In this article, learn about:
The definition of replenishment and its role in retail supply chains
Essential inventory, procurement, logistics, and ordering terms
Common replenishment policies and calculations
Understanding replenishment is critical for any supplier operating in the retail supply chain. From forecasting demand to maintaining optimal inventory levels, replenishment touches nearly every part of your operations. And like most supply chain processes, it comes with its own vocabulary.
This glossary breaks down key replenishment terms and definitions every supplier should know, from basic inventory concepts to advanced procurement policies and performance metrics.
What is Replenishment?
Replenishment is the process of restocking products to maintain inventory levels and meet customer demand. For suppliers, this means ensuring that the right products are available at the right time and location—whether in warehouses, distribution centers, or on store shelves. Strategic replenishment strategies are key in ensuring suppliers avoid stockouts, reduce excess inventory, and optimize business operations.
Related Reading: Replenishment 201—Monitoring Store-Level Inventory
Inventory Terms
Term | Definition |
Aggregate Inventory Management | A simple method of managing stock that involves grouping products into three distinct categories: finished goods, work-in-process (WIP), and raw materials. |
Auto-Replenishment | A replenishment method that uses pre-set inventory thresholds and real-time data to reorder stock automatically. |
Five Types of Inventory | The five types of stock are packing materials, work-in-process (WIP), raw materials, finished goods, and maintenance, repair, and operating (MRO). |
Inventory Forecasting | Refers to the process of planning and managing inventory levels, including replenishment. |
Inventory Optimization | A management process that allows for maximum service at the lowest possible cost. |
Inventory Pooling | An inventory management strategy where a brand maintains a centralized stock supply that serves multiple locations and sales channels. |
Maximum Level of Inventory | The maximum level of stock refers to the “order-up-to” number in an inventory system that uses a minimum/maximum inventory policy. The order quantity will depend on how big the gap is between the available and maximum figures. |
Minimum Level of Inventory | The minimum level of inventory refers to the level of stock that will trigger replenishment in an inventory system using a minimum/maximum inventory policy. |
Stock that the inventory system classifies as sellable inventory that’s available in the store even though there’s no actual stock available. | |
Shrinkage | The loss of inventory due to theft, damage, or error. |
Refers to pushing all merchandise responsibility from the retailer to the manufacturer. VMI allows for cost-cutting and avoids overstocking. |
Procurement Terms
Term | Definition |
Order Quantity | Order quantity refers to the set number of units ordered when inventory levels reach the designated reorder point. |
Order Quantity Minimum | Refers to a number (which the retailer negotiates with the supplier) used to determine the minimum amount of product that a customer must order. Suppliers usually use the demand history to determine the order quantity minimum. |
Order Quantity Multiple | Suppliers may require the retailer to order multiples when they need their customers to order items in a set number. For instance, a supplier may not let you order just one product but must require that you order five. |
The process of sourcing, purchasing, and acquiring goods or services from external suppliers to meet business needs. | |
Procure to Order | When a supplier designs an item as procure to order, it must be ordered from a supplier or produced after a customer requests it. A synonym of this term is make-to-order. |
The process of identifying, evaluating, and engaging suppliers to provide goods or services. |
Stock Terms
Term | Definition |
ABC Code | An ABC code tells you how quickly a piece of stock or product moves. An item with a high turnover will move through the warehouse quickly and is known as a fast mover. |
Cycle Stock | Cycle stock refers to the amount of inventory anticipated to cover lead time demand. |
Dead Stock | Inventory that has never been sold or used. |
Inner Pack | The term ‘inner pack’ refers to the interior packaging that a product comes in. The inner pack might consist of bubble wrap, styrofoam, or protective plastic materials. |
A product is an instock if it’s already with the retailer or warehouse and is ready for consumer purchase. The vendor doesn’t have to take the added action of ordering the product for the customer. | |
Master Pack Quantity | Master pack quantity refers to how many multiples of a product you must purchase from your primary vendor. |
On-Shelf Availability (OSA) | On-shelf availability refers to how much of a product is immediately available to consumers in the store. It means they can take it off the shelf. |
Out-of-Stock (OOS) | An item is an out-of-stock if it’s not immediately available for the consumer to purchase. |
Safety Stock | Safety stock refers to how much inventory is available to accommodate random increases in demand. Safety stock aims to reduce the likelihood of stockouts. |
Safety Time | Safety time refers to the number of days tacked onto the lead time in the interests of accommodating lengthier supplier lead times. A more extended safety time minimizes stockout risk. |
Service Level | The service level metric determines a retail vendor’s ability to avoid stockouts throughout replenishment lead time. For example, a service level of 80% means a 20% chance of a stockout occurring. |
A unique identifier used to track individual products in inventory. Each SKU represents a distinct item. | |
SKU rationalization is the process of determining which items (or SKUs) to keep in the supplier’s catalog and which to suspend or discontinue. It helps remove slow-selling products and maximize efficiency. |
Logistics Terms
Term | Definition |
Cross-docking involves delivering products directly to the consumer. It skips the handling process of production facilities. | |
Item Codes | Item codes are unique identifiers for products. Different sectors and geographic areas use other item codes. For example, there are specific European Article Numbers (EANs). |
A common replenishment glossary term used in the logistics world, TI/HI or Tie-High refers to pallet stacking. | |
Vendor Review Cycle | The vendor review cycle refers to the number of days an individual would need to wait before they place an order to the vendor that would be big enough to waive freight charges. The vendor review cycle is equal to the total annual purchases (both non-stock and stock) divided by the purchase order amount (in dollars) that would be necessary to qualify for free freight.
