Supply chain fundamentals

Introduction

A supply chain is the network of all the individuals, organizations, resources, activities and technology
involved in the creation and sale of a product. A supply chain encompasses everything from the delivery
of source materials from the supplier to the manufacturer through to its eventual delivery to the end
user. The supply chain segment involved with getting the finished product from the manufacturer to the
consumer is known as the distribution channel.

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Logistics Terms for Pros to Know: A Supply Chain Glossary

Absolute Minimum Charge — The minimum price a carrier will charge for any given shipment.

Accessibility — The ability of a carrier to provide service for a freight order.

Accessorial Charges — Fees added to a freight bill for additional services that the carrier might provide.
These are a la carte, or per service, and outside of standard shipping and receiving. Things like liftgate
requirements, redeliveries, and reclassifications are typical accessorial charges.

Account-Specific Pricing — Customer-specific pricing, or account-specific pricing, refers to an agreement

between a vendor moving product and a carrier or 3PL that establishes custom prices. Shippers who
move volume above a certain threshold are eligible for a discounted rate because they give the carrier
guaranteed business.

Advanced Planning and Scheduling (APS) — Critical supply chain planning that also accounts for
production schedules. Typically, it accounts for the planning of demand, production, distribution, and
transportation.

Agile — The concept of having a flexible supply chain that allows for quick order fulfillment with short
lead times and varying volume.

Air Freight — Transportation of products via air transportation methods.

Application Programming Interface (API) — A digital program that allows for data exchange between
two or more applications via the cloud.
ATA — Actual time of arrival

ATD — Actual time of departure

Audit — In logistics, an audit refers to the process of examining, adjusting, and verifying freight bills for
accuracy.

Backhaul — Refers to a truck’s return trip to the original destination with either a partial or full load.

Benchmark — In logistics, benchmarks refer to KPI thresholds set by an organization to measure supply
chain performance.

Billing — A process typically performed by the carrier that determines the total charges for a completed
order.

Bill of Lading (BOL) — A legally binding document between a shipper and carrier that details all the
information needed to process a freight shipment.

BOL Number — The number established by the carrier that refers to a specific BOL.

Cab Extender — A piece of equipment used to seal the gap between cab and trailer.

Capacity — In trucking, the term refers to available trucks in any given market. Conceptually speaking,
tight capacity translates into a more difficult market that is more challenging to find a carrier willing to
complete an order. Conversely, loose capacity translates into an easier environment that is easier to find
a carrier.

Cargo — Product carried during transportation.

Carmack Amendment — The piece of legislation that establishes carrier liability and BOL provisions.
Carriage — In maritime shipping, carriage refers to the movement of cargo on a vessel after loading and
before unloading.

Chargeable Weight — A shipment’s weight that is used to determining freight pricing. It may be the
dimensional weight of the shipment.

Claim — In freight, shippers can retroactively charge carriers for damages or loss to transported
products.

Class (Freight Class) — A group of commodities that are bunched together under a specific based on
similar dimensions or other attributes.

Class Rates — The rate charged for hauling products at a given class.

Co-Packer — A contracted partner that packages and labels products on behalf of its client.

Co-Manufacturer (Co-Man) — A third-party partner that produces goods from raw materials or semi-
finished materials on behalf of its client.

Collect Shipping — A type of billing that charges the consignee with freight costs rather than the
consignor.

Commodity — Any item that is commercially exchanged.

Common Carrier (Carrier) — The person or company that is responsible for transporting goods.

Compliance — In retail logistics, the term that refers to the regulations set by retailers for delivery of
goods into their supply chain.

Consignee — The receiver of transported products.

Consignment — A freight order transported by a carrier.

Consignor — The originator of shipped products. Also referred to as the shipper. Typically, the entity
that sold the product.

Consolidation — The combination of multiple shipments on a single order. This process is most
commonly used to lower transportation costs or improve supply chain performance.

Container — A large box used to transport freight via maritime shipping methods.

Container ID — The identification number assigned by the carrier to a given container.

Container Yard — The area that stows containers following their arrival at port. Carriers pick-up cargo
from these designated spaces.

Contract Carrier — Carriers hired by shippers on a contract basis.

Contract Rates — The rate at which a shipper and carrier agree upon in advance on a given lane. These
are rarely upheld as rates fluctuate with market demand and capacity.

