Learn the lingo

ABC analysis is a technique that classifies the value of inventory items (A, B, and C) based on their importance and consumption rate. 'A' items are the most critical and closely monitored, while 'C' items are less significant but often more numerous. This method helps businesses prioritize resources and improve efficiency.

AI, or artificial intelligence, is the creation of systems or machines capable of performing tasks that require human-like intelligence, such as problem-solving, learning, and decision-making. These systems use algorithms and data to continually improve their performance. AI is widely applied across industries to enhance automation, data analysis, and decision-making processes.

Average order value (AOV) is a metric that calculates the average amount spent per transaction by customers. It is determined by dividing total revenue by the number of orders within a specific period. AOV helps organizations understand customer purchasing behavior and devise strategies to increase transaction value.

A backorder occurs when an item is temporarily out of stock but is still available for purchase, with fulfillment promised once it becomes available. It helps businesses retain customer orders even during stock shortages. Effective backorder management minimizes delays and maintains customer satisfaction.

A blanket order is a long-term purchase agreement between a buyer and supplier, covering multiple deliveries over a period, often at predetermined prices. This arrangement is useful for recurring orders and provides flexibility in inventory management. It helps reduce administrative costs and ensures steady supply.

Carrying costs refer to the total expenses associated with holding inventory, including storage, insurance, depreciation, and opportunity costs. These costs are a critical component of inventory management, as excess stock increases carrying costs, impacting profitability. Businesses aim to balance stock levels to minimize carrying costs without compromising customer service.

Cloud inventory refers to inventory management systems hosted on cloud platforms, providing real-time data access and inventory tracking from any location. It allows businesses to optimize stock levels and streamline supply chain operations. Cloud-based solutions also enhance scalability, integration, and collaboration across teams.

Cost of Goods Sold (COGS) represents the direct costs associated with producing or purchasing goods sold by a company. It includes material, labor, and production costs but excludes indirect expenses like distribution and sales costs. COGS is subtracted from revenue to calculate gross profit.

Consignment inventory is stock that remains owned by the supplier until it is sold by the retailer or customer. The supplier takes the risk of holding unsold goods while providing the retailer with the ability to offer a wider range of products. It helps reduce inventory costs for retailers and encourages strong supplier relationships.

Consumer goods are products intended for use by individuals rather than businesses, such as food, clothing, and electronics. These goods are typically mass-produced and sold through various retail channels. Consumer goods are categorized into durable, non-durable, and services depending on their lifespan and consumption patterns.

Cost value refers to the actual cost incurred to produce or acquire an item, including raw materials, labor, and overheads. This value is used to determine pricing strategies and assess profitability. Understanding cost value is crucial for businesses to maintain competitive pricing while ensuring a healthy margin.

A cycle count is a periodic method of auditing inventory, where a small portion of stock is counted on a regular basis. This approach contrasts with full physical inventory counts and helps detect discrepancies, improve accuracy, and maintain control over stock levels. Cycle counts ensure inventory reliability without disrupting daily operations.

Days inventory measures the average time stock remains in storage before it is sold or used. It’s a key indicator of inventory efficiency, as shorter days indicate faster turnover, while longer periods may suggest overstocking. Businesses track this metric to optimize stock levels and improve cash flow.

Days Inventory Outstanding (DIO) is a financial ratio that calculates the average number of days a company takes to sell its inventory. It reflects how effectively a company is managing its inventory. A lower DIO indicates efficient inventory turnover, while a higher DIO can point to overstocking or slow sales.

Deadstock refers to inventory that hasn’t sold and is unlikely to sell, often due to obsolescence, seasonal trends, or low demand. Holding deadstock ties up valuable resources and increases carrying costs. Companies aim to reduce deadstock through discounting or liquidation to free up space and capital.

A Delivery Order (DO) is a document issued by the carrier or freight forwarder that authorizes the release of goods to the consignee. It’s a critical step in the logistics process, confirming that the recipient can collect or receive the shipment. The DO ensures smooth handover and accurate delivery of goods.

