Dictionary of Supply Chain Terms

Written by

Eng. Hassan Al Heliel

Second Edition
2023
 INSTRUCTIONS

Global connectivity, supply chains, logistics,

and the ever-increasing pace of global
commerce makes it necessary to have an
understanding of the larger points of Supply
Chain Management (SCM). The
development and implementation of supply
chains to be economical and efficient can
sometimes be impossible if a business does
not have a full understanding of supply chain
management terminology and jargon. Supply
chain workflows are no longer traditional and
have gone through a series of
modernizations. The digital supply chain is
changing the B2B world and making global
sales possible with just a click. These are a
few key terms which are important to know
within the SCM world today.

Dictionary of supply chain terms PAGE 2

Contents
A P.4
B P.13
C P.17
D P.25
E P.29
F P.33
G P.36
H P.38
I P.39
J P.44
K P.45
L P.46
M P.49
N P.55
O P.53
P P.56
Q P.63
R P.64
S P.69
T P.78
U P.81
V P.82
W P.83
X P.85
Y P.86
Z P.87

Dictionary of supply chain terms PAGE 3

A
ABC Analysis. A form of Pareto analysis applied to a group of products to apply 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 three basic
categories are designated A, B and C as follows:

An Items – An item that, according to an ABC classification, belongs to a small group of products that
represents 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 A-products. An item 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, which is paid less management attention.

C Items – A product 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 based on the ABC volume or sales revenue
classification of products (A items are highest volume or revenue, C – or perhaps D – are lowest volume
SKUs.)

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ABC Model. In cost management, a representation of resource costs during a time period that are consumed
through activities and traced to products, services, and customers, or to any other object that creates a demand
for the activity to be performed.

ABC System. In cost management, a system that maintains financial and operating data on an organization’s
resources, activities, drivers, objects and measures. ABC Models are created and maintained within this
system.

Abnormal Demand. Demand in any period that is outside the limits established by management policy. This
demand may come from a new customer or from existing customers whose own demand is increasing or
decreasing. Care must be taken in evaluating the nature of the demand: Is it a volume change, is it a change
in product mix, or is it related to the timing of the order.

Absorption costing. In absorption costing the variable and fixed costs are allocated to all units produced
during the period. In absorption costing, both direct and indirect costs are considered. Different methods are
used to allocate indirect costs or overhead to the products.

Acceptable Quality Level. (AQL): In quality management, when a continuing series of lots is considered,
AQL represents a quality level that, for the purposes of sampling inspection, is the limit of a satisfactory
process average.

Acceptable Sampling Plan. In quality management, a specific plan that indicates the sampling sizes and the
associated acceptance or non-acceptance criteria to be used.

Acceptance Number. In quality management, 1) A number used in acceptance sampling as a cut off at which
the lot will be accepted or rejected. For example, if x or more units are bad within the sample, the lot will be
rejected. 2) The value of the test statistic that divides all possible values into acceptance and rejection regions.

Acceptance Sampling. 1) The process of sampling a portion of goods for inspection rather than examining
the entire lot. The entire lot may be accepted or rejected based on the sample even though the specific units
in the lot are better or worse than the sample. There are two types: attributes sampling and variables sampling.
In attributes sampling, the presence or absence of a characteristic is noted in each of the units inspected. In

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variables sampling, the numerical magnitude of a characteristic is measured and recorded for each inspected
unit; this type of sampling involves reference to a continuous scale of some kind. 2) A method of measuring
random samples of lots or batches of products against predetermined standards.

Accounts Receivable. (A/R): The value of goods shipped or services rendered to a customer on
whom payment has not been received. Usually includes an allowance for bad debts.

Accreditation. Certification by a recognized body of the facilities, capability, objectivity, competence, and
integrity of an agency, service, operational group, or individual to provide the specific service or operation
needed. For example, the Registrar Accreditation Board accredits those organizations that register companies
to the ISO 9000 Series Standards.

Accredited Standards Committee (ASC). A committee of ANSI chartered in 1979 to develop uniform
standards for the electronic interchange of business documents. The committee develops and maintains US
generic standards (X12) for Electronic Data Interchange.

Accumulation Bin. A place, usually a physical location, used to accumulate all components that go into an
assembly before the assembly is sent out to the assembly floor.

Accuracy. In quality management, the degree of freedom from error or the degree of conformity to a
standard. Accuracy is different from precision. For example, four-significant-digit numbers are less precise
than six-significant-digit numbers; however, a properly computed four-significant-digit number might be
more accurate than an improperly computed six-significant-digit number.

Accountability. Being answerable for, but not necessarily personally charged with, doing specific
work. Accountability cannot be delegated, but it can be shared. For example, managers and executives are
accountable for business performance even though they may not actually perform the work.

Accessibility. A carrier’s ability to provide service between an origin and a destination.

Accessorial Charges. A carrier’s charge for accessorial services such as loading, unloading, pickup, and
delivery, or any other charge deemed appropriate.

Dictionary of supply chain terms PAGE 6

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

Auction in procurement. The purchasing department initiates a procurement auction. Competing sellers or
suppliers bid for to be auctioned goods, services, etc. There are several auction methods, including "Japanese"
(reverse), "Dutch" (falling prices), and "English" auction (classic upside auction).

Acquisition cost. Acquisition costs are expenses or costs incurred to acquire an asset and bring it to an
operational state. Incidental acquisition costs include expenses for transport, installation, and assembly.

Activity-based costing (ABC). Activity-based costing aims to plan, control, and allocate overhead costs. The
costs-by-cause principle applies here. After a detailed list of company processes, an exact calculation of each
individual product can be made.

Acknowledgement. A communication by a supplier to advise a purchaser that a purchase order has been
received. It usually implies acceptance of the order by the supplier.

Acquisition Cost. In cost accounting, the cost required to obtain one or more units of an item. It is order
quantity times unit cost.

Active Stock. Goods in active pick locations and ready for order filling.

Advance Shipping Notice (ASN). An Advance Shipping Note pertains to the logistics part of a supply chain.
This document, which is usually sent in an electronic format over the EDI, gives some information about the
pending deliveries.

Activity Analysis. The process of identifying and cataloging activities for detailed understanding and
documentation of their characteristics. An activity analysis is accomplished by means of interviews, group
sessions, questionnaires, observations, and reviews of physical records of work.

Activity-Based Budgeting (ABB). An approach to budgeting where a company uses an understanding of its
activities and driver relationships to quantitatively estimate workload and resource requirements as part of an

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ongoing business plan. Budgets show the types, number of, and cost of resources that activities are expected
to consume based on forecasted workloads. The budget is part of an organization’s activity-based
planning process and can be used in evaluating its success in setting and pursuing strategic goals.

Activity-Based Costing (ABC). A methodology that measures the cost and performance of cost objects,
activities, and resources. Cost objects consume activities and activities consume resources. Resource costs are
assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects
(output) based on the cost objects proportional use of those activities. Activity-based costing incorporates
causal relationships between cost objects and activities and between activities and resources.

Activity-Based Costing Model. In activity-based cost accounting, a model, by time period, of resource
costs created because of activities related to products or services or other items causing the activity to be
carried out.

Activity-Based Costing System. A set of activity-based cost accounting models that collectively defines data
on an organization’s resources, activities, drivers, objects, and measures.

Activity-Based Management (ABM). A discipline focusing on the management of activities within business
processes as the route to continuously improve both the value received by customers and the profit earned in
providing that value. AMB uses activity-based cost information and performance measurements to influence
management action.

Activity-Based Planning (ABP). Activity-based planning (ABP) is an ongoing process to determine activity
and resource requirements (both financial and operational) based on the ongoing demand of products or
services by specific customer needs. Resource requirements are compared to resources available and capacity
issues are identified and managed.

Activity-based budgeting (ABB). is based on the outputs of activity-based planning.

Activity Dictionary. A listing and description of activities that provides a common/standard definition of
activities across the organization. An activity dictionary can include information about an activity and/or its
relationships, such as activity description, business process, function source, whether value added, inputs,
outputs, supplier, customer, output measures, cost drivers, attributes, tasks, and other information as desired
to describe the activity.

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Activity Driver. The best single quantitative measure of the frequency and intensity of the demands placed
on an activity by cost objects or other activities. It’s used to assign activity costs to cost objects or to other
activities.

Activity Level. A description of types of activities depending on the functional area. Product-related
activity levels may include unit, batch, and product levels. Customer-related activity levels may include
customer, market, channel, and project levels.

Activity Ratio. A financial ratio used to determine how an organization’s resources perform relative to the
revenue the resources produce. Activity ratios include inventory turnover, receivables conversion period,
fixed-asset turnover, and return on assets.

Actual Cost System. A cost system that collects costs historically as they are applied to production, and all
production and costs to products based on the specific costs and achieved volume of the products.

Actual Costs. The labor, material, and associated overhead costs that are charged against a job as it moves
through the production process.

Actual Demand. Actual demand is composed of customer orders (and often allocations of items, ingredients,
or raw materials to production or distribution). Actual demand nets against or consumes the forecast,
depending on the rules chosen over a time horizon. For example, actual demand will totally replace forecast
inside the sold-out customer order backlog horizon (often called the demand time fence), but will net against
the forecast outside this horizon based on the chosen forecast consumption rule.

Actual to Theoretical Cycle Time. The ratio of the measured time required to produce a given output divided
by the sum of the time required to produce a given output based on the rated efficiency of the machinery
and labor operations.

Advance Material Request. Ordering materials before the release of the formal product design. This early
release is required because of long lead times.

Advanced Planning and Scheduling (APS). Techniques that deal with analysis and planning of
logistics and manufacturing over the short, intermediate, and long-term time periods. APS describes any
computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation
on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand

Dictionary of supply chain terms PAGE 9

management, and others. These techniques simultaneously consider a range of constraints and business rules
to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise
capabilities. APS often generates and evaluates multiple scenarios. Management then selects one scenario to
use as the official plan. The five main components of an APS system are demand planning, production
planning, production scheduling, distribution planning, and transportation planning.

After-Sale Service: Services provided to the customer after products have been delivered. This can include
repairs, maintenance, and/or telephone support.

After-the-fact purchase order. An after-the-fact purchase order (PO) is used when a requisition and
purchase order is being issued after the transaction has occurred and when the transaction does not fit the
limited requirements of a payment request form.

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 in a way that it can be used to eliminate manual
data entry of each shipment.

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.

Agile procurement. Agile procurement is the ability to react to supply and demand changes in sourcing
activities. Agile procurement often relies on lean-agile workflow methods popularized by just-in-time
productions and software development.

Dictionary of supply chain terms PAGE 10

Agile spending management. Agile spend management is a framework for controlling third party costs in
business using tools, automation, and workflows in an iterative and streamlined way. It achieves this by
accelerating time-to-insights and best practice sharing through a proactive and transparent spend culture,
where manual processes and bottlenecks are removed, and collective buying expertise is leveraged.

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 is to be expected in the future.
Normally used for products in the last phase of their life cycles when production is (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.

Anticipation Stock. Inventory is held 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.

