Glossary of Supply Chain and Logistics Terms
The following is a glossary of supply chain and logistics terms with over 1,400 definitions for you to browse through. Read on to get a crash course in logistics terminology and expand your vocabulary!
ABC Classification: Classification of a group of items in decreasing order of annual dollar volume or other criteria. This array is then split into three classes called A, B, and C. The A group represents 10 to 20% by number of items, and 50 to 70% by projected dollar volume. The next grouping, B, represents about 20% of the items and 20% of the dollar volume. The C-class contains 60 to 70% of the items, and represents about 10 to 30% of the dollar volume.
ABC Costing: See Activity-Based Costing (ABC)
ABC Inventory Control: An inventory control approach based on the ABC volume or sales revenue classification of products (A items are highest volume or revenue, C – or perhaps D – are lowest volume SKUs.)
ABC Model: In cost management, a representation of resource costs during a time period that are consumed through activities and traced to products, services, and customers, or to any other object that creates a demand for the activity to be performed.
ABC System: In cost management, a system that maintains financial and operating data on an organization’s resources, activities, drivers, objects and measures. ABC Models are created and maintained within this system.
ABI: *See Automated Broker Interface (ABI).
ABM: See Activity-Based Management (ABM).
ABP: See Activity-Based Planning (ABP).
Abnormal Demand: Demand in any period that is outside the limits established by management policy. This demand may come from a new customer or from existing customers whose own demand is increasing or decreasing. Care must be taken in evaluating the nature of the demand: Is it a volume change, is it a change in product mix, or is it related to the timing of the order?
Absorption Costing: In cost management, an approach to inventory valuation in which variable costs and a portion of fixed costs are assigned to each unit of production. The fixed costs are usually allocated to units of output on the basis of direct labor hours, machine hours, or material costs. Synonym: Allocation Costing.
Accelerated Commercial Release Operations Support System (ACROSS): A Canada Customs system to speed the release of shipments by allowing electronic transmission of data to and from Canada Customs 24 hours a day, 7 days a week.
Acceptable Quality Level (AQL): In quality management, when a continuing series of lots is considered, AQL represents a quality level that, for the purposes of sampling inspection, is the limit of a satisfactory process average.
Acceptable Sampling Plan: In quality management, a specific plan that indicates the sampling sizes and the associated acceptance or non-acceptance criteria to be used. Also see: Acceptance Sampling.
Acceptance Number: In quality management, 1) A number used in acceptance sampling as a cut off at which the lot will be accepted or rejected. For example, if x or more units are bad within the sample, the lot will be rejected. 2) The value of the test statistic that divides all possible values into acceptance and rejection regions. Also see: Acceptance Sampling.
Acceptance Sampling: 1) The process of sampling a portion of goods for inspection rather than examining the entire lot. The entire lot may be accepted or rejected based on the sample even though the specific units in the lot are better or worse than the sample. There are two types: attributes sampling and variables sampling. In attributes sampling, the presence or absence of a characteristic is noted in each of the units inspected. In variables sampling, the numerical magnitude of a characteristic is measured and recorded for each inspected unit; this type of sampling involves reference to a continuous scale of some kind. 2) A method of measuring random samples of lots or batches of products against predetermined standards.
Accessorial Charges: A carrier’s charge for accessorial services such as loading, unloading, pickup, and delivery, or any other charge deemed appropriate.
Accountability: Being answerable for, but not necessarily personally charged with, doing specific work. Accountability cannot be delegated, but it can be shared. For example, managers and executives are accountable for business performance even though they may not actually perform the work.
Accreditation: Certification by a recognized body of the facilities, capability, objectivity, competence, and integrity of an agency, service, operational group, or individual to provide the specific service or operation needed. For example, the Registrar Accreditation Board accredits those organizations that register companies to the ISO 9000 Series Standards.
Accredited Standards Committee (ASC): A committee of ANSI chartered in 1979 to develop uniform standards for the electronic interchange of business documents. The committee develops and maintains US generic standards (X12) for Electronic Data Interchange.
Accuracy: In quality management, the degree of freedom from error or the degree of conformity to a standard. Accuracy is different from precision. For example, four-significant-digit numbers are less precise than six-significant-digit numbers; however, a properly computed four-significant-digit number might be more accurate than an improperly computed six-significant-digit number.
ACD: See Automated Call Distribution.
Activity: Work performed by people, equipment, technologies, or facilities. Activities are usually described by the action-verb-adjective-noun grammar convention. Activities may occur in a linked sequence and activity-to-activity assignments may exist. (1) In activity-based cost accounting, a task or activity, performed by or at a resource, required in producing the organization’s output of goods and services. A resource may be a person, machine, or facility. Activities are grouped into pools by type of activity and allocated to products. (2) In project management, an element of work on a project. It usually has an anticipated duration, anticipated cost, and expected resource requirements. Sometimes major activity is used for larger bodies of work.
Activity Analysis: The process of identifying and cataloging activities for detailed understanding and documentation of their characteristics. An activity analysis is accomplished by means of interviews, group sessions, questionnaires, observations, and reviews of physical records of work.
Activity-Based Budgeting (ABB): An approach to budgeting where a company uses an understanding of its activities and driver relationships to quantitatively estimate workload and resource requirements as part of an ongoing business plan. Budgets show the types, number of, and cost of resources that activities are expected to consume based on forecasted workloads. The budget is part of an organization’s activity-based planning process and can be used in evaluating its success in setting and pursuing strategic goals.
Activity-Based Costing (ABC): A methodology that measures the cost and performance of cost objects, activities, and resources. Cost objects consume activities and activities consume resources. Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outpputs) based on the cost objects proportional use of those activities. Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources.
Activity-Based Costing Model: In activity-based cost accounting, a model, by time period, of resource costs created because of activities related to products or services or other items causing the activity to be carried out.
Activity-Based Management (ABM): A discipline focusing on the management of activities within business processes as the route to continuously improve both the value received by customers and the profit earned in providing that value. AMB uses activity-based cost information and performance measurements to influence management action. See Activity-Based Costing.
Activity-Based Planning (ABP): Activity-based planning (ABP) is an ongoing process to determine activity and resource requirements (both financial and operational) based on the ongoing demand of products or services by specific customer needs. Resource requirements are compared to resources available and capacity issues are identified and managed.
Activity Dictionary:A listing and description of activities that provides a common/standard definition of activities across the organization. An activity dictionary can include information about an activity and/or its relationships, such as activity description, business process, function source, whether value added, inputs, outputs, supplier, customer, output measures, cost drivers, attributes, tasks, and other information as desired to describe the activity.
Activity Driver: The best single quantitative measure of the frequency and intensity of the demands placed on an activity by cost objects or other activities. It’s used to assign activity costs to cost objects or to other activities.
Activity Level: A description of types of activities dependent on the functional area. Product-related activity levels may include unit, batch, and product levels. Customer-related activity levels may include customer, market, channel, and project levels.
Activity Ratio: A financial ratio used to determine how an organization’s resources perform relative to the revenue the resources produce. Activity ratios include inventory turnover, receivables conversion period, fixed-asset turnover, and return on assets.
