Supply Chain Glossary: 50+ Key Terms for Ecommerce Merchants (2026)

This supply chain glossary covers the 50+ most important terms ecommerce merchants need to understand to optimize operations and reduce costs. Whether you're managing inventory across multiple warehouses, working with suppliers, or calculating key performance metrics, Forthsuite provides the visibility and control needed to execute these fundamental supply chain concepts effectively. This comprehensive guide defines essential terminology that directly impacts your bottom line, from demand forecasting to warehouse management systems.

Core Supply Chain Terms (A–F)

ABC Analysis

ABC Analysis is an inventory classification method that divides products into three categories based on their value and importance. Category A items represent high-value products that may comprise 20% of inventory but 80% of revenue, requiring tight inventory controls. Category B items are moderate-value products with moderate turnover, while Category C items represent low-value, high-volume products. This framework helps merchants allocate resources efficiently and prioritize inventory management efforts where they matter most.

Backorder

A backorder occurs when a customer purchases an item that is temporarily out of stock, with the merchant committing to fulfill that order once inventory is replenished. Backorders preserve customer relationships and revenue that would otherwise be lost to competitors, but they increase carrying costs and potentially damage customer satisfaction if lead times are excessive. Effective backorder management requires clear communication with customers about expected delivery dates and proactive inventory planning. Merchants must balance backorder acceptance against the risk of customer cancellations and negative reviews.

Bill of Materials

A Bill of Materials (BOM) is a detailed list of all components, sub-assemblies, and raw materials required to manufacture a finished product, including quantities and specifications. The BOM serves as the master document for production planning, cost accounting, and quality control, ensuring that every manufactured unit contains exactly the required parts. Accurate BOMs are essential for demand forecasting, as they determine how raw material requirements translate from finished goods demand. Any errors in the BOM cascade through the entire supply chain, affecting procurement, production schedules, and inventory accuracy.

Bullwhip Effect

The Bullwhip Effect describes how small fluctuations in consumer demand create increasingly larger demand swings at each upstream level of the supply chain, from retailers to distributors to manufacturers to suppliers. A customer buying 10% more of a product may cause a retailer to order 15% more from a distributor, who then orders 25% more from the manufacturer, creating massive inefficiencies and overstock situations. This phenomenon results from demand forecasting errors, lead time uncertainty, and lack of supply chain visibility across trading partners. Reducing the Bullwhip Effect requires information sharing, collaborative planning, and longer-term demand signals rather than reactive ordering.

Carrying Cost

Carrying cost, also called holding cost, represents the total expense of storing inventory for a specific period, typically expressed as a percentage of inventory value. This includes warehousing rent, utilities, labor, insurance, taxes, obsolescence risk, and the cost of capital tied up in inventory. For ecommerce merchants, carrying costs can represent 20-40% of inventory value annually, making inventory optimization critically important to profitability. Understanding carrying costs helps merchants make better decisions about order quantities, safety stock levels, and whether to use just-in-time or bulk purchasing strategies.

Cycle Count

A cycle count is a periodic physical inventory verification that counts a subset of items rather than conducting a complete physical inventory of the entire warehouse. By counting small sections of inventory on a rotating schedule, merchants maintain accurate inventory records without disrupting warehouse operations or requiring a full shutdown. Cycle counts typically target high-value items more frequently and low-value items less frequently, based on ABC Analysis principles. Regular cycle counts identify discrepancies between system records and physical inventory, revealing theft, damage, mislabeling, or data entry errors before they impact customer fulfillment.

Dead Stock

Dead stock refers to inventory that has not sold within a predetermined period, typically 12 months or longer, and is unlikely to sell at regular prices. Dead stock ties up warehouse space and capital, accumulates carrying costs, and may become obsolete or damaged, reducing its salvage value to near zero. Common causes include overstocking, demand forecasting errors, product discontinuation, or changing customer preferences. Merchants must identify dead stock early through regular inventory aging reports and implement clearance strategies such as discounting, bundling, or donating to avoid write-offs.

