Inventory Management Glossary

The total number of units a product is expected to sell or consume over a year. Annual demand is a core input for EOQ and purchasing plans.

An inventory segmentation method that classifies SKUs into A, B, and C groups so merchants can prioritize planning effort around the highest-value items.

Extra inventory held above expected demand. Buffer stock is commonly used as another name for safety stock.

The total cost of holding inventory for a period, including storage, insurance, obsolescence, shrinkage, and the cost of capital.

The direct cost of the inventory sold during a period. COGS is used to calculate gross margin and inventory turnover.

The loss of customers over time. In inventory planning, repeated stockouts can increase attrition when shoppers switch to competitors.

A recurring inventory audit where a subset of SKUs is counted on a schedule instead of counting every item at once.

The average number of days it takes to sell through inventory. Lower DIO usually means inventory converts to cash faster.

Inventory that is unlikely to sell and ties up cash, storage space, and operational attention.

The degree to which customer demand changes from day to day or week to week. Higher variability usually requires more safety stock.

The order quantity that minimizes the combined cost of ordering inventory and holding inventory.

The percentage of revenue left after subtracting COGS. Gross margin helps estimate the profit lost during a stockout.

Inventory that appears available in Shopify but does not physically exist, often because of incorrect manual adjustments, sync failures, or missed fulfillment updates.

The number of times inventory is sold and replaced during a period. It is a key measure of inventory efficiency.

The difference that develops between recorded inventory and actual physical stock over time.

The number of days between placing a purchase order and receiving inventory. Longer lead times increase stockout risk.

The cost of placing a purchase order, including admin time, freight, receiving, and inspection.

The inventory level that triggers a new purchase order before stock runs out.

Extra inventory held above expected demand to protect against demand spikes, supplier delays, and planning uncertainty.

The probability of not stocking out during a replenishment cycle. Higher service levels require more safety stock.

A situation where customer demand exists but available inventory is zero or insufficient.

A unique identifier for a product variant that allows inventory to be tracked, replenished, counted, and reported consistently.

Inventory loss caused by theft, damage, receiving errors, administrative mistakes, or vendor issues.