Inventory terms, in plain English.

ABC analysis

Ranking items by yearly usage value to decide how closely to manage each.

Bill of materials (BOM)

The list of parts, materials and sub-assemblies, with quantities, needed to make one unit of a product.

COGS

Cost of goods sold — the direct cost of the products you sold in a period.

EOQ

Economic order quantity — the order size that minimises combined ordering and holding costs.

FIFO

First in, first out — values stock as if the oldest units are used first.

Finished goods

Completed products ready to sell.

Inventory turnover

How many times you sell through your average inventory in a year.

Just-in-time (JIT)

Receiving materials close to when they're needed to keep stock low.

Lead time

The time between placing an order and receiving it.

Made-to-order (MTO)

Building a product only after a customer orders it.

Made-to-stock (MTS)

Building products ahead of demand and selling from stock.

Purchase order (PO)

A document sent to a supplier listing what you want to buy, at what price.

Raw materials

Parts and materials you buy to make your products.

Reorder point

The stock level at which you should place a new purchase order.

Safety stock

Extra stock held to cover demand spikes and late deliveries.

SKU

Stock keeping unit — a unique code you give each item or product variant.

Stockout

Running out of an item when it's needed for a sale or production.

Sub-assembly

A component you build from parts and then use inside another product.

Weighted average cost

Values stock using the blended average price of all purchases.

WIP

Work in progress — products that are partly built.

Want more depth? Read our guides.