Actual Cost System: A cost system that collects costs historically as they are applied to production, and allocates indirect costs to products based on the specific costs and achieved volume of the products.
Actual Demand: Actual demand is composed of customer orders (and often allocations of items, ingredients, or raw materials to production or distribution). Actual demand nets against or consumes the forecast, depending on the rules chosen over a time horizon. For example, actual demand will totally replace forecast inside the sold-out customer order backlog horizon (often called the demand time fence), but will net against the forecast outside this horizon based on the chosen forecast consumption rule.
Actual to Theoretical Cycle Time: The ratio of the measured time required to produce a given output divided by the sum of the time required to produce a given output based on the rated efficiency of the machinery and labor operations.
Ad Valorem Duty: A duty calculated as a percentage of the shipment value. Also see: Duty
Advanced Planning and Scheduling (APS): Techniques that deal with analysis and planning of logistics and manufacturing over the short, intermediate, and long-term time periods. APS describes any computer program that uses advanced mathmatical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others. These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise capabilities. APS often generates and evaluates multiple scenarios. Management then selects one scenario to use as the official plan. The five main components of an APS system are demand planning, production planning, production scheduling, distribution planning, and transportation planning.
Advanced Shipment Notice (ASN): An EDI term referring to a transaction set (ANSI 856) where the supplier sends out a notification to interested parties that a shipment is now outbound in the supply chain. This notification is list transmitted to a customer or consignor designating items shipped. The ASN may also include the expected time of arrival.
Aerodynamic Drag: Wind resistance
Aggregate Forecast: An estimate of sales, oftentimes phased, for a grouping of products or product families produced by a facility or firm. Stated in terms of units, dollars, or both, the aggregate forecast is used for sales and production planning (or for sales and operations planning) purposes.
Aggregate Planning: A process to develop tactical plans to support the organization’s business plan. Aggregate planning usually includes the development, analysis and maintenance of plans for total sales, total production, targeted inventory, and targeted inventory, and targeted customer backlog for families of products. The production plan is the result of the aggregate planning process. Two approaches to aggregate planning exist – production planning and sales and operations planning.
Agility: The ability to successfully manufacture and market a broad range of low-cost, high-quality products and services with short lead times and varying volumes that provide enhanced value to customers through customization. Agility merges the four distinctive competencies of cost, quality, dependability, and flexibility.
Air Cargo Containers: Containers designed to conform to the inside of an aircraft. There are many shapes and sizes of containers. Air cargo containers fall into three categories: 1) air cargo pallets 2) lower deck containers 3) box type containers.
Air Waybill (AWB): A bill of lading for air transport that serves as a receipt for the shipper, indicates that the carrier has accepted the goods listed, obligates the carrier to carry the consignment to the airport of destination according to specified conditions.
Alert: See Action Message.
Allocation: 1) A distribution of costs using calculations that may be unrelated to physical observations or direct or repeatable cause-and-effect relationships. Because of the arbitrary nature of allocations, costs based on cost causal assignment are viewed as more relevant for management decision-making. 2) Allocation of available inventory to customer and production orders.
American National Standards Institute (ANSI): A non-profit organization chartered to develop, maintain, and promulgate voluntary US national standards in a number of areas, especially with regards to setting EDI standards. ANSI is the US representative to the International Standards Organization (ISO).
ANSI: *See American National Standards Institute (ANSI)
Anti-Dumping Duty: An additional import duty imposed in instances where imported goods are priced at less than the “normal” price charged in the exporter’s domestic market and cause material injury to domestic industry in the importing country.
AQL: See Acceptable Quality Level (AQL).
A/R: See Accounts Receivable.
ASQ: See American Society for Quality.
Assemble to Order: A production environment where a good or service can be assembled after receipt of a customer’s order. The key components (bulk, semifinished, intermediate, sub-assembly, fabricated, purchased, packing, and so on) used in the assembly or finishing process are planned and usually stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product. This strategy is useful where a large number of end products (based on the selection of options and accessories) can be assembled from common components.
Assembly: A group of subassemblies and/or parts that are put together and constitute a major subdivision for the final product. An assembly may be an end item or a component of a higher-level assembly.
Assignment: A distribution of costs using causal relationships. Because cost causal relationships are viewed as more relevant for management decision making, assignment of costs is generally preferable to allocation techniques. Synonymous with Tracing. Contrast with Allocation.
ATP: *See Available to Promise (ATP).
Attributes: A label used to provide additional classification or information about a resource, activity, or cost object. Used for focusing attention and may be subjective. Examples are a characteristic, a score or grade of product or activity, or groupings of these items, and performance measures.
Auditability: A characteristic of modern information systems gauged by the ease with which data can be substantiated by tracing it to source documents, and the extent to which auditors can rely on pre-verified and monitored control processes.
Available to Promise (ATP): The uncommitted portion of a company’s inventory and planned production maintained in the master schedule to support customer-order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue. Three methods of calculation are used: discrete ATP, cumulative ATP with look ahead, and cumulative ATP without look ahead.
Average: See Marine Cargo Insurance
Average Cost: Total cost, fixed plus variable, divided by total output.
B2B: See Business-to-Business (B2B).
B2C: See Business-to-Customer (B2C).
Backhaul: The process of a transportation vehicle returning from the original destination point to the point of origin. The 1980 Motor Carrier Act deregulated interstate commercial trucking, thereby allowing carriers to contract for the return trip. The backhaul can be with a full, partial, or empty load. An empty backhaul is called deadheading. Also see: Deadhead
Backorder: (1) The act of retaining a quantity to ship against an order when other order lines have already been shipped. Backorders are usually caused by stock shortages. (2) The quantity remaining to be shipped if an initial shipment(s) has been processed. Note: In some cases, backorders are not allowed. This results in a lost sale when sufficient quantities are not available to completely ship an order or order line.
Balanced Scorecard: A structured measurement system based on a mix of financial and non-financial measures of business performance. A list of financial and operational measurements used to evaluate organizational or supply chain performance. The dimensions of the balanced scorecard might include customer perspective, business process perspective, financial perspective, and innovation and learning perspectives. It formally connects overall objectives, strategies, and measurements. Each dimension has goals and measurements. Also see: Scorecard.
Bar Code: A symbol consisting of a series of printed bars representing values. A system of optical character reading, scanning, tracking of units by reading a series of printed bars for translation into a numeric or alphanumeric identification code. A popular example is the UPC code used on retail packaging.
Bar Coding: A method of encoding data for fast and accurate readability. Bar codes are a series of alternating bars and spaces printed or stamped on products, labels, or other media, representing encoded information which can be read by electronic readers called bar.
Barge: The cargo-carrying vehicle which may or may not have its own propulsion mechanism for the purpose of transporting goods. Primarily used by Inland water carriers, basic barges have open tops, but there are covered barges for both dry and liquid cargoes.