Days of Inventory Outstanding

Days of Inventory Outstanding (DIO) measures the average number of days that inventory sits in a warehouse before being sold, calculated by dividing average inventory value by daily cost of goods sold. A lower DIO indicates faster inventory turnover and reduced carrying costs, while a higher DIO suggests inventory is aging and tying up working capital unnecessarily. Industry benchmarks vary significantly by product category, with fast-moving consumer goods typically targeting DIO of 20-30 days and seasonal products requiring much higher levels. Improving DIO requires demand forecasting accuracy, supplier responsiveness, and careful management of safety stock levels.

Demand Forecasting

Demand forecasting uses historical sales data, market trends, promotional calendars, and statistical models to predict future customer demand for specific products over defined time horizons. Accurate demand forecasts prevent both stockouts that lose sales and overstock situations that inflate carrying costs. Forecasting methods range from simple moving averages to sophisticated machine learning models that incorporate hundreds of variables including seasonality, competitor activity, and economic indicators. Poor demand forecasts are a leading cause of supply chain inefficiency, making forecast accuracy a critical competitive advantage for ecommerce merchants.

Demand Sensing

Demand Sensing is an advanced forecasting technique that combines multiple real-time data sources—including point-of-sale transactions, web analytics, social media signals, and supplier shipment data—to detect changes in customer demand faster than traditional forecasting methods. Rather than relying solely on historical patterns, demand sensing identifies emerging trends and adjusts forecasts dynamically, improving accuracy and reducing forecast errors. This approach is particularly valuable for fashion, technology, and seasonal products where demand can shift rapidly based on trends or external events. Implementing demand sensing requires investment in data analytics capabilities and integration across multiple business systems.

Distribution Centre

A distribution centre is a large facility dedicated to receiving, storing, and shipping products to customers or retail locations, serving as a hub in the supply chain network. Distribution centres employ sophisticated material handling systems, inventory management software, and order picking techniques to move products efficiently. Unlike warehouses that prioritize long-term storage, distribution centres optimize for fast throughput, often holding inventory for shorter periods before shipping to maintain freshness and reduce carrying costs. For ecommerce merchants, strategically located distribution centres enable faster delivery times, lower shipping costs, and better customer service.

Drop Shipping

Drop shipping is a fulfillment model where a merchant sells products to customers but the supplier ships items directly from their warehouse, eliminating the need for the merchant to maintain inventory. This model significantly reduces capital requirements and warehouse space, allowing merchants to offer broader product selections without inventory risk. However, drop shipping typically involves lower profit margins, reduced control over product quality and packaging, and dependency on supplier reliability for customer satisfaction. Merchants using drop shipping must carefully vet suppliers and establish strong monitoring systems to catch issues before customers experience problems.

Core Supply Chain Terms (G–M)

GMROI

GMROI (Gross Margin Return on Investment) measures how much gross profit a product generates for every dollar of inventory invested, calculated by dividing gross margin dollars by average inventory value. GMROI helps merchants identify which products deliver the best return on invested capital, guiding inventory allocation and purchase decisions. A product with $100 average inventory generating $300 gross margin annually would have a GMROI of 3.0, meaning every dollar invested returns three dollars in gross profit. Higher GMROI products deserve larger inventory investments, more shelf space, and marketing support, while low GMROI products should be reduced or eliminated.

Goods Receipt

Goods receipt is the process of receiving shipments from suppliers, documenting the arrival of products, verifying quantity and quality, and recording the transaction in inventory management systems. Proper goods receipt procedures ensure that invoices match purchase orders, products meet quality standards, and inventory records are updated immediately upon arrival. Discrepancies identified during goods receipt—such as damaged items, quantity mismatches, or wrong products—are documented as exceptions and communicated to suppliers for resolution. Efficient goods receipt is essential for maintaining inventory accuracy and preventing product damage or loss.

