What Is an Intermediate Stock?

An intermediate stock is a type of inventory that is created and maintained as a means of ensuring that production is not hampered due to events that adversely affect the efficiency of two related operations within a production process. Typically, this means anticipating and preparing for the potential of a breakdown with one operation that in turn could slow down production for the related operation. Within the scope of this application, the intermediate stock may have to do with a supply inventory of replacement parts that are kept on hand to deal with breakdowns, or even the accumulation of a certain backlog of goods in process that can be used to keep the second operation up and running while issues are resolved with the related operation.

One of the easiest ways to understand the concept of intermediate stock is to consider two specific operations that are part of the production process in a textile plant. For example, the carding and spinning operation may prepare raw fiber for use in twisting fibers that create the finished product of yarn that customers will ultimately use in creating upholstery for various products. If the carding and spinning equipment should break down, this will adversely affect the operation of the twisting, possibly leading to downtime that causes the plant to fall behind its daily production quota.

In order to minimize this trickle-down effect triggered by the breakdown, intermediate stock is maintained to aid in two ways. Replacement parts that can be used to repair the carding and spinning equipment help to get the machinery back into production faster, which will minimize the effect of the incident on the ability of that department to supply materials for the twisting operation. In addition, the production quotas for the carding and spinning department may be set at a level that actually builds up a reserve of materials, meaning that the twisting operation is able to continue as usual even as the carding and spinning machinery is being repaired. With a little luck, the carding and spinning operation will be back at full capacity before the twisting operation runs out of materials, effectively allowing the production process to continue without interruption.

Intermediate stock is a wise investment that helps to avoid losses when some sort of adverse circumstance occurs in one operation. By using the stock to contain and resolve the problem, the business can continue to work toward meeting commitments to customers without delay, which in turn means that cash flow is not slowed down due to production issues. The general concept of intermediate stock can be applied in any business model in which multiple operations are required as part of the business function, with owners and managers identifying ways to have the right stock on hand to overcome issues that could create problems for more than one operation within that model.