Inventory Management Glossary
This comprehensive glossary of terms related to inventory management is meant for fast-growing brands who want more in-depth knowledge of retail operations. See something we missed? Let us know and we’d be happy to find the definition for you as it relates to inventory & order management.
3PL: A third-party logistics (abbreviated 3PL, or sometimes TPL) provider, in logistics and supply chain management, is a company’s use of third-party businesses to outsource elements of the company’s distribution and fulfillment services.
4PL: The concept of a 4PL provider is an integrator that accumulates resources, capabilities, and technologies to run complete supply chain solutions. Main Difference between 3PLs and 4PLs. The 3PL targets a single function, whereas the 4PL manages the entire process. A 4PL may manage the 3PL.
Application Program Interface (API): A set of routines, protocols, and tools for building software application interfaces.
Available Stock: The amount of stock that is available to sell.
Average Initial Retail (AIR): The price a retailer sets to sell their merchandise. AIR can sometimes align with MSRP, or, the manufacturer’s suggested retail price. AIR is the original ticket price and is not impacted by promotions or markdowns.
Average Unit Retail (AUR): The average price paid by the consumer for merchandise sold during a given time period. AUR takes into account any discounting during the time period (promotions, markdowns), and is not to be confused with AIR (see definition above).
Average Unit Costs (AUC): The average price your company pays to obtain the merchandise sold during a given time period. AUC is a large factor in determining your profitability. If your AUC is going up while your Average Unit of Retail (AUR) remains the same (or declines), your margins and profits will suffer. On the other hand, if you can lower your AUC while maintaining your AUR, you’ll increase your profitability.
Backorder: The ability to place and track an order for an item that is temporarily out of stock.
Buy online, pick-up in-store (BOPIS): The ability to buy a product online and then pick it up at a physical store location. This option is convenient for customers because it eliminates uncertain availability as well as shipping time.
Bundles: Combinations of multiple, related products; for example, you might bundle and sell a winter hat, scarf, and gloves.
Closed Order: A sales order for which the purchased goods have been fulfilled or delivered.
Committed Stock: The total amount of stock assigned to your sales orders.
Component: A part or element of a larger whole, such as the individual items that are included in a product bundle or kit.
Dropshipping: The shipment of goods from the manufacturer directly to the customer without going through the seller’s usual distribution channels.
Electronic Data Interchange (EDI): The electronic interchange of business information using a standardized format; a process which allows one company to send information to another company electronically rather than with paper. Business entities conducting business electronically are called trading partners.
Enterprise Resource Planning (ERP): A process by which a company (often a manufacturer) manages and integrates the important parts of its business. An ERP management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, and human resources.
Evergreen Items: Also known as basics, evergreen items are those that don’t go out of fashion and for which customers will always have demand. For example, socks, underwear, and basic t-shirts might be considered evergreen items for an apparel retailer.
Flash Sale: A sale of goods at greatly reduced prices, lasting for only a short period of time.
Forecasting: The use of historical data to determine the direction of future trends.
Geo-routing: When a brand or retailer has multiple places from which they fulfill, geo-routing is the practice of fulfilling a customer’s order based on his or her location. For example, if a company has warehouses and/or stores in Los Angles, New York, and Chicago and a customer places an order to be delivered to New Jersey, the order would be geo-routed from the New York warehouse.
Gross Margin (%): Receiving, packing, and shipping an order from a sales channel.
Historical Orders: Historical orders are the sales, purchase or transfer orders that have been processed in the past. This information is critical when forecasting demand and inventory replenishment for future sales.
Inflated Stock: Artificially high stock counts most commonly caused by inaccurate stock takes or improperly received and processed purchase orders.
Initial Mark-Up (IMU): The difference between the price you paid and what you charge customers. Not only should your initial sales price cover the cost of the item but it should also cover a portion of your overhead expenses–rent, utilities, insurance, etc–while leaving room for profit. Yet, many factors can affect how much you need to markup an item in order to get the best return on investment: competition, market saturation, anticipated markdowns, and perceived customer value. If you miscalculate any of these elements, you could end up overpricing your product and needing to mark it down at a later date in order to move it.
Inventory Management: The practice of overseeing and controlling of quantities of finished products for sale.
Inventory On Hand: The amount of stock physically present in your warehouse or storage location. It’s important to remember with this metric that even if a product is sold, it is not subtracted from inventory on hand until it physically leaves the warehouse, so this number will usually be higher than your available inventory. (This definition is based on industry standards, though some customers do measure it differently.)
Inventory Turnover: This metric tracks how quickly a retailer is selling and replacing inventory, ultimately providing insight into business efficiency and return on inventory investment. The higher the turnover, the less time your inventory spends collecting dust on your shelves (and the less money it costs you by doing so).
Lead Time: The time between the initiation and completion of a production process for products.
Line Items: An entry that appears on a single line of a sales order, purchase or transfer order—generally comprised of a single product variant.
Lot Size: The quantity of an item ordered for delivery on a specific date or manufactured in a single production run.
Multichannel: When a retailer sells their products on multiple sales channels; for example, an eCommerce site, a brick-and-mortar store, and a marketplace like Amazon.
