Why is cycle inventory utilized in supply chain management?

Cycle inventory is utilized in supply chain management primarily to address uncertain demand. This type of inventory refers to the portion of inventory that is held to satisfy expected demand between replenishment cycles. By maintaining cycle inventory, companies can buffer against fluctuations in demand that are not predictable, ensuring that they have enough stock on hand to meet customer requirements without excessive delays.

When demand is uncertain, it can lead to situations where a business either overestimates or underestimates the amount of product needed. Cycle inventory serves as a safety net—allowing businesses to respond more flexibly to actual fluctuations in demand. This practice helps maintain a smoother operation, reduces the risk of stockouts, and enhances customer satisfaction by increasing the likelihood that products are available when needed.

In contrast, the other options do not accurately align with the primary purpose of cycle inventory. While managing seasonal demand, reducing production costs, and promotional purposes involve inventory considerations, they are typically associated with different strategies and inventory types, such as safety stock or seasonal inventory, rather than specifically cycle inventory focused on demand variability management.