Direct definitions
Each glossary article starts with the plain-language meaning before moving into formulas, examples, common mistakes, and software implications.
Glossary
Definitions, formulas, and worked examples for PAR levels, safety stock, reorder points, EOQ, decay rate, and other inventory and procurement concepts.
The glossary is the reference layer for procurement, inventory, and replenishment terms that operators use when moving from manual buying to software-supported workflows. Each definition is designed to answer the term directly, show the formula or decision rule when one exists, and explain where the concept belongs inside a working procurement process.
Use these pages when you need a fast, precise explanation of reorder points, PAR levels, safety stock, EOQ, minimum order quantities, lead time, sell-through, decay rate, stockouts, and adjacent purchasing vocabulary. The intent is practical understanding, not academic abstraction.
Inventory math
Terms are tied back to demand, lead time, supplier constraints, storage limits, carrying cost, and reorder quantity decisions that affect real buying work.
Procurement context
The goal is to help buyers understand which concepts belong in alerts, purchase orders, supplier conversations, approvals, receiving, and reporting.
40 articles
Safety Stock: How to Size It Statistically
Safety stock is the inventory buffer held against demand and lead-time variability. Formula: z × σ × √(lead time). With z-scores by service level and a worked example.
Read article ->Reorder Point (ROP) Formula: How to Calculate with Example
Reorder point formula: ROP = (consumption rate × lead time) + safety stock. Step-by-step calculation, worked example, and how ROP differs from PAR level and EOQ.
Read article ->Minimum Order Quantity (MOQ): What It Is and How to Optimize Around It
Minimum order quantity (MOQ) is the smallest quantity a supplier will accept on a single order. How MOQ distorts replenishment math, when to push back, and how LineNow handles MOQ-driven over-ordering.
Read article ->Vendor Managed Inventory (VMI): How It Works and Why SMBs Need a Buyer-Managed Alternative
Vendor managed inventory (VMI) is a replenishment arrangement where the supplier monitors and replenishes stock without a buyer-generated purchase order. How VMI works, when it makes sense, why it breaks for most SMBs, and why buyer-managed closed-loop procurement delivers the same automation with full buyer control.
Read article ->PAR Level in Inventory: Meaning, Formula, and Examples
PAR level is the minimum on-hand inventory at the start of an order cycle. Formula: PAR = base demand + safety stock + manual buffer. With the math, examples, and how to calculate par for restaurant inventory.
Read article ->EOQ Formula: Economic Order Quantity, Example, and Reorder Limits
Economic order quantity formula explained: EOQ = sqrt(2DS/H), variable definitions, source note, worked example, EOQ vs reorder point, and software limits.
Read article ->Lead Time: Definition, Formula, and How to Measure It Accurately
Lead time is the total elapsed time between placing a purchase order and having goods available to sell or use. Formula, components, lead time variability, the Chopra-Meindl safety stock extension, and why empirical distributions beat a supplier's quoted estimate.
Read article ->Open-to-Buy (OTB): Formula, Worked Example, and the Execution Gap
Open-to-buy (OTB) is the dollar buying budget available for a period. Formula: OTB = Planned Sales + Planned Markdowns + Planned EOM Stock − BOM Stock − On Order. With a worked retail example, stock-to-sales ratio guidance, how OTB relates to reorder points and PAR levels, and why OTB planning requires closed-loop execution to translate the budget into purchase orders.
Read article ->Days of Inventory on Hand (DOH): Formula, the Lead-Time Threshold, and When to Act
Days of inventory on hand is on-hand quantity ÷ daily consumption rate — the number of days before an item runs out. The critical threshold: DOH < lead time means the stockout window is open. With accounting vs. operational DOH, the safety buffer formula, decay adjustment for perishables, vertical benchmarks, and how a closed-loop procurement platform acts on DOH.
Read article ->FIFO, FEFO, and LIFO: Inventory Valuation Methods and Picking Policies
FIFO and LIFO are cost-accounting methods that determine how purchase costs flow into COGS. FEFO is a picking rotation policy that determines which physical lot leaves the shelf first based on expiration date. A business can run FIFO accounting and FEFO picking simultaneously — and most perishables operators should.
Read article ->Weighted Average Cost (WAC): Formula, Periodic vs. Perpetual, and When AVCO Fits
Weighted average cost (WAC / AVCO) is the inventory costing method that assigns a single blended per-unit cost to COGS and ending inventory. Formula: WAC = total cost of goods available ÷ total units available. Periodic vs. moving average, worked example vs. FIFO, when WAC fits fungible goods, how landed cost distorts a WAC that uses invoice price only, and why receiving accuracy is cost accuracy in a perpetual WAC system.