Inventory Accuracy

Inventory accuracy measures the percentage of items in a warehouse whose physical count matches the quantity recorded in the inventory management system, with industry best practices targeting accuracy rates of 95% or higher. Poor inventory accuracy leads to incorrect inventory levels in order management systems, causing overselling that results in backorders or customer cancellations. Inventory inaccuracy also disrupts demand planning, increases carrying costs through dead stock, and creates safety stock requirements to buffer against uncertainty. Forthsuite helps merchants maintain high inventory accuracy through cycle counts, receiving verification, and integration with warehouse management systems.

Inventory Management

Inventory management encompasses all activities and decisions involved in controlling inventory levels, including demand forecasting, purchasing, receiving, storage, picking, and cycle counting. Effective inventory management balances competing objectives: maintaining sufficient stock to avoid stockouts while minimizing carrying costs and obsolescence risk. Inventory management requires coordination across purchasing, warehouse operations, sales, and customer service departments, each with different perspectives on optimal inventory levels. Modern inventory management relies on software systems that track items in real-time, automate reorder point calculations, and provide visibility into inventory aging.

Inventory Turnover

Inventory turnover measures how many times a merchant sells and replaces its entire inventory within a specific period, typically one year, calculated by dividing cost of goods sold by average inventory value. High inventory turnover indicates that products sell quickly and carrying costs are minimized, while low turnover suggests excess inventory and potential obsolescence. Turnover rates vary dramatically by industry: grocery stores might achieve 10+ turns annually while luxury goods retailers might achieve only 2-3 turns. Improving inventory turnover requires accurate demand forecasting, efficient procurement, and responsive supply chain networks that can replenish inventory quickly.

Just-In-Time

Just-In-Time (JIT) is an inventory management philosophy where merchants receive supplier shipments in small quantities just before they are needed for sale or production, minimizing inventory holding and carrying costs. JIT requires reliable suppliers with short lead times, accurate demand forecasting, and flexible logistics networks capable of frequent small shipments. While JIT reduces capital tied up in inventory and warehouse space requirements, it increases risk of stockouts if suppliers fail or demand forecasts are inaccurate. JIT works best for products with stable demand and suppliers located nearby, but is risky for seasonal or fashion merchandise where demand is unpredictable.

Lead Time

Lead time is the elapsed time from when an order is placed with a supplier until the ordered goods are received and available for use, typically measured in days. Lead time includes supplier processing time, production time, quality checks, packaging, and transportation. Longer lead times require higher safety stock to protect against stockouts during the waiting period, increasing carrying costs and capital requirements. Understanding and reducing lead times is a priority for supply chain managers because shorter lead times enable more responsive inventory management, reduce safety stock requirements, and improve a merchant's ability to react to demand changes.

Minimum Order Quantity

Minimum Order Quantity (MOQ) is the smallest quantity a supplier will accept for an order, often imposed to make production or shipping economically viable. MOQ requirements affect purchasing decisions significantly: a supplier with a 1,000-unit MOQ forces merchants to choose between tying up capital in excess inventory or paying premium prices for smaller quantities from other suppliers. Some suppliers offer tiered pricing where MOQ is lower for higher total volumes, incentivizing larger orders. Balancing MOQ requirements against carrying costs is a key negotiation point with suppliers, particularly for new products with uncertain demand.

Multi-echelon Inventory

Multi-echelon inventory refers to inventory held at multiple levels of a supply chain network, such as regional distribution centres, local warehouses, and retail locations, each serving specific purposes. Multi-echelon inventory optimization balances inventory levels across all locations to minimize total carrying costs while maintaining service levels, a complex problem requiring sophisticated modeling. Different locations serve different functions: central warehouses hold safety stock for the entire network, while regional facilities hold working inventory for local markets. Advanced demand forecasting and inventory planning tools help merchants optimize inventory allocation across multi-echelon networks.

