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Logistics Glossary of Supply Chain Definitions

Like many complex disciplines, third party logistics is a field that has developed its own unique vocabulary throughout the ages.  To have any chance at improving the efficiency of a supply chain, you must first be able to speak the language. To help you with this process, we’ve begun assembling a comprehensive glossary of logistics terms, Industry-specific jargon, and acronyms that you’ll likely encounter as supply chain managers. Although currently our glossary only covers two-thirds of the alphabet, we will be regularly updating this list, so check back regularly.

ABC Inventory Control – A type of selective inventory management that suggests that inventories of an organization are not of equal value and should therefore be treated differently. As such, inventories are grouped into three categories (A,B, and C) in order of their estimated importance with A items being subject to very tight control and accurate records and C items being the least controlled.

Agile Manufacturing – An operational strategy focused on creating processes, tools, and training methods to enable quick response to customer needs and market changes while still controlling costs and quality.

AIB Certification – A formal recognition issued by a full-time AIB International (AIBI) inspector stating that a facility has successfully passed an inspection of good manufacturing practices prerequisites and food safety standards. Once issued, recognition documents do not expire, however most companies request to have an inspection conducted at least once a year. There are three levels of recognition that companies can receive: Recognition of High Achievement, Recognition of Achievement, and Recognition of Participation.

Backsourcing – The process of bringing outsourced operations such as Information technology, back in in-house . This commonly occurs after an outsourcing contract has either expired or has been terminated. Also known as Insourcing.

Bill of Lading (BOL) – A contract prepared by the carrier containing a detailed list of information relating to a shipment of goods (ie. item, quantity, value, date, port, cosigner, etc), which obligates the carrier to transport the goods to said destination based on which seller can claim consideration and buyer can take delivery of goods.

Business Process Outsourcing (BPO) – The contracting of operations and responsibilities of specific functions (or processes) to a third-party service provider. Can be divided further into two subcategories: back office outsourcing – which includes business functions such as human resources, finance, or accounting, and front office outsourcing – which includes customer-related services.

Business Process Reengineering (BPR) – The process or activity of restructuring a company’s organization and methods to achieve dramatic improvements in critical areas (such as quality, cost, service, and response time).

Cellular Manufacturing – A technique of lean manufacturing that involves product being processed progressively in cells (groups of workstations, machines, or equipment) arranged in a way to facilitate the completion of a process, the assembly of a sub-component, or an entire product.  In this manner, workstations reduce wait time in between batches and significantly decrease the distance that product must travel throughout the assembly process.

Continuous Flow Distribution (CFD) – Streamlined distribution based on customer “pull” (demand or requirements) instead of on sales “push.”

Cross Dock/Cross Docking (XDK) – A practice in logistics of unloading materials from an incoming semi-trailer truck or rail car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between. This practice eliminates overhead expenses associated with storage.

Cumulative Lead Time – The total amount of time required to make a part assuming there are no components for its assembly in stock.

Cycle Time – The amount of time that transpires from the time a task (or series of tasks) is initiated to the time a task is completed. For example, from the time a shipping order is printed to the time it is loaded on the truck and the system is updated.

Discrete Manufacturing – A manufacturing environment often characterized by individual, distinct unit production with each unit capable of being identified by serial numbers or other lanbeling methods as opposed to weight or volume.

Distribution Center (DC) – A facility that receives product, stores inventory, and ships finished goods orders to customers for a specific geographic area.

Dunnage – Inexpensive or waste material used to protect and load securing cargo during transportation.

Electronic Data Interchange (EDI) – The automated, computer-to-computer exchange of data using standard, industry-accepted message formats. Typical types of data transferred include business transaction information such as orders, confirmations, and invoices.

Export Processing Zone – A zone, designated within the country, which enjoys tax privileges or other status, where goods and services can be received, reprocessed, and re-exported.

Food and Drug Administration (FDA) – An agency of the United States Department of Health and Human Services that is responsible for protecting and promoting public health through the regulation and supervision of food safety, tobacco products, dietary supplements, prescription and over the counter pharmaceutical drugs, vaccines, biopharmaceuticals, blood transfusions, medical devices, electromagnetic radiation emitting devices, veterinary products, and cosmetics.

Finished Goods Inventory (FG or FGI) – Goods that have completed the manufacturing process, but have not yet shipped.

