Decoupling Inventory vs Pipeline Inventory in the Supply Chain

Boxes fill various shelves.

Global supply chains are complex processes that have various differences depending on an array of factors. There are various touchpoints and stages to production that are specific to an organization (i.e. the number of stakeholders, the various stages of sourcing, production, and fulfillment). With so many touchpoints associated with production processes, it can become hard to manage or monitor these processes. In some cases, it can aid management — as well as general employees — to separate terms within the global supply chain.

What Is Decoupling Inventory?

Decoupling inventory — also known as decoupling stock — refers to the process of separating inventory within a manufacturing procedure in order to mitigate one stage of manufacturing from slowing down another stage of manufacturing. For example, an automobile manufacturer combines an array of separate parts to create a whole product. The organization decouples its inventory so that one facet of the assembly — such as tire assembly — does not slow down another part of the process — such as seat assembly. However, things do not always go as planned — within both the supply and demand realms. Since issues arise when one part of production works at a different speed than another, decoupling inventory cushions a company’s inventory against potential issues within production.

DECOUPLING INVENTORY VS SAFETY STOCK

Decoupling inventory can, at times, be misinterpreted as safety stock since the two terms operate so closely together. However, these terms have different functions and achieve different specific aims.

Safety stock describes the amount of extra stock that is maintained in order to react to the uncertainties within the supply and demand spectrum. Similar to safety stock, decoupling inventory is also interested in establishing some sort of solution between product demand and supply. Nevertheless, decoupling inventory is focused more so on mitigating against increased internal demand while safety stock is used to alleviate increased external demand.

HOW DOES DECOUPLING WORK IN THE SUPPLY CHAIN?

Within the realm of the supply chain, decoupling works alongside the material flow pipeline as well as the informational flow pipeline. Without decoupling points, an error or downtime on the supplier’s end can have negative effects on customer demand.

Without decoupling points, a change in customer demand can also have a large negative effect on the suppliers if they are unable to meet the demand. By and large, decoupling works within the supply chain by putting an emphasis on preventing lost time or downtime in relation to production. One way to improve the facets that decoupling points emphasize is to utilize manufacturing automation to simplify the production process. Manufacturing automation has an array of tools that make production more efficient — even when organizations utilize multiple locations — through inclusions such as:

  • Order management
  • Parts tracking
  • Reporting
  • Outlined/Identified production stages
  • Shipping
  • Inventory management

What Is Pipeline Stock?

Pipeline stock — also known as pipeline inventory or transit stock — are the units that are produced that are in transit. By and large, pipeline stock refers to finished products that are ready to be distributed to consumers but have not reached their selling destination — wherever that may be (i.e. warehouse, brick and mortar facility, owners home, etc.). Pipeline stock gives insight into where an organization's assets are tied up in relation to possession versus transit. For example, if an organization buys products from a manufacturer that is far away, the stock is pipeline inventory until it reaches the buyer (even if it is in the process of being shipped). Since there are very few examples of products that require no transportation within production and distribution, pipeline stock is very important to consider.

WORK-IN-PROGRESS VS PIPELINE STOCK

Pipeline stock is commonly associated — as well as misconstrued — with the work-in-progress inventory. Work-in-progress inventory refers to an organization’s goods that are incomplete. Both are types of inventory that are concerned with facets of inventory production, but a work-in-progress inventory refers to the inventory that is still currently in production while pipeline stock is in reference to products that are outside of production phase but within the distribution phase.

HOW DOES PIPELINE STOCK WORK IN INVENTORY MANAGEMENT?

By creating an understanding of the products that are in transit, you can improve facets of inventory management. Forecasting refers to making informed predictions based on a variety of factors in relation to placing orders. If you are aware of where products are in transit, an organization can better forecast the order amount. Pipeline stock creates clarity as to where the product is within the production process.

Managing International Supply Chains

When you are managing international supply chains there is an array of variables that can change at a moment’s notice.

For example, if you are sourcing product parts from China, but China’s ports are closed off, after some amount of time, the organization’s production will come to a halt. This could mean those product parts are unavailable for an unknown amount of time, and your business must now find a new operation to source products through. All of this can cause quite a delay. When an organization is operating internationally and involves an array of variables, there is more room for error that can have impacts greater than a missed delivery.

By utilizing pipeline inventory, you can mitigate the inevitable barriers of production through an understanding of where your inventory is within production, as well as understanding the amount of downtime the organization can afford based on the decoupling inventory.

Another factor to simplify managing international supply chains is the use of manufacturing and inventory management software. When you use third-party manufacturing and inventory management software, you can more accurately track all the various facets of production so that if there is an issue, an organization can not only know where it is but can mitigate the problem. For example, if an organization orders parts from Australia, assembles the product in Oregon, then ships to individual sellers throughout the U.S. they can utilize asset tracking software to determine where in production that things are being held up, and come up with a solution accordingly.