Core Supply Chain Terms (O–R)

Order Fill Rate

Order fill rate measures the percentage of customer orders that are fulfilled completely from available inventory without backorders or partial shipments, expressed as a percentage. A 95% order fill rate means that 95 out of 100 orders ship in full without requiring backorder processing. Order fill rate is a critical customer service metric that directly impacts satisfaction, repeat purchases, and online reviews. Merchants must balance the cost of maintaining high safety stock levels needed to achieve high fill rates against the cost of lost sales and customer dissatisfaction from stockouts.

Overstock

Overstock occurs when a merchant has more inventory than needed to satisfy customer demand during a specific period, resulting in excess inventory that must be stored, marked down, or eventually discarded. Overstock commonly results from demand forecasting errors, overly aggressive purchasing, or changes in customer preferences during long lead times. Overstock ties up working capital, increases carrying costs, risks obsolescence and damage, and eventually requires deep discounting or donation. Preventing overstock requires accurate demand forecasting, regular inventory reviews, and supplier flexibility to adjust orders based on actual sales trends.

Perfect Order Rate

Perfect Order Rate measures the percentage of orders delivered to customers on time, in full, undamaged, and with accurate documentation and invoicing, reflecting overall supply chain execution quality. A perfect order includes correct items, correct quantities, correct address, on-time delivery, proper packaging, and accurate paperwork—all executed flawlessly. Perfect Order Rate is typically lower than Order Fill Rate because it includes dimensions beyond just inventory availability, including logistics performance and order management accuracy. Leading ecommerce companies target Perfect Order Rates of 98% or higher, recognizing that this metric directly correlates with customer satisfaction and retention.

Purchase Order

A Purchase Order (PO) is a formal request issued by a merchant to a supplier to deliver specified products in specified quantities at an agreed price and delivery date. The purchase order serves as a legally binding contract that protects both the merchant and supplier by documenting expectations. POs include item numbers, quantities, unit prices, total price, delivery address, required delivery date, and payment terms. Proper purchase order management ensures that suppliers understand requirements clearly, prevents duplicate orders, enables tracking of commitments, and provides documentation for financial and inventory records.

Reorder Point

Reorder point is the inventory level at which a new purchase order should be placed to ensure that stock arrives just as existing inventory is depleted, calculated based on average daily demand and supplier lead time. The reorder point formula is: (Average Daily Demand × Lead Time Days) + Safety Stock. If daily demand is 10 units and supplier lead time is 20 days, the reorder point is 200 units plus any safety stock. Calculating accurate reorder points prevents both stockouts from ordering too late and excess inventory from ordering too early. Many merchants use automatic reorder point systems that trigger purchase orders when inventory reaches the calculated threshold.

Returns Management

Returns Management, also called RMA (Return Merchandise Authorization), is the process of handling customer product returns, including authorizing returns, receiving items back, inspecting condition, processing refunds or exchanges, and restocking or disposing of returned merchandise. Effective returns management requires clear return policies, efficient processing systems, and integration with inventory systems to restock returned items accurately. The returns process represents a significant operating expense, as processing costs, inspection, restocking, and potential refunds can consume 5-10% of order value. Merchants must balance customer-friendly return policies that encourage purchases against the cost of processing excessive returns.

Reverse Logistics

Reverse logistics encompasses all activities involved in moving products backward through the supply chain from customers back to merchants and suppliers, including returns, recalls, repairs, and recycling. Reverse logistics is significantly more complex and expensive than forward logistics because item conditions vary, handling is more delicate, and destination locations are more scattered. Managing reverse logistics effectively requires separate processes, transportation networks, and potentially third-party logistics partners specialized in returns processing. Improving reverse logistics efficiency reduces the overall cost of returned products and enables faster refunds or exchanges that improve customer satisfaction.

