Buffer inventory
Buffer inventory is extra stock held to reduce the risk that demand or replenishment delays cause a stockout. It increases average inventory and holding cost but may protect production continuity and customer service. The appropriate amount depends on variability, lead time and the consequences of shortage; it is not automatically part of the basic EOQ formula. Distinguish the buffer quantity from the order quantity and the reorder point.
Worked example
A business holds 200 buffer units and orders 1,000 at a time under a simple cycle. Average inventory is 200 + 500 = 700 units.
Common mistake
Do not confuse buffer stock with the full reorder level, which can also include expected demand during lead time.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