Cross-Docking — The process of unloading product at a receiving facility and reloading it on another
truck to complete shipment with very little to no storage in between.

Cumulative Lead Time — The total time needed to source material, produce goods, and ship a product
to its destination.

Customs Broker — A third-party entity that assists vendors to deal with import or export customs.

Dashboard — In the tech aspect of logistics, a singular spot on a website or application where an
abundance of information is displayed.
Deadhead — Refers to the empty miles traveled without a load in a trailer.

Dead on Arrival — In logistics, the term used to describe product that is damaged upon delivery to its
destination.

Declared Value for Carriage — The value of goods according to the shipper. This amount is declared on a
BOL.

Delivery Appointment — The agreed-upon time of arrival for a transported order.

Demurrage — Additional charges incurred when freight is unloading past its specified time. Used in rail
and maritime transport.

Density — A product’s pounds per cubic foot. The metric is used to establish pricing for a transported
order.

Detention — The amount of time a carrier is held at a receiving location beyond a specified loading or
unloading appointment. Typically, detention results in a charge to the consignor.

Dispatch — The office in charge of allocating assets to haul shipments.

Distributor — A third-party that purchases products to resell to a retailer.

Drayage — The pick-up of the contents of a container from a yard by a carrier.

Drop Trailer — The process of leaving a trailer at a receiving location to be reloaded at another time.

Dunnage — Packing material used to product goods from damage during transport.
EDI Exchange — Communication between two businesses via a structured set of messages. EDI is used
to exchange documents like purchase orders and invoices.

Exception Rate — A situation in which a rate does not follow the set class rate.

Expedited Shipment — The rapid delivery of a product from its origin to its destination.

First-In, First-Out (FIFO) — An inventory management strategy that requires product to be used in
chronological order from its arrival to a facility.

Flatbed — A type of trailer that has no enclosed area.

Flexibility — The ability of a supply chain to react quickly and efficiently to changing customer demands.

Free on Board (FOB) — Used to decide who is liable for goods that are damaged during shipment.

For-Hire Carrier — A carrier that provides transportation services on a transactional basis.

Freight — An order that is transported from origin to destination.

Freight-All-Kinds (FAK) — Pricing strategy that bundles multiple freight classes into a single class.

Freight Bill — The invoice for a carrier shipment.

Full Truckload (FTL) — A shipment on which an entire trailer is filled with product.

Gross Weight — The total weight of a truck, trailer, its cargo, the driver, and any potential passengers.

Handling Costs — The cost of moving or transferring inventory.

Inbound Logistics — Refers to the transportation and storage of incoming goods into your supply chain.

Intermodal Transportation — The transportation of freight by two or more modes i.e., using rail shipping
and over-the-road shipping for a singular shipment.

Joint Rate — A rate of a route that requires two or more different carriers to transport shipment.

Just in Time (JIT) — An inventory control system that requires materials to arrive just in time for use.

Key Performance Indicator (KPI) — In logistics, KPIs are critical metrics that highlight the performance of
your supply chain.

Landed Costs — The cost of product combined with additional logistics costs.

Lead Time — The time between an order being placed and the time it needs to be shipped.

Less-Than-Truckload (LTL) — A shipment mode that consolidations several smaller shipments on a single
truck.

Line-Haul Shipment — An order that ships over 150 miles between two cities.

Load Tender — Also called a pick-up request. Simply put, it is a shipment offer to a carrier.

Lumper Fee — The cost associated with a driver assisting in the loading or unloading their trailer.

Market Demand — In trucking, this refers to the need for freight services.

Mileage Rate — A rate that is determined by the number of miles an order is shipped.
Must-Arrive By Date (MABD) — The date set by retailers that specifies when a vendor must have a
product to their receiving facilities.

National Motor Freight Classification (NMFC) — A tariff that puts all products that can be hauled as
freight into 18 different classes, numbered 50 to 500.

Network Analysis — The careful analysis of a logistics network. They are designed to analyze
warehousing, transportation, and other means of distribution.

On-Time In-Full (OTIF) — A standard by which retailers’ grade a supplier’s ability to have product
delivered to their distribution centers within prescribed delivery windows and at full quantities ordered.

Order — A shipment of goods.

