Understanding Sourcing Terminology: A Comprehensive Guide

SourceReady offers a comprehensive sourcing glossary to help you master industry terminology and confidently negotiate with suppliers.

1. Supplier Types

1. Original Equipment Manufacturer (OEM): A company that produces parts and equipment that may be marketed by another manufacturer.
2. Original Design Manufacturer (ODM): A company that designs and manufactures a product, which is then branded by another company for sale.
3. Private Label Manufacturer: A manufacturer that produces goods for another company to sell under its own brand name.
4. Distributor: An intermediary that purchases products from manufacturers and sells them to retailers or other businesses.
5. Trading Company: A company that buys products in bulk from manufacturers and resells them to various customers, often in different countries.
6. Dropshipping Supplier: A supplier that ships products directly to the end customer on behalf of the retailer, eliminating the need for the retailer to hold inventory.
7. Supplier: A general term for any seller of goods or services to a company.
8. Wholesaler: A company or individual that buys goods in large quantities from manufacturers and sells them in smaller quantities to retailers or other businesses.

2. Procurement & Sourcing

1. Approved Vendor List (AVL): A list of suppliers that have been evaluated and approved to provide specific goods or services to a company.
2. Contract Manufacturing: A form of outsourcing where a company hires another company to produce goods on its behalf.
3. Direct Procurement: The process of acquiring goods and services that are directly related to the production of a company's products or services.
4. E-Procurement: The use of electronic systems to manage purchasing processes, from requisition to payment.
5. Indirect Procurement: The acquisition of goods and services that are not directly involved in the production process, such as office supplies, maintenance, and utilities.
6. Procurement: The process of acquiring goods and services from external sources, encompassing activities such as identifying needs, selecting suppliers, negotiating contracts, and managing supplier relationships.
7. Request for Proposal (RFP): A document issued by a company to solicit proposals from potential suppliers for goods or services, outlining the requirements and evaluation criteria.
8. Request for Quotation (RFQ): A document issued by a company to solicit price quotes from potential suppliers for specific goods or services.
9. Supplier Relationship Management (SRM): The process of managing interactions and relationships with suppliers to optimize performance and value.
10. Total Cost of Ownership (TCO): The comprehensive assessment of the costs associated with acquiring, operating, and maintaining a product or service over its entire lifecycle.
11. Vendor Managed Inventory (VMI): A supply chain initiative where the supplier takes responsibility for managing and replenishing inventory based on agreed-upon levels.
12. Backorder: An order for a product that is temporarily out of stock and will be shipped when available.
13. Blanket Purchase Order: A purchase order that allows for multiple deliveries over a period of time, often used to streamline recurring purchases.
14. Demand Forecasting: The process of estimating future customer demand for a product, used to inform production and inventory management decisions.
15. Drop Shipment: A fulfillment method where the seller does not keep goods in stock but instead transfers customer orders and shipment details to the manufacturer or a wholesaler, who then ships the goods directly to the customer.
16. Material Requirements Planning (MRP): A production planning and inventory control system used to manage manufacturing processes by ensuring that materials are available for production and products are available for delivery to customers.
17. Pre-Shipment Inspection (PSI): An inspection conducted before goods are shipped to ensure they meet the specified quality and quantity requirements.
18. Purchase Order (PO): A formal document issued by a buyer to a seller, indicating the types, quantities, and agreed prices for products or services the seller will provide.
19. Reorder Point: The inventory level at which a new order should be placed to replenish stock before it runs out.

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3. Product Development and Specifications

1. Bill of Materials (BOM): A comprehensive list of materials, components, and assemblies required to build a product, including quantities and descriptions.
2. SKU (Stock Keeping Unit): A unique identifier for each distinct product and service that can be purchased.
3. UPC (Universal Product Code): A barcode symbology used for tracking trade items in stores.
4. Product Lifecycle: The stages a product goes through from conception and development to market introduction, growth, maturity, and decline.
5. Product Specification: A detailed description of the design, materials, and performance criteria of a product.
6. Prototype: An early sample or model of a product used to test and refine design concepts.
7. Quality Control (QC): The process of ensuring that products meet the required standards and specifications through testing and inspection.
8. SKU Rationalization: The process of analyzing and optimizing the number of products a company offers.
9. Minimum Order Quantity (MOQ): The smallest quantity of a product that a supplier is willing to sell.
10. Product Recall: The process of retrieving defective or unsafe products from customers and providing remedies.
11. Tech Pack: A detailed document containing all the technical specifications, materials, measurements, and instructions necessary for the production of a product.

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4. Supply Chain & Logistics

1. Bill of Materials (BOM): A comprehensive list of materials, components, and assemblies required to build a product, including quantities and descriptions.
2. Just-In-Time (JIT): An inventory management strategy where materials are ordered and received only as they are needed in the production process, minimizing inventory costs.
3. Lead Time: The amount of time that elapses between placing an order and receiving the goods or services.
4. Logistics: The management of the flow of goods from the point of origin to the point of consumption, including transportation, warehousing, and distribution.
5. Supply Chain Management (SCM): The management of the flow of goods and services, including all processes that transform raw materials into final products, from the point of origin to the point of consumption.
6. Cross-Docking: A logistics practice where incoming shipments are directly transferred to outbound transportation with minimal or no storage in between.
7. Freight Forwarder: A company that organizes shipments for individuals or corporations to get goods from the manufacturer or producer to a market, customer, or final point of distribution.
8. Third-Party Logistics (3PL): The use of third-party businesses to outsource elements of a company's distribution and fulfillment services.
9. Fourth-Party Logistics (4PL): A logistics model where a company outsources the management of its entire supply chain to a single external service provider, who then oversees the 3PL providers and other logistics functions.
10. Consignment Stock: Inventory that is in the possession of the buyer but remains the property of the supplier until it is used or sold.
11. Landed Cost: The total cost of a product once it has arrived at the buyer's location, including the purchase price, transportation, duties, taxes, and other fees.
12. Packing List: A document that accompanies a shipment and lists the items included, along with their quantities and descriptions.
13. Waybill: A document issued by a carrier giving details and instructions relating to the shipment of a consignment of goods.
14. Wharfage: A fee charged for the use of a wharf or dock for loading or unloading cargo.
15. Inspection Certificate: A document certifying that goods have been inspected and meet the specified standards and requirements.

