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In the supply chain sector, just like any industry, we have a multitude of terms that are commonly used. So, I decided to create this list to help you decipher any supply-chain-related terms that you come across for the first time.

If you have any others to add, please add them in the comments below, and I’ll add them to the list.

Let’s see how big this list gets!

 

A

Abaft: A point on a ship, toward the stern, and hence beyond the central point of the ship’s length.

Abandon: In shipping, this term refers to the act of a shipper or consignee abandoning some or all of their cargo.

Abatement: A type of discount granted to a shipper by a freight forwarder or carrier, typically in response to an overcharge or damage to the shipper’s cargo.

ABC Analysis: A form of Pareto analysis applied to a group of products to enable selective inventory management controls. The inventory value for each item is obtained by multiplying the annual demand by unit cost and the entire inventory is then ranked in descending order of cost. However, the classification parameter can be varied; for example, it is possible to use the velocity of turnover rather than annual demand value.

ABC Classification: The classification of inventory, after ABC analysis, into three basic groups for the purpose of stock control and planning. Although further divisions may be established, the 3 basic categories are designated A, B and C as follows:

    • “A” Items– Items which, according to an ABC classification, belong to a small group of products representing around 75-80% of the annual demand, usage or production volume, in monetary terms, but only some 15-20% of the inventory items. For the purpose of stock control and planning, the greatest attention is paid to this category of products. “A” items may also be of strategic importance to the business concerned.
    • “B” items– An intermediate group, representing around 5-10% of the annual demand, usage or production value, but some 20-25% of the total, that is paid less management attention.
    • “C” Items– Products which, according to an ABC classification, belongs to the 60-65% of inventory that represents only around 10-15% of the annual demand, usage or production value. Least attention is paid to this category for the purpose of stock control and planning and procurement decisions for such items may be automated.

ABC Inventory Control: An inventory control approach using ABC analysis and classification as its basis.

ABC Model: A cost management model representing resource costs incurred during a specific period, by activities associated with customers, services, products, or any other factor driving the demand for those activities.

ABC System: A cost management system that maintains operational and financial data relating to an organisation’s activities, resources, objects, drivers, and measures. It is upon such systems that ABC models are generated and maintained.

Abnormal Demand: Any demand on an organisation’s inventory that falls outside of management expectations. It may be, for example, that demand suddenly increases or decreases sharply and substantially, or that the product mix fluctuates acutely, or even that the timing of orders shifts from established norms.

Absolute Minimum Charge: In freight carriage, this is a charge stated by a carrier, representing the minimum possible fee that the shipper must pay, when all relevant terms are applied to the shipping order.

Absorption: In shipping, absorption is the term used when a carrier takes on the fees of another carrier without passing the charges on to the shipper.

Absorption Costing: Sometimes known as allocation costing, absorption costing is an approach used in cost management to assign variable costs, along with some fixed costs, or a portion of them, to each production unit.

Acceptable Quality Level (AQL): A baseline parameter in quality management, representing the lowest level of quality that will be considered an acceptable process average as the result of sampling inspections.

Acceptable Sampling Plan: A quality management plan, setting out sampling sizes and acceptance/non-acceptance criteria, to be used in sampling inspections.

Acceptance Number: In quality management acceptance sampling the acceptance number is a term used for either…

  1. a) A threshold value determining if an entire lot will be accepted or rejected based on the number of units in a sample that fall below the acceptable quality level.
    Or…
  1. b) The test statistic value dividing all possible values into rejection and acceptance regions.

Acceptance Sampling: In quality management, acceptance sampling is a process by which a sample of an entire lot, or batch, of goods is inspected, and if accepted, indicates that the entire lot should be considered as acceptable for sale. The process removes the need to inspect the lot in its entirety.

Access Space: An alternative term for aisles, which are the spaces between rows of racking or stacks of inventory. In some cases, an access space may not be wide enough for mechanical handling equipment to traverse and might only be used for inventory counting or similar checks.

Accessibility: The ability of a freight carrier to provide transportation between the named points of origin and destination.

Accessorial Charges: Charges imposed by a freight carrier for activities other than the primary task of carrying goods between locations. For example, accessorial charges might include fees for loading, unloading, palletisation, or depalletisation.

Accountability: In business (and therefore supply chain and logistics) management, accountability is the term used when an individual is answerable for the completion of tasks or performance of services. Hence, the accountable person does not necessarily have to execute the tasks or services personally but must carry the weight of responsibility for such.

Accounts Payable: The value of services and goods that a company has received or acquired but for which it has not yet made payment.

Accounts Receivable: The value of services that a company has provided to customers or clients but for which it has not yet been paid.

Accreditation: Formal recognition, typically in the form of certification, by a recognised authority or body, of the integrity, objectivity, competence, capabilities, or facilities of an organisation, company, or individual, relating to a specific industry or professional field.

Accumulation Bin: In manufacturing and assembly, an accumulation bin, sometimes called an assembly bin, is a location or receptacle into which components for assembly are gathered together.

Accuracy: In quality management, accuracy is the degree of conformity to a quality standard.

Acknowledgement: In purchasing, acknowledgement is the term used to describe a supplier’s confirmation that the buyer’s purchase order has been received, and hence, that the order is accepted.

Acquisition Cost: A term used in accounting meaning the cost of a single unit multiplied by the quantity ordered (acquired).

ACS: Automated commercial systems, or A.C.S is the primary digital system used by U.S. customs.

Action Message: An alert generated by a materials requirement planning (MRP) or distribution requirements planning (DRP) system. Action messages typically notify the user of a situation or issue requiring attention.

Activation: According to Goldratt’s Theory of Constraints (TOC), activation refers to production that does not contribute to throughput. Conversely, production that does contribute to throughput is termed utilisation.

Active Inventory: Any item or element of inventory which has been used or sold within a given period—often set at 12 months.

Active Stock: Inventory located in active picking locations and hence, ready for order fulfilment.

Ad Hoc Charter: This is the term used when a shipper charters a vessel or aircraft to carry a cargo from origin to destination as a one-time transaction.

Adjustment: A term used in freight shipping to denote additional charges applied to a shipment after delivery. These charges typically arise when the size or weight of the cargo is greater than that declared by the shipper, or when additional services are required that were not requested in the original shipping order.

ADR: A governing standard for transportation of dangerous/hazardous materials by road. The standard includes specific requirements for vehicles and the training of drivers. Materials covered by ADR are classified into categories as follows:

Class 1: Explosive substances
Class 2: Gases
Class 3: Flammable liquids
Class 4.1: Flammable solids
Class 4.2: Substances liable to spontaneous combustion
Class 4.3: Substances which, in contact with water, emit flammable gases
Class 5.1: Oxidizing substances
Class 5.2: Organic peroxides
Class 6.1: Toxic substances
Class 6.2: Infectious substances
Class 7: Radioactive substances
Class 8: Corrosive (acidic) substances
Class 9: Miscellaneous dangerous substances

Advance: In ocean freight shipping, this term refers to the reallocation of a shipment to a vessel departing earlier than the one to which it was originally allocated.

Advance Material Request: In manufacturing, this is a request for materials to be supplied in advance of the formal need, typically made to allow for lengthy component lead times.

Advanced Planning and Scheduling (APS): A digital technology application used for planning and scheduling of logistics and/or manufacturing activity. Typical components of an APS solution include demand planning, production planning and scheduling, transportation planning, and distribution planning.

Advanced Shipping Notice (ASN): Detailed shipment information transmitted by the shipper to a customer or consignee in advance of delivery, designating the contents (individual products and quantities of each) and nature of the shipment. In EDI data standards this is referred to as an 856 transaction. May also include carrier and shipment specifics including time of shipment and expected time of arrival. The ASN data can be valuable in providing digital knowledge about what is in a shipment without the need for manual data entry.

Aft: A location towards the rear, or stern, of a ship.

Aggregate Forecast: A sales forecast for a collection of product families or individual products. Aggregate forecasts are typically stated in terms of dollars, units, or both, and are used in production, sales, and operations planning.

Aggregate Inventory Management: The size of many inventories requires that they be broken down into groupings for the purpose of control. Aggregated inventory is the further collection of these groupings into a single entity to enable the establishment of operating policies, key performance indicators, targets and reports. Aggregate Inventory Management enables such things as the overall level of inventory desired to be established and then appropriate controls implemented to ensure that individual operating decisions achieve that goal, at optimum cost.

Aggregate Shipment: In freight shipping, this term refers to the amalgamation of several shipments, from several shippers, into a single consignment, for a single recipient.

Agility: In the supply chain sector, agility means the capability to create, market, and supply products or services in such a way that allows adaptation to market changes in a cost-effective and rapid manner, without negatively impacting quality or reliability.

Air Cargo: Freight that is transported by an aircraft.

Air Cargo Containers: Freight containers specifically designed and constructed to fit snugly into the hold of an aircraft.

Air Carrier: A company that offers transportation of people and/or goods by air.

Air Express: An expedited air freight service, typically allowing for shipment to be completed within 24 hours.

Air Freight: Materials or goods for transportation by aircraft, excluding mail.

Air Freight Forwarder: A service provider specialising in moving freight by air for its customers. An air freight forwarder typically acts as a middleman between shippers and carriers. From the perspective of the customer (shipper), the forwarder is the carrier. From the perspective of the carrier, the forwarder is the shipper.

Air Waybill: In air-freight shipping, an air waybill is the equivalent of a bill of lading used in road and ocean shipping. The air waybill serves the following purposes:

    • It acts as a receipt for the party shipping the goods.
    • It denotes that the carrier has accepted the goods for shipping.
    • It places responsibility on the carrier to transport the goods to the destination airport in line with specific conditions stated in the air waybill document.

Airport of Discharge: An air-freight term meaning the destination airport at which a shipment will be unloaded from the aircraft that carried it.

Aisle: Passageways between rows of racking or floor storage in a warehouse, used to provide access for material handling equipment and warehouse personnel.

Alongside: A term used in ocean freight shipping to denote a location on a dock or quay beside a docked vessel. Goods placed in the location ready for loading, or after unloading, are said to be alongside the vessel.

All-cargo Carrier: An air-freight term applied to any airline that carries freight only and does not operate passenger services.

Allocated Stock: A part or product that has been reserved, but not yet withdrawn or issued from stock, and is thus not available for other purposes.

All-Time Order: The last order for a particular product in the last phase of its life cycle. This order is of such a size that the stock provided will satisfy all expected future demand (see all-time requirement below) for the product concerned. Sometimes known as a life of type order.

All-Time Requirement: The total requirement for a particular product to be expected in the future. Normally used for products in the last phase of their life cycles, when production has (nearly) stopped.

All-Time Stock: The stock resulting from the assessment of an all-time requirement and delivery of an all-time order. If necessary, controls can be set for such stock to avoid consumption of items for reasons over and above those for which usage was predicted.

Always Afloat (AA): A contractual term in shipping, meaning that a vessel must remain afloat at all times and therefore not berthed or navigated so as to contact the ground.

Amidships: In ocean shipping, this term refers to a location in the longitudinal centre of a ship, at a point midway along an imaginary line running along the keel from the front (bow) to the back (stern) of the vessel.

Anticipation Stock: Inventory held in order to be able to satisfy a demand with seasonal fluctuations with a production level that does not fluctuate at all or that varies to a lesser extent than the demand. See also Build Stock and seasonal stock.

Assemble to Order: A form of manufacturing/supply under which a product undergoes assembly from constituent parts after receipt of the customer’s order.

Automated Guided Vehicle System: An automated system in a warehouse that uses unmanned vehicles to move inventory from place-to-place. The system is controlled by a computer routing the vehicles around the warehouse and might be used for put-away and order picking.

Automated Storage/Retrieval System: Also known as AS/RS, an automated storage and retrieval system is an automated warehouse solution using high-density racking fitted with robotic cranes to stow, remove, and transport inventory from one location to another.

