Merchant Operations Glossary

Terms

#

Third party logistics (3PL)

A

ABC inventory management

Accounts payable (A/P)

Accounts receivable (A/R)

Address validation

B

Batch picking

Bill of materials (BOM)

Bottle neck

Buffer stock

Built on the fly

Bullwhip effect

C

Carrying cost

Cost of goods sold (COGS)

Consignment

Consumption-based planning

Contract manufacturer

Customer managed inventory

D

Dead stock

Dependent requirements

Dimensional weight (DIM)

Direct-to-consumer (DTC)

Distribution centers

Distribution channel

E

Economic lot scheduling problem

Economic order quantity (EOQ)

Electronic data interchange (EDI)

Exploding the BOM

Ex-Works (EXW)

F

Full container load (FCL)

Financial accounting

Finished good

First-in first-out (FIFO)

Fixed cost

Fixed time elements

Free-on-board (FOB)

G

General ledger

Goods movement

Goods receipt

I

In-house production

Inventory kitting

Invoice verification

J

Just-in-time inventory

L

Landed cost

Last-in first-out (LIFO)

Last purchase price

Lead time

Ledger balance

Less than container load (LCL)

Lot size

Lot size key

M

Make-to-stock (MTS)

Master production scheduling (MPS)

Material planning

Material staging

Materials requirements planning (MRP)

Minimum order quantity (MOQ)

N

News vendor model

O

Omni-channel solution

Overs & unders

P

Periodic inventory system

Pick and pack

Price list

Private label

Procurement process

Product lifecycle management (PLM)

Product routings

Product supplier mapping

Product variants

Production resource tools (PRT)

Purchase requisition

R

Reconciliation

Replenish lead time

Retail inventory method

Reverse logistics

S

Safety level stock

Sales and operations planning

Scan based trading

Scheduling data

Semi-finished goods

Shipping insurance

Silo effect

Split orders

Storage type

Sub-ledger

Supplier shipment

Supply chain management

T

Third party logistics

U

Unit of measure (UOM)

V

Vendor-managed inventory (VMI)

W

Warehouse management systems (WMS)

Wave picking

Weighted average method

Work center

Work order

#

Third party logistics (3PL): A 3PL is a warehouse between you and your customer that manages and ships out your inventory. The warehouse helps with freight, shipping, distribution.

A

ABC inventory management: Classifying inventory based on value assigned. Value is assigned as a function of the number of items consumed over a period of time. For example, A items are highly important, B is moderate, and C is least important. The approach uses the Pareto principle, where a 20% of units comprises 80% of the value. For example, the value assigned to “A” items may be 70%, while the quantity of “A” items comprises 10% of the total quantity. In this example, “C” item value is 10%, but comprises 70% of the total quantity. In short, high value items = lowest holding quantity (A items), and low value items = highest holding quantity (C items). This inventory management system allows an organization to know where to direct their focus and where to put attention.

Accounts payable (A/P): Money owed by a company to a client or manufacturer - paying money.

Accounts receivable (A/R): Money owed to a company - receiving money.

Address validation: Process of checking if a mailing address is valid, by comparing to an authoritative address database. For the United States, the USPS provides the address database. Each country has their own database.

B

Batch picking: Picking inventory from the same location within the warehouse for multiple orders, which helps save time picking.

Bill of materials (BOM): A list of all parts and quantities needed to manufacture an end product. The list typically includes: raw materials, sub-assemblies, intermediate assemblies, and sub-components.

Blanket order: An agreement with the supplier, to have a large order shipped across different delivery dates. Often this is done to take advantage of up-front pricing, negotiated with the supplier.

Bottle neck: A step in production that is a constraint and increases production time. The slowest step.

Buffer stock: Inventory held aside in a reserve to safeguard stock shortages or increases in demand.

Built on the fly: on the fly describes activities that develop or occur dynamically rather than as the result of something that is statically predefined. In the context of production, this is when an item is made to order rather than created before hand and stored in a warehouse awaiting purchase.

Bullwhip effect:  The further upstream you move in the supply chain, the forecast accuracy for inventory decreases. The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain. The bullwhip effect was named for the way the amplitude of a whip increases down its length. The further from the originating signal, the greater the distortion of the wave pattern. In a similar manner, forecast accuracy decreases as one moves upstream along the supply chain. For example, many consumer goods have fairly consistent consumption at retail but this signal becomes more chaotic and unpredictable as the focus moves away from consumer purchasing behavior.

C

Carrying cost: The total cost of holding onto inventory, factoring in maintenance cost, storage costs, insurance, opportunity cost, and losses (due to theft or holding perishable items).

