Essential Terminologies and Definitions in Supply Chain Management


Supply chain management is essential to how products are manufactured and distributed. Understanding the different terminologies can improve communication with clients and suppliers. These can lead to a more efficient service.

The industrial revolution globalized trade and made supply chain networks essential. Prior to the 1900s, most supply chains would be local. It wasn’t until the introduction of railroads that supply chain networks could work with greater distances between them.

Between 1900 and 1950, the world saw two global wars. It also saw global supply chains starting to take shape as industry leaders looked at ways to improve processes.

This led to the mechanization of many processes and between the 1960s to the 1980s, supply networks included:

  • Rail
  • Road
  • Air travel
  • Shipping

The 1980s saw technological breakthroughs in computing. This further improved the efficiency of supply chains. Between the 1990s and 2000s, the tech revolution exploded. This saw an increase in global import and export.

We now have access to RFID, blockchain, AI systems and the IoT (Internet of Things) – technology that can drive performance to unknown levels.

All through this, the basic concept of supply chain management has remained pretty stable. While the technology has improved efficiency, the supply chain is still relied upon to:

  • Procure raw materials
  • Transport to manufacturers
  • Transport finished products from manufacturers to distributors
  • Transport products from distributors to customers

This article will provide you with a greater understanding of the key supply chain terms and when they should be applied.

14 Key Supply Chain Management Terminologies

There are 14 key supply chain terms that are essential to the process. These are:

  1. Supply chain. The supply chain is the complete sequence of processes that lead to customer demand satisfaction.This can include the procurement of the raw materials required to make a product from suppliers. Plus, transporting these materials to the manufacturer and transporting the goods from the manufacturer to the distributor. The final part of the process is transporting the goods from the distributor to the final customer.
  2. Logistics. Logistics relates to the planning and transportation of goods in the supply chain. This can include storage and supply. Logistics should meet the customer’s requirements in terms of time and cost.
  3. Transportation. Transportation is one of the most simple terms in the supply chain. It relates to the transportation of products at each stage of the process.
  4. Inventory. A company’s inventory is all the stock they hold. This can include materials for future use.
  5. Procurement. Procurement is the process of obtaining goods required for a company to support its operations. This will involve the purchase and inspection of goods.
  6. Demand planning. Demand planning is the process of forecasting future demand. This allows the company to manage its inventory accordingly so it meets projected demand.
  7. Capacity planning. Capacity planning determines the potential production capacity required to meet demands. This is most commonly used for short to medium-term planning. It can be used for long-term planning at strategic levels.
  8. Production planning. Production planning relates to the manufacturing process. It considers targets and the resources required to meet these.
  9. Forecasting. Forecasting in a supply chain can relate to the demand, supply, or price of products or services.Algorithms are used to make predictions based on industry data.
  10. Sourcing. Sourcing in supply chains is the process of finding suitable suppliers. This process includes vetting and managing suppliers to ensure they meet the needs of the company.Different methods are used to determine the most suitable suppliers during the sourcing process including research, quality checks, and quantity metrics.
  11. Warehousing. Warehousing in supply chain management is related to storing inventory. This inventory could then be distributed or sold.Warehouses are used for storing in bulk. Buying products or raw materials in bulk can help companies reduce the cost of products.
  12. Distribution. Distribution is a part of logistics. It’s a management system that has a focus on order fulfillment. This is achieved through a network of distribution channels.
  13. Reverse logistics. Reverse logistics is the process of returning excess material or products back through the supply chain. This occurs after the customer demand has been met and a surplus has been identified.
  14. SKU stands for a stock-keeping unit. This helps to identify individual products or materials by unique reference numbers.More advanced supply chains will have individual SKU barcodes that can be easily scanned for stock management.

Supply Chain Management Terms and Concepts

To further understand supply chain management, here is a breakdown of the key terms and concepts:

Supply Chain Planning

Supply chain planning (SCP) is the process of forward planning. It uses the coordination of assets to ensure the supply of goods between supplier and customer is optimized.

Supply chain planning considers constraints, real-time demand, and potentially disruptive scenarios.

Demand planning forecasts projected future demands. Complex algorithms make use of industry-held data to predict demands and manage inventory to meet these needs.

S&OP (sales and operations planning) is used on an executive level to create a feasible financial plan for a company. It considers supply and demand to support decision-making.

Capacity planning is used to balance resources and ensure customer demand can be met. Capacity requirements consider the work a company can complete and the resources required to do this.

Sourcing and Procurement

Sourcing and procurement concerns finding the correct suppliers and raw materials for specific supply chain needs.

The procurement process in supply chain management is made up of five steps. These include:


An organization must first define its needs in order to procure the right materials or products.


The next step will be to research the supplier market. This will allow the organization to find the relevant materials or products. The quality and price of these will play a significant role in choosing the right supplier. The quality of service will also be important.


You will then need to negotiate contracts. The contract will cover everything from the scope of work and pricing to timelines and terms and conditions.

Contract negotiations can be an opportunity for organizations to make savings. It also provides the opportunity to lock down essential suppliers.


After the contract has been agreed you can then carry out the transaction and purchase the goods or services.

Track the process

After you receive the product or service, you should monitor the quality to ensure it meets standards. Costs should be monitored over time to ensure they aren’t rising at too high a rate.

The process of strategic sourcing involves evaluating potential suppliers. This will result in the correct decisions being made to reduce costs and improve efficiency.