Availability: The primary measure of system performance relating to the expected percentage of the supported system that will be available at a random point in time and not out of service for lack of spares.

Available Stock: The stock available to service immediate demand.

Available to Promise (ATP): The uncommitted portion of a company’s inventory and planned production, maintained in the master schedule to support customer order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue.

 

B

Back-to-Back Racking: Widely used in warehouses everywhere, this is a racking design especially suitable for pallet storage. In a back-to-back racking system, each row of racking has a front, facing an aisle, and a back, which abuts the back of another row of racking, which in turn has a front that faces the next aisle, and so on.

Backflushing: The deduction from inventory, after manufacture, of the component parts used in a parent by exploding the bill of materials by the production total of parents produced.

Backhaul: Generally, a back haul is any return load taken after the delivery has been made. An example of this would be the collection of supplier loads from the supplier by the retailer for delivery to the retailer’s own regional distribution centre (RDC).

Backorder: Customer demand for which no stock is available and where the customer is prepared to wait for the item to arrive in stock.

Balanced Scorecard: A system of performance measurement using a structured combination of metrics. The combination of metrics will typically include indicators of financial, business process (or supply chain/logistics process if used specifically for a supply chain rather than general business performance monitoring), service, and learning/innovation performance. The scorecard will also include objectives for each of the measurement categories.

Barcode: A visible code, comprising lines and spaces of differing widths, which can be printed on labels or directly onto packaging and subsequently read by optical devices. When scanned to a relevant computer program, the data contained in the code is readable as a combination of characters and numbers, typically representing the identity of a product or stock keeping unit (SKU). Barcodes are used to identify and track items as they move through the supply chain.

Barcode Scanner: An optical device capable of reading barcodes and transferring the codes’ data into a computer system.

Basic Producer: A producer that creates materials or products directly from natural resources. For example, a company that creates ingots of iron directly from iron ore would be classed as a basic producer, as would a company that creates wood pulp from timber or glass from sand.

Batch Number: A code used to identify the specific production point, for a product or an assembly, in a manufacturing or assembly process.

Batch Picking: In order fulfilment, batch picking is a process in which warehouse operatives pick by product, rather than by order. For example, if there are, say, ten orders that all include one specific SKU, a picker will be sent to pick the total number of units of that SKU to fulfill all ten orders. Meanwhile, another picker might be picking another SKU required for multiple orders. As these SKUs are brought to the marshalling area or loading dock, the orders are assembled from the picked SKU batches.

Benchmarking: The process of comparing performance against the practices of other leading companies for the purpose of improving performance. Companies also benchmark internally by tracking and comparing current performance with past performance. Benchmarking seeks to improve any given business process by exploiting “best practices” rather than merely measuring the best performance. Best practices are the cause of best performance. Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage.

Beneficial Cargo Owner: In international freight shipping, a beneficial cargo owner (BCO) is a party, or company, that takes full control of its inbound shipments on arrival at the destination port, without engaging a third-party such as a freight forwarder or 3PL to handle receipt and onward transportation of the goods.

Best Practice: A general business term, but often used in supply chain and logistics management, best practice refers to a way of performing a process or activity, or meeting a specific objective, that is widely recognised as an optimal approach.

Beyond Economic Repair (BER): Where the projected cost of repair, normally for a repairable or rotable item, exceeds a management set percentage of the replacement value of the item concerned.

Bill of Lading: A document representing a formal agreement between a shipper and carrier. The bill of lading is typically issued by the carrier and then signed by the shipper. Once signed, the carrier is obliged to transport the goods named in the bill to the destination specified, in accordance with the terms and conditions contained in the bill.

Bill of Material: A listing of components, parts, and other items needed to manufacture a product, showing the quantity of each required to produce each end item. A bill of material is like a parts list except that it usually shows how the product is fabricated and assembled. Also called a product structure record, formula, recipe, or ingredients list.

Bonded Warehouse: A warehouse designated with a special status enabling the storage of goods for which duty has not been paid to the customs authorities. Under most circumstances, the duty becomes payable when the goods leave the bonded warehouse.

Bottleneck: A point in a production line or supply chain at which throughput is limited, typically due to an obstacle, constraint, or deliberate control measure.

Bow: The front end of a ship.

Break-bulk Cargo: Goods that are shipped as consignments of individual units, which may be palletised or not, but which are not carried in shipping containers. Examples could include cases, barrels, cartons, or large individual units such as trucks or items of machinery.

Bricks and Mortar: A term representing sales activity carried out in physical outlets, as opposed to online sales (ecommerce).

Buffer Stock: See Safety Stock.

Build Stock: See Anticipation Stock.

Build to Order: See Make to Order.

Bulk Area: An area in a warehouse, assigned for the storage of goods normally handled as full pallet-loads.

Bulk Cargo: Cargo that is shipped without any form of packaging, such as coal, mineral ore, grain, and powders.

Bullwhip Effect: In a poorly sychronised supply chain, small changes in downstream demand can quickly translate to larger demand increases further up the chain. This magnification typically occurs because each party in the chain places a larger order to counter delays in shipping and transportation. The more parties involved in the supply chain, the larger the magnification effect, which, in visualisations, creates an effect somewhat like a cracking whip, hence the phenomenon has become known as the bullwhip effect.

Bunker Charge: Sometimes also known as a bunker adjustment factor, a bunker charge is a surcharge levied on shippers by ocean freight carriers to compensate the carriers for fuel price volatility.

Business-to-Business (B2B): This is a term used for businesses that sell products and/or services exclusively to other businesses and not to consumers.

Business-to-consumer (B2C): As opposed to B2B, a B2C enterprise engages only in selling products and/or services directly to consumers.

 

C

CAPEX: Short for capital expenditure, this term refers to the money required for investment by an organisation into new facilities, equipment, or other assets.

Cargo: Goods or materials undergoing transportation by land, air, or sea.

Carnet: A customs document recognised in more than 85 countries, enabling goods to be imported temporarily without payment of taxes or duty. Goods imported under a carnet must be re-exported within 12 months.

Carriage and Insurance Paid (CIP): An incoterm used in international freight shipping. Under the CIP incoterm, the seller of the goods in the shipment is obliged to carry the costs of transportation to the port (or airport) of loading, export customs charges, loading and international shipping, unloading at the port (or airport) of discharge, and onward transportation to the destination agreed with the buyer.

The seller must also secure insurance for the freight covering the entire journey but is only responsible for risk until the point at which the goods are handed over to the carrier at the port (or airport) of loading. The buyer accepts risk for the goods from the port (or airport) of loading and is obliged to carry the costs of import customs clearance and any onward transportation from the destination agreed with the seller.

Carriage Paid To (CPT): An incoterm used in international freight shipping. Under the CPT incoterm, the seller of the goods in the shipment is obliged to carry the costs of transportation to the port (or airport) of loading, export customs charges, loading and international shipping, unloading at the port (or airport) of discharge, and onward transportation to the destination agreed with the buyer.

The seller is responsible for risk until the point at which the goods are handed over to the carrier at the port (or airport) of loading. The buyer accepts the risk from this point onwards and is obliged to carry the costs of import customs clearance and any onward transportation from the destination agreed with the seller.

Carrier: A service provider that undertakes the transportation of goods, materials, and/or people.

Carrier Assets: Physical facilities, vehicles, vessels, aircraft, equipment, and other items owned, or in the possession of a carrier and used for the provision of transportation services.

Cash-to-Cash Cycle Time: The time elapsed between the spending of a company’s money on raw materials or inventory, and the collection of revenue from the sale of its goods and/or services.

Category: A distinct, separate, and manageable group of products perceived by consumers as interrelated.

Category Management: The management of groups of products that are interchangeable, or substitutable, in meeting consumer needs as opposed to the traditional concentration on individual products and brands.

Central Distribution Centre: A warehouse that is the sole stocking point for the distribution system that it serves. Grocery manufacturers commonly have central (or national) distribution centres, stocked by various manufacturing points and serving various retailer distribution warehouses. See National Distribution Centre.

Certificate of Origin (COO): A document used for international commerce and shipping, which formally identifies the country of origin of goods in a shipment. A COO is required by many countries to enable import clearance for specific categories of goods and materials. Where this is the case, the COO must accompany the goods or be presented to customs authorities when the shipment arrives at the country of import.

Collaborative Planning, Forecasting, and Replenishment (CPFR): A supply chain integration concept, according to which, the trading partners in a supply chain collaborate in the planning of key activities including business planning, sales forecasting, and inventory replenishment. Suppliers and retailers share information with one another to enable continuous updating of inventory and replenishment requirements. When successful, CPFR increases end-to-end supply chain efficiency and helps the participants to reduce costs associated with inventory management, logistics, and transportation.

Co-Managed Inventory: A support arrangement similar to vendor managed inventory but where replacement orders for the vendor-owned stock are agreed by the user prior to delivery.

Commodity: Any item or product that is the subject of a sales transaction. However, the term is typically applied to goods intended to compete on the basis of availability and price.

Component: A part, ingredient, or subassembly that is both a component to a higher-level part, and a parent part to other components.

Component Part: Raw material, ingredient, part, or subassembly that goes into a higher-level assembly, compound, or other part.

Composite Distribution Centre (CDC): A multi-temperature distribution centre. The receipt, storage and handling of products would typically take place in a variety of on-site chambers, each operating at a specific temperature.

Consignee: The recipient of a freight shipment.

Consignment Stock: The stock of goods held by an external customer which is still the property of the supplier but for which payment is only made when stock is sold or used by the customer.

Consignor: The shipper or sender of a freight shipment. In many cases, the consignor is the seller of the goods contained in the shipment.

Consolidation: The loading of two or more suppliers’ deliveries to a retailer’s RDC on a single vehicle. This aims to improve load utilisation and also improve unloading time at the RDC.

Consolidation Centres: Depots that store and/or process stock (see cross docking) into full loads for delivery to retailer RDCs.

Consolidator: A service provider that specialises in grouping shipments, consignments, or orders together for transportation.

Consumable: A classification of stock used to describe items or products that are totally consumed in use e.g. paper, oil, grease etc.

Consumer Packaged Goods: Sometimes abbreviated as CPG, are goods used up or consumed quickly and hence replaced frequently. Examples of consumer-packaged goods include food and beverages, tobacco products, and household cleaning materials.

Container Freight Station: A location and facility at which shipping containers are loaded (stuffed) with goods for shipping and unloaded (destuffed) after shipping.

Container Terminal: A location and facility at which containerised goods are stowed (inside shipping containers) while awaiting transportation by road, rail, or maritime vessel.

Containerisation: The act of loading goods into a shipping container for transportation.

Continuous Replenishment Planning: An inventory replenishment system that uses the sale of an item to an end customer as the trigger for manufacturing an identical item and moving it through the supply chain.

Contract Carrier: A carrier that undertakes dedicated goods transportation services for one or more shippers under contractual terms.

Contract Logistics: A form of service provision in which a logistics company performs warehousing, transportation, and perhaps other logistics-related activity for a customer and does so under the terms of a contract between the service provider and the customer.

Contract Manufacturing: The manufacture of products by a third-party, under contract to the company that conceived, developed, owns, and sells the product.

Contract Warehouse: A warehouse at which companies/businesses with goods to store can avail themselves of the storage space and associated services, specifically by contractual agreement with the warehouse operator.

Contingency Planning: The creation of plans for an organisation to maintain operations as normally as possible in the event of supply chain disruptions, natural disasters, and other incidents that would otherwise prevent operations from continuing effectively.