Arbitration. A method that is agreed to in advance by the parties to a contract to resolve a dispute by
submission to one or more neutral third-party arbitrators for a binding judgement; arbitration is normally used
to avoid litigation, i.e., court procedures.

Availability. The primary measure of system performance relates 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.

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Available to Promise (ATP). The uncommitted portion of a company’s inventory and planned production,
maintained in the expert 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.

Assess and select vendors. With a clear list of requirements and an approved purchase request, now is the
time to find the best vendor and submit a request for quote (RFQ) – this is what the purchasing team sends to
potential suppliers to receive a quote – it is important to be as detailed as possible so you can compare apples
to apples. Vendor assessment should focus not only on cost but also on reputation, speed, quality and
reliability. Many companies consider ethics and social responsibility as well, since procurement is often
intertwined with corporate identity. A retailer that prides itself on sustainability would stand to benefit from
partnering with environmentally responsible suppliers, for instance.

Automated broker interface (ABI). The ABI is the primary system for processing trade entries and other
electronic documentation. ABI helps facilitate cargo clearance and cargo movement and serves as a repository
for shipment data.

Approved supplier. An approved supplier is checked by the purchasing managers using various criteria.
Specific (minimum) standards regarding delivery capability, delivery times, quality, service, ESG standards,
and cost commitments must be met to become an approved supplier. Buyers use (web-based) approved
supplier lists (ASL).

Award. The action taken by the buyer, based on the evaluation of offers, to approve the selection of the
supplier for a specific contract.

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B
Balanced scorecard A balanced scorecard is a strategic performance management framework to identify and
improve various functions, including financial and non-financial metrics. A balanced scorecard in
procurement helps managers and teams keep track of activities' execution and the consequences of these
actions.

Barter. A barter deal in which goods or services are exchanged for another good or service. Money does not
flow. Example of a barter deal from the purchasing department of a football club: a beverage supplier provides
a certain amount of drinks for the VIP area during home matches and, in return, receives perimeter advertising.

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 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 into the retailer’s own RDC.

Back Order. Back Order means an order for any good or service which cannot be fulfilled at the time when
it is demanded due to lack of resources such as raw materials, production capacity etc. A critical point to note
here is the fact that back orders can only exist if the customer is willing to wait for the order.

Bar Code. See Linear Bar Code

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 practice is the cause of
best performance. Studying best practices provides the greatest opportunity for gaining a strategic,
operational, and financial advantage.

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Best alternative to a negotiated agreement (BATNA). The best alternative to a negotiated agreement
(BATNA) refers to the best alternative option if no agreement can be reached during the negotiations. Creating
such alternatives beforehand strengthens one's negotiating position and protects against unintentionally
exceeding or falling below an internally defined threshold.

Best and final offer (BAFO). The best and final offer (BAFO) is a technique used in multi-stage negotiation
processes. After bidders have submitted their proposals and the scope of work has been agreed upon, they are
asked to submit a final offer without room for further negotiation.

Best-of-breed. With best-of-breed, buyers choose, in their opinion, the "best" individual software tools to suit
their needs instead of a full-suite solution, a complex application solution from a single manufacturer or
technical service provider. For an alternative approach, see "full suite."

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

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

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.

Best and final offer. A tool that can be used during the final evaluation phase of a procurement using an RFP
when at least two qualified suppliers remain within a competitive range. It is a term that indicates to the
supplier that the buyer does not intend to negotiate after offers are received so the supplier should submit final
pricing and deliverables.

Bid. An offer in response to an Invitation to Bid or an offer in response to an electronic auction.

Dictionary of supply chain terms PAGE 14

Bill of Lading. A shipping document showing the type of goods, their quantity, and the destination address.
It is required whenever goods are transported from one point to another, whether you ship them by land, sea,
or air. This document also acts as a legal receipt of payment and must be signed by all parties who are involved
in the shipment: the seller/shipper, the carrier, and the buyer/receiver (when the goods reach them).

bid security (bid bond). A security from a supplier securing obligations resulting from a contract award with
the intention to avoid: the withdrawal or modification of an offer after the deadline for submission of such
documents; failure to sign the contract or failure to provide the required security for the performance of the
contract after an offer has been accepted; or failure to comply with any other condition precedent to signing
the contract specified in the solicitation documents.

bidder, proposer, offeror. An entity that submits an offer in response to a solicitation. Normally, the term
bidder is used to refer to the entity responding to an ITB, RFQ or an electronic auction; the term proposer is
used to refer to the entity responding to an RFP.

bill of quantities. PPH: A description and a quantitative estimate of all materials, and/or supplies, which will
be required for a proposed construction project or production of equipment (usually custom designed),
provided to bidders for pricing purposes.

blanket purchase order. A special purchase order is typically designed to leverage repetitive requirements
and emergency repairs involving low value goods and services, while reducing the administrative workload.

Bottom line. The bottom line is the last line of a financial statement. In a procurement context, bottom-line
impact refers to results that can be linked directly to financial performance, such as cost savings achieved
within a specific financial period.

Breach of contract. A breach of contract occurs when one party has not fulfilled part of a valid agreement.
This may result in a partial or complete breach of contract. In this case, compensation clauses apply.

Buyer. The individual or personnel designated by an authorized official to undertake all activities necessary
for the procurement of goods, works, or services in accordance with the applicable regulations, rules, policies,
and procedures. The term buyer is also used to denote the UN entity that is a party to the contract.

Dictionary of supply chain terms PAGE 15

Business process outsourcing. Companies outsource certain non-business critical tasks of the secondary
sector to external service providers to focus on their core business. For instance, payroll, accounting, HR,
customer care, IT, and logistics can be outsourced.

Business unit. Companies can run separate business units as independent departments, divisions (or isolated
businesses) within the parent company or group, and sometimes as a profit center.

Business to business (B2B). In a logistics context, B2B refers to the delivery of goods from one business to
another. Distinct from business-to-consumer (B2C), B2B shipments typically involve larger-scale orders and
tend to involve a longer-term working relationship between companies.

Business-to-consumer (B2C). B2C refers to the delivery of goods from a business directly to a consumer.
Unlike B2B shipments, B2C generally involves smaller purchases that happen much more infrequently.

Dictionary of supply chain terms PAGE 16

C
Cad payment terms. is a kind of transaction used in international trade. It can also be described as a
management and payment tool. With a CAD agreement in place, the seller will only release the shipping and
title documents for the exported goods once payment has been received from the importer.

Capacity planning. Capacity planning determines the potential production capacity required to meet
demands. This is most commonly used for short to medium-term planning. It can be used for long-term
planning at strategic levels.

Carnet. A location managed by the customs office or a government body, where you may store taxable goods
and imports subject to duties for business purposes. You only need to pay taxes at the time of removing the
goods from the warehouse. This is particularly useful for retailers who import a lot of goods into the country,
since it allows them to spread out their tax burden by deferring some tax payments to a later time.

Categorization. Categorization is the activity of categorizing items into a pre-defined order.

Category in procurement in procurement, a category is a group of related goods or services with similar
characteristics. Examples of categories are packaging, IT, and transportation. Category management is the
active control of costs and suppliers within strategic categories.

Category management. Category management in procurement is the segmentation of spend into groups of
similar goods or services to identify potential value creation opportunities. The value of category management
often comes from so-called economies of scale, where spending across an organization can be consolidated
into a smaller number of strategic supplier relationships, leading to lower costs and better-quality control. In
larger companies, dedicated Category Managers are domain experts for managing spend in specific strategic
categories.

Dictionary of supply chain terms PAGE 17

Change order Often the requirements of the purchasing department change during the order execution. Minor
quantitative changes can be handled using supplements. In the case of more extensive adjustments, it must be
clarified whether the changes can be controlled via existing contracts or whether a new tender must be issued.

Cash flow statement A cash flow statement is intended to make all company cash flows transparent. This
involves quantifying possibilities and making visible reasons for deviations or changes in liquidity.

Capital expenditure (CAPEX). Capital expenditures (CAPEX) are expenses used to buy, maintain, or
improve fixed assets, such as buildings, vehicles, and land. CAPEX investments often require strategic and
long-term focus from procurement since they obtain high value and risk of failure.

Catalogue. An organized list of goods or services specifying the description, price, unit of measure and other
attributes. A catalogue may be available as a document or in electronic format.

Category A distinct, separate, and manageable group of products that are perceived by consumers to be
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.

Carnet. A legal document that will allow you to temporarily export items to another
country and then reimport them back into the US within a year without paying import duties. This document
is accepted in more than eighty countries and covers most items except consumables (such as food, oils, etc.),
agricultural products, mail, explosives, and disposables (anything that will be discarded following an export
and will not be imported back).

Center of excellence. Companies set up a competence center to drive forward complex projects of great
strategic relevance (e.g., transformation, digitization, innovation) by a team of experts within a specific time
frame. Best practices are developed.

Centralized procurement. Centralized procurement controls the spending of decentralized purchasing units
at all regional and national locations in one department - usually at the company headquarters. Advantages

Dictionary of supply chain terms PAGE 18

include better conditions through volume bundling, targeted utilization of warehouse capacities, reduced
logistics costs, standardized personnel development, and a better overview of suppliers.

Certificate of origin (COO). The certificate of origin (also: proof of origin) is used in international goods
traffic as an official confirmation of the origin of a product.

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 centers, stocked by various
manufacturing points and serving various retailer distribution warehouses. See National distribution centers.

Centralized purchasing. A purchasing system model in which all purchases are managed and handled by a
single team, department, or branch. This means that any employee or team purchase must be submitted,
reviewed, and approved through a single purchasing process.

Chargeable weight. This is the measurement used by freight carriers to determine the price when goods are
shipped. Generally speaking, the chargeable weight is connected to the gross weight of a shipment.

Container yard. A container yard is a place to store cargo before and after sailing. Whether containers are
coming or going, the organization and processing that takes place at a container yard is a key part of the
logistics process.

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

Commodity prices. Commodities are basic resources such as food, energy, and metals that can be exchanged
for goods of the same type. Procurement organizations actively track and leverage commodity price
information to negotiate competitive prices for bought raw materials, goods, or services. Learn more
about commodity price fluctuations.

Competitive bidding. By means of electronic tenders, companies are seeking the cheapest or best provider
for their lots to be awarded. This can be done as an open bid (all offers visible to competitors) or a sealed bid
(usually only one offer by competitors).

Dictionary of supply chain terms PAGE 19

Compliance in procurement. Compliance is acting according to defined rules such as laws or standards. In
procurement, contact compliance measures whether spend is actively managed through agreed contracts with
approved suppliers.

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 Delivery A multi-temperature distribution center. The receipt, storage and handling of products
would typically take place in a variety of on-site chambers, each operating at a specific temperature.

Contract Purchase Orders (CPO). A contract purchase order is an agreement between the purchaser and
vendor whereby the vendor agrees to supply specific products of a certain specification at a stated price. A
CPO usually contains governing payment and delivery terms, which enable the two parties to enter into a
commercial relationship.

collaborative procurement, common procurement. A procurement arrangement in which several UN

organizations combine their efforts to undertake procurement in cooperation or share the outcome of a
procurement process, thereby achieving benefits for the group in its entirety. The objective of collaborative
procurement is to achieve reduced prices or better service through economies of scale and to reduce
inefficiency and duplication across the UN organizations.