Batch Picking: A method of picking orders in which order requirements are aggregated by product across orders to reduce movement to and from product locations. The aggregated quantities of each product are then transported to a common area where the individual orders are constructed. See Zone Picking.
Benchmarking: The process of comparing performance against the practices of other leading companies for the purpose of improving performance. Companies also benchmark internally by tracking and comparing current performance with past performance.
Benefit-Cost Ratio: An analytical tool used in public planning; a ratio of total measurable benefits divided by the initial capital cost. Also see: Cost Benefit Analysis.
Best Practice: A specific process or group of processes which have been recognized as the best method for conducting an action. Best practices may vary by industry or geography depending on the environment being used. Best-practices methodology may be applied with respect to resources, activities, cost object, or processes.
Bill of Activities: A listing of activities required by a product, service, process output, or other cost object. Bill of activity attributes could include volume and/or cost of each activity in the listing.
Bill of Material (BOM): A structured list of all the materials or parts and quantities needed to produce a particular finished product, assembly, subassembly, or manufactured part, whether purchased or not.
Blanket Order: See Blanket Purchase Order.
Blanket Purchase Order: A long-term commitment to a supplier for material against which short-term releases will be generated to satisfy requirements. Oftentimes, blanket orders cover only one item with predetermined delivery dates. Synonyms: Blanket Order, Standing Order.
Blow Through: An MRP process which uses a “phantom bill of material” and permits MRP logic to drive requirements straight through the phantom item to its components. The MRP system usually retains its ability to net against any occasional inventories of the item.
BOL: See Bill of Lading (BOL).
BOM: See Bill of Material (BOM).
Bonded Warehouse: Warehouse approved by the Treasury Department and under bond/guarantee for observance of revenue laws. Used for storing goods until duty is paid or goods are released in some other proper manner.
BPM: See Business Performance Measurement (BPM).
BPO: See Business Process Outsourcing (BPO).
BPR: See Business Process Reengineering (BPR).
Break-Bulk: The separation of a consolidated bulk load into smaller individual shipments for delivery to the ultimate consignee. The freight may be moved intact inside the trailer, or it may be interchanged and rehandled to connecting carriers.
Break-Even Point: The level of production or the volume of sales at which operations are neither profitable nor unprofitable. The break-even point is the intersection of the total revenue and total cost curves.
Broker: There are 3 definitions for the term “broker”: 1) an enterprise that owns and leases equipment2) an enterprise that arranges the buying & selling of transportation of, goods, or services 3) a ship agent who acts for the ship owner or charterer in arranging charters.
Bucketed System: An MRP, DRP, or other time-phased system in which all time-phased data are accumulated into time periods, or buckets. If the period of accumulation is one week, then the system is said to have weekly buckets.
Buffer: 1) A quantity of materials awaiting further processing. It can refer to raw materials, semi-finished stores, or hold points, or a work backlog that is purposely maintained behind a work center. 2) In the theory of constraints, buffers can be time or material, and support throughput and/or due date performance. Buffers can be maintained at the constraint, convergent points (with a constraint part), divergent points, and shipping points.
Buffer Management: In the theory of constraints, a process in which all expediting in a shop is driven by what is scheduled to be in the buffers (constraint, shipping, and assembly buffers). By expediting this material into the buffers, the system helps avoid idleness at the constraint and missed customer due dates. In addition, the causes of items missing from the buffer are identified, and the frequency of occurrence is used to prioritize improvement activities.
Build to Stock: See Build to Inventory.
Bullwhip Effect: An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being in excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. The bullwhip effect can be eliminated by synchronizing the supply chain.
Burn Rate: The rate of consumption of cash in a business. Used to determine cash requirements on an on-going basis. A burn rate of $50,000 would mean the company spends $50,000 a month above any incoming cash flow to sustain its business. Entrepreneurial companies will calculate their burn rate in order to understand how much time they have before they need to raise more money, or show a positive cash flow.
Business Continuity Plan (BCP): A contingency plan for sustained operations during periods of high risk, such as labor unrest or natural disaster. CSCMP provides suggestions for helping companies do continuity planning in their Securing the Supply Chain research. A copy of this research is available on CSCMP’s web site at www.cscmp.org.
Business Logistics: The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.
Business Plan: (1) A statement of long-range strategy and revenue, cost, and profit objectives usually accompanied by budgets, a projected balance sheet, and a cash flow (source and application of funds) statement. A business plan is usually stated in terms of dollars and grouped by product family. The business plan is then translated into synchronized tactical functional plans through the production planning process (or the sales and operations planning process). Although frequently stated in different terms (dollars versus units), these tactical plans should agree with each other and with the business plan. (2) A document consisting of the business details (organization, strategy, and financing tactics) prepared by an entrepreneur to plan for a new business.
Business Performance Measurement (BPM): A technique that uses a system of goals and metrics to monitor performance. Analysis of these measurements can help businesses periodically set business goals, then provide feedback to managers on progress towards those goals. A specific measure can be compared to itself over time, compared with a present target, or evaluated along with other measures.
Business Process Outsourcing (BPO): The practice of outsourcing non-core internal functions to third parties. Functions typically outsourced include logistics, accounts payable, accounts receivable, payroll, and human resources. Other areas can include IT development or complete management of the IT functions of the enterprise.
Business-to-Business (B2B): As opposed to business-to-consumer (B2C). Many companies are now focusing on this strategy, and their web sites are aimed at businesses (think wholesale) and only other businesses can access or buy products on the site. Internet analysts predict this will be the biggest sector on the web.
Business-to-Consumer (B2C): The hundreds of e-commerce web sites that sell goods directly to consumers are considered B2C. This distinction is important when comparing web sites that are B2B as the entire business model, strategy, execution, and fulfillment is different.
Buyer Behavior: The way individuals or organizations behave in a purchasing situation. The customer-oriented concept finds out the wants, needs, and desires of customers and adapts resources of the organization to deliver need-satisfying goods and services.
CAE: See Computer-Aided Engineering (CAE).
CAD: See Cash Against Documents.
CADEX: See Customs Automated Data Exchange System.
CAF: *See Currency Adjustment Factor (CAF)
Cage: (1) A secure enclosed area for storing highly valuable items (2) A pallet-sized platform with sides that can be secured to the tines of a forklift and in which a person may ride to inventory items stored well above the warehouse floor.
Calendar Days: The conversion of working days to calendar days is based on the number of regularly scheduled workdays per week in your manufacturing calendar. Calculation: To convert from working days to calendar days: if work week = 4 days, multiply by 1.75; = 5 days, multiply by 1.4; = 6 days, multiply by 1.17
Call Center: A facility housing personnel who respond to customer phone queries. These personnel may provide customer service or technical support. Call center services may be in house or outsourced. Synonym: Customer Interaction Center.
Can-Order Point: An ordering system used when multiple items are ordered from one vendor. The can-order point is a point higher than the original order point. When any one of the items triggers an order by reaching the must-order point, all items below their can-order point are also ordered. The can-order point is set by considering is set by considering the additional holding cost that would be incurred if the item were ordered early.
