44 Inventory Management Key Terminologies

44 Inventory Management Key Terminologies

Inventory management can be pretty intimidating especially if you’re new in this role.  We have come up with 44 commonly used inventory terms that you can familiarize yourself with. Committing these inventory terms to memory and understanding them may help you sound intelligent when discussing inventory management.


3PL = Third-party logistics – is a third-party company that your business hires to manage product transportation, warehouse, customer order fulfilment, or all three. 

ABC Analysis – Is an approach for classifying items by dividing them up in three categories.  

AIDC = Automatic identification and data collection – is a range of technologies that are used to identify, record, communicate, and verify products, examples are barcodes, QR codes, RFID tags, etc. 

B2B – (business-to-business) where businesses make deals with another business

B2C – (business-to-customer) where a customer buys a good from a business 

Backorder – A scenario where the product gets all sold out even in the warehouse, making the customer having to wait until it comes back into stock. 

Break Bulk – the operation in which an item is broken down into smaller amounts before delivery to customers.

Business Strategy – the strategic concepts ideas, and decision that are made and executed that affect a business as a whole

Carrying Cost – refers to the expenses that come with storing inventory. 

Causal Forecast – is an approach that is used to measure the relationship between dependent and independent variables

Consumables – are a group of materials used to affiliate the order through but is not in the final product. 

CRM = Customer Relationship Management – is a software that helps manage and maintains current and potential customers. 

Cross-Docking – likes delivery from one semi-truck to the next, this system is like a relay with no storage in-between. 

Demand – the amount of goods wanted by customers

Destock – reduce by removing the amount of stock held

DSD = Direct-to-store delivery – Companies that use DSD do not wish to use a warehouse or distribution center to house their inventory. Instead products are being shipped straight from supplier to retailer. 


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EOQ = Economic Order Quantity – is the order size a company should purchase to minimize the storage costs

Electronic Data Interchange – a process of transferring data directly between remote computers

FIFO = First-in-first out – is when the oldest inventory good is shipped out first

Forecast – a future estimation that could happen

Forecast Value – the difference between actual value and forecast value

Holding Cost – the amount it costs to keep units of inventory in stock

Information System – An organizations system that is responsible for the control of information that flows through it 

Inventory – good that are in stock

Item Coding – is a way of identifying every single item in inventory

Lead Time – the difference between the time of the initial order and the time of delivery

LIFO = Last-in-last-out – is when the newest inventory good is shipped out last

Lost Sales – when customers do not proceed to checkout because they find a better deal else where 

Mass Customization – an operation that requires a mass collection of customized goods

Master Schedule – the detailed schedule of each commodity such as production, inventory, staffing, etc. 

Material Requirements Planning (MRP) – is a computer-based software that keeps track/manages the process of planning, production, and storing inventory

Mean Error – the difference between the true value and the measured value

Noise – not normal time series variations

Outsourcing – utilizing a third-party organizations or freelancer to complete external activities

Pipeline Stock – items that are currently in transit from being moved from one place to another

Price – the amount the seller is charging for a product

Replenishment – restocking of units in replacing goods that have been shipped out

Replenishment Rate – the rate material is being added to stock

Seasonal Stock – stocks that stay in operation for a season at a time

Shortage – happens when the demands of the consumer cannot be met because short of stock

Unit – the standard size of an item/good

Unitization – combining different goods into a singular load to ease the shipment

Warehouse – a large location where items/products/goods are held/stored

Work in Process – the goods currently being worked on