What Is Vendor-Managed Inventory (VMI)? How It Works
Vendor-managed inventory, or VMI, is an arrangement where your supplier monitors your stock of their products and decides when to replenish it. You share stock and sales data; they watch the levels against agreed minimums and maximums, and ship without waiting for a purchase order from you. It inverts the normal relationship. In a conventional […]
What Is Safety Stock? Formula, Examples & How to Calculate It
Safety stock is inventory held above what you expect to need, to absorb the fact that your expectations will sometimes be wrong. If demand were perfectly predictable and suppliers always delivered exactly on time, you would need none. Stock would arrive as the last unit sold. In reality demand varies, lead times slip, and safety […]
What Is Par Level Inventory? How to Set Par Levels
A par level is the minimum quantity of an item you want to have on hand at all times. When stock falls to or below it, you order enough to bring it back up to a set maximum. The word comes from “periodic automatic replenishment”, and it is the simplest workable replenishment rule there is. […]
What Is Economic Order Quantity (EOQ)? Formula & Calculator
Economic order quantity is the order size that costs you the least overall. It balances two costs that move in opposite directions: ordering frequently costs more in the effort and expense of each order, whilst ordering in large quantities costs more in holding the stock that results. EOQ finds the point where those two costs […]
What Is LIFO? Last In, First Out Explained
LIFO stands for last in, first out. It means the most recently acquired stock is the first to be used — either in the accounts, where the newest costs are charged against sales, or physically in the warehouse, where the most recently stored items are the first ones taken out. The term carries both meanings, […]
What Is Just-in-Time (JIT) Inventory? Pros, Cons & Examples
Just-in-time inventory is a strategy of holding as little stock as possible and receiving goods only as they are needed. Instead of buying in bulk and storing it, you order small quantities frequently, timed so materials arrive shortly before they are used and finished goods arrive shortly before they are sold. The appeal is straightforward: […]
What Is Inventory Turnover? Formula, Example & Calculator
Inventory turnover is the single most useful number for telling whether your stock is working for you or against you. It answers one blunt question: how many times did you sell through your average stock in a period? Sell through it six times a year and your cash is moving. Sell through it once, and […]
What Is FIFO? First In, First Out Explained (Stock & Valuation)
FIFO stands for First In, First Out. The oldest stock is used, sold or costed before the newer stock behind it. The term does two jobs, and separating them clears up most of the confusion around it. Physical FIFO is a stock rotation rule: pick the oldest unit. It is what stops yoghurt going out […]
What Is FEFO? First Expired, First Out Explained
FEFO stands for first expired, first out. It is a stock rotation method where you dispatch the goods that will expire soonest, regardless of when they arrived. That last clause is the whole point. Most rotation methods sort by receipt date; FEFO sorts by expiry date. Those two orders are usually the same and not […]
What Is Demand Forecasting? Methods & How to Do It
Demand forecasting is estimating how much of something you will sell over a future period, so you can decide how much to buy and hold. Every business does it. Most do it implicitly — someone looks at the shelf, thinks about last month, and places an order. Formal forecasting replaces that with a method that […]