Glossary
Inventory terms, explained
Plain-English definitions of 52 inventory, purchasing, finance, warehouse and 3PL terms, with formulas, worked examples and links to free calculators.
Prefer to calculate? Try the free inventory calculators, or read the guides.
A
- ABC analysisPlanningABC analysis ranks products by their contribution to sales or margin and groups them into A (the few that matter most), B and C (the long tail).
- Average inventoryFinanceAverage inventory is the typical value of stock held during a period, usually the opening and closing balances averaged, or better, several month-end balances.
B
- BackorderPlanningA backorder is a customer order accepted for a product that is currently out of stock, to be fulfilled when new stock arrives.
- Bill of materials (BOM)InventoryA bill of materials lists the components and quantities needed to make one unit of a finished product.
- Bin locationWarehouseA bin location is a labelled storage position in a warehouse, often addressed by row, bay and shelf height.
C
- Case packPurchasingA case pack is the number of units a supplier packs in one carton; orders are usually placed in whole cartons.
- Cost of goods sold (COGS)FinanceCost of goods sold is the direct cost of the products you sold in a period: what you paid for them, plus freight and duty in, or the materials and labour to make them.
- Cycle countingInventoryCycle counting is counting a small portion of inventory on a regular schedule instead of shutting down for one annual stocktake.
D
- Days of coverPlanningDays of cover is how many days current stock will last at the current rate of sale.
- Days of inventoryFinanceDays of inventory, also called days sales of inventory, is the average number of days stock is held before it is sold.
- Dead stockPlanningDead stock is inventory that has not sold for a long time and is unlikely to sell at full price.
- Demand forecastingPlanningDemand forecasting estimates how many units of each product customers will buy in future periods, using past sales and known patterns.
- Demand planningPlanningDemand planning turns forecasts, promotions and business knowledge into an agreed view of future demand that purchasing and production can act on.
F
- FEFO (first expired, first out)InventoryFEFO is a picking rule that ships the stock closest to its expiry date first, regardless of when it arrived.
- FIFO (first in, first out)FinanceFIFO assumes the oldest stock is sold first, so cost of goods sold uses the oldest costs and closing inventory the newest.
- Fill ratePlanningFill rate is the share of customer demand met immediately from stock.
- Forecast accuracyPlanningForecast accuracy measures how close past forecasts were to what actually sold, using measures such as MASE, WAPE and bias.
G
I
- Intermittent demandPlanningIntermittent demand is a pattern of many zero-sales periods broken by occasional, irregular orders.
- Inventory positionPlanningInventory position is stock on hand plus stock on order, minus stock already committed to customers.
- Inventory turnoverFinanceInventory turnover is cost of goods sold divided by average inventory, showing how many times stock is sold and replaced in a period.
- Inventory valuationFinanceInventory valuation is the method used to put a dollar value on stock on hand, commonly FIFO, weighted average cost or specific identification.
L
- Lead timePlanningLead time is the time between placing an order with a supplier and having the stock received and ready to sell.
- Lead-time demandPlanningLead-time demand is the quantity you expect to sell between placing an order and receiving it.
- Lot (batch) trackingInventoryLot tracking records which batch each unit came from, with its lot number and often an expiry date.
O
- Open-to-buy (OTB)PurchasingOpen-to-buy is the budget still available to spend on inventory in a period after allowing for stock on hand, on order and planned sales.
- Ordering costPurchasingOrdering cost is the fixed cost of placing and receiving one purchase order, regardless of how many units are in it.
P
- Periodic inventoryInventoryA periodic inventory system determines stock and cost of goods sold by physical count at the end of a period.
- Perpetual inventoryInventoryA perpetual inventory system updates stock records continuously as items are received, sold and moved.
- Pick waveWarehouseA pick wave is a batch of orders released together so a picker collects them in one walk through the warehouse.
- Purchase order (PO)PurchasingA purchase order is a document sent to a supplier stating what you want to buy, in what quantity, at what price and by when.
- PutawayWarehousePutaway is moving received goods from the receiving dock to their storage location and recording where they went.
R
- ReceivingWarehouseReceiving is checking delivered goods against the purchase order, recording quantities and condition, and making the stock available.
- Receiving accuracy3PLReceiving accuracy is the share of inbound deliveries whose counts and details were recorded correctly against the advance notice.
- Reorder pointPlanningThe reorder point is the inventory level at which you place a new order, equal to demand during the lead time plus safety stock.
S
- Safety stockPlanningSafety stock is extra inventory held to cover unexpected demand or late supplier deliveries, so a stockout is less likely before the next order arrives.
- Sales velocityPlanningSales velocity is the number of units of a product sold per day (or week) over a recent period.
- SeasonalityPlanningSeasonality is a demand pattern that repeats at fixed intervals, such as a summer peak or a November sales spike.
- Service levelPlanningService level is the target probability of not running out of stock during a replenishment cycle, such as 95%.
- ShrinkageInventoryShrinkage is the loss of inventory between purchase and sale from theft, damage, errors or expiry.
- SKU (stock keeping unit)InventoryA SKU is a unique code identifying one sellable variant of a product, such as a specific size and colour.
- Standard deviation (of demand)PlanningThe standard deviation of demand measures how far daily or weekly sales typically stray from their average.
- Stock ledgerInventoryA stock ledger is a record of every change to stock quantities, with what changed, by how much, why and who did it.
- StockoutPlanningA stockout is when a product has no available stock to sell.
- Storage unit-days3PLStorage unit-days is a billing measure that adds up the units (or pallets) a client had in storage on each day of a billing period.
- Supplier OTIFPurchasingOTIF, on time in full, is the share of supplier deliveries that arrived by the promised date with the full quantity ordered.
Browse by topic: Planning, Purchasing, Inventory, Finance, Warehouse, 3PL. Each entry shows its category.
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