408. Cycle Stock
The portion of inventory that exists because we order in batches instead of unit-by-unit. Pure consequence of fixed ordering costs and the EOQ trade-off.
408.0.1. Where it comes from
Order units. Drain at rate until empty. Order again. Repeat.
Inventory profile is a sawtooth: peaks at just after each order, drops linearly to 0, jumps back to . Average over the cycle: .
If we ordered each unit immediately as needed, cycle stock would be 0 — but ordering has a fixed setup cost , so we batch.
408.0.2. Why ?
Linear drainage from to over time . The time-average is the area under the triangle divided by the cycle length:
Always exactly half the order quantity for deterministic demand. For stochastic demand, the expected on-hand mid-cycle is approximately plus the safety stock buffer.
408.0.3. Cost of cycle stock
Annual holding cost from cycle stock alone:
This is the standard EOQ holding-cost term. The basic-EOQ optimum balances this against ordering cost → gives .
408.0.4. Reduce cycle stock by shrinking
Two ways to reduce cycle stock:
- Shrink directly — accept more frequent orders, more setup cost.
- Reduce setup cost — then EOQ shrinks naturally (lean / SMED — single-minute exchange of die — work targets exactly this).
Lean inventory practice = drive toward zero so can shrink, ideally toward 1 unit (just-in-time ordering).
408.0.5. How it composes with other stock types
Cycle stock is just one of five inventory components in a typical operation:
| Component | Magnitude | Reason |
| Cycle stock | Batched ordering | |
| Safety stock | Demand uncertainty | |
| Pipeline stock | In-transit during lead time | |
| Anticipation stock | planned | Forecasted demand spikes |
| Decoupling stock | planned | Buffer between production stages |
Total average inventory = sum of all components.
Example
Given (the same shared params as EOQ / policies):
- Annual demand: , daily
- Order cost: = $50, holding = $2/unit/yr
- Order quantity:
Step 1 — average cycle stock
Step 2 — annual holding cost from cycle stock
$775 / year
This equals the annual ordering cost $775 — a property of basic EOQ (the two costs balance at the optimum).
Step 3 — reduce cycle stock
If we halve setup cost ( → $25 via process improvement), new EOQ:
Cycle stock drops to — a 30% reduction. Total holding cost falls to $548/yr.
Halving setup → 30% smaller cycle stock. (Square-root law: cycle stock scales with .)
Step 4 — driving toward JIT
In the limit : , cycle stock unit, you order one (or near-one) unit at a time. This is the JIT / lean ideal.
Real lean operations don’t achieve but get close enough that cycle stock becomes a small fraction of total inventory — most of the remaining inventory is safety stock and pipeline stock.