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

Contract. In the context of UN procurement, a contract is a written, legally binding agreement between the
organization and a supplier, which establishes the terms and conditions, including the rights and obligations
of the organization and the supplier. A contract may take many different forms, e.g., agreement, purchase
order, memorandum of understanding, letters of assistance.

Dictionary of supply chain terms PAGE 20

Conduct three-way matching. Accounts payable should conduct three-way matching by comparing the
purchase order, order receipt or packing list and invoice. The goal is to ensure the goods or services received
match the purchase order and to prevent payment for unauthorized or inaccurate invoices. Highlight any
discrepancies between the three documents and resolve issues before arranging payment.

Contract administration. All actions undertaken after the award of a contract relating to the administrative
aspects of the contract, such as contract amendment, contract closure, record retention, maintenance of the
contract file, and handling of security instruments (e.g., performance security).

Contract management. The ongoing monitoring and management of the supplier's performance regarding
the promised goods or services, as well as assuring compliance with all other terms and conditions of a
contract, such as price and discounts. It includes managing the relationship between the supplier, the procuring
unit, the requisitioner and/or the end-user, feedback to the supplier regarding its performance, as well as
dispute resolution, if necessary.

Contract modification. Any written change in the terms of the contract. Contract modifications only become
effective when executed by both parties.

Contractor. Any party to a procurement contract with the organization. A contractor may take various forms,
including an individual person, a company (whether privately or publicly held), a partnership or a government
agency.

Cost estimate. An approximate calculation of charges or costs to supply goods or services.

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.

Consignment. This term has more than one meaning. Most often it means the act of placing your goods in
the care of a third-party warehouse owner (known as the consignee) who maintains them for a fee. In addition
to storing the goods, the consignee may sell or ship them to customers on your behalf for a fee. As a separate
meaning, consignments can also refer to individual ship mints made to the consignee.

Dictionary of supply chain terms PAGE 21

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

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

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

Continuity plan. A continuity plan is designed to ensure that a company can maintain its performance even
in the event of a crisis. As part of risk management, strategies and processes are proactively aligned to be able
to react quickly and adequately to the occurrence of damage.

Contract lifecycle management. For procurement teams, contract lifecycle management is the proactive
control of supplier relationships and performance through the strategic use of contracts. To start, digitalized
contracts are stored in one location across the whole organization. With all contracts stored in one place,
central or local procurement teams can refine and standardize contract terms across suppliers, categories, and
business units. Through digitalized contract lifecycle management procurement teams can be notified which
strategic contracts are up for renewal and identify and reduce purchases made outside of agreed contracts.

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

Cost center. The place where costs are incurred, and the service is provided. It refers to areas of responsibility,
spatial, functional, organizational, or allocation factors.

Cost modeling. When modeling costs, a future cost and revenue situation (e.g., for an innovative product to
be developed) can be simulated. Estimates relate, among other things, to material input, machine hours,
personnel costs, and other necessary expense items. The modeling software also generates historical data for
production and project scenarios and potential future pricing.

Dictionary of supply chain terms PAGE 22

Cost of goods sold (COGS). Cost of sales (essential key figure) refers to costs related to the goods and
services produced = Cost of sales in the cost-of-sales method.

Cost reductions. Cost reduction is the process of identifying and removing unnecessary costs by companies
with the goal of improving profitability. Procurement functions in larger companies are typically tasked with
achieving measurable cost savings on third party managed costs.

Competition. Organizations should seek competitive bids from multiple suppliers, unless there are specific
reasons not to do so, such as a sole-source provider where the good or service is only available from a single
vendor.

Credit note. A credit is booked as a positive entry on the account's credit side. This refers to all incoming
payments, bank transfers, or amounts collected from another account by direct debit.

Credit rating. A rating checks the creditworthiness of a company, financial instrument, or even a person.
Rating agencies or credit institutions usually make classifications.

Credit Payment. Credit terms refer to the stipulations for invoice payment at a later date. It is an agreement
between a buyer and seller regarding the payment due date for sales made on credit, otherwise known as
accounts receivable.

competitive bidding. A procurement method in which offers from competing suppliers are invited by open
advertisement and provided with the scope, specifications, and terms and conditions of the proposed contract
as well as the criteria by which the offers will be evaluated. The objectives of competitive bidding are to
obtain goods or services at the lowest cost or best value through open and fair competition.

Consignor and consignee. The individual or company that is shipping the goods is the consignor, while the
entity receiving the goods is the consignee. The consignee can also play the role of the middleman who retains
the goods to pass along to another party or final buyer.

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 RDC. This can entail breaking down the

Dictionary of supply chain terms PAGE 23

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.

Corporate social responsibility (CSR). Corporate social responsibility (CSR) is a management approach
that aims to play a positive role in the surrounding society by considering the environmental and social impact
of business decisions and relationships.

Cost analysis. The cost analysis should show which costs (cost elements) are incurred by which cost centers
(cost units) - and for what the spending is used. Among other things, the following are to be analyzed: direct
costs, overhead costs, variable costs, fixed costs, secondary costs, planned costs, and part costs.

Cost avoidance. Cost avoidance is any action taken to avoid future costs. In procurement, these are often
referred to as "soft savings" because they cannot be measured as "hard savings,” or cost reductions reflected
in financial statements.

CTO. stands for Customized to Order. It is the combination of Make-to-stock and Make to Order. For
example, you want to assemble your computer. You want RAM of 10 GB, internal memory of 1 TB, and a
monitor from a specific company.

Dictionary of supply chain terms PAGE 24

D
Data enrichment. During data refinement, rudimentary data records are corrected, updated, and enriched
with additional information. Departments such as purchasing, sales, and marketing access standardized data
and can thus control more effective communication with suppliers and customers.

Deadhead. A deadhead is a semitruck with an empty trailer. “Deadhead” trips are ideally kept to a minimum
for carriers, as empty trailer trips can be dangerous and result in a loss of money.

Decentralized purchasing. A decentralized purchasing system model in which purchases are made and
managed by various specialized teams, departments, or branches. This means that teams or employees refer
to a variety of departments or teams — depending on their needs — for purchase requests, rather than a single
department.

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

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.

Default. A failure by a contracting party to meet one or more of its obligations under the contract.

Delivery time. The time taken to deliver goods from the date of contract to the time when the supplier makes
the goods available to the buyer at the agreed place as per the delivery terms.

Demand planning. Demand planning is the process of forecasting future demand. This allows the company
to manage its inventory accordingly, so it meets projected demand.

Dictionary of supply chain terms PAGE 25

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 synchronized to meet the demand that it is trying to
fulfill.

Demand management. Demand management is the process of planning and forecasting the demand for
goods or services in a supply chain. Demand management aims to ensure efficient production and predictable
cash flow needs.

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 dependent on the demand for the higher level or parent item.

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.

Digital transformation. Digital transformation in procurement uses digital technologies to change how
procurement operates to meet changing business and supply market requirements. Digital transformation
includes three equally key areas: processes, tools, and organizational culture.

Digitalization. Digitalization in procurement is a sub-area of digital transformation where procurement

information is converted into a digital form that can be processed, analyzed, and shared. An example of
digitalization is the conversion of metadata from paper contracts and documents into digital formats.

Disposal. The process of removing something from a location, typically the removal of scrap, surplus, excess,
obsolete and waste items from an organization's premises.

Direct labor costs. Wages and salaries are considered direct labor costs. In contrast, non-wage labor costs
are indirect labor costs.

Dictionary of supply chain terms PAGE 26

Direct material costs. Direct material costs come from raw materials and components used to create products.
In manufacturing, the management and forecast of direct material costs is a major value driver for
procurement.

Direct Store Delivery (DSD). Delivery by suppliers directly to their customers’ retail outlet, rather than via
the retailers DC.

Direct Procurement. The acquisition of raw materials that are going to be used in producing your finished
product. It could also be the procurement of semi-finished goods or any sort of work in progress that you are
going to finish the assembly on within your own operations. It is whatever your product of services or anything
that is related directly to the production.

Diverse supplier. A diverse supplier is at least 51% owned and managed by an individual or group that is
part of a traditionally underrepresented or underserved group. Common classifications include small-business
enterprises (SBEs), minority-owned enterprises (MBEs), and woman-owned enterprises (WBEs).

Diversity. Diverse procurement encourages companies to include minority-owned, underrepresented

businesses in their supply base. Organizations classify diverse suppliers in several ways.

Distribution. Distribution is a part of logistics. It’s a management system that has a focus on order fulfillment.
This is achieved through a network of distribution channels.

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, expert
warehouse, factory warehouse etc. and become input to the master production schedule.

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

Dictionary of supply chain terms PAGE 27

DSD (Direct Store Delivery). Delivery by suppliers directly to their customers’ retail outlet, rather than via
the retailers DC.

Dunnage. Dunnage is defined as the waste material that can be used for handling, packing as filler materials,
and preventing the goods being transported from damage. These materials can be wastepaper, wood planks
or wedges, waste metal, etc.

Dutch auction. An appropriate auction form when the buyers want to put pressure on bidders: a Dutch
procurement auction starts with a low starting price based on advance information to the bidders. This is
increased by the buyer in time and price intervals. The first supplier to accept the price currently displayed is
awarded the contract.

Distributions Requirements Planning (DRP). Distributions Requirements Planning is the method used by
supply chain entities to plan orders in the whole supply chain considering the inventories to be kept along
with buffer or safety stock, placing the orders with the manufacturer to replenish inventories to meet customer
orders, etc.

Demurrage. Demurrage is a kind of liquidated damages which are paid for extra usage of a vessel (ship).
When the person who charters the ship exceeds the possession period for the ship agreed in the contract, he
must pay the ship owner for the extra usage.

EDI. A situation where one of your vendors ships goods directly to your customers, on your behalf. Here, the
customer will not know your vendor and will be making all payments to you, while you will be paying your
vendor and still making a profit. This is useful for selling slow-moving items with a long product life, without
bearing the burden of storage and maintenance yourself.

Dynamic discounting. Dynamic discounting is a service for a buyer. Both buyer and the seller determine
discounts automatically applied in case of timely payment. Buyers can flexibly decide from case to case which
invoice they want to release for timely payment.

Dictionary of supply chain terms PAGE 28

E
E Auction. Online auctions are used to negotiate and determine market prices for given objects based on
individual price limits set by the participants. The purchasing department can use the following types of
auctions: English auction (also: open or "descending-bid auction"; here, the bids of the suppliers are
successively lowered starting from a high starting price), Dutch auction (also: "Ascending-bid auction; begins
with a very low starting price, which is successively increased until the first supplier accepts the bid), First-
price sealed-bid auction (a one-off sealed-bid auction in which the bids are submitted once and the supplier
with the lowest bid is awarded the contract), Japanese auction (the bid falls from the starting price at certain
intervals until only one supplier is prepared to deliver for the price offered).

