When a machine breaks, they can halt production on one machine and repair it while still shipping the same number of cans that they normally would. Luckily, this food supplier can set aside a few thousand cans for when issues arise. These machines process thousands of cans a day and a breakdown can quickly add up. They’ll still be able to ship completed units out and meet the demand trends established by their demand planning.Īnother example would be a food supplier who operates a number of canning machines. But that’s not an issue if they’ve decoupled some inventory from the primary supply chain.
If an equipment malfunction prohibits the business from producing the motherboards, they’ll obviously not be able to assemble complete computers. A lot goes into the manufacturing of a computer, like a processor, a video card, a motherboard, memory, and more. To help illustrate how decoupling inventory works, let's take a look at a couple of examples: Using the inventory turnover formula and inventory days formula to keep inventory count up to date is crucial. Luckily, establishing decoupling inventory only requires you to set aside a limited amount of product after manufacturing, so it isn't cost-prohibitive. This lets you avoid lost sales and defends your supply chain from the bullwhip effect. It acts as a buffer that allows you to continue sales and order fulfillment processes even as production issues are happening. But what it hedges against is slow production and stoppage, not unseen fluctuations in demand.ĭecoupling inventory is a valuable tool in inventory management. That makes decoupling inventory a type of safety stock. Decoupling inventory is any inventory set aside to meet purchase orders in the case of inventory production slowing or stopping.
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