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Useful Terms

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Following are the comman terms / words used in the cargo industry. Click on each one for its detal.


ABC ANALYSIS

Analysis of an organization according to the so-called 80/20 rule, which states that, in any sense of lements, a small part of the series accounts for a large part of the series' effect (the Pareto principle). 80/20 is symbolic of a ratio which could just as well be 90/10 or 70/30.
 
 An ABC analysis can be made of products, customers or suppliers, and can involve a division of the studied organization into groups - often three groups called A, B and C.
 
 The criteria used for the division vary according to what is being analysed, e.g. products, customers or suppliers, and to what kind of organization is being studied. A common criterion is volume value. Other applicable criteria are customer growth potential, strategic value (of customer or product), etc.
 
ACTIVITY-BASED COST

Logistical cost calculated per activity; for example transport from A to B.

AGENT

A person or organization authorized to act on behalf of another.

ACTIVE STOCK

See CURRENT STOCK
 
AWB
Also called consignment note. Contract between the (AIR WAYBILL) shipper and carrier(s) for carriage of goods over the carriers' routes.
 
The document accompanies the shipment and contains all relevant information needed to ensure the shipment's dispatch to and receipt by the specified consignee. Can be MASTER AIR WAYBLL (issued by the carrier) or HOUSE AIR WAYBILL (issued by the forwarder).
 
ALTERNATIVE COST
Revenue lost by using a resource in one particular way instead of choosing the best possible way to use that resource.
 
ARTICLE STRUCTURE
Parameters applying to all goods, raw materials, intermediate and other components used by a company in its production. These parameters can include number of articles, number of variants of each article, and division of articles into standard and non-standard groups.
 
AVERAGE STOCK
Average level of stock over a given period of time. Can be defined for example as: Minimum stock + Maximum stock
 
BACK ORDER
An order for goods from stock which either cannot be delivered immediately or are not required immediately.

BAR CODE
Identification method bearing information in the form of a unique series of parallel lines of varying thickness which can be read by a computer with the help of a laser scanner (e.g. wand).
 
The establishment of a frame of reference against BENCHMARKING which one can effectively measure results. In this context, the branch 'standard' - the key figures which are normal for a certain type of company.
 
BUFFER STOCK
Stocks which serve to make material outflow independent of inflow. Can include current (active) stocks and emergency reserve stocks, especially when the mentioned independence is important.
 
CAPITAL COMMITMENT
Sum of capital committed to a company's operations, e.g. capital tied up in stocks, work in progress, buildings, machinery, customer receivables, etc.
 
CAPITAL
Measures taken to improve return on capital, mainly by RATIONALIZATION increasing the rate of capital turnover. Often used as a working name for programs which are designed to release tied-up capital - without reducing the volume of operations.

CAPITAL COSTS
The costs of using capital as a production factor.
 
Capital costs include depreciation and interest, and are usually expressed on an annual basis. They are defined as the yearly cost of interest payments and depreciation on, say, a building, a machine or a reserve of stocks.
 
CENTRAL STOCK
Stock of goods held in one place for a whole geographical region, as opposed to LOCAL STOC.
 
CENTRALIZATION
The logistics system contains a number of NODES DEGREE OF where manufacture, storage or transshipment of goods take place. The structure of the logistics system is detained by the geographical locations of these nodes.
 
The degree of centralisation increases if the number of nodes is reduced on one or more levels, or the number of process levels is increased at one or more nodes. A logistics system can also be physically decentralised, but centralised in terms of administration and decision-making.
 
Ratio of production capacity actually used to available COEFFICIENT of production capacity.
 
COEFFICIENT OF OCCUPANCY
Ratio of actual volume of goods to holding capacity of warehouse or vehicle. An economic KEYINDICATOR, defined as MARGIN CONTRIBUTION RATIO CONTRIBUTION as a percentage of revenue. A statement of the means by which a company strives
 
CORPORATE MISSION
To achieve sustained profitability. The principal elements of a corporate mission are that market niche which the company dominates or aims to serve, the products, systems or services offered to that niche, and the resources and internal measures which the company uses to achieve its goal. Also called Business Concept.
 
