Inventory Management Terms

Inventory Management

Inventory management is the process of monitoring the regular flow of units into and out of an existing inventory within a warehouse, and controlling related transactions such as shipping, receiving and putaway. More precisely, inventory management entails receipt, storage and movement of goods to intermediate storage locations or to final consumers. Competent inventory management also seeks to control the costs associated with the goods, from both the perspective of the value of the inventory included and the tax burden resulting from the cumulative value of the inventory.

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Inventory Management Terms

ABC Analysis – a method of classifying inventory items depending on use and value

Aggregate Plans – show the overall production planned for classes of products in a given period of time

Agile Strategy – aims at providing quality customer service by reacting quickly and in the right way to changing circumstances

Andon – a mechanism that shows when a process is operating normally, and when it develops problems

B2B – (business-to-business dealings) where a business buys goods from another business

B2C – (business-to-customer dealings) where a final consumer buys a good from a business

Backorder – a situation where the demand of a customer cannot be met from stock, but the customer waits for the good to come into stock

Batching Rule – a rule for minimizing the MRP costs by making larger batches form several small ones

Bill of Materials – a list of all materials that make up a certain product, and the order in which the materials are used

Break Bulk – the process in which an item is broken down into smaller amounts before delivery to customers

Business Strategy – the strategic ideas and decisions that affect a business as a whole

Capacity – a process’s maximum throughput in a given time

Causal Forecast – an approach that uses a known relationship to estimate the value of a variable from known values of another

Closed Loop MRP – an MRP version that includes feedback to ensure a proposed schedule does not cause problems with, e.g. capacity

Co-Managed Inventory – a situation where stocks are jointly managed by an organization and a third party

Consumables – sets of materials which are not part of the final product but are needed to support operations

Control System – a scheduling system segment that scrutinizes progress and ensures everything is going according to plan

Cross-Docking – links delivery and supply such that arriving goods are taken straight to loading area ready for delivery to customers

Customer – anyone that creates demand for goods

Demand – amount of goods wanted by customers

Destock – reduce amount of stock held

Economic Order Quantity – order size minimizing simple inventory system costs

Electronic Data Interchange – a way of transferring data directly among remote computers

Error – difference between forecast value and actual value

FIFO – first-in-first-out convention of valuing stock

Forecast – estimation of what could happen in the future

Forecast Value – difference between forecast value and actual value

Holding Cost – the cost of keeping the unit of an item in stock for specific time

Information System – the system responsible for the control of information flow throughout an organization

Inventory – list of goods in stock

Item – a single article held in stock

Item Coding – an arrangement for giving an identified tag to every package of items moved

Judgmental – a forecasting method that uses human knowledge and skill rather than more formal means

Lead Time – the difference between time of order and time of delivery

LIFO – last-in-first-out stock valuing convention

Lost Sales – when customer withdraws their demand because it cannot be met

Lot Sizing – making one large order form several small ones for MRP

Mass Customization – an operations approach that combines the flexibility of customized goods with the benefits of mass production

Master Schedule – a timetable for individual commodity production

Material – anything kept in stock

Material Requirements Planning (MRP) – demand method whereby the master schedule is exploded to find demand directly

Mean Error – a measure of bias in a forecast

Mission – statement showing aims and purpose of an organization

Noise – irregular time series variations

Order – a massage from an organization to a supplier asking for delivery of items

Outsourcing – use of third party organizations to perform non-core activities

Pareto Analysis – ABC analysis

Parts List – a list of materials that make up a product and the order in which the materials are used

Pipeline Stock – items that are being moved from one place to another

Price – amount charged by seller for an item

Projective Forecast – a forecast that puts historical events in the future

Quality Circles – a group of individuals who meet to try and improve uct quality

Quick Response – extension of JIT principles to other orgs in the supply chain

Replenishment – stocking materials as replacement for used up units

Replenishment Rate – the rate at which materials are added to stock

Rule of 80/20 – ABC analysis or Pareto analysis

Safety Stock – a set of materials that are kept to cover for unexpected circumstances

Scientific Inventory Control – finding optimal ordering policies and stock levels using mathematical models

Seasonal Stock – stock that maintains stable operations through seasonal demand variations

Shortage – occurs when customer demand cannot be met from stock

SKU – stock keeping unit

Stocktaking – periodic scrutiny to get the difference between actual and recorded stock levels

Supply Chain – the series of organizations and activities products go through between the initial supplier and the final consumer

Target Stock Level – determines size of order for a periodic review method

Time Series – observations made at regular time intervals

Two-Bin System – a method of determining when it’s time to place an order by keeping the reorder level in a bin and the remaining stock in another

Unit – the standard quantity or size of an item

Unitization – putting goods into standard packages for easy movement

Vendor-Managed Inventory – has suppliers that manage both their stocks and ones held further down the supply chain

Warehouse – a location where goods are held

Work in Process – the units being worked on currently

Work in Progress – work in process

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