Inventory Management Glossary

An inventory categorization technique that divides items into three classes (A, B, C) based on their value contribution, applying the Pareto principle to focus management effort.

An order placed for a product that is currently out of stock, to be fulfilled when inventory becomes available.

A comprehensive list of raw materials, components, and sub-assemblies required to manufacture a finished product, including quantities for each.

The amplification of demand variability as information moves upstream through the supply chain from retailer to manufacturer.

The total cost of holding and storing inventory over time, including warehousing, insurance, depreciation, obsolescence, and opportunity cost of capital.

An inventory auditing method where a subset of items is counted on a regular rotating schedule rather than performing a single annual physical count.

Inventory items that have not been sold for an extended period and are unlikely to be sold in the future without significant markdowns.

The process of predicting future customer demand using historical data, statistical methods, market analysis, and increasingly machine learning models.

A retail fulfillment model where the store does not keep products in stock but instead transfers orders to a third-party supplier for direct shipment to customers.

The mathematically optimal order size that minimizes total annual inventory costs by balancing ordering costs against holding costs.

An integrated software system that manages core business processes including inventory, procurement, production, sales, and finance in a unified database.

An inventory valuation and flow method where the oldest inventory items are assumed to be sold or used first.

The percentage of customer demand that is met from available inventory without delays or backorders.

A ratio measuring how frequently inventory is sold and replaced over a given period, calculated as Cost of Goods Sold divided by Average Inventory.

A production and inventory strategy that aligns raw material orders and deliveries with production schedules to minimize waste and holding costs.

A visual workflow management method using cards or signals to trigger production or replenishment only when existing inventory is consumed.

The total time elapsed between placing an order and receiving the goods, including processing, manufacturing, shipping, and inspection.

An inventory valuation method where the most recently acquired items are assumed to be sold first. Permitted under US GAAP but prohibited under IFRS.

A computer-based production planning and inventory control system that calculates materials needed, quantities, and delivery timing based on bills of materials and production schedules.

An inventory tracking method that records every purchase and sale in real time, providing a continuously updated count of inventory on hand.

The predetermined inventory level at which a new purchase order should be placed to replenish stock before a stockout occurs.

Buffer inventory maintained above expected demand to protect against variability in demand or supply lead time.

A unique alphanumeric identifier assigned to each distinct product or item variant for inventory tracking and management purposes.

A situation in which inventory for an item is completely exhausted and customer demand cannot be immediately fulfilled.

A collaborative supply chain practice where the supplier assumes responsibility for maintaining agreed-upon inventory levels at the buyer's location.