A delivery window is the specific time frame during which a product is expected to be delivered to a customer. It ensures clarity for both parties regarding when the goods will arrive. Meeting delivery windows is essential for maintaining customer satisfaction and efficient logistics.

Demand forecasting involves estimating future customer demand for products or services based on historical data, trends, and market analysis. It helps businesses plan inventory, production, and resources effectively. Accurate forecasting is key to avoiding stockouts or overproduction.

Direct-to-consumer (D2C) is a business model where manufacturers or brands sell their products directly to customers, bypassing traditional retailers or intermediaries. This approach allows businesses to maintain control over the customer experience, pricing, and branding. D2C has grown in popularity due to the rise of e-commerce.

Distributed inventory is a strategy where stock is stored in multiple locations, closer to different customer bases, to speed up deliveries and reduce shipping costs. It improves flexibility in supply chain operations and enhances customer service. Distributed inventory helps businesses manage demand fluctuations more efficiently.

Distribution channels refer to the pathways through which products move from manufacturers to end consumers. These channels include wholesalers, retailers, and direct sales. Efficient distribution channels ensure that products reach customers in the most cost-effective and timely manner.

Dropshipping is a retail fulfillment method where the seller doesn't keep stock but instead transfers customer orders to a supplier, who then ships the products directly to the customer. It allows businesses to offer a wider range of products without the need for inventory storage. This model minimizes upfront costs but relies heavily on supplier reliability.

EOQ is a formula used to determine the optimal order quantity that minimizes the total cost of ordering and holding inventory. It balances ordering costs with carrying costs to optimize inventory levels. EOQ helps businesses reduce stockouts and excess inventory, improving overall efficiency.

ERP is a software system that integrates and manages core business processes such as finance, supply chain, manufacturing, and inventory in one platform. It provides real-time data and streamlines operations across departments. ERP systems are essential for improving efficiency, decision-making, and resource allocation.

Fulfillment refers to the complete process of receiving, processing, and delivering customer orders. It includes warehousing, picking, packing, shipping, and managing returns. Effective fulfillment ensures timely delivery, customer satisfaction, and efficient supply chain operations.

Gross margin is the percentage of revenue that exceeds the cost of goods sold (COGS), reflecting the profitability of core business activities. It’s calculated by subtracting COGS from revenue and dividing the result by revenue. Gross margin indicates how efficiently a company produces and sells its products.

Gross profit is the financial gain obtained from sales after deducting the cost of goods sold. It’s a key measure of a company’s operational efficiency and indicates the amount of revenue left to cover operating expenses. Gross profit helps businesses evaluate their pricing and production strategies.

Holding cost, also known as carrying cost, is the total expense of storing and maintaining inventory, including warehousing, depreciation, insurance, and opportunity costs. These costs rise with excess inventory and can impact profitability. Businesses aim to minimize holding costs by optimizing inventory levels.

Inventory accuracy refers to the consistency between recorded stock levels and actual physical inventory. High accuracy is essential for effective inventory management, preventing stockouts, overstocking, and discrepancies in financial records. Regular audits, cycle counts, and technology integration improve inventory accuracy.

In inventory planning, churn rate could refer to the percentage of stock that is cycled out or becomes obsolete over a certain period. It measures how frequently products are sold, used, or discontinued. Monitoring inventory churn rate helps businesses identify slow-moving items, reduce deadstock, and optimize stock levels to better match demand.

Inventory management involves overseeing and controlling a company's stock levels, including ordering, storing, and tracking products. The goal is to maintain optimal inventory levels to meet customer demand while minimizing holding costs. Good inventory management helps streamline operations and improve cash flow.

Inventory overstock occurs when a company holds excess inventory beyond current demand, leading to increased storage costs and risk of obsolescence. Overstock can result from inaccurate forecasting, changes in demand, or slow-moving products. Managing overstock is crucial for maintaining profitability and reducing waste.