Capacity Management: The concept that capacity should be understood, defined, and measured for each level in the organization to include market segments, products, processes, activities, and resources. In each of these applications, capacity is defined in a hierarchy of idle, non-productive, and productive views.
Capacity Planning: Assuring that needed resources (e.g., manufacturing capacity, distribution center capacity, transportation vehicles, etc.) will be available at the right time and place to meet logistics and supply chain needs.
Capacity: The physical facilities, personnel, and processes available to meet the product or service needs of customers. Capacity generally refers to the maximum output or producing ability of a machine, a person, a process, a factory, a product, or a service. Also see: Capacity Management
CAPEX: A term used to describe the monetary requirements (CAPital EXpenditure) of an initial investment in new machines or equipment.
Carriage: See Transportation.
Carrier Certificate and Release Order: Used to advise customs of the shipment’s details. By means of this document, the carrier certifies that the firm or individual named in the certificate is the owner or consignee of the cargo.
Carrier Liability: A common carrier is liable for all shipment loss, damage, and delay with the exception of that caused by act of God, act of a public enemy, act of a public authority, act of the shipper, and the goods’ inherent nature.
Cash Conversion Cycle: 1) In retailing, the length of time between the sale of products and the cash payments for a company’s resources. 2) In manufacturing, the length of time from the purchase of raw materials to the collection of accounts receivable from customers for the sale of products or services. Also see: Cash-to-Cash Cycle Time.
Cash-to-Cash Cycle Time: The time it takes for cash to flow back into a company after it has been spent for raw materials. Synonym: Cash Conversion Cycle. Calculation: Total Inventory Days of Supply + Days of Sales Outstanding – Average Payment Period for Material in Days.
Category Management: The management of product categories as strategic business units. This practice empowers a category manager with full responsibility for the assortment decisions, inventory levels, shelf-space allocation, promotions, and buying. With this authority and responsibility, the category manager is able to more accurately judge the consumer buying patterns, product sales, and market trends of that category.
Cause-and-Effect Diagram: In quality management, a structured process used to organize ideas into logical groupings. Used in brainstorming and problem-solving exercises. Also known as Ishikawa or fish bone diagram.
CBT: *See Computer-Based Training (CBT)
CELL: A manufacturing or service unit consisting of a number of workstations, and the materials transport mechanisms and storage buffers that interconnect them.
Center-of-Gravity Approach: A supply chain planning methodology for locating distribution centers at approximately the location representing the minimum transportation costs between the plants, the distribution centers, and the markets.
Central Dispatching: The organization of the dispatching function into one central location. This structure often involves the use of data collection devices for communication between the centralized dispatching function which usually reports to the production control department and the shop manufacturing departments.
Certificate of Public Convenience and Necessity: The grant of operating authority that common carriers receive. A carrier must prove that a public need exists and that the carrier is fit, willing, and able to provide the needed service. The certificate may specify the commodities the carrier may haul, and the routes it may use.
CFS: See Container Freight Station (CFS).
Chain of Customers: The sequence of customers who, in turn, consume the output of each other, forming a chain. For example, individuals are customers of a department store which in turn is the customer of a producer who is the customer of a material supplier.
Change Management: The business process that coordinates and monitors all changes to the business processes and applications operated by the business, as well as to their internal equipment, resources, operating systems, and procedures. The change management discipline is carried out in a way that minimizes the risk of problems that will affect the operating environment and service delivery to the users.
Change Order: A formal notification that a purchase order or shop order must be modified in some way. This change can result from a revised quantity, date, or specification by the customer; an engineering change; a change in inventory requirement data; etc.
Changeover: Process of making necessary adjustments to change or switchover the type of products produced on a manufacturing line. Changeovers usually lead to downtime and for the most part, companies try to minimize changeover time to help reduce costs.
Channel: 1. A method whereby a business dispenses its product, such as a retail or distribution channel, call center, or a web-based electronic storefront. 2. A push technology that allows users to subscribe to a web site to browse offline, automatically display updated pages on their screen savers, and download or receive notifications when pages in the web site are modified. Channels are available only in browsers that support channel definitions such as Microsoft Internet Explorer version 4.0.
Channel Conflict: This occurs when various sales channels within a company’s supply chain compete with each other for the same business. An example is where a retail channel is in competition with a web-based channel set up by the company.
Channel Partners: Members of a supply chain (i.e., suppliers, manufacturers, distributors, retailers, etc.) who work in conjunction with one another to manufacture, distribute, and sell a specific product.
Channels of Distribution: Any series of firms or individuals that participates in the flow of goods and services from the raw material supplier and producer to the final user or consumer. Also see: Distribution Channel.
Chargeable Weight: The shipment weight used in determining freight charges. The chargeable weight may be the dimensional weight or, for container shipments, the gross weight of the shipment less the tare weight of the container.
Charging Area: A warehouse area where a company maintains battery chargers and extra batteries to support a fleet of electrically powered materials handling equipment. The company must maintain this area in accordance with government safety regulations.
CI: See Continuous Improvement (CI).
CIA: *See Cash In Advance (CIA)
CIF: *See Cost, Insurance, Freight (CIF)
Class I Carrier: A classification of regulated carriers based upon annual operating revenues — motor carriers of property; $5 million; railroads; $50 million; motor carriers of passengers; $3 million.
Class II Carrier: A classification of regulated carriers based upon annual operating revenues — motor carriers of property: $1-$5 million; railroads: $10-$50 million; motor carriers of passengers: $3 million.
Class 1 Railroad: A line haul freight railroad of US ownership with operating revenue in excess of $272.0 million. There are seven (7) Class 1 Railroads in the United States. Two Mexican and two Canadian railroads would also qualify, if they were US companies.
Classification: An alphabetical listing of commodities, the class or rating into which the commodity is placed, and the minimum weight necessary for the rate discount; used in the class rate structure.
Closed Loop MRP: A system build around material requirements planning that includes the additional planning processes of production planning (sales and operations planning), master production scheduling, and capacity requirements planning. Once this planning phase is complete and the plans have been accepted as realistic and attainable, the execution processes come into play. These processes include the manufacturing control process of input-output (capacity) measurement, detailed scheduling and dispatching, as well as anticipated delay reports from both the plant and suppliers, supplier scheduling, and so on. The term “closed loop implies not only that each of these processes is included in the overall system, but also that feedback is provided by the execution processes so that the planning can be kept valid at all times..
CO: Carbon monoxide
Co-Packer: A contract co-packer produces goods and/or services for other companies, usually under the other company’s label or name. Co-packers are more frequently seen in consumer packaged goods and foods.
Co-Managed Inventory (CMI): A form of continuous replenishment in which the manufacturer is responsible for replenishment of standard merchandise, while the retailer manages the replenishment of promotional merchandise.
COGS: See Cost-of-Goods Sold (COGS).
Collaborative Planning, Forecasting, and Replenishment (CPFR): (1) A collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials, to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods. (2) A process philosophy for facilitating collaborative communications. CPFR is considered a standard, endorsed by the Voluntary Inter-Industry Commerce Standards.