First Expired, First Out (FEFO) – An inventory management practice commonly used with perishable products, in which the products with the closest expiration date are the first to be removed.

First In, First Out (FIFO) – An inventory management practice in which products held in store for the longest time are assumed to be the first to be drawn from store, so that inventories will consist of the most recently acquired items.

Foreign Trade Zone/Free Trade Zone – Specially designated geographical areas within a nation that are exempt from the regulations and taxation normally imposed on business intended to facilitate cross border production and trade.

Free on Board (FOB) – A contractual term that indicates that the seller assumes all responsibilities and costs up to the specific point of delivery including transportation, packing, insuring, etc.

Freight Forwarder – A firm specializing in the supply of transportation services. By buying large volumes of land, sea, air, and pipeline transportation at low rates, freight forwarders are able to offer attractive rates to small businesses who products they combine into large shipments.

Harmonized Tariff Schedule (HTS) – A classification that determines the rate of duty paid on an imported item.

Incoterms—International Commercial Terms—they define the transfer of cost and risk only. The purchase order or contract must specifically detail where the title passes and tie INCOTERMS to the transfer of title.

Insourcing – See definition of Backsourcing

Integrated Logistics – A comprehensive, system-wide view of the entire supply chain as a single process, from raw materials supply through finished goods distribution. All functions that make up the supply chain are managed as a single entity, rather than managing individual functions separately.

Intermodal Transportation – A shipment utilizing more than one mode of transport such as surface routes, airways, and waterways.

ISO – A family of standards for quality management systems maintained by the International Standardization Organization (ISO) and is and is administered by accreditation and certification bodies.

Just in Time (JIT) – A technique for optimizing the manufacturing process and improving inventory control by ensuring goods arrive just in time for the next step in the process.  Just in time principles eliminate excess inventory, and rely on frequent small deliveries when required to reduce storage and holding costs.

Key Performance Indicator (KPI) A performance measure which helps gauge the level of success in a supply chain. Some common logistics KPIs are delivery time, production cycle time, % order fill rate, etc.

 Kitting The assembly of components into complete units. Kitting allows products to be assembled just before time of shipment, reducing the need to maintain an inventory of finished goods. Kitting allows items to be assembled and supplied on a job by job basis, and optimizes warehouse storage space.

Last In, First Out (LIFO) – The method of using newest inventory first. See First In, First Out

Lead Time – The total time that elapses between an order’s placement and its receipt. Lead time includes the time required for order transmittal, processing, preparation, and transit.

Lean manufacturing – A principle which seeks to increase efficiency in the manufacturing process by eliminating waste and reducing costs.  Lean manufacturing is associated with the principles of Just in Time.

Locator System- A locator system is a part of a warehouse management system (WMS), and is utilized by warehouses to increase the efficiency in inventory tracking. Locator systems often utilize barcode technology to identify each item’s exact location.

Logistics – The process of planning, implementing, and controlling procedures for the efficient and effective transportation and storage of goods.

Market-Positioned Warehouse – A strategically placed warehouse, positioned to replenish inventory and provide maximum transport efficiency from origin to destination.

Material Flow – The techniques used to move material from one location to another during the logistics process. Material flow is a mapping of the journey that materials take from procurement to shipping.

Material Handling – The processes warehouses utilize to move, store and handle materials between procurement and shipping. Material handling includes short-distance movement of goods within a storage area, including the use of rolling bins, conveyors, forklifts, and other equipment.

Obsolete Inventory – Inventory that has had no usage for a set period of time, ranging from weeks to years depending on the industry. Obsolete inventory is also known as dead inventory.

On-Demand – Work performed when demand is present, used to describe products which are manufactured or assembled only when an order is placed.

Operating Ratio – The measure of an operation’s efficiency, which compares operating expenses with net sales and revenues. Operating ratio = (Operating expenses / Operating revenues) x 100

Order Cycle – The time and process involved from the placement of an order to the receipt of the shipment.

Order Management – The planning, directing, monitoring, and controlling of processes related to customer orders, manufacturing orders, and purchase orders. Order management includes order entry, picking, packing, shipping, and billing.

Order Processing – Involves transfer and checking data from the time the order is accepted, until the invoice reaches the customer

OSHA – An organization run by the US government, the Occupational Safety and Health Administration’s mission is to save lives, prevent injuries, and protect the health and safety of workers.