Cost and Freight (CFR): An incoterm used in international freight shipping. Under the CFR incoterm, which is valid only for maritime shipping, the seller of the goods in the shipment is obliged to carry the costs of transportation to the port of loading, export customs charges, loading, and international shipping. The seller carries the risk for the shipment until the goods are onboard the vessel that will convey them. From that point onward, the buyer carries the risk. The buyer must shoulder the arrangements and costs for unloading the shipment at the port of discharge, import customs clearance, and onward transportation in the country of import.

Cost, Insurance, and Freight (CIF): An incoterm used in international freight shipping. Under the CFR incoterm, which is valid only for maritime shipping, the seller of the goods in the shipment is obliged to carry the costs of transportation to the port of loading, export customs charges, loading, and international shipping.

The seller carries the risk for the shipment until the goods are onboard the vessel that will convey them. From that point onward, the buyer carries the risk. However, the seller is obliged to purchase freight insurance covering the shipment through to the port of discharge. The buyer must shoulder the arrangements and costs for unloading the shipment at the port of discharge, import customs clearance, and onward transportation in the country of import.

Cost to Serve: Is a supply chain analytical approach, utilising activity-based cost techniques, that identifies the costs of servicing specific customers, with specific products, by allocating costs to customers, products, and channels.

Cross Docking: A system where products for store orders are not put away into the warehouse racking for later picking but are processed into store orders on arrival at the distribution centre. This can entail breaking down the inward delivery into store-ready consignments or if the consignments are pallet-sized moving the pallets across the docking area for loading onto the store delivery vehicle. This movement of product across warehouse vehicle docking bays gives the process its name.

Cross Functional: An activity, process, project, or plan requiring the input, cooperation, and collaboration of multiple functions within an enterprise.

Cubic Space: Sometimes shortened to “cubage”, or even “cube”, cubic space is the total space or volume available, required, or occupied in a warehousing or transportation environment. It is measured by multiplying the height available, required, or occupied, by the floor space available, required or occupied.

Cumulative Lead Time: The overall time required to obtain raw materials or components, manufacture or produce a product, and ship it to the customer.

Customer Facing: People or activities that the customers of an enterprise come into direct contact with, either personally or remotely. Examples of customer-facing activities can include sales, customer support, and last-mile logistics.

Customer Profitability: A calculation of the profit generated for a company by the provision of goods and/or services to a specific customer. In general terms, high-maintenance customers represent lower profitability than low-maintenance customers. For example, in a conventional retail setting where a choice exists between purchasing in-store and free home delivery, the customer who walks into the store and walks out with a purchase is likely to be more profitable than the customer who makes a purchase in store and requires the item(s) to be delivered.

Customs Clearance: The process by which formal approval is granted by customs authorities for a shipment of goods to depart from the country of export or enter the country of import.

Cycle Counting: In inventory management, cycle counting is a method of counting inventory that eliminates the need for an entire wall-to-wall count of all the goods in a warehouse or other storage facility. Instead of counting everything, managers can segregate the inventory into groups and “cycle” through those groups, counting one group per week for example, ensuring that the entire inventory is subject to counting several times per year. This method of counting is less disruptive than full inventory counts, which typically require a halt to business operations.

Cycle Time: The time consumed between the start and end of a specific process.

Cyclical Demand: This term is used to describe the situation in which a product goes through regular, repetitive peaks and troughs in demand which are easy to anticipate. An example would be a product that always rises in demand during spring and summer and falls in demand during autumn and winter.

 

D

Days of Inventory: A metric revealing the average time a company holds its inventory (in days) before selling it. It is calculated by dividing the total inventory by the average daily cost of goods sold.

Days of Supply: In inventory management, days of supply is a metric indicating the number of days that consumption or sales of an item can continue before the inventory of that item is exhausted. So, for example, if a component required for manufacture of a product is consumed at a rate of 2,000 per day, and there are 50,000 of the components on hand, that would equal 25 days of supply.

Deconsolidation: When shipments of containerised goods comprising multiple consignments arrive in the country of import, the shipping container must be opened, and the goods separated into their individual consignments for onward transportation. This operation is known as deconsolidation and is the reverse of the consolidation that takes place in the country of export.

De-Coupling Stock. Inventory accumulated between dependent activities in the goods flow to reduce the need for completely synchronised operations.

Dedicated Contract Carriage: A service undertaken by a carrier that entails provision of vehicles, drivers, and related equipment exclusively to a single customer, under the terms of a contract.

Deduct Point. The point in the production process up to which all the parts assumed to have been used (as defined in the bill of material) are “backflushed”, (automatically deducted) from the inventory records. Also see Backflushing.

Delivered at Frontier (DAF): An incoterm used in international freight shipping. Under the DAF incoterm, title, risk, and responsibility for import clearance pass to the buyer when the purchased goods have been delivered, by the seller, to a named border point.

Delivered at Place (DAP): An incoterm used in international freight shipping. Under the DAP incoterm, the seller of the goods in the shipment is obliged to carry the costs of transportation to the port (or airport) of loading, export customs charges, loading and international shipping, unloading at the port (or airport) of discharge, and onward transportation to the destination agreed with the buyer. The seller must also assume risk for the shipment from the point of origin to the agreed destination.

The buyer of the goods is obliged to carry the costs of unloading the freight at the agreed destination, to assume risk also from the point of unloading onward and must also arrange and accept the costs of import customs clearance.

Delivered at Place Unloaded (DPU): An incoterm used in international freight shipping. Under the DAP incoterm, the seller of the goods in the shipment is obliged to accept all costs and risks throughout the shipment process, including those associated with unloading the goods at the agreed destination. The buyer is only responsible for import customs clearance, and for any additional transportation taking place after unloading at the agreed destination.

Delivered Duty Paid (DDP): An incoterm used in international freight shipping. Under the DDP incoterm, the seller of the goods in the shipment is obliged to carry all costs, risks, and responsibilities throughout the shipping and delivery process. The buyer’s only obligation is to pay the seller the cost of the goods purchased.

Delivered Ex Ship (DES): An incoterm used in international freight shipping. Under the DAP incoterm, title, risk, and responsibility for vessel discharge and import clearance pass to the buyer when the seller delivers goods on board the ship to destination port. This incoterm is used only for transportation by sea or inland waterway.

Delivered Ex Quay (Duty Paid) (DEQ): An incoterm used in international freight shipping. Under the DAP incoterm, title and risk pass to the buyer when the seller has delivered the goods onto the dock at the destination point cleared for. This incoterm is used only for transportation by sea or inland waterway.

Demand Forecast. See Forecast Demand.

Demand Driven Supply Chains. This is where a supply system is in direct response to a single point of demand. All the components across a supply chain are synchronised to meet the demand that it is trying to fulfill.

Demand Satisfaction Rate. See Fill Rate.

Demand Signal: A data transmission or communication from a customer to a supplier, which triggers the issue of raw materials, components, or products. The signal might be in the form of an EDI transmission, email, fax, phone call, or even a visual signal, such as the quantity of units in a storage bin falling below a specific number.

Demurrage: When a shipper uses a carrier’s equipment, such as a shipping container, the carrier grants a certain amount of “free time” during which the equipment can remain in a freight terminal at the port of loading and at the port of discharge. Once the free time is exceeded, the carrier will typically begin to levy a per diem penalty fee for the delay in the equipment’s removal from the facility. The delay is known as demurrage, and the related penalty fee is known as a demurrage charge.

Denomination of Quantity. See Unit of Measure.

Dependent Demand. A classification used in inventory control where the demand for one item has a direct mathematical relationship with the demand for another higher level or parent component and where the demand for that item is ultimately dependent on the demand for the higher level or parent item.

Detention: When a shipper uses a carrier’s equipment, such as a shipping container, the carrier grants a certain amount of “free time” during which the shipper can remain in possession of said equipment. Once the free time is exceeded, the carrier will typically begin to levy a per diem penalty fee for the delay in the equipment’s return. The delay is known as detention, and the related penalty fee is known as a detention charge.

Deterministic Inventory Control Models. An inventory control system where all the variables and parameters used are known, or can be calculated with certainty. The rate of demand for items, and the associated inventory costs, are assumed to be known with assurance and the replenishment lead time is assumed to be constant and independent of demand.

DIFOT: Delivered in full and on time—a logistics metric denoting the percentage of order lines or orders delivered at the promised time and with items in the correct quantity. May also be called OTIF (on time and in full).

Direct Store Delivery (DSD): Delivery by suppliers directly to their customer’s retail outlet, rather than via the retailer’s DC.

Discrete Order Picking: This term is used to describe the picking method in which a single order is picked in its entirety, line-by-line, until the picking of that order is completed. Picking of another order then commences, and so on.

Distributed Inventory: The maintenance of inventory in multiple geographic locations, typically as a strategy to enhance customer service by reducing order lead times.

Distribution: A process comprising all outbound logistics activity from the end of the production line through to the end customers.

Distribution Centre: A logistics facility existing to receive inbound inventory, store it, pick it as required for distribution, and dispatch it for delivery to the operator’s sales outlets or to customers.

Distribution Channel: This term is used to describe the connected network of individuals and/or companies that enable products to reach the end customer.

Distribution Network: The system through which a company distributes its products to customers. A distribution network may comprise warehouses, distribution centres, transportation facilities and routes, and retail outlets.

Distribution Requirement Planning DRPI. The function of determining the need to replenish inventory at branch warehouses over a forward period. A time-phased order point approach is used where planned orders at branch warehouse level are exploded via MRP logic to become gross requirements on the supplying source enabling the translation of inventory plans into material flows. In the case of multi-level distribution networks, this explosion process can continue down through the various levels of regional warehouses, master warehouse, factory warehouse etc. and become input to the master production schedule.

Distribution Resource Planning DRPII. The extension of MRP into planning of the key resources contained in a distribution system.

Dock to Stock Cycle Time: A measure of the total time required for the inbound delivery and goods receiving process to complete. The cycle begins when a supplier delivers goods to the inbound unloading dock in the warehouse and ends when the goods have been put away in the warehouse and entered into the inventory records.

Door-to-Door: In containerised freight shipping, a door-to-door service offered by a carrier or freight forwarder means that the service includes carriage from the seller’s premises (or other agreed departure location) to the buyer’s premises (or other agreed destination).

Door-to-Port: In containerised freight shipping, a door-to-port service offered by a carrier or freight forwarder means that the service includes carriage from the seller’s premises (or other agreed departure location) to the port (or airport) of discharge in the destination country.

Drop Shipping: A fulfilment process under which the seller of a product holds no inventory and instead pays the product’s manufacturer, or distributor, to ship customers’ orders directly from its factory or warehouse.

Dunnage: Materials used in transportation to fill empty spaces and protect cargo in transit. Empty wooden pallets, for example, can be used as dunnage by placing them in gaps between full pallets.

Duty Free Zone: A location assigned for the storage of imported goods awaiting onward transportation or consumption in manufacturing. Goods arriving in a duty-free zone can remain there without any customs duties. The duties become payable when the goods exit the duty-free zone.

 

E

Economic Order Interval (EOI). In fixed order interval systems, the interval between orders that will minimise the total inventory cost, under a given set of circumstances, obtained by trade off analysis between the cost of placing an order and the cost of holding stock.

Economic Order Quantity (EOQ). In fixed order quantity systems, the size of an order that minimises the total inventory cost, under a given set of circumstances, obtained by trade off analysis between the cost of placing an order and the cost of holding stock.

Economic Stock. The sum of the physical stock and the goods ordered but not yet received, minus the goods sold but not yet delivered for which a company carries risk in respect of a drop in price and unmarketability.

Economy of Scale: An expression referring to the increased economic benefits generated through growth of an enterprise. For example, as a manufacturer’s or service provider’s throughput increases, average costs per unit tend to decrease.

Effective Stock. The sum of the physical stock of a particular product and the quantity of that product ordered for a particular period, but not yet received.

Efficient Consumer Response (ECR). An initiative whereby elements of the supply chain work together to fulfill consumer wishes better, faster and at less cost.

