Organizations involved in supply chain and logistics management need to maintain the inventory level of stock. The management of inventory can be divided into several categories. Of this cycle stock inventory is the most important one. Cycle stock inventory is defined as the portion of the inventory that the seller cycles in order to satisfy the needs of the customer. Cycle Stock includes all the products that the seller possess in the storage section of the company. At times the Cycle Stock Inventory gets a refresh by selling of products and adding up manufacturing items.
The Cycle Stock inventory is calculated by the difference between the total inventory and the safety stock inventory. Usually companies hold a safety stock in order to maintain the fluctuations in order in the industry. The safety stock value varies depending upon the variations in demand, time taken for receiving inventory at the storage area, time taken to fill the reorder level etc.
Cycle stock is also important for accounting purpose. The number of products sold and kept in inventory is proportional to the cash flow and payment received. In the balance sheet of the company, the total assets also include the cycle stock. The cost of the cycle stock inventory is calculated based on models like last in first out or last in last out method. The price of the old stock and the new stock varies and this can affect the accounts of the company.
The products kept at cycle stock inventory is that part of the products which can gain profit to the company in future. Sudden increase which creates high demand can be met by cycle stock inventory in case of stock outs. Stock out havens when the cycle stock and safety stock is sold and there is still demand existing in the market. At the same time keeping the excess amount in cycle stock reduces the storage costs.