Inventory planning is the process of determining the optimal amount and timing of stock to meet customer demand while minimizing costs. It involves balancing factors like lead times, demand variability, and stock availability. Effective inventory planning ensures a smooth supply chain and reduces overstock or stockouts.

Inventory replenishment is the process of restocking products to maintain desired stock levels and meet ongoing demand. This involves timely ordering or production based on sales patterns and lead times. Proper replenishment strategies prevent stockouts and ensure continuous product availability.

The inventory turnover ratio measures how many times a company sells and replaces its inventory over a specific period. A higher ratio indicates efficient inventory management, while a lower ratio may suggest overstocking or weak sales. It helps assess a company’s inventory management effectiveness.

JIT is an inventory planning strategy where products or materials are delivered only when needed in the production process, reducing holding costs. This method increases efficiency by minimizing excess stock but requires accurate forecasting and strong supplier relationships. JIT helps businesses respond quickly to demand changes while minimizing waste.

Lead time refers to the amount of time it takes from placing an order until the product is delivered or available for use. It includes manufacturing, shipping, and processing times. Managing lead time is crucial for maintaining optimal inventory levels and ensuring timely delivery to customers.

Lean inventory management involves maintaining minimal stock levels to reduce holding costs while ensuring adequate supply to meet demand. It relies on accurate demand forecasting and efficient supply chain operations. The goal is to optimize inventory turnover and avoid waste.

Lean logistics focuses on streamlining supply chain processes to reduce waste, minimize costs, and enhance efficiency. It emphasizes using just the necessary resources to meet demand without overproduction or delays. Lean logistics helps businesses deliver products faster and more cost-effectively.

The list price is the manufacturer's suggested retail price (MSRP) or the price at which a product is offered to customers. Cost price refers to the price paid by the business to produce or purchase the product. The difference between the two reflects the potential profit margin.

MOQ is the smallest quantity of a product a supplier is willing to sell in a single order. It helps suppliers ensure profitability on smaller orders and manage production costs. Businesses must consider MOQs when managing inventory and supplier relationships.

MRP is a production planning and inventory control system that calculates the materials and components needed for manufacturing. It helps companies ensure they have the right materials at the right time, reducing waste and production delays. The benefits include optimized inventory levels, improved scheduling, and reduced costs.

Multichannel retail refers to selling products through various independent channels, such as physical stores, online platforms, and third-party marketplaces. Each channel operates separately, and customers can shop in multiple ways. It expands customer reach but requires managing different inventory and sales strategies.

Net sales refer to the total revenue a company earns from sales, minus any returns, allowances, and discounts. It reflects the actual amount a company retains from its sales activity. Net sales are a key indicator of a company's performance and revenue generation.

Omnichannel retail integrates all sales channels (online, in-store, mobile, etc.) to provide a seamless customer experience. Inventory, pricing, and promotions are synchronized across channels. This approach allows customers to switch between channels without interruption, enhancing satisfaction and loyalty.

On-hand inventory is the current stock available in a company's possession that is ready for sale or use. It reflects the actual quantity of goods in storage, available for immediate fulfillment. Managing on-hand inventory is essential for maintaining adequate stock levels and meeting customer demand.

Order fulfillment is the complete process of receiving, processing, and delivering customer orders. It includes tasks like picking, packing, shipping, and managing returns. Effective fulfillment ensures timely delivery and customer satisfaction.

Outgoing stock refers to products that are in the process of being shipped or delivered to customers. It reflects inventory that has been sold and is being prepared for dispatch. Managing outgoing stock efficiently ensures timely delivery and customer satisfaction.

Overstock inventory refers to excess stock that surpasses demand, often due to inaccurate forecasting or changes in market trends. Holding overstock increases carrying costs and risks obsolescence. Businesses aim to reduce overstock through promotions or clearance sales.