Outbound Logistics — Moving product from your production facilities to the end-user.

Outsource — The process of using a third-party to complete functions that were previously performed
in-house.

Over-the-Road (OTR) — The transportation mode that involves long-distance moves via a truck.

Owner/Operator — A driver who owns their own truck and trailer.

Packing List — A document that specifies the location of each item in a package.

Pallet — The platform that product is stacked and wrapped on for transportation.

Parcel Shipment — The shipment of one or several small packages not on a pallet.

Per Diem — The rate a railroad pays another to use its cars.
Pick and Pack — Refers to the process of picking product and then immediately packing it into shipping
containers.

Pool Distribution — A shipping strategy that stocks multiple vendors’ orders in an optimally located
warehouse before sending out shipments via shortened LTL delivery methods.

Port of Discharge — The port where an order is unloaded.

Port of Entry — A maritime entry for goods into a country.

Port of Loading — The port where cargo is loaded onto a vessel.

Prepaid — A freight billing method in which the shipper pays transportation costs.

Proof of Delivery (POD) — Information supplied by the carrier that specifies who signed for the
shipment, when it arrived, and any other information.

Purchase Order (PO) — A document that specifies the details of a transaction between buyer and
supplier.

Real-Time — In logistics, this term refers to a shipper’s ability to track an order as it progresses from
origin to destination.

Receiving — The physical receipt of a transported order.

Receiving Dock — At a receiver’s facility, the dock is the place where goods are unloaded.

Refrigerated Carrier — A truckload or LTL carrier that has the capability to transport temp-sensitive
product in a refrigerated trailer.
Request for Proposal (RFP) — Refers to the process of bidding your freight lanes out to transportation
providers for an upcoming period of time.

Request for Quote (RFQ) — Another term for a transportation RFP.

Retail Buyer — A person who purchases products from vendors on behalf of a retail outlet.

Retailer — A business that buys products from suppliers to sell to end-users.

Routing Guide — The process in which a shipper determines which carrier will move a product based on
completed RFPs.

Scalability — How quickly a supplier can increase productivity to meet rising demand.

Scorecard — A tool used by retailers to grade their suppliers’ ability to deliver product on-time and in-
full.

Shipper — The originator of a shipment.

Shipping Lane — The route on which a carrier transports a product between origin and destination.

Short Shipment — An order which is incomplete or missing agreed-upon parts.

Spot Market — The trucking market that exists for shipments with little lead time or notice.

Spot Market Rates — Rates at the present moment in the market.

Supplier — A seller of goods.

Supply Chain Visibility — Refers to the ability to identify and isolate key metrics within the supply chain.
Tariff — Taxes assessed by a government on goods leaving or entering a country.

Tender — A formal request for transportation services.

Tender Rejection — A situation that occurs when a carrier rejects a shipper’s tender forcing them to find
an alternative carrier.

Third-Party Logistics Provider — A third-party firm that provides logistics services for customers.

Traceability — In shipping, this term refers to real-time or close to real-time location tracking.

Track and Trace — Following a shipment’s movement from origin to destination.

Trailer Drop — Occurs when a driver leaves a full trailer at a facility to pick up an empty one.

Transactional — A singularly occurring business relationship that occurs only on an at-need basis.

Transportation Management System (TMS) — An application that allows users to perform the activities
needed to complete key logistics planning and processes.

Transportation Mode — The method by which goods are transported.

True Logistics Partner — Refers to a logistics relationship that goes beyond transactional services to a
deeper, more consultative approach.

Value-Added Partner — A strategic partner that creates value for a firm that goes beyond benefits
received from a transaction.

Velocity — The rate at which product move through a warehouse.

Vendor — A company that manufactures or distributes an item.

Visibility — Access to key data within the supply chain.

Warehouse Network — Refers to a vendor’s chain of warehousing locations throughout a given

geographic area.

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Building Blocks of Supply Chain Strategy

Demand Planning

Rather than creating the demand, businesses need to be able to respond quickly to customer demand.
This means businesses should be prepared to adapt to unforeseen situations quickly and efficiently.

Demand planning helps your business understand the current demand for a good or service and predict
future demand. Look at past trends, historical data, and other analytics to predict future customer
demand.

