What is cycle stock?
Cycle stock is the planned inventory quantity intended for consumption within a specified timeframe. Typically, this timeframe is delineated as the interval between orders for raw materials or the duration between production cycles for work-in-progress and finished goods.
Cycle stock is a pivotal inventory management component. It represents the portion of inventory designated for fulfilling sales orders within a specific timeframe. This approach enables businesses to align stock levels with regular product demand efficiently.
In accounting systems, cycle stock is crucial for meeting standard product demand. Precision in determining the right cycle stock is vital for optimizing inventory efficiency. Unexpected demand surges or forecasting errors may necessitate tapping into reserve stock to avoid stockouts. However, excess SKUs can impact cash flow and warehousing costs.
To calculate ideal inventory levels, organizations need to continuously analyze demand. Software solutions like PLC Automation that consider historical demand, seasonality, stock turnover, and product life cycles can enhance inventory management.
Cycle stock, which includes efficient manufacturing machines like a pallet tipper, serves as a universal metric utilized in warehouses for inventory management and in production facilities to calculate product demand for meeting manufacturing orders.
Inventory Management: Safety Stock vs. Cycle Stock
Cycle stock pertains to the regular inventory used to meet standard orders, while safety stock acts as a backup inventory for unexpected surges in demand. Safety stock’s primary role is to safeguard a company’s logistics operations against unforeseen fluctuations in buying patterns, production hiccups, and supply chain disruptions.
In simpler terms, safety stock is there to handle sudden increases in product demand within a specific timeframe. For instance, if a business encounters an unusually high volume of requests for a particular item, they’ll first fulfill orders from their cycle stock. Once that’s depleted, they’ll turn to safety stock. Simultaneously, the manager will reevaluate the optimal inventory level for this new demand, considering the integrated supply chain, and place the corresponding order with the supplier.
The Benefits of Forecasting Cycle Stock
Analyzing and predicting the right stock levels for typical orders is crucial in effective inventory management. Here are the primary advantages of regularly calculating your cycle stock:
Maintaining control over cycle stock ensures a consistent supply of products to meet customer demand, leading to improved customer satisfaction and potential business growth.
Optimized Warehousing Costs:
Regular cycle stock calculations help prevent excess inventory in your warehouse, reducing storage and electricity expenses and simplifying inventory handling.
Safety Stock Management:
Strategic inventory planning, which includes cycle stock management, minimizes the need to dip into safety stock. Safety stock should be reserved for exceptional situations, like supply chain disruptions or unexpected surges in demand for specific products.
How to Calculate Cycle Stock
Calculating cycle stock is often done using the Economic Order Quantity (EOQ) formula, also known as the Wilson formula. This formula helps determine when and how much to order from a supplier to maintain adequate inventory levels. The EOQ formula is based on the following variables:
The EOQ formula guarantees that your company will maintain sufficient stock to meet regular customer demand. This formula includes storage costs, ensuring it accounts for logistics expenses in determining the ideal stock levels required for each product in your warehouse.
Cycle Stock: The Inventory You Need for Warehouse Orders
Regularly calculating your cycle stock is crucial for efficient inventory management in your facility. However, relying solely on mathematical formulas for cycle stock calculations can introduce the risk of human error.
While there are tools like Microsoft Excel that partially automate stock management calculations, to minimize errors in inventory control, it’s advisable to implement Warehouse Management System (WMS) software. These programs ensure product traceability and streamline all logistical processes within your facility.
Consider advanced WMS software, which offers real-time stock control and seamless organization of your company’s logistics operations. If you’re looking to enhance productivity and efficiency in your warehouse, don’t hesitate to reach out to us. Top Industries’ consultants are ready to provide the best solution for your business.