Inventory Terminology Glossary

A comprehensive guide to the essential terms used in inventory control, retail, e-commerce, and warehouse logistics. Use this glossary to better understand your stock, costs, and processes.

1. Product Identification & Tracking

These terms are used to uniquely identify, label, and track products for both internal management and external sales.

• SKU (Stock Keeping Unit):

  A unique, internal, alphanumeric code used by a retailer to track its inventory. It often includes product attributes like size, color, or model, making it crucial for inventory control and reordering.

• UPC (Universal Product Code):

  A standardized 12-digit numeric barcode used primarily in North America to identify a product for sale at a point-of-sale (POS) system. It is an external identifier.

• EAN (European Article Number):

  A standardized 13-digit numeric code, functionally similar to the UPC but used globally (most commonly outside of North America).

• GTIN (Global Trade Item Number):

  A family of globally standardized identifiers (including UPC and EAN) used across the supply chain to uniquely identify products for seamless international trade and tracking.

• Barcode:

  A machine-readable representation of data (usually a UPC or EAN) using parallel lines of varying widths that allows for quick scanning and tracking of inventory.

• UOM (Unit of Measure):

  The standard quantity used to track, sell, purchase, or store a particular item (e.g., EA for Each, CS for Case, LB for Pound). Essential for accurate inventory conversion.

• LPN (License Plate Number):

  A unique identifier (often a barcode) assigned to a container, pallet, or cart, allowing the entire unit and its contents to be tracked as a single entity within a warehouse management system (WMS).

2. Inventory Valuation & Accounting

Terms related to the financial value of your inventory and how that value is calculated, reported, and impacted by losses.

• COGS (Cost of Goods Sold):

  The direct costs attributable to the production or acquisition of the goods sold by a company during a specific period. Used to calculate Gross Profit (Revenue - COGS).

• FIFO (First In, First Out):

  An inventory valuation method that assumes the oldest inventory items are sold first. The cost of the oldest goods is used when calculating COGS.

• LIFO (Last In, First Out):

  An inventory valuation method that assumes the newest inventory items are sold first. The cost of the most recent goods is used when calculating COGS (Less common outside the US).

• Average Cost Method:

  An inventory valuation method that uses the weighted average cost of all units purchased to determine the value of COGS and ending inventory.

• Inventory Shrinkage:

  The loss of inventory due to factors like theft, damage, loss, or administrative errors. It represents an actual loss in inventory value.

• Carrying Cost (Holding Cost):

  The total cost of holding inventory for a period, including capital costs, warehouse rent, insurance, handling, depreciation, and obsolescence.

• Landed Cost:

  The total cost of a product after it has arrived at the buyer's dock, including the original cost, freight, customs duties, insurance, and handling fees.

• Consignment Inventory:

  Inventory held for sale by a retailer (consignee) but legally owned by the supplier (consignor). Payment to the supplier is only made after the product is sold to the end customer.

• Gross Margin:

  The revenue remaining after subtracting COGS. Often expressed as a percentage (Gross Profit Margin), it measures the profitability of the product itself before overhead.

• Dead Stock / Obsolescence:

  Inventory that has not been sold or used for a long period of time and is unlikely to be sold in the future (e.g., outdated or expired products). Obsolescence is the process leading to this state.

• Inventory Turnover:

  A ratio showing how many times a company's inventory is sold and replaced over a period (Formula: COGS / Average Inventory). Measures efficiency.

• Write-Down:

  An accounting adjustment that reduces the book value of inventory that is determined to be worth less than its recorded cost (often due to damage or obsolescence).

3. Stock Status & Planning

Terms essential for managing stock levels, predicting needs, and optimizing the flow of inventory through the supply chain.

• On-Hand Inventory:

  The quantity of a product physically present in the warehouse or store, ready for immediate sale or shipment.

• In-Transit Inventory:

  Inventory that has been shipped by the supplier but has not yet been received into the company's own physical stock.

• Lead Time:

  The total time elapsed between placing an order with a supplier and receiving the goods in stock, ready for use or sale.