Identifying, evaluating, and entering into a contract with a supplier is known as supplier selection.

A significant amount of an organization’s finances will be dedicated to suppliers. Making the right decisions at this point is essential.

Manufacturing and Production

The manufacturing and production stage will create the products after the procurement stage.

The manufacturing and production stage transforms the raw materials into finished products. A supply chain will supply the raw materials before transporting the finished products.

Lean manufacturing has a focus on minimizing waste. This means that production planning will have to consider the materials required for customer demands.

Lean manufacturing removes processes or design features that don’t add value to a product. This helps to reduce the materials required and lowers production time. This will help with costs.

The methodology known as Six Sigma is when statistical tools are utilized to improve efficiency in the manufacturing and production processes. Defects in the process are identified and removed to streamline processes and reduce costs.

Production planning and scheduling in the supply chain process are essential to how operations run. Planning will involve logistics and supplies to ensure schedules can run on time. Contingency plans are often put in place to minimize the risk of disruptions.

Inventory Management

Inventory management is centered around tracking inventory from suppliers and manufacturers. Inventory management should ensure products are in the right place. This can include warehousing, transport, or the point of sale.

Inventory control is also known as stock control. This ensures organizations have the correct amount of stock to meet customer demands.

Safety stock is a level of inventory that can protect against disruption or supply demands. Having the exact amount of stock required can lead to a shortfall if there are delays or an increase in demand.

JIT or Just-in-Time inventory arrives when it is needed. This minimizes inventory needs and reduces warehousing to hold raw materials or stock.

An EOQ or economic order quantity is a forecasted calculation. Companies can make these forecasts to order inventory that doesn’t exceed demand. This minimizes cost and the risk of overspending.

Logistics and Transportation

Logistics and transportation relate to the movement and management of product distribution. Logistics management is an essential part of the whole supply chain. This is because supply chain disruptions can result in the entire network grinding to a halt.

There are a number of modes of transport which include:

  • Maritime
  • Rail
  • Road
  • Air
  • Pipeline
  • Intermodal

Logistics management takes carrier selection into account. This determines which carrier is selected to carry out deliveries.

Carrier selection is an important part of logistics management. Agreements and planning must be in place to ensure each part of the process runs on schedule.

Freight costs have a bearing on the total cost of a product and profit margins.

Freight forwarding is the term used to describe the import and export of goods through a supply chain.

Incoterms are a set of 11 rules used to determine who is responsible for different aspects of the shipping process. This can include insurance, customs clearance, and insurance.

Visit the International Trade Administration to learn more about the Incoterms.

Warehousing and Distribution

Warehouse management is essential to store the raw materials and products that pass through a supply chain. The products are then distributed to the final point of sale.

Warehousing operations must keep accurate stock management records. These records will determine what is needed and when.

Logistics management will also play a part in the distribution of products from warehouses. This guarantees order fulfillment for the customers and frees up space for more products to be moved in.

Cross-docking can be used to maximize efficiency. This is where products or materials are dropped off at a warehouse while existing products are loaded onto the empty vans to be taken away.

Last-mile delivery is when the product is dispatched from the final dispatch point to its final delivery address.

Reverse Logistics

Reverse logistics is when products or materials pass back through the supply chain to the supplier. This can be used with excess materials or products.

Returns management will manage the process of collection and return. It will monitor the movement of the product and ensure refunds are carried out.

The environmental impact of supply chain management is becoming more scrutinized. Governments and consumers want access to the most environmentally friendly ways of buying products.

Implementing recycling schemes is one way of reducing an organization’s carbon footprint.

Supply chain management helps companies to explore the best business processes to deal with waste management. It can even work with suppliers that use recyclable packaging to make this easier.

Supply Chain Performance Measurement

Supply chain performance measurement is a way to judge how well a supply chain is working. This can be done by exploring customer satisfaction and the quality of products.

Certain metrics can also be used to monitor performance levels within an organization. This will ensure business processes are as efficient as possible.

KPIs can be used by organizations to set targets for performance and measure them. This will identify areas that can be improved.

A balanced scorecard approach will look at four aspects of business performance. These include:

  • Business processes
  • Finance
  • Customers
  • Learning and growth

Organizations can then pool this information into one report to get a better look at the overall picture.

Benchmarking takes the processes from industry leaders and sees how they can be applied to organizations. Implementing good practices from market leaders can improve performance.


Understanding supply chain management terminologies is essential. It will improve communication between supply chain managers and their clients, suppliers, and colleagues.

Supply chain sustainability is dependent on a range of factors. Ensuring every link in the supply chain is on the same page will be crucial to this.

The terms we have explored today cover all aspects of the supply chain. This includes:

  • Supply chain management
  • Inventory management
  • Logistics management

Many of the terms and concepts play a crucial part in ensuring the production process goes smoothly. This results in products reaching their final destination in a timely manner.

Supply chain management plays a significant part in the overall cost of products and how quickly they can reach the point of sale or customer.


What are the modes of transportation in supply chain management?

The modes of transportation in supply chain management are maritime, rail, road, air, pipeline, and intermodal.

What is the difference between warehousing and distribution?

Warehousing is the process of storing inventory. Distribution is the transport of inventory to the consumer.

What is reverse logistics?

Reverse logistics is the process of returning products or materials to the supplier via the supply chain.