Core Supply Chain Terms (S–Z)

Safety Stock

Safety stock is extra inventory held above the calculated reorder point to protect against demand variability and supply uncertainty, acting as a buffer against stockouts. Higher safety stock levels reduce the risk of stockouts and improve order fill rates, but increase carrying costs and obsolescence risk. Optimal safety stock is determined by the acceptable stockout risk level, variability of demand, and variability of supplier lead times. Merchants typically calculate safety stock using statistical formulas that consider demand standard deviation and service level targets, with higher service levels (99%) requiring substantially more safety stock than lower levels (90%).

SKU

SKU (Stock Keeping Unit) is a unique identifier assigned to each distinct product variant that a merchant carries, distinguishing between different sizes, colors, styles, and configurations of the same basic product. Each SKU is tracked separately in inventory systems, with its own reorder point, lead time, and sales history. A basic t-shirt might have 20 SKUs representing different size and color combinations. Merchants typically have hundreds or thousands of SKUs depending on product variety, and managing SKU proliferation is important because excessive SKUs increase complexity, inventory carrying costs, and reduce inventory turns for each individual SKU.

Stockout

A stockout occurs when a product is unavailable for sale despite customer demand, either because inventory is depleted or not allocated to fulfill pending orders. Stockouts result in lost sales, customer dissatisfaction, negative reviews, and potential permanent loss of customers to competitors who have inventory available. The cost of a stockout includes the lost gross margin on the sale, the damage to customer relationships and brand reputation, and the cost of expedited orders to replenish inventory quickly. Preventing stockouts requires balancing safety stock investments against the probability and cost of stockouts, a calculation that differs for each product based on demand variability and profitability.

Supply Chain Management

Supply Chain Management (SCM) encompasses the planning, sourcing, procurement, production, logistics, and coordination activities required to deliver products from suppliers to customers at the lowest total cost while maintaining required quality and service levels. SCM integrates multiple functions across the organization—purchasing, manufacturing, logistics, sales, and customer service—to optimize the entire system rather than individual functions. Effective SCM requires visibility across the supply chain, coordination with external partners including suppliers and logistics providers, and continuous improvement of processes and systems. Forthsuite provides the visibility and control tools that enable merchants to manage complex, multi-supplier supply chains effectively.

Supply Chain Visibility

Supply Chain Visibility refers to the ability to track products and information in real-time as they move through the supply chain from suppliers through distribution centres to customers. Supply chain visibility includes knowing where inventory is located, the status of purchase orders, the real-time location of shipments in transit, and the expected delivery date to customers. Lack of visibility prevents merchants from reacting to problems quickly, makes it difficult to provide accurate customer delivery estimates, and creates operational inefficiencies. Modern supply chain visibility relies on integration of procurement systems, inventory management systems, warehouse management systems, and logistics provider tracking systems into unified dashboards.

Third-Party Logistics

Third-Party Logistics (3PL) providers offer outsourced warehouse, transportation, and order fulfillment services to merchants who prefer to focus on core business activities rather than managing logistics operations. 3PL providers operate large distribution centres, maintain sophisticated material handling systems, manage transportation networks, and handle returns processing. Using a 3PL provider reduces capital requirements for warehouse facilities and equipment, improves flexibility to scale operations up or down, and enables merchants to access expertise and technology they might not be able to afford independently. However, 3PL relationships require careful management to ensure service levels, quality standards, and customer satisfaction are maintained.

Vendor Managed Inventory

Vendor Managed Inventory (VMI) is an arrangement where a supplier takes responsibility for managing inventory levels at the merchant's location or distribution centre, automatically replenishing stock based on agreed-upon parameters. Rather than the merchant placing individual purchase orders, the supplier monitors inventory levels and sends shipments proactively to maintain target stock levels. VMI benefits merchants by reducing the administrative burden of purchase order management and improving inventory fill rates through more responsive replenishment. VMI benefits suppliers by providing more predictable demand visibility and the opportunity to optimize their own production and logistics. VMI relationships require high trust and strong information integration between trading partners.

