What Is Pipeline Inventory And How To Manage It Effectively
Inventory. It’s in your warehouses, 3PL providers or fulfillment centers. It’s inventory you’ve already bought that is waiting to be sent to customers.
What you might not think about is the inventory that you don’t have yet.
In this article, we’ll discuss what pipeline inventory is, the common challenges associated with these systems and the solutions to managing your pipeline inventory.
What Is Pipeline Inventory?
Pipeline inventory refers to stock that is currently in transit between locations and has not yet been purchased by the consumer. Pipeline inventory, also called pipeline stock, is important to consider as it helps build a picture of how much of your assets are tied up in stock.
Once a product is purchased by your business, it is considered your inventory, even if you don’t physically have the inventory yet.
What Is A Pipeline Supply Chain?
Pipeline supply chain refers to the process that materials for your products go through before they are used for manufacturing. When there are few materials, it means the less complex the pipeline supply chain. But when there are more materials that are needed to create a product, the more complex the supply chain becomes. Because of the manufacturing component, it’s likely that most businesses will have at least some pipeline inventory.
What Is Decoupling Inventory?
Decoupling inventory is inventory that is set aside to mitigate slow production and/or a stop in production. It’s a way to continue fulfilling orders from customers when there are problems and challenges in production of a product. Decoupling inventory is a form of safety stock.
The Difference Between Cycle Inventory And Pipeline Inventory
Cycle inventory is the amount of inventory that a business has on-hand to meet its normal demand for products. Pipeline inventory is the inventory that is on its way from the supplier to a warehouse or physical store.
How Can You Keep Track Of Your Pipeline Inventory?
You should track where inventory is within the supply chain. This helps you understand where inventory currently is and when you can expect to receive it.
One way to do this is to use spreadsheets to track when and how much inventory was ordered from each of your suppliers. You could also use the same or a similar spreadsheet to track expected delivery dates and lead times for this inventory. However this manual method can be time consuming depending on the number of orders you have to track.
Another way to keep track of pipeline inventory is with automated inventory management software that keeps track of all of your inventory - including the inventory in transit from your supplier to a warehouse location without you having to manually track every supplier order coming in. Because it can take days, weeks or months for the inventory to get to you, leveraging an automated system for pipeline inventory tracking can help you understand when you can expect orders to actually arrive.
Most Common Challenges Associated With Maintaining A Pipeline Inventory System
Managing inventory from multiple suppliers
When maintaining pipeline inventory, you likely have multiple suppliers to manage and that number can keep growing especially as your own business grows. It’s not easy to view, or maintain, all supplier information — such as lead time and minimum order levels for purchase orders — in a manual system like spreadsheets or documents.
A main challenge with maintaining pipeline inventory is the risk of human error, especially as your business grows.
Manually updating where your inventory is in transit from each of your suppliers is a timely and error prone process. Continuously updating spreadsheets to manage pipeline inventory can cause problems such as inaccurate data or data silos with key decision makers out of the loop. And in addition, when managing all other parts of your business such as orders and inventory in warehouses, processes can get complicated fast and risk even more human error.
Knowing how much money is tied up in inventory
Depending on your supplier lead times, it’s easy to forget about inventory in your pipeline that was placed months ago and therefore forget the cash you have dedicated to that inventory. This is a common challenge among ecommerce businesses to know exactly how much cash is held in pipeline inventory.
It’s an important thing to know so you can accurately reflect it on your balance sheet and for accounting purposes.
As we’ve seen in the past few years, shipping challenges for your suppliers can come up at any time. When this happens, you can be looking at unusually long lead times, leading to out of stock items for more time than you anticipated.
Best Practices For Managing Your Pipeline Inventory Efficiently
Implement A Real-Time Inventory Management System
An inventory management system shows retailers real-time data at all stages of the supply chain process, including data you need about pipeline inventory — such as where the inventory is, how much money is in pipeline inventory and any delays in shipping.
These systems also help you automatically generate purchase orders from suppliers when your inventory levels get low across sales channels. Easily accessible and actionable pipeline inventory data allows you to quickly adjust to challenges to keep your business humming.
Track Where Inventory is in The Supply Chain
With an automated inventory management system, you can track inventory levels across all warehouse locations and know exactly where inventory is in the supply chain.
For example, let’s say you ordered inventory recently from one of your suppliers. With an automated system, you’ll know exactly how much and what stock you’ve requested from that supplier.
This avoids the risk of human error and saves countless hours going in and out spreadsheets to try to track where your inventory is after orders are placed.
When there are shipping challenges during the transit of pipeline inventory, make sure to have a contingency plan in place. One way to mitigate shipping risks is to have a diverse range of suppliers in case one supplier can’t meet your order demand in the right amount of time.
Consider Having Safety Stock
It’s a good idea to have safety stock on hand in case of supplier delays and variability in lead times. Safety stock is having more extra stock than you need to meet customer demand.
Why have safety stock? With ongoing challenges in supply chain operations, maintaining a level safety stock mitigates the risk of stock outs which lead to loss sales opportunities and future recurring revenue.
The amount of safety stock you need depends on how you operate your business. You can base safety stock levels off of a percentage of cycle stock levels. Often the amount of safety stock also involves how much buffer or wiggle room a retailer is comfortable with carrying.
Read more for how to calculate safety stock and further inventory management techniques.
Implement Third-Party Integrations
A good inventory management system will have the integrations you need to manage your pipeline inventory in addition to all other inventory cycles of your business. You’ll be able to integrate across sales channels like Amazon, Walmart, Shopify and social channels like TikTok. You can also add channels where your target customer base is already shopping.
This level of connectivity gives you insight into when you need to replenish your inventory from suppliers so you can avoid stock outs and underselling on inventory.
Pipeline Inventory Requires Inventory Forecasting
You won’t know how much inventory you need to order from suppliers until you forecast it. Pipeline inventory needs on-the-mark forecasting.
Instead of making educated guesses on how much inventory you need or calculating it manually, you can accurately forecast product demand with real-time data. This is where the power of an automated inventory management system with stock forecasting comes into play. No more need to manually forecast how much inventory you need and when you need to order it from suppliers.
Calculating Pipeline Inventory
You’ll want to know how much of your company’s inventory is in the pipeline to stay on top of it. Calculating pipeline inventory is beneficial so that you can understand how much of your money is in pipeline inventory. There is a simple formula to calculate this.
The Pipeline Inventory Formula
The formula for pipeline inventory:
Pipeline inventory = Lead time X Demand rate
This formula is a good way to know how much pipeline inventory you have, but that’s all it tells you. On the other hand, a formula to know how much inventory to actually order to minimize any costs with logistics and holding inventory is the Economic Order Quantity (EOQ) formula. You’ll need to know both when managing ecommerce inventory.
Manage Pipeline Inventory with Linnworks Automated Inventory Management
Pipeline inventory is something you may not think about as much as the inventory you have in warehouses, fulfillment centers, 3PLs or stores. But it’s just as important.
For growing businesses, knowing how to manage pipeline inventory is an essential part of running a successful business. We are well into the effortless economy, where convenience is commonplace and customers shop more and more on multiple sales channels, where they already spend their time. This makes managing all stages of inventory, including pipeline inventory more complicated but more fruitful if done right.
With an inventory management system like Linnworks, you can easily manage your pipeline inventory alongside all other aspects of inventory and order management.
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