Economic Order Interval (EOI). In fixed order interval systems, the interval between orders will minimize
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.

Efficiency. Procurement processes must be carried out efficiently to help maximize value and avoid delays.

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

Economic Order Quantity (EOQ). In fixed order quantity systems, the size of an order minimizes 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.

Dictionary of supply chain terms PAGE 29

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.

Electronic Commerce (E Commerce). 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.

Enterprise Requirement 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.

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

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.

Efficient Frontier. Efficient frontier is a concept in operations that states that a company is ‘efficient’ if it
has the highest perceived value for a given cost to deliver the value of the company. Thus, it indicates the
operational efficiency of the company considering whether the company is a low-cost provider or a high-cost
provider and how it should position itself as per their strategy.

Economic Order Quantity (EOQ). Economic order quantity (EOQ) is the quantity of a product that should
be ordered so as to minimize the total cost that includes ordering costs and inventory holding costs e.g.
EOQ= √((2* Annual Demand*Co)/Ci ) where, Co = fixed cost per order or the ordering cost Ci= Inventory
holding cost per unit.

Dictionary of supply chain terms PAGE 30

EDI: Electronic Data Interface is a method of transferring transactions from one computer system to another,
by converting the data into a standard that can be easily read by all systems. It is generally used in places
where the exchange of information between two or more parties happens on paper. It could be used in cases
where printed copies of invoices or orders are sent by a seller to a third party logistics provider for fulfilment.

e-procurement. Electronic procurement occurs when the activities of the purchasing process are conducted
electronically, typically over the Internet, to shorten the cycle time and lower the transaction costs of the
acquisition process.

Enterprise resource planning (ERP). When planning business processes, areas such as material, IT,
personnel, and necessary operating resources are managed, planned, and administered according to
requirements. Business applications and operating data are stored or processed in a central database, an ERP
system.

Equity. The equity capital of a company (positive difference between assets and liabilities) is available to the
company or the owner or shareholder as net assets.

Escalation clause. Purchasing and suppliers can define an escalation clause (as an annex to contracts). To be
able to clearly define rights and obligations in the event of an escalation, it is important to clearly name all
conflicts that could arise from the main contract. The clause should also describe the procedure and sequence
(escalation level).

e-sourcing. E-sourcing supports the web-based handling of strategic steps, such as supplier identification,
negotiations, auctions, awarding of contracts, and the conclusion of contracts, finding the right supplier. See
also "Sourcing".

e-tendering. In e-tendering, buyers from companies and public institutions (here: e-tendering) tender their
requirements or lots on the market in electronic form. Suppliers submit bids within a previously defined
period. Both sides save time and effort. The purchasing department hopes to get the best price or supplier.
The exchange of information is (system-supported) paperless.

Dictionary of supply chain terms PAGE 31

Exchange rate. The exchange rate (also: foreign exchange rate) regulates the price of exchanging a domestic
currency for a foreign one (and vice versa; nominal exchange rate).
Exigency. An exceptional, compelling, emergent need or situation of force majeure not resulting from poor
planning or management or from concerns over the availability of funds, which will lead to considerable
damage, loss or injury to property or persons, if not addressed immediately.

Expedite. In expediting, experts (expeditors in purchasing and project management) ensure quality and
punctual delivery of goods, components, and products. Required goods must arrive at the agreed time and
place and specified quality.

Exposure. Another word for risk in finance. Investors are exposed to volatilities in interest rates, exchange
rates, or ratings. A default of a bank is also a (high) exposure.

External stakeholders. External stakeholders do not belong to the company but are affected by its strategies
and actions. These include suppliers, customers, creditors, and investors.

Expression of interest. A response to a Request for Expression of Interest expressing interest in participating
in a Solicitation.

Dictionary of supply chain terms PAGE 32

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 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.

Fairness. Procurement should not provide preferential treatment to individuals or suppliers. All bids should
be assessed objectively, based on how well they meet the organization’s needs.

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.

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.

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-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.

Dictionary of supply chain terms PAGE 33

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 assets. Existing and physically tangible material goods, such as machinery and equipment, land and
buildings, office and factory equipment, IT systems, and software. For comparison, intangible fixed assets:
distribution rights, licenses, patents that lack physical existence.

Freight forwarder. A freight forwarder is a company acting as an intermediary between the original
company making the shipment and the destination for goods. Generally, freight forwarders buy large
quantities of space on ocean carriers at a discount price and then handle all the processing of documents to
help make the shipping process run smoothly.

Force majeure. A contract provision under which major (and usually uncontrollable) events may excuse a
party, in whole or in part, from the performance of its contractual obligations, e.g., fire, war, or severe weather.
This is a standard clause in contracts of the organizations of the United Nations Common System.

Forecasting. Forecasting in a supply chain can relate to the demand, supply, or price of products or services.
Algorithms are used to make predictions based on industry data.

Forward Buying. It is a process related to retail inventories, wherein they are purchased in quantity excess
to demand. This is practiced by retailers when they find manufacturers selling the product at a discounted
price and purchase the items bulk. Now when the price of the product is set to the original price by the
manufacturer, retailer can make profit by selling the item purchased at low price earlier. This is used when
manufacturers are overstocked, and they want to clear the inventory. They give discounts to the retailer and
retailer also get benefited by getting better profit margins.

Freight All Kinds (FAK). The FAK classification allows commodities of different freight classes to be
shipped in a single group. This broad classification is useful because it allows higher-class commodities to
travel with other goods at a lower cost.

Flow Through. It is a logistic system where items are sequenced in accordance with the stage; they must
move through the system in proper sequence so that they can be used in the assembly line or the warehouse
without hampering the flow of the system. This helps with excellent warehouse management and an optimum

Dictionary of supply chain terms PAGE 34

level of inventory in the system as the item is not stored i.e., consumed, or distributed within 24 hours within
a production or warehouse facility.
Fixed price. A contract term which indicates that the price is set at a certain amount and is not subject to
change unless the purchaser requests a change in specifications, delivery, or term. A purchaser's request for a
change to specifications, delivery or terms in a fixed price contract would only occur in response to an
unexpected change in specifications or a critical circumstance that would impact the supplier's ability to fulfill
the contract in accordance with the original terms.

Dictionary of supply chain terms PAGE 35

G
General Agreement on Tariffs and Trade (GATT). GATT is a post-WWII trade agreement that helped
reduce trade barriers and tariffs between countries. To this day, GATT continues to have a major impact on
how logistics is conducted by keeping the average tariff rate between participating countries around 5 percent.

Green procurement. In green procurement (also: sustainable procurement, environmentally friendly, or

ecological procurement), products, materials, goods, and services are assessed from the point of view of
environmental compatibility. The contracting authorities provide binding framework conditions.

Group purchasing organization (GPO). As the organizational unit of a corporate group, the purchasing
organization is responsible for all purchasing processes in the company, negotiates procurement, and develops
strategies.

General conditions of contract. The General Conditions of Contract (sometimes referred to as general terms
and conditions') are a set of standard contractual provisions which are incorporated into every commercial
contract that the UN, including its Funds and Programs, concludes. The General Conditions cover a range of
issues, including the contractor’s status vis-à-vis the Organization, the use of sub-contractors, indemnification,
intellectual property rights, use of the name, emblem or seal of the United Nations, termination and events of
force majeure, dispute settlement, privileges and immunities, standards of conduct, and amendments.

Global compact. The voluntary international corporate citizenship network initiated by the UN to support
the participation of both the private sector and other social actors to advance responsible corporate citizenship
and universal social and environmental principles to meet the challenges of globalization. It is based on ten
principles related to human rights, labor, environment, and anti-corruption.

Dictionary of supply chain terms PAGE 36

Global sourcing. Within the company, global procurement can be understood as purchasing on international
markets (e.g., in low-wage countries) or as more complex strategic actions in other countries (on global
procurement markets, cooperation with suppliers).
Guarantee. The manufacturer's guarantee means its direct contractual obligation to provide a warranty to the
buyer, purchaser, or end user. See also "warranty."

Groupage. This is a method of grouping multiple shipments from different sellers (each with its own bill of
lading) inside a single container. This is done when individual shipments are less than the container load or
in other words are not big enough by themselves to fill up an entire container. This way, the freight cost is
split between these sellers.

Goods. Objects of every kind and description including raw materials, products and equipment and objects
in solid, liquid, or gaseous form, and electricity, as well as services incidental to the supply of the goods if the
value of those incidental services does not exceed that of the goods themselves.

Goods procurement. largely refers to the procurement of physical items, but it can also include items like
software subscriptions. Effective goods procurement generally relies on good supply chain management
practices. It may include both direct and indirect procurement.

Guarantee. A promise or a pledge, i.e., something given or existing as security such as to fulfil a future
engagement or a subsequent condition (e.g., bank guarantee). It can also be a provision in a contract by which
one person promises to pay the obligation of another person in case that person fails to pay debts or perform
a specific duty.

GRN. Goods Receipt. An entry made into the SAP system by a Commonwealth employee to record the
receipt of goods or services by a supplier.

Dictionary of supply chain terms PAGE 37

H
Harmonization. Harmonization means, for example, that numbers are unified using a newly defined method.
For example, by implementing a software solution for Spend Analysis, all data available throughout the
company can be consolidated, validated, and presented transparently and in a user-friendly way. Different
supplier number ranges and commodity group systems are harmonized and referenced.

HS Code. The Harmonized Set of Codes is a system of internationally accepted codes that help businesses
and government bodies identify items while buying or selling them globally. These codes normally range
from 4 to 10 digits, depending on where they are used.

Hitchment. This refers to the process of combining two or more shipments into a single shipment that is
recognized by a single bill of lading, even if they did not originate from the same point. This can be done only
if two conditions are met:

• All the individual shipments have the same sender and receiver.
• Shipping tariff authorities approve it.

Dictionary of supply chain terms PAGE 38

I
Integrity. Those who practice public procurement should always strive to be perceived as trustworthy,
reliable, honest and responsible. Funds must be used for their intended purpose and in the public interest.

Intermodal transport. Intermodal transport is a term that refers to moving freight by using multiple forms
of transportation (ships, railways, planes, etc.).

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.

Incoterms. Incoterms rules are standardized and widely-recognized trade terms, prepared by the International
Chamber of Commerce (ICC), to be included in contracts for the sale of goods, providing standard contractual
provisions that clarify the costs, risks and responsibilities of the parties to the contract, particularly in relation
to the shipment and delivery of the goods from sellers to buyers. Refer to the ICC website (www.iccwbo.org)
for information about these terms and their definitions which are copyrighted by the ICC.

Inco Terms. These are internationally accepted commercial terms defining the respective roles of the buyer
and seller in the arrangement of transportation and other responsibilities and clarify when the ownership of
the merchandise takes place. They are used in conjunction with a sales agreement or other method of
transacting the sale.

EXW – Ex Works — Title and risk pass to buyer including payment of all transportation and insurance cost
from the seller’s door. Used for any mode of transportation.

