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Logistics Jargon Buster


We all know the feeling when the mechanic in your local garage starts to try get one over you by talking in intricate detail about what's wrong with your head gasket - he's using rhyming slang to describe engine blocks and cylinder heads and you're feeling like an idiot.

Unfortunately in our industry it's a similar sort of thing. There's a lot of jargon to get your head around so we thought it would be useful to put together this little guide. We've pulled it together from lots of different sources so if you think it looks like it fell off the back of a lorry then we're very sorry about that!

3PL – Third-party logistics. When a logistics company manages a distribution system on behalf of another firm, it is said to be a 3PL company or 3PL provider.

4PL - You can also have a 4PL. The difference between the two is that a 3PL is all about physical distribution and logistics. Warehousing, clearing and freight forwarding, packaging, material inward outward, safety, contacting transporter etc. are some of the services 3PL provides to the consignor. In simple words it's core on the field job. On the other hand 4PL is all about supply chain management, planning, analysis, design and optimization. 4PL is outsourced service which can consist of tracking, customer support, supply chain planning, designing and optimization, analytic, reporting. It's generally a corporate job with less field work.

Activity Based Costing (ABC) – An approach to the costing and monitoring of activities that involves tracing resource consumption and costing final outputs.

ABC Management - Application of Pareto’s Law of the 80/20 rule: ABC classifications are determined in ascending rank order of all products according to the product classification as a percentage of the total purchasing spend. Ranking can also be by volume, value, weight etc.

Automatic Clearing House (ACH) - Electronic method of making routine payments, replacing traditional cheques.

Added Value - Commonly known as ‘Value add’. The increase in realisable value resulting from an alteration in form, location or availability of a product or service, excluding the cost of the purchased materials and services. E.g. picking and packing

Advance Payment - Payment made to a supplier prior to commencement of work or project. Often used as an incentive to reduce cost or to enhance any discounts available or to secure supply of products and services.

Average Cost (AVCO) - Term used for average valuation of stock.

Average Inventory - The average stock level over a given period of time and usually calculated as follows: Average Inventory =Opening stock + closing stock/2

Average Rate of Return (ARR) - An accounting methodology that measures the average net rate of return each year as a percentage of the initial cost of investment.

Blanket Agreement - An agreement between buyer and seller whereby certain goods will be purchased at prices established or agreed by way of a formula over a period of time. Used to reduce the amount of small volume orders

Blanket Order Purchase - orders placed on suppliers that cover a range of products or a time period that commits to a volume of one product.

Bonded Goods - Products that are held pending any outstanding duties that needs to be paid. Usually stored in a bonded store or warehouse.

Capacity Requirements Planning (CRP) - Process of establishing, measuring and adjusting the levels of capacity in an organisation within the context of Manufacturing Resource Planning.

Carriage Insurance Paid (CIP) - Commonly described and an Incoterm. This term is the same as "freight/carriage paid to" but with the additional requirement that the seller has to procure transport insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premium.

Carriage Paid To (CPT) - Commonly describes as an Incoterm. This term means the seller pays the freight for the carriage of the goods to the named destination. The risk of loss or damage to the goods and any cost increases transfers from the seller to the buyer when the goods have been delivered to the custody of the final carrier, and not at the ship's rail.

Cash On Delivery (COD) - Cash payment for purchases and their transportation. Payments made upon their delivery prior to release of the goods by the carrier. A common precaution used by sellers shipping to organisations in bankruptcy or of doubtful credit rating.

Chartered Institute of Purchasing & Supply (CIPS) - CIPS is an international organisation, based in the UK, serving the purchasing and supply profession. Dedicated to promoting best practice, CIPS provides a wide range of services for the benefit of members and the wider business community.

Cost and Freight (CFR) - Commonly described as an Incoterm. Under this term the seller must pay the costs necessary to bring the goods to the named port of shipment, the risk of loss or damage to the goods, as well as any additional expenses, is transferred from the seller to the buyer when the goods pass the ship’s rail. Insurance is the buyer’s responsibility.

Cost Insurance Freight (CIF) - Commonly described as an Incoterm. This is CFR with the additional requirement that the seller procure transport insurance against the risk of loss or damage to goods. The seller must contract with the insurer and pay the insurance premium. Insurance is generally important in international shipping because transport companies have restricted liability for loss or damage.

Demurrage - The detention of a shipment beyond its specified time resulting in the payment for that detention. The basis for this charge is to recoup a rental fee for holding the equipment beyond its intended period.

Distribution Requirements Planning (DRP) - A system of determining demands for inventory at distribution centres, consolidating the demand information backwards, and acting as input to the production and materials system.

Define, Measure, Analyse, Improve, Control (DMAIC) - 5 stages of 6 Sigma Quality, Improvement and Assurance.

Dead on arrival (DOA) -. Describes stock that is not functional upon delivery.

