The Inventory Planning Dictionary: 140+ Terms Defined

This inventory planning dictionary defines 140+ supply chain and inventory terms in plain English, from everyday acronyms like SKU, EOH, BOH, and S&OP to core planning concepts like safety stock, lead time, and weeks of supply. Use it as a quick reference whether you're a seasoned planner or just getting started, and jump to any term in the table of contents.

3PL

3PL (third-party logistics) is an organization's use of an outside business to outsource parts of its distribution, warehousing, and fulfillment services. Also known as TPL.

80/20 rule

The 80/20 rule holds that 80% of effects result from 20% of causes. In planning, it often refers to the top 20% of SKUs that drive 80% of a business's sales. Also known as the Pareto Principle.

Air ship

Air ship is a mode of transporting saleable goods. Because of its high cost, it is typically used to speed up a product's lead time for an earlier receipt.

Allocation

Allocation describes how demand is spread across an entire portfolio or a subset of products. It can describe sizing (size allocation) of a style, or demand across all products in a category by style or color.

Anticipated stock out

Anticipated stock out is a calculation of when an item will go out of stock, computed as today's date + (DSI / 365). See DSI.

AOV

AOV (average order value) is a metric for how much a customer spends on average per order, calculated as revenue ÷ number of orders. Also called basket size or cart value.

API

API (application programming interface) is a means that allows computer applications to communicate with each other.

ATS

ATS (available to sell) is the number of units of a product allocated for sale. By default it excludes units pending shipment, allocated to existing orders, or committed on backorders.

AUC

AUC (average unit cost) is a metric for the per-unit cost of inventory sold, held, or in transit, calculated as total cost of goods ÷ total units.

AUR

AUR (average unit retail) is a metric for the per-unit retail value of inventory sold, held, or in transit, calculated as total retail value of goods ÷ total units.

Available stock

Available stock is the total amount of an item available for use or sale, calculated as total stock on hand − allocated stock. Similar to ATS.

Average inventory

Average inventory measures the value of goods across two or more time periods and is typically used in calculating turnover. It is calculated as (period 1 inventory + period 2 inventory) ÷ number of periods.

Backorder

A backorder is an order for goods that cannot be fulfilled at the current time due to a lack of available stock, implying that demand outweighs supply.

Barcode

A barcode is a unique, machine-readable representation of a product. It can refer to the visual pattern scanned at a POS or a unique number string specific to an individual SKU.

BOH

BOH (beginning on hand) is the total inventory value at the start of a period, typically a month, week, or year. Related terms include BOP (beginning of period), BOM (beginning of month), and BOS (beginning of season). BOH is usually stated at cost value but can also be shown at retail value, and typically represents total value owned, including inventory not sitting at a warehouse.

BOM

BOM (bill of materials) is a list of the materials required to produce an item. A BOM may be tied to a production order, generating reservations on in-stock components and a request to order those that aren't.

Bottom-up forecasting

Bottom-up forecasting is an approach that focuses on the performance of an individual product and de-emphasizes macro factors such as a business's sales plan or other products. It is the opposite of top-down forecasting, and the two are often used together to optimize forecasts.

Breadth

Breadth is the number of product lines a company carries, used in conjunction with depth, which is the variety within each product line.

Build

Build describes performance over two consecutive periods, calculated as period 2 sales ÷ period 1 sales. For example, a SKU selling $80 in January and $90 in February has a 1.125x or 12.5% build. A result below one is a de-build.

Bundles

Bundles, also known as kits, are the combination of multiple SKUs sold as one.

Campaign

A campaign is a marketing or advertising effort that promotes a product across media channels over a set time period to increase sales of a product or subset of products.

Cannibalization

Cannibalization is the reduction in sales of one product due to the presence of another product in the assortment.

Capacity

Capacity is the maximum output of products that can be produced in a given period, and can be referenced in the design, production, or fulfillment of goods.

Carrying costs

Carrying costs are the costs of holding inventory, calculated as cost of inventory on hand + storage cost of inventory on hand. They are typically used in calculating EOQ.

Carton quantity

Carton quantity is the number of products that fit in a box, typically used with MOQ to determine the most cost-effective production of goods.

Channel

A channel, also known as a vertical, is a method of selling products, such as a retail store, eCommerce platform, or third party. Multi-channel refers to using two or more channels.

COGS

COGS (cost of goods sold) is the total value or cost of products sold during a specific time period.

Committed stock

Committed stock is product not available for sale because it is reserved, typically for a sales or purchase order.

Comp styles

Comp styles are comparable styles of product used as an indicator of sales in cases of uncertainty.

Consumption

Consumption is the amount of raw materials used in the production of goods.

Cost of capital

Cost of capital is the cost associated with having money tied up in inventory.

Current period

Current period (CP) is a specific current time period, often used alongside TY (this year) and LY (last year).

Cycle count

A cycle count is the process of verifying inventory quantity data by regularly counting portions of inventory.

Dashboard

A dashboard is a visible summary of key data used to understand overall performance.

Demand

Demand is the need for a specific item in a specific quantity. Unlike sales, demand is an indicator unaffected by inventory availability.

