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Chapter 12 Inventory planning and control 343
Figure 12.2 Inventory is created to compensate for the differences in timing between supply
and demand
Types of inventory
The various reasons for an imbalance between the rates of supply and demand at different
points in any operation lead to the different types of inventory. There are five of these:
buffer inventory, cycle inventory, de-coupling inventory, anticipation inventory and pipeline
inventory.
Buffer inventory
Safety inventory
Cycle inventory
Buffer inventory
Buffer inventory is also called safety inventory. Its purpose is to compensate for the
unexpected fluctuations in supply and demand. For example, a retail operation can never
forecast demand perfectly, even when it has a good idea of the most likely demand level.
It will order goods from its suppliers such that there is always a certain amount of most
items in stock. This minimum level of inventory is there to cover against the possibility
that demand will be greater than expected during the time taken to deliver the goods. This
is buffer, or safety inventory. It can also compensate for the uncertainties in the process of
the supply of goods into the store, perhaps because of the unreliability of certain suppliers
or transport firms.
Cycle inventory
Cycle inventory occurs because one or more stages in the process cannot supply all the
items it produces simultaneously. For example, suppose a baker makes three types of bread,
each of which is equally popular with its customers. Because of the nature of the mixing and
baking process, only one kind of bread can be produced at any time. The baker would have
to produce each type of bread in batches (batch processes were described in Chapter 4)
as shown in Figure 12.3. The batches must be large enough to satisfy the demand for each
kind of bread between the times when each batch is ready for sale. So even when demand
is steady and predictable, there will always be some inventory to compensate for the intermittent
supply of each type of bread. Cycle inventory only results from the need to produce