{"id":2138,"date":"2021-10-18T11:00:39","date_gmt":"2021-10-18T11:00:39","guid":{"rendered":"https:\/\/www.shipbob.com\/au\/blog\/pipeline-inventory\/"},"modified":"2025-08-08T03:57:30","modified_gmt":"2025-08-08T03:57:30","slug":"pipeline-inventory","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/au\/blog\/pipeline-inventory\/","title":{"rendered":"What is Pipeline Inventory? Definition + Formula to Drive Growth"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is pipeline inventory?<\/a><\/p>\n\n\n\n

How pipeline inventory works<\/a><\/p>\n\n\n\n

Why understanding pipeline inventory is important to your business<\/a><\/p>\n\n\n\n

Pipeline inventory formula<\/a><\/p>\n\n\n\n

Decoupling stock to reduce stockouts<\/a><\/p>\n\n\n\n

Improve your inventory management with ShipBob<\/a><\/p>\n\n\n\n

Pipeline inventory FAQs<\/a><\/p>\n\n\n\n

<\/a><\/p>\n<\/div>\n\n\n\n

The phrase \u201cin the pipeline\u201d implies something is coming soon. In the context of inventory management, this can refer to additional product lines, new scents or colours, and even just stock replenishment.<\/p>\n\n\n\n

For many brands, it\u2019s easy to overlook the first-mile delivery<\/a> and drayage<\/a> process (when purchased inventory is in transit), but it\u2019s an important part of ecommerce operations<\/a> as it ensures new inventory arrives at the right place at the right time.<\/p>\n\n\n\n

Known as pipeline inventory, inventory in transit should be tracked alongside physical inventory on hand to provide a holistic view of how much inventory is tied up in capital versus how much inventory is readily available to sell.<\/p>\n\n\n\n

In this article, we will focus on what pipeline inventory is, why it\u2019s essential to managing inventory, and how to calculate and optimise it.<\/p>\n\n\n\n

What is pipeline inventory?<\/h2>\n\n\n\n

Pipeline inventory refers to the value of finished goods<\/a> ordered from a supplier or manufacturer that is currently in transit and has yet to reach a physical store or distribution centre<\/a>. <\/span><\/p>\n\n\n\n

How pipeline inventory works<\/h2>\n\n\n\n

Whether or not a brand has received their new products, once they pay for the inventory, these units are no longer owned by the supplier and are considered an asset owned by the buyer.<\/span><\/p>\n\n\n\n

In some cases, pipeline inventory refers to raw materials purchased from a business used to create finished products (also called production inventory<\/a>). When it\u2019s received, it\u2019s labelled as \u201cwork-in-process\u201d inventory<\/a> and considered an asset on a company\u2019s balance sheet if products sold to the end user are designed and produced in-house.<\/p>\n\n\n\n

Most ecommerce brands will always have some volume of pipeline inventory coming in if their products are being turned over and sold. As part of their inventory replenishment<\/a> process, brands will look at inventory performance, production lead lines<\/a>, and warehouse receiving<\/a> times to order inventory according to a specific timeline, so it\u2019s more likely to arrive, be accounted for, and be ready for fulfilment when needed.\u00a0\u00a0<\/span><\/p>\n\n\n\n

Of course, the larger and more complex an ecommerce supply chain<\/a> is, the more pipeline inventory there is in terms of order volume and total SKUs. It also can become more complex to track when there are multiple sales and distribution channels involved.<\/p>\n\n\n\n

Even if it\u2019s on the buyer\u2019s books, if any issues arise during transit (slowdowns, shipping damages, or misplacement of goods), you need to have a strong contingency plan in place. This could mean planning for different crisis scenarios or decoupling inventory (more on this later). <\/span><\/p>\n\n\n\n

Why understanding pipeline inventory is important to your business<\/h2>\n\n\n\n

Knowing how much pipeline inventory is incoming helps you plan better for customer demand. It also provides a holistic view of how much inventory is in currently in each stage of the supply chain. <\/span><\/p>\n\n\n\n

Calculating and tracking pipeline inventory value can improve your inventory management<\/a> process and reduce common issues, such as accumulating too much deadstock<\/a>. For instance, if you\u2019re only thinking about how much inventory you need based on what\u2019s on hand, you might overthink the fact that you already have inventory in transit. <\/span><\/p>\n\n\n\n

Ordering inventory from overseas can also make the process more complex due to import duties<\/a>, taxes, and longer delivery times (on top of typically long transit times, the pandemic has led to severe port congestion, significantly extending timelines).<\/p>\n\n\n\n

How much pipeline inventory you should have in transit depends on past inventory performance trends and activity. For example, your pipeline inventory value will more likely increase during the holidays and peak shipping season<\/a>.<\/span><\/p>\n\n\n\n

If you know how long it usually takes for new inventory to arrive, it would wise to adjust your restock value and delivery timelines to account for courier delays. <\/span><\/p>\n\n\n\n

Pipeline inventory formula<\/h2>\n\n\n\n

Calculating pipeline inventory uses demand forecasting<\/a> and average production lead times to determine the value of inventory that should be in transit.<\/p>\n\n\n\n

