Inventory is the stock a business holds: things it has bought or made but not yet sold. In a perfect world you'd hold none, and everything would arrive just as it's needed. In the real world stock is the buffer that lets each step run at its own pace.
Stock is usually grouped by where it is in the process. Raw materials are bought in but not yet used: flour, steel, fabric. Work in progress (WIP) is partly made: a car body waiting for its doors. Finished goods are ready to sell. A fourth kind, MRO (maintenance, repair and operations), covers the spare parts, tools and supplies that keep the place running but don't go into the product.
It's also grouped by the job it does. Cycle stock is the normal stock that goes up when an order arrives and down as it's used. Safety stock is the extra you keep in case demand is higher or a delivery is later than planned. Pipeline (or in-transit) stock is already bought and on its way. Seasonal stock is built up ahead of a busy time, like toys before December.
A shop that orders 400 units at a time and sells steadily will have 400 just after a delivery and close to none just before the next one. On average it holds about half: 200 units of cycle stock, plus whatever safety stock it keeps.
Every unit of stock is cash that can't be spent on anything else. So the question is never "how do we get more stock" but "what's the least stock that still gives customers the service they need?" The rest of this course is about answering that.
At a bicycle factory, frames that are welded but not yet painted are…
| Raw materials | Bought in, not yet used. |
|---|---|
| WIP | Work in progress: partly made. |
| Finished goods | Ready to sell. |
| MRO | Maintenance, repair and operations supplies. |
| Cycle stock | Normal stock, averaging about half an order. |
| Safety stock | A buffer for surprises. |
| Pipeline stock | Ordered and on its way. |