COSTING INTEREST
A rate of interest, determined by corporate management, to be used within the company for the purpose of calculating return on investment and the costs of work in progress, inventory, stocks, etc. Costing interest expresses the desired return on invested capital, i.e. the alternative value of capital. Different rates of costing interest can be applied to different ways of using capital.
 
CURRENT STOCK
Stocks accumulated when inflow to stock exceeds outflow from stock. Either a certain minimum quantity of material must be taken in and successively used, or else a certain quantity is taken out and the stock must be successively replenished. The quantity actually in stock at any given time is called the current stock, or active stock.
 
CUSTOMER SERVICE
The element in a company's mix of competitive tools which comprises service factors before, during and after sales. Product availability is one of the most important elements of customer service.
 
DELIVERY AVAILABILITY
Measure of a company's ability to deliver a product. Also called delivery capability. The aggregate of
 
PRODUCTION AVAILABILITY& STOCK AVAILABILITY
Probability that the correct goods will be sent and will
 
DELIVERY ASSURANCE
Arrive intact. Can be expressed as a percentage of the total number of orders shipped.
 
DELIVERY PRECISION
The number of complete orders delivered punctually.
 
DELIVERY PUNCTUALITY
A measure of how well promised delivery times are kept. Can be expressed as the number of deliveries made on time as a percentage of the total number of deliveries.

DELIVERY SERVICE
Activities during a sale performed with a view to creating utility in time and space. Delivery service is composed of a large number of elements, the most important of which are delivery time, delivery assurance, stock availability and flexibility. Part of CUSTOMER SERVICE. The component elements of delivery service. The mix DELIVERY is determined entirely by the unique circumstances SERVICE MIX which prevail in a given case, and may therefore vary between companies and industries or even between different deliveries to the same customer.
 
DELIVERY TIME
Promised delivery time is the time within which the seller is required by the sales agreement or by custom to deliver the goods to the buyer. Actual delivery time is the time elapsed from order to delivery. See also LEAD TlME and ORDER CYCLE TIME. Mismatch between planned and actual events, e.g.
 
DISCREPANCY
Missing cargo or a difference between manifested and actual weight of an ULD.
 
DISTRIBUTION
All activities, both physical and administrative, performed for the purpose of making a company's products available to the market. The term covers marketing and choice of distribution channels as well as physical distribution. See PHYSICAL DISTRIBUTION.
 
DISTRIBUTION SYSTEM
Collective name for all activities concerned with making a company's products available to the market, including various activities and the relations between hem, resources, management and objectives. One important goal of the distribution system is to achieve high availability of the company's products on the market at the lowest possible cost. High availability is achieved, for example, by choice of the right distribution channels, the right mix of marketing activities and efficient physical distribution.
 
DU PONT FORMULA
 A model for calculating the return on a company's capital over a given period of time. i.e.: Return on capital = Degree of surplus X Rate of capital turnover Degree of surplus = Surplus . Turnover Rate of turnover = Turnover . Invested capital
 
DU PONT DIAGRAM
A graphic diagram showing the interrelations of various cost and revenue terms, derived from a budgeting and costing system constructed by the international Du Pont corporation. Can be expressed simply as a graphic representation of the Du Pont formula.
 
EDI
Electronic Data Interchange
 
EOQ
The quantity of goods ordered which results in (Economical Order minimisation of the sum of purchase, stockkeeping and Quantity) specific shortfall costs. See also SQUARE ROOT FORMULA .
 
EMERGENCY RESERVE
Extra stock in addition to CURRENT STOCK, held as a STOCK precaution against interruptions in inflow or outflow.
 
EXPRESS ORDER
An order which for one reason or another is processed and shipped faster than usual. Also called rush order.
 
EXTERNAL TRANSPORTATION
Transportation between different companies, factories, etc. Often used to designate all movement of goods outside a company's gates. See also INTERNAL TRANSPORTATlON.
 
EXTERNAL WAREHOUSING
Purchase of warehousing service comprising space entail and intake/outtake of goods.
 
FIFO
Abbreviation of First In, First Out. It means that articles of the same kind leave the warehouse in chronological order, i.e. those that were placed in stock first are issued first.
 
