Top 10 Supply Chain Terms and Definitions [Procurement, Logistics, Warehouse Management, etc.]

Introduction

Supply chain management is vital for the smooth operation of many organizations. In today's world, where supply chains have become extremely complex and fragile, understanding key terms and definitions is crucial. This article covers some of the essential concepts in supply chain management, providing you with foundational knowledge to better grasp how supply chains function and impact organizations.

Procurement

Procurement is the process of acquiring raw materials and other necessities to run an organization. There are two primary types of procurement:

Direct Procurement: Acquiring raw materials, semi-finished goods, or finished goods that are directly used in producing the final product.
Indirect Procurement: Acquiring office supplies and other items that are essential for running the business but do not directly relate to the final product.

Supplier Management

Supplier management involves understanding who your vendors are and measuring their performance in terms of quality and cost. This includes:

Supplier Identification: Recognizing who provides all your raw materials and components.
Performance Metrics: Evaluating suppliers based on quality and cost.
Risk Management: Ensuring backup suppliers are available to mitigate risks of disruption.

Inventory Management

Once products are procured, managing inventory is critical. It includes:

Inventory Levels: Monitoring what materials you have and in what quantity.
Warehouse Placement: Managing storage locations within your warehouse.
Reorders: Determining when and how much to reorder based on inventory levels.

Electronic Data Interchange (EDI)

EDI is an electronic method to communicate with vendors, suppliers, and customers. It automates processes like placing orders, thereby reducing manual errors and increasing efficiency.

Freight and Transportation

The movement of raw materials or finished goods within the supply chain is handled by freight and transportation management:

Visibility: Tracking shipments from the supplier to your warehouse.
Efficiency: Ensuring timely deliveries to meet production and customer demands.

Logistics Management

Logistics management encompasses the entire process of moving goods through your supply chain, including:

Shipping: Managing products from the supplier’s warehouse to your location.
International Trade: Navigating international shipments, customs, tariffs, etc.

Warehouse Management

Warehouse management includes the systematic process of storing and moving inventory:

Storage: Efficiently storing products in your warehouse.
Pick, Pack, and Ship: Fulfilling customer orders quickly and accurately.

Drop Shipment

In some cases, products can be shipped directly from a supplier to the customer, bypassing the warehouse altogether. This method can significantly speed up delivery time.

Back Order

When suppliers cannot fulfill orders immediately, you face back orders. Effective supplier management can help mitigate this risk by having backup vendors available.

Landed Cost

Landed cost represents the total cost of getting products from the supplier to your warehouse, including costs like shipping, customs, and tariffs. Understanding landed costs helps in pricing products accurately and optimizing supply chain expenses.

Conclusion

These essential terms provide a strong foundation for understanding supply chain management. While this article covers basic definitions, further resources and technologies can deepen your knowledge and enhance supply chain operations.

Keywords

Procurement
Supplier Management
Inventory Management
Electronic Data Interchange (EDI)
Freight and Transportation
Logistics Management
Warehouse Management
Drop Shipment
Back Order
Landed Cost

FAQ

1. What is direct procurement?
Direct procurement involves acquiring raw materials or products that are used directly in the production of the final goods.

2. How does supplier management affect supply chains?
Effective supplier management ensures you have reliable vendors, which helps maintain quality and mitigate risks associated with supply chain disruptions.

3. What is the role of electronic data interchange (EDI) in supply chain management?
EDI automates the communication between vendors, suppliers, and customers, boosting efficiency and minimizing errors.

4. Why is logistics management important?
Logistics management ensures goods are efficiently moved through the supply chain, reducing delays and handling international trade complexities.

5. What is a drop shipment?
A drop shipment is when a product is shipped directly from the supplier to the customer, bypassing the traditional warehouse storage, which can speed up delivery times.

6. What constitutes the landed cost?
Landed cost includes the total price of acquiring a product, factoring in shipping, customs, tariffs, and other related costs.

7. How can warehouse management be optimized?
Warehouse management can be optimized through better inventory tracking, efficient storage solutions, and streamlined pick, pack, and ship processes.