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5. Shipping & Incoterms

1. Free On Board (FOB): A shipping term that indicates when the ownership and liability of goods transfer from the seller to the buyer, typically when the goods pass the ship's rail at the port of shipment.
2. Delivered Duty Paid (DDP): An Incoterm where the seller is responsible for delivering the goods to the buyer’s location and covers all costs, including transportation, duties, and taxes.
3. Landed Duty Paid (LDP): A term similar to DDP but specifically includes the payment of all duties, taxes, and customs clearance by the seller before the goods are delivered to the buyer.
4. Incoterms: International commercial terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions.
5. Ex Works (EXW): An Incoterm where the seller makes the goods available at their premises, and the buyer is responsible for all transportation costs and risks.
6. Letter of Credit (LC): A financial document issued by a bank guaranteeing a buyer's payment to a seller, provided that the terms of the agreement are met.
7. Terms of Sale: The conditions under which a seller completes a sale, including the price, payment terms, delivery terms, and responsibilities of each party.
8. Commercial Invoice: A document required for international shipments that details the contents, value, and terms of sale for the goods being shipped.
9. Bonded Warehouse: A secure storage facility where goods can be stored without payment of duties until they are removed for sale or use.
10. Certificate of Origin (COO): A document used in international trade that certifies where goods were produced, often required for customs clearance.
11. Customs Clearance: The process of passing goods through customs so they can enter or leave a country, involving documentation and payment of duties.
12. Customs Broker: A professional who helps importers and exporters clear goods through customs, ensuring compliance with all regulations.
13. Antidumping Duty: A protectionist tariff imposed on foreign imports believed to be priced below fair market value, to protect domestic industries from unfair competition.
14. Tariff: A tax or duty imposed by a government on imported or exported goods.
15. C-TPAT (Customs-Trade Partnership Against Terrorism): A voluntary program led by U.S. Customs and Border Protection that aims to improve the security of private companies' supply chains.
16. Harmonized System (HS) Code: A standardized numerical method of classifying traded products used by customs authorities around the world to identify products and apply tariffs.
17. Trade Compliance: The practice of ensuring that all import and export activities comply with the applicable laws, regulations, and standards.
18. Quota: A government-imposed trade restriction that limits the number or monetary value of goods that can be imported or exported during a particular time period.
19. Value-Added Tax (VAT): A tax on the value added to goods and services at each stage of production or distribution, typically collected at the point of sale.‍
20. Bill of Lading (BOL): A legal document issued by a carrier to a shipper that details the type, quantity, and destination of the goods being carried. It serves as a shipment receipt and a contract between the carrier and shipper.

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6. Technology & Systems

1. Electronic Data Interchange (EDI): The electronic exchange of business documents in a standardized format between trading partners.
2. Supply Chain Management (SCM): A system that manages the flow of goods, information, and finances as a product moves from supplier to manufacturer to wholesaler to retailer to consumer.
3. Product Data Management (PDM): A system for managing product data and processes associated with the lifecycle of a product, ensuring that all teams involved have access to the most current information.
4. Enterprise Resource Planning (ERP): An integrated software platform that helps manage core business processes, including finance, HR, manufacturing, supply chain, services, procurement, and others.
5. Warehouse Management System (WMS): Software that supports the day-to-day operations in a warehouse by managing inventory, picking processes, and shipping operations.
6. Customer Relationship Management (CRM): A system for managing a company’s interactions with current and potential customers, focusing on improving customer satisfaction, retention, and sales.
7. Transportation Management System (TMS): A platform designed to manage and optimize the transportation logistics processes, including planning, execution, and tracking of shipments.
8. Supplier Relationship Management (SRM): A system for managing and analyzing interactions with suppliers to improve their performance, reduce risks, and foster better collaboration.
9. Product Lifecycle Management (PLM): A system that manages the entire lifecycle of a product from inception through engineering, design, manufacturing, service, and disposal.
10. Inventory Management System (IMS): A software solution that tracks inventory levels, orders, sales, and deliveries, helping businesses ensure they have the right amount of stock at all times.
11. Order Management System (OMS): A digital way to manage the lifecycle of an order, including the process of order entry, processing, and fulfillment across multiple channels.
12. Manufacturing Execution System (MES): A system that monitors and controls manufacturing operations on the factory floor, ensuring that production processes are optimized and running smoothly.
13. Demand Planning Software: A tool used to forecast demand for products and plan inventory accordingly, helping to optimize supply chain efficiency and reduce costs.
14. Quality Management System (QMS): A formalized system that documents processes, procedures, and responsibilities for achieving quality policies and objectives, crucial for maintaining product standards.

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7. Pricing & Financials

1. Yield Management: A pricing strategy that involves adjusting prices based on the demand for a product or service, often used in industries like airlines and hotels to maximize revenue.