Dry-Lease – A kind of leasing agreement where one party operates an aircraft hired from another party. Deadweight tonnage (DWT) - The difference between the unloaded and maximum load displacements, including cargo, stores, fuel and passengers, of a ship.

Dutch Auction - Playing one seller off against another to obtain the lowest price.

Electronic Data interchange (EDI) - The exchange of documents/information between computers using telephone lines

Economic Order Quantity (EOQ) - Also known as the Wilson EOQ Model or simply the EOQ Model) is a model that defines the optimal quantity to order that minimizes total variable costs required to order and hold inventory.

Enterprise Resource Planning (ERP) - Co-ordination of planning and business on a wide basis between supply chain links.

eProcurement - Ability to purchase/sell through electronic trading via the Internet

Escrow - A contract or deed that becomes effective on the operation of a future event.

Forty-foot equivalent unit (FEU) - A unit of measurement equivalent to one standard container used in ocean freight that is 40 feet long, 8 feet wide, and about 8 feet high.

Firm Price - A contractually agreed price that remains unchanged throughout the contract.

Fixed Price Price - Fixed at time of placing the contract but which could have been liable to change during the contract period.

Futures - Usually applies to “soft” commodities, typically foodstuffs, whereby you enter into a contract to buy or sell next year’s crop of maize, wheat, coffee or whatever. The aim is to insure against price fluctuations or commodity shortages.

General Agreement on Tariffs and Trade (GATT) - A global trade treaty aimed at expanding and liberalising world trade, replaced by the World Trade Organisation in 1995.

Hub Based Exchanges - Companies that tend to supply specific market places such as the motor or aerospace industries. A consortium of companies will set up and run their own market place, customising existing technology to meet their own needs and requirements in ecommerce.

Incoterms - Are international consignment delivery terms. Incoterms embrace many factors including, in particular, insurance, type of transport mode and associated costs, product costs, package costs etc

Inventory - Technically, a list of items held in stock or on the asset register of an organisation. But often used to mean the stock itself.

Job - That work, which is undertaken to meet a customer or production order and which, for production control and purchasing purposes, has a unique identification. (Source: adapted from The official dictionary of purchasing & supply by KH Compton and DA Jessop)

Job Lot (Production) - A relatively small number of specific types of products produced at the same time.

Job Lot (Purchasing) - Goods arranged in separate portions for sale by auction.

Jobbing - The manufacture of customer’s orders by the job usually carried out in small lots or batches and of different product types.

Joint Liability - In contract terms this means that the responsibility for a liability is to be taken by all parties jointly involved in the contract.

Just In Time (JIT) - Originally a concept imported from Japan, based on the idea that only sufficient quantities should be manufactured or be made available to satisfy customers’ immediate needs. Relies for its success on an efficient supply chain.

Kaizen - A Japanese term, much favoured when Japan was the world leader in cutting-edge industrial practices. Translates into English as “continuous improvement”.

Kanban - Another Japanese term, translates literally as “card”. It is the system of record cards that accompany components through the production process. In other words, a signal that triggers deliveries of specific quantities of supplies in a just-in-time system. So when the box of screws is almost empty, an automatic signal goes to the supplier to deliver some more and refill the box.

Keiretsu - A Japanese phenomenon describing a group of companies linked by cross-shareholdings.

Lead Time - Used in many ways. Can mean, for example, the time between the decision to purchase an item and its arrival in stock. But it can also mean the time between the decision to purchase an item and its availability for despatch from the supplier concerned.

Lean - Usually used to describe an approach in which production only takes place in response to immediate demand.

Lien - The right to retain possession of another’s property until the owner pays a debt.

Liquidation - The winding up of the affairs of a business when it ceases trading and appoints a liquidator to set its affairs in order, realise its assets and pay its shareholders.

Logistics - The process of managing both the movement and storage of goods, materials and people from their source to the point of ultimate consumption, and the associated information flows.

Management Information Systems (MIS) - Are information systems typically computer-based, that are used within an organisation.

Material Requirement Planning (MRP) - A planning process to ensure available stock to satisfy demand within a given period.

Material Resource Planning (MRPII) - A process to plan production and establish lead times based on availability of resources.

Monopoly - Market situation in which one or a small number of sellers dominate.

Monopsony - The reverse of a monopoly: many suppliers but only one purchaser.

Maintenance Repair and Operating (MRO) - Products that repair any sort of mechanical or electrical device or products purchased that form part of a routine preventative maintenance plan.

Oligopoly - A state of limited competition when the market, or a large part of it, is cornered by a small number of suppliers and manufacturers who are significant players in their particular sector and who do all they can to maintain their cosy lifestyle by excluding newcomers. Not a good situation for buyers to be in.

On-Line Procurement Systems - Systems that have been designed whereby procurement processes are electronically performed using tech.

