Buffer inventory, also known as ‘safety stock’, can be a crucial part of any warehouse’s inventory supply.

The term ‘buffer inventory’ refers to any overflow stock specifically kept for the purpose of avoiding stock shortages. This inventory is typically counted separately from the ‘active’ inventory, as it isn’t accessed as frequently, even for more popular items. Instead, the buffer inventory is kept on hand in case of unforeseen circumstances preventing a restock of higher-demand goods – and, as we’ve all learned over this last year, those unforeseen circumstances can come at a moment’s notice.

So, keeping buffer inventory around sounds pretty good, right? While it’s generally seen as a wise idea, it can prove difficult to keep around or organize effectively – and that’s even after you figure out how much buffer inventory you should keep around!

Optimizing & Organizing Buffer Inventory

There’s two steps to optimizing your buffer inventory: calculating how much you need, and figuring out where it should go.

Calculating your need for buffer inventory involves a little math (as does nearly everything in a warehouse), but it can help answer a lot of questions very early on in the process.

The formula for calculating buffer inventory can vary from warehouse to warehouse, but there’s a few base steps everyone could follow:

• The first step, of course, is to identify your best-selling items. Review the last 6-12 months of sales and identify not only the items that you sold out of, but the items you nearly sold out of, and/or the items you had the hardest time replenishing.
• From there, calculate what times your biggest sales of these items happened. Are they perennial favorites, or are they more seasonal purchases? (This specific method is referred to as time-based inventory calculation, and is one of the most common ways of identifying the need for buffer stock.)
• Once you identify the times you need these items most, you can do a little math to figure out how much your buffer inventory should be – review your average shipment size compared to the velocity of your sales of these goods, and see what (if any) overlap there may be.

Of course, that’s just half the battle – the rest is figuring out where to keep it.

The trick with buffer inventory is that it should be easy to access if and when you need it, but it should also be out of the way of the rest of your inventory. While things like pallet racking are good for the storage of active inventory, your buffer inventory and safety stock may be better off elsewhere.

Designate an area in the warehouse that’s not going to cause traffic, but still isn’t hard to get to (i.e. up on another level or buried in the back of some enclosed area). Set up some steel shelving, double rivet shelving, or wire shelving in an area that won’t cause congestion, and designate it specifically for buffer inventory. Train your team to not pick from these shelves unless absolutely necessary, and remember to factor these shelves into your inventory counts – just because you can’t always see them doesn’t mean they’re not still there, waiting to be shipped to an anxiously awaiting customer.