Glossary
The industrial operations & agentic AI glossary
Clear, benchmarked definitions of the inventory, procurement, and AI terms behind every outcome on this site.
Working capital & inventory turns
Days Sales of Inventory (DSI)
Days sales of inventory (DSI) is the average number of days a company holds inventory before selling it. Lower DSI means cash cycles back faster.
Inventory Turnover Ratio
Inventory turnover is how many times a business sells and replaces its average inventory in a year. Higher turns mean less cash tied up per dollar of sales.
Inventory Carrying Cost
Inventory carrying cost is the total annual cost of holding stock — capital, storage, insurance, shrinkage, and obsolescence — usually 20–30% of inventory value per year.
GMROI (Gross Margin Return on Investment)
GMROI measures the gross profit earned for every dollar invested in inventory. A GMROI above 1 means inventory generates more margin than it costs to hold.
Cash Conversion Cycle (CCC)
The cash conversion cycle (CCC) is the number of days between paying for inventory and collecting cash from its sale. Inventory days are usually its largest component.
Working Capital (in Inventory)
Working capital is the cash tied up in day-to-day operations. For distributors, inventory is usually its single largest component, which is why freeing inventory frees cash.
Economic Order Quantity (EOQ)
Economic order quantity (EOQ) is the order size that minimizes the combined cost of ordering and holding inventory.
Stockout
A stockout is running out of an item customers want to buy. Its true cost — lost sales, expedites, and churn — often runs 2–5× the value of the missed sale.
Lead Time
Lead time is the elapsed time from placing an order to receiving it. Longer and more variable lead times force higher safety stock and inventory.
Backorder
A backorder is unmet demand promised for later fulfillment when stock runs out. High backorder rates signal a service problem — and often over-buying that follows.
Just-in-Time (JIT)
Just-in-time (JIT) is an approach that minimizes on-hand inventory by receiving goods only as needed. It cuts carrying cost but raises exposure to supply disruption.
Days Payable Outstanding (DPO)
Days payable outstanding (DPO) is the average time a company takes to pay suppliers. Higher DPO holds cash longer and shortens the cash conversion cycle.
Stockout Cost
Stockout cost is the true cost of running out — lost sales, expedited freight, downtime, and eroded trust. It typically runs 2–5× the value of the missed sale.
Excess & obsolete inventory
Excess & Obsolete (E&O) Inventory Reserve
An excess and obsolete (E&O) reserve is the portion of inventory value a company writes down because it is unlikely to sell. It is usually calculated by age and consumption tiers.
SLOB Inventory (Slow-Moving & Obsolete)
SLOB stands for slow-moving and obsolete inventory — stock that sells rarely or not at all. It is the inventory most likely to become a write-off.
Dead Stock
Dead stock is inventory with no forward demand — it will not sell through normal channels. Its options are redistribution, resale at fair market value, or disposal.
Inventory Intelligence
Inventory intelligence is a live, decision-ready view of what you hold, what it's worth, and what to do with it — across every location — rather than static reports.
Safety Stock
Safety stock is the buffer inventory held to protect against demand and supply variability. Set too high, it becomes a leading cause of excess and carrying cost.
Reorder Point
The reorder point is the inventory level that triggers a replenishment order. When it's stale, you either stock out or over-buy.
Fill Rate
Fill rate is the percentage of demand met from stock on hand without backorder. It's the service metric excess-reduction efforts must protect.
ABC Analysis
ABC analysis classifies inventory into A, B, and C tiers by value or usage, so attention and controls concentrate where they matter most.
SKU Rationalization
SKU rationalization is the disciplined review of which items to stock, consolidate, or drop — removing duplicates and dead weight from the catalog.
Spare Parts Optimization
Spare parts optimization sets stocking levels for MRO and service parts based on criticality, consumption, and lead time — balancing uptime against carrying cost.
Inventory Optimization
Inventory optimization sets the right stock level for every item across every location — balancing service against carrying cost — rather than applying blanket rules.
Inventory Obsolescence
Obsolescence is the loss of inventory value when items can no longer be sold or used — because of design changes, superseded parts, or expired demand.
Perpetual Inventory
Perpetual inventory continuously updates stock records with every receipt and issue, versus periodic counts. It's the basis for trustworthy, real-time inventory decisions.
Cycle Counting
Cycle counting audits a subset of inventory on a rolling schedule instead of a single annual count, keeping records accurate year-round.
Criticality Analysis
Criticality analysis ranks spare parts by the operational impact of a stockout, so stocking effort concentrates where downtime risk is highest.
Stock-Keeping Unit (SKU)
A stock-keeping unit (SKU) is a unique identifier for a distinct item. SKU proliferation — especially duplicates — is a hidden driver of excess and complexity.
Service Level
Service level is the target probability of meeting demand from stock. It sets the safety stock required — and rises steeply in cost near 100%.
Inventory Write-Down
An inventory write-down reduces the book value of stock when its market value falls below cost. A full write-off takes the value to zero. Both hit earnings.
