A guide to the terms an inventory planner must know.
Acronym for third-party logistics, which is an organization's use of an alternate business to outsource parts of its distribution, warehousing, and fulfillment services. Also known as TPL.
Implies that 80% of effects are the result of 20% of causes. In planning, this is often referred to as the top 20% of SKUs that drive 80% of a business’ sales. Also known as the Pareto Principle.
A mode of transportation of saleable goods. Due to its high costs, air ship is often used in the case of speeding up a product’s lead time for an earlier receipt.
Used to describe how demand is spread across an entire portfolio or subset of products. Allocation can be used to describe sizing (size allocation) of a style or demand of all products in a category either by style or color.
Anticipated stock out
A calculation of when an item will go out of stock. It is calculated as: today’s date + (DSI / 365). See DSI.
Stands for average order value. AOV is a metric used to track how much a customer spends on average per order. It is also referred to as “basket size” or “cart value”. It is calculated as: revenue / # of orders.
Stands for application programming interface. APIs allow computer applications to communicate with each other.
Stands for available to sell. ATS is a term used to describe the units of a product allocated for sale. By default, it excludes units that are pending shipment or are allocated to existing orders or any units committed on backorders.
Stands for average unit cost. AUC is a metric used to track the per unit cost value of inventory sold, held, or in transit. It is calculated as: total cost of goods / total units.
Stands for average unit retail. AUR is a metric used to track the per unit retail value of inventory sold, held, or in transit. It is calculated as: total retail value of goods / total units.
Similar to ATS, available stock is the total amount of an item available for use or sale. It is calculated as: total stock on hand - allocated stock.
Measures the value of goods during two or more specific time periods. Average inventory is typically used in calculating turnover. Average inventory is calculated as: (period 1 inventory + period 2 inventory) / # of periods
An order for goods that cannot be fulfilled at the current time due to a lack of available stock. Backorder implies that a product’s demand outweighs its supply.
A method of representing a product in a unique, machine-readable form. It can be used to describe the visual pattern scannable at a POS, or a unique string of numbers specific to an individual SKU.
Stands for beginning on hand. BOH is used to value total inventory at the start of a period typically a month, week, or year. Other metrics alternatively used are: BOP (beginning of period), BOM (beginning of month), and BOS (beginning of season). BOH is typically referred to at cost value, but it can also be shown at retail value to represent the value of revenue on hand. Inventory is typically represented as the total value owned, including that which may not be sitting at a warehouse.
Stands for bill of materials. A BOM lists the materials required to produce an item. A BOM may be tied to a production order, upon which it will generate reservations on the components in stock, and a request for order for those that are not.
A forecasting approach that focuses on the analysis or performance of an individual product and de-emphasizes the impact of macro factors such as a business’ sales plan or the performance of other products. While it is the opposite of top-down forecasting, the two are often used together to optimize forecasts.
Relates to the number of product lines a company carries. Breadth is used in conjugation with depth which is the variety within each of the product lines.
A term used to describe performance over two consecutive periods of time. It is calculated as period 2 sales / period 1 sales. For example, if a SKU sells $80 in January and $90 in February, it would have a 1.125x build or a 12.5% build. Conversely, if performance of period 2 is lower than period one, or the build is less than one, it would be known as a de-build.
Also known as kits. Bundles are the combination of multiple SKUs selling as one.
A marketing or advertising campaign is the promotion of product through different media channels. Specified to a specific time period, the intent of campaigns is to increase sales of a product or subset of products.
Refers to the reduction in sales of one product due to the presence of another product in the assortment.
Refers to the maximum output of products that can be produced in a given period. Capacity can be referenced in design, production, or fulfillment of goods.
The costs associated with having specific quantities of inventory. It is calculated as: cost of inventory on hand + storage cost of inventory on hand. Carrying costs are typically used in calculating EOQ.
Refers to the number of products that can fit in a box. This is typically used in conjunction with MOQ to determine the most cost effective production of goods.
Also known as vertical. Refers to the method of selling products. A channel can be defined as a retail store, eCommerce platform, or alternative third party selling. The common term multi-channel refers to utilizing two or more channels for the selling of products.
Stands for cost of goods sold. This is a term used to describe the total value or cost of products sold during a specific time period.