Dictionary of supply chain terms PAGE 39

FCA – Free Carrier — Title and risk pass to buyer including transportation and insurance cost when the seller
delivers goods cleared for export to the carrier. Seller is obligated to load the goods on the Buyer’s collecting
vehicle; it is the Buyer’s obligation to receive the Seller’s arriving vehicle unloaded.
FAS – Free Alongside Ship –Title and risk pass to buyer including payment of all transportation and insurance
cost once delivered alongside ship by the seller. Used for sea or inland waterway transportation. The export
clearance obligation rests with the seller.
FOB – Free on Board and risk pass to buyer including payment of all transportation and insurance cost once
delivered on board the ship by the seller. Used for sea or inland waterway transportation.
CFR – Cost and Freight — Title, risk and insurance cost pass to buyer when delivered on board the ship by
seller who pays the transportation cost to the destination port. Used for sea or inland waterway transportation.
CIF – Cost, Insurance and Freight — Title and risk pass to buyer when delivered on board the ship by seller
who pays transportation and insurance cost to destination port. Used for sea or inland waterway transportation.
CPT – Carriage Paid To — Title, risk and insurance cost pass to buyer when delivered to carrier by seller who
pays transportation cost to destination. Used for any mode of transportation.
CIP – Carriage and Insurance Paid To –Title and risk pass to buyer when delivered to carrier by seller who
pays transportation and insurance cost to destination. Used for any mode of transportation.
DAF – Delivered at Frontier — Title, risk and responsibility for import clearance pass to buyer when delivered
to named border point by seller. Used for any mode of transportation.
DES – Delivered Ex Ship — Title, risk, responsibility for vessel discharge and import clearance pass to buyer
when seller delivers goods on board the ship to destination port. Used for sea or inland waterway
transportation.
DEQ – Delivered Ex Quay (Duty Paid) — Title and risk pass to buyer when delivered on board the ship at
the destination points by the seller who delivers goods on dock at destination point cleared for import. Used
for sea or inland waterway transportation.
DDU – Delivered Duty Unpaid — Title, risk and responsibility of import clearance pass to buyer when seller
delivers goods to named destination point. Used for any mode of transportation. The buyer is obligated for
import clearance. DDU – Delivered Duty Unpaid — Seller fulfills his obligation when goods have been made
available at the named place in the country of importation.
DDP – Delivered Duty Paid — Title and risk pass to buyer when seller delivers goods to named destination
point cleared for import. Used for any mode of transportation.
Note: EXW, CPT, CIP, DAF, DDU and DDP are commonly used for any mode of transportation.
FAS, FOB, CFR, CIF, DES, and DEQ are used for sea and inland waterway.

Dictionary of supply chain terms PAGE 40

Index pricing. Index-based pricing is a mechanism for price determination for buyers and suppliers. Index
pricing is used for example to act more securely in volatile markets, protect margins, and hedge longer
contracts transparently.

Indirect Procurement. Is when you acquire things like office supplies, something that is not going to be
critical or related to your end good or material, but it is something that is essential to running your business.

Integrated Business Planning is a planning process that integrates across two or more functions in a business
or government entity referred to as an enterprise to maximize financial value. The specific functional areas in
a company as well as the industry domain associated with the company define the specific type of IBP process.
The key requirement for IBP is that two or more functional process areas must be involved and maximizing
(optimizing) 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.

Intellectual property. Creations or inventions of the mind, including, but not limited to, copyright (such as
designs, artwork, software, data, original text, maps), trademarks (such as symbols and names) and patents
(such as drug formulations, hardware).

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.

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 part.

Inventory. A term used to describe:

all the goods and materials held by an organization for future sale or use a list of items held in stock.

Dictionary of supply chain terms PAGE 41

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. Inventory management is the process of planning, organizing, and controlling the
flow of goods and materials in and out of a company’s inventory. It involves monitoring and tracking
inventory levels, forecasting demand, and ensuring that the right products are available in the right quantities,
at the right time. Inventory management techniques and strategies include just-in-time inventory, economic
order quantity models, safety stock levels, and inventory turnover analysis. Inventory management can also
be supported by software such as the GRID, which provides enhanced visibility into inventory levels across
a supply chain. Largely, effective inventory management can improve operational efficiency, reduce costs,
and enhance customer satisfaction, leading to increased profitability for a company.

Invitation to bid. A formal method of solicitation where prospective suppliers are requested to submit a bid
for the provision of goods or services. Normally used when the requirements are clearly and completely
specified and the basis for the award is lowest cost.

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. 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 must hand,
committed (allocated) to work in process, and on order.

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

Inventory Usage. The value of the number of units, or quantity, of an inventory item (stock usage) consumed
over a period. Inventory Value. The value of inventory at either cost or market value. The value of the
inventory is usually computed on a First in First Out (FIFO) or Last in First Out (LIFO) or average cost basis.

Dictionary of supply chain terms PAGE 42

Invoice. Supplier's demand for payment setting out the amount for payment by the buyer in respect of goods
delivered or services rendered.

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

Issues based supply chain development. This is an approach that is used to first assess the problems, issues
and root causes in a supply chain and then uses the root causes to understand the strategic gaps in the supply
chain.

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

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

Item. See Stock Keeping Unit (SKU)

IMDG codes. The International Maritime Dangerous Goods code was adopted under the 1960 SOLAS
(Safety of Life at Sea) convention. It provides guidelines for safe handling of flammable, explosive, corrosive
or radioactive materials and helps prevent incidents of hazardous accidents and pollution that can occur during
transportation of these goods.

Dictionary of supply chain terms PAGE 43

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.

JIT 2. JIT II is like JIT with a difference in that SUPPLIER-CUSTOMER relations are further strengthened.
There is a representative of the supplier present with the customer who is present on site and keeps a check
on the demand of the customer. This in-plant representative is authorized to purchase material for the
customer.

Dictionary of supply chain terms PAGE 44

K
Knocked Down. An item that is dismantled into two or more parts to facilitate easier transportation. These
parts will then be put together before delivery.

Dictionary of supply chain terms PAGE 45

L
Lead time. The time that elapses from placement of an order until receipt of the order for goods, services or
works, including time for order transmittal, processing, preparation, and shipping.

Lean procurement. A purchasing organization designed according to lean principles; includes strategy,
processes, organization, and employees. The goals of lean procurement are finding and implementing best
practices, automated workflows, eliminating duplication of work and non-value-adding activities, avoiding
waste, etc.

Less-than truckload (LTL). LTL is a common logistics term that refers to shipping relatively small loads
or quantities of freight. For businesses looking to ship small items, LTL services can be a key part of saving
money.

Letter of credit. The letter of credit is a contractual obligation of a bank to make a payment on behalf of the
customer.

LC. is the written document from the buyer to a foreign bank to pay the exporter a sum of money when certain
conditions are met. On the other hand, TT is made when the foreign buyer is ready to pay for products
received.

Licensing. Granting or obtaining permission to produce or use something that another company or person has
created or produced and holds the rights.

Letter of intent. A pre-contractual document, usually in the form of a letter and sometimes signed by both
parties, is used to express expectation of contract formation in the future and to ensure that certain basic
agreements are clearly understood by both parties. When properly drafted, the LOI should create no binding
obligation to either party.

Dictionary of supply chain terms PAGE 46

Liability. Any obligation incurred because of law, rule, or agreement; being legally obliged and responsible;
a debt or an obligation to another party.

Life cycle cost, whole life cost, total cost of ownership. The sum of all recurring and one-time (non-
recurring) costs over the full life span or specified period of a good, service, structure, or system. It includes
purchase price, installation cost, operating costs, maintenance, and upgrade costs and remaining residual or
salvage value at the end of ownership or its useful life.

liquidated damages. A sum agreed upon during the formation of a contract which will be paid by the
breaching party in the event of a defined breach of contract (such as non-performance or delay in delivery).
The amount of Liquidated Damages must be arrived at in good faith and must be based on an estimate of the
actual damage that will arise from the breach.

Linear pricing. Same price for each unit of the product. Opposite of non-linear pricing structure, where the
prices are based on the number of product units demanded, e.g., discount from 20th unit onwards. See "non-
linear pricing."

List price. Catalog price, target price.

Load tender. Load tendering is the process of offering cargo to multiple carriers in order to find the best
price. This process is key because it allows shipping companies to explore offers while still retaining the
ability to accept or reject the service.

Logistics. The process of planning, implementing, and controlling the efficient, cost-effective flow and
storage of goods and related information from point of origin to point of consumption for the purpose of
conforming to customer requirements.

Long term agreement. A written agreement between an organization of the United Nations system and a
supplier that is established for a defined period for specific goods or services at prescribed prices or pricing
provisions and with no legal obligation to order any minimum or maximum quantity.

Dictionary of supply chain terms PAGE 47

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

Logistics. The time-related positioning of resources to meet user requirements.

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.

Line-Item Fill Rate (LIFR). Line-item fill rate is a measure of the ratio of the actual orders filled in terms
of parallel arrangements or lines example: Line-item fill rate= Number of lines where order is filled/ Total
number of lines i.e. (3/5) * 100 = 60 %.

Landed Cost. The total cost of ownership of an item. This includes the cost price, shipping charges, custom
duties, taxes, and any other charges that were borne by the buyer.

LIFO. Last in, first out is a method of cost lot tracking where your most recent purchases are sold first. It
works exactly opposite to FIFO.

Long tail spends. This expenditure area is not strategically managed; there is usually no contractual
framework agreement for orders, mostly C-materials and C-articles.

Dictionary of supply chain terms PAGE 48

M
Material Requirements Planning (MRP I). A system to support manufacturing and fabrication
organizations 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 three key inputs are the master production schedule, inventory status records and
product structure records.

Maintenance, Repair and Operations (MRO). MRO (maintenance, repair, and operations) goods refer to
"indirect needs" of production in an industrial company. In contrast to the production material, these
commodities are not substantially included in the products. They are maintenance materials, spare parts, tools,
operating supplies, office supplies, etc. The clever influence of this special cost category still holds
considerable potential in many companies (for example, through standardization).

Master service agreement. The framework agreement lists rights and obligations and other regulations, such
as terms of delivery and payment, which apply to all individual contracts in the future.

Market research. The process of collecting and analyzing information about capabilities within the market
to satisfy the organization's needs, to identify suppliers, assist in the development of specifications, TORs,
and SOWs, ascertain pricing information, and obtain information on available technology.

Maverick buying. Buying goods or services 'off contract', i.e., without using contracts that have been put in
place for the respective goods or services.

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

Dictionary of supply chain terms PAGE 49

together: business planning, expert (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).

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.

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.

Materials Management. The planning, organization, and control of all aspects of inventory embracing
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.

memorandum of understanding. As used within the UN System, a Memorandum of Understanding is either

(i) an informal agreement outlining the parties' expectations, commitment, and longer-term goals in broader
rather than specific terms or (ii) a legally binding contract, generally used when the contracting party is a non-
commercial entity. The language of the MoU may determine whether it is legally binding on either party.

