Glossary

Short definitions of the terms used on the metric pages.

20 terms

ABC analysis

Ranking items by annual value so that the few that matter most get the closest control.

Backorder

Demand that could not be shipped from stock and is held to be delivered later.

Bullwhip effect

The way small changes in consumer demand turn into large swings in orders further up the chain.

Carrying cost

The yearly cost of holding a unit of stock: capital, storage, insurance, damage and obsolescence.

COGS

Cost of goods sold: what the goods you sold cost you to buy or make, excluding overheads.

Cross-docking

Moving goods from inbound to outbound vehicles without putting them into storage.

Cycle count

Counting a small part of the inventory every day instead of everything once a year.

Cycle service level

The probability of not running out of stock during one replenishment cycle.

Cycle stock

The part of inventory that is used up and replaced in the normal ordering rhythm.

DIO

Days inventory outstanding: how many days of sales, at cost, the current inventory covers.

DPO

Days payable outstanding: how many days, on average, a company takes to pay its suppliers.

DSO

Days sales outstanding: how many days, on average, customers take to pay.

Lead time

The time between placing an order and having the goods available to use or sell.

MAD

Mean absolute deviation: the average size of forecast errors, ignoring their direction.

MOQ

Minimum order quantity: the smallest batch a supplier is willing to sell.

Reorder point

The stock level at which a new replenishment order should be placed.

Safety stock

Extra inventory held to absorb demand and lead-time uncertainty.

SKU

Stock keeping unit: one distinct item, down to size, colour and pack type.

Stockout

The moment an item is requested and there is none available.

WMAPE

Weighted mean absolute percentage error: total absolute forecast error divided by total actual demand.