Eighty-Twenty Rule. See Pareto Principle.

Electronic Commerce (Ecommerce). A way to execute transactions and share information with other businesses, consumers or with government by using computer and telecommunication networks, including the Internet.

Electronic Data Interchange (EDI). The computer-to-computer exchange of structured data for automatic processing.

Emergency Stock: In inventory management, emergency stock is inventory that a company keeps on hand to cover unforeseeable and sudden spikes in demand.

End of Life Inventory: Items remaining in a company’s inventory specifically to satisfy future demand for products that the company no longer manufactures or supplies. An example would be parts for a discontinued car model in the automotive industry.

Enterprise Resource Planning (ERP). A further extension of MRP II whereby a single system embraces and integrates all aspects of business operations into a single database application.

Euro-pallet: A type of pallet, used for storage and transportation of goods, that complies with a standard format agreed among European countries. The dimensions of a Euro-pallet are 120 centimetres in length by 80 centimetres in width.

European Article Numbering (EAN). An international standard of product identification used in the grocery and retail areas of business.

Ex Works (EXW): An incoterm used in international freight shipping. Under the EXW incoterm, the seller of goods for international shipment is under no obligation for any costs related to shipping. The buyer accepts all costs and risk from the moment the goods leave the seller’s premises, including export and import customs clearance, local transportation in the country of export and the country of import, and international shipping.

Excess Stock. Any quantity of inventory, either held or on order, which exceeds known or anticipated forward demand to such a degree that disposal action should be considered.

Export Customs Clearance: The formal release of goods for export by the customs authority of the country concerned. In most cases, goods must comply with specific conditions to satisfy the customs authority that they are eligible for release.

Expression of Interest (EOI). Often the first stage in outsourcing which involves a summary of the requirements being distributed to potential suppliers of goods and/or services.

 

F

Factory Gate Pricing. An initiative driven by retailers to drive out transportation costs and to improve efficiency within the primary segment of the supply chain. The retailer generally takes over the management of the primary (inbound) transport and deducts the cost of this transport from the supplier’s product price.  See also Primary Freight.

Family Group. A group of related products for which demand can be aggregated to assess overall demand for the material or parts which make up the family group products.

Fast Moving Consumer Goods (FMCG): A category of packaged commodities that typically sell rapidly and hence move quickly through the supply chain. Examples of FMCG include packaged food and drinks, cleaning products, animal and pet supplies, tobacco products, and cosmetics.

Fill Rate. An item-based measurement that shows the percentage of demands that were met at the time they were placed. Fill rate only measures what happens when demands occur. See also Demand Satisfaction Rate.

Finished Goods. Inventory to which the final increments of value have been added through manufacturing.

Finished Goods Stock. Stock that is available for supply to an external consumer, including items that have been supplied but not invoiced to an external consumer.

First-expired, First-out (FEFO): A stock rotation method whereby the goods with the earliest sell-by, use-by, or expiry date are the first to be sold/delivered. FEFO is commonly applied to chilled goods and other commodities with a short shelf life.

First-in, First-out (FIFO)

    1. Stock Valuation – The method of valuing stocks which assumes that the oldest stock is consumed first and thus issues are valued at the oldest price.
    2. Stock Rotation – The method whereby the goods which have been longest in stock are delivered (sold) and/or consumed first.

First Pick Ratio. During order picking, the percentage of orders or lines for which 100% completion was achieved from the primary location or picking face.

Fixed-Location Storage: An inventory management strategy under which each SKU is assigned a specific storage location in the warehouse. The storage location will only change if required following a review of slotting strategy. If the storage location is full, any excess inventory will be placed in an overflow area.

Fixed Order Quantity: In purchasing, a fixed order quantity means that all purchase orders of the commodity in question will be of a predetermined size, or in multiples of that size. For example, all commodity x orders will be for 1,000 units, or multiples of 1,000 units.

Floor Loading: A method of loading goods onto conveyances or into shipping containers. It simply means that the goods are loaded directly onto the bed of the conveyance or container, without first being placed on pallets, skids, or other material handling platform.

Floor-ready Merchandise: Products that suppliers ship to retailers with all necessary pricing labels and other labels, security devices and tags already in place, meaning that they can be placed on the sales floor as soon as they arrive at the retailer’s outlets.

Forecast: An estimated prediction of future demand for a company’s products.

Forecast Accuracy: A measure of the difference between the forecast demand, by value, and the actual demand, by value, expressed as a percentage of actual demand.

Forecast Demand: The estimated future demand for a product or service. Demand forecasting is critical for businesses to make informed decisions about success factors such as marketing spend, production, or staffing. See also Demand Forecast.

Forklift: A powered industrial truck used to lift and move materials over short distances. Lift trucks are equipped with two forks that can be raised and lowered to lift and move pallets, crates, and other heavy objects. They come in various sizes and configurations, and are powered by electric or internal combustion engines, and can be used both indoors and outdoors. See also “lift truck.”

Four Wall Inventory: The inventory held within a single warehouse or facility.

Four-way Pallet: A pallet design that enables a forklift to approach and lift it from any of its four sides.

Fourth-Party Logistics (4PL): An organisation that serves as an intermediary between a client company and multiple third-party logistics (3PL) providers. A 4PL will typically manage the entire supply chain on behalf of the client company.

Free Alongside Ship (FAS): An incoterm used in international freight shipping. Under the FAS incoterm, which is valid only for non-containerised maritime shipping, the seller of the goods in the shipment is obliged to organise and carry the costs and risks of transportation to the port of loading, and export customs clearance. The buyer must assume responsibility for the organisation, cost, and risks of all remaining shipping activity, from the point at which the goods arrive alongside the outbound vessel for international shipping.

Free Carrier (FCA): An incoterm used in international freight shipping. Under the FCA incoterm, the seller of the goods in the shipment is obliged to organise and carry the costs and risks of transportation to the carrier at a named place of delivery in the country of export.

If the named place of delivery is owned by the seller, then the seller is also responsible for loading the goods onto the conveyance, which might be a ship, aircraft, train, or truck belonging to a carrier or freight forwarder. The seller is also responsible for export customs clearance and payment of associated fees. The organisation, cost, and risk related to all remaining shipping and import requirements becomes the responsibility of the buyer.

Free on Board (FOB): An incoterm used in international freight shipping. Under the FOB incoterm, which is valid only for maritime shipping, the seller of the goods in the shipment is obliged to organise and carry the costs and risks of transportation to the port of loading, export customs clearance, and loading of the goods onto the vessel. The buyer must assume responsibility for the organisation, cost, and risks of all remaining shipping activity, from the point at which the goods are stowed on the outbound vessel for international shipping.

Free Time: In containerised freight shipping, free time is the time granted by a carrier to a shipper for activities such as loading and unloading the shipping container, and for returning the container to the carrier. If the free time is exceeded, the carrier will begin applying additional per diem charges for the duration of the delay.

Free Trade Zone: A geographical area within a country that is designated for the import and storage of raw materials, components, and goods, for manufacturing and production activity, and for storage and re-export of raw materials, components, and finished goods, all without the requirement for payment of duties and import taxes.

Freight: Goods assembled for transit, or in transit, by road, rail, air, sea, or inland waterway.

Freight Forwarder: A logistics service provider that acts as an intermediary between shippers and carriers. In terms of relationships, the freight forwarder is the carrier from the perspective of its customers, and from the perspective of the carriers, the forwarder is the shipper.

Full Container Load (FCL): In containerised freight shipping, this term refers to any scenario in which a shipping container is assigned exclusively for occupation by goods belonging to one shipper. It does not need to follow that the container is actually full, but the space will not be occupied by any other shippers’ freight.

Full Truck Load (FTL): In road freight operations, this term refers to any scenario in which a truck is occupied by goods belonging to one shipper only. The truck load space may not be physically full, but the shipper pays for use of the truck, ensuring that no other shipper’s goods will share the load space.

Fulfilment: The grouped activities required to process a customer order and execute delivery. Fulfilment activities include order processing, order picking, packing, transportation and delivery.

 

G

Gain Sharing: A collaborative process where two or more parties within a supply chain agree to share the benefits or gains resulting from improved efficiencies, cost reductions, or performance improvements. The objective of gain sharing strategies is to align the interests of supply chain stakeholders to encourage cooperation and mutual benefit.

Goods: In logistics, this term refers to moveable property, wares, or merchandise, also any material that is used to satisfy a demand.

Grid Technique: A technique for quantitative evaluation of potential locations for a warehouse or factory. The aim of the grid technique is to identify the least-cost centre, taking into account factors such as the availability and proximity of raw materials or other required supplies.

Gross Weight: In logistics, this term denotes the total weight of a vehicle with the maximum permissible load of freight (or passengers in the case of a public service vehicle) onboard.

Groupage: A term used to denote the consolidation of small goods consignments into a full container load for shipping. See also less-than-container-load.

 

H

Handling Costs: The expenses associated with processing, moving, and storing goods at any stage along the supply chain, from receipt of raw materials to delivery of the finished product. These expenses can include labour, equipment, facility, packaging, transportation, and insurance costs.

Harmonized Commodity Description and Coding System (HS): An internationally standardised system for classifying traded products, used by more than 200 countries and economies as a basis for customs tariffs. The HS is organised in a hierarchical structure, with products classified into chapters, followed by headings and subheadings. Each product is assigned a unique code comprising a certain number of digits, enabling a system of highly detailed product classification.

Haulage: An inland transportation service offered by a carrier under the terms and conditions contained in its tariff and any associated transport document.

Hazardous Goods: Goods, which, in storage or transit, present a risk of harm to people or property, and typically require special care and attention during transportation.

Hazardous Material: A material or substance capable of presenting a risk to health, safety, or property during storage and in transit.

Heijunka: A lean supply chain and manufacturing methodology that forms part of the just-in-time philosophy. It is a method used to even out production processes and establish a continuous flow of work throughout the supply chain.

House Bill of Lading: One of the variants of a bill of lading. A house bill of lading is issued only by a freight forwarder or non-vessel operating common carrier (NVOCC), the recipient being the shipper. It serves as a receipt for goods and a contract of carriage between the shipper and the forwarder/NVOCC.

 

I

Idle Stock: Inventory that has not been consumed for a defined period.

Import: The entry of goods into a country.

Importation Point: The location at which imported goods will be cleared to enter the country of import.

Import Customs Clearance: The process by which customs authorities and shippers interact to enable goods to enter a country. Import customs clearance involves submission of documents by the shipper and usually, payment of duties and taxes to the customs authority. When the customs authority is satisfied with the shippers’ documentation and is in receipt of any duty or tax payments, the goods will be released for delivery within the country of import.

Import License: A government-issued authorisation for specific goods or materials to enter a country.

In Bond: The status of goods imported into a country but for which duty and taxes have not yet been received by the customs authority. Goods that are in bond remain under the control of the customs authority. See also Bonded Warehouse.

In Process Goods: Partially completed final products that are still in the production process either as an accumulation of partially completed work or the queue of material awaiting further processing.

Inactive Inventory: Stock of items that have not been used for a defined period.

Inbound Logistics: Activities associated with bringing goods and materials from vendors and suppliers into an organisation’s warehouses, distribution centres, or production facilities, as opposed to outbound logistics, which relates to the movement of goods from these facilities to the organisation’s customers.

Incoterms: Internationally accepted commercial terms defining the respective roles of the buyer and seller in the arrangement of transportation and other responsibilities and clarifying when the ownership of the merchandise takes place. They are used in conjunction with a sales agreement or other method of transacting the sale. Note that the EXW, CPT, CIP, FCA, DAF, DAP, DPU, and DDP incoterms are commonly used for any mode of transportation, while the FAS, FOB, CFR, CIF, DES, and DEQ incoterms are used for transportation by sea and inland waterway only.