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

Minimum order quantity (MOQ). Order specification of the supplier in quantity or price (expressed in units
per SKU). The MOQ of a supplier is sometimes based on MOQ conditions of their sub-suppliers: Especially
in China, some suppliers rely on high MOQs because they often have lower profit margins.

Dictionary of supply chain terms PAGE 50

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.

Milk Run. Milk run term derived from the method used by the trucks to deliver the daily requirements of
milk to the dairy co-operatives. A milk run ensures that that minimum distance is travelled, and the maximum
demand is carried into the truck to meet both the demand requirement and effective transportation with least
cost. This is applied where the load is scattered in many different places and in smaller units.

MTO. MTO stands for Make To Order. Manufacturing launches only once a customer’s order is accepted
and received in this supply chain. When there is a demand, for example. This is also identified as “Pull-type
supply chain procedures” because manufacturing is performed when demand is confirmed. For example, if
you have shaft manufacturing, you will start the manufacturing process only after receiving the customer’s
order. This is called Make to Order.

MTS. MTS stands for Make To Stock. Make-to-stock is the supply chain where products are manufactured
based on demand forecasts. Because precise predictions can reduce superfluous inventory and opportunity
demise due to stock outs, the challenge here is determining how to forecast demand accurately. Most
companies rely on the dedicated supply chain planning software to precisely evaluate demand and improve
multi-echelon inventory.

Dictionary of supply chain terms PAGE 51

N
Nearshoring. Relocation of operational work processes to nearby foreign countries. For instance, German,
Austrian and Swiss companies, might nearshore for example, IT projects to Poland or Romania.

Net amount. An adjusted part of a larger whole (gross). Examples of a net amount are net weight (total weight
of the goods without packaging) and net price (excluding applicable taxes).

Non-linear pricing. Quantity-based price differentiation. It means that the price per unit of a product does
not vary proportionally with increased quantity. For an alternative approach, see "linear pricing."

Negotiation. In a procurement context, negotiation is a process of arriving at an agreement on the. conditions

of a contract, through discussions between buyer and seller: Negotiation is a bargaining process between two
or more parties, each with its own viewpoints.

Net present value. Compares the value of a dollar today to the value of that same dollar in the future, taking
inflation and returns into account. If the NPV of a prospective project is positive, the investment adds value,
and it may be accepted. If it is negative, the project should be rejected.

Dictionary of supply chain terms PAGE 52

O
Obsolete Stock. Stock is held within an organization where there is no longer any organizational 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.

Offer, tender, submission. A generic term for bids, quotations, and proposals, received from a Supplier in
response to Solicitation Documents.

Onboarding (suppliers). Connection or integration of suppliers into their own electronic or automated
processes and systems for cross-interface (multi-level) exchange of data and information.

Option. A unilateral right in a contract, by means of which, for a specified time, the buyer may elect to
exercise a right such as to purchase additional supplies or services called for in the contract, or to extend the
term of the contract.

Off Shoring. 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.

Open-book contract. Buyers can gain insights into their suppliers' books and see their cost structure and
calculations, which should strengthen their partnership. Example calculation: The supplier offers "company
x" the items based on the respective net purchase prices ("base price") plus a fixed markup to cover all costs
and the company's profit (= "open book markup"). For this purpose, the purchasing department is provided
with a cost price list of the entire assortments available on the production launch date. In addition, the
purchaser and vendor agree on one or more markup rates (based on the supplier's contribution margin

Dictionary of supply chain terms PAGE 53

calculation). No further action is required if the markup rates correspond to the agreement. If there are
deviations, a correction must be made as a reimbursement (period to be determined).

Outsourcing. The process of contracting out a business process, which an organization may have previously
performed internally or which the organization deems necessary or important, to an independent company,
supplier, or contractor where the process is purchased as a service.

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

Operational level agreement. Intra-organizational, non-contractual agreement to secure a higher-value

agreement with third parties.

Original equipment manufacturer (OEM). An original equipment manufacturer (OEM) manufactures

components or products but does not sell them to the retail market. Instead, an OEM delivers its original parts
to its customers for further processing. However, there are exceptions, such as in the automotive industry,
where manufacturers such as Daimler, BMW, and Tesla are referred to as OEMs.

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 Picking. Collecting items from a storage location to satisfy a shop or customer 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 to cash. (O2C). A structured workflow for the management and completion of customer orders. The
O2C process often takes the form of a cycle as relationships form with customers who make repeated orders.
The cycle begins when the order is sent and ends when payment is received. While the procure to pay (P2P)
model includes all the business processes related to procurement from suppliers, the O2C method consists of
all business processes involved in a sale.

Dictionary of supply chain terms PAGE 54

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

Order Fill Rate. Order fill rate, also known as demand satisfaction rate, is a Percentage of consumption
orders satisfied from stock available at a moment. It is a measure of an inventory’s ability to meet demand.
One needs to keep this order rate as high as possible to avoid delays in production or delivery of the final
product.

Dictionary of supply chain terms PAGE 55

P
Payment terms. Payment Terms are a fundamental part of any Procurement or Purchasing documents. They
establish price, or the exact amount that a business has agreed to pay for a specified product or service in the
requirement. They also specify when payment is due, most often expressed as a net number of days, such as
Net 30 or Net 45.

P-card. Purchasing card or company debit card that buyers and other authorized persons use to order goods
and services directly and independently from pre-defined suppliers. A third-party act as an authorization point
for orders, e.g., Lufthansa Air Plus, VISA, Dresdner Bank.

Procure to pay (P2P). A structured workflow that involves receiving goods or services and issuing
payments. Procure-to-pay is a part of the larger procurement process, connecting the purchasing and accounts
payable (AP) processes, and directly influences a company’s financial projections and quarterly financial
statements. P2P controls costs by reducing manual and repetitive work, simplifying three-way-matching,
increasing accuracy, and improving efficiency.

Procurement Life Cycle. Organizations commonly think of steps in the procurement process as a life cycle.
This perspective provides a reminder that all the tasks and stages in the procurement process overlap and rely
on each other and that the process is continuous. A carefully thought-out procurement life cycle also
recognizes the integration between the process and the business as a whole, including the need to align with
existing company rules and procedures covering areas such as budgeting. The process is not always linear,
and sometimes adjustments need to be made to account for a dynamic digital supply chain with shifting
suppliers, availabilities and costs.

Payable Accounts. A company's liabilities (accounts payable) are what it owes to suppliers and service
providers (vendors) for deliveries or services already performed. Subareas of accounts payable are, for
example, also document processing, invoice verification, and posting procedures.

Dictionary of supply chain terms PAGE 56

Payable Accounts automation. By using automated accounts payable (AP automation), companies can
manage vendor invoices step-by-step in a digital workflow with no manual work.

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,
most 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.

Procurement system. There are competitive solutions or complex full-suite solutions that automate several
process steps. See "competitive" and "full suite." Examples of application fields or tool categories: Plan-to-
Strategy, Source-to-Contract, Requisition-to-Pay (R2P) or Procure-to-Pay2, Category-specific tools, Supplier
Management (SRM), Quality Management, Spend Analysis/Controlling.

Procurement value levels. The cost levels of purchasing are manifold - they are all aimed at influencing a
company’s spending or reducing total costs. In Kearney's "Purchasing Chessboard" there are sixteen distinct
levels (and sixty-four methods) listed, including innovation breakthrough, value chain management, cost
partnership, risk management, volume bundling and target pricing.

Production planning. Production planning relates to the manufacturing process. It considers targets and the
resources required to meet these.

Procure-to-invoice (P2I). Procure-to-invoice (P2I) is a sub-area of the procure-to-pay process - with

purchase requisition, order confirmation, entry of goods receipt, invoice entry, invoice verification and
release.

Dictionary of supply chain terms PAGE 57

Procure-to-pay (P2P). Procure-to-pay (P2P) is a set of processes used in larger organizations to request and
pay for goods or services. P2P integrates procurement operations with financial processes, such as accounts
payable to ensure costs are controlled and aligned with accounting reporting practices. See also "procure-to-
invoice".

Proof of concept. The principal feasibility of a project should be demonstrated in the appendix to an initial
project by evaluating the idea on a smaller scale. Building on the experiences from proof of concept, a decision
is made on the further progress of the project.

PADAG. Please authorize my delivery against guarantee” is a document that mainly applies to consignments
where a consignee is unable to produce relevant shipping documents (such as the bill of lading) to the
shipper. The shipper instead receives a personal or bank guarantee from the consignee in exchange for
releasing the goods in their custody.

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

Performance security (performance bond). A financial instrument that is intended to provide the UN with
security against failure by a supplier to perform its obligations and serves as a source of compensation for a
supplier's failure to fulfil the terms of a contract.

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.

Dictionary of supply chain terms PAGE 58

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 which are currently being moved from one location to another.

Primary Freight (Strategy). An initiative driven by retailers to drive out transportation costs and to improve
efficiency within the primary segment of the supply chain. The retailer 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 center (DC) to the customer’s DC. See also secondary transport.

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 constant over time and that it is possible to state the probability distribution of the demand, particularly
during the lead time for replenishment.

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.

Procurement. The acquisition through purchase or lease of real property, goods, or other products (including
intellectual property), works or services.

Procurement automation. The use of software to carry out the procurement process, in part or as a whole.
The goal of procurement automation is to accelerate processes to free employees from time-consuming tasks
and focus on critical operations. Most steps in the procurement process can be automated, including purchase
approvals, supplier bid submittals and evaluation, and invoicing and payment.

Procurement cycle. Another name for the procurement process. The cyclical nature of procurement is made
visible when, in the final stages of procuring goods, a procurement administrator recognizes needs for future
projects and issues new quotes and bid solicitations accordingly. The administrator’s acquired product
knowledge and rapport with suppliers play a key role in their repeated use of the supplier for goods or services.

Dictionary of supply chain terms PAGE 59

Procurement transformation. Procurement transformation, or digital procurement transformation, refers to
the evolution of procurement from a tactical-focused function to a more strategic and business-focused
function. This shift has become necessary as procurement departments are tasked by management with new
strategic duties.

Procurement review committee, review committees on contracts, or committee on contracts.

Committee established for the independent review of proposed contracts over certain thresholds. The review
is conducted to verify that all procurement rules, policies, and procedures are met, and that the organization's
interests are properly protected.

Proposal. An offer in response a Request for Proposal

Purchase order. A type of contract that documents the purchase of goods and/or services.

Purchasing. A process to fulfill payment for any goods/services that have been requested for purchase. It
provides a structured approach to negotiating and buying the goods or services a business needs to directly or
indirectly generate business value. Purchasing differs from procurement in that it is a single part of the overall
procurement process, working within it to prevent procurement bypass and invisible spending due to
unregulated spending.

Purchasing card .A payment method whereby requisitioners are empowered to deal directly with suppliers
for low-dollar, high-frequency purchases by using a credit card issued by a bank or major credit card provider.
The cards reduce paperwork and enable purchasing and accounts payable personnel to focus on more value-
added activities.

Public procurement. Public institutions such as municipalities and ministries acquire good or services in a
contractually regulated manner from companies that they have selected. For example, when building public a
school, buying furniture for a ministry.

