Inventory Glossary

3PL refers to outsourcing logistics and supply chain functions to external providers. A business hires a company to handle inventory, warehousing, shipping, and even inventory management in order to reduce costs and grow.

The 5S methodology is a set of guidelines for organizing and maintaining a clean, efficient, and productive work environment. Originating in Japan, it groups five behavioral "pillars" into the following terms: Sort, Set in Order, Shine, Standardize, and Sustain. Adopting the 5S methodology can help optimize warehouse logistics.

The 80/20 rule, also known as the Pareto Principle, is the notion that 80% of the effect comes from 20% of the causes. It can be applied to many businesses to improve productivity and efficiency. In inventory management, it means identifying the most important items or factors (20%) that contribute to the majority of a company's sales (80%).

ABC analysis sorts inventory into three groups by value. A items are the few products that make up most of your sales or inventory value, B items are in the middle, and C items are the many products that contribute little. It applies the 80/20 rule so you can focus counting, reordering, and attention on the items that matter most.

Accounts payable is the money a business owes to its suppliers and creditors. In accounting, it falls under Current Liabilities.

Accounts receivable is the money customers owe a business for goods or services already delivered. In accounting, it falls under Current Assets.

Asset tracking is the practice of recording where a business's equipment and other assets are, who is using them, and what condition they are in. Unlike inventory, assets are not sold; they are used, moved between locations, and returned. Tracking them prevents loss and helps plan maintenance and replacement.

In BoxHero: Items

B2B refers to the transactions, relationships, and services between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer. It differs from B2C (business-to-consumer) in that companies in a B2B model sell products or services to other businesses, not to individual consumers.

A barcode system is an essential tool for businesses moving their inventory management to digital. Barcodes are symbols made up of black bars and white spaces that represent information about a product. A proper barcode system helps reduce errors in product and inventory management while saving on labor and administrative costs.

In BoxHero: Barcode Scanning, Barcode Printing

A bill of materials is a detailed list of the materials, parts, and components, and their costs, required to manufacture a specific product. It guides production by specifying the quantities of each part and how the parts relate to one another.

The bullwhip effect is the phenomenon where small fluctuations in demand at the retail level cause progressively larger fluctuations at the wholesale, distributor, manufacturer, and raw material supplier levels. It can lead to supply chain inefficiencies such as excess inventory, higher costs, lower customer satisfaction, and poor use of resources.

A bundle is a set of separate products sold together as one unit, such as a gift set or a starter kit. Selling a bundle uses up the stock of each product in it, so the component quantities need to be tracked as well as the bundle itself. Preparing bundles in advance is also called kitting.

In BoxHero: Bundles

Carrying cost, also called holding cost, is the total cost of keeping inventory in stock. It includes storage space, insurance, taxes, handling, spoilage and obsolescence, and the money tied up in the inventory itself. Carrying costs are usually a significant share of inventory value per year, which is why overstock is expensive.

The cash conversion cycle measures how long it takes a business to convert its inventory investments into cash from sales. Effective inventory management can shorten the CCC and improve cash flow.

Cost of goods sold is the total cost of producing or purchasing the goods a company sells in a specific period. It includes direct costs like raw materials and manufacturing labor, but not operating expenses like commercial rent, staff salaries, and advertising. COGS shows how much it costs a company to make or buy the products it sells to customers.

Current assets include cash, accounts receivable, inventory, and other assets expected to be converted into cash within a year.

Current liabilities are obligations a business needs to pay off within a year, such as accounts payable, short-term loans, and other short-term debts.

Cycle counting is a method of counting a small portion of inventory on a regular schedule instead of counting everything at once. Each count covers a different set of items or locations, so over time the whole inventory is checked without shutting down operations. High-value or fast-moving items are often counted more frequently.

In BoxHero: Inventory Count

Days of stock, also called days of inventory, estimates how many days your current inventory will last at the current rate of sales. It's calculated by dividing current stock by average daily sales. Use it to time reorders before you run into stockouts.

In BoxHero: the Days of Stock metric in Inventory Reports

Dead stock is inventory that hasn't sold for a long time and is unlikely to sell. It ties up cash and storage space and keeps adding carrying costs. Finding it early lets you discount, bundle, return, or write off those items before they lose more value.

In BoxHero: Inventory Reports

Demand forecasting is the process of predicting how much of a product or service customers will want in the future. Businesses collect data, analyze trends, and make predictions to estimate future demand and make better business decisions.

Dropshipping is a retail model in which a store sells products to customers without keeping the items in stock. Instead, the business partners with a supplier who manages the inventory and ships directly to the customer.

EOQ is a formula used in inventory management to find the order size that minimizes total inventory costs, including ordering costs and carrying costs. In simple terms, it's the best amount of inventory to order to reduce expenses while meeting demand.

Enterprise resource planning is software that helps businesses manage their core processes and day-to-day activities, including HR, accounting, supply chain, and more. ERP systems help companies automate and streamline many operations with a central database for decision-making.

FIFO is a common inventory valuation method used to manage inventory costs and calculate the cost of goods sold. With FIFO, the oldest inventory items are sold first, reflecting how inventory often moves.

An inventory count, also known as an inventory audit, is the process of physically counting and verifying the quantities of items on hand at a specific point in time. It makes sure the quantities recorded in a company's inventory management system match the actual stock. Inventory counts keep inventory accurate by finding discrepancies, reconciling them, and eliminating errors.

