412. Pipeline Stock
Inventory that is in transit — already ordered and paid for, but not yet received. Sometimes called “in-transit inventory” or “work-in-progress” (WIP) when between production stages.
Average lead-time demand. By Little’s Law applied to the inventory system.
412.0.1. Where it comes from
Once you place an order, those units are yours (you’ve paid, they’re in the supply chain) — even though they’re not on your shelf yet. They’re physically held by:
- The supplier (after order placement, before shipment)
- The carrier (in trucks, ships, planes during transit)
- Customs (during import processing)
The financial cost is real: working capital is tied up the entire time.
412.0.2. Derivation via Little’s Law
For any stable queue:
Apply to the “in-transit” queue:
- Arrival rate into transit: (units/time, equal to average demand rate).
- Time in transit: (the lead time).
Independent of the order quantity or the policy used. Every unit you ever consume passes through the pipeline for time, so on average units are always in flight.
412.0.3. Cost of pipeline stock
Holding cost depends on whether you’re charged carrying cost on in-transit inventory:
- Yes (you’ve paid the supplier — common with prepay terms): annual cost .
- No (consignment / pay-on-receipt): pipeline stock has zero holding cost to you. Common with VMI.
412.0.4. Reduce pipeline stock
The only way to reduce pipeline stock is to reduce lead time :
- Shorter shipping (air vs ocean)
- Closer suppliers (reshoring / nearshoring)
- Skip intermediate inspection / customs steps
- Compress production lead times (lean manufacturing within the supplier)
Cycle stock and safety stock can be tuned by changing or . Pipeline stock cannot — it’s locked in by lead time and demand rate.
412.0.5. How it composes with other stock types
| Component | Magnitude | Reduce by |
| Cycle stock | Smaller (reduce setup cost ) | |
| Safety stock | Higher service or lower variance | |
| Pipeline stock | Shorter lead time only | |
| Anticipation stock | planned | Smoother demand or flexible capacity |
| Decoupling stock | planned | Tighter inter-stage coordination |
Example
Given (shared params):
- Daily demand: units / day
- Lead time: days
- Unit value = $10, holding rate /year so = $2/unit/year
Step 1 — pipeline stock
This is the average number of units in transit at any moment.
Step 2 — annual cost (assuming you pay upfront)
$924 / year
Step 3 — compare to total inventory
At a (Q, r) policy with and 95% CSL ():
- Cycle stock: units
- Safety stock: units
- Pipeline stock: 462 units (this!)
- Total average inventory: units
Pipeline is the largest component — bigger than cycle stock or safety stock. It’s invisible on warehouse counts but very real on the balance sheet.
Step 4 — what does halving lead time do?
Shrink from 14 days to 7 days (e.g., switch to air freight):
- Pipeline: units (-50%, −231 units)
- Safety stock: units (slight reduction from effect)
- Cycle stock: unchanged (still )
Halving lead time cut pipeline + safety stock by 38%. The savings on holding cost: $480 / year.
Trade-off: air freight may cost $3000/year more. Whether it’s worth it depends on the unit value (high-value goods → easier to justify shorter lead time).
Lean / Toyota argument: lead-time reduction simultaneously cuts pipeline AND safety stock AND working capital tied up. That’s why “compress the value stream” is a core lean principle.