On-Line Auctions (Not reverse) - Electronically offering goods or services to the highest bidder. Similar to ‘live’ auctions and another means of offering tenders for quotation to a selected market place

Open Tender - Using open advertisement to invite suppliers to quote for a job (Closed Tender is inviting particular specialists to tender for the job)

Operations, Planning & Control (OPC) - The activities undertaken that ensures that all required resources within an organisation are managed effectively to produce products/services right through to the delivery of the product/service to the customer.

Outsourcing Placing - Core and non-core business activities with external specialists.

Pallet Weeks – A unit Stowga use to quantify demand. Thge calculation is simply the number of pallet spaces required multiplied by the number of weeks required.

Poka-Yoke – The process of fool-proofing a manufacturing process, tools or equipment. A Poka-Yoke device or mechanism makes an operation impossible to perform incorrectly.

Procurement Often - used interchangeably with Purchasing. Procurement is the totality of acquisition starting from the identification of a requirement to the disposal of that requirement at the end of its life. It therefore includes pre-contract activities.

Radio Frequency Identification (RFID) - Is an emerging technology enabler for tracking goods and assets around the world. It promises to enable new efficiencies within the supply chain by tracking good and services from point of manufacture through to retail point of sale (RPOS).

Reverse auctions - The opposite of the usual kind of auction in which potential buyers compete to bid the price up. In a reverse auction, which has come into its own with the Internet, suppliers bid the price down.

Reverse Auction System - Customer wanting particular goods or services enters specification/requirements to system and requests bids from market place. The bid that best meets requirements wins. Also possible for an electronic search of supplier product base.

Reverse logistics - The requirement to plan the flow of surplus or unwanted material or equipment back through the supply chain after meeting customer demand.

RH&D - Receipt, Handling and Dispatch. This is essentially the nandling of goods coming into a warehouse, being put away, then getting ready for dispatch. Warehouse operators quote for the cost of handling of pallets in and pallets out and is usually just bundled up in a RH&D cost. e.g. £2 per pallet per week storage and £2 per pallet RH&D.

Seller’s market - A situation where market forces work to the advantage of the seller, who can dictate price, delivery, quality and so on.

Service Level Agreement - service level agreement is a document which defines the relationship between two parties: the provider and the recipient. This is clearly an extremely important item of documentation for both parties. If used properly it should: Identify and define the customer’s needs Provide a framework for understanding Simplify complex issues Reduce areas of conflict Encourage dialog in the event of disputes Eliminate unrealistic expectations

Services - Usually coupled with goods, as in goods and services. Services are intangible items such as maintenance, marketing or consultancy.

SKU - A stock keeping unit (SKU) is a product and service identification code for a store or product, often portrayed as a machine-readable bar code that helps track the item for inventory. A stock keeping unit (SKU) does not need to be assigned to physical products in inventory.

Supplier, Input, Process, Output, Supplier (SIPOC) - A six sigma technique that helps understanding the ‘as is’ state. SIPOC demonstrates process flows and layout gives the whole picture and makes interdependencies visible.

Sourcing - Activities involving searching markets for sources of goods and services. At the opposite end of the supply chain from marketing. Strategic sourcing is the attempt to make sure everything is being sourced as efficiently as possible.

Specific, Measurable, Achievable, Realistic, Time framed (SMART) - Is a mnemonic used in project management at the project objective setting stage. It is a way of evaluating if the objectives that are being set are appropriate for the individual project.

Standard - An agreed generic specification or a specification intended for recurrent use.

Supplier Relationship Management (SRM) - The process for managing the interaction between two entities – one of which is supplying goods, works or services to the other entity. SRM is a two way process in that it should improve the performance of the buying organisation as well as the supplying organisation and hence be mutually beneficial.

Supply Management - Supply Management is the purchasing, expediting, inventory management, delivery and receipt of goods, and quality control.

Supply Chain & Networks - In essence the supply chain starts with the extraction of raw material (or origination of raw concepts for services) and each organisation within the supply chain adds value to the product or concept in some way as it passes from one organisation to the other. The supply chain extends through to the final sale and delivery to the final customer and through to disposal.

Supply Chain (Networks) Management (SC(N)M) - SCM is the management of all activities aimed at satisfying the end consumer; via the total management of the Supply Chain (Networks) as such it covers almost all activity within the organisation.

Twenty-foot equivalent unit (TEU) - Half the size of an FEU.

Trading Exchanges - Internet sites that allow direct trading between companies, negating the use of intermediaries.

Value Added - Commonly known as ‘added value’. The increase in realisable value resulting from an alteration in form, location or availability of a product or service, excluding the cost of the purchased materials and services. E.g. pick and pack.

Value Added Network (VAN) - Method of exchanging information electronically between subscribers and their trading partners. The users connect to the private network to transmit messages. The VAN acts as a mailbox and also provides a record for audit purposes.

Vendor Rating - Method of monitoring and measuring aspects of supplier’s contractual performance

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