Purchase price variance (PPV). Difference between the cost of the order and the standard cost of the item.

Dictionary of supply chain terms PAGE 60

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.

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.

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

Purchase requisition. is the internal process of requesting procurement of specific goods or services. A
stakeholder identifies the need for materials, services, or software and documents the parameters and
requirements of the proposed purchase.

Pipeline inventory. Pipeline inventory, also known as pipeline stock, is used to refer to those goods that have
left firms warehouse but are still in company’s distribution chain as they are yet to be bought by ultimate
consumers. This concept is like work in progress inventory where the product is still under production whereas
in pipeline inventory the finished good is still under the process of delivery.

Dictionary of supply chain terms PAGE 61

PL (3PL) (Third Party Logistics). According to the Council of Supply Chain Management Professionals,
3PL refers to “a firm that provides multiple logistics services for use by customers. Preferably, these services
are integrated, or bundled together, by the provider. Among the services 3PLs provide are transportation,
warehousing, cross-docking, inventory management, packaging, and freight forwarding.”

Planned Purchase Orders (PPO). Planned purchase orders are more detailed than regular purchase orders.
In addition to containing information on the expected delivery address, dates, and payment method, planned
purchase orders also call for complete descriptions of the goods and services to be purchased and their costs
along with payment terms.

Dictionary of supply chain terms PAGE 62

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

Qualified bid. Qualified bid or offer as a part which is necessary to conclude a contract. A declaration of
intent which must be received to conclude a contract under the law of obligations. The offer specifies
(demanded) goods, number of goods, price of the goods, discount, place of performance, delivery time and
terms of payment.

Quality control. Systematic monitoring of all factors influencing the product quality and production process.
It is necessary to define one's own quality standards and to agree with the suppliers or service providers on
the degree of fulfillment in terms of processes, materials used, service. Quality control is usually conducted
in spot checks.

Quotation. An offer in response to a Request for Quotation. However, if it is in response to an enquiry, it is

simply a statement of price and availability.

Dictionary of supply chain terms PAGE 63

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

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 the 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 to a production process, and which will
subsequently be modified or transformed into finished goods.

Receipt of goods, goods receipt note. Official acknowledgement of receipt of goods.

Rebate. Discount, deduction from the amount that is paid.

Request for Information (RfI). A solicitation from a buyer for information about a supplier or vendor’s
operations to determine whether to do business with the supplier. Information buyers seek includes, but is not
limited to, supplier facilities, finances, strategic focus, competition, and pricing strategies.

Reverse auction. Bidders underbid each other and the lowest bidder is awarded the contract in an auction.

Dictionary of supply chain terms PAGE 64

Request for Proposal (RfP). A process and document soliciting bids for goods or services. It outlines the
buyer’s requirements, specifications, terms and conditions, and time schedule for the products needed.

Request for Quotation (RfQ). A process and document in which a buyer or procurement administrator
solicits a set of potential suppliers to submit price quotations for goods or services. Once the buyer receives
the quotations, they choose the vendor that best meets the stated criteria for the goods or services.

Request to pay (R2P). An invoicing method that allows customers to pay sellers almost immediately upon
receiving an invoice using their credit card or check. R2P was developed to confront the challenges of delayed
delivery that overdue payments pose. Rather than sending paper invoices and emailed PDFs, R2P platforms
allow buyers to send them electronically via text (SMS) message or email.

Remedy. A means of relief that either party can pursue to compensate for the other party's non-performance
or non-compliance with a contract term or condition.

Request for expression of interest. An advertisement to identify suppliers that wish to participate in a
forthcoming solicitation.

Request for information. An instrument to conduct a market survey to obtain information from the market
that can be used to identify available or potential solutions for fulfilling identified needs which may include
information on cost and delivery time.

Request for proposal. A formal method of solicitation where prospective suppliers are requested to submit
a proposal for the provision of goods, works or services, based on the Specifications, Scope of Work, or Terms
of Reference included in the solicitation documents. Normally used in cases where the requirements are
complex; cannot be clearly or completely specified, where detailed technical evaluations are to be performed,
and/or where pricing or cost may not be the sole basis of award.

Request for quotation. An informal method of solicitation whereby suppliers are requested to submit a
quotation for the provision of goods or services. Normally used for standard, off-the-shelf items, where the
value of the procurement falls below the established threshold for formal methods of solicitation.

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Requisition. A written or computerized request from an internal user/customer for the fulfillment or
procurement of goods, services or works.

Requisitioner. The person or personnel initiating a purchase requisition, i.e., a request for goods, works or
services.

Residual value. The value of an item which has served its functional purpose but retains some value as in
trade-in or scrap.

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.

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

Repair Turn Round Time (RTRT). See Turn Around 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 is available for further use.

Repairable Item. An inventory item that is not normally consumed in use but one 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 Turn Round Time (RTRT). See Turn Around 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.

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Re-Order Level (ROL) (or Re-Order 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.

Re-Order 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 with 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 set up costs and other production overheads.

Replenish to Demand. See Make to Order

Replenishment Lead-time. See Total Lead-time

Retail Buying Alignment. This is where the retail buying function is totally integrated to supply chain activity
so that a buyer understands and makes decisions within the context of an optimized supply chain model.

Reverse Logistics. The requirement to plan 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.

Ratable. A repairable inventory item that can be repeatedly restored to a fully serviceable condition and re-
used 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.

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RFx. Electronic inquiry. The X is a placeholder for concrete offers for goods, products, services, and
information. Buyers use an eRfX tool to request conditions for their requirements from various suppliers in a
structured manner. This makes a comparison possible. See "request for proposal" and "request for quotation"
for reference.

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 optimize overall supply chain costs.

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

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

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

Sales and operations planning (S&OP). Monthly process for interdepartmental corporate management.
Also, for integrated planning, control, and monitoring of the supply chain.

Sales order. A source document issued to a buyer by a seller prior to the delivery of the specified goods or
services. Sales orders are often triggered by the receipt of a purchase order. They are typically sent when a
buyer makes a payment but may also be issued when credit purchases are made.

Samples. A manufacturer or a supplier delivers or produces a sample before an order is placed (sample
procurement).

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.

Savings tracking. Monitoring of savings. There are tools that help in managing purchasing initiatives and
analyzing savings in real-time. The goal of savings tracking is to provide accurate evidence and actionable
insights for the decision-makers.

Schedule of rates. List of tariffs, list of rates, the scale of charge, price list.

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Sealed offer. An offer which has been submitted in a sealed envelope to prevent its contents from being
revealed or known before the deadline for the submission and opening of all offers.

Seasonal Stock. See Anticipation Stock

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

Security instruments. Financial instruments that are intended to provide the UN with security against
expenses and losses that result from a failure by a supplier to perform its obligations. They are intended to
ensure that funding is available to compensate the UN for such failure and are not intended as a punishment.
The main Security Instruments are Bid Security and Performance Security. A security can take the form of
bank guarantees, surety bonds, stand-by letters of credit, cheques on which a bank is primarily liable, and
cash deposits.

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).

Selective Distribution. Selective Distribution is a type of distribution that lies between intensive and
exclusive distribution. This basically involves using more than one, but lesser than all the intermediaries who
carry the company’s products. Mostly furniture, television and home appliance brands are distributed in this
manner.

Segregation of duties. An internal control mechanism was used to assure that no single individual or
organizational unit was given responsibility for more than one related function.

Services. Work, duty, or labor performed by a contractor pursuant to a contract. Rendering of services may
involve the associated provision of utilities or facilities if specified in the terms of the contract. Typical
examples of services include security, catering, cleaning, travel management, event management, IT services,
training, freight forwarding, and consulting.

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Service Differentiation. Is 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 agreement (SLA). Agreement or contract between the customer and the service provider;
definition of the mandatory standards to be met.

Scalability. is a term that refers to a company’s ability to meet needs at both high demands and low demands.
In logistics, this means having plans for warehousing/shipping that align with busy seasons and seasons where
demands subside.

Services procurement. focuses on procuring people-based services. Depending on the company, this may
include hiring individual contractors, contingent labor, law firms or on-site security services. It may include
both direct and indirect procurement.

Single source. Procurement of products or services from one selected supplier, even though there are other
suppliers that provide equivalent products or services.

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.

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

Should cost model. Target cost model. Cost specifications (planned costs) are adjusted to the actual capacity
utilization.

Stay on Top of Inventory. Inventory loss is one of the biggest contributors to high supply chain management
costs. Every item you misplace or lose due to spoilage or damage is an item that you can’t use to fulfill orders

Dictionary of supply chain terms PAGE 71

or meet demand. By monitoring your inventory and keeping track of each item you’re storing, you’ll reduce
those costs significantly. Even better, you’ll be able to identify trends that are contributing to loss or wasted
inventory, so you can make the necessary changes and start reducing costs.

Standard purchase order (PO). The Standard PO is the one that most purchasers have adopted over a period
of time. It represents the intent to complete one transaction with a specific product type, quality of items, and
quantity. The purchase order includes all the details needed to complete a transaction.

Statement of work. Requirement specifications for work assignments outlining the specific services a
contractor is expected to perform, indicating the type, level, and quality of service, as well as the time schedule
required. Usually accompanied by a Bill of Quantities (BOQ) and/or drawings/designs.

Stewardship. The responsibility of an organization for managing the funds and resources entrusted to it by
its member states and other donors in an ethical and transparent manner, and for the welfare and in the interest
of the designated beneficiaries of the funds and resources entrusted.

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. i.e., Annual sales at cost / average inventory
value.

Stocktaking. A physical count of products 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 is 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.

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Strategic Stock. The stock of goods is 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).

Standardization. The process of agreeing on a standard specification for a specific product or line of
products. Usually conducted to achieve economies of scale, compatibility with other products, facilitation of
operation, maintenance, and repair of already purchased goods, etc. Standardization could result in sole or
limited source situations; this should be a consideration in the decision for standardization.

Stock-Out Costs. Stock-out Costs are the cost associated with the lost opportunity caused by the exhaustion
of the inventory. The exhaustion of inventory could be a result of numerous factors. The most notable amongst
them is defective shelf replenishment practices.

Sole source. A procurement term employed when there is no competitive marketplace for the requirement,
i.e., the product or service needed is available only from one source.

Solicitation. Generic term for a request to suppliers to offer a bid, quotation, or proposal.

Solicitation documents. Documents issued to describe procurement requirements and to invite Suppliers to
submit a bid, quotation, or proposal.

Sourcing. The process of identifying suitable suppliers that could provide required products or services for
the acquiring organization.

Source document. An officially recognized document providing evidence of a transaction. It contains

transaction information including parties involved, amount paid, shipping date, and details about the product
or service. Most source documents are assigned a unique number to be controlled within the accounting
systems of both the procurement organization and the supplier for easy reference in the event of a dispute or
audit. Examples of source documents include requisitions, POs, and Rfqs.

Source to pay (S2P). Source-to-pay is a supply chain management workflow process which encompasses the
entire cycle of sourcing goods and services, from supplier selection to contract management.