Combined Lead Time: See Cumulative Lead Time
Commercial Invoice: A document created by the seller. It is an official document which is used to indicate, among other things, the name and address of the buyer and seller, the product(s) being shipped, and their value for customs, insurance, or other purposes.
Common Carrier: Transportation available to the public that does not provide special treatment to any one party and is regulated as to the rates charged, the liability assumed, and the service provided. A common carrier must obtain a certificate of public convenience and necessity from the Federal Trade Commission for interstate traffic. Antonym: Private Carrier.
Competitive Benchmarking: Benchmarking a product or service against competitors. Also see: Benchmarking.
Component: Material that will contribute to a finished product but is not the finished product itself. Examples include tires for an automobile, power supply for a personal computer, or a zipper for a ski parka.
Conference Carrier: An ocean carrier who is a member of an association known as a “conference.” The purpose of the conference is to standardize shipping practices, eliminate freight rate competition, and provide regularly scheduled service between specific ports.
Configure/Package to Order: A process where the trigger to begin to manufacture, final assembly, or packaging of a product is an actual customer order or release rather than a market forecast. In order to be considered a configure-to-order environment, less than 20% of the value added takes place after the receipt of the order or release, and virtually all necessary design and process documentation is available at time of order receipt.
Confirmation: With regards to EDI, a formal notice (by message or code) from a electronic mailbox system or EDI server indicating that a message sent to a trading partner has reached its intended mailbox or has been retrieved by the addressee.
Conrail: The Consolidated Rail Corporation established by the Regional Reorganization Act of 1973 to operate the bankrupt Penn Central Railroad and other bankrupt railroads in the Northeast; the 4-R Act of 1976 provided funding.
Consignment: (1) A shipment that is handled by a common carrier. (2) The process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold. Also see: Consignment Inventory.
Consignment Inventory: (1) Goods or products that are paid for when they are sold by the reseller, not at the time they are shipped to the reseller. (2) Goods or products which are owned by the vendor until they are sold to the consumer.
Consolidation: Combining two or more shipments in order to realize lower transportation rates. Inbound consolidation from vendors is called make-bulk consolidation; outbound consolidation to customers is called break-bulk consolidation.
Consular Invoice: A document, required by some foreign countries, describing a shipment of goods and showing information such as the consignor, consignee, and value of the shipment. Certified by a consular official of the foreign country, it is used by the country’s custom.
Container: (1) A box, typically 10 to 40 feet long, which is primarily used for ocean freight shipments. For travel to and from ports, containers are loaded onto truck chassis or on railroad flatcars. (2) The packaging, such as a carton, case, box, bucket, drum, bin, bottle, bundle, or bag, that an item is packed and shipped in.
Container Freight Station (CFS): The location designated by carriers for receipt of cargo to be packed into containers/equipment by the carrier. At destination, CFS is the location designated by the carrier for unpacking of cargo from equipment/containers.
Container Freight Station to Container Freight Station (CFS/CFS): A type of steamship-line service in which cargo is transported between container freight stations, where containers may be stuffed, stripped, or consolidated. Usually used for less-than-container load shipments.
Containerization: A shipment method in which commodities are placed in containers, and after initial loading, the commodities, per se, are not rehandled in shipment until they are unloaded at the destination.
Container Yard: The location designated by the carrier for receiving, assembling, holding, storing, and delivering containers, and where containers may be picked up by shippers or redelivered by consignees.
Continuous Process Improvement (CPI): A never-ending effort to expose and eliminate root causes of problems; small-step improvement as opposed to big-step improvement. Synonym: Continuous Improvement. Also see: Kaizen.
Continuous Replenishment: Continuous replenishment is the practice of partnering between distribution channel members that changes the traditional replenishment process from distributor-generated purchase orders based on economic order quantities to the replenishment of products based on actual and forecasted product demand.
Contract: An agreement between two or more competent persons or companies to perform or not to perform specific acts or services or to deliver merchandise. A contract may be oral or written. A purchase order, when accepted by a supplier, becomes a contract. Acceptance may be in writing or by performance, unless the purchase order requires acceptance in writing.
Contract of Affreightment: A contract between a cargo shipper and carrier for the transport of multiple cargoes over a period of time. Contracts are individually negotiated and usually include cargo description, quantities per shipment and in total, load and discharge ports, freight rates and duration of the contract.
Cooperative Associations: Groups of firms or individuals having common interests; agricultural cooperative associations may haul up to 25 percent of their total interstate non-farm, nonmember goods tonnage in movements incidental and necessary to their primary business.
Core Competency: Bundles of skills or knowledge sets that enable a firm to provide the greatest level of value to its customers in a way that’s difficult for competitors to emulate and that provides for future growth. Core competencies are embodied in the skills of the workers and in the organization. They are developed through collective learning, communication, and commitment to work across levels and functions in the organization and with the customers and suppliers. A core competency could be the capability of a firm to coordinate and harmonize diverse production skills and multiple technologies. To illustrate: advanced casting processes for making steel require the integration of machine design with sophisticated sensors to track temperature and speed, and the sensors require mathematical modeling of heat transfer. For rapid and effective development of such a process, materials scientists must work closely with machine designers, software engineers, process specialists, and operating personnel. Core competencies are not directly related to the product or market.
Cost and Freight (C & F): The seller quotes a price that includes the cost of transportation to a specific point. The buyer assumes responsibility for loss and damage and pays for the insurance of the shipment.
Cost Allocation: In accounting, the assignment of costs that cannot be directly related to production activities via more measurable means, e.g., assigning corporate expenses to different products via direct labor costs or hours.
Cost–benefit Analysis: Sometimes called benefit costs analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings.
Cost Driver: In accounting, any situation or event that causes a change in the consumption of a resource, or influences quality or cycle time. An activity may have multiple cost drivers. Cost drivers do not necessarily need to be quantified; however, they strongly influence the selection and magnitude of resource drivers and activity drivers.
Cost Driver Analysis: In cost accounting, the examination, quantification, and explanation of the effects of cost drivers. The results are often used for continuous improvement programs to reduce throughput times, improve quality, and reduce cost.
Cost Management: The management and control of activities and drivers to calculate accurate product and service costs, improve business processes, eliminate waste, influence cost drivers, and plan operations. The resulting information can be very useful in setting and evaluating an organization’s strategies.
Cost-of-Goods Sold (COGS): The amount of direct materials, direct labor, and allocated overhead associated with products sold during a given period of time, determined in accordance with Generally Accepted Accounting Principles (GAAP).
Cost Trade-Off: The interrelationship among system variables in which a change in one variable affects other variables’ costs. A cost reduction in one variable may increase costs for other variables, and vice versa.
COTD: See Complete and On-Time Delivery (COTD).
Council of Supply Chain Management Professionals (CSCMP): The CSCMP is a not-for-profit professional business organization consisting of individuals throughout the world who have interests and/or responsibilities in logistics and supply chain management, and the related functions that make up these professions. Its purpose is to enhance the development of the logistics and supply chain management professions by providing these individuals with educational opportunities and relevant information through a variety of programs, services, and activities.
