If your business manages inventory, you will appreciate how important it is to get it right. However, managing inventory can be complex. Depending on your business model and the products you are selling, there are different reasons for holding inventory. It’s not always clear and the art of managing inventory can be the result of trial and error and finding the right way to optimise your operation. It is important to step back and analyse the variety of reasons for holding inventory and take them into consideration when shaping your business. Let’s take a closer look at pipeline inventory and decoupling inventory.
What is pipeline inventory?
Essentially, pipeline inventory is the inventory that is travelling between different locations on its product journey. During transit, inventory can go to a multitude of different locations before it lands in the hands of the consumer. For instance, one product could have small components from several different countries. One component could come from India and another piece could come from Germany. These components come together to build the final product.
Therefore, when these different components are en route to their next stop, they are referred to as pipeline inventory. Imagine it is a long pipeline that is connecting one stop to the next. Pipeline inventory can take on different shapes; the component might be coming from a supplier to the manufacturer, or it may be leaving the manufacturer and on its way to the retailer.
Inventory can get stuck or delayed along the pipeline, especially when components are coming from overseas suppliers or the final product is being exported to a different country. These processes can take a long time, and it may be several weeks or several months before components reach their next destination. Finally, when the retailer receives the end-product for the customer, the inventory is their responsibility.
What is decoupling inventory?
One of the major reasons for holding inventory is when a production line experiences a slowdown or something that halts factory line production. In the factory, decoupling inventory is comprised of inventory stock that is set aside. The primary reason it’s set aside is in case something gets in the way and causes problems along the production line. Sometimes different parts of the production line are not synchronised. Therefore, if one area of the production line is more efficient or works faster than a different section, it can delay overall production.
Decoupling inventory is a solution to keep production moving even when there are bumps along the way. There are a variety of issues that can arise that can change the speed of production, leaving one component piling up and another component lagging. Decoupling inventory can help bridge this gap and serve as an internal buffer to keep things moving on the production line.
Long story short
The main difference between pipeline and decoupling inventory is that pipeline inventory is, in fact, a distinct type of inventory, where decoupling inventory is essentially a management solution to inventory in the factory.