Three advantages of keeping extra stock

In our modern economy, it’s not unusual that demand can increase suddenly and greatly which can be difficult for companies to predict. This can lead to empty storehouses with dissatisfied customers and missed income as a result. A buffer stock doesn’t just solve this problem, but several other problems too. In this article we describe three advantages of keeping a buffer stock and how large the stock should be.

What is a buffer stock?

A buffer stock, which could also be called a safety stock or backup stock, is a crucial component in warehouse and stock keeping. The purpose is primarily to ensure the company doesn’t run out of stock due to extraordinary circumstances or periods with sudden increase of demand.

Three reasons to invest in buffer stock

Prevent fires which your purchasers are otherwise forced to put out

Without buffer stock, your purchasing staff fall into the trap of locating prolonged deliveries and place express orders. This is time consuming and unnecessary. By having buffer stock of just the right size, you will free up a lot of time, which your purchasers could spend on more productive activities, like filling out orders to customers.

Your customers become more loyal

Even if buffer stock is crucial to keep operations going, it’s equally important to prevent customers from being disappointed. In today’s competitive world, customers typically have multiple stores to choose between for the same product. A product that isn’t delivered as promised can result in the customer turning to a competitor in the future. A buffer stock becomes a safety net to always have products in stock, to maintain customer loyalty.

Notifications related to the delivery of products can reduce pressure on your customer support team. With our notification tool you can adapt notifications to be automatically sent to customers.

You can compensate your stock during periods of high demand

It’s always common that some products in your warehouse have an irregular level of demand. This means that demand is low or non-existent in some periods, and very high in others. Many external factors can influence demand. One example is if your competitor suddenly closes down their business. Another example is if an influencer mentions your product. A buffer stock is your safety net to cover such unexpected periods of high demand.

When the demand for a product is high and deliveries are sent out fast, every minute matters. Our service Skicka Direkt Business can be connected to your WooCommerce store, to automate your orders of shipping. That way, you can send more packages faster.

How large should my buffer stock be?

The size of your buffer stock depends on how great a risk you’re willing to take. The larger the stock, the easier it is to cover large fluctuations in demand. At the same time, a large buffer eats up a major part of your company’s capital, which could have been invested differently. The size of your buffer stock becomes a carefully calculated balancing act.

If you want to learn more about stock keeping, check out our article on warehouse management. Other articles and more general information on logistics can be found here: Logistics.

Frequently asked questions about buffer stock

How do I calculate the size of my buffer stock?

A common method is to base your calculations on the average demand from a number of days. As a business owner, you need to make an intuitive estimation of the number of days based on the conditions of your company.

Who should have a buffer stock?

Most companies benefit from a buffer stock. For very small companies, however, the costs might be too great to make a buffer profitable.

Why should I have a buffer stock?

A buffer stock allows you to immediately sell great volumes, in case of a period of sudden increase of demand.