Used to describe product not available for sale due to it being reserved typically for a sales or purchase order.
This is jargon used to describe comparable styles of product that may provide an indicator of sales in the case of uncertainty.
Refers to the amount of raw materials used for production of goods.
Cost of capital
The cost associated with having money tied up in inventory.
Abbreviated as CP, current period refers to a specific current time period. It is oftentimes used with TY (this year) and LY (last year)
A process of verifying inventory quantity data by regularly counting portions of inventory.
A visible summary of key data to understand overall performance.
The need for a specific item in a specific quantity. This is different from sales as demand is an indicator unaffected by inventory availability.
Refers to the savings a customer receives from a coupon or a wholesaler receives in order for them to make a profit on the sale of that good.
Abbreviated as DC, a distribution center is a warehouse or other location with stocks product for sale to retailers, wholesalers, or customers.
A method of moving goods to the end user without going through the typical distribution channel. It can be used in retail as a method of fulfilling stock not held in store to the customer from a warehouse. It can also be used when inventory ships directly from the factory to a customer avoiding a warehouse location.
Stands for days sales of inventory. DSI is a metric used to determine the average time in days it will take to turn inventory into sales. It is also known as the average age of inventory. It is calculated as: (average inventory / COGS) x 365
Stands for electronic data interchange. EDI is the transfer of data from one computer system to another.
Stands for ending on hand. EOH is used to value total inventory at the end of a period typically a month, week, or year. Other metrics alternatively used are: EOP (end of period), EOM (end of month), and EOS (end of season). EOH is typically referred to at cost value, but it can also be shown at retail value to represent the value of revenue on hand. Inventory is typically represented as the total value owned, including that which may not be sitting at a warehouse.
Stands for economic order quantity. EOQ determines the most cost effective quantity to order by finding the point at which the order cost and carrying cost is the least.
Stands for enterprise resource planning. ERP is business process management software that integrates multiple applications to manage the business and automate functions.
Inventory greater than what is deemed the “right” amount of inventory. Typically businesses will use a set period of time based on it’s turn goals to determine how long an inventory position should be. Any value of inventory greater than this period would be referred to as excess inventory.
Stands for first in, first out. FIFO is a method of valuing inventory which assumes that the first items placed in inventory are the first sold. Therefore, the valuation of inventory at the end of a sale period will be heavily weighted towards the value of goods most recently received.
A metric that shows the number of items sold compared to the number of items purchased. It is calculated as: items sold / items purchased. If this number exceeds 100%, it means that goods are being backordered due to stockouts.
Dependent on its location in the supply chain, a finished good is either inventory that is in a saleable or shippable form.
Stands for free or freight on board. FOB means that the seller or factory pays for the transportation of the goods to the port for shipment as well as loading costs but the buyer pays for the remaining costs to get the goods to an ending location or warehouse. FOB cost is referred to as the production cost of inventory. It differs from the landed (direct or standard) cost of inventory.
An estimate of future demand. Many companies use the terms forecast, budget, and plan interchangeably. It’s important to note the difference between which terminology refers to what is “original” versus what can be adjusted as sales actualize and trends are identified. At Fuse, forecast refers to the original and projected sales refer to the adjustments made to demand.
The time span for which a forecast is applicable.
Also known as GMROII. stands for gross margin return on (inventory) investment. GMROI is an inventory profitability ratio that shows your margin relative to your inventory investment. It is calculated as: gross margin / average inventory cost.
The difference between cost and sale price. It can also refer to a business’ total sales less it’s COGS. It is calculated as: sale price (or total sales) - cost (or COGS)
Stands for gross margin percentage. GM% shows gross margin as a function of sale price or total sales. It is calculated as: gross margin / sale price (or total sales)
A metric for the overall sales of a company. It excludes the costs of generating those sales as well as any discounts or returns. It is the sum of all sales invoices. When forecasting, it is calculated as the sum of all unit sales times their selling price.
Refers to when goods finish production and begin transportation to their final destination or warehouse. Companies may value inventory owned upon handover.
The act of analyzing and recapping product performance in a specific forecast period.
Sales attached to prior periods of time.