Cost of goods sold (COGS): Sum of the total costs tied to the production of good sold by a company. This includes, cost of materials and the labour cost required to produce the goods.

Consignment: A legal agreement in which payment to the supplier is made once the product ordered from them have sold.

Consumption-based planning: Using historical consumption to inform future inventory planning.

Contract manufacturer: Local or oversea manufacturer that creates all or part of a product that another company sells.

Customer managed inventory: Similar to Just in time inventory, where the customer (store) purchases from vendors or suppliers based on their forecasting. The customer is more in control here.

D

Dead stock: Outdated merchandise that was not sold to end consumers, and pulled from sale. Typically warehoused, but often is liquidated in an auction.

Dependent requirements: When production of an item is dependent on another item or materials. For example, the production of car seats is dependent on a requirement of producing a car. You wouldn't make a care door if you didn't need a car.

Dimensional weight (DIM): Used by freight carriers to calculate shipping cost. The dimensional weight is compared to the actual weight of the shipment, and the higher is used for shipping charges. This is calculated as (length x width x height)/dimensional factor. The dimensional factor is sometimes called the “dim divisor” and is different for each company. For example, the dimensional factor for UPS is 139. How did they come up with that? No one really knows.

Direct-to-consumer (DTC): When a company sells directly to its customers, primarily through online channels but also includes brick-and-mortar.

Distribution centers: In essence, this is a warehouse that is part of the order fulfillment process, a warehouse that stores products for distributing to retailers or customers. The end location of the product typically determines the name of the warehouse I.e. if the products are going to a retailer, then the warehouse is called a “retail distribution center.” If the end location is a customer, then the name to go by is “order fulfillment center.” At the end of the day, they're all warehouses.

Distribution channel: An intermediary or chain of intermediaries that items pass through before reaching the end consumer. Channels include: retail stores, wholesalers, distributors or the internet.

Dropshipping: Send purchased goods from the manufacturer straight to the customer, without any intervention. The advantage of dropshipping is not needing to hold onto any inventory or store it.

E

Economic lot scheduling problem: An operations management problem, when one machine must be used to produce several items, the lot size of each and product and when each lot should be produced needs to be determined.

Economic order quantity (EOQ): A model that suggests an optimal reorder quantity and appropriate reorder time point to ensure no inventory shortages. It gives the number of units of inventory a company should order, while minimizing the total cost of inventory.

Electronic data interchange (EDI): Communicating information electronically. Typically in eCommerce this means POs and invoices.

Exploding the BOM: Breaking down the composition of an item to from its largest, highest level iteration (the product itself) to all the smallest components needed to produce it.

Ex-works (EXW): International trade term (Incoterms 2010) in which a manufacturer or seller makes the purchased goods available at a location (often a warehouse owned by the manufacturer), and the buyer is responsible for transport logistics and costs.

F

Full container load (FCL): When one shipper utilizes a full container for their cargo. In this case, the loaded and unloaded cargo are under a single consignee.

Financial accounting: A specific segment of accounting, where a company's transactions are recorded, summarized, and presented in a financial report.

Finished goods: Items that have completed the manufacturing process, but that have not yet been sold to customers. These are items that a company manufactures and sells, whereas trading goods are items a company does not manufacture and sells.

First-in first-out (FIFO): The first item produced is the first item sold. This method is used typically in low inflation environments.

Fixed cost: A cost that does not change in relation to the services a business offers, or increases in product quantity. These costs have to be paid by a company regardless of any business activity. Examples include: office rent, utilities, salaries, insurance, etc.

Fixed-time elements: Any sort of process in which the time to completion does not change (i.e A certain process will always take X minutes).

Free-on-board (FOB): International trade term (Incoterm 2010), in which the manufacturer or seller is responsible for transporting the purchased goods to the port and incurs the cost of loading the shipment. The seller also transfer the risk once the goods are loaded. The Buyer is responsible for paying the cost of freight, insurance, unloading, and transport from port to the final destination.

G

General ledger: A ledger which contains all accounts under a company and each respective accounts transactions. This includes recording transactions for a company's assets, liabilities, owner's equity, revenue and expenses.

Goods movement: Any sort of physical relocation or movement of goods (i.e. Truck → warehouse is movement).

Goods receipt: When purchased inventory is received at a warehouse.

I

In-house production: Creating or manufacturing within a company rather than outsourcing to external parties (manufacturer/supplier)

Inventory kitting: Grouping separate individual items and packing and shipping as one unit. Often items are grouped together are related: ordering a PC online and purchasing RAM, hard drives, and GPU will be shipped together as one kit.

