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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

QualificationExamRelationshipPeriod
ACCA MA Direct September 2026–June 2027
FIA FMA Direct September 2026–June 2027