Every business that buys something, sells something, or moves something has a supply chain organization. The people who spend their working lives making things arrive where and when they are needed in the quantity and quality expected are professionals, and like most professions they have developed their own vocabulary for what they are doing and what they are thinking.
Today’s blog post is not for those people.
For most of my columns I try to write for as many of the people in Executive Platforms’ network as possible, and supply chain leaders are probably the single largest demographic who engage with us across all our events and in every industry. With that said, if you add up everyone else who has ever engaged with us, that is going to be a much larger number, and at least some of those people work with supply chain experts and read and hear about supply chain-related issues without knowing all the buzz words and lingo that creeps into every discipline over time.
For the purposes of this article, let us think of these people as ‘Supply Chain Adjacent.’ Maybe they work in Human Resources, or Quality Control, or Health and Safety. They certainly know what a supply chain is, and how important it is to their company, and they probably have a very good idea who in their company is doing that kind of work.
That doesn’t mean they understand everything those supply chain people say anymore than the average person off the street would be able to jump into a conversation with doctors or lawyers or scientists who are speaking among themselves using their own particular slang and shorthand among themselves at a rapid-fire pace.
I thought it might be helpful to the Supply Chain Adjacent for me to write out a few short explanations for some of the words and terms I hear most often when I deal with supply chain executives. This is not meant to be an exhaustive or exhausting list, and probably quite a few you do know already. I hope that at least a few of them are enlightening and even entertaining for you. I have not alphabetized them, although I have tried to group them in a logical way where possible.
So let’s get into it, shall we?
Direct Procurement and Indirect Procurement – For the benefit of the Supply Chain Adjacent, let me start by saying the divide between Procurement experts and Supply Chain experts can be pretty marked. Many companies have both a Chief Procurement Officer and a Chief Supply Chain Officer. There are executives who spend their entire careers on the procurement side of things, and there are respected supply chain leaders who have never worked in procurement at all. Funnily enough, no one without skin in the game on this particular issue seems to have any problem mentally lumping both sides together. Anyway, direct procurement is about sourcing and acquiring the resources that will eventually make up your company’s products. Indirect procurement is about sourcing and acquiring the resources that your company needs to operate that do not actually go into your products. As a quick example, a company that makes orange juice has direct procurement sourcing oranges and perhaps the bottles, and indirect procurement handles everything else the company needs to function from paperclips to machinery to electricity. If procurement is its own specialization within the larger supply chain organizations, indirect procurement is one of the true ‘people don’t think about it, but the whole world depends on it’ job functions.
Offshoring – I don’t expect this one is a mystery to anyone at this point, but it’s relevant to the next several terms so I will include it for the sake of context and completeness. Offshoring is when a business that traditionally made its product in one place moves its operation overseas where it can be made for less. While this is a global business strategy, offshoring is most often used in relation to what American manufacturers did in the 1980s and 1990s that contributed in large part to the dramatic rise of China’s economy.
Reshoring – For any number of reasons a company that offshored its operations in the past may choose to bring some or all of it back to where it started. This is called reshoring. A prominent example right now would be what is happening with the next generation of American-based microchip manufacturing facilities.
Nearshoring – Somewhere between offshoring and reshoring there sometimes exists an opportunity to shorten a supply chain while still keeping costs low. For example, a lot of Mexican and Canadian manufacturing is done for the American market based on NAFTA, advantageous currency exchange rates, and lower paid workers making operating in Mexico and Canada more cost-effective than an American operation while still keeping the supply chain much shorter than offshoring would allow.
Rightshoring – This is a relatively recent term that takes all of the options of global footprint optimization and says, “We will do what we need to do in the location that makes the most sense for cost and efficiency.” It was coined to allow supply chain leaders to talk about all options being on the table without getting into the specifics where people begin debating the pros and cons of any one strategy.
Footprint – Having just said ‘global footprint optimization’ in the previous explanation, it should probably be said that a footprint is where your company has a physical presence. When you are optimizing your global footprint, you are deciding where it does and doesn’t make sense to operate.
China Plus One Strategy or “C+1” – The business case for offshoring to China is changing over time, and most supply chain risk strategies are looking to diversify away from depending on any one specific partner a well. Many companies are now looking to spread their business to at least one other country whose economy, workforce, and logistical infrastructure offers the same advantages that attracted them to China in the first place. Examples would include countries like Indonesia, Thailand, Vietnam, and Malaysia.
Upstream and Downstream – Imagine the supply chain as a river that flows from the raw materials that will eventually become the product all the way through to the final customer. A river has two directions. Upstream and downstream. Every point on a supply chain can either look back in the direction the product orginiated from (upstream) or forward towards the final customer (downstream).
