How to Talk Inventory Management

Key Inventory Management Terms Everyone Should Know

Have you ever heard two people having a conversation and been unable to follow it, despite the fact that you’re sure they’re speaking the same language as you? That can happen when two musicians discuss jazz, two sommeliers talk wine, or two programmers chat coding. The reason they can carry on so naturally while others feel lost in the woods comes down to their mastery of jargon. Specialized terminology is common for many industries, pursuits, and professions. Inventory management is no different.

If your clients have inventory, successfully managing stock levels is crucial to their long-term success. To be able to advise business owners on how to do that, you need to be able to speak their language. While you don’t need to become an out-and-out stock slang expert in order to explain inventory-related concepts in an understandable way, you should know the following terms to be revered as an expert in their field:

Cost Terms

Carrying Cost – The amount of money required to hold and store a piece of inventory before a sale. Storage fees, insurance, taxes, and any other spend relating to holding an inventory. 

Total Landed Cost (TLC) – How much a business spends on a piece of inventory. it, in total, before it is sold. In addition to the unit price and carrying cost of a piece of inventory, TLC includes any money spent marketing and promoting the item. 

Costing Method – A costing method is the way a business calculates its costs. Does carrying cost include a factor to account for shrinkage? Is TLC calculated on a per unit or per SKU basis? While different businesses can use different costing methods, costing should be calculated consistently across an entire inventory. 

Warehouse Terms

Batch Picking – A method for getting items from a warehouse to customers by picking items from the same part of a warehouse in batches. Batch picking tends to be popular in smaller warehouses with a lower volume of orders. 

Wave Picking – An alternative to wave picking where workers receive assignments of items to retrieve in waves. Wave picking can come in both fixed and dynamic varieties. Dynamic wave picking, where pickers are alerted what to grab one item at a time, has gained attention through its use by Amazon. 

Lead Time – The amount of time it takes for an ordered item to arrive and be counted in a company’s inventory. Calculating lead time can be complicated for businesses that dropship items.

Stock Terms

Fast Stock – The quickest-selling items for a business. Understanding fast stock allows you to keep the most desirable goods in stock. 

Dead Stock – The opposite of fast stock, dead stock items rarely sell and take up space on warehouse shelves. 

Inventory Turnover Ratio – The number of times a business turns over its inventory in a given year. You can read more on how to calculate this important metric here

A software that gets it
AccountingSuite comes packed with best-in-class inventory management features that allow businesses to effectively manage inventory needs. It’s the #1 choice for accountants and business owners who want to understand their stock better and build a more efficient operation. Learn more about AccountingSuite and our competitive pricing.

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