Stands for in market sales. IMS refers to the sale of a company’s products after they’ve sold as product sales to the original customer. For example, if a wholesaler purchases inventory, it is recognized as a product sale to the wholesaler. Once that wholesaler sells the goods to an end customer, that is referred to as an IMS.
Also stands for inventory management system. An IMS is technology (both hardware and software) that tracks inventory levels, orders, sales, and deliveries. It can also be used in manufacturing to issue work orders, BOM, and other production documents. The main goal of an IMS is to avoid overstock and stockouts of product.
Stands for initial (or item) markup. IMU is the amount of money expressed as a percentage a retailer adds to the cost of a good to determine the selling price.
Refers to a current planning period. Activities that take place in-season include: analysis of product and category performance, markdowns and promotions, reforecasting, and the ongoing management of replenishment or evergreen inventory.
Refers to the amount of an assortment that is in stock. It is calculated as: SKUs in stock / total available SKUs. In stock rate can also be measured on a door/item/SKU level for retailers. For example, if a retailer has 100 doors, and carries 10 SKUs per door, a measure of 95% in stock rate means that 950 out of 1000 door/SKU combinations have at least 1 unit in stock.
Refers to goods between the time of handover and the time of receipt. Businesses may value inventory both in transit as well as in a physical location.
Also known as turn. is a measure of the velocity of inventory. It is calculated as: average inventory / annual COGS. Businesses typically set turn goals as a measure of how long they wish to hold inventory. A turn goal of 4x means 3 months of inventory are owned at any given point in time.
Refers to the ordering and receipt of inventory for a shorter demand window. Just-in-time ordering (JIT) may reduce or eliminate safety stock inventory under the assumption goods can be procured in a timely manner aligned to the demand period.
Also known as standard or direct costs. are the costs attached to the production and receipt of saleable goods to a storage location. The value of a product’s landed cost typically includes the FOB cost and is therefore used to value one unit of inventory.
A forecasting method that used demand from a previous period as the forecast for a subsequent period
Abbreviated as LT, lead time refers to the amount of time it takes for a purchased item to be delivered after it is ordered.
Demand that is accounted for during a product’s lead-time. For example, if your forecasted demand is 5 units per day, and your lead time is 10 days, your lead-time demand would be 50 units.
Stands for last in, first out. LIFO is a method of valuing inventory which assumes that the last items placed in inventory are the first sold. Therefore, the valuation of inventory at the end of a sale period will be heavily weighted towards the value of goods received earlier.
Also referred to as a slot plan or assortment plan. A line plan defines the products that are going to be added to the assortment, how many pieces to expect, and when the products will be available.
To convert inventory that is often stale or in excess into cash by selling to a third party often times a liquidator or off-price wholesaler.
Also known as order quantity. Lot size refers to the quantity of an item you order for delivery on a specific date. In production or manufacturing, it can also mean the amount made in a single production run.
Also known as make-to-order or procure-to-order. Refers to goods produced to supply a special or individual demand. Ordering or manufacturing of the item does not begin until after a sales order is received from the customer.
Stands for minimum advertised price. MAP is the minimum amount resellers agree not to advertise a product’s price below.
The lowering of a product’s selling price, typically by a set percentage. Markdowns are a method of moving through stale or slow moving inventory faster. A markdown is different from a promotion as it is considered permanent until the product sells out.
Stands for months on hand. MOH is a metric used to value the life of inventory on hand in months or how many months it will take for an item to sell out based on current on hand inventory. It is an alternative time span for valuing inventory compared to WOH and DSI and can be applied to a specific product, category, or total business. It is calculated as: current inventory value / an average month’s sales
Stands for minimum order quantity. MOQ refers to the minimum amount that can be ordered from a supplier in a single order. It may be used in conjunction with carton size to optimize inventory ordering.
Stands for materials requirement planning. MRP is a system used for production planning, scheduling, and inventory control in the manufacturing process. The goal of a MRP software is to efficiently manage all the resources necessary to meet manufacturing demand while maintaining lean inventory levels.
Stands for manufacturers suggested retail price. This is also known as the sticker price or selling price or an item. In forecasting, this is multiplied by a product’s unit projection to yield gross sales.
Refers to a business’ many channels of selling. This is slightly different from the term omni-channel which refers to all of a business’ channels of selling. Omni-channel unifies sales and marketing while multi-channel is less integrated.