Demand planning enables businesses to stock the proper amount of inventory and maintain correct
inventory levels. The use of strategies like Just In Time (JIT) inventory management and other lean
manufacturing approaches are useful in meeting and adapting to demand.

This type of strategy is also cost-effective as it enables you to cut down on warehousing or storage costs
and reduces the likelihood of excess stock or out-of-stock items

Level 1: Strategic

This level has only one element, which is the most critical one- Customer value alignment. The key
questions here are:

(i) What would be the Supply Chain structure and capabilities that will be required to meet customer
service needs in an optimal way.
(ii) How can you leverage your Supply Chain to create value for your customer, partners and your
organization?

Level 2: Structural

There are two key elements in the structural layer of a Supply Chain strategy:

(1) Network optimization: What should be the best Supply Chain network configuration to meet channel
and customer service requirements.

(2) Channel design: What level of operational integration needs to be achieved among the channel
members?
Consolidation

Supplier consolidation is a major player in supply chain strategy. Analyzing a supplier’s performance to
help rein in your business’s core suppliers helps cut down on unnecessary spending. Plus, by
consolidating suppliers you will be strengthening your relationships with the suppliers, vendors, and
manufacturers that truly have your business goals in mind.

Many third-party logistics providers offer supplier management services. These services may even be
part of an online portal for your convenience. Supplier management is a strategic way to streamline
your supply chain while driving efficiency and cost savings in the process.

Level 3: Operational

(1) Sourcing, production and inventory management: How should the company source inputs,
manufacture products and deploy inventory to match supply and demand at the right cost?

(2) Facilities and Transportation operations: What type of distribution and transportation will optimize
service, investment and cost?

(3) Integrated Planning: What is the most optimal and best in class way to plan end to end Supply Chain
operations in collaboration with all the partners?

Visibility

A visible supply chain increases its overall effectiveness as businesses are able to monitor and optimize
their efforts according to the changes in demand and other outside factors.
Because of the recent instability in the global supply chain network, due to the rippling effect of the
global pandemic, visibility is paramount to understanding the issues in your supply chain and devising a
strategy to solve them.

Use barcoding and order tracking technology to gain insights into your supply chain from procurement
to order fulfillment. View your supply chain in real-time to give you the power to adapt as demands
shift. Constantly optimize your supply chain process to ensure you are getting the most out of your
network.

Level 4: Foundational Supporting elements

(1) Technology: What type of technology infrastructure is needed to manage and plan the end to end
Supply Chain ?

(2) Processes: What processes and procedures need to be in place for flexible, effective operations?

(3) People: What type of skills, capabilities and organizational structure are required to achieve service
and operating objectives?

(4) Performance Management: What infrastructure, measures and incentives need to be in place to
ensure ongoing peak performance?
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The 4 core elements of supply chain management

Your supply chain efficiency and effectiveness make a massive impact on the overall success of any
business. To boost your business productivity and profitability further, you need to improve and
optimise your supply chain.

successful supply chain management incorporates a consolidated supply chain strategy, instead of one
that has been cobbled together as your business grows. Focusing on the core elements of your supply
chain can enable you to match this kind of performance.

1. INTEGRATION

Integration starts at your strategic planning phase and is critical throughout your communications and
information sharing and data analysis and storage.

A single-view, accurate, and reliable source of information on your supply chain activities and details
reduces human error, delays, shortages, and over/under-stocking, and allows you to plan for and
mitigate supply issues or interruptions.

Assess your technology needs, and ensure your choice gives you the right tools to integrate your full
supply chain solution while being flexible enough to change and grow with your business.

2. OPERATIONS

Your operations require an accurate, real-time representation of your inventory and production
schedules in order to monitor your output and forecast production and distribution patterns.
With the right software, you are able to align your operations with the rest of your business, provide
accurate and reliable information on the production and current inventories for more efficient
fulfillment processes.

Improve your profitability by predicting likely interruptions and challenges to reduce their impact on
your business, and streamline your operational processes to facilitate a smoother, less expensive path to
fulfillment.

3. PURCHASING

The right supply chain software does a great deal in terms of sourcing products in your supply chain and
ensuring you are taking advantage of the most competitive pricing and most reliable products.

Demand forecasting gives you a solid and practical method of ensuring you have right product, in the
right quantity, at the right time.