Independent Demand: A classification used in inventory control systems where the demand for any one item has no relationship with the demand for any other item and variations in demand occur because of random influences from the marketplace.

Inland Bill of Lading: A type of bill of lading used for overland transportation of goods for export, from the initial shipping point to the location where they will be handed over to the international carrier.

Insourcing: The retention of a service or activity in-house, as opposed to outsourcing, where the activity is contracted out to an external service provider.

Integrated Logistics: A logistics approach focused on treating the entire supply chain as one process from end to end, from the procurement of raw materials to the distribution and delivery of finished goods.

Interchange Point: A geographic location at which a carrier hands over freight to another carrier.

Interleaving: An advanced warehouse management strategy, typically managed by WMS software with the intention of increasing productivity. Interleaving involves assigning multiple tasks to one warehouse operative, to be completed concurrently, such as putting a pallet away and then picking a pallet from a nearby storage location.

Intermodal Transportation: The movement of freight using more than one mode of transportation. For example, when the first leg of the freight’s journey is by road, and the next leg by ocean vessel. See also Multimodal Transportation.

Integrated Business Planning (IBP): A planning process that integrates across two or more functions in a business or government entity referred to as an enterprise to maximise financial value. The specific functional areas in a company and the industry domain associated with it define the specific type of IBP process. The key requirement for IBP is that two or more functional process areas must be involved and maximising (optimising) of financial value should be done. Corporate executives, business unit heads, and planning managers use IBP to evaluate plans and activities based on the economic impact of each consideration.

Intermediate Product: A product for which independent demand can exist and for which there is also demand as part of another higher-level product e.g.: a single can and a multi-can pack or a sub-assembly spare and the major assembly of which it forms a part.

Intermediate Stock: See De-Coupling Stock.

In-transit Inventory: Inventory that is in the process of being moved between geographical locations, such as from a manufacturing plant to a distribution centre.

Inventory: A term used to describe all the goods and materials held by an organisation for future sale or use. The term can also refer to a list of items held in stock. See also Stock.

Inventory Accuracy: A metric that measures the difference between records of warehouse stock and the actual inventory in hand

Inventory Carrying Cost: The expenses a company incurs to hold and store inventory, including tangible expenses such as warehousing, salaries, transportation, handling, taxes, and insurance, as well as intangibles like depreciation, shrinkage, and opportunity cost.

Inventory Cost: The total cost (often expressed as a percentage of inventory value) associated with purchasing, storing, and maintaining inventory. It includes the cost of shipping, handling, and storage, as well as the purchase price of the inventory.

Inventory Control: Consists of all the activities and procedures used to control and maintain the right amount of each item in stock or to provide the required level of service at minimum cost.

Inventory Management: The process of ordering, storing, using, and selling a company’s inventory, including the management of raw materials, components, and finished products, as well as warehousing and processing of such items, the goal being to ensure that the company has the right products in the right place, at the right time.

Inventory Modeling: The evaluation of alternative inventory design characteristics or inventory parameters using analytical or simulation processes to assist management decisions.

Inventory Policy: A statement of a company’s goals and approach to inventory management.

Inventory Process: Any business process that involves inventory. It includes the receiving of parts, putting them away, and their storage, withdrawal, issue, and movement through work-in process, while simultaneously tracking their movement and maintaining records of those events and their effects.

Inventory Records: Records that reflect how much and what kind of inventories a company has on hand, committed (allocated) to work in process, and on order.

Inventory Shrinkage: Losses resulting from scrap, deterioration, pilferage, etc.

Inventory Turns: A measure of how quickly a company sells and replaces its inventory during a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value during the same period. The resulting number represents the number of times a company sells and replaces its inventory during a given period.

Inventory Usage: The value of the number of units, or quantity, of an inventory item (stock usage) consumed over a given period.

Inventory Value: The value of inventory at either cost or market value. The inventory’s value is usually computed on a first in first out (FIFO), or last in first out (LIFO) or average cost basis.

Inventory Velocity: A metric that shows the time elapsed from the receipt of raw materials to the sale of the resulting finished goods. It represents the period over which a business has ownership of inventory.

Issue List: A document that states all the parts to be issued.

Issue Tickets: An authorisation to withdraw allocated stock items from the stockroom. When presented to the stockroom, they can be exchanged for the parts designated.

Issues based supply chain development: This is an approach used, first to make an assessment of the problems, issues, and their root causes in a supply chain and then to use the root causes to understand strategic gaps in the supply chain.

Issuing Documents: The physical documents that communicate specifically how much of what needs to be issued to where. Issue lists, issue tickets, and issue decks are all forms of issuing documents.

Item: See Stock Keeping Unit (SKU).

Item Number: See Part Number.

 

J

Just-in-Time (JIT): A dependent demand inventory control philosophy which views production as a system in which all operations, including the delivery of materials needed for production, occur just at the time they are needed. Thus, stocks of material are virtually eliminated.

Just-in-Time II (JIT II): A version of the JIT philosophy in which a company embeds a representative of a supplier within its internal operation. The representative, called an “inplant” then manages the inventory provided by that supplier. It’s a form of vendor-managed inventory control that relieves the customer of the tasks involved with order management.

Just-in-Time Logistics: The logistics processes associated with Just-in-Time inventory management, specifically, the sourcing, handling, production, transportation, and delivery of products in accordance with a company’s JIT requirements.

K

Kaizen: A management model that focuses on long-term, continuous improvement in business and supply chain processes. The philosophy emphasises the importance of the entire organisation working together for perpetual improvement in operational performance, involving everyone from the executive suite, through senior, middle, and junior management to workers on the shop floor.

Kanban: In the context of inventory management, Kanban is a method to control and manage the flow of materials and production in a way that minimises waste. It uses visual cues to signal the need for a supply or production activity.

Key Performance Indicator (KPI): A metric that helps businesses track progress towards specific goals or objectives and is used to evaluate the success of an organisation or a particular activity. KPIs are linked to target values, so that the value of the measure can be assessed as meeting expectations or not. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision-making, and help focus attention on what matters most.

Kitting: In inventory management and supply chain, kitting is a process used to group together different items that are often ordered at the same time, with the purpose of streamlining the order fulfilment process, reducing picking errors, and improving order accuracy. It is commonly used in industries such as e-commerce, retail, and manufacturing, where businesses aim to optimise their order fulfilment processes and improve efficiency.

 

L

Landed Cost: The total price of a product or shipment once it has arrived at a buyer’s doorstep. It includes the original price of the product, transportation fees (both inland and ocean), customs, duties, taxes, tariffs, insurance, and currency conversion.

Last In First Out (LIFO): A method of inventory valuation in which the most recently acquired or produced items are assumed to be sold first, while the older items remain in inventory. In the United States, LIFO can help businesses reduce their taxable income by valuing their inventory at higher costs. However, LIFO can also lead to higher inventory carrying cost.

Lead Time: The total time required for a supplier to fulfil a customer’s order, including processing, preparation, and delivery.

Lean Philosophy: A supply chain management approach focused on improving efficiency by the removal of wastes such as transportation, inventory, motion, waiting, overproduction, over-processing, and defects.

Less-Than-Container-Load (LCL): A term used in container logistics for a goods consignment that is consolidated with other shipments to create a full container load.

Less-Than-Truckload (LTL): A term used in road freight haulage for a goods consignment that is consolidated with other shipments to create a full truckload.

Life Cycle Cost: The accumulated costs that a product incurs during the stages of its life cycle, including factors such as research and development, introduction to markets, maturity, decline, and ultimately, abandonment.

Liftgate: A powered tailgate at the rear of a trailer or truck, on which goods can be placed for lifting from the ground to the bed of the truck/trailer, and vice versa.

Lift Truck: A powered industrial truck used to lift and move materials over short distances. Lift trucks are equipped with two forks that can be raised and lowered to lift and move pallets, crates, and other heavy objects. They come in various sizes and configurations, and are powered by electric or internal combustion engines, and can be used both indoors and outdoors. See also “forklift.”

Loading Port: In ocean freight shipping, this term is used to denote the port at which a shipment is loaded onto the vessel that will carry it.

Localized Raw Material: Raw material found only in specific locations.

Location Checking: The systematic physical checking of warehouse stock against location records to ensure location accuracy.

Logistics: The activities involved in positioning resources to meet user requirements.

Logistics Management: The process of managing the activities required to transport goods from their source to the final customer. These activities typically include order processing, material handling, packaging, warehousing, transportation, and customer service management.

Lot Number: The allocation of a unique number, to one or more of a product during manufacture or assembly, to provide traceability.

Lost Sales: A customer demand for which no stock is available and where the customer is not prepared to wait for the item to arrive in stock but goes to another supplier.

 

M

Maintenance, Repair, and Operating Supplies (MRO): The maintenance supplies, consumables, and spare parts used in manufacturing processes and for the maintenance and repair of equipment and facilities. These supplies do not form part of a finished product but are essential for its production or manufacture.

Make-or-Buy Decision: A strategic decision determining whether to manufacture a product or provide a service in-house or to purchase it from an external supplier. The decision is often based on a quantitative analysis to identify the most cost-effective option.

Make to Order: A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release rather than a market forecast. See also Build to Order and Replenish to Demand.

Make to Stock: A manufacturing process strategy where finished product is continually held in plant or warehouse inventory to fulfill expected incoming orders or releases based on a forecast.

Manifest: A shipping document comprising a list of the individual orders in a shipment and including a description of each order.

Manufacture Cycle Time: The time elapsed in a make-to-stock manufacturing cycle, from the commencement of a manufacturing process to its completion.

Manufacturing Lead Time: The time required to fabricate, produce, or manufacture a product, commencing at the release of a production order and ending at the moment the product enters finished goods inventory.

Manufacturing Resource Planning (MRP II): A method for the effective planning of all the resources of a manufacturing company. Ideally it addresses operational planning in units, financial planning in money, and has a simulation capability to answer what-if questions. It is made up of a variety of functions, each linked together: business planning, master (or production) planning, master production scheduling, material requirements planning, capacity requirements planning and the execution systems for capacity and priority. Outputs from these systems would be integrated with financial reports such as the business plan, purchase commitment report, shipping budget, stock projections in money etc. Manufacturing resource planning is a direct outgrowth and extension of material requirements planning (MRP-1).

Market-Positioned Warehouse: A logistics facility that is strategically located to serve a specific geographic area with a high concentration of customers. Its primary purpose is to replenish customer inventory assortments and provide maximum inbound transport consolidation economies from inventory origin points.

Master Air Waybill (MAWB): A Master Air Waybill (MAWB) is a crucial transport document used in air shipments. It is issued and signed by the air cargo carrier or its agent and serves as evidence of the terms and conditions of the carriage of goods over the carrier’s routes. It is used to monitor the movement of the cargo and is distributed to various parties involved in the delivery.

Master Bill of Lading: One of the variants of a bill of lading. The master bill of lading is issued only by a carrier and is issued to a freight forwarder or shipper.

Material Acquisition Costs: The expenses associated with the procurement of raw materials, parts, subassemblies, components, and manufacturing supplies. Material acquisition costs may include inbound logistics and in-transit insurance, and reasonable overruns, spoilage, or defective work, and the expenses incurred in receiving and put-away.

Material Requirements Planning (MRP I): A system to support manufacturing and fabrication organisations by the timely release of production and purchase orders using the production plan for finished goods to determine the materials required to make the product. Orders for dependent demand items are phased over time to ensure that the flow of raw materials and in-process inventories matches the production schedules for finished products. The 3 key inputs are; the master production schedule, inventory status records and product structure records.

Materials Handling: The physical activities involved in the movement and storage of materials and products.

Materials Management: The planning, organisation and control of all aspects of inventory including procurement, warehousing, work-in-progress, shipping, and distribution of finished goods.

