CPG Terms Explained, a series by Cyril Ovely

Cyril Ovely, Co-Founder and CTO, Vxceed  ·  August 2026

Supply Chain & Inventory Terms: The Complete CPG Guide

Getting products from factory to warehouse to store. Supply chain and inventory terminology covers the logistics, planning, and execution systems that keep CPG products flowing to the point of sale.

Why supply chain matters in CPG

In CPG, supply chain is the engine room. You can have the best brand, the strongest distribution network, and the most compelling promotions, but if the product isn't in the store when the shopper reaches for it, none of that matters. Supply chain execution determines whether your commercial strategy translates into actual sales.

The CPG supply chain is uniquely challenging: thousands of SKUs, millions of stores, perishable products, seasonal demand swings, and retailer requirements that get stricter every year. The metrics in this pillar are the language of supply chain teams worldwide, and they directly impact revenue, margin, and retailer relationships.

Key supply chain terms

OTIF (On Time In Full)

The primary supply chain performance metric between manufacturers and retailers. OTIF measures whether deliveries arrive completely (all items, correct quantities) and on the agreed delivery date. Most major retailers require 95%+ OTIF. Fail consistently and you face financial penalties, reduced shelf space, or delisting. OTIF has two components: "on time" (within the delivery window) and "in full" (complete order, no short shipments).

Fill Rate

The percentage of ordered units actually delivered. If a retailer orders 100 cases and receives 95, the fill rate is 95%. Fill rate is the "in full" component of OTIF. A delivery can be on time but still fail OTIF if the fill rate is below 100%. Fill rate is tracked at the order level, line level, and SKU level to identify specific supply issues.

Days of Supply

The number of days the current inventory will last at the current rate of sale. If a store has 30 cases of a product and sells 3 cases per day, it has 10 days of supply. This metric helps determine reorder timing and identify overstock or stock out risk. Target days of supply varies by category: perishable products may target 3 to 5 days, while ambient products may target 14 to 21 days.

Inventory Turns

The number of times inventory is sold and replaced over a period, typically a year. High inventory turns indicate efficient inventory management and strong demand. Low turns suggest overstocking or slow moving products. Formula: Inventory Turns = Cost of Goods Sold / Average Inventory Value. A CPG brand with $10M COGS and $2M average inventory has 5 turns per year.

Safety Stock

Buffer inventory held to protect against demand variability and supply chain disruptions. Safety stock prevents stock outs when demand exceeds forecast or when deliveries are delayed. The amount of safety stock depends on demand variability, lead time variability, and the desired service level. Too much safety stock ties up working capital; too little risks stock outs.

Forecast Accuracy

The degree to which a demand forecast matches actual sales. Measured using metrics like MAPE (Mean Absolute Percentage Error), bias, or forecast attainment. Forecast accuracy is the foundation of inventory planning: inaccurate forecasts lead to either overstock (waste, markdowns) or understock (lost sales, poor OTIF). Leading brands use statistical forecasting models combined with commercial intelligence to improve accuracy.

VMI (Vendor Managed Inventory)

A supply chain model where the manufacturer monitors the retailer's inventory levels and manages replenishment automatically. The manufacturer decides when and how much to ship based on agreed parameters (min/max levels, service targets). VMI reduces the retailer's inventory management burden and gives the manufacturer more control over shelf availability. Common in categories with stable demand patterns.

CPFR (Collaborative Planning, Forecasting and Replenishment)

A supply chain approach where manufacturers and retailers share data to improve forecast accuracy and inventory management. CPFR goes beyond VMI by including joint business planning, collaborative forecasting, and synchronized replenishment. It requires significant data sharing and trust between trading partners.

Distribution Center (DC)

A centralized warehouse facility that receives products from manufacturers and redistributes them to retail stores. DCs consolidate shipments, manage inventory, and break bulk into store level orders. The number and location of DCs in a supply network directly impacts delivery speed, cost, and service levels.

Landed Cost

The total cost of a product including manufacturing, freight, duties, insurance, and all costs to deliver it to the retailer's door. Landed cost is the true cost basis for margin calculations, not just the factory price. Understanding landed cost is essential for pricing decisions, especially for imported products or those shipped over long distances.

FOB (Free On Board)

A shipping term defining when ownership and risk transfer from seller to buyer. FOB origin means the buyer assumes risk at the shipping point. FOB destination means the seller retains risk until delivery. The FOB terms affect who pays for freight, insurance, and any damage in transit.

EDI (Electronic Data Interchange)

The standardized electronic exchange of business documents between trading partners. In CPG supply chains, EDI handles purchase orders, advance ship notices (ASNs), invoices, and inventory reports. EDI reduces manual processing, speeds order cycles, and improves data accuracy. Major retailers require EDI capability as a condition of doing business.

Lead Time

The time between placing an order and receiving the delivery. Lead time determines how far ahead you need to order to maintain service levels. Shorter lead times allow more responsive replenishment but may cost more. Longer lead times require more safety stock and reduce agility. Lead time varies by product, supplier, and shipping method.

Last Mile

The final leg of delivery from a distribution point to the store or end consumer. The last mile is often the most expensive and complex part of the supply chain, especially in dense urban areas or fragmented retail landscapes. In DSD models, the last mile is the manufacturer's responsibility. In warehouse delivery models, it's the retailer's or distributor's.

Sell Through Rate

The rate at which inventory is sold to the end consumer after being delivered to the retailer. High sell through means products are moving well; low sell through indicates overstock or weak demand. Sell through rate helps manufacturers and retailers identify which products need promotional support and which are candidates for delisting.

DIFOT (Delivered In Full On Time)

NZ/AU The NZ/AU equivalent of OTIF. Same concept: deliveries must arrive complete and on the agreed date. Used by Coles, Woolworths, and other major retailers in the region.

Back Stock

Inventory stored in the store's backroom, not yet on the shelf. Some back stock is normal, but excessive back stock indicates replenishment failures or over-ordering. Products in the backroom can't be sold, so back stock directly reduces sales and increases shrinkage risk.

Backorder

An order for a product that is currently out of stock but will be fulfilled when inventory becomes available. Backorders indicate demand exceeding supply and can strain retailer relationships if they become frequent.

Backroom to Shelf Time

The time elapsed between product arrival in the store's backroom and its placement on the selling shelf. Long backroom to shelf times create phantom inventory (system shows stock, shelf is empty) and directly reduce on shelf availability.

Warehouse

A facility for storing goods before distribution to retail stores or end consumers. In CPG, warehouses range from manufacturer production warehouses to distributor regional warehouses to retailer DCs.

Stock Replenishment

Stock replenishment is the process of restocking products at retail locations to maintain on shelf availability. It encompasses everything from automated reorder triggers to manual store level shelf restocking, ensuring products are available when shoppers want to buy them. Read the full article on Stock Replenishment →

How these terms connect

Supply chain in CPG follows a logical flow:

• Forecast Accuracy drives inventory planning
• Inventory planning determines Safety Stock levels and Days of Supply targets
• Lead Time determines when to order
• Orders flow through EDI to suppliers
• Products move through Distribution Centers using FOB terms
• Delivery performance is measured by OTIF/DIFOT and Fill Rate
• Products arrive at stores, where Backroom to Shelf Time determines how quickly they reach the shopper
• Sell Through Rate and Inventory Turns measure how efficiently inventory converts to sales