Warehouse Management System

A Warehouse Management System (WMS) is software that controls the movement and storage of materials within a warehouse, managing receiving, put-away, picking, packing, and shipping operations. Modern WMS systems use barcode scanning and radio frequency devices to guide workers through efficient picking paths, verify inventory accuracy, and prevent errors. WMS systems integrate with inventory management systems to provide real-time visibility into inventory location and availability. A sophisticated WMS enables fast order processing, high inventory accuracy, reduced labor costs, and the ability to handle higher order volumes without additional warehouse space or staff.

Work in Progress

Work in Progress (WIP) refers to inventory that is partially completed in production, having received some labor and materials but not yet finished as a sellable product. WIP includes components in assembly, products undergoing quality checks or finishing operations, and items awaiting packaging. High WIP levels tie up working capital and increase production cycle times, while low WIP levels create bottlenecks and delays. Effective production planning minimizes WIP through balanced production lines where each operation completes work at approximately the same pace. Merchants with manufacturing operations typically track WIP value separately from finished goods inventory for cost accounting and cash flow purposes.

How Forthsuite Implements These Supply Chain Concepts

Forthsuite is purpose-built supply chain software that operationalizes the key concepts outlined in this glossary, giving ecommerce merchants the visibility, analytics, and control needed to optimize inventory and suppliers. The platform integrates inventory data from multiple warehouses and fulfillment partners, providing real-time dashboards that track key metrics including inventory accuracy, inventory turnover, DIO, and fill rates. Forthsuite's demand forecasting engine incorporates multiple data sources to predict future demand more accurately, feeding reorder point calculations and safety stock recommendations that reduce carrying costs while improving fill rates.

The platform automates cycle counting programs with ABC Analysis methodology, prioritizing high-value inventory for more frequent counts and directing the most expensive inventory control resources where they provide maximum return. Forthsuite's supplier management module tracks lead times, MOQ requirements, and supplier reliability, enabling merchants to evaluate supplier performance objectively and identify opportunities to consolidate suppliers or negotiate better terms. The system generates purchase order recommendations based on calculated reorder points and demand forecasts, reducing manual planning effort and preventing human error in order decisions.

For merchants using multiple suppliers or 3PL providers, Forthsuite provides unified visibility across the entire supply chain network, showing which inventory is held where and enabling intelligent allocation of inventory to orders. The platform tracks goods receipt, identifying discrepancies between purchase orders and received shipments for immediate resolution with suppliers. Returns management functionality automates RMA processes, tracks returned items through inspection and restocking, and generates analytics on return reasons that identify process improvements or product quality issues.

Forthsuite's multi-echelon inventory optimization module helps merchants determine the ideal inventory level at each location in their network, balancing customer service requirements against working capital requirements. The platform provides alerts when inventory approaches reorder points, when inventory aging suggests dead stock risk, or when GMROI declines indicating that a product deserves less inventory investment. By implementing these supply chain concepts systematically, Forthsuite enables merchants to reduce carrying costs by 15-25% while simultaneously improving order fill rates and customer satisfaction.

Frequently Asked Questions

What is the difference between inventory accuracy and inventory turnover?

Inventory accuracy measures whether the quantity of items in your warehouse matches the quantity in your inventory system, expressed as a percentage. Poor inventory accuracy (below 95%) causes overselling, customer disappointment, and operational disruptions. Inventory turnover measures how many times you sell and replace your entire inventory in a year, indicating how quickly inventory is moving. High turnover is good because it means inventory is selling quickly and carrying costs are minimized. You can have high turnover (fast-selling inventory) but poor accuracy (record mismatches) or low turnover (slow-moving inventory) with perfect accuracy. Both metrics matter: accuracy ensures your system is trustworthy, while turnover shows whether your inventory mix and purchasing decisions are efficient.

How do I calculate safety stock for my products?

