Glossary
26 supply chain terms, defined plainly, each linked to the calculator where you can put it to work.
- ABC Analysis
- A Pareto-based method for classifying inventory into A/B/C tiers by their share of total value, so control effort focuses on the highest-value items first.
- Carrying Cost
- The annual cost of holding inventory — storage, insurance, obsolescence, taxes, and the opportunity cost of capital — usually expressed as a percentage of inventory value.
- Cycle Stock
- The average inventory level resulting purely from the normal order-and-deplete cycle under steady demand — equal to order quantity divided by two.
- Days Inventory Outstanding (DIO)
- The average number of days inventory sits before being sold — the same underlying measure as inventory turnover, expressed in days instead of a ratio.
- Economic Batch Quantity (EBQ)
- EOQ's counterpart for in-house manufacturing, accounting for the fact that production arrives gradually at a finite rate rather than all at once.
- Economic Order Quantity (EOQ)
- The order size that minimizes the combined cost of ordering (setup cost) and holding (carrying cost) inventory. Found where those two cost curves intersect.
- Exponential Smoothing
- A forecasting method that blends the most recent actual demand with the prior forecast, controlled by a smoothing factor (alpha) between 0 and 1.
- Inventory Accuracy
- How closely physical inventory counts match system records, expressed as a percentage. Every ordering calculation is only as reliable as this number.
- Inventory Turnover
- How many times inventory is sold and replaced over a period, calculated as Cost of Goods Sold divided by average inventory value.
- Lead Time
- The time between placing an order and receiving it. Lead time variability, not just the average, drives how much safety stock a supplier requires.
- Mean Absolute Deviation (MAD)
- The average size of forecast errors, in the same units as demand — a straightforward measure of how far off a forecast typically runs.
- Mean Absolute Percentage Error (MAPE)
- Forecast error expressed as a percentage of actual demand, which makes it comparable across products with very different volumes.
- Minimum Order Quantity (MOQ)
- The smallest order size a supplier will accept, often tied to price breaks — a larger MOQ typically lowers cost per unit but ties up more capital and storage.
- Moving Average
- A demand forecast formed by averaging a fixed number of the most recent periods, smoothing out short-term noise.
- Picking Productivity
- Units picked per labor hour — a core measure of warehouse labor efficiency.
- Pipeline Inventory
- Stock that has been shipped but not yet received — in transit between a supplier and a warehouse, or between locations.
- Reorder Point (ROP)
- The inventory level that triggers a new order — set to cover expected demand during the supplier's lead time, plus safety stock.
- Safety Stock
- Buffer inventory held beyond expected demand to protect against variability in demand or lead time, sized to hit a target service level.
- Service Level
- The target probability of not stocking out during a lead time window, expressed as a percentage and converted to a Z-score for safety stock calculations.
- Space Utilization Efficiency
- Inventory value generated per unit of warehouse floor space, used to compare how effectively different zones or facilities use square footage.
- Stockout Cost
- The estimated cost of running out of inventory — lost sales, rush freight, and customer goodwill — used to weigh against carrying cost when setting service levels.
- Storage Density
- Units stored per unit of warehouse space, used to compare storage methods (racking, shelving, bulk) on how much they pack into the same footprint.
- Supplier Scorecard
- A weighted rollup of supplier performance across quality, delivery, cost, and service, used to compare suppliers consistently rather than on gut feel.
- Total Cost of Ownership (TCO)
- The fully-loaded per-unit cost of a purchase — unit price plus freight, inspection, and warranty/returns overhead — rather than quoted price alone.
- Warehouse Capacity Utilization
- Current inventory as a percentage of total warehouse capacity — the basic gauge of how full a facility is.
- Weighted Moving Average
- A moving average that assigns different weights to each period, typically giving more recent periods more influence over the forecast.