Keep track of suppliers, competing producers, and demand cycles, so that you can reduce your
operating costs across the sourcing and purchasing process.

4. DISTRIBUTION

The transport, delivery, and return of goods is a component of your supply chain that can always be
simplified, optimised, and corrected for better client service and reduced operating costs.

With varying options of stock origin, your delivery and returns process should be centralised for a real-
time view of inventory, order status and stock location regardless of whether an order originated in-
store or online.

WHY?
 Reduce overall operating costs
 Strengthen your relationship with suppliers
 Improve customer experience
 Elevate your financial standing
 Improve the quality of life in the warehouse

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Applied the strategies of SC to automate the flow of information across

organizational boundaries
EXAMPLE OF A SUPPLY CHAIN MANAGEMENT SYSTEM

Customer orders, shipping notifications, optimized shipping plans, and other supply chain information
flow among Haworth’s Warehouse Management System (WMS), Transportation Management System
(TMS), and its back-end corporate systems.

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%20management%20systems%20are%20one%20type%20of,least%20amount%20of%20time%20and
%20the%20lowest%20cost.

What is supply chain resilience?

When it comes to supply chain management, there are three steps that
organizations can take to account for long-term uncertainty and possible
upheaval:

Firefighting. This refers to short-term, day-to-day actions that can help identify
previously overlooked supply chain gaps. These tactics don’t build resilience,
however, so they should be used only in concert with more complex, long-term
reforms.
Integrating and streamlining operations. Here, three actions can be critical to
building resilient supply chains:
 creating a nerve center to consolidate organizational responses
 simulating and planning for extreme supply and demand disruptions
 reevaluating just-in-time inventory strategies
Achieving structural resilience. Quick responses are easier to accomplish, but if
long-term resilience is the goal, the following techniques can help:
 constructing a digital twin of the most critical parts of the supply chain,
allowing for simulations and test cases
 creating and testing “what if” scenarios
 increasing data sharing with suppliers
 considering ring-fencing a small part of the supply chain team
HOW EY CAN HELP OPTIMIZE RETAILER AND MANUFACTURER SUPPLY CHAINS?
1. Determining your needs and presenting options for your consideration
2. Diagnosing your issues and identifying your beneath-the-surface concerns
3. Suggesting improvements to your current methodologies
4. Presenting ideas for how you can reduce your supply expenses and
optimize your resources
5. Transforming your requirements into a viable work plan and then helping
you with timely implementation thereof
Benefits you can expect to receive from EY consultant include:
 Better collaboration among your various divisions
 Improved quality control
 Higher efficiency rate
 Increased ability to keep up with demand
 Shipping optimization
 Reduced overhead costs
 Improved risk mitigation
 Improved cash flow
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What EY can do for you
EY‘s Supply Chain Reinvention Framework is a suite of asset-backed solutions
enabled by advanced technologies such as data analytics, blockchain, machine
learning, robotics and artificial intelligence. This suite of solutions extends
from end-to-end supply chain strategy, strategic architecture, operational
excellence, and supply chain resilience. We can help you harness the creativity
and intelligence of your entire supplier ecosystem, increase collaboration, and
ultimately help serve your customers better.
EY Supply Chain Intelligence Platform
EY Supply Chain Intelligence Platform (SCIP) is a global supply chain analytics
engine which provides end-to-end visibility to help drive enterprise growth
and manage costs. SCIP can help cultivate rich insights through quantitative
analytics, qualitative performance assessments, process mining and
benchmarking across the entire breadth of your supply chain. Accelerate
valuable intelligence to quickly identify and capitalize on opportunities -
driving continuous improvement, supply chain optimization and
synchronization for the now, next and beyond.
Integrated Digital Planning
EY‘s Integrated Digital Planning solution is enabled by the latest technologies,
including artificial intelligence, machine learning, and cloud platforms, and is
also supported by assets including VC Sync™, Working Capital Optimization,
Cognitive Automation and “Lights Out” Planning. By taking advantage of our
experience, assets and advanced technologies, the Integrated Digital Planning
solution can help align your planning and decision-making at strategic,
operational and tactical levels, and allow you to react faster to rapid changes
in the marketplace.