FIXED ASSETS
Resources intended for long-term ownership and use, e.g. machinery, land and buildings, or subsidiary companies.
 
FIXED COST
A cost whose total amount remains unchanged regardless of changes in the volume of operations.
 
FIXED STOCK
A system in which every article number has a LOCATION permanent space assigned to it in the warehouse. This space must be large enough to hold the maximum quantity of a given article held in stock at any one time. The system is characterised by minimum administration and large volume; it is not compatible with FIFO. See also FLOATlNG STOCK LOCATION.
 
FLOATING STOCK LOCATION
A system in which incoming goods are placed in any convenient vacant space in the warehouse. The location is recorded together with the article number in the administrative system. The floating stock location system requires sophisticated administration, but has the advantages that it makes better use of available space, requires a minimum of stock maintenance, provides an automatic inventory update and permits more reliable replenishment frequency and batch FIFO. See also FIXED STOCK LOCATION.
 
FORECAST
An estimate or prediction of future developments. May refer for example to future demand, changes in prices of various products, etc.
 
FREIGHT FORWARDER
A company which handles receipt and dispatch of goods on behalf of third parties. It may also, as required, assume responsibility for consolidation, transshipment, customs clearance, insurance, warehousing, etc.
 
GENERAL AGREEMENT
 The agreement between buyer and seller includes, in addition to the text of the agreement, a delivery schedule specifying the buyer's requirements for each of the articles concerned per unit of time (e.g. per week) over an extended period, usually for one or two years ahead. It also includes specification of all articles covered by the agreement, with prices per unit and the annual quantity on which the price is calculated. Lastly, it includes a 'firm time' in weeks, which means that all suborders in the delivery schedule within that time are regarded as firm orders. The agreement may in principle remain in force until the article concerned is dropped from the buyer's production.
 
IATA
International Air Transport Association. Founded in 1945 by scheduled airlines, in order to promote safe, regular and economic air transport.
 
INFORMATION SYSTEM
Collective name for all those activities in a company that are concerned with acquisition, co-ordination and spreading of information, including relations between activities, resources, management and objectives. Examples of comprehensive information systems are forecasting, resource co-ordination, operative and follow-up systems.
 
INTERMEDIATE STOCKS
Stocks held pending further processing, transportation, etc.

INTERNAL INTEREST
The rate of interest at which the present value of all incoming and outgoing payments arising out of an investment becomes zero. Internal interest is a measure of the profitability of an investment.
 
INTERNAL TRANSPORTATION
Transportation within a company, factory, etc. Often used to designate all handling and movement of goods within a company's gates. See also EXTERNAL TRANSPORTATION .
 
INVENTORY
The total amount of raw materials, other materials, equipment, intermediate stocks and goods kept on hand for internal use. The term is often used as a synonym for STOCK.
 
JOINT COSTS
Costs which are incurred regardless of whether a given activity begins or ceases. A joint cost is thus common to many operations.

JUST-IN-TIME (JIT)
 A system developed in Japan, aiming to eliminate all non-essentials in the flow of production and distribution, and treating the two as parts of an integrated process.
 
 JIT essentially means No Stockkeeping, as stocks tie up capital without paying interest, and stock- keeping automatically implies additional overheads for warehousing and personnel.
 
 The ideal JIT process involves producing only the number of units to be shipped out the same day, and delivering those goods to the carrier just in time to make the acceptance deadline.
 
 From the forwarder's and carrier's standpoints, acceptance of shipments just in time keeps a smooth flow through a terminal, thereby minimising the costs of handling and storage.
 
 JIT applies to time, but also necessitates the elimination of wastage, rejects and substandard quality. The goal is reached not by any single activity but by a series of concurrent and well-coordinated measures, including the adjustment and stringent quality control of manufacturing output, manufacturing the necessary quantity only as needed, and automatically stopping production.
 
KEY INDICATORS
Key economic indicators are comparative figures which provide a measure of the economic situation in a company. They may include measures of efficiency, financing, liquidity, solidity and return on capital.
 
LIFO
Abbreviation for Last In, First Out. Means that the most recent additions to stock are the first to be released from stock.
 
