Inventory Control Terminology

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Going further in the course of ‘Inventory Control’. First, discuss some terminology used in the Inventory process, this helps us to understand the course better.

  1. Demand: It is the number of products required per unit of time. The demand may be either deterministic or probabilistic.
  2. Order Cycle: The time period between two successive orders is called the order cycle.
  3. Lead time: The length of time between placing an order and receipt of the item is called lead time.
  4. Safety Stock: It is also called buffer stock or minimum stock. It is the stock or inventory needed to account for delays in materials supply and to account for a sudden increase in demand due to rush order.
  5. Inventory Turnover: If the company maintains inventories equal to 3 months consumption. It means that inventory turnover is 4 times a year, i.e. the entire inventory is used up and replaced 4 times a year.
  6. Re-order level(ROL): It is the point at which the replenishment action is initiated. When the stock level reaches ROL the order is placed for the product.
  7. Re-order Quantity: This is the quantity of material(items)to be ordered at the reorder level. Normally this quantity equals the economic order quantity.

Back to: Basics of Inventory Control

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