7. Inventory management terms
There are many terms related to inventory management, a sumup of some of the terms can be found underneath:
- Cost of goods sold (COGS)
Is the combination of costs which are directly related to the production of the goods which are sold. This is important as a company’s gross profit is calculated by subtracting the COGS from the companies revenue.
Available items which where intended to be sold to customers but haven’t, therefore they were written off. In most cases the items are expired or outdated, which for example occurs when a new model is introduced to the market.
The costs of holding inventory in the warehouse, which includes labor, space, depreciation and insurance costs.
Order costs are the costs involved in creating and processing a purchase order to a supplier. These costs include the labor costs of the buyer but could also include the labor costs required to perform inspections once items arrive at the warehouse
The time between placing the purchase order and receiving the physical goods from the supplier in the warehouse.
This is a document created by the buyer which is distributed to the supplier and indicates a demand for specific products or goods.
In the area of inventory management a SKU is a unique number given to a product to enable easy identification and internal tracking of the inventory. Each company has its own way of determining the SKU number. A SKU number could for example consist of the color code, product type, size and manufacturing code.
- Order cost Minimum order quantity (MOQ)
Is the minimum quantity a supplier agrees to supply when receiving demand for a certain product. It could for example be that a supplier only wants to supply in full pallets or card boxes.