September 22, 2018      3 min read

Inventory is a basic component of any retail or wholesale operation, so getting your inventory management right is essential to the success of your business. However, there is more than one type of inventory; in this article we explain the ins-and-outs of both pipeline inventory and decoupling inventory, to ensure your inventory management is successful.

Pipeline inventory

Pipeline inventory refers to inventory items in the company’s shipping chain that have yet to reach their final destination. These items are considered to be part of the shipper’s inventory during their transit up until the recipient has paid for them. However, once the recipient pays for the items – even if that recipient has not yet physically collected them – that pipeline inventory goes on the recipient’s inventory list.

Inventory goes through many different locations prior to becoming an end product for purchase by a consumer. Products may come from many different countries – one part of a product may come from China and another part of the same product may come from India, for instance. Inventory that is on its way from one location to another like this is therefore called pipeline inventory because it is in the pipeline en route to its next stop. It could be on its way from a large distributor to a factory where it is going to be turned into the end product, or it may be on its way from a factory to a local retailer.

How does it work?

Pipeline inventory can remain in the transit pipeline for days or even weeks at a time, especially with overseas shipments. To illustrate, a shipment of video game consoles made in Japan may take several days to arrive by container ship to an American port. If the wholesaler has already purchased the consoles, they are part of that wholesaler’s inventory until he sells them to his retail store customers. When the retail store purchases the consoles from the wholesaler, the pipeline inventory goes on their records instead.

Decoupling inventory

In any production line, especially for larger companies, there are innumerable errors that can occur along the way and cause disruption. Since production lines can be prone to error and associated time delays, businesses need to invest in inventory that provides a solution to this risk and promotes effective inventory management – this is where decoupling inventory will come into play.

A decoupled inventory consists of inventory stock set aside in the event of a slowdown or stoppage in the production line. This form of inventory is used to cushion the company’s inventory against potential issues that may arise in the production line. These issues can occur when, for example, one part of the production line works at a different speed than another. When this happens, the production line stalls and products remain unfinished, which reduces the renewal rate of inventory stocks.

How does it work?

Following on from the previous example, the manufacturing of video game consoles can require the assembly of several sensitive parts, including everything from the central processing units, internal hard drives, motherboards and video connection ports. When the processes involved in building the microchips required to power the central processing units slows down, for example, the entire production line may grind to a halt. In situations like these, a decoupled inventory will allow the manufacturer to ship its consoles on time while it resolves the issues with the microchips.

Topics: ,