Matrix Bar Code: See Two-Dimensional Bar Code.

Maximum Stock: The upper limit, expressed in quantitative, financial or time-based terms, to which the stock of an item should normally be allowed to rise.

Maximum Order Quantity: An order quantity which, in principle, must not be exceeded.

Measurement Cargo: Freight for which transportation fees are based on the consignment’s volume.

Metric: A quantitative measure used to evaluate the success or progress of an individual, group, or system. Metrics are essential for tracking and measuring progress towards specific goals or objectives.

Milk Run: A delivery system in which a vehicle follows a specific route to collect or deliver items from multiple suppliers or customers. This method is often used to optimise transportation and reduce costs by consolidating multiple deliveries into one efficient route. It is commonly employed in just-in-time (JIT) manufacturing and inventory management to streamline the flow of materials to and from a production facility.

Minimum Order: The smallest order quantity which, in principle, is allowed.

Minimum Stock: A control limit within a stock control system which could indicate the point at which an order should be placed, or indicate if stocks are too low, for a specific item.

Mixed Mode Transportation: The use of two or more different transportation modes together in the movement of a goods shipment.

Mobile Rack: A rack that can be moved whether full or empty.

Modes of Transportation: The different methods of transporting goods, typically classified as road, rail, inland waterway, maritime, and air.

Multimodal Transportation: The movement of freight using more than one mode of transportation. For example, when the first leg of the freight’s journey is by road, and the next leg by ocean vessel. See also Intermodal Transportation.

 

N

Narrow Aisle Storage System: In warehousing, a narrow aisle storage system is a space saving storage solution, entailing the narrowing of aisles between racking to around 2 metres in width, as opposed to a more standard aisle width of three metres. The reduction in aisle width is enabled by the use of special handling equipment for product put-away and picking.

National Distribution Centre: A specialised warehouse that serves as a hub to store, pick, pack, and ship goods to fulfill customer orders across an entire nation, typically via a network of smaller regional distribution centres.

Negotiable Bill of Lading: A type of bill of lading that can be transferred from the original shipper to a third party, usually through a process called consignment. The key feature of a negotiable bill of lading is its transferability, which allows the consignee (the buyer) to sell the goods on behalf of the producer and take financial responsibility and legal ownership of the goods.

Node: A fixed location in a company’s logistics network where materials and products stop in between periods of transit. A node can be a plant, warehouse, supply source, or the ultimate market for finished products.

Non-negotiable Bill of Lading: A type of bill of lading that provides for delivery of the shipment only to the party named on the BOL document. It cannot be transferred to a third party. See also Straight Bill of Lading.

Non-Vessel Operating Common Carrier (NVOCC): A company that provides ocean transportation services without owning or operating its own fleet of ships, leasing space onboard ships from VOCCs and selling it to their customers. An NVOCC acts as an intermediary between shippers and carriers, offering various services such as drayage trucking, special trucking services, and customs clearance.

Notify Party: The individual or organisation that should receive notification when a shipment of goods reaches its destination.

 

O

Obsolete Stock: Stock held within an organisation where there is no longer any organisational reason for holding the stock.

Obsolescent Stock: Parts which have been replaced by an alternative, but which may still be used until stock is exhausted.

Ocean Carrier: A company that provides maritime goods transportation for shippers.

Ocean Freight: Freight undergoing carriage by ocean-going ship.

Off the Shelf Satisfaction: See fill rate.

Offshoring: This generally refers to the outsourcing (offshore) of manufacturing and production.

On-hand Balance: The quantity of an item shown in the inventory records as being physically in stock.

On-time-in-full (OTIF): A logistics metric denoting the percentage of order lines or orders delivered at the promised time and with items in the correct quantity. May also be called DIFOT (delivered in full and on time).

Open Top Container: A shipping container with a removable roof (solid or tarpaulin) enabling loading and unloading of the container from above.

Opening Stock: The stock of an item at the beginning of an inventory accounting period of time.

Optimisation: A term referring to the improvement of an activity or process to the point at which execution is as efficient as possible given the resources available and the constraints that exist.

Order: A formal request for the supply of goods or services.

Order Batching: The collection and compilation of orders before sending them to a supplier or manufacturer.

Order Cycle: The activities and time associated with the order management process, from the point of order capture to the point of delivery.

Order Cycle Time: The time required for the processing of an order, from the point of order capture to the point of delivery.

Order Fill: A supply chain performance measurement that records the percentage of orders fulfilled without failures such as out of stock items or picking/delivery errors.

Order Interval: A defined period between the submissions of orders.

Order Lead Time: The total internal processing time necessary to transform a replenishment quantity into an order and for the transmission of that order to the recipient.

Order Management: The process of receiving, tracking, and fulfilling customer orders.

Order Picking: Collecting items from a storage location to satisfy a customer order.

Order Point: The point at which the quantity of inventory on hand is depleted to a specific value, triggering the placement of a replenishment order.

Order Point Inventory System: An inventory control system for independent demand items where a reorder requirement is generated and sent to a supplier when the on-hand inventory balance reaches a specified level.

Order Processing: A collective term for the activities involved in fulfilling a customer order.

Order Promising: The processing of a commitment to deliver an order, at which point the inventory concerned is no longer available to promise.

Ordering Cost: The cost to place an order for inventory with a supplier.

Origin: The location at which a shipment of goods begins its journey.

Out of Stock: A term applied when a supplier has no inventory available of a product requested by a customer.

Outbound Consolidation: The process of combining several small customer shipments into a single large shipment to be delivered to a location near the customers, where it is broken down again into the constituent shipments for delivery to the customers.

Outbound Logistics: The activities involved in the storage and movement of finished goods from the end of the production line to the end-customer.

Outsourcing: An arrangement whereby an external party or ‘contractor’ undertakes certain business processes on behalf of their client.  In the supply chain this would typically be warehousing and transport.

Over-height Cargo: A cargo shipment of a height more than 2.43 metres, making it unsuitable for carriage in a standard shipping container.

Over-Packing: The process of packing small cartons which are going to a single destination into a larger box or carton to reduce shipping expenses.

Owner Driver: A truck driver who owns his vehicle, as opposed to one who uses a vehicle belonging to an employer.

 

P

Packing List: In shipping, a packing list is a document that itemises the contents of a package or shipment. It typically includes a description, quantity, weight, and dimensions of each item in a package or shipment.

Pallet: A platform on which cartons or other packages containing goods are stacked for storage and transportation, and which is designed to be handled by forklifts and manually operated pallet trucks.

Pallet Jack: One name for a manually operated truck, which might be a ride-on or pedestrian operated truck powered by a battery, or a pedestrian-powered version, which is used to move pallets around in a warehouse in scenarios where lifting the pallets into racking, or lowering them from racking, is not necessary.

Palletising: Stacking products or packages of products (cartons, boxes, etc.) onto pallets for storage and/or transportation.

Parent Part: Any finished goods, end item, or part that is mixed, fabricated, assembled, stirred, or blended from one or more other components.

Pareto Principle: The heuristic rule which states that where there is a large number of contributors to a result, the majority of the result is due to a minority of the contributors. Sometimes known as the 80/20 rule) which states that, in many cases, approximately 80% of the turnover (stock etc.) can be ascribed to approximately 20% of the customers, articles or orders. The actual ratio in a particular case can be determined by ranking the customers and products etc. in order of magnitude and then calculating what percentage of the turnover (stock etc.) corresponds to 10%, 20% 30% etc. of the customer and products etc. The basis of ABC analysis.

Part Number: A unique identification number allocated to a specific part either by the manufacturer or user of the part.

Pay on Use: A process in which payment for a product or material is made at the point of consumption, such as in a consignment stock scenario in which the user of the stock pays the supplier when withdrawing from the consignment.

Peak Demand: A period when demand for a product is at its highest among customers or consumers.

Perfect Order: A key performance indicator (KPI) in supply chain and logistics that measures the efficiency and effectiveness of a company’s order management system. It is calculated as the percentage of orders delivered on time, complete, undamaged, and with accurate documentation.

Perpetual Inventory System: An inventory control system where a running record is kept of the amount of stock held for each item. Whenever an issue is made, the withdrawal is logged, and the result compared with the re-order point for any necessary re-order action.

Periodic Inventory: An inventory control system classification for independent demand items where the number of items held is reviewed at a fixed time interval and the size of any resultant order depends on the stock on hand at the time of the review.

Pick Face: The primary location in a warehouse at which order picking, of less than pallet loads, is undertaken.

Pick to Light: A technology-aided picking system using alphanumeric displays, typically in the form of LEDs, which illuminate to guide the picker to the right storage location and indicate the number of items to be picked.

Picking by Aisle: A picking method in which a picker selects all ordered items located in a single aisle, regardless of which orders the items will be used to fulfill or to which destination those items will be dispatched. The items are then sorted into destinations, and/or individual orders after picking.

Picking by Source: A picking method in which a picker traverses multiple aisles to pick all the items for a single destination or to fulfill a single order.

Picking List: An output from an inventory control system designating those items, by part number, description and quantity, to be picked from stock to satisfy customer demand.

Pipeline Stocks: The products currently being moved from one location to another.

Plan-Do-Check-Action (PDCA): An iterative methodology used for the control and continual improvement of processes and products, comprising four steps known as “plan”, “do”, “check”, and “act”. As a methodology it is particularly useful for starting new improvement projects, developing new or improved designs of processes, products, or services, defining repetitive work processes, planning data collection and analysis, implementing changes, and supporting continuous improvement.

Planned Order: A future order planned in DRP and MRP systems in response to forecast demand.

Poka Yoke: A mechanism or technique used in manufacturing, production, supply chain, and other processes to prevent mistakes from being made.

Port: The left side of a ship as seen when facing the bow. The opposite side to starboard.

Port of Discharge: In ocean freight shipping, the port of discharge is the port at which a shipment of goods will be unloaded from the carrier’s vessel.

Port of Entry: In shipping, the port of entry is the port at which goods for import are admitted into the country of import.

Port of Loading: In ocean freight shipping, the port of loading is the port at which a shipment of goods will be loaded onto a vessel.

Port-to-Door: In containerised freight shipping, a port-to-door service offered by a carrier or freight forwarder means that the service includes ocean shipping from the port of loading to the port of discharge, and onward carriage from the port of discharge in the destination country to the final destination of the container. However, carriage from the container’s point of origin to the port of loading is not included in the service.

Port-to-Port: In containerised freight shipping, a port-to-port service offered by a carrier or freight forwarder means that the service includes ocean freight shipping only and does not include any transportation of the shipping container from the point of origin to the port of loading, or from the port of discharge to the final destination.

Postponement: In supply chain operations, postponement is the term denoting a delay of final production, assembly, packaging, or other activities until the latest point at which the activity is possible. It is a strategy used mainly for products sold in various packaging types, assembly configurations, or other variable forms.

Primary Freight (Strategy): An initiative driven by retailers to drive out transportation costs and improve efficiency within the primary segment of the supply chain. The retailer generally takes over the management of the primary (inbound) transport and deducts the cost of this transport from the supplier’s invoice based on an agreed cost per pallet or case. See also Factory Gate Pricing.

Primary Transport: The transport ‘leg’ from the supplier to the customer. Normally viewed as being from the supplier’s distribution centre (DC) to the customer’s DC. See also Secondary Transport.

Private Warehousing: warehousing of goods owned by a company in a warehouse that is also owned by that company.

Probabilistic (or Stochastic) Inventory Control. Models an inventory control system where all the variables and parameters used are treated as random variables. It is assumed that the average demand for items is approximately constant over time and that it is possible to state the probability distribution of the demand, particularly during the lead time for replenishment.

Procurement: A strategic process within an organisation aimed at efficiently acquiring the necessary resources to achieve its business objectives. It covers the entire lifecycle of goods or services acquisition, including activities such as supplier selection, negotiation, contract management, and payment processing.