Safety stock is calculated using the formula: Safety Stock = Z-score × Standard Deviation of Demand × Square Root of Lead Time. The Z-score depends on your desired service level (90% service level uses Z=1.28, 95% uses Z=1.65, 99% uses Z=2.33). First, calculate the standard deviation of historical daily demand over 30-90 days. Then multiply by your supplier lead time in days. For example, if daily demand has a standard deviation of 10 units, your lead time is 14 days, and you want 95% service level, the calculation would be: 1.65 × 10 × √14 = 61 units of safety stock. Higher service level targets require proportionally more safety stock. Many merchants use software like Forthsuite to automate this calculation, which updates as demand patterns change. Start with your most critical products and refine calculations based on actual stockout experience.

What does it mean if my GMROI is declining for a product?

Declining GMROI means the product is generating less gross profit per dollar of inventory invested, indicating reduced efficiency. GMROI can decline because gross margin decreased (selling price fell or product cost increased), because average inventory increased without proportional sales increase, or because sales volume decreased. A declining GMROI suggests you should consider reducing the inventory level you maintain for that product, cutting the selling price to move excess inventory faster, or potentially discontinuing the product if GMROI is negative. Some merchants use declining GMROI as a trigger to investigate whether demand is shifting, whether competitor activity changed, or whether marketing spend needs adjustment. Tracking GMROI by product helps you focus inventory investment on products delivering the best return on capital.

How should I decide between using a 3PL provider or managing my own warehouse?

Choosing between 3PL and in-house fulfillment depends on multiple factors including current order volume, growth rate, complexity of products, geographic reach needed, and capital availability. Use a 3PL provider if: you have less than 500-1000 orders monthly, expect seasonal demand swings, operate in multiple geographic regions needing local distribution, or lack capital for warehouse facilities. Manage your own warehouse if: you have consistent high-volume sales (5000+ monthly orders), require custom packaging or kitting that 3PLs can't easily provide, need to handle very sensitive products, or operate narrow margins where the 3PL fee becomes too expensive. Many merchants start with 3PLs while small, transition to in-house as volume grows, then use both for different regions or product lines. Calculate the true cost of 3PL fees versus in-house labor, facilities, and systems to make the decision. Ensure that whichever option you choose integrates with your inventory system so you maintain real-time visibility.

What is the best way to identify and manage dead stock?

Identify dead stock by running an inventory aging report that shows how long each SKU has been in inventory without sales. Products not sold in 12 months are typically considered dead stock, though the threshold varies by industry. Set up monthly automated reports rather than waiting for year-end inventory counts. For identified dead stock, implement a tiered action plan: first mark items for clearance pricing to stimulate sales, second offer as bundle deals with faster-moving products, third consider donation for potential tax benefits, and finally write off remaining value if items become unsellable. Investigate why dead stock occurred—was demand forecast too optimistic, did customer preferences shift, was the product discontinued without clearing inventory? Understanding root causes prevents future dead stock. Prevent future dead stock by regularly reviewing slow-moving inventory before it reaches one year, by adjusting purchase orders based on actual sales trends, and by setting clear end-of-life dates for seasonal or fashion products. Tools like Forthsuite alert you to slow inventory before it becomes dead stock, enabling proactive management.

How do I calculate the reorder point for my products?

Reorder point is calculated using the formula: (Average Daily Demand × Lead Time in Days) + Safety Stock. First, calculate your average daily demand by dividing monthly sales by 30 days (or use a 90-day average for more stability). Next, determine your supplier lead time in calendar days from order placement to inventory receipt. Multiply average daily demand by lead time to get the minimum inventory needed to cover demand during the lead time. Then add safety stock calculated using the formula from the safety stock question above. For example: if average daily demand is 20 units, lead time is 10 days, and safety stock is 50 units, the reorder point is (20 × 10) + 50 = 250 units. When inventory reaches 250 units, place a new purchase order. Most inventory systems can automate reorder point calculations and generate purchase order suggestions when inventory reaches the threshold. Review reorder points quarterly or whenever demand patterns or lead times change significantly.