The result of gross sales less discounts, returns, and allowances. Net sales are a factor in profit but do not include the cost of goods sold or the cost of selling those goods.
Stands for order management system or software. OMS is used for order entry and processing.
Refers to the value of inventory available at a given time. Inventory can be valued as total owned in a physical location or total owned as assets regardless of location.
A record of goods requested but not yet received.
Stands for out of stock rate. This is the inverse of an in-stock rate. OOS refers to the amount of an assortment that is not in stock. It is calculated as: SKUs not in stock / total available SKUs.
Stands for open purchase order. This refers to a purchase order for which goods are not delivered or only partially delivered. A purchase order is considered closed once goods are fully received.
Stands for open-to-buy. OTB is the difference between how much inventory is needed and how much is available. It can also be referred to as the purchasing budget for future inventory orders.
Also known as excess inventory. Inventory or supply in excess of what is needed based on demand.
Similar to allocation, penetration refers to the impact a product’s or category’s sales has to the overall business. If a product or category makes up 5% of total sales, it would be said that it has a penetration of 5%.
Also known as sell-off. refers to the intentional depletion of inventory.
Stands for physical inventory. PI is the process of counting all inventory in a warehouse or location in a single time period, typically once per year. It is different from cycle count in that PI verifies all inventory levels. Data received from a PI may be used as a resetting of an inventory record for a given point in time.
Reflects the optimal timing and quantity of a product assortment.
Stands for product lifecycle management. PLM is a software that tracks a product as it moves through the typical stages of its life such as development, launch, growth, maturity, and decline. The goal of PLM is to provide a backbone for product information.
Stands for purchase order. A PO is a contract document used to request or authorize, track, and process items purchased from a supplier. It may also include terms of the sale including payment terms and handover or receipt dates.
Stands for point-of-sale (also known as point-of-purchase or POP). A POS refers to the time and place a retail transaction is completed.
Jargon used to describe the analysis of a product, category, or business after a sale or forecast period. This is similar to hindsighting. The goal is to understand what worked and what didn’t work in order to inform future strategies.
Refers to the time period following in-season where a post-mortem may take place and insights from performance will drive future decisions.
Refers to the time period before a product’s sale period or in-season period. Pre-season activities include the analysis of historical sales data in order to inform purchasing decisions. Competitive data may also be evaluated at this time to further support strategies.
Product life cycle
The period of time in which an item is considered an active saleable item. Product life cycle may also refer to the development time for a product.
The amount of time it takes to manufacture a product. This can differ from lead-time as it does not include development or transit time.
The degree to which a business or product yields profit or financial gain. It is often measured by a price to earnings ratio. Both GMROI and GM% are measures of profitability.
The act of increasing marketing activities or reducing selling price to support the sale of a product or assortment of products. A temporary sale for a set period of time is the most common form of a promotion.
Also known as unfinished goods or components. Inventory used in the production process of goods.
The inventory level set to trigger an order of an individual product. It is calculated as: lead time demand + safety stock
The finished goods associated with the receiving process. Goods on order transfer to receipts once they are in the receiving process and then may be classified as inventory.
The act of placing finished goods into inventory
Refers to the sales prior to and closest to the forecast period. Recency is attributable to trend which can change a projection.
Data recorded under similar enough conditions to current and future time periods such that it can be used to forecast future demand. For example, data recorded in Q1 of this year may be considered relevant history for a projection of Q1 of the following year.
Refers to the physical re-stocking of products. In a product assortment, it can refer to the evergreen products or those with less volatile demand that are more accurately purchased due to their constant demand.
Stands for radio frequency identification. RFID is a technology where digital data is encrypted and aids the physical tracking of inventory.
Stands for return on investment. ROI is a measure to evaluate the efficiency of an investment.
Also known as buffer stock. This is the quantity of inventory reserved to allow for variation in demand. Safety stock may be deemed by a set quantity or WOS target.
A document used to approve, track, and process outbound customer orders or shipments.
Sales per square foot
Calculates the return on investment of a physical selling location. It can be used as an estimate of sales based on store size. It is calculated as: sales / square feet of selling space
A measurement of how fast a business is making money or how quickly a product is sold.
