What form of inventory is built up to buffer against events that may not happen, such as labor strikes or price changes?

• A. Safety stock
• B. Hedge inventory
• C. Fluctuation inventory
• D. Buffer stock

Answer: (B)

Hedge inventory is built up to buffer against events that may not happen, such as labor strikes or price changes. This type of stock is used to protect against uncertainty in supply or costs, locking in conditions if adverse events occur. It’s different from safety stock, which buffers against variability in demand and lead times; hedge inventory specifically targets potential future disruptions or cost increases, not everyday demand fluctuations. For example, if a supplier faces a risk of disruption or a material price spike is anticipated, a company may increase inventory now to avoid being caught by those changes later. Once the risk passes, the hedge stock can be reduced. The other terms aren’t standard concepts for this purpose.