Min/Max Inventory
Min/max is a replenishment method that reorders up to a maximum level when stock falls to a minimum. Simple to run, but it drifts into excess when the min and max are set once and never revisited.
Inventory Accuracy
Inventory accuracy is how closely recorded quantities match the physical shelf. Low accuracy drives phantom stockouts, duplicate ordering, and untrustworthy planning.
Replenishment
Replenishment is the process of reordering stock to maintain target service levels. How it's triggered — min/max, reorder point, kanban, or optimized — determines how much excess it creates.
Surplus asset monetization
Fair Market Value (FMV)
Fair market value (FMV) is the price surplus equipment would sell for between a willing buyer and seller, neither under pressure. It is the benchmark for resale and for flagging overpriced purchases.
Orderly Liquidation Value (OLV)
Orderly liquidation value (OLV) is the estimated proceeds from selling assets over a reasonable period, typically a few months, rather than immediately.
Forced Liquidation Value (FLV)
Forced liquidation value (FLV) is the proceeds expected when assets must be sold immediately, such as at auction. It is the lowest of the common value standards.
Asset Recovery
Asset recovery is the process of maximizing value from surplus, idle, or retired assets through redeployment, resale, or recycling instead of write-off.
Agentic AI for operations
Agentic AI
Agentic AI refers to AI systems that take goal-directed action — planning, deciding, and executing multi-step tasks — rather than only answering questions. In operations, agentic AI handles routine decisions and escalates exceptions to people.
Human-in-the-Loop (HITL)
Human-in-the-loop means a person reviews and approves an AI system's higher-stakes decisions before they take effect. It gives autonomous operations governance and an audit trail.
Robotic Process Automation (RPA)
Robotic process automation (RPA) automates repetitive, rule-based tasks by following a fixed script. Unlike agentic AI, it does not decide or adapt — it repeats.
Autonomous Supply Chain
An autonomous supply chain runs its routine decisions — replenishment, sourcing, disposition — continuously with minimal human intervention, escalating only exceptions.
RFQ & sourcing automation
Autonomous Sourcing
Autonomous sourcing is the use of AI to run sourcing events — capturing requests, benchmarking prices, comparing suppliers, and drafting quotes — with people approving the decisions that matter.
Tail Spend
Tail spend is the large number of small, fragmented purchases — often the bottom 20% of spend across 80% of transactions — that rarely gets managed and leaks value.
Maverick Spend
Maverick spend is buying that happens outside negotiated contracts and approved processes. It commonly accounts for 20–30% of indirect spend and erodes negotiated savings.
Agentic Procurement
Agentic procurement is the use of AI agents to run sourcing and buying tasks end to end — capturing requests, pricing, comparing suppliers, and drafting POs — with people approving key decisions.
Spot Buy
A spot buy is a one-off, unplanned purchase outside standing contracts — common in MRO and a frequent source of off-contract, over-market spend.
RFQ vs RFP vs RFI
An RFI gathers information, an RFP solicits proposals for a complex need, and an RFQ requests a price for a defined item. RFQs are the high-volume, automatable core of tactical buying.
Procure-to-Pay (P2P)
Procure-to-pay (P2P) is the end-to-end process from requisition to supplier payment. Its cycle time is a core efficiency benchmark.
Spend Under Management
Spend under management is the share of total spend actively controlled through sourcing, contracts, and procurement processes. Higher is better.
Total Cost of Ownership (TCO)
Total cost of ownership (TCO) is the full lifetime cost of a purchase — price plus freight, holding, downtime, and disposal — not just the sticker price.
Spend Analysis
Spend analysis is the systematic review of purchasing data to find savings, consolidation, and off-contract leakage across suppliers and categories.
Three-Way Match
A three-way match verifies that a purchase order, receipt, and invoice agree before payment — a core control against overbilling and error.
Purchase Requisition
A purchase requisition is the internal request to buy something, which becomes a purchase order once approved. It's the entry point of the procure-to-pay cycle.
Procurement Cycle Time
Procurement cycle time is how long it takes to go from a purchase requirement to a completed order or payment. Shorter cycles capture discounts and free buyers for strategic work.
MRO & distribution transformation
Vendor-Managed Inventory (VMI)
Vendor-managed inventory (VMI) is an arrangement where the supplier monitors and replenishes a customer's stock of their items, shifting the planning burden upstream.
Demand Forecasting
Demand forecasting predicts future demand to guide stocking and replenishment. AI-driven forecasting can cut forecasting error by up to 50%.
Consignment Inventory
Consignment inventory is stock a supplier owns until the customer uses it, shifting carrying cost and risk upstream while keeping parts on site.
Kanban
Kanban is a pull-based replenishment system that signals a reorder when a bin or card is emptied, keeping on-hand stock low and tied to actual consumption.
Bill of Materials (BOM)
A bill of materials (BOM) is the structured list of parts and quantities needed to build or maintain something. Accurate BOMs drive accurate demand for spares and materials.
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