Final answer:
Safety stock is the inventory a business holds beyond expected demand to prevent stockouts in uncertain demand or supply conditions. It is a crucial component of inventory management distinct from lead time, economic order quantity, and reorder point.
Step-by-step explanation:
The capacity in excess of expected demand that is intended to offset uncertainty is known as safety stock. Safety stock is the additional inventory that is held to protect against out-of-stock situations. This provision is especially crucial in times of volatile demand or supply chain disruptions to ensure that there are enough products available to meet customer demand. It is not to be confused with lead time, which is the time it takes for an order to be delivered after it is placed, nor the Economic order quantity which is the ideal order size to minimize the costs of inventory management. Also, reorder point is the level of inventory at which an order should be placed to replenish stock before it runs out. Safety stock is a key part of inventory management and is essential in maintaining the balance between carrying costs and service level.