Reference
DDMRP and inventory planning glossary
Short definitions with the formula for each term, as used in the calculators, the planner and the guides on this site.
Updated October 16, 2026
Buffer sizing
- Average daily usage (ADU)
- The average quantity of an item used or sold per day over a rolling window. Past ADU uses history, forward ADU uses forecast or known demand, and blended ADU weights both. Days with no usage count as zero.
Past ADU = usage in the last N days ÷ NADU guide → - Decoupled lead time (DLT)
- The longest cumulative lead time from an item back to the nearest stocked buffer (or the supplier) along any unbuffered path. Usually shorter than the full end-to-end lead time.
- Decoupling point
- A position in the supply chain where stock is held as a buffer, so that variation on one side doesn't pass straight through to the other.
- Buffer profile
- A group of items that behave alike (for example purchased, short lead time, high variability) and share the same lead time and variability factors.
- Lead time factor
- A percentage that sizes the red base and the minimum green zone. Longer lead times get a smaller factor because the yellow zone is already large; common starting points are 70%, 50% and 30% for short, medium and long.
- Variability factor
- A percentage of the red base added as red safety. More erratic demand or supply gets a larger factor; common starting points are 25%, 50% and 80%.
- Red zone
- The safety layer at the bottom of the buffer, made of a red base plus red safety.
Red = ADU × DLT × lead time factor × (1 + variability factor) - Yellow zone
- Covers average demand over the decoupled lead time: the core of the buffer.
Yellow = ADU × DLT - Green zone
- Sets the typical order size and frequency. The largest of the minimum order quantity, the lead-time-factor amount and the order-cycle amount.
Green = max(MOQ, ADU × DLT × lead time factor, ADU × order cycle) - Top of red (TOR)
- The upper edge of the red zone.
TOR = red - Top of yellow (TOY)
- The reorder trigger: when net flow position is at or below this level, an order is placed.
TOY = red + yellow - Top of green (TOG)
- The top of the buffer. Orders bring net flow position back up to this level.
TOG = red + yellow + greenBuffer zones worked example → - Average on-hand target
- The stock level a well-sized buffer should average over time, useful for comparing with today's inventory.
Average on hand ≈ red + green ÷ 2 - Demand adjustment factor (DAF)
- A multiplier on ADU for a planned, temporary change such as a promotion, launch or phase-out, usually applied about one lead time ahead of the change.
Adjusted ADU = ADU × DAF
Daily planning
- Net flow position (NFP)
- The planning position of a buffered item, compared with its zones to decide whether to order.
Net flow = on hand + on order − qualified demandNet flow guide → - On order
- All open supply already placed for the item, such as purchase, production and transfer orders, regardless of due date.
- Qualified demand
- The demand subtracted in net flow: open demand that is past due or due today, plus qualified order spikes.
- Order spike threshold
- The daily demand quantity that makes a future day a spike. Often set as a share of the red zone, such as 50%.
- Order spike horizon
- How far ahead to look for spikes. Often one decoupled lead time.
- Planning priority
- Net flow position as a percentage of top of green. Lower means more urgent, so items are sorted lowest first instead of by due date.
Priority = net flow ÷ TOG - On-hand alert
- An execution signal comparing physical stock with the red zone, used to decide which open orders to expedite. Separate from the planning signal.
- Minimum order quantity (MOQ)
- The smallest quantity a supplier or process accepts per order. A larger order is allowed; it doesn't have to be a multiple.
- Order multiple
- A pack or lot size that orders must be a multiple of, such as cases of 12. Orders are rounded up to it.
- Order cycle
- The desired number of days between orders for an item, used as one of the green zone candidates.
Classic inventory measures
- Safety stock
- Extra stock held to cover demand above average and late deliveries during the replenishment lead time.
SS = z × √(L × σd² + d² × σL²) (combined method)Safety stock formulas compared → - Cycle service level
- The probability of not running out during a replenishment cycle. It sets the z-score in safety stock formulas and is not the same as fill rate.
- Reorder point
- The inventory position at which to place a new order under continuous review.
Reorder point = daily demand × lead time + safety stock - Economic order quantity (EOQ)
- The order size that minimizes the sum of annual ordering and holding cost under steady demand.
EOQ = √(2 × annual demand × order cost ÷ annual holding cost per unit) - ABC analysis
- Classifying items by their share of annual usage value: A items carry most of the value, C items the least.ABC XYZ guide →
- XYZ analysis
- Classifying items by demand stability using the coefficient of variation: X steady, Y variable, Z erratic.
DDMRP terms follow the publicly described method; this site is independent and not affiliated with or endorsed by the Demand Driven Institute. Factor percentages are common starting points, not rules.