Key Inventory Management Terms

Average Inventory

The average inventory value is calculated by taking your beginning inventory which is how much you have in stock on the first day of the month, and adding it to your ending inventory, which is how much stock is left on the last day of the month, and dividing the result by 2.

Average inventory = Beginning inventory + Ending inventory) / 2. For example, if your COGS was $200,000 in the past 12 months and your average inventory value was $50,000, your inventory turnover ratio would be 4.

Average Inventory Cost

The valuation method bases its figure on the average cost of items throughout an accounting period.

Average Inventory Cost

The valuation method bases its figure on the average cost of items throughout an accounting period.

Backorder (BO)

Applies for the type of order allowed to be placed, even though there is no available stock.

Barcode Scanner

A device used to identify items via a unique barcode performs inventory and fulfillment tasks like booking-in, picking, and stock take.

Beginning Inventory

The value of any unsold inventory at the start of an accounting period.

Bundled Inventory

A group of individual products from inventory are brought together to be sold as one under a single SKU.

Carrying Costs

The total costs are associated with holding and storing inventory in a warehouse or facility until it is sold to the customer.

Cost of Goods Sold

Cost of Goods Sold (COGS) is a direct cost of producing the goods sold by a company. It includes the cost of the materials, labor, and tools used to create the good, and it does not include indirect costs like distribution or marketing expenses.

To calculate COGS, follow this formula:

COGS = Beginning Inventory + Purchases during the period – Ending inventory
Let’s say you want to calculate your COGS for the quarter. On January 1st, your business has a beginning inventory of $10,000. Your purchases total up to $5,000 for the quarter. And your ending inventory is $2,000.
COGS = $10,000 + $5,000 – $2,000 = $13,000
Thus your Cost of Goods Sold for the quarter is $13,000.

Dead Stock

Unsold inventory that remains unsold for a long enough time to be deemed outdated and virtually unsellable.

Ending Inventory

The value of any unsold inventory at the end of an accounting period.

First-In-First-Out

An inventory valuation method assumes that stock purchased first is also the first to go out.

Inventory Count

Typically known as a stock take, this is the systematic process of taking a physical inventory count to verify accuracy.

Inventory Shrinkage

Inventory shrinkage is a term to indicate inventory items that have been damaged or otherwise lost between the point of purchase and sale.

Inventory Valuation

The process of giving unsold inventory a monetary value to show as a company asset in financial records.

Inventory Variant

The variations of a single product. For example, stocking a t-shirt in various colors and sizes.

Inventory Visibility

The ability to see precisely where its inventory is and how it is being used.

Last-in-first-out (LIFO)

An inventory valuation method assumes the most recent products added to your inventory are the ones to be sold first.

Lead Time

Lead time is the time span between placing your inventory order and receiving it.

Multi-channel

A retail model that focuses on selling in multiple different places, usually online via a combination of websites and marketplaces.

Omnichannel

A retail model that goes beyond multi-channel integrates all of a company’s online and offline sales channels into one unified customer experience.

Order Fulfilment

Getting your customer’s sales order from your warehouse or distribution center to it being in their possession.

Order Management

The methodical order management process behind organizing, managing, and fulfilling all the sales orders coming into a business. From receiving orders and processing payment to picking, packing, shipping, and speaking with customers.

Overselling

Taking online orders for a product that turns out to be out of stock (typically due to poor inventory management).

Periodic Inventory Management

A type of inventory system that uses a manual process to count and update on-hand stock levels periodically.

Perpetual Inventory Management

It is a type of inventory system that involves automating your inventory tracking to stay perpetually updated in real-time.

Pipeline Inventory

Any inventory that is on its way to a company’s warehouse shelves is currently en route somewhere within their supply chain – e.g., being manufactured or transported by the supplier.

Purchase Order (PO)

A commercial document created by a business for its supplier detailing items and agreed prices for new products to add to on-hand inventory.

Reorder Point

The ‘reorder point’ or ‘replenishment order quantity is the inventory level used to determine the need for stock replenishment. As stock reaches the reorder point, the seller can release fresh purchase orders to the supplier for replenishment.

Sales Order (SO)

A purchase document detailing which products will be received and how much will be paid.

Stock-Keeping Unit (SKU)

An SKU is a unique alphanumeric code applied to each variant in a company’s inventory, helping to identify and organize a product catalog easily.

Supply Chain

A product or commodity’s complete flow from origin to the consumer – including raw materials, finished goods, warehouses, and final destination. A retailer might not be responsible for most parts of this supply chain but should still be aware of its entirety for the products they sell.

Third-party Logistics

Refers to using an external third party to handle warehousing, inventory, fulfillment, or customer service on behalf of a retail company.