What Is Pipeline Inventory & Why Is It Important?

Allison Champion
4 min read
December 16, 2021
Modified: October 24, 2022

There are several different terms when referencing inventory and differentiating the stage it’s in. To start, what is pipeline inventory? Pipeline inventory, also known as transit inventory, refers to the items “in the pipeline,” often coming from multiple locations and suppliers on their way to a retailer’s warehouse or fulfillment center for storage and shipment.

It’s common for pipeline inventory to be used interchangeably with stock decoupling. Both are used as part of an inventory management and supply chain management strategy. However, pipeline inventory indicates the items have already been paid for and are on their way, in transit via plane, train, or automobile. Until payment is submitted, they remain part of the shipper/supplier inventory, and a retailer can’t account for it yet.

Having decoupled inventory refers to setting aside extra work-in-progress items for certain stages of production. In the case of a low inventory stock levels or a breakdown in the supply chain, it doesn’t completely derail operations or impact fulfillment logistics. Both are important to consider as parts of a full inventory management strategy.

Calculating Pipeline Inventory

To calculate pipeline inventory cost, multiply product cost by holding rate by (demand/lead time). For example, if the lead time for a particular item is three weeks, and the shipment order is 50 units every week, the pipeline inventory equals 150 units. Though lead times can be forecasted, unforeseen events can cause delays, which means purchased items could be part of pipeline inventory for days, if not weeks. 

Though the retailer has technical ownership of the goods, the inventory is unavailable to sell to customers as long as it’s tied up. By optimizing pipeline inventory management with Flowspace, businesses benefit from predictive stock alerts, accurate inventory forecasting, network optimization, and real-time metrics to keep track of how much is tied up in the pipeline. It also allows them to see when they can expect shipments to arrive and be ready for customer purchase.

Optimizing Inventory Management

Inventory management can quickly become overwhelming if there’s not a system in place to keep track of inventory items that have been ordered, shipped, and sold. By using a real-time inventory management system such as Flowspace, it gives business operators oversight into important data such as:

  • Status of shipments in the pipeline
  • Shipments already delivered to the warehouse
  • Amount of inventory for safety stock

When a system doesn’t track inventory in real-time, it becomes a guessing game, and inventory and sales become lost. This shows the importance of safety stock in inventory management and having an effective inventory management system that centralizes real-time insights from all channels and marketplaces into one place. 

It streamlines the process and alerts retailers when there are potential delays in the supply chain and how much inventory they need to meet spikes in the demand rate. Having an optimized inventory management system will also drive businesses to make smarter inventory and allocation decisions, optimize last mile logistics, and determine better ways for how to overcome supply chain disruptions.

When it comes to inventory control and supply chain management, pipeline stock is crucial. Miscalculating EOQ or how much is needed or not knowing when the items will arrive affects a business’ bottom line and can be difficult to recalibrate. Add in supplier delays and not knowing where inventory is tied up becomes a complicated problem difficult to untangle. Real-time insights and tracking metrics allow retailers to stay flexible and make business decisions based on changes in the market.

The data also guides business strategy based on which item is selling best and highlights the inventory items that may not be performing as well. It saves costs and moves stock faster when the right amount of inventory is available based on the predicted demand. A platform like Flowspace helps you stay ahead of low inventory and provides visibility at all stages of fulfillment. It allows you to access data and unlock insights to coordinate orders from every channel and optimize your entire supply chain. 

Having extra inventory stock available, whether through pipeline inventory or safety stock, allows businesses to plan for delays in the supply chain and keep operations going even when there are production challenges or backlogs. Identifying these metrics and regulating the behind-the-scenes coordination are what allow for a seamless customer experience. To ensure in-stock, on-time delivery on a consistent basis, it’s important to know what’s in the pipeline. Customers expect this level of service and are quick to look elsewhere when they don’t receive it.

At Flowspace, we help companies reach their sales targets by streamlining the fulfillment process. Learn more about how our solutions can be tailored to you. Get in touch today.

Written By:

flowspace author Allison Champion

Allison Champion

Allison Champion leads marketing communication at Flowspace, where she works to develop content that addresses the unique challenges facing modern brands in omnichannel eCommerce. She has more than a decade of experience in content development and marketing.