What is buffer stock

The buffer stock is the practice that allows a company to keep in warehouse a quantity of backup stock available to protect itself from unexpected fluctuations in demand and supply. 

It is very important to make the right choice of reserves to keep in stock to avoid stockouts and balance the merchandise kept as a reserve. Making an accurate choice of reserve quantities can be difficult but it also turns out to be very efficient in case the merchandise ends up being sold out (stock depletion).

How to maintain a balanced buffer stock?

Many companies make the mistake of taking too much inventory to keep in stock, having too much buffer stock can lead to waste and it may happen that the goods are not sold and, therefore, not recover the invested money.

Companies should be able to predict the demand for a product and, in turn, take the right amount of stock to keep every customer who is interested in a particular product satisfied.

However, relying solely on forecasts is not enough to achieve the company's set sales target because it is almost impossible to plan flawless demand forecasts.

Therefore, it is important to be able to "model demand", meaning calculating inventory levels that allow satisfying the customer.

Demand modeling involves a very accurate forecast; it consists of taking all daily data regarding all items from each store and making an accurate prediction based on how many items are sold day by day. 

This data is always available for companies that keep historical detail of demand at the order line level (the part of a sales or purchase order that specifies detailed information about a requested item). They can understand, therefore, whether the monthly or weekly demand was generated by a single order or by smaller orders divided into more lines.

Demand modeling is a fundamental element for predicting future demand and determining the necessary inventory to keep in stock, thereby ensuring a more efficient service and an increase in profits.