Careers Business Ownership Inventory Cycle for Manufacturers, Retailers, and Distributors Share PINTEREST Email Print Hero Images/Getty Images Business Ownership Operations & Success Business Finance Sustainable Businesses Supply Chain Management Operations & Technology Marketing Market Research Business Law & Taxes Business Insurance Accounting Industries Becoming an Owner By Rosemary Carlson Rosemary Carlson Rosemary Carlson is a finance instructor, author, and consultant. Along with teaching finance for nearly three decades at schools including the University of Kentucky, Rosemary has served as a financial consultant for companies including Accenture and has developed online course materials in finance for universities and corporations. Learn about our Editorial Process Updated on 01/08/20 The term inventory cycle means different things to different companies in different verticals. For companies that source, assemble, and create inventory, it refers to a time-based process which is basic to understanding how to maximize resources and cash flow. To businesses that buy, store, and sell inventory, it focuses on the process of understanding, planning, and managing inventory levels from the point of purchase through more-efficient auditing. 3 Phases of the Cycle for Manufacturers The term inventory cycle refers to a three-phase process: The ordering or administrative phaseThe production phaseThe finished goods and delivery phase. The first phase, the ordering phase, is the amount of time it takes to order and receive raw materials. The production phase is the work in progress phase. The last phase entails the finished goods (i.e., products produced by the manufacturer) that remain in stock and includes the delivery time for products to reach the customer. The inventory cycle is measured by the number of days it takes from the beginning of phase one, through delivery. Consider the following example: The inventory cycle for XYZ Company takes 12 days to go through the ordering phase, 35 days for the work in progress to be completed, and 20 days for the finished goods to be delivered. Therefore, the company's total manufacturing inventory cycle to 67 days. For Retailers and Distributors To a retailer or distributor, the inventory cycle is the process of understanding, planning, and managing their inventory levels, which includes: Accurate ordering of required inventory based on demand and terms, by productReduced time to reorder products on a periodic basisAn accurate history of individual product sales and department salesIncreased customer satisfaction Inventory control can be applied to any system, whether it's manual or computerized. Inventory's Impact The most important part of the inventory cycle process (also called cycle inventory) is to frequently and regularly perform inventory counts to understand the turnover rate or demand for a particular item. A cycle count is an auditing procedure whereby a small subset of inventory, usually in a specific location, is counted at a specific day or time. The goal is to move through all inventory on a regular basis. Cycle counting yields more accurate inventory results. Retailers may also look at cycle stock inventory, or on-hand inventory, which is the sum of what is on the shelves and what is in the warehouse or storeroom. The quantity of a cycle stock inventory is equal to the total on-hand inventory. If the safety stock inventory is maintained, it does not count. The goal is to prevent running out of stock, while managing cash flow, and economize as much as possible on shipping and storage.