Invoice verification: Ensuring that the items purchased matched what was expected before proceeding with payment.

J

Just-in-time inventory: A purchasing method in which items are bought as they are needed. This increases efficiency and decreases waste.

L

Landed cost: The price of a product or shipment with every cost included. This includes the price of the product, transportation & shipping fees, customs, duties, taxes, tariffs, insurance, payment fees, foreign exchange fees.

Last purchase price: Price of the item when it was last purchased

Last-in first-out (LIFO): The last item produced is the first item sold. The benefit here is, if you've purchased inventory a year ago for $30, and more inventory recently at a higher price (likely due to inflation), you are able to sell the more costly item first.

Lead time: The total time it takes for a product to be delivered, from the day it's ordered until it's delivered to the customer. Lead time is typically used to account for the time required for manufacturing, and possible delays in that process.

Ledger balance: The net amount in a bank account, after all the debits have been subtracted from the credits. The bank statement balance.

Less than container load (LCL): When shipping cargo that does not utilize a full container, other shippers load their cargo in the same container to keep cargo shipping efficient, money and space-wise.

Lot size: The total quantity of units ordered from a supplier or manufacturer.

Lot size key: The procedure used to determine the lot size.

M

Make-to-stock (MTS): An organizational strategy in which products are produced based on anticipated demand. When forecasting data is accurate, this is a very cost-effective strategy.

Master production scheduling (MPS): A high level production plan, used to organize production, staffing, & inventory. The inputs for an MPS are typically: inventory costs, production costs, forecasting, staffing costs etc. The outputs of an MPS includes: the number of staff required for the expected demand of a product. An MPS is cost-driven, as it is focused on meeting requirements at the lowest possible cost.

Material planning: Using the scientific method to determine the amount of raw materials, parts, consumables are required for production. The material's plan is influenced by macro and micro factors. Marco factors are external and include import/export policies, business cycles etc. Micro factors are internal, and include corporate policies, investments, production plans etc.

Material staging: Transferring material from storage location to production location.

Materials requirements planning (MRP): a system used to manage manufacturing, which entails production planning, scheduling, inventory control.

Minimum order quantity (MOQ): Often used with suppliers and manufacturers, MOQ refers to the minimum order quantity imposed on ordering a product from a supplier or manufacturer. These can either be artificial (imposed by the supplier itself), or due to manufacturing constraints (ordering custom printed corrugated boxes requires using a set amount of material (i.e. enough to create 10 000 boxes), otherwise the material is wasted and not economically feasible for the manufacturer.

N

News vendor model: A mathematical model used in operations management to determine the optimal inventory level. The model applies when there is uncertain demand for a product, that has fixed pricing. It gets its name from a news vendor stand owner, who must decide how much of today's newspapers to purchase, with the knowledge that any that go unsold by the end of the day are worthless.

O

Omni-channel solution: A multiple channel sales approach that allows customers to purchase from online, mobile, telephone or in a brick-and-mortar store.

Overs & unders: A tool for quality control in manufacturing, in which an order placed might be over or under the requested quantity.

P

Periodic inventory system: Updates to inventory stock levels, cost of goods sold and other metrics occur periodically over time.

Perpetual inventory system: Updates to inventory are made regularly and when necessary.

Pick and pack: The process of picking an item from a master carton inside a warehouse, and packing it for shipment to a customer. Service offered by fulfillment centres.

Price list: Also called manufacturers suggested retail price (MSRP), the price determined by the manufacturer, distributor, or retailer for their products.

Private label: Products which are branded and labelled under the retailer's name, but manufactured by another company.

Procurement process: A series of steps or processes that are required to get a product or service from a purchase requisition to a purchase order, to the invoice. The steps can be broken down into 7 main activities: 1) identifying goods and services 2) exploring vendors 3) submitting a purchase requisition 4) creating a purchase order 5) receiving the order 6) paying for the goods & services 7) recording the purchase for audit.

Product lifecycle management (PLM): The process of managing a product's information, engineering, manufacturing, and workflows. PLM is a complex process integrating people, processes and data. PLM software is often used to serve as a repository for all parties.

Product routings: The steps used to manufacture a product.

Product supplier mapping: The process of documenting the exact source of materials, processes and shipments that are involved in bringing a product or good to market. This requires engaging across the company and all suppliers.

Product variants: Products which come in more than one option, such as size or colour. Each combination of options for a product creates a product variant.

Production resource tools (PRT): Non-stationary (i.e. moveable) operating resources that are necessary to perform an activity. An example of a PRT documents, engineering drawing, tools etc.