A partial shipment occurs when part of an order is delivered while the rest is delayed or backordered. It allows businesses to fulfill part of a customer's request promptly, minimizing delays. This is often used when only some items are immediately available.

The periodic inventory system involves counting and updating inventory at specific intervals (monthly, quarterly, etc.) rather than continuously. It is simpler but provides less real-time accuracy. This method is often used by smaller businesses with lower inventory turnover.

The perpetual inventory system tracks inventory levels in real-time, updating records with each sale or receipt of goods. This method provides accurate, up-to-date inventory information, improving decision-making and reducing the risk of stockouts or overstocking.

Procurement is the process of acquiring goods or services from external suppliers to meet business needs. It involves selecting suppliers, negotiating terms, and managing contracts. Effective procurement ensures businesses receive quality goods at the right price and time.

A purchase order (PO) is a formal document issued by a buyer to a supplier, indicating the types, quantities, and agreed prices for products or services. It serves as a contract between both parties and initiates the procurement process. POs help manage inventory and ensure clear communication with suppliers.

The inventory level at which a new order should be placed to replenish stock before it runs out. Determining the reorder point involves considering factors such as lead time, demand variability, and desired service levels.

The reorder point is the inventory level at which a new order should be placed to replenish stock before it runs out. It is calculated based on lead times and average demand. Setting accurate reorder points ensures that products are available without holding excessive inventory.

Restocking involves replenishing inventory to maintain adequate stock levels and meet ongoing demand. This process is triggered when inventory falls below a certain threshold, ensuring products are available for sale. Timely restocking helps prevent stockouts and lost sales.

Retail involves selling goods or services directly to end consumers, typically through physical stores, online platforms, or both. It is the final step in the distribution chain, with a focus on customer satisfaction and convenience. Retail businesses manage product offerings, inventory, and sales strategies to attract consumers.

Revenue is the total income generated by a business from sales of goods or services before any expenses are deducted. It reflects the business's overall earning capacity. Revenue is a key metric in assessing a company's financial performance and growth.

Safety stock is extra inventory kept on hand to mitigate the risk of stockouts due to demand fluctuations or supply chain delays. It acts as a buffer to ensure that products are available even when unexpected demand spikes or supply issues occur. Proper safety stock levels help maintain service levels.

A sales order is a document issued by a business to confirm a customer's order for products or services. It includes details like quantities, prices, and delivery dates. Sales orders help streamline the fulfillment process and ensure accurate record-keeping.

Sales value is the total worth of products sold over a specific period, calculated by multiplying the quantity sold by the selling price. It helps assess the performance of products and overall revenue generation. Monitoring sales value assists in pricing and inventory decisions.

Seasonality refers to fluctuations in demand for products based on time of year, holidays, or trends. Businesses plan inventory around seasonal patterns to meet peak demand and avoid excess stock during off-seasons. Understanding seasonality helps optimize inventory planning and marketing strategies.

Sell-through rate is the percentage of inventory sold within a specific period, often compared to the total available stock. It indicates how quickly products are moving and helps assess product performance. A higher sell-through rate suggests strong demand, while a lower rate may indicate overstock or weak sales.

Shrinkage is the loss of inventory due to theft, damage, or administrative errors. It impacts profitability and stock levels, requiring businesses to take preventive measures like improving security and inventory control. Managing shrinkage is crucial for maintaining accurate stock records and minimizing financial losses.

These terms refer to the distribution of different product sizes within an order or inventory. Managing the size curve ensures that businesses have the right ratio of sizes available to meet customer demand. It helps optimize inventory and reduce the risk of overstocking certain sizes.

An SKU is a unique identifier assigned to individual products or variants, used for tracking and managing inventory. SKUs help businesses organize, locate, and account for stock across warehouses and sales channels. They are essential for accurate inventory control and order fulfillment.

