Tru-Stock AI Resources
Inventory Management Glossary
Everything you need to know about inventory management, demand forecasting, and supply chain optimization — explained in plain English.
ABC Analysis
A method of categorizing inventory into three groups: A items (high value, low quantity — ~20% of SKUs, ~80% of value), B items (moderate), and C items (low value, high quantity). Helps prioritize which items deserve the most attention and tighter controls — learn more.
Average Daily Demand
The mean number of units sold per day over a given period. Calculated as total units sold divided by number of selling days. Used as the foundation for reorder point and safety stock calculations.
Backorder
An order placed for a product that is currently out of stock. The customer agrees to wait for delivery once inventory is replenished. Backorders indicate demand exists but fulfillment capacity is lacking.
Buffer Stock
See Safety Stock. Extra inventory held beyond expected demand to protect against supply and demand variability.
Carrying Cost
The total cost of holding inventory over a period, including storage, insurance, depreciation, obsolescence, and opportunity cost of capital. Typically expressed as a percentage of inventory value, ranging from 15-30% annually — calculate yours or see how it adds up.
Critical Stock
Items with fewer than 7 days of supply remaining based on current demand velocity. These items need immediate reorder attention to prevent stockouts.
Cycle Stock
The portion of inventory that is consumed and replenished in regular order cycles. Distinguished from safety stock, which serves as a buffer against uncertainty.
Days of Stock (DOS)
The number of days current on-hand inventory will last at the current rate of demand. Calculated as on-hand quantity divided by average daily demand. A DOS of 14 means you have two weeks of supply remaining.
Dead Stock
Inventory that has had zero sales over an extended period, typically 6-12 months. Dead stock ties up capital and warehouse space with no return. Identifying and liquidating dead stock is one of the fastest ways to recover working capital — learn how to reduce it.
Demand Forecasting
The process of predicting future customer demand using historical sales data, statistical models, and market intelligence. AI-powered forecasting uses machine learning to detect patterns like seasonality, trends, and demand shifts that traditional methods miss — see how Tru-Stock handles it.
Demand Variability
The degree to which actual demand fluctuates around the average. High variability requires more safety stock. Measured using standard deviation of demand over time.
Economic Order Quantity (EOQ)
The optimal order size that minimizes total inventory costs (ordering costs + carrying costs). The classic formula balances the cost of placing orders against the cost of holding inventory — calculate yours.
Fill Rate
The percentage of customer orders that can be fulfilled immediately from available stock. A 95% fill rate means 95 out of 100 orders are shipped without delay. Higher fill rates require more safety stock — see how top distributors track it.
FIFO (First In, First Out)
An inventory valuation method where the oldest stock is sold first. Important for industries where product age matters, and commonly used for accounting purposes.
GMROI (Gross Margin Return on Investment)
A profitability metric that measures how many dollars of gross margin are earned for every dollar invested in inventory. Calculated as gross margin divided by average inventory cost. A GMROI above 1.0 means you are earning more than you have invested — learn more about inventory KPIs.
Idle Capital
Money tied up in inventory that is not generating returns — specifically overstock and dead stock. Reducing idle capital frees cash for purchasing fast-moving items or investing in growth.
Inventory Health
An overall assessment of inventory performance across multiple dimensions: stockout risk, overstock levels, dead stock percentage, and fill rates. Tru-Stock AI categorizes every SKU into health buckets: Healthy, Watch, At Risk, Critical, Overstock, and Dead Stock.
Inventory Turnover
The number of times inventory is sold and replaced over a period. Calculated as cost of goods sold divided by average inventory value. Higher turnover generally indicates efficient inventory management — calculate yours or learn more.
Just-in-Time (JIT)
An inventory strategy that aligns raw material orders with production schedules to minimize inventory holding. Requires highly reliable suppliers and accurate demand forecasting.
Lead Time
The total time from placing a purchase order to receiving the goods. Includes supplier processing, manufacturing, shipping, and receiving time. For distributors, lead times can range from 3-5 days (domestic) to 90-130 days (international import) — calculate yours or learn how to optimize it.
