Pipeline inventory, also known as pipeline stock is used to refer to those goods that have left firms warehouse but are still in company's distribution chain as they are yet to be bought by ultimate consumers. This concept is similar to work in progress inventory where the product is still under production whereas in pipeline inventory the finished good is still under the process of delivery.
The inventory with Amazon which is still to be delivered but has left their warehouse can be considered as Pipeline inventory.
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The Pipeline inventory can be calculated by knowing the demand rate and the lead time. The demand rate is how much inventory is ordered in a particular time e.g. 1000 milk cartons in a week.
The lead time is the time difference between a company makes the good and the point in time it will take to deliver. Hence the,
Pipeline Inventory=Demand rate x Lead Time
Let us imagine a scenario in which a customer has ordered a phone from a company on cash on delivery payment term. The phone has been packaged and sent through the logistics partner. The phone has left the inventory base or warehouse but it has still not brought in money or has not reached the end customer as of now. This phone is an example of pipeline inventory.
Hence, this concludes the definition of Pipeline inventory along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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