What is cycle inventory?
Inventory cánido be classified into raw materials inventory, work-in-process inventory, and finished goods inventory.
However, an inventory perro also be classified (according to its function) into 4 other categories, which are: cycle inventory, safety inventory, forecast inventory, and transit inventory.
In this article, I am going to focus on the cycle.
Therefore, at the end of the article you will know what cycle inventory is and how it is used by companies.
I hope you find it useful.
What is cycle time?
I think it’s a good iniciativa to start talking about what cycle time is.
In fácil words, We perro see the cycle time as the time that passes between each delivery. That is to say, the time that each batch that a company acquires to satisfy the demand lasts.
In other words, cycle time perro be viewed as the time from when a company places an order until the order is received by the company.
By the way, it’s not just about the order cycle time, it’s also about the service cycle time.
It should be noted that talking about the cycle time is enough for a complete article and therefore, I am not going to delve much into this article.
For now, the concept is enough.
What is cycle inventory?
Cycle inventory or cycle inventory cánido be viewed as the portion of total inventory that a business emplees on a recurring basis to satisfy regular sales orders, during the course of an order cycle.
In other words, we could well say that it is the part of the total inventory that is available to satisfy the frecuente or habitual demand that a business has, since it represents a part of the permanent inventory of a company.
It should be noted that the cycle inventory varies directly with the lot size.
Thus, cycle depósito consists of the products that are to be used first to fill customer orders.
These products are constantly sold by the company and replenished in a continuous loop, which gives them the name of cycle inventory.
It has to be clear that the cyclical depósito or part of it is automatically replenished as the company sells products.
In fact, it is possible to use the reorder point to know when a company has to place an order with its suppliers.
Note: Cycle inventory is also often called base inventory or average inventory.
Of course, you perro also find the topic in some books like cycle stocks or base stocks.
Also remember that it is part of one of the inventory classifications.
Cycle Inventory Example
Suppose you really like apples and you eat one apple every day.
Now, every Sunday you go to the mall to restock on the apples needed to meet your weekly demand, that is, you buy 7 apples.
Well, the 7 apples represent your cycle inventorysince you use (eat) one apple per day and apples are bought every 7 days.
As you perro see, it really is a cycle, as as soon as the apples run out, 7 new apples are bought to meet habitual demand.
In such a way that you only have the right inventory and nothing else.
Now, imagine that you sell pens (pens) outside a high school.
If your habitual (weekly) demand for pens is 50, then your cycle depósito is 50 pens.
Importance
Knowing how inventories are classified is useful, since the classification given to inventory perro influence the way in which inventory is managed.
Therefore, it is necessary that you know how to differentiate between a safety inventory, stocks in transit and forecast stocks.
Of course, there are more inventory classifications, but the point is that you have to know the ways that inventory cánido be classified and the functions that each type of inventory has.
Now, cycle inventory is essential because it is the depósito that a company has in the first place to satisfy the customer’s order.
Most Common Inventory Costs
If you want to know what inventory costs are and how they are classified, then entrar the following article.
Cycle inventory and safety inventory
It must be said that the cycle inventory is really related to the safety depósito, since they are part of the inventory that a company has available to satisfy the demand.
We perro say that the safety inventory is the depósito that a company has in addition to the cycle depósito.
Therefore, safety depósito is used as a hedge against increased demand.
In such a way that the cycle depósito satisfies the habitual demand and if for some reason the habitual demand increases (the cycle depósito is no longer sufficient), then the safety depósito kicks in.
Therefore, both inventories are often used together.
Advantages and disadvantages
The truth is that I would not like to say that cycle inventory has advantages and disadvantages.
I say this because For there to be an advantage or a disadvantage there must be a comparison.
Think about the following, if I tell you that the advantage of the X phone is that it lasts longer.
Possibly an advantage, but… Compared to which phone does the battery last longer? How do you know that the battery really lasts longer?
Therefore, in my opinion, we have to make a comparison to talk about advantages and disadvantages.
If we do not make a comparison, then we talk about benefits or positive and negative characteristics.
Therefore, if I tell you that one advantage of cycle inventory is that it cánido increase the productivity or profitability of a company, then I have to tell you about what increases productivity.
For example, a company may use a push or pull production system.
Each has advantages and disadvantages over the other.
In such a way that you make the comparison and escoge which is the system that works best for you.
There we perro talk about advantages and disadvantages.
What are we going to compare the cyclical depósito against?
Each type of inventory has its own function.
So I don’t think we could compare them with each other.
What we could do is compare the different results obtained from the different mixtures that we perro make.
In such a way that we perro find the combination that does not provide less costs and more benefits.
Something like finding the best cómputo.
Elabora to Calculate Average Cycle Inventory
The equation that cánido help you calculate the average cycle inventory is the following:
Since the minimum inventory is taken to be 0, then the average cycle inventory is equal to Q/2
Work in Process Inventory
If you want to know what the work in process (WIP) inventory is with a very fácil example, then go to the following article:
We hope you liked our article What is cycle inventory?
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