Countervailing Duties: An additional import duty imposed to offset Government subsidies in the exporting country, when the subsidized imports cause material injury to domestic industry in the importing country.
CPI: See Continuous Process Improvement (CPI).
Crane: A materials handling device that lifts heavy items. There are two types: bridge and stacker.
CRM: See Customer Relationship Management (CRM).
Cross Docking: A distribution system in which merchandise received at the warehouse or distribution center is not put away, but instead is readied for shipment to retail stores. Cross docking requires close synchronization of all inbound and outbound shipment movements. By eliminating the put-away, storage, and selection operations, it can significantly reduce distribution costs.
Cross Sell: The practice of attempting to sell additional products to a customer during a sales call. For example, when the CSR presents a camera case and accessories to a customer that is ordering a camera.
CRP: See Continuous Replenishment Planning (CRP).
CSF: See Critical Success Factor (CSF).
CSR: See Customer Service Representative (CSR).
Cubic Capacity: The carrying capacity of a piece of equipment according to measurement in cubic feet.
Cumulative Source/Make Cycle Time: The cumulative internal and external lead time to manufacture shippable product, assuming that there is no inventory on hand, no materials or parts on order, and no prior forecasts existing with suppliers. (An element of Total Supply Chain Response Time) Calculation: The critical path along the following elements: Total Sourcing Lead Time, Manufacturing Order Release to Start Manufacturing, total Manufacture Cycle Time (Make to Order, Engineer to Order, Configure/Package to Order) or Manufacture Cycle Time (Make to Stock), Complete Manufacture to Ship Time. Note: Determined separately for Make-to-Order, Configure/Package-to-Order, Engineer-to-Order, and Make-to-Stock products.
Customer Interaction Center: See Call Center
Customer/Order Fulfillment Process: A series of customers’ interactions with an organization through the order-filling process, including product/service design, production and delivery, and order stats reporting.
Customer Relationship Management (CRM): This refers to information systems that help sales and marketing functions as opposed to the ERP (Enterprise Resource Planning), which is for back-end integration.
Customer-Supplier Partnership: A long-term relationship between a buyer and a supplier characterized by teamwork and mutual confidence. The supplier is considered an extension of the buyer’s organization. The partnership is based on several commitments. The buyer provides long-term contracts and uses fewer suppliers. The supplier implements quality assurance processes so that incoming inspection can be minimized. The supplier also helps the buyer reduce costs and improve product and process designs.
Customization: Creating a product from existing components into an individual order. Synonym: Build to Order.
Customs Automated Data Exchange System (CADEX): A Canada Customs system that allows for the electronic transmission of import data for goods that have already been released. Additional information such as accounting data and release notifications are also accessible.
Customs Broker: A firm that represents importers/exporters in dealings with customs. Normally responsible for obtaining and submitting all documents for clearing merchandise through customs, arranging inland transport, and paying all charges related to these functions.
CWO: See Cash with Order (CWO).
CY/CY: See Container Yard to Container Yard (CY/CY).
Cycle Inventory: An inventory system where counts are performed continuously, often eliminating the need for an annual overall inventory. It is usually set up so that A items are counted regularly (i.e., every month), B items are counted semi-regularly (every quarter or six months), and C Items are counted perhaps only once a year.
Cycle Time to Process Obsolete and End-of-Life Product Returns for Disposal: The total time to process goods returned as obsolete and end of life to actual disposal. This cycle time includes the time a Return Product Authorization (RPA) is created to the time the RPA is approved, from Product Available for Pickup to Product Received and from Product Receipt to Product Disposal/Recycle.
Cycle Time to Repair or Refurbish Returns for Use: The total time to process goods returned for repair or refurbishing. This cycle time includes the time a Return Product Authorization (RPA) is created to the time the RPA is approved, from Product Available for Pickup to Product Received, from Product Receipt to Product Repair/Refurbish Begin, and from Product Repair/Refurbish Begin to Product Available for Use.
Dashboard: A performance measurement tool used to capture a summary of the key performance indicators/metrics of a company. Metrics dashboards/scorecards should be easy to read and usually have red, yellow, green indicators to flag when the company is not meeting its metrics targets. Ideally, a dashboard/scoreboard should be cross functional in nature and include both financial and non-financial measures. In addition, scorecards should be reviewed regularly – at least on a monthly basis, and weekly in key functions such as manufacturing and distribution where activities are critical to the success of a company. The dashboards/scorecards philosophy can also be applied to external supply chain partners like suppliers to ensure that their objectives and practices align. Synonym: Scorecard.
Days of Supply: Measure of quantity of inventory on hand in relation to number of days for which usage will be covered. For example, if a component is consumed in manufacturing at the rate of 100 per day and there are 1,585 units available on hand, this represents 15.85 days’ supply.
DC: *See Distribution Center (DC)
Deadhead: The return of an empty transportation container to its point of origin. See Backhaul.
Dead on Arrival (DOA): A term used to describe products which are not functional when delivered. Synonym: Defective.
Deadweight Tons (DWT): The cargo carrying capacity of a vesel, including fuel oil, stores and provisions.
Delivery-Duty-Paid: Supplier/manufacturer arrangement in which suppliers are responsible for the transport of the goods they’ve produced, which are being sent to a manufacturer. This responsibility includes tasks such as ensuring that products get through Customs.
Delivery Performance to Commit Date: The percentage of orders that are fulfilled on o before the internal commit date, used as a measure of internal scheduling systems effectiveness. Delivery measurements are based on the date a complete order is shipped or the ship-to date of a complete order. A complete order has all items on the order delivered in the quantities requested. An order must be complete to be considered fulfilled. Multiple-line items on a single order with different planned delivery dates constitute multiple orders, and multiple-planned delivery dates on a single line item also constitute multiple orders. Calculation: [Total number of orders delivered in full and on time to the scheduled commit date]/[Total number of orders delivered]
Delivery Performance to Request Date: The percentage of orders that are fulfilled on or before the customer’s requested date used as a measure of responsiveness to market demand. Delivery measurements are based on the date a complete order is shipped or the ship-to date of a complete order. A complete order must be complete to be considered fulfilled. Multiple line items on a single order with different planned delivery dates constitute multiple orders, and multiple planned delivery dates on a single line item also constitute multiple orders. Calculation: [Total number of orders delivered in full and on time to the customer’s request date]/[Total number of orders delivered]
Demand Planning Systems: The systems that assist in the process of identifying, aggregating, and prioritizing all sources of demand for the integrated supply chain of a product of service at the appropriate level, horizon, and interval.
Demand Pull: The triggering of material movement to a work center only when that work center is ready to begin the next job. In effect, it eliminates the queue from in from of a work center, but it can cause a queue at the end of a previous work center.
Demand Supply Balancing: The process of identifying and measuring the gaps and imbalances between demand and resources in order to determine how to best resolve the variances through marketing, pricing, packaging, warehousing, outsource plans, or some other action that will optimize service, flexibility, costs, assets, (or other supply chain inconsistencies) in an iterative and collaborative environment.
