What defines lot-size inventory or cycle stock?

Lot-size inventory, also known as cycle stock, refers to the portion of inventory that is held to meet the expected demand for a specific period of time, typically based on the order quantity that allows businesses to take advantage of bulk purchasing discounts. This type of inventory is fundamental in ensuring that production runs smoothly and that there is enough stock to meet customer demand between replenishment cycles.

When organizations purchase materials in large quantities for discounts, they do so to reduce the per-unit cost, which improves profitability. This approach leads to the establishment of lot-size inventory, as companies maintain a certain level of these items based on their purchasing practices, production schedules, and sales forecasts.

Cycle stock is not designed for emergencies, seasonal fluctuations, or excessive variances in demand; rather, it is strategically planned to optimize inventory levels for regular operation, ensuring that there are enough resources available without overstocking, which can tie up capital and increase carrying costs.