. Keeping buffer inventories readily available can help to keep your brand’s revenue stable, which maintains a level of consistency within your workplace.   

Preventing Potential Losses 

If your company produces items that have a short shelf life or are likely to expire under certain conditions, providing too much anticipation inventory may lead to a large amount of product waste. 

Managing Overhead 

Buffer inventory can turn uncertain business situations into profit. However, it’s important to note that your overhead costs will increase when you choose to keep more products and materials on hand than are strictly necessary. 

Optimizing Storage Facilities 

If your company has limited storage space for inventory, it may not be physically feasible to keep any extra inventory on hand. However, it’s worth gauging your storage availability to see if you could carry at least a limited amount of anticipation inventory in order to have it on hand in the event of an emergency. 

Three Methods to Calculate Buffer Inventory Levels

There are a few key ways to calculate how much buffer inventory your company should store, and they all involve collecting data such as sales analytics, insights on SKU performance, and demand forecast. 

Here are three methods that companies often choose to employ:

1. Safety Stock Calculation

In order to use the safety stock calculation to determine how much stock your company should keep on hand, you’ll need to know your maximum daily usage and lead time, as well as your average daily usage and lead time. 

For each item in your inventory, subtract the average from the maximum. This will be your safety stock.

2. Greasley’s Method 

Greasley’s method is best used for companies in which lead time and demand vary considerably. The equation multiplies several situational variables by the company’s average demand. 

3. Hezier and Render’s method 

Hezier and Render’s method multiplies average lead times by the company’s desired level of customer service. This method proves that the higher your level of service, the more buffer stock you will need to meet this service level should a period of unexpected supply or demand occur. 

Expertly Manage Your Buffer Inventory with a 3PL 

Though buffer inventory can save your company from a sticky situation, it can cause additional stress on your supply chain. Ease that stress by trusting a high-quality third-party logistics (3PL) company like Print Bind Ship. We can handle every aspect of your supply chain management, helping you to stay stable, no matter what unexpected situations may arise. Contact us today for a free service quote!