Deming Circle: The concept of a continuously rotating wheel of plan-to-do-check-action (PDCA) used to show the need for interaction among market research, design, production, and sales to improve quality. Also see: Plan-Do-Check-Action.
Denied Party Listing (DPL): A list of organizations that is unauthorized to submit a bid for an activity or to receive a specific product. For example, some countries have bans on certain products like weapons or sensitive technology.
Density: A physical characteristic measuring a commodity’s mass per unit volume or pounds per cubic foot; an important factor in ratemaking, since density affects the utilization of a carrier’s vehicle.
Deregulation: Revisions or complete elimination of economic regulations controlling transportation. The Motor Carrier Act of 1980 and the Staggers Act of 1980 revised the economic controls over motor carriers and railroads, and the Airline Deregulation Act of 1978 eliminated economic controls over air carriers.
Design of Experiments (DOE): A branch of applied statistics dealing with planning, conducting, analyzing, and interpreting controlled tests to evaluate the factors that control the value of a parameter or group of parameters.
Detention: The carrier charges and fees applied when rail freight cars and ships are retained beyond a specified loading or unloading time. Also see: Demurrage, Express.
DFMA: See Design for Manufacture/Assembly (DFMA).
Direct Channel: This is when your own sales force sells to the customer. Your company may ship to the customer, or a third party may handle shipment, but in either case, your company owns the sales contract and retains rights to the receivable from the customer. Your end customer may be a retail outlet. The movement to the customer may be direct from the factory, or the product may move through a distribution network owned by your company. Order information in this channel may be transmitted by electronic means.
Direct Cost: A cost that can be directly traced to a cost object since a direct or repeatable cause-and-effect relationship exists. A direct cost uses a direct assignment or cost causal relationship to transfer costs. Also see: Indirect Cost, Tracing
Direct Product Profitability (DPP): Calculation of the net profit contribution attributable to a specific product or product line.
Direct Store Delivery (DSD): Process of shipping direct from a manufacturer’s plant or distribution center to the customer’s retail store, thus bypassing the customer’s distribution center. Also called Direct-to-Store Delivery.
Disaster Recovery Planning: Contingency planning specifically related to recovering hardware and software (e.g., data centers, application software, operations, personnel, telecommunications) in information system outages.
Discharge Port: The name of the port where the cargo is unloaded from the export vessel. This is the port reported to the U.S. Census on the Shipper’s Export Declaration, Schedule K, which is used by U.S. companies when exporting. This can also be considered the first discharge port.
Disintermediation: When the traditional sales channels are disassembled and the middleman gets cut out of the deal. Such as where the manufacturer ships direct to a retailer, bypassing the distributor.
Distribution: Outbound logistics, from the end of the production line to the end user. The activities associated with the movement of material, usually finished goods or service parts, from the manufacturer to the customer. These activities encompass the functions of transportation, warehousing, inventory control, material handling, order administration, site and location analysis, industrial packaging, data processing, and the communications network necessary for effective management. It includes all activities related to physical distribution, as well as the return of goods to the manufacturer. In many cases, this movement is made through one or more levels of fieldwarehouses. Synonym: Physical Distribution. The systematic division of a whole into discrete parts having distinctive characteristics.
Distribution Channel Management: The organizational and pipeline strategy for getting products to customers. Direct channels involve company sales forces, facilities, and/or direct shipments to customers; indirect channels involve the use of wholesalers, distributors, and/or other parties to supply the products to customers. Many companies use both strategies, depending on markets and effectiveness.
Distribution Planning: The planning activities associated with transportation, warehousing, inventory levels, materials handling, order administration, site and location planning, industrial packaging, data processing, and communications networks to support distribution.
Distribution Requirements Planning (DRP): A system of determining demands for inventory at distribution centers and consolidating demand information in reverse as input to the production and materials system.
Distribution Resource Planning (DRP II): The extension of distribution requirements planning into the planning of the key resources contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc.
Diversion: The process of changing the destination and/or the consignee while the shipment is enroute.
Dock Receipt: A document used to accept materials or equipment at an ocean pier or accepted location. Provides the ocean carrier with verification of receipt and the delivering carrier with proof of delivery.
DOE: See Design of Experiments.
Domestic Trunk Line Carrier: A classification for air carriers that operate between major population centers. These carriers are now classified as major carriers.
DPL: See Denied Party List (DPL).
Drawback: See Duty Drawback
Drop Ship: To take the title of the products but not actually handle, stock, or deliver it, e.g., to have one supplier ship directly to another or to have a supplier ship directly to the buyer’s customer.
DRP: See Distribution Requirements Planning (DRP).
DRP II: *See Distribution Resource Planning (DRP II)
Drum-Buffer-Rope (DBR): In the theory of constraints, the generalized process used to manage resources to maximize throughput. The drum is the rate or pace of production set by the system’s constraint. The buffers establish the protection against uncertainty so that the system can maximize throughput. The rope is a communication process from the constraint to the gating operation that checks or limits material released into the system to support the constraint.
DSD: See Direct Store Delivery (DSD).
DSS: See Decision Support System (DSS).
DTS: See Direct-to-Store Delivery (DTS).
Dual rate system: An international water carrier pricing system in which a shipper signing an exclusive use agreement with the conference pays a rate 10 to 15 percent lower than non-signing shippers do for an identical shipment.
Dumping: When a product is sold below cost in a foreign market and/or when a product is sold at a lower price in the foreign market than in a domestic market, with the intention of driving out competition in the foreign market.
80/20 Rule: A term referring to the Pareto principle. This principle suggests that most effects come from relatively few causes; that is, 80% of the effects (or sales or costs) come from 20% of the possible causes (or items). Also see: ABC Classification, Pareto
EAI: See Enterprise Application Integration (EAI).
EAN.UCC: European Article Numbering/Uniform Code Council. The EAN.UCC System provides identification standards to uniquely identify trade items, logistics units, locations, assets, and service relations worldwide. The identification standards define the construction of globally-unique and unambiguous numbers. For additional reference, please see http://www.uc-council.org/ean_ucc_systems/stnds_and_tech/bus_apps.html
Early Supplier Involvement (ESI): The process of involving suppliers early in the product design activity and drawing on their expertise, insights, and knowledge to generate better designs in less time and ones that are easier to manufacture with high quality.
Earnings Before Interest and Taxes (EBIT): A measure of a company’s earning power from ongoing operations, equal to earnings (revenues minus cost of sales, operating expenses, and taxes) before deduction of interest payments and income taxes. Also called operating profit.
EBIT: See Earnings Before Interest and Taxes (EBIT).
EC: *See Electronic Commerce (EC)
ECO: See Engineering Change Order (ECO)
E-Commerce: See Electronic Commerce.
ECR: See Efficient Consumer Response (ECR).
EDI: See Electronic Data Interchange (EDI).
EDI Interchange: Communication between partners in the form of a structured set of messages and service segments starting with an interchange control header and ending with an interchange control trailer. In the context of X.400 EDI messaging, the contents of the primary body of an EDI message.