Purchase requisition: A document an employee uses to create a purchase order on behalf of their company.

R

Reconciliation: An accounting term, the process of reconciliation is ensuring two sets of numbers are in agreement. For money, this means that the money that left the account for the purchase matches the money that was used to purchase a product.

Replenish lead time: The total time between the moment it is realized that an item is needed to be reordered, and until it is back on the shelf.

Retail inventory method: A method used to determine what the total value of a store's inventory. The formula is as follows: ((Total retail value of initial inventory) - (Total sales)) * cost-to-retail ratio. The cost-to-retail ratio is the markup percentage of the purchase price to the retail price.

Reverse logistics: The process of shifting goods from their usual final destination (usually disposal), towards reusing components, recycling, or disposing of properly. The processes encompasses remanufacturing and refurbishing of goods as well.

S

Safety level stock: Extra stock of units kept on hand to mitigate the risk of a stockout. Possible reasons for stock outs can include a shortfall in raw materials, lack of packaging, uncertainties in supply and demand.

Sales and operations planning: A business management process in which company executives deliberate, plan and align focus of the company among all branches.

Scan based trading: Ownership of inventory is maintained by the supplier inside a retailers warehouse, until the items are scanned for sale.

Scheduling data: The inputs an ERP uses to calculate the start and finish times for an order.

Semi-finished goods: Items that are partially finished, likely to be used as an input for another item, typically for finished goods

Shipping insurance: If a shipment is lost, stolen or damaged while in transit, the cost of goods are reimbursed on insured items. Decreases monetary risk for a small fee.

Silo effect: Lack of information exchange. Can be between humans or databases.

Split orders: Breaking down one large order into smaller orders, which separates each orders' ship date. Allows for flexibility in shipping, as a common use for split orders is when a customer orders two items, one of which it out of stock. Splitting the order allows you to ship out the in-stock item, instead of waiting until stock is replenished to sent the whole order out at once.

Storage type: The physical subdivision of storing inside a warehouse, examples of storage type are: shelf, pallet, receiving, shipping.

Sub-ledger: A version of a ledger, with detailed transaction data.

Supplier invoice: The bill a supplier issues to a customer for goods or services purchased.

Supplier shipment: The items a supplier sends to a company.

Supply chain management: Broad range of activities which entails the planning, processing and execution of creating a product. The activities range from when, when and how to acquire raw materials all the way to the finished good.

T

Tangible Assets: A company's physical assets. Includes an office, plant, warehouse, machinery, etc.

Tax rule (customer/supplier): An option to set up tax rules for a contact, based on their country location and the taxes they incur. When you're sending a purchase orders or a customer order, the correct taxes are automatically applied to the order.

Time-phased planning: A Materials requirement planning (MRP) process, which uses historical data to estimate future material requirement, but is based on something having a particular time cycle.

Trading goods: Finished product not manufactured by a company and sold to customers.

Transport management systems (TMS): Software that sits between an ERP and a warehouse. A TMS handles inbound and outbound shipments, and offers routing options to a worker. For outbound shipments, a TMS handles selecting a carrier, and relaying tracking information back to an ERP system.

U

Unit of measure (UOM): used to quantify inventory to enable tracking items. Typically a physical unit (kg, dozen, lbs).

V

Vendor-managed inventory (VMI): An approach to inventory and order management, where there is tight is collaboration between the suppliers and their customers. In VMI, the customer uses software to analyze sales data and determine a replenishment purchase order based on algorithm. This is sent to the supplier/vendor who approves the order.

W

Warehouse management systems (WMS): Software application that helps to optimize a warehouses functionality. Broadly. a WMS helps warehouse management in planning their days and of their employees and overseeing warehouse operations to coordinate shipments into and out of the warehouse

Wave picking: A method of picking orders inside a warehouse, where pickers are given multiple orders and each picker covers a specific zone within the warehouse. Using a grocery store analogy, one picker handles all the frozen meats while another picker covers all vegetables needed. They then come together at the shopping cart and sort the items together.

Weighted average method: Pricing method used to determine the average cost of production for a product. Often used when inventory is intermingled or units can't be tracked individually to their purchase price (i.e. identical items).

Work center: An organizational unit (i.e a location within a production facility) where similar tasks associated with a process are performed.

Work order: Written request that the customer makes for specific items or services. Important details found on a work order include: order number, customer billing and shipping addresses, date, expected delivery date, payment terms, delivery method, job description, unit price, sub-total, applicable taxes, total cost and authorized signature.

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