Glossary

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.

The annual cost of holding inventory — storage, insurance, obsolescence, taxes, and the opportunity cost of capital — usually expressed as a percentage of inventory value.

The average inventory level resulting purely from the normal order-and-deplete cycle under steady demand — equal to order quantity divided by two.

The average number of days inventory sits before being sold — the same underlying measure as inventory turnover, expressed in days instead of a ratio.

EOQ's counterpart for in-house manufacturing, accounting for the fact that production arrives gradually at a finite rate rather than all at once.

The order size that minimizes the combined cost of ordering (setup cost) and holding (carrying cost) inventory. Found where those two cost curves intersect.

A forecasting method that blends the most recent actual demand with the prior forecast, controlled by a smoothing factor (alpha) between 0 and 1.

How closely physical inventory counts match system records, expressed as a percentage. Every ordering calculation is only as reliable as this number.

How many times inventory is sold and replaced over a period, calculated as Cost of Goods Sold divided by average inventory value.

The time between placing an order and receiving it. Lead time variability, not just the average, drives how much safety stock a supplier requires.

The average size of forecast errors, in the same units as demand — a straightforward measure of how far off a forecast typically runs.

Forecast error expressed as a percentage of actual demand, which makes it comparable across products with very different volumes.

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.

A demand forecast formed by averaging a fixed number of the most recent periods, smoothing out short-term noise.

Units picked per labor hour — a core measure of warehouse labor efficiency.

Stock that has been shipped but not yet received — in transit between a supplier and a warehouse, or between locations.

The inventory level that triggers a new order — set to cover expected demand during the supplier's lead time, plus safety stock.

Buffer inventory held beyond expected demand to protect against variability in demand or lead time, sized to hit a target 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.

Inventory value generated per unit of warehouse floor space, used to compare how effectively different zones or facilities use square footage.

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.

Units stored per unit of warehouse space, used to compare storage methods (racking, shelving, bulk) on how much they pack into the same footprint.

A weighted rollup of supplier performance across quality, delivery, cost, and service, used to compare suppliers consistently rather than on gut feel.

The fully-loaded per-unit cost of a purchase — unit price plus freight, inspection, and warranty/returns overhead — rather than quoted price alone.

Current inventory as a percentage of total warehouse capacity — the basic gauge of how full a facility is.

A moving average that assigns different weights to each period, typically giving more recent periods more influence over the forecast.