In the context of supply chains, what does the term 'safety stock' refer to?

Safety stock refers to a reserve of inventory that is maintained to protect against uncertainties in demand or supply. It is a crucial component of inventory management as it helps ensure that a company can meet customer demand even in situations where demand unexpectedly surges or when there are delays in replenishment. This buffer stock acts as a cushion during unpredictable fluctuations, allowing businesses to continue operations and avoid stockouts.

The other choices describe distinct concepts in supply chain management, but they do not align with the definition of safety stock. For instance, the total quantity of goods sold over a year focuses on sales performance rather than inventory management. Inventory nearing expiration pertains to products that have a limited shelf life, which may necessitate different handling procedures but is unrelated to the concept of safety stock. Lastly, stock displayed in retail locations highlights the marketing and sales aspect of inventory but does not address the strategic purpose of maintaining safety stock within the supply chain.