Pipeline Inventory: A Strategic Asset for Efficient Supply Chain Management
July 10, 2023
Introduction
Companies are increasingly looking at their business as a pipeline, which controls the flow of materials from the source to the ultimate consumer. The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept, has been discussed for a long time explains very well the inventory cost analysis. However, it is showing up to be an analytical concept with the ability to overcome internal political barriers and contribute to a significant improvement in operational effectiveness and functional integration.
The simple idea requires managers to think about their supply, operations, and distribution operations as an integrated pipeline inventory. The idea is to look at how all of these activities work together in a single integrated system and evaluate that system’s performance using the three following dimensions:
- Cost- The total cost of processing and transporting materials from the source to the destination.
- Service issues include deliverability, in-stock performance, and delivery time.
- Velocity The time it takes to move products through the logistics pipeline.
Total pipeline inventory levels and pipeline inventory flexibility to adapt to market changes are directly linked to this performance factor.
The Pipeline inventory approach
The pipeline inventory method provides a mechanism for analyzing the effects of each function’s operating policies and for identifying inconsistencies and conflicts. For instance, this full-system view will quickly identify the cost, service, and velocity impacts of any poorly conceived practices. Examples of these practices include buyers’ tendency to order a lot of things, which leads to bloated inventories because they are judged only by the price of the product. Furthermore, it will give managers an effective way to determine the following:
- The impact on system inventory of long production runs and manufacturing lead times
- How marketing promotions operating costs and effective net margins are affected.
- The cost or savings are available from consolidating transportation.
- The cost of handling multiples through a multi-echelon warehouse network.
The logistics pipeline inventory concept has enabled companies to achieve functional integration, which is most encouraging. This easy-to-understand, sophisticated design explains the full performance impacts of all functional policies, whether it be manufacturing, marketing, finance, or distribution, in a way that is easy to understand. Pipeline inventory analysis also gives a solid reason to change narrow functional initiatives that don’t create value for the company. Lower costs, better service, and increased velocity from a pipeline-oriented approach are clear benefits, which create a case for action. Thus, the pipeline inventory idea, makes it possible to overcome internal political barriers and build an improved operating capability.
The Significance of Information Flow Pipeline Inventory in Supply Chain Management
Each supply chain has two fundamental flows: the material pipeline and the information pipeline. But the traditional decoupling point method focuses only on the material flow pipeline. However, order information distortion as it flows upstream is one of the main causes of the supply chain dynamic magnification. The writers have adapted the decoupling point technique, which is traditionally associated with material flow, to the information flow pipeline. Supply chain information circulation is not a new concept. Its formalization within the decoupling point concept is proposed here.
Supply chains have two distinct flow pipelines: the order information transfer pipeline, which goes from the sales point to the raw material supplier, and the product transfer pipeline, which goes from raw materials to the end consumer. Demand information activates production, so speed and accuracy of order data transfer are essential to enable good supply chain dynamics.
Many businesses have focused on material flow pipeline inventory improvement strategies. This is due to the fact that implementing a thorough supply chain management approach that is necessary to redesign the information flow pipeline inventory is much harder than making a shop floor redesign under our supervision and seeking improvement from immediate suppliers.
The marketplace interface dealing with the end customer has undistorted order information available for all supply chains. However, because the information decoupling point is traditionally at the marketplace-retailer position, in many supply chains, only the player closest to the end customer has the luxury of knowing the true demand. The question is how to strategically utilize this wealth of information to improve the dynamic performance of the supply chain.
When the information decoupling point is moved upstream, information distortion and waveform propagation, which are commonly seen in the real world, could be significantly reduced. This is due to the fact that unbiased market sales data could be added to supply chain member order decisions by moving the information decoupling point upstream.
From an individual company’s point of view and from the perspective of the entire supply chain, this would have a positive effect on the ordering and stock level dynamics.
Strategies for Decoupling Stock and Optimizing Supply Chain
- Tracking their position in the supply chain is the first step in managing pipeline and decoupled stock. Segmenting inventory is useless if you have to guess the actual levels of transit stock. You should know where they are during the manufacturing process and where they get to the retailer at each step. Major manufacturers and suppliers will provide logistics updates in real-time. Use real-time scanning technology from smart devices, stock-keeping units (SKUs), and barcodes. The majority of companies should find the implementation of these technologies simple.
- When you have an accurately tracked and accounted inventory, your company will have more time to deal with unforeseen delays in customs when imports from other countries arrive. During a manufacturing strike, small retailers may find safety stock useful. Retailers should have contingency plans in place to handle a variety of unforeseen interruptions.
- Consumer-ready products with consistent cycles can be achieved by coordinating lead times through decoupling stock. However, a company should have another contingency plan in place as well. Additionally, a considerable amount of stock simply cannot be decoupled for the majority of retailers.
- Third-party automation for inventory management is a good investment. Calculating your pipeline inventory is only the first step. Inventory management optimize, reordering and provide stock reports. Additionally, the majority of software will allow auto-replenishment to maintain a specified inventory quantity.
- Many platforms work with e-commerce tools to predict lead times and forecast sales. In this way, you are able to fulfil all future orders from your customers by adjusting pipeline stock on-the-fly and automatically. E-commerce retailers can use Brightpearl to optimize order fulfilment and storage, which results in faster processes and greater customer satisfaction.
Conclusion
The pipeline inventory concept is not entirely new in terms of substance—a similar framework, the total cost concept, has been discussed for a long time. However, it is showing up to be an analytical concept with the ability to overcome internal political barriers and contribute to a significant improvement in operational effectiveness and functional integration.
The pipeline inventory method provides a mechanism for analyzing the effects of each function’s operating policies and for identifying inconsistencies and conflicts. Pipeline inventory analysis also gives a solid reason to change narrow functional initiatives that don’t create value for the company. Lower costs, better service, and increased velocity from a pipeline-oriented approach are clear benefits, which create a case for action.
Sales professionals are greatly affected by the growth of information technology (IT), electronic commerce, and the integration of relationships between different business sectors. The marketplace interface dealing with the end customer has undistorted order information available for all supply chains. However, because the information decoupling point is traditionally at the marketplace-retailer position, in many supply chains, only the player closest to the end customer has the luxury of knowing the true demand.