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Subcontractor. A party that carries out work for a contractor as part of a larger project.

Supplier, vendor. An entity that potentially provides goods or other products (including intellectual
property), services and/or works to the organization. A supplier may take various forms, including an
individual person, a company (whether privately or publicly held), a partnership, a government agency, or a
non-governmental organization.

Sustainable procurement. Procurement is called sustainable when it integrates requirements, specifications

and criteria that are compatible and in favor of the protection of the environment, of social progress and in
support of economic development, namely by seeking resource efficiency, improving the quality of products
and services, and ultimately optimizing costs.

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

Supply Chain Execution. involves the management and coordination of the processes involved in the
movement of goods from the point of origin to the point of consumption. It encompasses all activities related
to the planning, coordination, execution, and monitoring of the flow of goods and services through the supply
chain. The goal of supply chain execution is to ensure that the right products are delivered to the right place
at the right time, with the right quantity, quality, and cost. This involves managing various processes, such as
transportation, warehousing, inventory management, order fulfillment, and distribution. Having a proper
understanding of this term will help Supply Chain Managers make quick decisions to effectively manage their
supply chain.

Supply-Chain Management (SCM). Organization 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 sustainability is 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.

Dictionary of supply chain terms PAGE 74

Supply Chain Traceability. Supply chain traceability is the ability to track and trace the movement of goods,
materials, and information along the supply chain, from the point of origin through consumption. It involves
the identification and documentation of each step in the supply chain, as well as the capture and exchange of
relevant data and information. The purpose of supply chain traceability is to enhance transparency and
accountability, and to enable businesses and consumers to understand and manage the risks and opportunities
associated with the supply chain. It enables companies to identify the source of raw materials, to monitor and
manage the quality and safety of products, and to comply with regulations and industry standards.

Supplier vetting. Evaluation process for the selection of qualified suppliers. The assessment should be based
upon quantitative evidence, research, and in-depth observations. The metrics businesses measure when vetting
a supplier vary depending on the industry, but the most common are production capacity, quality,
performance, risk, and environmental impact.

Supply Chain Visibility. Supply chain visibility is the ability of a company or organization to track and
monitor the movement of goods and materials through their entire supply chain, from suppliers to customers.
It involves receiving real-time, accurate and complete information on the status of products and materials,
including their location, condition, and availability. With supply chain visibility, companies can identify
potential disruptions and delays, optimize inventory levels, and improve the efficiency of their operations.
This information can also be used to improve collaboration with suppliers and customers, and to make more
informed decisions about procurement, production, and logistics. Supply chain management software such as
the GRID provides companies with the tools necessary to maintain full visibility of their supply chain.

Specifications. A description of the technical requirements for a material, product, or service. Usually
referring to the defined requirements for materials or products, but can also relate to the requirements for
services (Terms of Reference), or works (Statement of Work).

Statement of work. A document describing the requirements for a service. A statement of work may describe
not only what service should be performed, but the method to be used and how often the service must be
performed.

Strategic sourcing. A method of supply chain management by which businesses formally gather and use
vendor and supplier information to get the best total value for the entire supply chain process. Strategic

Dictionary of supply chain terms PAGE 75

sourcing differs from traditional purchasing because it focuses on costs and values of the process rather than
the lowest purchase price for an individual item. It requires constant market analysis and continual evaluations
of vendor performance and prices. Benefits of strategic sourcing include sweeping cost savings in the short
term, and a more sustainable supply chain and better supplier and vendor relationships in the long term.

Stock keeping unit (SKU). Storage unit: a product is assigned an individual registration number for
identification and tracking.

Strategic sourcing. Strategic sourcing is the process to continuously assess and improve the value created
from procurement activities to a business or an organization. While tactical sourcing is understood as the
acquisition of goods or services at the lowest cost, strategic sourcing takes into consideration a broader view
balancing factors like competitive market conditions, negotiating power, developing supplier relationships,
and mitigating supply risk.

Spend analysis. Spend analysis is the active review of procurement spend to decrease costs, increase
efficiency or improve supplier relationships. In procurement, spend analytics refers to the systematic
collection, cleansing, classification, and analysis of spend information either with dedicated software or
through spend cube projects.

Spend cube. Output cubes, method for structuring for the following questions: What is being bought?
(Product group) Where did costs arise? (Cost center) From whom is the purchase made? (suppliers). Steps of
making a spend cube are data collection, data consolidation and conversion, classification of suppliers and
expenditures and final evaluation of the data, and construction of customized reports.

Spend leakage. Spend time outside the suppliers that are not on the list of pre-approved suppliers.

Subcontractor. The subcontractor or sub-supplier is the supplier to the contractor. The number of (usually
unknown) sub-suppliers can be many along the supply chain. Consequences of having many subcontractors
may include non-transparency, quality issues, and other risks.

Supplier management. Supplier management comprises all systematic activities related to the evaluation,
selection, development, and strategic integration of suppliers at different levels of the value chain. Supplier

Dictionary of supply chain terms PAGE 76

management aims to eliminate weak points as far as possible together with suitable suppliers, identify
potential, and optimize quality, delivery times, and costs - thus developing the relationship as a whole. One
of the success factors in supplier management is supplier performance management (data-driven approach),
which aims to ensure that suppliers deliver precisely w.
that was determined in the contract.

Supplier risk management. Supplier risk management comprises the holistic process of managing risks
along the supply chain: from risk identification and assessment to controlling measures for risk minimization.

Supply base reduction (SBR). Process of reducing the number of active suppliers, and making purchasing
more efficient.

Dictionary of supply chain terms PAGE 77

T
Tare weight vs. gross weight. Tare weight is the measured weight of an empty vehicle or container. Gross
weight is the total weight of the package or shipment, including the container.

Tender management. Organization of tenders and auctions.

Terms of reference. A description of the scope of work for services indicating the work to be performed, the
level of quality and effort, the timeline, and the deliverables.

Terms of reference. Shows the task of defining, developing, and verifying a specific object or project.

Time to Serve Is 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.

Third-party logistics (3PL).External business partners that take over, for example, transport and storage for
their customers.

TT. A TT in advance payment is sort of the opposite of a LC payment in that payment is sent before goods
are shipped. This is often faster and cheaper since there's less paperwork to arrange, but businesses are
assuming a lot of risk since it's possible for the supplier to take the payment and not send the goods.

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

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.

Dictionary of supply chain terms PAGE 78

Total cost of ownership (TCO). purchasing and operating costs as well as possible disposal costs.

Total quality management (TQM). Comprehensive quality management, in which all employees are
involved. TQM includes customer orientation, leadership, employees, improvement, and relationship
management, with process-oriented approaches for fact-based decision-making. Valid standard: ISO
9001:2015-09.

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

Transaction costs. For example, costs for initiation, information procurement, adaptation, processing, and
control.

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

Transparency. A principle implies a process by which reliable, timely information about existing conditions,
decisions and actions relating to the organization's activities is made accessible, visible, and understandable.

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

Turn Around Time (TAT). The total time taken to repair a component at the repair location, including
waiting time but excluding transit time.

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.

Transshipment. Transshipment is a combination of transportation and deconsolidation. Transportation is

done during all the stages i.e., from the source to an intermediate storage location through to a destination.
Unbundling/ deconsolidation of shipment is done from the warehouse to its destination.

Dictionary of supply chain terms PAGE 79

Taxonomy. Classification, for example, classification of suppliers into different distinct categories. The
standard size or quantity of a stock item.

Twenty-foot equivalent unit (TEU). TEU is the exact measurement used to determine how cargo can fit on
container ships and terminals. Shipping companies will give rates based on calculating the TEU.

Dictionary of supply chain terms PAGE 80

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

Unit load device (ULD). A ULD is a device used for grouping and restraining cargo for air transport. Each
ULD has a unique code for the moving of various pallets and containers.

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

UNSPSC.Abbreviation for United Nations Standard Products and Services Code. International taxonomy
system of merchandise management for the cross-company classification of goods and services of all kinds
(especially in the Americas).

Dictionary of supply chain terms PAGE 81

V
Value added tax (VAT). VAT is a tax that values the item at each stage of shipping—from raw materials,
to production, to manufacturing, to the final sale. This tax is charged at various stages of the supply chain. It
is important to note that while the U.S. does not charge a VAT tax on imports.

Vendor Hub. Third party operation of a warehouse, funded by suppliers, containing Vendor-Owned stock
for delivery to a customer (See Lineside Warehouse).

Vendor Managed Inventory (VMI). An element of inventory stocked by one organization 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.

Vendor management. One of the core tasks of purchasing: the professional strategic design of relationships
and control mechanisms for better services, prices, quality, etc. See "supplier management."

Vendor portal. System or central platform for the maintenance of supplier master data and the handling of
business processes between purchasing companies and suppliers.

Vendor rating. Supplier evaluation; systematic evaluation of the supplier or his performance on the basis of
defined standard features, e.g., point evaluation (scoring model), profile analysis, and price structure analysis.

Value delivery network. A value delivery network is a part of the supply chain of a company and includes
all its direct participants involved in production, distribution, marketing, customer service, etc for a given
geographical area. It is a chain of systems where after each system more a more value is added to the product
or services thereby increasing its overall value for the customer.

Volatile spend. Fluctuating expenditures. For example, raw materials and energy have fluctuating (volatile)
costs.

Dictionary of supply chain terms PAGE 82

W
Warranty. A warranty is an assurance (expressed or implied) by the supplier that the material, product, or
workmanship being sold is as represented or promised, e.g., free of defects, or will be repaired or replaced
free of charge or according to conditions set out in the warranty.

Warehousing. Warehousing in supply chain management is related to storing inventory. This inventory could
then be distributed or sold. Warehouses are used for storing in bulk. Buying products or raw materials in bulk
can help companies reduce the cost of products.

Waybill. A document prepared by the seller, on behalf of the carrier, which specifies the shipment’s point of
origin, the details of the transacting parties (the buyer and seller), the route, and the destination address.

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. The agreed fee
for an unplanned waiting time, e.g., a truck waiting at the ramp to be loaded.

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) is 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.

Dictionary of supply chain terms PAGE 83

Working capital. Are assets subject to a current turnover, e.g., raw materials and supplies, semi-finished and
finished products, advance payments, receivables, bank balances.

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

Dictionary of supply chain terms PAGE 85

Y
Yard Management System (YMS). A system which is designed to facilitate and organize the coming, going
and staging and visibility of trucks and trucks with trailers in the parking “yard” that serves a warehouse,
distribution, or manufacturing facility.

Dictionary of supply chain terms PAGE 86

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

Zoho Inventory. A cloud-based order management system built for SMBs to help streamline their stock flow
across multiple channels, locations and currencies. Built on strong supply chain fundamentals, the application
measures and values items by FIFO logic. It has tools to support your supply chain upstream and downstream,
including reverse logistics.

Dictionary of supply chain terms PAGE 87

If you have any questions or consultations regarding supply chains and development.
[email protected]
eng-hassan-al-heliel-950398276/Mobile: +966504813276

Dictionary of supply chain terms PAGE 88