Supply Chain Chapter 4: Inventory Management Terms

Inventory

The quantities of goods and materials held in stock, including raw materials, work-in-process items, finished products, and operating supplies.

Raw Materials

Purchased items or extracted materials converted via the manufacturing process into components and products.

Work-in-Process (WIP)

Goods in various stages of completion throughout a plant, spanning from released raw materials to those awaiting final inspection.

Finished Goods

Items on which all manufacturing operations and testing are complete, making them available for sale or shipment.

Maintenance, Repair and Operating (MRO)

Items used to support general operations and maintenance (e.g., spare parts, cleaning supplies) that do not become part of the final product.

Cycle Stock

Inventory built to satisfy immediate demand, which depletes as orders are received and is replenished cyclically.

Safety Stock (Buffer Stock)

Inventory held above anticipated demand to protect against fluctuations or uncertainty in supply and demand.

Strategic Stock

Additional inventory beyond cycle and safety stock held for a specific purpose or future event, such as a price increase or seasonal demand.

Pipeline Inventory

Inventory currently in transit within the transportation network or held by downstream trading partners like wholesalers and retailers.

Obsolete Inventory

Stock that is expired, damaged, or no longer needed, which will never be sold at full value.

Continuous Review System

An inventory system where levels are constantly monitored, triggering a replenishment order as soon as stock falls below a pre-determined level.

Periodic Review System

A system where inventory levels are reviewed at set intervals (e.g., weekly), and replenishment orders are placed only during those reviews if levels are low.

Reorder Point (ROP)

The lowest inventory level at which a new order must be placed to avoid a stockout.

Economic Order Quantity (EOQ)

A quantitative decision model that determines the optimal order size by balancing annual inventory carrying costs and annual order costs.

ABC System

A method of classifying inventory based on importance, typically using the "80/20 rule" where "A" items represent the highest value (80% of cost) and "C" items represent the lowest.

Bin System

An inventory tool using one or two bins to hold items; when one bin is empty, a refill order is triggered.

Base Stock Level System

A system that issues a replenishment order equal to the exact quantity withdrawn from inventory to maintain a constant base level.

Single-Period Inventory Model

A model used for items ordered for a one-time stocking, such as Christmas trees or newspapers.

Radio Frequency Identification (RFID)

A successor to barcodes for tracking individual units using tags that do not require a direct line of sight to be read.