Fluctuations in demand that repeat the same pattern over like time periods. In other words, products that follow the same sales pattern each year for a particular span of weeks, months, or quarters.
Also known as phase-off. This is the act of intentionally depleting a product’s inventory. This typically happens as a sale at a lower selling price.
A measure of the amount of inventory owned compared to the amount sold. For a specific time period, it is calculated as: units sold / units owned
Used to describe a desired fill-rate and on-time-delivery rate
Costs associated with initiating a production run. Examples include a plate or tooling fee or machine set up. This may be absorbed by a business into the product cost.
Also known as short-shipment. This refers to goods requested on a PO but not fulfilled by the supplier. In other words, when the quantity received is less than the quantity ordered or listed on the PO.
Also known as a shortage. This is when there isn’t enough supply to meet demand, thus resulting in a stockout.
Also known as shrinkage. When a business has fewer items in stock that what is recorded on an inventory list as a result of error, damage, or stolen goods. In inventory planning, it’s helpful to keep a set amount for the businesses’ shrink rate to avoid being short-stocked.
Stands for stock keeping unit. This refers to a specific item in a specific unit of measure, typically each. It can also be used interchangeably with item number.
Removing variation from demand. It may also be used interchangeably with normalizing demand.
Inventory that has exceeded it’s shelf life, or in the case of non-perishable goods, it is inventory that has aged and may be slow selling due to a variety of reasons.
Used to describe the spread of variation in a distribution of data.
A monthly ratio that measures the ability of inventory on hand to meet demand. It is calculated as: beginning of month unit inventory / unit sales for the month.
When inventory levels are not enough to meet demand.
Similar to anticipated stockout, this is a measure of when an item will run out of stock.
The costs associated with the physical storage of inventory. This can include the cost of space in a storage location, as well as any fees incurred with storage. This is used in conjunction with inventory value to determine carrying costs.
An alternative method to bottom-up forecasting, top-down forecasting is a method that quantifies macro or external impacts on a business to understand overall sales forecasts. Trends are then applied to subsets of the business to work down to an individual SKU level.
The length of time it takes a finished good to reach it’s receiving location from it’s handover location.
A gradual increase or decrease in demand over time.
Individual pieces of physical inventory.
Stands for unit of measure. This describes how the quantity of an item is tracked in inventory. The most common is “eaches”, but products can also be measured in cases, pallets, ounces, pairs, and much more.
Stands for universal product code. This is a unique string of 12 numeric digits assigned to each product. This, along with the barcode, are used in identifying and tracking a finished good.
Stands for units per transaction. UPT is a sales metric used to measure the average number of items a customer is purchasing in an order in any given time period. It is calculated as: units sold / # of orders
Describes data that diverges from the average or norm as well as the extent to which this data differs.
Unique attributes tied to a specific product. Variants can include sizes of a style, or characteristics of a SKU such as color, fabric, category, etc.
Also known as a data warehouse. A virtual warehouse collects and displays business data for any moment in time. They are sometimes used to allocate and reserve physical inventory for use in different channels.
Tendency to change rapidly and unpredictably.
Stands for warehouse management system or software. The goal of WMS is to support and optimize warehouse functionality and distribution center management via the effective movement and storing of inventory or materials.
Stands for weeks on hand. WOH is a metric used to value the life of inventory on hand in weeks or how many weeks it will take for an item to sell out based on current on hand inventory and current average weekly sales. It differs from WOS which looks forward to projected weekly sales instead of current actuals. WOH is calculated as: inventory on hand / average weekly sales (or future average weekly sales for WOS)
Stands for weeks of supply. WOS is a metric used to value the life of inventory on hand in weeks or how many weeks it will take for an item to sell out based on current on hand inventory and future projected weekly sales. WOS is calculated as: inventory on hand / future average weekly sales
Refers to the amount of goods created from raw materials. It is the opposite of consumption. For example, if a product’s consumption is 5 yards of fabric, one would say that 5 yards of fabric yields one finished unit.
Stands for year-over-year. YoY is used in describing data relative to a prior year period. For example, when comparing TY vs LY, one would refer to it as YoY performance. It can also be used for a future year period compared to its subsequent year period.