Buffer inventory is one of the important things that helps you in maintaining high levels of customer service, as it is one of the essentials to face fluctuations in demand or future fluctuations in general, especially since delaying customer requests on time negatively affects customer satisfaction, and stock runs out suddenly or not. The ability to discharge inventory may incur more costs, and in this article we will talk about Buffer Inventory and how it can make or break a business.
What is buffer inventory?
It is your surplus inventory, which is stored in warehouses for use in the event of an unexpected emergency, such as a supply chain failure, transportation delays, or a sudden increase in demand.
It can also be defined as the limit within which the inventory of any item must not be less than this level, thus avoiding any other costs, such as the costs of running out of stock and the opportunity cost and other costs that the institution can control by providing the necessary solution from the inventory.
*Noting that this does not negate that “the quantity of safety stock should be reduced to the least possible because in reality it represents idle capital.
Buffer inventory vs. safety stock
In fact, the two terms are used interchangeably, both of which refer to the additional stock that resides in the warehouses of a facility, as a reserve in case of unexpected changes in supply or demand.
There are some who believe that ‘buffer inventory’ refers to the stock that is provided specifically for cases of unexpected increase in demand for a particular product, while the term ‘safety stock’ refers to the amount of inventory held in the event of any delays from the supplier itself.
But in general, both terms Buffer inventory & safety stock serve almost the same purpose, as their objective is to ensure business continuity with sufficient inventory to meet and fulfill orders in the agreed time.
Why you need to keep buffer inventory
You may be wondering why you might need to keep a buffer inventory. Quite simply, buffer inventory is very important, especially since inventory forecasting is never 100% accurate.
Therefore, buffer inventory helps you reduce inventory costs while also avoiding any delays in fulfilling customer orders and shipping.
Therefore, a buffer inventory is a contingency plan that helps you prepare for any unexpected events on the job.
How to calculate buffer inventory levels
After we have defined what is meant by buffer inventory, we will now need to know how to calculate buffer inventory levels. In general, your buffer inventory depends on a number of factors. There is no one buffer inventory size that fits all, and this means that you will need to do some calculations in order to arrive at the amount or your appropriate buffer inventory.
There is more than one way to calculate the right buffer inventory levels for you, and getting the right buffer inventory level is essential so that you can improve storage and ensure orders are executed on time, and thus customer satisfaction.
In order to calculate the appropriate buffer inventory level, you need to determine a number of things first and then use the appropriate mathematical formula. These things are:
- Average daily usage.
- Average lead time.
- Maximum daily usage.
- Maximum lead time.
After accessing the data that we mentioned in the previous points, you can now use this formula to find the optimal buffer inventory level:
- (Maximum daily sales*Maximum lead time) – (Average daily usage * average lead time)
Simplifying your inventory management
Warehouse management is not an easy task, but rather it requires a great deal of work and effort in order to manage the stores efficiently and effectively.
And when your business begins to grow and expand, you will start thinking about how you can simplify your inventory management, and here are some ways that can help you in simplifying inventory management.
1. Use of inventory management software
You can actually simplify your inventory management through the use of technology thus saving a lot of time and effort as well as money as well.
Inventory management software can help you track and manage inventory from multiple channels in real time, and there are a variety of inventory management software to help you analyze trends in your past orders.
It can also show you the entire inventory data, thus helping you to make the best decisions, and ultimately, all orders will be fulfilled on time and costs will be reduced.
2. Hire logistic experts
Partnerships with logistics experts can also help you simplify your inventory management, especially as they are experienced in the field and thus help you improve inventory levels while spending less time on logistics.
3. Outsource to a 3PL
Also, instead of using inventory management software or hiring logistics experts, you can also outsource a 3PL especially since supply chain management is a time consuming process.
This can help you improve inventory management as well as warehousing; order 3pl fulfillment and shipping on time, and this will save you a lot of effort, time and money as well.