You’re expected to become an expert entrepreneur the second you create an eCommerce business.
But as a new business owner, you don’t have a fleet of experts on your team yet. Instead, you’re wearing multiple hats, being the marketer, founder, sales team, HR manager, accountant, and even logistics manager.
The last job is intimidating. It requires you to implement a system that runs efficiently enough to stay competitive in the eCommerce market, where 26% of retail purchases will likely take place by 2026.
So, the first step is to know the basic industry terms. By knowing the key eCommerce logistics terms and definitions, you’ll understand everything everybody talks about.
Here, we’ve compiled a supply chain glossary with simple descriptions to get you started.
1. 3PL or Third-Party Logistics
3PL means “Third-Party Logistics” and is used to refer to third-party logistics companies. These providers can handle aspects of shipping like warehousing, fulfillment, and transportation on your behalf. While there are concerns surrounding working with 3PLs, we’ve busted most 3PL myths in another blog.
2. Active Stock
Active stock refers to products that are stored in readily accessible areas or warehouses to streamline order fulfillment. The amount of active stock needed will depend on your customer’s or distributor’s demand. You can estimate this based on historical data.
3. Backorder
Backorder is a request to a supplier or wholesaler for additional stock of a sold-out item to complete an outstanding customer order. For example, you can have an out-of-stock product available for customers to buy, but they will have to wait longer while you backorder the stock.
4. Carrier & Carrier Liability
A carrier is a business that delivers shipments or freight for your company. It can transport goods by land, water, or air, and often has partner shippers that ship items from one location to another.
Every carrier is accountable for certain stock damages, losses, or delays—referred to as carrier liability. Companies will limit their liability, so ensure that your products are fully insured for transit.
5. Customs & Custom Value
Customs refers to the authorities controlling the flow and collecting duties on imports and exports. Colloquially, the term can refer to the actual duties paid. Moreover, custom value refers to the value of imported goods on which the duties are imposed, often including the price of goods and of shipping.
6. Distribution
Distribution refers to the logistics required to bring an item from the end of production to the customer. A related term is distribution center, which is a temporary warehouse for goods to flow in and out. There are also distribution channels, which refer to the channels for goods to go from manufacturer to customer.
7. Dock to Stock
Dock to stock refers to the time it takes to store goods once they’ve arrived at the warehouse. Its time determines the efficiency of the warehouse and its operations. Among the steps, the most complex is stock management, which covers the validation and inclusion of new products in the inventory.
8. Dropshipping
Dropshipping is a method for order fulfillment where a company delivers products from their eCommerce store, manufacturer, or third-party partner to the retailer without using typical distribution channels. Dropshipping merchants also don’t handle or warehouse their own inventory.
9. First Mile and Last Mile Delivery
First mile delivery refers to the first stage of transportation in the supply chain. In this stage, the goods leave the merchant or warehouse and go to the next location for forwarding. Eventually, the goods get to the last mile of the delivery process, where they’re delivered directly to the customer.
10. Fulfillment or Order Fulfillment
Fulfillment refers to the process of satisfying a customer’s order. Fulfillment can include order management, picking, packing, and shipping—the whole line from a customer placing an order to when the item is at their door. Another fulfillment term is order fulfillment, which refers to the same process.
11. Freight Forwarding
Freight forwarding refers to the process of coordinating and shipping goods from one location to another. They are freight forwarders that serve as a middleman between you and the goods’ destination, where they will move goods via air, sea, road, and rail.
12. Inbound and Outbound Logistics
Inbound logistics is the management of bringing materials and goods into the company—from suppliers and vendors into the storage facilities or production process. In contrast, outbound logistics refers to the management of moving goods out to the customer, focusing on getting products to the customer.
13. Just-in-Time Inventory
Just-in-time inventory refers to the method of manufacturing to demand. You don’t make the product beforehand and wait for the orders to come in—you make it only when there’s an order. While this method requires careful planning, the goal is to cut down costs from the production process.
14. Kitting
Kitting refers to the process of assembling components to create a finished product, including packaging. For example, if you sell bundles or packs of something, you’ll need a factory or 3PL warehouse to do the kitting or piecing together before sending it to the customer.
15. Lead Time
Lead time is a generic term used by many industries. But in the supply chain world, lead time refers to the time it takes for a supplier to get the goods ready for delivery or the time it takes for an order to be fulfilled. In other words, when an order is placed to when it’s received.
16. Picking and Packing
Picking and packing refers to the process of getting ordered products from storage and getting them ready for shipping—where you’ll likely have the packing slip, invoice, flyer, advertising, and any other packing materials needed for your product to be complete.
17. Port of Entry
Port of entry refers to the port where foreign goods are received in another country. They are critical components of the supply chain infrastructure, especially container seaports and airfreight hubs. The port of entry your company chooses will often boil down to cost and convenience.
18. Reverse Logistics
Reverse logistics refers to managing the process of getting the products or goods back from the customer and giving it back to the distributor, or manufacturer, or forwarding it to whoever can handle the next step. For example, handling product returns, repairs, and recycling are reverse logistics processes.
19. SKU Number
A SKU number, also known as the “Stock Keeping Unit” number, is used when retailers create unique number combinations to identify and track their different products. SKU numbers matter because they help brands to assess and track their inventory, then they know when shortages are occurring.
20. Ullage Rate
Ullage refers to the unfilled space in a container. Therefore, the ullage rate is the percentage of space lost due to the fact that a container is a bit short of being full. A lower ullage rate is better because you’re not wasting precious space sending containers around with no product.
Key Supply Chain Terms to Cut Down the Learning Curve
This logistics glossary lays the foundation for you to handle the supply chain of your eCommerce business. The learning curve is steep, but these key terms are the building blocks to climb your way to the top. You’re now well on your way toward mastering modern logistics.
Looking for a reliable 3PL company to work with?
At San Legend, we help eCommerce businesses scale their brands and break into new markets by providing customized, agile, and forward-thinking third-party logistics solutions. Reach out today to see how we can help.