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Replenishment Policies
Term | Definition |
Backorder Policy | A backorder policy provides guidelines for what to do in case a stockout occurs. In this case, product units that the supplier can’t deliver immediately will be available later.
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Just-in-Time (JIT) | A strategy where inventory is replenished only as needed to reduce holding costs. |
Loss Policy | A loss policy provides guidelines for what to do in case a stockout occurs. In this case, units that the supplier can’t deliver immediately are considered “lost,” meaning the customer doesn’t get them and may turn elsewhere for the product. |
Lot for Lot Policy | The lot for lot policy is driven by a reorder point (ROP) minimum and replenishment quantity (equal to consumption). It’s also known as a “sell one, buy one” approach. |
Minimum/Maximum Inventory Policy | A maximum/minimum policy is triggered when supply reaches a minimum. Once this occurs, an order is placed up to the maximum inventory level. |
Q, R or R, Q policy | A Q, R or R, Q policy is driven by the reorder point (defined as R) and the reorder quantity (defined as Q). The replenishment quantity remains consistent. |
Replenishment Metrics/Planning
Term | Definition |
Average Daily Usage | Used to calculate a product’s average daily usage. |
Average Monthly Usage | The average monthly usage figure is calculated according to reorder point, ROP, models. |
Collaborative Planning, Forecasting, and Replenishment (CPFR) | A collaborative approach between retailers and suppliers to improve inventory management through shared forecasting and planning data. |
A demand plan indicates how much inventory a vendor can anticipate selling. This plan allows vendors to forecast how much product to manufacture, store, and ship. | |
EOQ is one factor used to determine reorder quantity. Suppliers can also use an ROP model to figure out the settings for specifying their EOQ. | |
Fill Rate | This metric indicates item availability. It measures the ratio of requested items to items supplied using on-hand stock. It is also a KPI of On-Time and In-Full. |
Inventory Turnover | How many times inventory is sold and replaced over a specific period. |
Return on Added Investment (ROAI) | The ROAI refers to the bottom line the supplier hopes to reach when it adds money to its inventory. An inventory management system uses ROAI to calculate the extra quantity that customers must buy. |
Stockout Rate | Percentage of demand not fulfilled due to out-of-stock situations. |
A supply plan predicts how much product a vendor will need, detailing the steps necessary to manufacture a product, store it in a warehouse, and ship and stock it. |
Order and Reordering Terms
Term | Definition |
Backorders | Backordering refers to a process in which a vendor gives customers the option to place orders even though the vendor lacks sufficient stock. |
Refers to the time that passes from the point when the retailer realizes it needs more inventory to the point of that inventory being back in stock. | |
Lead Time Demand | The total expected customer demand for a product during the lead time—the period between placing an order and receiving it. |
Line Point | The line point defines the maximum quantity limit that must be reached to include a product on a vendor purchase order. |
Reorder Point (ROP) | ROP refers to the specific number of products that the retailer must reach to trigger the system to add that product to a purchase order. It considers merchandise usage and lead time, ensuring stores don’t run out of the product without overstocking. |
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