Inventory Management Terms You Need To Know

July, 2020

Knowing Inventory Management Terms will greatly help you in understanding your business and allow you to discuss matters better. This can also help you when you discuss matters with your solutions provider, suppliers, and contract manufacturers.

In our previous article, we discussed the different types of Inventory so you can better gauge what your business needs.

Listed below are the terms you will most likely encounter when you’re managing your Inventory. Better to familiarize yourself with these terms, so the next time you hear or see these words you can relate more with your customers.


Otherwise known as Third-party Logistics, refers to an organization availing the service of a third-party to outsource the logistics aspect of the business such as the fulfilment of services, warehouse and inventory management


It is an enhanced version of the 3PL. It has a much broader scope of responsibility, capable of managing your resources, technology, and even oversee other 3PL to provide a better supply chain for businesses.

Application Program Interface (API):

Is what allows several applications to access data and the features of other applications to simplify the processes.

Available Stock:

It is the actual amount of stock sitting in your inventory to be sold.

Average Initial Retail (AIR):

It is the amount the retailers have decided to sell their products. It is not, by any way, influenced by promotions and de-valuation of the merchandise. This sometimes is also aligned with the Manufacturers Suggested Retail Price (MSRP).

Average Unit Retail (AUR):

This is the average price that the consumer pays for a product. AUR takes into consideration all the promotions and discounts during a certain period, which differentiates it with AIR.

Average Unit Costs (AUC):

This is the average amount the company paid to acquire the product at a certain time period. AUC determines the profitability of the product. If the AUR remains the same while your AUC is going up, this will greatly affect your profit margin. On one hand, profitability will increase if you can lower the AUC.


This the order of a product by a retailer for an item that went out-of-stock.

Buy online, pick-up in-store (BOPIS):

As the term implies, it is the capability to purchase merchandise online and have it picked up from a physical store. This is in favour of the customer since it ensures that the product is available when they go to the store.


Is combining several related products as a single unit. It is usually sold on a lower price if compared to selling it individually.

Carrying Cost:

This is also commonly referred to as Inventory cost. It is defined as the cost of keeping an item in your inventory over a certain length of time.

Closed Order:

When the product you ordered is delivered to you, it is then classified as Closed order.

Committed Stock:

The total number of stocks in your inventory already committed to the sales orders.


It is one part of a whole thing. An example of a component is a button of the keyboard for your computer.

Cost Of Goods Sold (COGS):

Refers to the total cost of making the product sold by a manufacturer. This includes the cost of raw materials and labour used to create the goods.

Cycle Inventory:

The method of monitoring the inventory by constantly performing inventory counts, based on the level of demand or turn-over of the specific product.


The shipment of the product directly to the customer, it eliminates the need for having the item sit in your warehouse.

Electronic Data Interchange (EDI):

It allows sending of business-critical information from one company to another company electronically instead of using paper. It is a much faster and efficient way of conducting business between trading partners.

Enterprise Resource Planning (ERP):

It is a software which allows you to automate and integrate your business processes. It centralizes your system to help you keep track of your company’s day-to-day activities such as manufacturing, accounting, distribution, procurement, among other processes.


It is a method in which products that arrived first in your warehouse are disposed of first.

Inventory management

Flash Sale:

Selling products with big discounts for a shorter period of time is known as Flash sale.


It is the method of determining the future trend of the product by using historical data and analytics.


It is the fulfilment of orders made by the customer based on their location. This is ideal if you have multiple warehouses in different locations.

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.

Initial Mark-Up (IMU):

It is the difference in the costs of purchasing the goods and the price you are selling it to your customers which covers also your overhead expense and profit.

Inventory Turnover:

Otherwise known as Stock Turnover or Stock turn, it is the number of times a company sold a product and replenished it in the inventory in a given period

Lead Time:

The time it takes for the product will be added to your inventory from the time it was ordered.

Lot Size:

It basically refers to the total volume ordered for manufacturing of a certain product.


It is a multichannel approach to selling your product to customers whether the client is shopping online or in an actual physical store.

Open Sales Order:

A sales order that has not yet been delivered or fulfilled.

Order Fulfillment:

This process involves receiving the sales order, processing and delivering the orders to the customer.

Packing Slips:

It is a shipping document that placed together with the delivery package. It is inside an attached inside the package itself or in a pouch.

Purchase Order (PO):

It is the document sent by the buyer to the vendor where it indicates the quantity, price, when the service will be fulfilled or delivered.

Reorder Points (ROP):

The minimum quantity of a product in the inventory, wherein this indicates that the product needs to be reordered.

Safety Stock:

This is having an extra stock of a product to prevent it from being out-of-stock, it is also called as Buffer stock.


It is the item or product kept in the warehouse and available for sale or distribution to customers.

Supply Chain Management:

It Is the overall approach on monitoring the cycle of materials in your inventory starting from the raw materials, until the delivering of the final product to the customer.

Branch Transfer:

Is the management of stock movement from one warehouse to another.


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 an SKU, and a price. Each product variant is based on the same product definition.

Warehouse Management System (WMS):

It is a software that supports the everyday operation of the warehouse. WMS optimizes warehouse operations from the moment the item enters the warehouse until it is delivered, purchased, and utilized

These are just some of the basic terminology you might encounter. All of these is made for you to be aware and educate yourself at the same time. By knowing these, hopefully it helps you as your further learn more about managing your inventory.

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