Read article ->Carrying Cost (Holding Cost): Formula, Components, and Why Volume Discounts Lose Money
Carrying cost is the total annual cost of holding one dollar of inventory — capital, storage, insurance, obsolescence, and shrinkage. Common starting ranges, formula, component breakdown, industry benchmarks, worked example, and why "buying more to get the discount" can lose money.
Read article ->Stockout Cost: The Full Economic Impact of Running Out of Stock
Stockout cost is the total economic impact of not having an item when a customer wants it — lost sale, lost margin, emergency procurement premium, and customer defection. Why stockout cost is asymmetric and how to use it to set rational service levels.
Read article ->Fill Rate vs Service Level: The Metric Most Operators Confuse
Fill rate is the percentage of customer demand fulfilled immediately from on-hand stock. Not the same as service level — a 95% service level typically means a 99%+ fill rate. Formula, the distinction explained, worked example, and benchmarks by ABC tier.
Read article ->Payment Terms (Net 30, 2/10 Net 30): Trade Credit and Cash Timing
Payment terms define when a buyer must pay a supplier. Net 30, 2/10 Net 30, COD, CIA — what each means, the annualized cost of missing early-pay discounts (37.2%), how terms affect cash conversion cycle, and how to negotiate better terms as you grow.
Read article ->Bill of Materials (BOM): Single-Level, Multi-Level, and Why Recipes Are BOMs
A bill of materials is the complete list of raw materials, components, and sub-assemblies required to produce one unit of a finished product. BOM explosion, yield adjustment, dynamic costing, and why BOMs matter for procurement.
Read article ->SKU Rationalization: When to Cut Products and the Math Behind the Decision
SKU rationalization is the systematic process of evaluating which products to keep, consolidate, or discontinue. The long-tail problem, net SKU contribution formula, the emotional challenge of dropping products, and menu engineering for retail.
Read article ->Purchase Order (PO): Definition, Anatomy, Lifecycle, and When to Use One
A purchase order is a formal document from buyer to supplier specifying items, quantities, prices, and delivery terms. PO vs invoice vs sales order, the full PO lifecycle, static vs living POs, and when you need one.
Read article ->Purchase Price Variance (PPV): Formula, Causes, and Why Procurement Decides It
Purchase price variance (PPV) is the difference between the standard price on the purchase order and the actual price on the supplier invoice, multiplied by the quantity received. Formula: PPV = (Standard Price − Actual Price) × Actual Quantity. How PPV accumulates silently in open-loop procurement, why it flows directly into COGS and GMROI, and how a closed-loop system surfaces it early.
Read article ->Blanket Purchase Order (Blanket PO): What It Is, How Releases Work, and When to Use One
A blanket purchase order is a standing agreement with a supplier to purchase a defined total quantity or dollar amount over a period, drawn down through individual releases. How blanket POs differ from regular POs, the release mechanism, price-lock benefits, volume commitment risk, and how closed-loop procurement tracks open blankets against actual spend.
Read article ->Cost of Goods Sold (COGS): Formula, Benchmarks, and Why Procurement Controls It
COGS is the direct cost of acquiring or producing the goods a business sells. Formula: Beginning Inventory + Purchases − Ending Inventory. Benchmarks by industry, why procurement decisions affect COGS, and why many SMBs do not know their real number.
Read article ->OTIF (On-Time In-Full): Formula, Benchmarks, and the Supplier Performance Gap
OTIF (On-Time In-Full) is the supplier performance metric that checks delivery timing and order completeness simultaneously. Formula: (orders on-time AND in-full / total orders) × 100. Why OTIF is stricter than fill rate or lead-time accuracy alone, buyer-side vs seller-side contexts, industry benchmarks, and how closed-loop procurement makes it measurable.
Read article ->EDI (Electronic Data Interchange): X12 850, Transaction Sets, and the SMB Buying Loop
EDI is the structured protocol for exchanging business documents — purchase orders (850), acknowledgments (855), ship notices (856), and invoices (810) — between trading partners without email or manual entry. How X12 and EDIFACT work, when SMBs need EDI, and how EDI fits into closed-loop procurement.
Read article ->ABC Inventory Analysis: Classify SKUs, Set Policy by Tier
ABC inventory analysis ranks every SKU by annual usage value (AUV = units sold × unit cost) and divides the catalog into three tiers. A-items (20% of SKUs, 80% of value) get the tightest replenishment controls; C-items the lightest. How the formula works, where standard ABC breaks without demand-pattern data, and the full ABC × SBC policy matrix.
Read article ->Slow-Moving and Dead Stock: The SLOB Problem, How to Measure It, and How Procurement Creates or Prevents It
Slow-moving inventory is stock that moves below a defined velocity threshold. Dead stock is inventory with no movement for 180+ days. Together they form SLOB — Slow-moving and Obsolete inventory. The SLOB rate formula, aging thresholds by category, industry benchmarks, the procurement decisions that create SLOB, and how closed-loop procurement surfaces it before carrying cost compounds.
