Must Know Inventory Management Terms For Your E-commerce Business

inventory management

Many traditional retail businesses are jumping onto ecommerce. This is because of the many opportunities this option offers. The problem is that the majority of these businesses are not giving inventory management the attention it deserves. In the ecommerce business, inventory management is a very important term. It is the only way you will be able to keep sufficient inventory to meet the demands of your customers.

Needless to say, inventory management will be the backbone of your ecommerce business. it will help you keep track of your inventory so you are able to channelize them properly and deliver to customers without suffering any delay. Time lag processing orders will also be eliminated. Computer based inventory management systems will help cater to millions of customers by selling to multiple locations and managing as per your demand and supply.

With a simple online search, you will come across innumerable glossaries that come with hundreds of inventory management terms in them. To help you save time and only focus on the most important terms, this post provides a list of the terms you will face and deal with in your line of work.


1. Backorder

This is the order that can’t be filled on the date requested. It results from having inadequate inventory.

2. Bill of materials (BOM)

This is the list of the materials as well as components that are required to produce a product. This may also include information like scrap factors.

3. Holding cost or carrying cost

This is the cost of inventory storage and inventory investment. It is used in the Economic Order Quantity (EOQ) calculations.

4. Chargeback

This is the amount of money that is returned to the customer from the supplier when the shipment fails to meet the agreed conditions.

5. Cross-docking

This refers to the process of unloading from incoming trucks and loading to outbound trucks with little to no warehousing.

6. Cycle count

This is when the accuracy of inventory quantity data is checked on regular basis.

7. Enterprise resource planning (ERP)

This is a business management tool with separate module like Sales, Financials, Inventory Management, MRP, DRP and Manufacturing.

8. Lead time

This is the time a product takes to get to the dock and be available for use from the time of it being ordered.

9. Lead time demand

This is the expected demand for the item during the period of lead-time.

10. Purchase order

This is a document that includes terms of sale. It is used to track, process and approve purchases.

11. Material requirements planning (MRP)

This is the production planning and inventory control system that will integrate the production schedules, BOM data, and inventory and use that data to calculate both purchasing and shipping schedules for component or materials that are needed to create a product.

12. Reorder point

This is the set inventory level which triggers the replenishment of specific items.

13. Safety stock

This refers to the quantity of the inventory which is used to cover the deviations in either supply or demand.

14. Slotting

This is the process used to determine the appropriate placement for individual items in the warehouse.

15. Inventory management system

This is an information management system that deals with data needed for stock control.

16. Consignment inventory

This is inventory in the possession of customers but still owned by suppliers.

17. Cost of goods sold (COGS)

It is a term used in accounting to describe the total cost of products that have been sold within a specific period of time.

18. Fast moving consumer goods (FMCG)

The terms describe high volume products like hygiene products, food and cleaning supplies. These are products average consumers frequently purchase for example toothpaste, soda or dish soap.

The above are the terms you will most likely run into when dealing with inventory management. You ought to understand these terms before you implement an inventory management system in your ecommerce business.