Product Group: See family group.

Production Lead Time: The time taken to manufacture or produce an item after an external order has been received until the item is available for packing.

Proof of Delivery (POD): Information supplied by the carrier containing the name of the person who signed for the shipment, the time and date of delivery and other shipment delivery-related information.

Public Warehousing: A warehousing operation in which warehouse processes and storage space are made available to anyone for a fee.

Purchasing Price: See Unit Cost.

Pull System: A system where orders for an end item are pulled through the facility to satisfy demand for the end item. An example of pull system is the JIT kanban process.

Purchasing Lead Time (PLT): The length of time between the decision to purchase an item and its actual addition to stock.

Purchase Order: A physical or electronic document/transaction denoting the formal request of a buying organisation to purchase goods from its supplier.

Purchase Price: See unit cost.

Purchasing: The functional activities involved in buying goods or services required by a company or other organisation.

Purchasing Lead Time (PLT): The total length of time between the decision to purchase an item and its availability for dispatch from the supplier concerned (that is, the sum of the order lead-time, the production lead time and any time necessary for packing or preparation for dispatch of a specific order).

Push System: A system where orders are issued for completion by specified due dates, based on estimated lead-times, or where the flow of material in a product structure is controlled and determined by the lower levels.

Put Away: In warehousing, this term refers to the process of removing material from the goods-in dock of the warehouse, moving it to a warehouse storage location, and logging the movement and storage location in which the material has been placed.

Put Away Rules: The internal rules and procedures for positioning stock in a warehouse or store after goods inward processing.

 

Q

Quarantine Stock: On-hand stock which has been segregated and is not available to meet customer requirements.

Quick Response: A supply chain management strategy that exploits technology, collaboration, and real-time communication, and integrates inventory deployment, production scheduling, and demand management to enable retailers or manufacturers to share their inventory needs almost in real-time, to respond quickly to consumer demands and optimise their supply chain management efficiency.

Qualitative Forecasting: A forecasting approach that relies on judgmental or intuitive evaluation, for example, by using market research, panel consensus, estimates from a sales team, and personal insights, rather than data, to arrive at sales or demand projections.

Quantitative Forecasting: A forecasting approach based on the use of historical data to arrive at sales or demand projections.

 

R

Rack-Supported Warehouse: A warehouse in which the racking not only provides storage for inventory, but also forms the supporting element of the entire physical warehouse structure.

Racking: The system of racks, shelves, configuration, and other elements of the physical structure required to hold inventory items stored in a warehouse.

Radio Frequency Identification (RFID): The use of transponders (which may be read only or read/write) attached to products, as an alternative to linear barcodes, to enable product identification some distance from the scanner or when out of line of sight.

Rail Guided Aisle: A warehouse aisle equipped with rails used to guide narrow aisle stacking equipment.

Random Location Storage: A warehousing method where products are stored in any available storage location rather than being assigned to specific predetermined locations.

Random Sample Cycle Counting: A method in which the particular parts to be counted are selected from the population of part numbers in a manner that has no inherent bias. In this selection process, each part number has an equal chance of being selected.

Rapid Acquisition of Manufactured Parts (RAMP): A make-to-order process to reduce purchasing lead time for long lead time manufactured parts whereby product data is held in STEP (the international standard for exchange of manufacturing product data) by the customer and exchanged, in electronic format, when an order is placed.

Raw Material: Stock or items purchased from suppliers, to be input into a production process, and which will subsequently be modified or transformed into finished goods.

Reach Truck: A type of forklift used in narrow aisle applications, such as warehouses, to lift and move pallets of goods. It is designed to have two outer legs that help distribute the load and a single set of wheels located below the operator, which helps create a tighter turn radius. This allows operators to navigate smaller spaces and still be able to reach higher racking.

Receiving: The processes associated with the physical receipt of goods into a warehouse.

Receiving Dock: A specific location in a warehouse at which goods and materials are received from inbound carriers.

Redundant Stock: Parts used in manufacture which have been removed from a bill of material by technical change or modification action. Redundant parts may also be obsolete if they are no longer used for any other application in the inventory concerned.

Reefer: A term referring to refrigerated trucks or semi-trailers.

Refrigerated Cargo: Goods under transportation in a refrigerated truck, shipping container, or other form of refrigerated transport.

Regional Distribution Centre (RDC): A warehouse operated by or on behalf of a retailer that serves stores in a specific area with a range of product types and temperature bands.

Repair Turn Round Time (RTRT): See turnaround time.

Repairable Period (RP): The total out-of-service time, including transit time, from when a repairable component becomes unfit for use until the time it is returned to stock and made available for further use.

Repairable Item: An inventory item that is not normally consumed in use, but which will be repaired and re-used as part of the normal stock policy for that item. Such items have a repair lead-time as well as a procurement lead-time.

Repair Period (RP): The total out-of-service time, including transit time, from when a repairable component becomes unfit for use until the time it is returned to stock and is available for further use.

Reorder Level (ROL) (or Reorder Point – ROP): The calculated level of stock within an inventory control system to which the quantity of a specific item is allowed to fall before replenishment order action is generated.

Reorder Quantity, Replenishment Order Quantity: The calculated order quantity necessary to replenish stocks at a given point in time. The method of calculation, and the timing of the order, will vary depending on the type of inventory control system in use. Quantity-based systems are checked continually to determine if an order should be placed; time-based systems only have a count of stock at predetermined intervals and orders placed as required; a distribution system plans orders to meet distribution needs; and production-based systems only order stock to meet manufacturing requirements.

Reorder Costs: The total cost of placing a repeat order for an item either externally to a supplier or for internal manufacture. The costs may include elements to cover order preparation, administration, IT overheads, correspondence, telephone, transportation, goods inward processing, inspection, and for manufacture, batch setup costs and other production overheads.

Replenishment: The process of refilling or restocking inventory to maintain desired levels. It involves adding or replacing goods, products, or materials in a storage location to ensure a sufficient supply is available for use or sale.

Replenish to Demand: See make to order.

Replenishment Lead-time: See total lead time.

Reseller: A company or individual that purchases goods or services with the intention of selling them rather than consuming or using them. They typically purchase products or services from manufacturers, distributors, or service providers and then market them to customers, often adding value through services or customer experience. Examples of resellers are wholesalers and retailers. See also Retailer.

Retail Buying Alignment. The alignment and integration of a company’s retail buying function with supply chain activity, enabling a buyer to understand and make decisions within the context of an optimised supply chain model.

Retailer: A company or individual that sells goods or services to the public. A retailer typically buys products from manufacturers or wholesalers and sells them to end users or customers. See also reseller.

Return Goods Handling: The processes involved in managing the return of goods to a seller or merchant by a customer, including refund processing, managing exchanges, issuing credits, returns-related customer service, and reverse logistics (the process of returning goods from the customer’s location to the seller’s warehouse).

Return Material Authorisation (RMA): A number issued by a supplier to signify authorisation for the return of a product from a customer, (perhaps for repair, replacement, or refund/credit) and to support tracking and management of the returns process. Sometimes it is also known as return merchandise authorisation or return product authorisation.

Return Order Management Costs: The costs a company incurs through management of the return material authorisation process.

Return Product Authorisation: See return material authorisation.

Return to Origin: The process of returning imported goods to their country of origin. This can occur for various reasons, such as the goods being defective, damaged, or not meeting the buyer’s expectations.

Returns Inventory Costs: The expenses associated with managing inventory that is returned for various reasons, such as repair, refurbishment, excess, obsolescence, end of life, ecological conformance, and demonstration.

Returns Processing Costs: The total expenses incurred in processing returned products, including the processes of repairs, refurbishment, and handling of excess, obsolete, and end-of-life products. These costs encompass various elements such as logistics support, materials, centralised functions, troubleshooting service requests, on-site diagnosis and repair, external repair, and disposal.

Reverse Logistics: Logistics activities supporting the flow of surplus or unwanted material or equipment back through the supply chain after meeting customer demand.

Review Interval: The time between assessing order requirements in a fixed order interval system.

Roll: A term used in maritime freight shipping to denote a cargo that is reassigned to a vessel departing later than the one to which it was originally assigned.

Roll-on-Roll-off (RO-RO): A cargo vessel on which vehicles with cargo, or empty, can be driven from the dockside directly onto the deck, and vice versa.

Rotable: A repairable inventory item that can be repeatedly restored to a fully serviceable condition and reused over the normal life cycle of the parent equipment to which it is related. Such items have a repair lead time as well as a procurement lead time and normally have a serial number that is retained throughout the rotable life regardless of the extent of replacement of its component parts.

Rounding Order Quantity: That element of an order that has been added to the basic order quantity to meet a constraint imposed by the manufacturer or to optimise overall supply chain costs.

Routing.  A process of optimising transport delivery routes to make better use of time and capacity to reduce overall costs.  This type of fleet optimisation is generally carried out with the aid of specialist software tools.  Early tools used what was called the ‘travelling salesman’ algorithm.

 

S

Safety Stock: The stock held to protect against the differences between forecast and actual consumption, and between expected and actual delivery times of procurement orders, to protect against stock-outs during the replenishment cycle. In calculating safety stock, account is taken of such factors as service level, expected fluctuations of demand and likely variations in lead time. See also Buffer Stock.

Sales and Operations Planning (S&OP): A collaborative, cross-functional process to continuously align sales and operational activities with the overall business strategy. It involves forecasting demand, planning production, managing inventory, and coordinating supply chain activities to ensure that the company can meet customer demand while optimising resources and minimising costs. The functions typically involved include sales, marketing, finance, and operations.

Sales Forecast: The prediction, projection or estimation of expected sales over a specified future period.

Sample Stability: If a sample produces a particular result, and by increasing the sample size it continues to produce the same result, the sample has stability and can be assumed to be representative of the population. This is an important characteristic when the population size is unknown or extremely large.

Seasonal Stock: See anticipation stock.

Seasonality: A repetitive pattern of annual fluctuations in demand.

Secondary Transport: The transport ‘leg’ from a distribution centre (DC) to the customer. For example, from the retailer DC to the retail store.

Selective inventory Control: The application of varying levels of control to the total inventory to enable managers to concentrate on significant matters (see ABC analysis and ABC classification).

Self-Billing: A financial process (often automated) agreed between a customer and a supplier, where the customer prepares the invoice and sends it, along with the payment, to the supplier.

Semi-Trailer: The trailer that connects to a tractive unit to form an articulated vehicle. It is called a semi-trailer because it has wheels only towards the rear and the tractive unit takes some of the weight of the trailer and its load.

Serpentine Picking: In warehousing, serpentine picking is a picking method requiring warehouse operatives to pick from racks on both sides as they move down an aisle, as opposed to picking from one side and then returning up the aisle to pick from the other side.

Service Differentiation: A supply chain management approach that aims to reduce costs by identifying customer service needs and ensuring that customers are not unnecessarily over or under serviced.

Service Level: A measure of the performance of a service provider (typically using percentages) relating to the fulfilment of the customer’s service requirements.

Shelf Life: The amount of time for which a product can exist before it becomes unusable/unsaleable and should therefore be removed from inventory.

Shelf-ready packaging (SRP): refers to the preparation of a product so that it is delivered to a retailer in a ready-to-sell merchandised unit. Products which come in SRP can be easily placed on the shelf without the need for unpacking or repacking. SRP covers all types of packaging designed for the retail outlet. It is not limited to packaging which goes on the shelf; it also includes sales support mechanisms in all major distribution channels.

Shipper: A company, organisation, or individual with goods requiring carriage from one location to another.

Shipping: Management of the outbound movement of a product from one location to another.

Shipping Container: A container used for the carriage of goods and conforming to a set of universal dimensions and standards enabling it to be carried by ship, rail, or road without being unloaded. The most popular shipping containers are 20-foot and 40-foot units.

