Supply chain jargon can seem confusing. But our easy guide makes it simple to understand supply chain terminology.
Understand supply chain terminology: the guide
Managing the supply chain – the entire coordination, planning and management of all areas related to procurement (from your suppliers and suppliers of your suppliers), purchasing, manufacturing or production and logistics – to deliver this to your customers, what you need.
Six Sigma – To understand supply chain terminology, think of Six Sigma as Tools / Techniques for Process Improvement. Six Sigma wants to improve the quality of each process and its results. Six Sigma tools identify and eliminate the root causes of errors or errors, depending on which process they want to improve, and minimize variability.
Kaizen – Japanese for “good change”. Six Sigma people will put together a Kaizen event to rework a process using Six Sigma processes and a strict, measurable time frame.
Reverse logic – what it takes to control the reuse, renewal or other value creation or disposal of products Reverse logistics is basically the procedure by which you normally ship something to a customer and now either returned or brought to a new destination for another downstream purpose.
How to do supply chain management in a pandemic
OTD – On-time delivery. What you probably don’t have from your suppliers or customers if your supply chain isn’t as tight as a John Elway spiral.
Safety inventory (against reporting stock) – Inventory that you store for emergencies (compared to the time you replenish normal business operations). These terms are often used interchangeably. People also often text while driving, salt their food before trying it, and start world wars.
Supplier agreements (also – framework agreements, quality agreements, scope of work, scope of services, service description,etc.) – imagine them as pre-nups. You don’t want to design any of them yourself, and if everything is floating, you never have to resort to it.
However, if your company pays suppliers for goods and then sends those goods to a customer, you may want someone to process one or more of them for you. Sometimes P.O. Business terms and conditions may also be used instead of one of these agreements. And sometimes the Cubs win a World Series.
3PL – Third-party logistics service provider. A warehouse. Not yours. But one that keeps your inventory for you and sends it to your customers. If you’re Beyoncé, 3PL is iTunes.
VMI or SMI – Inventory managed by the supplier (or supplier). A supplier checks your system or stock and supplies you with supplies when your inventory is low. I think that was invented by the NSA.
PI – Inventory. The process of counting, recording, and matching each part you stock (which you own, own, or sell). Sometimes, when you’re going to a mall, you can see The Gap staff spending their night doing it. Don’t be fooled by the fear in their expression – your PI will be worse. It’s going to be horrible. It will be disappointing and stunning, and no coffee will get you through with a smile on your face.
But you have to do that at some point.
Number of passes -… or simply read on. If you create a plan that counts only a few positions per day or week, but ultimately counts once a year, most banks, accountants, and audit firms can replace an annual PI. This process of counting a prescribed number of items over a regular cycle is called cycle counting. If you work for Harley Davidson, there’s a pun that’s probably getting old pretty quickly.
FGI and WIP and raw material – finished goods stock and goods in progress. Things that are ready to sell and things you want to sell. For Pizza Hut are FGI = pizzas waiting in their boxes. WIP = the one in the oven. Raw materials = dough, tomato sauce, pepperoni, cheese.
Blank order (connected: Kanban PO) – “I don’t know how much to order, so I’m just going to order so much that I’m covered.” Frequently followed by: “Wait, how long am I on the hook? I didn’t know that these general POs had financially committed me to buy all this! How do I cancel the rest of my blank order or Kanban order? “
SRM – Supplier Relationship Management. At best, a win-win partnership that benefits you and your suppliers in a transparent, healthy environment. In the worst case, replace the “R” with an Et sign (“&”) and put on a black leather mask with your mouth closed and without eye holes.
COGS – Cost of the goods sold. How much does it cost? Please, please leave it for less than you sell it. With enough left to pay for things like rent, employees, insurance, etc.
SKU – Storage unit. A part number It’s really that simple, but people get confused about it because it’s one of those acronyms that often sounds like SCUBA and FIFA. When you start hearing “slant” you stop seeing the letters S-K-U and separate the acronym from the meaning “storage unit.” You have SKUs for everything you sell and some of the sub-parts (components) that make up the items you sell.
BOM – BOM. Another acronym you hear when trying to understand supply chain terminology. This is basically the recipe of the thing you sell. When you sell a Chevy, you have a BOM of about 200,000 item numbers that make up the car. If you sell “Smores”, your BOM is: 1 Marshmallow, melted; 2 each, Graham Cracker, 5 each, Hershey’s chocolate bar.
FOB – Cargo on board. One of several acronyms in the Incoterms family. You don’t call FOB a fob, but you say INCO in Incoterms as Ink-Oh (it stands for International Commercial). Incoterms answer the question: “If your company buys something from a supplier, where do you take ownership?” When it leaves the supplier (ex works / EXW)? If the supplier puts it on a truck/ship/aircraft (FOB)? When it arrives at your port or facility (CIF – costs, insurance, freight – or DDP – delivered, duty-paid)?
Or about a dozen other Incoterms. Everyone has their advantages and disadvantages and is, like everything else, negotiable in life, in the business world and in the supply chain.
Sheet-to-floor / floor-to-sheet – back to inventory. As hard as it may be to believe there is more than one way to count your stuff. Sheet-to-floor is when you print an inventory report and then go to counting, using this sheet as a guide. Floor-to-sheet is first placed on the floor and counts what is there, and compares this with what your merchandise management system tells you. This is a complete simplification of counting operations.
Metrics – the data you can use to tell you how you’re doing. On-time delivery, reorders, backlog (yes, there is a difference), scrap etc. Good metrics tell you how you have done it. Great metrics tell you how to do it.
Cross-Docking – Your supplier’s truck appears. You unload the shipment. Instead of putting the delivery in your inventory, bring it “through the dock” into a truck that can be delivered to your customer. Cross-docking saves time and is often used to speed up delivery of customers. However, you must ensure that your inventory accuracy, inventory control, receipt, shipping, and invoice processes are maintained during a cross-docking process.
