We know how crucial fine-tuned and efficient purchasing and order processing are to a distribution business. For that reason, we’ve assembled a list of relevant industry terms and definitions, starting with those relating to purchasing and order processing.
Purchasing Terms:
Backorder
A backorder occurs when an order is placed for a product that is temporarily out of stock. In most cases, a purchase order has gone out to the vendor to replenish said stock and fulfill backorders.
Blind Shipping
Blind shipping is the vendor’s role in the drop shipping process. You might also hear it referred to as a blind drop ship. In an effort to conceal that the product was shipped from a third-party vendor and not from the seller, the third party’s information is removed from the shipping label and any documents that will accompany the shipment, and replaced with the seller’s information. The customer is then “blind” to who actually fulfilled their order.
To learn more about blind shipping, read “What is Blind Shipping and Double Blind Shipping?”
Drop Shipping
Drop shipping is an order fulfillment method in which a company enlists a third-party vendor to ship the order directly to the customer, rather than keeping the inventory in stock.
To learn more about drop shipping, read “What is Drop Shipping?”
Lead Time
The estimated amount of time that passes between sending a purchase order to a vendor and receiving the goods is called the lead time. It is very important to consider lead time when determining restocking strategies.
Purchase Order (PO)
A request to purchase goods, a purchase order is a commercial document and the first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.
Reorder Point
A reorder point is an inventory quantity that, once your inventory reaches this point, alerts you that it’s time to create a purchase order(s) to restock the inventory.
Vendor
Also known as a supplier, a vendor is a party in the supply chain that makes goods and services available to companies or consumers.
Order Processing Terms:
Counter Sales
In many cases, counter sales and point of sale can be used interchangeably. At Cavallo, we define counter sales as an in-person transaction in a non-traditional retail environment, such as a walk-in customer to a large warehouse.
Document Splitting
Document splitting allows you to process an order even without all the needed inventory items on hand. Splitting fulfillment into separate workflows allows the part of the order that you currently have in stock to be completed immediately, while the remainder waits on back ordered items to be received, processed, and shipped.
eCommerce
Also known as online shopping, eCommerce refers to goods and services being marketed and sold over the Internet.
EMV Chip/Pin
Up until recently, swiping the magnetic strip on your credit card and providing a signature was used to validate card-present transactions. However, that was deemed insecure and prone to fraud. Today, a new, more secure method of validation is being implemented: the EMV chip and pin. The EMV chip is that small, metallic square you see on new credit cards, and instead of a signature, customers enter a 4-6 digit pin number.
This transition came with a shift in fraud liability. Before the switch, the fraud liability was almost always on the card issuer, no matter what. Now, the merchant must have a card swiper with an EMV chip reader. If they don’t, they will held liable for fraudulent purchases that happen in their store.
Invoice
Similar to a sales order, an invoice is an itemized list of goods purchased or services rendered and the dollar amount owed for those goods or services. The invoice is sent to the customer after the goods have already been exchanged.
PCI Compliance
PCI compliance is adherence to the set of policies and procedures developed to protect credit, debit, and cash card transactions and to prevent the misuse of cardholders’ personal information. It applies to all companies that accept, process, store, or transmit credit card information.
Point of Sale
The time and place at which a retail transaction is completed is called the point of sale. More specifically, a point-of-sale system refers to the combination of software and hardware that retailers use to process a customer in person. When you are at your favorite clothing store and the cashier scans your items, swipes your credit card, and hands you a receipt, they’re using a point-of-sale system.
Quote
A quote is an estimated cost of goods or services that is sent to a customer for review. Once approved, a quote can turn into either an order or an invoice.
Sales Order
Also known simply as an order, a sales order is an itemized list of goods purchased, used internally to fulfill an order. When payment on an order isn’t immediate and goods are shipped without payment, a sales order turns into an invoice.
Smart Printing
Smart printing is the ability to automatically print a document based on its movement within your workflow. For example, you might choose to have a pick ticket automatically printed in your warehouse every time an order has been approved and is ready to pick, pack, and ship.
SOP to POP
SOP (sales order processing) to POP (purchase order processing) refers to a link between a sales order and a purchase order. This link allows you to purchase items that you want to sell but don’t currently have on hand, and it ensures that your purchased items are tied to the correct sales orders. SOP to POP covers your bases when you’re experiencing item shortages but customers are seeking to buy those same items from you.
Until Next Time
And there you have it. With these purchasing and order processing terms under your belt, you’re well-equipped for any question that comes your way. If there’s a business definition you have yet to see, stay tuned for the next post, or just ask us! We love hearing from you in the comments below.