Read article ->Decay Rate: Modeling Spoilage and Shrinkage
Decay rate is the daily fraction of inventory lost to spoilage, shrinkage, or other non-sales consumption. Formula: I(t) = I₀ × (1−d)^t, with category examples.
Read article ->Coefficient of Variation (CV) and CV²: Demand Volatility Explained
The coefficient of variation is σ/μ — a normalized measure of demand volatility. CV² > 0.49 means erratic demand. Used with ADI to classify demand into smooth, intermittent, erratic, or lumpy.
Read article ->Consumption Rate: Definition and How to Measure It
Consumption rate is how fast an item is used per day, combining sales and decay. A core input to replenishment math, with formulas, examples, and how POS systems power it.
Read article ->LineNow Closed-Loop Procurement: Forecast, Buy, Receive, Repeat
LineNow closed-loop procurement connects demand forecasting, inventory alerts, purchase orders, supplier replies, receiving, accounting, and capital forecasting so each step feeds the next in one workflow.
Read article ->Three-Way Matching: What It Is, How It Works, and Why It Breaks at SMB Scale
Three-way matching is the AP process of verifying a vendor invoice against both the purchase order and the goods receipt note before payment. Why classic three-way matching fails at SMB scale, tolerance formulas, and how a closed-loop procurement loop reduces reconciliation work.
Read article ->Inventory Turnover: Formula, Benchmarks, and What Drives It
Inventory turnover is COGS divided by average inventory — the number of times a business cycles through its stock in a year. Formula, vertical benchmarks by category, the relationship to days of inventory on hand, and the procurement decisions that materially change your turns.
Read article ->Landed Cost: Formula, What It Includes, and How It Changes Your Procurement Math
Landed cost is purchase price plus every charge that accrues getting goods into usable stock: freight, customs duties, cargo insurance, and handling. Formula: LC = P + F + C + I + H. How landed cost changes EOQ holding cost, ABC tier classification, recipe and BOM costing, and why a closed-loop procurement platform captures it at receiving.
Read article ->GMROI (Gross Margin Return on Investment): Formula, Benchmarks, and the Procurement Connection
GMROI is gross margin divided by average inventory at cost — a useful metric for return per dollar tied up in stock. Formula, dual-driver expansion (GM% × turns), vertical benchmarks, ABC tier analysis, landed-cost effects, and procurement levers.
Read article ->Cycle Count: Inventory Record Accuracy, Count Frequency by ABC Tier, and the IRA Formula
Cycle counting is the practice of physically counting a rotating subset of SKUs to maintain Inventory Record Accuracy (IRA) without halting operations. Formula: IRA = (1 − |Σ variance| / Σ counted units) × 100. Count frequency by ABC tier, acceptable IRA thresholds by class, and why structured receiving is a continuous cycle count for high-velocity ordered items.
Read article ->Cash Conversion Cycle (CCC): Formula, Benchmarks, and Working-Capital Impact
The cash conversion cycle is the number of days between paying suppliers and collecting from customers. Formula: CCC = DIO + DSO − DPO. Benchmarks by vertical, worked example for a specialty retailer, and how procurement decisions affect CCC.
Read article ->Demand Forecasting: Methods, Accuracy, and Why Measured Error Matters
Demand forecasting is predicting future demand using historical sales data, trend analysis, and contextual factors. Methods from moving average to exponential smoothing, the SBC classification connection, seasonal adjustment, and forecast accuracy metrics.
Read article ->Shrinkage: The Four Types, Industry Benchmarks, and Procurement Impact
Shrinkage is inventory that disappears between purchase and sale — through theft, spoilage, damage, or administrative error. Planning benchmarks, the compound effect on reorder calculations, and how to measure it.
Read article ->Backorder: What It Is, How It Cascades, and the Wait-or-Substitute Decision
A backorder is an order for an item the supplier does not currently have in stock. How backorders cascade through the supply chain, the impact on lead time, partial shipment handling, and the decision framework for waiting versus substituting.
Read article ->Procurement: Definition, the SMB Procurement Cycle, and Open-Loop vs Closed-Loop
Procurement is the complete process of identifying needs, finding suppliers, negotiating terms, ordering goods, receiving them, and reconciling payment. Procurement vs purchasing, the 8-step SMB procurement cycle, and why COGS is a procurement metric.
Read article ->Syntetos–Boylan Approximation (SBA): The Bias-Corrected Intermittent Demand Forecast
SBA is the bias-corrected version of Croston's intermittent demand forecasting method. Formula: SBA = (1 − α/2) × (d̂ / p̂). Why Croston systematically over-estimates mean demand, how SBA corrects it, and how LineNow routes each item to SBA or exponential smoothing via the SBC demand classification.
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