Supply chain management can be defined as the integration of key business processes from initial raw materials extraction to the final or end customer, including all intermediate processing, transportation, and storage activities and final sale to the end product customer.
Today, the practice of supply chain management is becoming extremely important to achieve and maintain competitiveness. Supply chain management is an outgrowth and expansion of logistics and purchasing activities and has grown in popularity since the 1980’s.
Based on search engine hit rates the most popular terms referenced in supply chain management are:
- Value delivery network
Value delivery network is a part of supply chain of a company and includes all its direct participants involved in production, distribution, marketing, customer service, etc for given geographical area. It a chain of system where after each system more a more value is added to the product or services thereby increasing its overall value for the customer.
- 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 similar to 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.
Dunnage is defined as the waste material that can be used for handling and packing as filler materials and preventing the goods being transported from damage. These materials can be waste paper, wood planks or wedges, waste metal, etc.
- ABC Analysis
ABC Analysis comes under the purview of inventory management. It refers to the categorization of inventory based on its significance in the production process. This analysis works under the assumption that all inventories are not of equal value to the organization so they need to be treated differently where ‘A’ = high velocity, ‘B’ = medium velocity, ‘C’ = low velocity.
- 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.
- 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 %
- Distributions Requirements Planning (DRP)
Distributions Requirements Planning is the method used by supply chain entities to plan orders in the whole supply chain taking into account 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.
- 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.”
- 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 delay in production or delivery of final product.
- Forward Buying
It is a process related to retail inventories, wherein they are purchased in quantity excess to demand. This is practised by retailer 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 original price by the manufacturer, retailer can make profit by selling the item purchased at low price earlier. This is used when manufactures are overstocked and they want to clear the inventory. They give the discounts to the retailer and retailer also get benefited by getting better profit margins.
- 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 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 should it 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
- JIT 2
JIT II is similar to JIT with a difference 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 authorised to purchase material for the customer.
- Available to Promise (ATP)
Available to Promise (ATP) is a business function, part of the supply chain which pertains to the customer enquiries. It is responsible to provide the customers with the available quantities of the requested product and the corresponding due dates for them to expect delivery. ATP can further be categorised based on the push/pull strategy being used for production.
- Stock-Out Costs
Stock-out Costs is the cost associated with the lost opportunity caused by the exhaustion of the inventory. The exhaustion of inventory could be a result of various factors. The most notable amongst them is defective shelf replenishment practices.
- Item Fill Rate
Item Fill Rate is the rate at which the order is met as compared to the total order or demand. This can be expressed as a simple ratio of the items/goods arrived to that of the total ordered e.g. Item fill rate= Received quantity/Ordered quantity i.e. 300/500= 0.6
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.
- Advance Shipping Note (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.
- First In First Out (FIFO)
It is a term used to describe the flow of inventory in the order processing system. In this method of inventory flow system, the inventories are moved out of the system in the order of their arrival. The item which is moved in first will be moved first out of the system. It is derived from the concept of first come first serve basis
- 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. An important point to note here is the fact that back orders can only exist if the customer is willing to wait for the order.
Backhaul refers to the practice of not sending the cargo trucks back empty rather having them take some cargo back to the original source. As it takes almost the same time and fuel to drive an empty truck back, this practice becomes economically viable.
Transshipment is a combination transportation and deconsolidation. Transportation is done during all the stages i.e. from the source to an intermediate storage location through to a final destination. Unbundling/ deconsolidation of shipment is done from the warehouse to its final destination.
- Flow Through
It is a logistic system where item are sequenced in accordance with the stage they have to 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 in excellent ware house management and optimum 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.
- 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 so as 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.
Kanban is the Japanese word for a Sign Board. It is a system which enables a manufacturing facility to estimate what to produce, how to produce and when to produce. It was started by Tahiichi Ohno at the Toyota Facility to enable lean manufacturing and JIT. It is a responsive mechanism that helps schedule the reorder point rather than managing and maintaining a level of inventory. It controls the rate of production as per the rate of demand. So it response to the demand passed by the end customer.
Blog post content is based on,Trevor Barrows Master in Logistics literature review, and from reference material found in Strategic Logistics Management, James Stock & Douglas Lambert.