Visibility – How much of the supply chain can you see, and how often can you see it? A supply chain that you can see from end to end in real-time has excellent visibility. Most supply chains today view gaps in visibility as an unacceptable risk in the 21st Century. Almost every business is working to improve visibility throughout their supply chains.
Transparency – If visibility is how much and how often you can see, transparency refers to how well you can see it. Going further, Transparency as a term is often used to contrast to how much more of a supply chain you can see than used to be possible. As an example, you might have visibility of goods moving from point A to point B, but transparency would be knowing the conditions of the goods before, during, and after they have moved. Transparency also often includes access to information generated by partners up and down the value chain.
Traceability – When you have visibility and traceability in a supply chain, sooner or later the next logical step is having a clear picture of where everything came from, who was responsible for it, and what was its condition at all points of its journey. As an example of how powerful traceability can be, today food recalls can be traced back to the specific farm, the specific warehouse, even the specific trucks that were involved in the issue. No one had a crystal ball to know what to document ahead of time. Everything is documented at all times, and when a problem does arise, it can be tracked back to its source and all opportunities for cross contamination investigated along the way. Imagine how much better supply chains function with this kind of laser-focused root cause analysis!
Value Chain – Again, having used the term in the transparency explanation just now, I suppose I should clarify it. In most conversations supply chains and value chains can be used almost interchangeably. The key difference if you want to talk about them separately is in a value chain everything is either adding to or preserving the satisfaction of the final user of what is being gathered, created, moved, and delivered. Customer-centric supply chains are value chains. There are parts of some supply chains that are not always thinking about the customer, and that is why it is useful to have a specific term that isn’t quite a synonym.
3PL – A Third Party Logistics provider is a company that moves other companies’ goods as their entire business model. Not too many companies own their own ships, planes, and trains, and even the ones that own their trucks often need help. That’s where 3PLs come in.
Drop Shipment – When a customer orders from your company but your vendor ships to them directly without using your supply chain organization, your business is using Drop Shipment. This works best for products that move slowly and have a long or even infinite shelf-life.
Intermodal – If your goods are using two or more types of vehicles to get from point A to point B without being unloaded and reloaded or in any way individually handled along the way, that’s intermodal. As an example, goods that went into a container that was put on and off a ship, then loaded onto a truck that took it to a train that took it to another truck, those goods were transported by intermodal freight. It’s much faster, much less expensive, and when done correctly the contents of the container are much safer than most other ways of moving goods.
FTL and LTL – Full Truckload and Less Than Truckload. These are two simple acronyms with a world of difference baked into them. A full truckload means your cargo uses up the total capacity of a truck (or a shipping container loaded onto a truck), and from there on that truck and its cargo is yours and fits into your supply chain as your plan. A less than full truck will share its truck (or the shipping container loaded onto a truck), which means the cargo is now sharing its supply chain journey with other cargo that may or may have the same needs. There are supply chain leaders whose whole careers are built on being great at FTL but not LTL or vice versa, but of course most professionals deal with both. The strategies and service and solution providers to optimize one are often counterproductive to the other. For the Supply Chain Adjacent who have read this far? I encourage you to get your friendliest Supply Chain experts to start telling you war stories about their FTL or LTL troubleshooting. You will have a good time with it.
Cross-Docking – Imagine shipping goods from a supplier to customers without needing to store them along the way? That is achieved by cross-docking. Quite often we are literally talking about using one dock or platform where cargo can be unloaded from one truck or set of trucks, reviewed, and then divided into another set of trucks for delivery. This is most commonly done for temperature-sensitive and perishable goods with short shelf-lives. It can be one of the most challenging supply chain processes to improve visibility and transparency on, because individual goods are moved and sorted quickly on an individual level, often by hand.
First-Mile – The movement of goods within a company’s own operations. When Ford makes a truck and that truck moves around the factory before being parked on Ford’s own property, that’s First-Mile logistics.
Mid-Mile – That’s the movement of goods through a logistics network. When a new iPhone is moved from warehouse to a distribution or fulfillment center, we are talking about Mid-Mile logistics, although most people often just call this logistics unless it is in the context of talking about First-Mile and Last-Mile as well.
Last-Mile – How does something reach its final destination? The FedEx courier or delivery truck driver who is making stops along a route to physically deliver something to the final customer is doing what is called the Last Mile. I can say with total confidence this blog will do whole articles on the importance of Last Mile Logistics in the future. There is so much to talk about here!
DC – Distribution Center, also known as a warehouse or a fulfillment center or many other synonyms. They are all broadly speaking the same thing. They are a place to receive, store, and sort goods between where they were made and where they will be put in front of the final customer.