Packing – The process of placing a product in a protective container, which prepares it for transport.

Picking – Removing a product from storage inventory.

Port Authority – A state or local governmental authority for a special district for operating ports and transportation infrastructure. Port authorities are usually governed by boards or commissions, and can include wharfs, docks, and terminals.

Process Improvement – Ways in which process quality is improved or costs are reduced, often through the elimination of waste or inefficiencies.

Process Manufacturing – Production that adds value by mixing, separating, forming, and/or performing chemical reactions. Process manufacturing produces results that cannot be returned to its basic components. Once something is created using process manufacturing, it can’t be taken apart.

Process Yield – The resulting output from a process. An example is the quantity of finished product output from the manufacturing process.

Product ID – A way to identify goods stored, without using the full description or item name. Product IDs are utilized by warehouse management systems to locate goods and monitor inventory levels.

Production Line – A series of pieces of equipment and processes dedicated to the manufacture of specific products. The production line includes all machinery and steps needed to manufacture a completed item.

Quality Control (QC) – The management function that attempts to ensure goods manufactured or assembled meet product specifications.

Queue Time – The amount of time before a job is processed for shipment.

Quick Response – Triggers just-in-time restocking in order to reduce inventory levels and improve service quality by adapting as quickly as possible to varying demand levels.

Quota – A specific quantity of goods that may be imported without restriction during a given period of time.

Rack – Metal framework in a warehouse used to store products prior to shipment.

Ramp – An inclined area used by trucks and other equipment connected to the warehouse to facilitate easier movement.

Rate Sheet – A schedule of warehousing or transportation charges for a client.

Receiving Report – A record of condition of all inbound products or materials as they arrive.

(RFID) Radio Frequency Identification – The use of radio frequency technology such as RFID tags and tag readers to identify objects such as equipment, pallets of stock, and individual units of product.

Safety Stock – Stock used to ensure the availability of products in the case of deviations in supply or demand.

Slotting – A method used to determine the best placement location for products in a warehouse depending on its dimensions and the frequency that the product is picked.

Stacking – The placement of inventory on top of each other in order to use warehouse space more efficiently.

Staging Area – Designated area of a warehouse where product is placed prior to shipment.

Strap Loading – The process of securing products to shipping pallets using metal or plastic straps.

Tally – A count that is performed once a shipment is received to record its condition.

Third Party Logistics – The outsourcing of part or all of a company’s logistics operations to a specialized provider.

Third Party Warehouse – A warehouse that is operated by a 3PL company.

Total Average Inventory – The average normal use stock, combined with both the average lead stock, and safety stock.

Traceability – The ability to track a shipment from the moment it leaves the loading dock until it arrives at its destination.

Unit Cost – The total cost of producing a product or service divided by the total number of units.

Unitization – The shipment of several individual items as a single item.

Unit load – A unit load is an arrangement of products that are moved by material handling equipment as a single unit.

Unloading – Removal of a shipment received from a carrier.

Uprights – Vertical numbers that are used on storage racks for product identification purposes.

Value-Added – The value added to the distribution process when there is a contribution to the functionality or usefulness of a product.

Value Added Services – Additional services that a distribution center will perform in order to meet the needs of a client.

Velocity – The rate at which product moves through a warehouse.

Vendor – The manufacturer or distributor of a product.

Vendor-managed Inventory – The control of inventory at a 3PL warehouse by client or vendor.

Warehouse Receipt – The receipt for product received into a warehouse.

Wave picking – A method of picking for multiple orders where all zones are picked simultaneously and the product is sorted later.

Waybill – A document containing description of goods that are part of common carrier freight shipments.

(WMS) Warehouse Management System – A WMS is software designed to manage the movement and storage of product in a warehouse.

Weight Confirmation – The process of confirming receipts or shipments based on the weight.

(WIP) Work in Process – Parts and subassemblies in the process of becoming completed finished goods.

(YMS) Yard Management System – A system that is designed to facilitate and organize the coming, staging, and going of carriers in the “yard” that serves a warehouse.

Yield – The ratio of usable output from a process to its input.

Zone –  Locations in a warehouse where usage is determined by the characteristics of the product being stored such as special handling or special inventory management requirements.

Zone Picking – A method of subdividing a picking list by arrears within a storeroom for more efficient and rapid order picking.

Zone Price – The constant price of a product at all geographic locations within a zone.