Buffer stock

Buffer stock is an excess amount of raw materials kept on hand to guard against any unplanned inventory shortages leading into the production process. The amount of buffer stock to retain involves balancing the cost of the extra inventory against the amount of production downtime that is avoided by having the extra inventory.

The concept also refers to the practice by governments of buying excess commodities during periods when there is an excess supply and selling them when the supply level is unusually low. Doing so keeps commodity prices from going too low (during periods of high supply) or too high (during periods of low supply). The underlying theory is that this practice results in more stable pricing conditions for producers.

Related Courses

Constraint Management 
Inventory Management