Discount

A discount is the savings a customer receives from a coupon, or that a wholesaler receives in order to profit on the sale of a good.

Distribution center

A distribution center (DC) is a warehouse or location that stocks product for sale to retailers, wholesalers, or customers.

Dropship

Dropship is a method of moving goods to the end user without going through the typical distribution channel, such as fulfilling from a warehouse rather than a store, or shipping directly from the factory to the customer.

DSI

DSI (days sales of inventory) is a metric for the average time in days to turn inventory into sales, calculated as (average inventory ÷ COGS) × 365. Also known as the average age of inventory.

EDI

EDI (electronic data interchange) is the transfer of data from one computer system to another.

EOH

EOH (ending on hand) is the total inventory value at the end of a period, typically a month, week, or year. Related terms include EOP (end of period), EOM (end of month), and EOS (end of season).

EOQ

EOQ (economic order quantity) is the most cost-effective quantity to order, found at the point where order cost and carrying cost are lowest.

ERP

ERP (enterprise resource planning) is business process management software that integrates multiple applications to manage a business and automate functions.

Excess inventory

Excess inventory is inventory greater than the amount deemed "right" based on a business's turn goals. Any inventory beyond that target period is considered excess.

FIFO

FIFO (first in, first out) is a method of valuing inventory that assumes the first items placed in inventory are the first sold.

Fill rate

Fill rate is a metric comparing items sold to items purchased, calculated as items sold ÷ items purchased.

Finished goods

Finished goods are inventory in a saleable or shippable form, depending on their location in the supply chain.

FOB

FOB (free or freight on board) means the seller or factory pays to transport goods to the port and load them, while the buyer pays remaining costs to the final location.

Forecast

A forecast is an estimate of future demand.

Forecast period

Forecast period is the time span for which a forecast is applicable.

GMROI

GMROI (gross margin return on inventory investment), also GMROII, is an inventory profitability ratio showing margin relative to inventory investment.

Gross Margin

Gross margin is the difference between cost and sale price, or a business's total sales less its COGS.

GM%

GM% (gross margin percentage) expresses gross margin as a function of sale price or total sales.

Gross sales

Gross sales is a metric for a company's overall sales, excluding the costs of generating those sales as well as discounts or returns.

Handover

Handover is the point when goods finish production and begin transportation to their final destination or warehouse.

Hindsight

Hindsight is the act of analyzing and recapping product performance in a specific forecast period.

Historical sales

Historical sales are sales attached to prior periods of time.

IMS (In-Market Sales)

IMS (in-market sales) is the sale of a company's products after they have already sold to the original customer.

IMS (Inventory Management System)

IMS (inventory management system) is technology, both hardware and software, that tracks inventory levels, orders, sales, and deliveries.

IMU

IMU (initial or item markup) is the amount, expressed as a percentage, that a retailer adds to the cost of a good to determine its selling price.

In-Season

In-season is a current planning period.

In-stock rate

In-stock rate is the amount of an assortment that is in stock, calculated as SKUs in stock ÷ total available SKUs.

In transit

In transit describes goods between the time of handover and the time of receipt.

Inventory turnover

Inventory turnover, also known as turn, is a measure of the velocity of inventory, calculated as average inventory ÷ annual COGS.

Just-in-time

Just-in-time (JIT) is the ordering and receipt of inventory for a shorter demand window.

Landed costs

Landed costs, also known as standard or direct costs, are the costs of producing and receiving saleable goods to a storage location.

Last-period demand

Last-period demand is a forecasting method that uses demand from a previous period as the forecast for a subsequent period.

Lead-time

Lead-time (LT) is the amount of time it takes for a purchased item to be delivered after it is ordered.

Lead-time demand

Lead-time demand is demand accounted for during a product's lead time.

LIFO

LIFO (last in, first out) is a method of valuing inventory that assumes the last items placed in inventory are the first sold.

Line plan

A line plan defines which products will be added to the assortment, how many pieces to expect, and when they will be available.

Liquidate

To liquidate is to convert stale or excess inventory into cash by selling to a third party.

Lot size

Lot size, also known as order quantity, is the quantity of an item ordered for delivery on a specific date.

Made-to-order

Made-to-order, also referred to as procure-to-order, refers to goods produced to supply a specific demand.

MAP

MAP (minimum advertised price) is the minimum amount resellers agree not to advertise a product's price below.

Markdown

A markdown is the lowering of a product's selling price.

MOH

MOH (months on hand) is a metric for how many months it will take inventory to sell out based on current on-hand inventory.

MOQ

MOQ (minimum order quantity) is the minimum amount that can be ordered from a supplier in a single order.

MRP

MRP (materials requirement planning) is a system for production planning, scheduling, and inventory control.

MSRP

MSRP (manufacturer's suggested retail price) is the price suggested by the manufacturer to sell a product.

Multi-channel

Multi-channel refers to a business's use of many channels of selling.

Net sales

Net sales is gross sales less discounts, returns, and allowances.

OMS

OMS (order management system) is software used for order entry and processing.

On-hand inventory

On-hand inventory is the value of inventory available at a given time.