• Reorder Point (ROP):

  The specific inventory level that triggers an action to place a new order. It is calculated to prevent stockouts during the lead time.

• Safety Stock (Buffer Stock):

  Extra inventory held in reserve to mitigate the risk of stockouts caused by unexpected demand spikes or supply delays.

• Stockout:

  A situation where the inventory level for a particular product is zero, resulting in a lost sale or production delay.

• Backorder:

  An order placed by a customer that cannot be fulfilled immediately because the requested item is temporarily out of stock.

• Demand Forecasting:

  The process of estimating future customer demand based on historical sales data, seasonal trends, and market intelligence.

• Economic Order Quantity (EOQ):

  A formula that calculates the optimal order size a company should purchase to minimize the total costs of ordering and holding inventory.

• Service Level:

  The target percentage of time that you will have an item in stock to meet customer demand, directly impacting Safety Stock calculations.

• ABC Analysis (Classification):

  An inventory categorization method where items are ranked by value (A: High value, B: Medium value, C: Low value) to prioritize management effort.

• Min/Max Levels:

  Pre-defined minimum and maximum stock levels used as a basic control mechanism for automated reordering.

• BOM (Bill of Materials):

  A comprehensive list of the raw materials, components, and instructions required to manufacture a finished product or sub-assembly.

• MRP (Material Requirements Planning):

  A software-based production planning system that manages and controls the inventory of raw materials and components needed for manufacturing.

4. Logistics, Systems & Physical Processes

Terms covering the systems, software, and physical procedures used to manage, count, and move inventory through the supply chain.

• Stocktaking (Physical Inventory Count):

  The process of physically counting and verifying the quantity and condition of all inventory items currently on hand in the warehouse or store.

• Wall-to-Wall Count (Annual Physical Inventory):

  A complete, comprehensive stocktake of every item in the entire facility, typically done once a year.

• Cycle Counting:

  A periodic inventory audit where a small, specific section of inventory is counted on a regular, rotating basis to maintain accuracy continuously.

• WMS (Warehouse Management System):

  Software designed to manage and optimize warehouse operations, including tracking inventory location, managing labor, and processing shipments.

• ERP (Enterprise Resource Planning):

  A type of software system that businesses use to manage and integrate core business functions, including inventory, finance, and human resources.

• Pick and Pack:

  The warehouse fulfillment process where items from an order are retrieved (picking) and then prepared for shipment (packing).

• Cross-Docking:

  A logistics process where incoming products are directly loaded onto outbound trucks, bypassing storage, to streamline the supply chain and minimize handling.

• 3PL (Third-Party Logistics):

  A service provider that handles outsourced logistics operations, such as warehousing, shipping, and fulfillment, for a company.

• VMI (Vendor-Managed Inventory):

  An inventory system where the supplier is responsible for maintaining the customer's inventory levels (e.g., monitoring stock and placing re-orders).

• Available-to-Promise (ATP):

  A business function that provides an accurate date when a requested product can be delivered to the customer, based on current stock and scheduled production.

• Slotting:

  The process of strategically determining the optimal location (bin, rack, shelf) for each product in a warehouse to maximize picking efficiency.

• GFR (Good Faith Receiving):

  A receiving process where goods are accepted based on the supplier's manifest without a detailed, item-by-item physical count (used with trusted suppliers).

• Targeted Inventory Count:

  An unscheduled or ad-hoc count of a small, specific subset of inventory (e.g., a single SKU or location) to verify accuracy.

• Fixed Asset Tagging:

  The process of labeling and electronically recording non-inventory assets (e.g., equipment and fixtures) for accounting and asset management purposes.

• Topographic Inventory:

  A specialized inventory method for counting bulk products stored in silos or open piles, often involving 3D scanning or other advanced technology.

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Now that you're an expert on inventory terminology (SKU, COGS, LIFO, etc.), you may have questions about how Zenbaki Inventory performs our on-site counting services, handles data, and manages logistics.

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