Direct definitions
Each glossary article starts with the plain-language meaning before moving into formulas, examples, common mistakes, and software implications.
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.
Each glossary article starts with the plain-language meaning before moving into formulas, examples, common mistakes, and software implications.
Terms are tied back to demand, lead time, supplier constraints, storage limits, carrying cost, and reorder quantity decisions that affect real buying work.
The goal is to help buyers understand which concepts belong in alerts, purchase orders, supplier conversations, approvals, receiving, and reporting.
50 articles
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 ->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 ->Economic order quantity formula explained: EOQ = sqrt(2DS/H), variable definitions, source note, worked example, EOQ vs reorder point, and software limits.
Read article ->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 ->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 ->Food cost percentage measures ingredient cost as a share of food revenue. Formula: food cost sold ÷ revenue × 100. Industry benchmarks by operation type, the gap between theoretical and actual food cost %, and why supplier pricing, receiving accuracy, and reorder discipline determine where your number lands.
Read article ->Prime cost is food cost plus labor cost as a percentage of revenue — the master efficiency metric for food operators. Formula, benchmarks by segment, how to diagnose overruns by component, and why procurement determines the food cost half.
Read article ->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 ->Gross margin is (Revenue − COGS) / Revenue × 100 — the percentage of revenue that remains after paying for goods sold. How supplier pricing, landed cost, substitutions, and purchase price variance each change the number before accounting sees it.
Read article ->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 ->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 ->A goods received note (GRN) is the buyer's formal record of what physically arrived against a purchase order. Required fields, GRN vs packing slip, receiving variance, and how living POs make GRN creation accurate before the invoice arrives.
Read article ->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 ->A request for quotation (RFQ) is a formal buyer inquiry sent to one or more suppliers asking for price, lead time, and terms on a specific item or list. RFQ vs RFP vs purchase order, when SMBs need one, what to include, and how supplier scorecards replace periodic RFQs in a closed-loop procurement workflow.
Read article ->Three-way matching is the accounts payable 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 ->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 ->Procure-to-pay (P2P) is the end-to-end process from purchase requisition through supplier payment — and closed-loop procurement is the operational architecture that delivers the same control outcomes for SMBs without an AP department.
Read article ->A business-use buyer purchases wholesale goods for its own operations rather than resale — the segment Faire opened its marketplace to on June 18, 2026. How business-use differs from resale buying, why sales tax applies, and the episodic-vs-replenishment split that determines which purchases a marketplace can host.
Read article ->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 ->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 ->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 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 ->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 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 ->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 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 ->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 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 ->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 ->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 ->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 ->Incoterms are the eleven ICC freight terms that determine who pays freight, who carries loss risk in transit, and who handles customs clearance. How FOB, CIF, DDP, DAP, and EXW each change landed cost, the receiving workflow, and tariff risk allocation — and why the Incoterm belongs on the purchase order, not buried in a supplier email.
Read article ->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 ->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 ->Days payable outstanding (DPO) is the average number of days a business takes to pay supplier invoices. Formula: (Average accounts payable / COGS) × 365. Vertical benchmarks, the three procurement levers — payment terms negotiation, blanket purchase orders, payment timing discipline — and how closed-loop procurement makes DPO visible.
Read article ->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 ->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 ->Just-in-time inventory targets near-zero safety stock by receiving goods only when needed. JIT requires negligible demand variance and lead-time variance. Most SMB catalogs need a hybrid: JIT-like buffers for smooth items, statistical JIC buffers for intermittent and erratic demand. The SBC classification framework routes each SKU.
Read article ->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 ->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 ->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 ->Consignment inventory is stock a supplier places at a buyer's location while retaining ownership until it sells or is used. How consignment works, how it's accounted for under revenue recognition rules, why settlement reconciliation and shrinkage make it the riskiest inventory type to manage, and how closed-loop procurement tracks ownership state alongside owned and on-order stock.
Read article ->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 ->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 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 / 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 ->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 ->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 ->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 ->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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