Omnichannel: Denoting or relating to a type of retail that integrates the different methods of shopping available to consumers (e.g., online, in a physical store, or by phone). Omnichannel differs from multichannel in the effort to make all channels as streamlined and cohesive as possible so the brand’s distinct personality is noticed no matter where a consumer is shopping for their products.
Order Hold Time: A period of time that a seller deliberately delays fulfilling and shipping a sales order to ensure a customer does not cancel or modify the order.
Open Sales Order: A sales order for which the purchased goods have not been fulfilled or delivered.
Operations: Includes all mechanisms to keep a store (online or physical) functioning well. It includes a broad spectrum of activities, from people management to the supply chain, store layout, cash operations, physical inventory, master data management, offers, and pricing.
Order Fulfillment: The steps involved in receiving, processing and delivering orders to end customers. A fulfillment service is defined as a third-party company that provides these order fulfillment steps on behalf of another party, such as an online seller.
Order Management: The administration of business processes related to orders for goods or services. An order management system (OMS) automates and streamlines order processing for businesses.
Order Splitting: Refers to splitting individual products purchased on a single sales order into more than one order to facilitate fulfillment options. This could involve routing orders to separate warehouses based on inventory availability or often separates pre-order items from inventory on hand items.
Ordering Systems: The “mechanical” part of inventory management. They’re the programs that take forecasts, actual orders, safety stock, and order quantities and turn them into purchase orders or production orders.
Packing Slips: A packing slip (also known as a bill of parcel, unpacking note, packaging slip, (delivery) docket, delivery list, manifest or customer receipt), is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself.
Partial Fulfillment: When a customer orders more than one item and one or more is in-stock and one or more is out-of-stock, fulfillment may be split so the available stock can be fulfilled immediately and the remaining item(s) is separated to be fulfilled upon availability.
Pick and Pack: Selecting items and packing them for fulfillment. Many retailers choose to use barcoding to make this process faster and more accurate.
Pick Lists: A document that indicates which items should be taken from your inventory to fulfill orders. This is particularly useful for shippers with a large amount of inventory, volume of orders, or customers ordering many SKUs.
Pop-up Store: A retail store that is opened temporarily to take advantage of a trend or a seasonal product. Demand for products sold in pop-up retail is typically short-lived. Pop-up retail stores are found most often in the apparel and toy industries.
Preorder Preorders: Enable retailers to test demand for products as well as build excitement for launches. They can accept preorders for a product without actually having it in stock or ready for immediate fulfillment.
Product Tags: A subset of product taxonomy, product tags facilitate searching for products. They are especially useful when thousands of SKUs/variants are present.
Product Taxonomy: Taxonomies help optimize sales by grouping like products into categories that allow you turn sporadic or inconsistent sales data into usable metrics.
Purchase Order (PO): A document used by a buyer to order items from distributor/seller.
Reorder Points (ROP): The level of inventory which triggers an action to replenish that particular inventory stock. It is a minimum amount of an item which a firm holds in stock, such that, when stock falls to this amount, the item must be reordered.
Replenishment: The restoration of a stock or supply or inventory to a former level.
Safety Stock: Safety stock inventory, sometimes called buffer stock, is a term used by inventory managers to describe a level of extra stock that is maintained to mitigate the risk of stockouts or (shortfall in raw material or finished goods) due to uncertainties in supply and demand.
Sell-Through: The percentage of units sold during a period. It is calculated by dividing the number of units sold by the beginning on-hand inventory (for that same time period). This metric is useful for comparing products against each other as well as comparing how a specific product does week over week, month over month, etc. Sell through is a healthy way to assess if your investment is returning well for you. A high sell-through % could indicate inventory opportunity while a low sell-through % could indicate overinvestment. Remember that sell through % alone does not convey the full story. It is important to take into consideration factors such as time on offer, season code, and receipt cadence in conjunction with your sell-through %.
Short Shipment: A short shipment is when inventory is listed on a shipping list for a sales order, purchase order or transfer order but not included in a shipment, or not received by the recipient. Notably, when the quantity received is less than the quantity listed.
Stock: A brand or retailer’s physical products.
Stock Log: The ability to pull a record of all stock on hand (within your current inventory system) at any given time.
Suppliers: The parties that organize, manufacture, and/or provide the items you sell.
Supply Chain Managment (SCM): The oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies.
Transfer Order: Used to coordinate and control stock movement between warehouses.
Variants: A product variant is a specific item that is grouped with related variants that together form a product. Variants usually vary from each other in one or more properties. A product variant always includes a unique identifier, such as a SKU, and a price. Each product variant is based on the same product definition.
Velocity Reporting: Shows how quickly your inventory is selling, measured at multiple time intervals.
Virtual Warehousing: A digital record of inventory. Often used to delineate inventory for use other than your main online sales channel (retail locations, wholesale, etc).
Warehouse Management System (WMS): A software application that supports the day-to-day operations of a warehouse. WMS programs enable centralized management of tasks such as tracking inventory levels and stock locations as well as the pick, pack, and ship process for order fulfillment.
Weeks on Hand: A ratio that estimates the number of weeks it will take a business to sell through its inventory. This metric takes into account current inventory levels, sales velocity, and future receipts. Weeks on hand is an estimation and should be used in conjunction with other inventory metrics to assess risk/opportunity. Also, the optimal weeks on hand number will vary depending on sector, maturity industry.
Wholesale: The selling of goods in large quantities to be retailed by others.