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Decoupling Inventory

What is decoupling inventory?

Decoupling inventory — also called decoupling stock — refers to the finished products that are set aside to mitigate the risk of a halt in production if one or more components is unavailable. This inventory management strategy involves separating items within the manufacturing process, so that the inventory associated with a certain stage doesn’t slow down other parts of your operation. In essence, decoupling inventory can be used to create a buffer from unexpected issues or complications within your supply chain.

How does decoupling inventory work?

When a production line stalls and work in progress products are left unfinished, it reduces the rate at which stock levels are renewed. Fortunately, decoupling holds on to different types of inventory to cushion manufacturing against potential issues with production. With decoupled inventory, retailers set aside extra stock to account for bottlenecks in the production process, to make sure they still meet customer demand (even if their production facility is underperforming). 

Ideally, manufacturing equipment should always operate at capacity. However, on occasion, machinery has been known to encounter a complete stoppage — which can cost your company in terms of repairs, and contribute to lost sales in the meantime. The aim of a decoupling point is to prevent wasted time or frustrated customers by having enough finished products to overcome manufacturing challenges and reduce inventory carrying costs.

Frequently Asked Questions

  • What is an example of decoupling?

    Imagine your company sells desks. For one of your desks to be fully assembled, you need the top, sides, legs, drawers, shelves, and so on. One day, you find out your drawer tracks are on backorder for the next three months. This could create a huge issue within your supply chain, unless you have decoupling inventory for those tracks so you continue with the production process as scheduled. Without decoupling inventory, though, production remains on hold (and halts your entire business) until your supplier can get their situation sorted out. 

  • Why have decoupling inventory?

    Breakdowns in the supply chain can happen for any number of reasons: a lack of raw materials,  a delay in lead time, or an absence of helpful automations. Regardless of the specific situation, if you encounter a disconnect between your supply and demand, decoupling inventory can help. Having ample decoupling stock allows you to fulfill orders in the interim, supports greater inventory control, and brings assurance to each of your production stages. 

    In addition, decoupling inventory levels provide more freedom with how you run your business. In the event you need to change suppliers, decoupling goods provide a safeguard during this transition, and give you greater flexibility than you would’ve otherwise enjoyed.

  • What is the difference between safety stock and decoupling inventory?

    Although the terms ‘safety stock’ and ‘decoupling inventory’ are often used interchangeably, there are some notable differences between the two. Safety stock — sometimes called buffer stock — is inventory that’s been set aside in case of unforeseen fluctuations with customer demand. Decoupling inventory, however, is intended to protect your stock when production issues arise. In that way, decoupling inventory is used when something changes internally, while safety stock is utilized when something changes externally

More terms and formulas

Other Amazon Marketing Services (AMS) See definition and examples
inventory Work in Process (WIP) Inventory See definition and examples
inventory Perpetual Inventory System See definition and examples

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