Once you have the information needed, calculating pipeline inventory is simple: <\/span><\/p>\n\n\n\n

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Lead Time x Demand Rate = Pipeline Inventory<\/strong><\/p>\n<\/blockquote>\n\n\n\n

In the equation, lead time refers to how long it takes for inventory to be received from a supplier (which has drastically increased lately for many brands shipping freight overseas). Demand rate refers to the average number of SKUs<\/a> sold between each replenishment cycle.\u00a0<\/span><\/p>\n\n\n\n

Calculation of pipeline inventory example:<\/h3>\n\n\n\n

Assume that a dog food business sells 100 units of dog food at $30 a week. Their supplier takes 2 weeks to deliver the goods. So their pipeline inventory amount would be: <\/span><\/p>\n\n\n\n

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2 x $3,000 = $6,000 <\/span><\/p>\n<\/blockquote>\n\n\n\n

This means that their supply chain should have about $6,000 worth of goods in transit from the supplier to meet demand. <\/span><\/p>\n\n\n\n

This is important to know for inventory accounting<\/a> purposes and calculating inventory valuation<\/a> by taking into account all inventory purchased, rather than focusing solely on physical inventory<\/a> on hand.<\/p>\n\n\n\n

Decoupling stock to reduce stockouts<\/h2>\n\n\n\n

Loss or delays in inventory purchases due to production closures, shipping delays, other other events can impact the rest of your supply chain, from order fulfilment<\/a> to shipping. <\/span><\/p>\n\n\n\n

Therefore, it can lead to lower customer satisfaction due to stockouts<\/a>, backorders<\/a>, and sometimes split shipments<\/a> if you can\u2019t meet demand in a timely manner. Even if a customer order can still be fulfilled eventually, any delays in shipping can impact the customer experience.<\/span><\/p>\n\n\n\n

There are plenty of ways to reduce risk in inventory planning<\/a> and build a more resilient supply chain<\/a>. One of the most common ways is to store additional stock. <\/span><\/p>\n\n\n\n

Also known as \u201csafety stock<\/a>\u201d or \u201cbuffer inventory<\/a>,\u201d decoupling stock refers to inventory set<\/span> aside exclusively for supply chain errors, delays, or unexpected events that can cause a reduction in stock availability<\/a>.<\/span><\/p>\n\n\n\n

Decoupling stock is also helpful if, for some reason, there is a sudden influx in demand. But no matter where the issue arises, having decoupled stock reduces risk.<\/p>\n\n\n\n

However, there are few things to keep in mind before you decide how much inventory to set aside.<\/p>\n\n\n\n

For one, you have to consider carrying costs<\/a> and the amount of storage space you have. Warehousing<\/a> fees can rise fast if you\u2019re not careful, so be sure to calculate how much you can afford in storage.<\/p>\n\n\n\n

A great tool is the Economic Order Quantity (EOQ) formula<\/a>, which can be used to calculate the optimal amount of inventory to purchase in a given time period based on both COGS<\/a> and customer demand. <\/span>The formula for EOQ is:<\/p>\n\n\n\n

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EOQ = square root of: [2SD] \/ H<\/strong><\/p>\n\n\n\n

S<\/strong> = Setup costs (per order, generally including shipping and handling<\/a>)<\/p>\n\n\n\n

D<\/strong> = Demand rate (quantity sold per year)<\/p>\n\n\n\n

H<\/strong> = Holding costs<\/a> (per year, per unit)<\/p>\n<\/blockquote>\n\n\n\n

Calculating EOQ can optimise your pipeline inventory value and determine how much decoupled inventory you can afford. <\/span><\/p>\n\n\n\n

Improve your inventory management with ShipBob<\/h2>\n\n\n\n

Inventory is the heart of a fast-growing online brand. Without it, you can\u2019t meet demand. But with too much of it, you can\u2019t reach revenue goals. <\/span><\/p>\n\n\n\n

So how does a brand optimise inventory<\/a> to meet the needs of both their business and their customers?<\/span><\/p>\n\n\n\n

ShipBob offer premium fulfilment technology<\/a>, a global fulfilment<\/a> network, expertise, and best-in-class customer support to help direct-to-consumer brands<\/a> better manager their inventory management by saving time and money, while also gaining transparency and visibility<\/a> into their supply chain.  <\/span><\/p>\n\n\n\n

Here is an overview of how ShipBob can help you improve your inventory management process. <\/span><\/p>\n\n\n\n

Strategically distribute inventory<\/h3>\n\n\n\n

ShipBob\u2019s native technology can help you strategically split inventory<\/a> across our network of fulfilment centres based on where your customers are located. <\/span><\/p>\n\n\n\n

Allocating product<\/a> across locations is a great way to reduce shipping costs<\/a> by lowering the number of shipping zones<\/a> a shipment must travel through to reach its destination (not to mention reducing transit times as well).<\/p>\n\n\n\n

Optimised inventory allocation<\/a> can be hard to determine without the right tools, data, and inventory analytics<\/a>. With ShipBob, you gain access to real-time inventory management<\/a> insights that showcase:<\/p>\n\n\n\n