On order

On order is a record of goods requested but not yet received.

OOS rate

OOS rate (out of stock rate) is the inverse of in-stock rate.

Open PO

An open PO (open purchase order) is a purchase order for which goods are not delivered or only partially delivered.

OTB

OTB (open-to-buy) is the difference between how much inventory is needed and how much is available.

Overstock

Overstock is inventory or supply in excess of what is needed based on demand.

Penetration

Penetration is the impact a product's or category's sales has on the overall business.

Phase off

Phase off, also known as sell-off, is the intentional depletion of inventory.

PI

PI (physical inventory) is the process of counting all inventory in a warehouse or location in a single period.

Plan

A plan reflects the optimal timing and quantity of a product assortment.

PLM

PLM (product lifecycle management) is software that tracks a product through development, launch, growth, maturity, and decline.

PO

A PO (purchase order) is a contract document used to request, authorize, track, and process items purchased from a supplier.

POS

POS (point-of-sale) is the time and place at which a retail transaction is completed.

Post-mortem

A post-mortem is the analysis of a product, category, or business after a sale or forecast period.

Post-season

Post-season is the period following in-season.

Pre-season

Pre-season is the period before a product's sale or in-season period.

Product life cycle

Product life cycle is the period in which an item is an active saleable item.

Production time

Production time is the amount of time it takes to manufacture a product.

Profitability

Profitability is the degree to which a business or product yields financial gain.

Promotion

A promotion is the act of increasing marketing activity or reducing selling price to support sales of a product.

Raw materials

Raw materials are inventory used in the production process of goods.

Reorder point

A reorder point is the inventory level set to trigger an order of an individual product.

Receipts

Receipts are the finished goods associated with the receiving process.

Receiving process

The receiving process is the act of placing finished goods into inventory.

Recency

Recency refers to the sales closest to the forecast period.

Relevant history

Relevant history is data recorded under conditions similar enough to current and future periods that it can be used to forecast demand.

Replenishment

Replenishment is the physical re-stocking of products.

RFID

RFID (radio frequency identification) is a technology in which encrypted digital data aids the physical tracking of inventory.

ROI

ROI (return on investment) is a measure used to evaluate the efficiency of an investment.

Safety stock

Safety stock, also known as buffer stock, is the quantity of inventory reserved to allow for variation in demand.

Sales order

A sales order is a document used to approve, track, and process outbound customer orders or shipments.

Sales per square foot

Sales per square foot measures the return on investment of a physical selling location.

Sales velocity

Sales velocity is a measurement of how fast a business is making money or how quickly a product is sold.

Seasonality

Seasonality is fluctuation in demand that repeats the same pattern over like time periods.

Sell-off

Sell-off is the act of intentionally depleting a product's inventory.

Sell-through rate

Sell-through rate compares inventory owned to amount sold for a period.

Service level

Service level describes a desired fill-rate and on-time-delivery rate.

Setup costs

Setup costs are costs associated with initiating a production run.

Short-ship

Short-ship refers to goods requested on a PO but not fully fulfilled by the supplier.

Short-stock

Short-stock is when there isn't enough supply to meet demand, resulting in a stockout.

Shrink

Shrink, also shrinkage, is when a business has fewer items in stock than recorded.

SKU

SKU (stock keeping unit) is a specific item in a specific unit of measure.

Smoothing

Smoothing is the removal of variation from demand.

Stale inventory

Stale inventory is inventory that has exceeded its shelf life.

Standard deviation

Standard deviation describes the spread of variation in a distribution of data.

Stock-to-sales

Stock-to-sales is a monthly ratio measuring the ability of on-hand inventory to meet demand.

Stockout

A stockout is when inventory levels are not enough to meet demand.

Stockout date

Stockout date is a measure of when an item will run out of stock.

Storage cost

Storage cost is the cost of physically storing inventory.

Top-down forecasting

Top-down forecasting is a method that quantifies macro or external impacts on a business.

Transit time

Transit time is the length of time it takes a finished good to reach its receiving location from its handover location.

Trend

A trend is a gradual increase or decrease in demand over time.

Units

Units are individual pieces of physical inventory.

UOM

UOM (unit of measure) describes how the quantity of an item is tracked in inventory.

UPC

UPC (universal product code) is a unique string of 12 numeric digits assigned to each product.

UPT

UPT (units per transaction) is a sales metric for the average number of items a customer purchases per order.

Variability

Variability describes data that diverges from the average or norm, and the extent to which it differs.

Variants

Variants are unique attributes tied to a specific product.

Virtual warehouse

A virtual warehouse collects and displays business data for any moment in time.

Volatility

Volatility is the tendency to change rapidly and unpredictably.

WMS

WMS (warehouse management system) is software whose goal is to support and optimize warehouse functionality.

WOH

WOH (weeks on hand) is a metric for how many weeks it will take inventory to sell out.

WOS

WOS (weeks of supply) is a metric for how many weeks it will take inventory to sell out.

Yield

Yield is the amount of goods created from raw materials.

YoY

YoY (year-over-year) describes data relative to a prior-year period.