LEAD TIME
Time elapsed from the placement of an order until delivery has been made in full. See also DELIVERY TIME and ORDER CYCLE TIME.
 
LETTER OF CREDIT (L/C)
Letter authorizing a bank to pay money to the bearer. The L/C usually states the conditions of sale (and transport) of goods which have been agreed between buyer and seller. When these conditions are fulfilled, payment to the seller is authorized.
 
LOCAL STOCK
Stock held at one location for a small geographical area, as opposed to central stock.
 
LOGISTICS COSTS
All costs which can be attributed to the flow of materials in a company. This category is generally reckoned to include transportation, storage, packing, administration, order processing, stock management, transport administration, specific purchasing, setting up and shortfall costs.
 
LOGISTIC EFFICIENCY
Can be divided into inward and outward efficiency. Inward efficiency is the efficiency of handling operations and control compared to alternative ways of performing those operations.
 
LOGISTICS
A strategic, tactical and operative theory and method for increasing a company's return on investment, by improving cost-effectiveness and capital turnover in the flow of materials and delivery service to customers. Development, planning, co-ordination and control of material flows from raw material supplier to end user are based on the principles of logistics.
 
LOGISTICS, GOALS OF
Corporate goals formulated on the basis of logistics theory. They can be divided into four groups:
 1. Reducing logistics costs;
 2. Securing the supply of materials for production;
 3. Adapting delivery service to customers' needs;
 4. Increasing the rate of material turnover.
 
Each group of logistics goals comprises a number of sub-goals such as low transportation costs, low stock costs, short delivery times, high delivery assurance, low shortfall costs and low capital commitment.
 
LOGISTICS PHILOSOPHY OF
A frame of reference for coordination of the following objectives in a company:
 - reduction of transportation, storage and packing costs;
 - improved delivery availability to the market;
 - assurance of material supplies to production;
 - increased rate of material turnover.

LOGISTICS SYSTEM
Collective name for all of a company's activities concerned with the flow of materials from suppliers to the company and thence to the customer, including relations between those activities, resources, management and objectives. A company's logistics system can, for example, be divided into three subsystems - material supply, production control and distribution - acting in support of the logistics function. A logistics system is always situation-specific. The user determines the way it is defined, with reference to the purpose of the system and the nature of the reality which the system seeks to reflect.
 
MARGIN CONTRIBUTION
The difference between SPEClFlC REVENUE and SPECIFIC COST. This term may refer to a single product, a group of products, a customer or a group of customers.
 
MATERIAL & PRODUCTION CONTROL
Overall term for management of operations which in various ways affect the flow of production in a company, all the way from making of design drawings through purchasing, production, tooling, etc. to outward delivery of finished products.
 
MATERIAL HANDLING
Collective term for physical handling, movement, storage and packing of material.
 
MATERIAL SUPPLY
Collective name for all those activities in a company which are performed with a view to securing inward deliveries of materials from suppliers, e.g. purchasing, transportation, storage, inventory assets management and material handling.
 
MATERIAL SUPPLY SYSTEM
Collective name for all activities in a company concerned with inward deliveries of materials from suppliers, including relations between those activities, resources, management and objectives. An important goal of a company's material supply system is to secure supplies of raw materials, components, etc. at lowest possible cost.
 
MATERIAL TURNOVER RATE OF
A measure of how quickly material passes through stock expressed as outflow per unit of time divided by average stock. The term total material turnover usually means the company's annual turnover divided by the balance of goods in inventory, production and stock. This can be measured in either physical quantities or money.
 
NEGATIVE STOCK
Order backlog, i.e. uncompleted orders. In some cases negative stocks are undesirable, while in others they are deliberately used to control the logistics system for the purpose of minimizing stock costs.
 
NODES
Key points in the flow of materials at which manufacturing, storage or transshipment take place.
 
NORMAL STOCK
That part of the stock which is needed to cover normal demand from customers.
 
ORDER CYCLE TIME
Elapsed time from identification of the need for an order until delivery has been made in full. Consists of time for identification of need, order accumulation, order placement and transmission, order reception and processing, forwarding (in the case of back orders), load out, transportation to the customer and receipt of delivery.
 
