Pipeline Inventory: What It Is & How It WorksInventory is the lifeline for any business. Because of this, getting your stock management right is important to the success of your enterprise. As companies grow and expand, their stock management procedures […]
Pipeline Inventory: What It Is & How It WorksInventory is the lifeline for any business. Because of this, getting your stock management right is important to the success of your enterprise. As companies grow and expand, their stock management procedures evolve from simply counting inventory on the shelves into a plethora of monitoring and measuring techniques. Two common types include pipeline inventory and decoupling inventory–each with its own advantages and implications. In this guide, we have a look at the ins and outs of both methods.
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What’s Pipeline Inventory?
Pipeline inventory definition refers to the goods in a organization’s shipping chain in transit,”in the pipeline”, between places. This includes those en route from the provider to the warehouse. Inventory management includes more than just the things on the shelves. After inventory is paid for, it’s considered part of the provider’s inventory even if they don’t have physical custody of it. Pipeline inventory in inventory management isn’t to be confused with work-in-progress inventory. Work-in-progress inventory is the inventory that’s in production. It’s already fabricated and in the business’s shipping chain. Nearly every product in the marketplace demands some kind of transportation during the creation and distribution process: manufacturing firms get raw materials from the origin, distribution businesses transport inventory from the manufacturer to the retail and warehouse outlets transport items to their shops. As such, it’s almost impossible to have no pipeline inventory in the retail industry.
A Pipeline Inventory Example
Let us use an example of a digital wholesaler in the usa, or Company X, that has bought cell phones from China, to sell to retailers like gadget stores. When the wholesaler purchases the mobile phones, the dispatch is considered part of the stock, i.e, pipeline stock, until it reaches the wholesaler’s warehouse. Inventory can stay in transit for days or weeks at a time, and this is accounted for in calculating pipeline stock. Pipeline stock is calculated by multiplying how long it takes between ordering and getting inventory (lead time), and the number of units you sell between orders (require rate). Consequently, if the wholesaler’s products have a lead time of 2 weeks, and it typically sells 100 units (phones) per week: two (months ) x 100 (units per week) = 200 units of pipeline stock hence, the company would include 200 units to the whole inventory in the warehouse. Demand pipeline management is a process of stock management where companies use predictions to determine stock needs for the immediate future.
What’s Decoupling Inventory?
Production entails plenty of processes, all of which are liable to mistakes and hitches. To prepare themselves for these disruptions, companies invest in additional inventory to cushion against problems that might arise. This inventory is called decoupling inventory. To put it simply, decoupling stock denotes the inventory that is set aside in the event of a hitch or stoppage in production. A decouple synonym would be to maintain independent, thus this term refers to inventory that is reserved. The decoupling function of stock is to mitigate the risks involved with interruptions from the manufacturing line. The excess inventory helps companies maintain normal operations even when production has slowed down or stopped. Because of this, a company can keep up with demand and customer expectations. From changes in providers to natural disasters, there is no telling what could cause a disturbance. Therefore, decoupling stock constitutes a critical part of any corporation’s inventory if they would like to mitigate the danger of a complete halt in production.
Decoupling Inventory Example
Let us use our digital wholesaler for instance. Company X has been in operation for some time and has seen relative success. It’s the go-to wholesaler for many retailers. Suddenly, there’s a problem with customs and a dispatch is barred from entering the country, leaving Company X with no crucial stock for its clients. Without decoupling stock, Company X’s distribution chain basically comes to a stop until they can obtain their dispatch. This compels the retailers that rely on them to provide the phones to buy units from someplace else. Because of this, there’s a loss of confidence and cash. But with decoupling stock, Company X will have the ability to meet orders until they can sort out the matter.
Pipeline Inventory vs Stock Decoupling
The best way to distinguish between the two is by identifying their similarities and differences. Pipeline inventory and decoupling stock are alike in that they’re both methods used to boost operational efficiency. Through pipeline inventory, companies have more precise data on their stock and can adjust for efficacy and cost-effectiveness based on the insights derived. Similarly, decoupling inventory enables a company to keep operations moving even with a hitch in production, making sure no money or time is lost. However, aside from their functions, both are essentially different because pipeline inventory is considered a sort of inventory, while decoupling inventory is an inventory management process. Some businesses don’t need this technique, by way of instance, pipeline foods stock cannot be kept aside for emergencies. At the end of the day, keeping track of pipeline inventory and decoupling inventory is vital for a smooth supply chain. Revel Systems can help keep you on track of inventory levels with our inventory management characteristics .
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