Supply-side Optimization
A recent EY survey of procurement leaders indicated that more than half view
digital as an immediate priority to enable cost savings, innovation, supply
certainty and service. Supply-side success requires selecting the right suppliers
with the right capabilities, engaged under the right commercial agreements to
drive performance, and then actively managing this portfolio as the company
and the supply base evolves. Our solution provides an end-to-end framework
to deploy tailored processes and assets that will enable effective and efficient
processes to optimize the supplier portfolio, manage commercial excellence,
and conduct lights-out operations.
Smart Factory
Smart Factory is our people-centric solution for bringing together operations
strategy, industrial Internet of Things (IoT), shopfloor operational excellence
(OpEx) leading practices and analytics to drive sustainable performance
improvement. Smart Factory can help you understand whether your practice
standards are consistent from line to line, leverage manufacturing data to
improve results, and check whether your digital strategy is translating into
performance on the shopfloor. This solution combines our leading capabilities
with the cloud-based EY Catalyst OpEx platform and our EY Smart Factory
execution apps to help you gain insights and take the right actions toward.
Digital Fulfillment
Many of today‘s supply chains suffer from disparate and inefficient fulfillment
processes in terms of performance, risk and cost. EY‘s Digital Fulfillment
solution leverages innovative technology such as autonomous automated
vehicles to carry out goods movements, AI equipment to safeguard execution
of material flow, and analytics to generate heat maps for areas to improve
inventory allocation. The Digital Fulfillment solution can help you address the
traditional logistics challenges of efficiency, cost, accuracy and speed to
market in an environment of ever-increasing complexity around delivery
points and shortening lead times.
Services from EY
Smart Factory
EY Smart Factory arms your shop floor with dynamic predictive data analytics,
virtual reality and artificial intelligence to deliver unprecedented performance.

Intelligent automation consulting services

We can help you implement a holistic view of automation, process and service
improvement.
Global Business Services
 Global business services organizations will go much further by eliminating
transactional activities altogether through technology and value.
Supply chain in M&A integration and divestments
Whether it’s an M&A integration or a divestment and separation, a transaction
provides a unique opportunity to transform your supply chain.
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The SCM World (2017) Future of Supply Chain survey identified five core
challenges facing supply chain leaders, as discussed as follows.
 Cost containment. Remarkable adaptive capacity is required for supply
chain executives to respond to continual rapid change.
 Risk management. Imperfect early risk warning mechanisms have always
been a major roadblock to starting supply chain intelligence.
 Customer intimacy. Maintain closer ties with suppliers than with customers
despite their awareness of the importance of demand-driven operational
strategies.
 Globalization. The main target of globalization has always been revenue
growth.
 Visibility. Information emerges in an unprecedented volume, and the
visibility of valuable information is crucial to decision-making.
Solution: greater flexibility should be obtained to cope with cost volatility
with smarter cost containment strategies, risks should be managed
collaboratively along the end-to-end supply chain, customer input should
penetrate the supply chain through more immersive customer experiences,
and the global supply chain should be integrated and optimized
intelligently.
SSCM faces not only technical challenges, such as system security, network
infrastructure, and complex system management but also legal and public
management challenges, such as the ownership of intelligent
manufacturing data and the supervision and ascription of responsibility for
the elements in the intelligent autonomous systems. Humans and data, two
essential factors in the supply chain, are the source and bearers of technical
and ethical challenges.
Accordingly, the SSCM challenges are mapped onto the “people dimension”
and the “digital dimension.
Responsive Supply Chains
The three responsive supply chain models include the following:
The Agile model
The Flexible model
Custom configured model
Responsiveness driven models are ideal for “on-demand” situations when
there is uncertainty in product manufacturing. These models offer
flexibility for industries that require custom orders, trendy products, and
for manufacturers that have the capability of often making changes in their
products.
A good example of this model is a manufacturer that produces products for
different industries but their supply chain is flexible enough to quickly
switch raw materials and other supplies needed to meet the custom
requirements of a specific client. This week they may be making spare parts
for an automobile manufacturer; next week, they may be making fasteners
for construction projects.
The responsiveness oriented supply chain model has several benefits, but
they also have a few downsides, such as:
These models rely heavily upon the ability of human prediction to predict
trends.
In this model an under trained staff can make some critical errors that can
turn out to be very costly
These models require quite a bit of human interaction, leaving the system
prone to human error.