ORDER POINT
A critical level of inventory or stock. When this point has been reached, it is time to reorder.
 
ORDER POINT SYSTEM
A type of stock control system in which an order for a predetermined quantity is placed whenever stocks fall to a specified level (See ORDER POINT).
 
ORDER-SPECIFIC COSTS
Specific costs arising when an order is given for inflow o stock, i.e. costs which would not have been incurred if the order had not been given. Also called traceable costs. In the case of a purchase from an outside source, order-specific costs may comprise request for quotation, order writing, telephone calls, postage and a fixed part of the cost of transportation. In the case of an order for stock replenishment from in-house production, the order-specific costs comprise the cost of starting manufacture, setting-up costs for production equipment, and 'running-in' costs (in the form of a lower rate of production and a higher rate of rejects at the beginning of a run).
 
ORDER STATUS
The point in the order processing chain - receipt, preparation, production, shipment, delivery - which a specific order has reached at a specific point in time.
 
PHYSICAL DISTRIBUTION
All activities, both physical and administrative, concerned with movement of products from producer to end user. The term includes order processing, transportation, crating, handling and associated administrative activities.
 
PHYSICAL DISTRIBUTION SYSTEM
Collective name for all a company's activities which are concerned with movement of products from producer to end user, including relations between those activities, resources, management and objectives. One important goal of the physical distribution system is to assure the company's customers of an adequate level of delivery service.
 
PRODUCTION CONTROL
Tactical and operative management activities aimed at maximising the efficiency of production resources (machinery, personnel, work in progress, etc.).
 
PRODUCTION PLANNING
The corporate function which controls production and, at the same time, supplies input for assessment of long- term production potential.
 
PRODUCTION TO ORDER
Production based on customer orders received, as distinguished from production for stock.
 
 
PRODUCTIVITY
Ratio of volume of production to resources (labour, materials, capital) consumed by production.
 
RATE OF TURNOVER
 See MATERIAL TURNOVER, RATE OF.
 
RETURN ON CAPITAL A KEY INDICATOR
Showing return (surplus, profit) as a percentage of equity or total capital. See also RETURN ON INVESTMENT.
 
RETURN ON INVESTMENT (ROI)
A measure of a company's profitability. The calculation formula is profit divided by invested capital.
 
REVENUE
Income; money earned.
 
SEASONAL STOCK
A type of CURRENT STOCK. The term usually refers to a situation in which the level of production IS constant and stocks are built up during the slack season for use during the busy season.
 
SEMI-FIXED COST
A cost which is not affected by volume changes within certain limits.
 
SERVICE DIFFERENTIATION
Different levels of service for different customers products, markets, etc., based on deliberate allocation of priorities.
 
SERVICE COST
Costs incurred as a result of faulty delivery service. See SHORTFALL COST.
 
SERVICE, DEGREE OF
The customer s overall perception of the service that a company offers.
 
SERVICE, ELEMENTS OF
The components of delivery service, e.g. delivery time, order status information and stock availability.
 
SETTING-UP COST
The cost involved in retooling a machine for a new production run. It is composed of the cost of labour for retooling and the loss of production while retooling is in progress.
 
SETTING UP TIME
The time required to retool a machine or group of machines for a new production run.
 
SHIPMENT STRUCTURE
Conditions applying to shipment of various goods, raw materials, intermediates or end products between stations in a company's material flow. In the structure of shipment to customers, for example, these conditions may refer to the number of shipments, variation of size of shipments in terms of volume or weight, type of goods, etc.
 
SHORTFALL COST
Cost arising from inability to deliver an asked-for product or service. The cost may be notional, for example where it is feared that customers' unsatisfied demands in a shortfall situation could lead to loss of the customer and thus to loss of future revenues. The cost may also be actual, e.g. for production stoppages, contract penalties for late delivery to a customer, dispatch, back order recording, etc. The term also includes additional costs for remedying shortfalls, such as administrative costs for back-order processing and increased transportation costs.
 
SPECIFIC COST
Cost of a resource, used (or procured) for a given operation, which would not have been incurred if that operation had not been performed.
 
SPECIFIC REVENUE
Revenue earned from a given operation which would not have been earned if that operation had not been performed.
 
