Inventory Types

I recently had a discussion with someone around the types and specifically functions of inventory as outlined by APICS. For CLTD, APICS references 7 functions:

  • Cycle Stock
  • Pipeline Stock
  • Anticipation Inventory
  • Hedge
  • Safety Stock
  • Buffer
  • Decoupling

Cycle Stock: The function relates to the decision to manufacture a quantity of product (like in a lot/batch size). The driver is purchasing or producing in batches. The purpose is to reduce set-up costs and avoid the loss of process capacity.

The APICS Dictionary, 15th edition, defines Cycle Stock as:

‘…stock depleting gradually as customer orders are received and is replenished cyclically when supplier orders are received.’

Pipeline Stock: The function is rather null. The driver is getting product delivered from point A or point B. Think about this as the amount if inventory ‘in transit’.

The APICS Dictionary, 15th edition, defines Pipeline Stock as:

‘Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points.’

Anticipation Inventory: The function is to support production and/or delivery constraints for product with high, expected fluctuation. The driver is insufficient capacity to support spikes in demand. For example building up stock supplies of barbecue grills in anticipation of the spring buying season.

The APICS Dictionary, 15th edition, defines Anticipation Inventory as:

‘Additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotions, seasonal fluctuations plant shutdowns and vacations.’

Hedge Inventory: The function is to manage costs of future inventory and/or create a competitive advantage. The driver is the advance acquisition of inventory to support the company’s business strategy.

The APICS Dictionary, 15th edition, defines Hedge Inventory as:

‘A form of inventory buildup to protect against some event that may not happen. Hedging involves speculation.’

Safety Stock: The function of safety stock is to protect against unforeseeable fluctuations in demand and/or supply. The driver is acquiring planned inventory to reduce the potential for stock-outs.

The APICS Dictionary, 15th edition, defines Hedge Inventory as:

‘A quantity of stock planned to be in inventory to protect against fluctuations in demand or supply.’

Buffer: The function of buffering is to protect supply chain nodes from variances in supply and demand. The driver is building up inventory to optimize or plan around a constraint. For example, to keep a machine running, the company may create a buffer of input inventory for the process.

The APICS Dictionary, 15th edition, defines Buffer as:

‘A quantity of inventory awaiting further processing.’

Decoupling: The function of decoupling is to separate supply from demand to help optimize processes. The driver is protecting against demand uncertainty and minimize stock outs. Decoupling is a form of buffering.

The APICS Dictionary, 15th edition, defines Decoupling as:

‘Creating independence between supply and use of material. Commonly uses buffer inventory between operations so fluctuations in the production rate of the supplying operation do not constrain use rates of the next operation’

Inventory Chart

I would not necessarily put these terms in my top priority list for CLTD studies but they are good to know in general and certainly more important if you are pursuing CPIM and/or CSCP.