Executive summary | In this article, I provide a practical guide to building up and managing safety stocks, drawing from my hands-on experience with a high-tech client. I emphasize the importance of aligning statistical models with operational realities, and share insights into navigating the complexities of different safety stock types— statistical, factory-requested, and strategic— through a clear, well-maintained policy. I address practical elements that made the implementation both sustainable and successful, such as cross-functional coordination, effective communication, and managing workload.
This article was published in the Journal of Business Forecasting | Fall 2025.
Safety stocks are commonly used to ensure availability of critical materials for production and maintain high customer service levels in a competitive business environment. Forecast accuracy, supply reliability, quality issues, and strategic considerations are the main drivers for safety stock. Depending on your company’s business dynamics, you may decide to carry safety stocks of raw materials, sub-assemblies, or finished goods.
As any inventory ties up your working capital, consumes warehouse space, and incurs costs such as insurance and handling, stocking the right items without overstocking is of utmost importance to your bottom line. Right-sizing the safety stock is therefore an important exercise. Whether you use an in-house developed model, the advice of a consultant, or an external add-on tool, it is good to remember that the work on safety stocks does not end once your model provides the suggested optimal quantities; in fact, it only begins. Our experience shows that the practical implementation part is often overlooked, putting the whole safety stock initiative at risk.
I recently supported a market-leading high-tech customer on a journey of deploying safety stocks of raw material parts. This exercise required major efforts from multiple teams, and I was involved in designing and deploying the practical implementation plan. The following includes the nuances of safety stock implementation in a complex organization that are critical for making such an exercise a success.
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