SQUARE ROOT FORMULA
A formula used to calculate the optimum volume of purchase orders by weighing specific purchase costs against stockkeeping costs. It can also be used to calculate the optimum length of a production run. In its simplest form, the formula can be expressed as the square root of twice the annual consumption times specific purchasing costs, divided by the stockkeeping cost per unit per year. The square root formula is also called the EOQ formula or Wilson formula.
 
STOCK
Materials, intermediates or goods held by a company pending further processing, delivery or sale.
 
STOCK AVAILABILITY
 A measure of the probability that an asked-for product is in stock. Defined as the number of orders, or articles, that can be delivered from stock as a percentage of the total number of orders, or articles ordered. Also definable as the time taken to deliver from stock as a percentage of the total time.
 
STOCK CONTROL
Tactical and operative decision-making, ordering and control activities performed with a view to making stockkeeping more efficient.
 
STOCK COST
Total cost of keeping goods in stock; the sum of STOCKKEEPING COSTS and WAREHOUSlNG COSTS.
 
STOCK IN HAND
Materials, intermediates or goods held in reserve by a company, e.g. to compensate for fluctuations in rate of consumption and possible interruptions of supply, or to save costs by purchasing in larger lots. See also STOCKS and INVENTORY.
 
STOCK IN TRANSIT
Stock in process of being transported between two points. Transit stocks are necessary on account of the time required to move the goods.
 
STOCK INTEREST
 Annual cost of keeping goods in stock as a percentage of their average value.
 
STOCKKEEPING COSTS
 Investment and risk costs associated with items held in stock, e.g. capital costs and costs for losses, unsalability, damage, insurance premiums, etc.
 
SUBCONTRACTED PRODUCTION
 Work farmed out to a subcontractor and performed to he ordering company's product specifications. May refer to both interrnediate processing and manufacture of end products.
 
SUBORDER
 A condition of delivery by which the buyer is entitled to demand delivery of goods at any time he chooses after the purchase agreement has been made. A suborder may be for shipment of the complete order or part of it.
 
SUPPLIER RATING
 Assessment of different possible suppliers with a view to choosing the most suitable one. Factors to be taken into account in supplier rating include price, product quality, delivery service, and the company's age, size, location, organization, financial standing, operations, production facilities, equipment, inventory and stocks. There may also be special requirements such as willingness and ability to expand with the customer, as well as general observations.
 
THROUGHPUT TIME
 The time taken to manufacture a part or product from the first to the last operation in the studied process. The throughput time of an order is the period of time consumed for manufacturing the products specified in the order, i.e. the elapsed time from receipt of the order to delivery of the goods.
 
TIED UP CAPITAL
Sum of capital committed to a company's operations, e.g. fixed assets, stocks and customer receivables.
 
TIME-BASED MANAGEMENT
Management philosophy whose primary aim is to shorten overall lead time in a company, employing one or several methods, so as to improve competitiveness and profitability.
 
TOTAL COST ANALYSIS
The process of balancing cost components against each other, with a view to minimizing the total cost. This analysis is based on the proposition that an action which increases a given cost component is justified if it helps to reduce the total cost.
 
TRANSIT TIME
The total time elapsed from the moment when the supplier makes goods available for delivery until the moment when the same material reaches the consignee.
 
TRANSPORTATION SYSTEM
Collective name for all activities, relations between activities, resources, management and objectives in a company concerned with internal and external transportation.
 
UNSALABLE STOCK
Products which for one reason or another cannot be sold or used for their intended purpose. The reason may be that they are obsolete, damaged, etc.
 
VARIABLE COST
A cost which constantly changes with the volume of production over a given period of time.
 
VOLUME VALUE
See ABC ANALYSIS ANALYSIS
 
WAREHOUSING COSTS
Costs associated with physical storage (warehousing), i.e costs of warehouse personnel, stock handling equipment, warehouse buildings, etc.
 
WILSON FORMULA
See SQUARE ROOT FORMULA .
 
WORK IN PROGRESS
Products in the production pipeline, i.e either undergoing a manufacturing operation or in an intermediate stock awaiting the next manufacturing operation.

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