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Buffer stock (inventory)

The amount of stock that a business holds as a form of reserve stock, in case there are any circumstances that result in supplies being delayed. Such circumstances might occur due to: unreliable suppliers; a sudden increase in demand, depleting stocks before the business can replenish them; or deterioration of stock on the shelf, sometimes experienced by firms in the food industry. The level of buffer stock held will depend on numerous factors including: Pattern of demand; Lead time, policies and reliability of suppliers; Cost of holding stock; Cost of ordering and handling stock; Costs of financing stock; Type of stock / perishability; Length of product life cycle / obsolescence; Expectations eg if a business anticipates shortages in supply or price increases in the near future it may increase its stock of raw materials; Space available for storage.

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