SMEs are businesses with a limited number of employees and revenue, often characterized by flexibility and local focus. SMEs face unique challenges in inventory management, such as limited resources and scaling operations. They often use simplified inventory management techniques to stay competitive.

SRP is the price recommended by manufacturers or suppliers at which retailers should sell a product. It provides a pricing baseline, but retailers may adjust it based on market conditions, competition, and business strategy. SRP helps standardize pricing across sales channels.

Stock allocation refers to the distribution of inventory across various locations or sales channels based on demand forecasts and sales priorities. It helps ensure products are available where needed, optimizing stock usage and meeting customer demand efficiently.

Stock coverage is the estimated number of days or months current inventory will last based on average sales or usage rates. It helps businesses assess whether they have enough stock to meet future demand. Managing stock coverage prevents both overstocking and stockouts.

Stock health refers to the condition of a company's inventory in terms of its ability to meet demand, prevent overstock, and minimize deadstock. Healthy inventory balances supply with demand, avoiding excess or obsolete products. Monitoring stock health helps optimize inventory management.

Stock replenishment is the process of restocking products to maintain appropriate inventory levels. It ensures that items are available when demand arises, preventing stockouts. Effective replenishment strategies improve inventory turnover and reduce holding costs.

Stock value refers to the total worth of inventory held by a business, based on its cost or potential sales price. It is a key measure of a company’s investment in inventory. Monitoring stock value helps assess financial health and manage working capital.

A stockout occurs when a product is unavailable for sale due to insufficient inventory. It leads to missed sales opportunities and customer dissatisfaction. Businesses aim to avoid stockouts through effective inventory planning and forecasting.

A supplier is a business or individual that provides goods or services to another organization. Suppliers play a crucial role in the supply chain by ensuring the timely delivery of materials or products. Strong supplier relationships are key to maintaining steady production and inventory flow.

The supply chain encompasses the entire process of producing and delivering goods, from raw materials to end consumers. It includes suppliers, manufacturers, distributors, and retailers. Efficient supply chain management ensures timely product delivery, cost control, and customer satisfaction.

Units refer to the individual items or quantities of products in inventory or sales. In inventory management, units help track stock levels and sales volume. Understanding units is essential for forecasting demand and managing inventory effectively.

Units-to-buy is the calculated quantity of stock a business needs to purchase to meet future demand. This is determined based on factors such as current inventory, sales forecasts, and lead times. Accurate units-to-buy calculations help avoid overstocking or stockouts.

The value chain is a series of activities that a company performs to create value for its customers, from production to delivery. Each step in the value chain, such as procurement, production, and distribution, adds value to the final product or service. Optimizing the value chain enhances efficiency and profitability.

A variant refers to different versions of a product that vary in specific attributes such as size, color, or model. Managing product variants allows businesses to offer customers a wider range of options while maintaining streamlined inventory control.

Vendor Managed Inventory is a system where the supplier takes responsibility for managing the inventory levels of their products at the buyer's location. The supplier monitors stock levels and replenishes items as needed. VMI improves supply chain efficiency and reduces the risk of stockouts.

Warehouse management involves overseeing the operations of a warehouse, including inventory storage, organization, picking, packing, and shipping. Efficient warehouse management ensures smooth fulfillment, reduces operational costs, and improves customer service.

WIP inventory refers to goods that are in various stages of production but not yet completed. It includes raw materials, labor, and overhead costs associated with the manufacturing process. Managing WIP inventory is essential for tracking production progress and controlling costs.

A Warehouse Management System (WMS) is software that helps control and optimize warehouse operations, from receiving goods to dispatching orders. A WMS improves accuracy, streamlines workflows, and enhances inventory tracking in real-time.

Write-offs occur when inventory is deemed unsellable or obsolete, and its value is removed from the accounting books. This can happen due to damage, expiration, or shifts in market demand. Businesses use write-offs to reflect the true value of their inventory and reduce tax liabilities.