Pipeline Inventory: What It Is, Benefits and How to Calculate It

In the vibrant world of fashion, the term ‘pipeline inventory’ might not be as glamorous as the latest runway trends, but its impact on the bottom line is undeniable. Mastering the flow of inventory from production to customer is a crucial element for any apparel brand aiming to keep up with the fast-paced demands of the industry. With the right strategies, brands can achieve not just efficiency and cost reduction, but also skyrocket customer satisfaction to new heights.

In this post, we will explore the concept of pipeline inventory to enable you to gain a deeper understanding of it.

Understanding Pipeline Inventory

pipeline inventory

Also known as pipeline stock, pipeline inventory refers to the stock of goods that hasn’t yet reached its final destination – the items that are either being manufactured, shipped, or distributed. For fashion brands, this means everything from the fabric still on the loom to the latest collection en route to your flagship store.

Pipeline Inventory Example

Let’s say you sell winter jackets and hoodies via your Shopify store. Due to depleting on-hand stock, you order 100 units of stock from your supplier, which gets shipped the next day. Even though it will take 2 weeks to reach your doorstep, you update stock levels on your website to reflect the in-transit inventory.

Those hundred units of jackets are a pipeline inventory.

Why is Pipeline Inventory Important?

Managing pipeline inventory can be demanding. Nevertheless, you need to do it proactively to have a viable supply chain and to meet customer demand.

Other reasons why tracking pipeline inventory is important are as follows:

Visibility and Control: Understanding your pipeline inventory gives you a bird’s eye view of your supply chain, offering insights into potential bottlenecks, inefficiencies, or opportunities for optimization. With a clear picture of your inventory at every stage, you can make informed decisions to streamline processes, reduce costs, and improve delivery times.

Demand Forecasting and Planning: By tracking the flow of goods through the pipeline, brands can better forecast demand and adjust their production schedules accordingly. This reduces the risk of overproduction and underproduction, ensuring that the right products are available at the right time, which is especially critical in an industry driven by seasonal trends and fast fashion cycles.

Financial Health: Pipeline inventory directly impacts a brand’s cash flow and working capital. Goods in the pipeline represent tied-up capital that cannot generate revenue until sold. Efficient pipeline inventory management helps optimize cash flow by minimizing the time goods spend in transit or in production, thus speeding up the turnover rate and reducing holding costs.

Challenges in Managing Pipeline Inventory

The global nature of the fashion industry, with its complex network of suppliers, manufacturers, and distributors spread across different continents, adds layers of complexity to pipeline inventory management. Fashion brands must navigate challenges such as:

1. Supply Chain Volatility

The global nature of the fashion industry’s supply chain introduces a high level of volatility. Disruptions can occur due to a variety of factors, including geopolitical tensions, trade disputes, natural disasters, and pandemics like COVID-19. These events can lead to unexpected delays, increased costs, and the inability to meet consumer demand on time.

For fashion brands, this means constantly monitoring past inventory performance trends and being on alert, ready to pivot strategies at a moment’s notice.

2. Seasonality and Trend Forecasting

Fashion thrives on change, with seasons dictating not just the type of clothing sold but also influencing trends and consumer desires. Managing pipeline inventory in such a dynamic environment requires accurate forecasting and a deep understanding of market trends. However, predicting fashion trends can be notoriously difficult, leading to overproduction of unsold goods or shortages of popular items, both of which can significantly impact a brand’s bottom line.

3. Lead Time Management

From design conception to product hitting the shelves, the lead times in the fashion industry can be extensive. Managing these lead times effectively is crucial to ensure that products are available when demand is highest. However, the extended and variable nature of these lead times, often due to complex manufacturing processes or reliance on overseas suppliers, poses a significant challenge to maintaining an efficient pipeline inventory.

4. Balancing Cost with Agility

In an effort to reduce costs, fashion brands often look to produce goods in regions with lower labor and production costs. While this strategy can lead to significant savings, it also increases the complexity of the supply chain and can reduce a brand’s agility. Navigating this balance—maintaining low production costs while ensuring the ability to respond quickly to market changes—is a constant challenge in pipeline inventory management.

5. Sustainability Concerns

The modern consumer is increasingly concerned with sustainability, pushing fashion brands to reconsider their supply chain’s environmental impact. Managing pipeline inventory with an eye towards sustainability involves ensuring ethical sourcing, reducing waste, and minimizing the carbon footprint of transportation and production. These considerations add another layer of complexity to inventory management but are essential for brands looking to appeal to eco-conscious consumers.

Understanding Decoupling Inventory

Also referred to as safety stock, decoupling inventory refers to a strategic stockpile of goods or materials placed at various points in the supply chain to act as a buffer against fluctuations in demand or supply. These reserves allow different sections of the production process to operate independently, minimizing the risk of a complete halt in operations due to unforeseen delays or shortages upstream or downstream.

How to Calculate Pipeline Inventory

How much pipeline inventory should you keep to avoid potential overstocking problems? The only way to figure that out is to accurately calculate pipeline inventory.

Pipeline inventory is calculated by multiplying lead time by demand rate. That is:

Pipeline inventory = Lead time x demand rate

For example, if you sell 50 units of plaid dresses a week at $70 each and it takes 2 weeks for your supplier to deliver, your pipeline inventory will come out at 50 x 70 x 2 = $7,000

Best Practices for Managing Pipeline Inventory

how to manage pipeline inventory

1. Implement Real-time Inventory Tracking

Utilize advanced inventory management systems that offer real-time tracking capabilities. Solutions like Uphance provide visibility across the entire supply chain, from raw materials to finished goods awaiting sale. This enables brands to react quickly to any disruptions or changes in demand.

Ensure all data related to pipeline inventory is centralized and accessible. Real-time updates can help identify potential issues early, allowing for swift adjustments to production schedules, shipping methods, or inventory distribution plans.

2. Strengthen Supplier Relationships

Establish open and continuous communication with suppliers and manufacturers. Understanding their capabilities, constraints, and lead times is vital for anticipating and mitigating potential delays in your pipeline.

Engage in collaborative planning with suppliers to align production schedules with forecasted demand. This cooperative approach can help ensure a smoother flow of goods through the pipeline.

3. Optimize Safety Stock Levels

Determine the optimal level of safety stock by analyzing historical sales data, lead times, and the variability in demand and supply. Safety stock acts as a buffer against unforeseen delays but holding too much can tie up valuable resources.

4. Enhance Demand Forecasting

Utilize data analytics tools to improve the accuracy of demand forecasting. Analyzing sales trends, market research, and consumer behavior patterns can provide insights into future demand, helping to plan pipeline inventory more effectively.

5. Implement Lean Inventory Management

Use lean principles to identify areas of waste within your pipeline inventory, such as overproduction, excess transportation, or unnecessary handling.

Work on streamlining production and logistics processes to minimize lead times and reduce the amount of inventory tied up in the pipeline. This can involve reevaluating supplier locations, production methods, or distribution strategies.

6. Plan for Contingencies

Conduct regular risk assessments to identify potential vulnerabilities in your supply chain that could impact pipeline inventory, such as reliance on a single supplier or geopolitical risks in key regions.

Have contingency plans in place for critical supply chain disruptions. This could include identifying alternative suppliers, diversifying production locations, or exploring different transportation routes.

Conclusion

Effective pipeline inventory management might not get your brand on the cover of Vogue, but it will certainly earn you the respect of your customers and the envy of your competitors. Embrace the tools and strategies that can streamline your inventory flow and watch your fashion business flourish.

Table of Contents