Reference layer
Inventory & supply glossary
Terms used across our guides. In articles, glossary terms carry a dotted underline — follow the thread without losing your place.
Shrinkage (shrink)
Inventory recorded on the books but not available to sell — theft, damage, errors, supplier shorts, and unexplained variance. Often expressed as a percent of sales or COGS.
FEFO (first expired, first out)
Rotation policy: pick or sell the soonest-expiring units first, even if newer stock arrived later. Common where shelf life or compliance dominates simple arrival order.
FIFO (first in, first out)
Rotation policy: oldest receipts leave first. Works when stock is homogeneous and dating is not critical; breaks when multiple batches with different dates sit in one lane.
Economic order quantity (EOQ)
Classic formula balancing ordering cost vs holding cost to suggest an order size. Useful as a baseline — real suppliers add MOQs, promos, and shelf-life risk.
Safety stock
Buffer inventory held beyond cycle stock to cover demand and lead-time variability. Should be tied to service targets and reviewed when supply stabilises.
Service level
Target probability of not stocking out during an order cycle (or fill rate). Higher service implies more inventory unless demand is smoothed or lead times shrink.
Bullwhip effect
Small demand changes amplify into large order swings upstream due to batching, forecast updates, rationing games, and lead-time delays.
SKU (stock keeping unit)
Smallest sellable/stockable product variant tracked in inventory — size, flavour, channel-specific pack, etc. SKU count drives pick complexity and master-data cost.
SLOB (slow-moving and obsolete)
Inventory with declining velocity or approaching end-of-life. Early identification reduces write-offs and frees shelf and capital.
Days on hand (DOH)
Average days of sales represented by on-hand inventory — inventory intensity. Interpret alongside margin, seasonality, and expiry risk.
Inventory turnover
COGS divided by average inventory over a period — how many times inventory cycles. High turnover can still hide stock-outs; context matters.
Vendor-managed inventory (VMI)
Supplier replenishes within agreed bounds using your consumption data. Can cut stock-outs but needs trust, clean data, and clear dispute handling.
MOQ (minimum order quantity)
Smallest order a supplier will accept or ship economically. MOQs often force more inventory than textbook EOQ suggests.
JIT (just-in-time)
Align inbound supply closely to demand to minimise idle stock. Requires reliable partners and accurate signals — otherwise it becomes expedite chaos.
JIC (just-in-case)
Hold extra stock to buffer disruption or forecast error. Rational after shocks; expensive if buffers never unwind when conditions improve.
Cross-docking
Move inbound goods straight to outbound with minimal storage — reduces handling cost and days in warehouse when timing aligns.
Quarantine / hold stock
Inventory segregated from sellable stock pending QC, recall checks, or regulatory release. Must be obvious physically and in the system.
Perpetual inventory
System inventory updated transaction-by-transaction (receipts, picks, adjustments) rather than only at physical counts.
Cycle counting
Counting subsets of inventory on a schedule to detect drift early — preferable to one annual wall-to-wall count for many operators.
ABC analysis
Segmenting SKUs by value or margin contribution — A items are few but material; policies (counts, safety stock) differ by class.
XYZ analysis
Segmenting SKUs by demand variability — X stable, Z erratic. Combined with ABC to prioritise effort and buffers.
3PL (third-party logistics)
Outsourced warehousing and transport. You still own inventory risk — SLAs and data feeds matter as much as price.
Working capital
Operating liquidity tied up in receivables, payables, and inventory. Inventory reduction frees cash if service and compliance are preserved.
Write-off
Recognising inventory as unsellable or obsolete and removing its value from books — should trace to approvals and physical evidence.
Stock-out
No available inventory to meet demand at a location or channel — lost sales, substitution, or customer churn depending on category.
Obsolescence
Inventory loses value because demand moved, specs changed, or regulation shifted — distinct from slow seasonal demand.
Lot / batch traceability
Ability to trace a unit forward to customers and backward to supplier batches — critical for recalls and quality investigations.
Consignment inventory
Stock physically at your site but owned by the supplier until sale or use — improves your cash timing but needs clear contracts and system flags.