As we have discussed in a previous article, different sectors of logistics and supply chain have their distinct terms and jargon. Your success as a supply chain and logistics professional greatly rests on your understanding of the specialized abbreviations, acronyms, and terminology within the field. In this article, we will dive into some of the key terminology of the inventory management area of the industry.

Inventory management at its core is the process of efficiently tracking, controlling, and optimizing the storage, flow, and usage of a business’s goods. It involves tracking inventory levels, orders, sales, and deliveries to ensure that the right amount of stock is available at the right time while minimizing costs. Inventory includes all items a business holds for resale, production, or utilization in operations, including the finished goods, supplies, and raw materials.

The careful checks and balances of inventory management are essential to a business’s overall performance. Common positions focusing on inventory management include Inventory Specialists, Inventory Clerks, and Inventory Control Managers.

Let’s look at some key terms in inventory management:

ABC Analysis:

A method for categorizing inventory into three groups (A, B, C) based on their value and importance to the business, typically where:
Class A: High value and importance
Class B: Moderate value and importance
Class C: Low value and importance

Backorder:

An order for goods currently out of stock, but will be fulfilled by the business when replenished.

Batch Picking:

A method where multiple orders are grouped based on similar characteristics and picked simultaneously to improve efficiency.

Buffer Stock:

Another term for safety stock; a quantity of items kept in storage to safeguard against unexpected demand or supply chain disruptions.

Carrying Cost (Holding Cost):

The total cost of holding inventory over a period of time, including storage, insurance, depreciation, taxes, transportation, and obsolescence.

Cycle Stock:

The portion of inventory that is regularly replenished to meet expected demand during a specific cycle.

Dead Stock:

Inventory that has remained unsold for a long period and is unlikely to sell in the future because it is expired, out of season, or obsolete.

Demand Forecasting:

The process of predicting future customer demand using historical data, trends, and analytics.

Economic Order Quantity (EOQ):

The optimal order quantity a business should purchase that minimizes total inventory costs, including ordering and holding costs.

Inventory Accuracy:

The degree to which physical inventory matches recorded inventory levels.

Inventory Cycle Count:

A method of counting a portion of a company’s inventory regularly to ensure inventory accuracy. An inventory cycle count is less disruptive to operations than a full inventory count.

Inventory Optimization:

Strategies and techniques used to maintain the right balance of inventory - minimizing costs while meeting demand.

Inventory Turnover:

A ratio that measures how many times inventory is sold or used over a specific period, calculated as:
Inventory Turnover = Cost of Goods Sold / Average Inventory

Lead Time:

Although lead time has different meanings in different contexts, in inventory management, it is the time between placing an order and receiving the goods. Lead time includes processing, production, and transportation.

Lot Size:

The quantity of goods a company orders or produces at one time for use or sale in the future.

Minimum Order Quantity (MOQ):

The smallest unit quantity a supplier will sell in one order.

Obsolete Inventory:

Items in stock that have no forecasted demand expected.

Periodic Inventory System:

A system that updates inventory levels at regular intervals through physical counts. This method is often used by small businesses that do not use computerized systems to track inventory.

Perpetual Inventory System:

A system that continuously updates inventory levels in real-time through technology as sales and receipts occur.

Reorder Point (ROP):

The inventory level at which a new order should be placed to replenish stock before it runs out, factoring in lead time and demand.

Shrinkage:

The loss of inventory that cannot be accounted for due to theft, damage, errors, or other reasons.

Stock Keeping Unit (SKU):

A unique identifier or code assigned to each product or item in inventory for tracking purposes alongside a barcode system. These are usually scannable labels that hold item-specific data such as price and manufacturer information.

Stockout:

A situation where inventory runs out, leading to unmet customer demand.

Vendor-Managed Inventory (VMI):

A supply chain practice where the supplier monitors and manages the inventory levels at the customer’s location.

The mastery of the terminology of inventory management is essential for any logistics and supply chain professional striving for career success. From understanding concepts like ABC Analysis and Economic Order Quantity, to managing shrinkage and avoiding stockouts, each term plays a vital role in ensuring efficiency, cost control, and seamless operations. By familiarizing yourself with this specialized lingo, you will enhance your expertise and professional competitiveness in the ever-evolving logistics industry.