Materials Handling – This is a broad label for all the short-distance movement of goods happening First-Mile and DC contexts. If you are moving something within the four walls or on the grounds of your company’s own property, you are talking about Materials handling. In many cases this is where supply chain organizations are most directly connecting and collaborating with their colleagues in manufacturing disciplines.
FIFO and LIFO – First In First Out and Last In First Out. While that sounds self-explanatory in terms of inventory management, it also has an important financial consideration. Profit and loss is determined by sales value less purchase value, so FIFO and LIFO also determine which side of your inventory you are counting from when your price points change over time.
Supplier Management – It is not enough to choose who to do business with, sign a contract, and expect results. Supply Chain leaders have to have ongoing and hopefully mutually beneficial working relationships with their suppliers and vendors. They have to understand what is going on in their partners’ industries. They have to be aware of their alternative options at all times in case they need to diversify or make a change. They need to be communicating and collaborating on data management up and down the value chain. For the Supply Chain Adjacent this may sound simple, but it can be a huge part of what your colleagues working in the Supply Chain space do in their day-to-day. It is an expertise that only comes from experience.
EDI – Having just talked about supplier management, this is probably the logical place to mention EDI. You know how in the new Industry 4.0/Digital Revolution/Industrial Internet of Things everybody is collecting and sharing data all the time? Supply Chain executives have been doing that since before most of the current buzz words were coined. You will find many supply chain leaders talking about their Electronic Data Interface, which is where their information is shared digitally upstream and downstream to their suppliers, partners, and customers. I admit it feels strange that Supply Chain professionals have their own term for something everyone else has too these days, but again they got it first and gave it their own label before it was a thing to most other professions. That’s EDI. It doesn’t look like other professions are interested in giving it a wider usage, but that just makes it a great addition to this list of supply chain jargon, right?
Scope 1, Scope 2, and Scope 3 Emissions – Supply chains are one of the key drivers of a company’s environmental performance. Just think what a difference it makes in terms of greenhouse gas (GHG) emissions if a company switches to electric vehicles or reshores or nearshores its manufacturing operations to be nearer its customers? Keeping track of a company’s carbon footprint often falls to supply chain leaders, and even when it does not, their metrics are crucial data for ESG reporting. These metrics fall into three different scopes. Scope 1 is the emissions the company produces itself in its own operations. Scope 2 is the emissions the company is responsible for based on the energy they purchased. Scope 3 is the emissions the company is responsible for indirectly through the upstream and downstream emissions of their partners in the value chain. Scope 3 is very much something supply chain professionals are best suited to document, and many supply chain leaders are working on Scope 3 projects right now.
Just-in-Time or JIT – Delivering exactly what is needed exactly when it is needed without delay or excess of any kind. Probably the most famous example of this comes from Toyota. A Toyota assembly line doesn’t have extra parts in bins behind each station on an assembly line. Inventory is waste. Through a Culture of Continuous Improvement, Toyota has worked tirelessly for years to make sure every worker and process has what is needed when needed, no more, no less. The supply chain planning that goes into making that happen without fail is staggering.
World-Class Supply Chain – This is the shiny brass ring of supply chain professionals. A company that boasts of having a world-class supply chain is saying their organization is operating at the highest level and should be emulated by everyone else. If you’re not comfortable calling yourself a world-class supply chain, you want to get there. If you are comfortable calling yourself a world-class supply chain, you are constantly working to prove yourself worthy of that status.
You know, having started I find myself struggling to stop? This has actually been a lot of fun to write. I really enjoy speaking with supply chain executives, and it has been a pleasure sharing some of their jargon with you. I could probably go on for another thousand words easily, but blog posts are not really supposed to run to that length, are they? Maybe it’s best if I save that for another day and revisit this topic again one day.
Anyway, to all the Supply Chain Adjacent who made it to the end of this, I hope you picked up a few things that will help you engage with your colleagues a little more easily in the future. Cheers!
Head of Content & Research
Geoff joined the industry events business as a conference producer in 2010 after four years working in print media. He has researched, planned, organized, run, and contributed to more than a hundred events across North America and Europe for senior leaders, with special emphasis on the energy, mining, manufacturing, maintenance, supply chain, human resources, pharmaceutical, food and beverage, finance, and sustainability sectors. As part of his role as Head of Content & Research, Geoff hosts Executive Platforms’ bluEPrint Podcast series as well as a weekly blog focusing on issues relevant to Executive Platforms’ network of business leaders.
Geoff is the author of five works of historical fiction: Inca, Zulu, Beginning, Middle, and End. The New York Times and National Public Radio have interviewed him about his writing, and he wrote and narrated an animated short for Vice Media that appeared on HBO. He has a BA Honours with High Distinction from the University of Toronto specializing in Journalism with a Double Minor in History and Classical Studies, as well as Diploma in Journalism from Centennial College.