Which type of inventory helps manage unexpected increases in demand?

The correct choice is safety inventory. Safety inventory is specifically maintained to protect against uncertainties in demand and supply, acting as a safeguard against unexpected increases in customer demand or unforeseen disruptions in supply. It helps ensure that a company can fulfill customer orders even when demand spikes beyond forecasted levels or when supply chain activities are delayed.

Safety inventory plays a crucial role in maintaining customer satisfaction and service levels, particularly in industries where demand is unpredictable or subject to fluctuations. By having this buffer stock on hand, organizations can respond quickly to market changes without the risk of stockouts, which can lead to lost sales and dissatisfied customers.

In contrast, cycle inventory refers to the portion of inventory that is ordered and received on a regular basis as part of routine operations. Buffer inventory serves a similar purpose but is typically used for managing the impact of lead time fluctuations. Excess inventory generally refers to surplus stock that is not necessarily planned in response to demand variability and can lead to increased holding costs. However, it is safety inventory that directly addresses the need for flexibility and responsiveness in the face of unexpected demand changes.