In BoxHero: Inventory Count

Inventory management is the process of managing and organizing a company's inventory by tracking stock levels and orders to meet customer demand while minimizing costs. It covers the full range of activities used to maintain optimal inventory levels, keep records accurate, and streamline operations.

Inventory turnover, also called the inventory turnover ratio or stock turn, measures how many times a business sells through its average inventory during a period. It is calculated by dividing the cost of goods sold by the average inventory for that period. A higher turnover generally means inventory is managed efficiently, while a lower turnover may indicate overstock or dead stock.

In BoxHero: the Turnover metric in Inventory Reports, calculated on quantities as total stock out ÷ average stock

Just-in-time is an inventory strategy that optimizes inventory levels and reduces waste by receiving goods only as they are needed in production. It keeps less inventory on hand, which frees up cash, lowers carrying costs, and ultimately minimizes inventory costs. JIT is widely used in manufacturing and other industries to increase efficiency.

LIFO is a common inventory valuation method used to manage inventory costs and calculate the cost of goods sold. With LIFO, the most recently purchased items are sold first, so costs reflect current market prices. It can also provide tax benefits when prices are rising.

Lead time is the time it takes for an order to be fulfilled, from the moment it's placed to the moment it's delivered. Longer lead times can lead to higher carrying costs, stockouts, and dissatisfied customers.

Logistics is the process by which goods, services, or information move from manufacturers or distributors to consumers. It involves planning, managing, and coordinating that movement so goods arrive at the right place at the right time, through warehousing, inventory management, order fulfillment, and supply chain management.

MOQ is the smallest number of units a supplier is willing to sell to a buyer in a single order. It's the minimum quantity that must be ordered for the order to be cost-efficient for the supplier or manufacturer.

Overstock, or excess stock, means having more inventory on hand than current demand requires. It can increase costs and cause operational inefficiencies. To prevent overstock, use an inventory management system to monitor stock levels in real time.

Pick and pack is the order fulfillment process of picking the ordered items from storage and packing them for shipment. Picking errors, such as choosing the wrong item or quantity, are the most common problem and usually come from a poor warehouse layout or inaccurate inventory records. Clearly organized locations and scanning barcodes while picking help prevent them.

In BoxHero: Barcode Scanning

A purchase order is a document a buyer sends to a supplier to order products, listing the items, quantities, prices, and delivery terms. Once the supplier accepts it, it becomes an agreement, and the items are received into inventory when they arrive.

In BoxHero: Purchases

A QR code is a two-dimensional barcode made of black and white squares. It holds more information than a standard one-dimensional barcode and can be scanned from any angle with a phone camera, which makes it useful for labeling products, locations, and assets.

In BoxHero: Barcode Printing

The reorder point is the stock level at which you should place a new order so the stock arrives before you run out. It's usually calculated as average daily usage × lead time in days, plus safety stock.

In BoxHero: Low Stock Alert

Reverse logistics is the process of moving products from customers back to the suppliers or companies that originally produced them. It includes returns, recycling or reprocessing, and disposal of damaged or defective products.

RFID is technology that identifies and tracks items using radio waves. In simple terms, it works like a modern barcode that uses radio signals to track and manage inventory or assets. Businesses typically attach RFID tags to items for automatic identification and real-time tracking.

Safety stock is the extra inventory held to protect against unexpected shortages. It keeps a business from running out of products when demand is higher than expected.

In BoxHero: Set safety stock levels and get low stock alerts

A sales order is a document a seller creates to confirm a customer's order, listing the items, quantities, prices, and delivery details. Shipping the order removes the items from inventory.

In BoxHero: Sales

A stock adjustment corrects the recorded quantity of an item so it matches the actual quantity on hand. Adjustments are used after an inventory count and to record damage, loss, or other changes that aren't purchases or sales.

In BoxHero: Adjust Stock

A stock keeping unit is a unique alphanumeric code that identifies each product in a company's inventory. It can reflect attributes of the item such as size, color, and manufacturer, and it simplifies inventory control and product assortment planning.

In BoxHero: Items

A stock transfer moves inventory from one location to another, such as from a warehouse to a store, without changing the total quantity. Recording transfers keeps each location's stock accurate.

In BoxHero: Move Stock

A stockout happens when a business runs out of an item needed to meet customer demand. Stockouts can lead to lost sales, lower customer satisfaction, and production disruptions. Accurate inventory tracking, inventory control systems, and regular inventory counts help prevent them.

In BoxHero: Low Stock Alert

The supply chain is the set of processes involved in producing and delivering a product, from raw materials to the end customer. It includes sourcing, manufacturing, warehousing, and distribution.

Vendor managed inventory is a supply chain strategy in which the supplier manages and replenishes a customer's inventory. The supplier monitors the customer's real-time inventory data and makes replenishment decisions to keep stock at optimal levels.

A warehouse management system is software that helps manage and optimize warehouse operations, including the movement and storage of goods and the related transactions such as receiving, picking, packing, and shipping. A WMS improves inventory control and operational efficiency.

In BoxHero: Can I use BoxHero as a WMS?

The weighted-average cost method calculates the average cost of inventory items to determine the cost of goods sold. It works out how much each item in inventory costs on average, taking into account both older and newer inventory.

Working capital is the difference between current assets and current liabilities, and is a measure of a company's short-term financial health. It represents the funds available for day-to-day operating expenses. Managing working capital well helps small businesses run efficiently, reduce costs, and keep growing.