Skid: A flat transport structure that supports goods during shipping and storage. It is like a pallet but lacks a bottom deck.

Slip Sheet: A thin, pallet-sized sheet made of material such as corrugated fiberboard, solid fiber, or plastic, onto which a unit load can be assembled. It is used as an alternative to traditional wooden pallets for the transportation and storage of goods, often in situations where traditional pallets may not be suitable, such as in closed-loop systems or where space is limited.

Slotting: A method of optimising the ‘pick path’ in a warehouse, by ensuring that frequently selected items are closer to the despatch area, or lower down in high rise facilities. Slotting results in significant time and cost saving results if this is done well.

Sole Sourcing: The term used for procurement situations in which only one supplier for a service or product, with no alternative sources available.

Split Case Picking: In warehousing, split case picking refers to the picking of SKUs in quantities lower than those required to fill cases. It requires pickers to break open cases and pick individual units from within.

Split Delivery: A term denoting the scenario in which a quantity of items, as secured by a purchase order, is broken down into several small delivery quantities to be delivered on different dates.

Spotting: The process of moving a semi-trailer or trailer into a specific location and position for loading or unloading.

Stable Demand: A term applied to products for which demand is not substantially affected by seasonality.

Staging Area: A warehouse area used only to hold products in readiness for shipping.

Starboard: The right side of a ship, as seen when facing the bow. The opposite side to port.

Stern: The back end of a ship.

Stock: The goods and materials held by a company, either for sale, use in manufacturing or production, or for any other business purpose. See also inventory.

Stock Keeping Unit (SKU): A unique code or number used to identify and track individual products within a company’s inventory.

Stock Site: A location at which stock is held.

Stock Turn: The number of times that an inventory turns over during the year and normally obtained by dividing the average inventory value into the annual cost of sales. For example, annual sales at cost / average inventory value.

Stock-out: The term used for a situation where no inventory is available to fill an order.

Stocktaking: A physical count of products actually held in stock as a basis for verification of the stock records and accounts.

Stock Turnover (or Stock Turn): A widely used measure of inventory performance expressed as the ratio of the cost of units sold to the average value of stock.

Stock Types: The products which are determined for delivery from stock.

Straight Bill of Lading: See Non-negotiable Bill of Lading.

Strategic Sourcing: An approach to supply chain management that formalises the way information is gathered and used, allowing an organisation to consolidate its purchasing power to find the best possible values. Strategic sourcing aims to create efficiencies across all spend categories, minimise supply risks with improved supplier selection, and provide visibility into pricing and forecasting.

Strategic Stock: The stock of goods of essential importance for the continuation of the production process and which is built up to compensate for long hold-ups of incoming goods (caused by strikes and political difficulties etc. in a particular country or region).

Strip: To remove (unload) the contents of a shipping container.

Stuff: To place cargo inside a shipping container.

Supplier: A seller or provider of services or goods.

Supplier-Owned Inventory: Inventory kept close to, or on, the premises of a supplier’s customer, but still under the ownership of the supplier until used or consumed by the customer.

Supply Chain: The total sequence of business processes, within single or multiple enterprise environments, which enable customer demand for a product or service to be satisfied.

Supply-Chain Design: The determination of a supply chain’s structure and network.

Supply Chain Management (SCM): Organisation of the overall business processes to enable the profitable transformation of raw materials or products into finished goods and their timely distribution to meet customer demand.

Supply Chain Operations Reference Model (SCOR): A model that serves as a standardised method to measure supply chain performance, built around six key processes: plan, source, make, deliver, return, and enable.

Supply Chain Resiliency: The ability of a supply chain to remain unaffected by adverse events such as natural disasters, economic or political instability, and black swan events.

Supply Chain Sustainability: The management of environmental, social and economic impacts and the encouragement of good governance practices, throughout the lifecycles of goods and services. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market.

Supply Warehouse: A warehouse that stores raw materials, usually those to be used by a plant in manufacture or production.

Swap Body: A type of cargo compartment for trucks, which is not permanently attached to the truck and can be switched without the need for lifting equipment. Swap bodies have legs at each corner which can be extended allowing the truck to drive away from them to remove, or to drive under them to pick up.

 

T

Task Interleaving: A process of combining different tasks on a single trip within the warehouse, such as combining picking and put-away in one trip rather than performing them separately. It is an advanced productivity strategy employed to reduce unproductive travel in the warehouse and boost logistics performance.

Terminal Handling Charges: Charges imposed by port terminals for the handling of ocean freight at specific terminals within a port. These fees cover various services such as equipment handling, container positioning, maintenance, storage, discharging of equipment, goods handling, unloading the container, stacking, and crane services.

Theory of Constraints (TOC): A management philosophy and methodology developed by Eliyahu M. Goldratt and based on the principle that every system has at least one constraint that limits its output. By focusing on the constraints, TOC aims to achieve substantial improvement without requiring significant additional resources.

Third Party Logistics: Logistics activities that a company has outsourced to a specialised logistics service provider.

Third Party Logistics Provider (3PL): A company that provides logistics services such as warehousing, transportation, and inventory management to companies that wish to outsource these activities.

Third Party Warehousing: Storage of a company’s goods and/or materials in a facility belonging to an external warehousing service provider.

Time to Serve: A supply chain analytical approach that identifies the lead time at various points in the supply chain to assess the total cost and service impact of lead time changes.

Total Acquisition Cost (TAQ): The sum of all the costs to an organisation of carrying an item in stock including reorder, carrying and shortage costs.

Total Average Inventory: A measure of the average level of inventory held during a specific period, calculated by adding the beginning inventory and ending inventory for the given period and dividing the sum by two.

Total Inventory Days of Supply: A metric used to measure the number of days that a company’s inventory will last based on the current rate of sales. It is calculated by dividing the total inventory value by the average daily cost of goods sold (COGS). The formula is: Total Inventory Days of Supply = (Total Inventory Value / Average Daily COGS).

Total Lead Time: The total time between the decision to place a replenishment order until its availability for use. That is, the sum of order lead time, purchasing lead time, transit time and any goods inward lead time for that replenishment order. See also Replenishment Lead Time.

Total Supply Chain Management Cost: The total cost incurred in the functioning of the supply chain, covering all the costs a company needs to incur for the successful functioning of the supply chain, and comprising five key elements: order processing, acquisition of materials, inventory management, supply chain finance and planning, and supply chain-related IT costs.

Traceability: The identification of goods or materials used in manufacturing or processing to enable the relevant production batch and material source to be traced in case of subsequent defects.

Tracking and Tracing: The monitoring and recording of a shipment’s progress through the logistics network, from origin to final destination.

Tractive Unit: The powered component of an articulated vehicle, comprising the engine and cab. See also tractor.

Tractor: The powered component of an articulated vehicle, comprising the engine and cab. See also tractive unit.

Transaction: Recording of a material movement or an adjustment event that impacts a stock position.

Transit Time: The time taken to move goods physically between different locations in a supply chain or laterally to another facility.

Transportation Management System (TMS): Digital software that typically helps businesses manage the day-to-day operations of transportation, including order management, procurement, routing and optimisation, and carrier management.

Transportation Mode: A term referring to the method of transporting goods. The primary transportation modes are road, rail, air, and ocean.

Turnaround Time (TAT): The total time taken to repair a component at the repair location, including waiting time but excluding transit time. See also Repair Turn Round Time.

Twenty-Foot Equivalent Unit (TEU): The standard unit used to count shipping containers, and to describe the capacities of container vessels and terminals. One 20-foot container = 1 TEU.

Two-Bin System: A methodology for ordering inventory which uses two bins initially full of a specific SKU. When the first bin is empty, that is the trigger to re-order the SKU. The second bin is then used for picking, and, when that’s empty, the SKU is re-ordered, and so on.

Two-Dimensional Bar Code (2D Bar Code): Codes in which information is placed in two dimensions and read from side to side, and up and down, by special scanning equipment and which can be read even if partially damaged.

 

U

Ullage: A term used to denote unfilled space in a drum or tank containing liquid.

Unit: The standard size or quantity of a stock item.

Unit Cost: The cost to an organisation of acquiring one unit, including any freight costs, if obtained from an external source or the total unit production cost, including direct labour, direct material and factory overheads, if manufactured in-house.

Unit of Measure: The standard unit of an item used in the stock account and to construct order quantities.

Unit Load Device: The term for pallets and containers used specifically for air freight.

 

V

Value Chain: The series of consecutive steps that go into the creation of a finished product, from its initial design to its arrival at a customer’s door. The chain identifies each step in the process at which value is added, including the sourcing, manufacturing, and marketing stages of its production.

Velocity: The rate at which products move through a warehouse.

Vendor: A manufacturer or distributor of a product or material.

Vendor Hub: Third party operation of a warehouse, funded by suppliers, containing vendor-owned stock for delivery to a customer

Vendor Managed Inventory (VMI): An element of inventory stocked by one organisation but where the forecast demand, and required stock levels to meet that demand, are calculated by the manufacturer or distributor of the stock items concerned.

Vessel Operating Common Carrier (VOCC): An ocean freight carrier that owns or leases vessels and uses them to transport goods for paying customers. Examples include companies like MSC and Maersk.

Volumetric Weight: In shipping, volumetric weight is a pricing technique used to account for the amount of space a package occupies in relation to its actual weight. It is calculated based on the package’s length, width, and height, and is used by many carriers to determine shipping costs.

 

W

Warehouse: A facility for the storage of goods and/or materials.

Warehouse Management System (WMS): A software application that helps companies manage and control daily warehouse operations. It provides real-time visibility into the inventory and manages supply chain fulfilment. It handles various functions, including inventory tracking, picking, receiving, put-away, and shipping. It is designed to support the needs of an entire global supply chain, including distribution, manufacturing, asset-intensive, and service businesses.

Warehousing: The operations collectively performed in a warehouse.

Wave Picking: A warehouse order picking strategy that involves grouping orders into waves based on factors such as due date, order priority, and product location.

Waybill: A document issued by a carrier that contains details and instructions relating to the shipment of goods. It typically includes information such as the names of the consignor and consignee, the point of origin, destination, and route of the consignment, as well as the charges associated with the shipment.

Wiggle Factor: A term used in route & fleet planning that converts the ‘straight line’ distance between two points to an approximation of the actual road distance.  1.2 is commonly used in urban areas.

Work in Progress (WIP): The total amount of work in processing, between production stages or subject to a waiting time.

Work in Progress Stock: The stock of products and/or materials and components which are still in the production department and are not, or are no longer, included in the stock in the store.

Working Stock: The stock of materials, components and sub-assemblies (excluding safety stock) held in advance of demand so that ordering can be done on a lot size rather than on an as needed basis. In other words, the normal stocks formed by products arriving in large regular orders to meet smaller, more frequent customer demand. Also known as cycle stock or lot size stock.

 

X

X12: The ANSI standard for inter-industry electronic interchange of business transactions.

 

Y

Yard Management System (YMS): A software application designed to facilitate and organise the coming, going and staging and visibility of trucks and semi-trailers in the parking yard that serves a warehouse, distribution or manufacturing facility.

 

Z

Zero Inventories. Part of the principles of just-in-time which relates to the elimination of waste by having only required materials when needed.

Zone Picking: An order picking method that involves dividing the warehouse into distinct zones or sections, with each picker group assigned to a specific zone. Pickers are responsible for selecting stock-keeping units (SKUs) within their designated zones.

 

About the Author.  Rob O’Byrne is the founder and CEO of the Logistics Bureau Group based in Sydney Australia.  Logistics Bureau Group founded in 1997, provides Supply Chain Consulting and education services in Australia and SE Asia.

 

Contact Rob O'Byrne
Best Regards,
Rob O’Byrne
Email: [email protected]
Phone: +61 417 417 307
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