Do you ever find yourself wading through the alphabet soup of supply chain terminology and coming up blank? Every three-letter acronym in existence seems to stand for something important, especially in the world of operations and supply chain management.
Before you write off the industry completely out of confusion — take heart. We’ve got your back! Instead of spending hours trying to decipher what WTF that abbreviation stands for, just flip open this blog post and get a crash course on all the three-letter supply chain acronyms you need to know.
ERP (Enterprise Resource Planning): Typically the financial backbone of a company but touches the supply chain with things like inventory and purchase orders. You can also manage sales orders with an ERP — anything that has a financial impact will flow through the ERP.
Many companies will try to make an ERP fit all of their business operational needs (e.g. many companies will try to use an ERP to manage inventory). Still, at its core, an ERP is a financial system, which is why many companies struggle to make ERPs work for inventory.
WMS (Warehouse Management System): System that manages the operational tasks in a warehouse, including inbound (receiving, putaway, inbound sorting), outbound (allocating inventory to orders, picking, packing, shipping) and inventory control (cycle count, physical counts).
OMS (Order Management System): An OMS intakes customer orders from an order entry point (i.e. an ecommerce order from Shopify or Amazon, a wholesale order emailed in from a distributor, a retail order sent via API/EDI) and then figures out what to do with that order. In other words, an OMS will look at things, including “Where in my network do I have that inventory of that item?” “How long will it take to ship to the customer from each inventory point” and “How much will it cost me to fulfill and ship from each location?” Then, the OMS sends that order to the appropriate fulfillment center for processing.
An ERP can sometimes include order management functionality. A company typically only needs a dedicated OMS once they get to more than three inventory locations in its network. Note: these locations could be fulfillment centers, 3PLs, retail locations that can fulfill inventory, etc.).
TMS (Transportation Management System): Generally, a company only has a dedicated TMS if the company has its own trucking fleet. Otherwise, the freight company (freight forwarder or freight broker) or the carrier will have a TMS the company may use or interface with. A TMS is used to manage shipments, trucking routes, etc.
LMS (Labor Management System): Used in conjunction with a WMS specifically to manage the labor force in a warehouse. Includes things like “engineered labor standards” to track employee productivity against goal time, used to measure direct vs. indirect time (e.g. time spent picking orders vs time spent changing forklift batteries).
RMS (Returns Management System): Used to manage the return of inventory from customers. RMSs tend to be tightly integrated with WMS. Although returns (in particular, the receiving of returned inventory) have a number of specific challenges and requirements compared to a standard WMS, these systems work with additional decision criteria to decide what to do with returned inventory based on conditions and additional processing steps, such as cleaning, refurbishment, etc.
IMS (Inventory Management System): Often, companies may have multiple inventory nodes in their network, i.e. multiple places that hold inventory, like company-owned warehouses, 3PL warehouses, retail stores, etc. Supply chain and operations teams need a way to look at inventory for individual locations and network-wide (i.e. a global view of all inventory they have) — that’s where IMSs come in.
Often an ERP can somewhat fill this need. However, as mentioned above, because an ERP is optimized for financials, it’s often not the exact operational views a supply chain team needs to view and track inventory.
PO (Purchase Order): When a brand needs to procure additional inventory from its suppliers, they send a purchase order to its suppliers. Inventory is typically then received against the PO in the warehouse.
ASN (Advanced Shipping Notice): Some customers will use ASNs to represent an actual truck being shipped inbound to their facility. For example, a customer will have a huge PO for multiple containers of product that will ship on multiple trucks. The supplier could then send an ASN for each truck, representing a portion of the PO and communicate what inventory is expected to show up on what truck. Receiving can then be done against the ASN in this case.
SO/DO (Sales Order/Distribution Order): An order placed by a customer or an end retailer that is to be fulfilled from the warehouse. Inventory for each SO line item is allocated, and then picking jobs/tasks are generated to send pickers to the location to get the inventory before it is packed for shipping.
LPN (License Plate Number): A unique number assigned to a piece of inventory in a warehouse. This is the number that uniquely identifies that piece of inventory in the warehouse and is used to track and locate that inventory in the warehouse. A single LPN can sometimes represent an entire pallet, a single case or a single unit (often called an “each”) – it depends on how that warehouse operates.
Location: Generally refers to a “rack location”, i.e. a specific place in the warehouse racks assigned a unique location ID. LPNs are located at individual locations in the WMS.
Distribution: The formal term for “warehousing.” Another synonym is “fulfillment,” although fulfillment generally refers to fulfilling ecommerce orders.
Logistics: Typically refers to the transportation, freight and trucking side of the supply chain.
3PL (Third-Party Logistics): A broad term for a third-party company that provides supply chain-related services, generally more warehousing and distribution-focused, but can (confusingly enough) also include logistics/transportation services.
LSP (Logistics Service Provider): A third-party company that provides logistics services, such as trucking and transportation. Usually, a pure LSP will not have warehousing capabilities.
In the ever-changing world of supply chain terminology, we've hopefully cleared the fog for you regarding those confusing three-letter acronyms. With a better understanding, you can use your newfound knowledge to focus on more important tasks, such as optimizing inventory and managing vendors.
And if you're still feeling lost among the alphabet soup out there, never fear — subscribe to our newsletter for even more insights and tips on staying up-to-date on this constantly changing industry.