Lead Time Variability
The degree to which actual lead times fluctuate around the average. A vendor that delivers in 5-7 days has low variability; one that delivers in 5-25 days has high variability. Higher variability requires more safety stock.
Min/Max
A simple reorder method where you set a minimum stock level (reorder trigger) and maximum level (order-up-to quantity). When stock hits the min, you order enough to reach the max. Simple but static — does not adapt to changing demand.
Minimum Order Quantity (MOQ)
The smallest number of units a supplier will accept in a single purchase order. MOQs affect order timing and quantities, especially for import vendors where MOQs can be 50-500+ units.
On-Hand Quantity
The physical count of units currently in your warehouse or store, available for sale or shipment. Does not include on-order quantities.
On-Order Quantity
Units that have been ordered from suppliers but not yet received. On-order quantities should be factored into reorder calculations to avoid double-ordering.
Overstock
Inventory levels significantly exceeding what is needed to meet demand, typically 90+ days of supply. Overstock ties up capital and risks obsolescence. Common when order quantities are not aligned with actual demand velocity.
Par Level
A target inventory level that should be maintained for each item. When stock drops below par, a reorder is triggered. Similar to reorder point but often set manually rather than calculated statistically.
Periodic Review
An inventory management system where stock levels are reviewed at fixed intervals (daily, weekly, monthly) and orders are placed to bring inventory up to a target level. Contrasted with continuous review.
Purchase Order (PO)
A formal document sent to a supplier authorizing the purchase of specific products at agreed prices and quantities. POs create a legal commitment and are essential for tracking on-order inventory.
Reorder Point (ROP)
The inventory level at which a new purchase order should be placed. Calculated as (Average Daily Demand x Lead Time) + Safety Stock. When on-hand quantity drops to or below the ROP, it is time to reorder — calculate yours or read the full guide.
Safety Stock
Extra inventory held as a buffer against demand variability and supply uncertainty. Calculated using demand standard deviation, lead time, and target service level. Higher service levels require more safety stock — calculate yours or read the full guide.
Service Level
The probability of not running out of stock during a lead time period. A 95% service level means there is a 95% chance you will have enough stock to meet demand. Typical targets: 95% for fast movers, 85-90% for slower items.
SKU (Stock Keeping Unit)
A unique identifier for each distinct product in your inventory. A single inventory model from three different vendors would be three separate SKUs. SKU management is critical for accurate inventory tracking.
Slow Mover
A product with low but consistent demand — selling a few units per month rather than per week. Slow movers require different inventory strategies than fast movers, with lower safety stock and less frequent ordering.
Split-Vendor Strategy
Ordering the same product from multiple vendors simultaneously — fast domestic supplier for immediate needs and cheaper import supplier for bulk replenishment. Optimizes both availability and cost.
Stockout
When a product is completely out of stock and unavailable for sale. Stockouts result in lost sales, customer dissatisfaction, and potential long-term customer loss. The cost of a stockout often far exceeds the carrying cost of additional safety stock.
Trapped Capital
Working capital that is locked in excess inventory — overstock and dead stock — and cannot be used for other business purposes. Identifying trapped capital is the first step to improving cash flow.
Variant Grouping
Consolidating demand data across multiple SKUs that represent the same product from different vendors. For example, a inventory available from four manufacturers is one product with four variants. Grouping reveals true total demand.
Velocity
The rate at which a product sells, typically measured as units per day or per month. High-velocity items need frequent replenishment and tighter safety stock controls. Velocity classification helps prioritize inventory management efforts.
Vendor Lead Time
The specific lead time associated with a particular supplier. Each vendor may have different lead times for the same product. Tracking vendor-specific lead times is essential for accurate reorder point calculations.
Weeks of Supply (WOS)
Similar to Days of Stock but measured in weeks. Current inventory divided by average weekly demand. Useful for longer planning horizons and slower-moving items.
Put These Concepts to Work
Tru-Stock AI automates reorder points, safety stock, demand forecasting, and dead stock identification for every SKU in your catalog.