EDI Standards: Criteria that define the data content and format requirements for specific business transactions (e.g., purchase orders). Using standard formats allows companies to exchange transactions with multiple trading partners more easily. Also see: American National Standards Institute.
Efficient Consumer Response (ECR): A demand-driven replenishment system designed to link all parties in the logistics channel to create a massive flow-through distribution network. Replenishment is based on consumer demand and point-of-sale information.
EFT: See Electronic Funds Transfer (EFT).
Electronic Commerce (EC): Also written as e-commerce. Conducting business electronically via traditional EDI technologies, or online via the Internet. In the traditional sense of selling goods, it’s possible to do this electronically because of certain software programs that run the main functions of e-commerce support, such as product display, ordering, shipment, billing, and inventory management. The definition of e-commerce includes business activity that is business-to-business (B2B) and/or business-to-consumer (B2C)
Electronic Data Interchange (EDI): Intercompany, computer-to-computer transmission of business information in a standard format. For EDI purists, computer to computer means direct transmission from the originating application program to the receiving or processing application program. An EDI transmission consists only of business data, not any accompanying verbiage or free-form messages. Purists might also contend that a standard format is one that is approved by a national or international standards organization, as opposed to formats developed by industry groups or companies.
Electronic Data Interchange Association: A national body that propagates and controls the use of EDI in a given country. All EDIAs are nonprofit organizations dedicated to encouraging EDI growth. The EDI in the United States was formerly TDCC and administered the development of standards in transportation and other industries.
Electronic Funds Transfer (EFT): A computerized system that processes financial transactions and information about these transactions or performs the exchange of value. Sending payment instructions across a computer network, or the company-to-company, company-to-bank, or bank-to bank electronic exchange of value.
Electronic Mail (E-Mail): The computer-to-computer exchange of messages. E-mail is usually unstructured (free-form) rather than in a structured format. X.400 has become the standard for e-mail exchange.
E-Mail: See Electronic Mail
Engineering Change: A revision to a drawing or design released by engineering to modify or correct a part. The request for the change can be from a customer or from production, quality control, another department, or a supplier. Synonym: Engineering Change Order
Enterprise Application Integration (EAI): A computer term for the tools and techniques used in linking ERP and other enterprise systems together. Linking systems is key for e-business. Gartner says “firms implementing enterprise applications spend at least 30% on point-to-point interfaces.”
Enterprise Resource Planning (ERP) System: A class of software for planning and managing enterprise-wide the resources needed to take customer orders, ship them, account for them, and replenish all needed goods according to customer orders and forecasts. Often includes electronic commerce with suppliers. Examples of ERP systems are the application suites from SAP, Oracle, PeopleSoft, and others.
Enveloping: an EDI management software function that groups all documents of the same type, or functioal group, and bound for the same destination into an electronic envelope. Enveloping is useful where there are multiple documents such as orders or invoices issued to a single trading partner that need to be sent as a packet.
EOQ: See Economic Order Quantity (EOQ).
EPC or ePC: Electronic Product Code. An electronically coded tag that is intended as an improvement to the UPC bar code system. The EPC is a 96-bit tag which contains a number called the global Trade Identification Number (GTIN). Unlike a UPC number, which only provides information specific to a group of products, the GTIN gives each product its own specific identifying number, giving greater accuracy in tracking.
Ergonomic: The science of creating workspaces and products which are human friendly to use.
ERS: See Evaluated Receipts Settlement (ERS).
ESI: See Early Supplier Involvement (ESI).
EVA: See Economic Value Added (EVA).
Evaluated Receipts Settlement (ERS): A process for authorizing payment for goods based on actual receipts with purchase order data when price has already been negotiated. The basic premise behind ERS is that all of the information in an invoice has already been transmitted in the shipping documentation. Therefore, the invoice is eliminated and the shipping documentation is used to pay the vendor.
Exempt Carrier: A for-hire carrier that is free from economic regulation. Trucks hauling certain commodities are exempt from Interstate Commerce Commission economic regulation. By far, the largest portion of exempt carriers transports agricultural commodities or seafood.
Export Declaration: A document required by the U.S. Treasury department and completed by the exporter to show the value, weight, consignee, destination, etc., pertinent to the export shipment. The document serves two purposes: to gather trade statistics and to provide a control document if the goods require a valid export license.
Export License: A document secured from a government authorizing an exporter to export a specific quantity of a controlled commodity to a certain country. An export license is often required if a government has placed embargoes or other restrictions upon exports.
Export Management Company: A private firm that serves as the export department for several manufacturers, soliciting and transacting export business on behalf of its clients in return for a commission, salary, or a retainer plus commission.
Exporter Identification Number (EIN): A number required for the exporter on the Shipper’s Export Declaration. A corporation may use their Federal Employer Identification Number as issued by the IRS; individuals can use their Social Security Numbers.
Express: (1) Carrier payment to its customers when ships, rail cars, or trailers are unloaded or loaded in less than the time allowed by contract and returned to the carrier for use. See Demurrage, Detention. (2) The use of priority package delivery to achieve overnight or second-day delivery.
Extensible Markup Language (XML): A computer term for a language that facilitates direct communication of data among computers on the Internet. Unlike the older hypertext markup language (HTML) which provides data tags that give instructions to a web browser on how to display information, XML tags give instructions to a browser or to application software which help to define specifics about the category of information.
External Factory: A situation where suppliers are viewed as an extension of the firm’s manufacturing capabilities and capacities. The same practices and concerns that are commonly applied to the management of the firm’s manufacturing system should also be applied to the management of the external factory.
Extranet: A computer term describing a private network (or a secured link on the public Internet) that links separate organizations and uses the same software and protocols as the Internet. Used for improving supply chain management. For example, extranets are used to provide access to a supply chain partner’s internal inventory data which is not available to unrelated parties. Antonym: Intranet.
Ex Works: The price that the seller quotes applies only at the point of origin. The buyer takes possession of the shipment at the point of origin and bears all costs and risks associated with transporting the goods to the destination.
4PL: *See Fourth Party Logistics (4PL)
5-S Program: A program for organizing work areas. Sometimes referred to as elements, each of the five components of the program begins with the letter “S.” They include sort, systemize, shine or sweep, standardize, and sustain. In the UK, the concept is converted to the 5-C program comprising five comparable components: clear out, configure, clean and check, conformity, and custom and practice.
* Sort – get rid of clutter; separate out what is needed for the operations. * Systemize/Set in Order – organize the work area; make it easy to find what is needed.
* Shine – clean the work area; make it shine.
* Standardize – establish schedules and methods of performing the cleaning and sorting.
* Sustain – implement mechanisms to sustain the gains through involvement of people, integration into the performance measurement system, discipline, and recognition.
The 5-S program is frequently combines with precepts of the Lean Manufacturing Initiative. Even when used separately, however, the 5-S (or 5-C) program is said to yield excellent results. Implementation of the program involves introducing each of the five elements in order, which reportedly generates multiple benefits, including product diversification, higher quality, lower costs, reliable deliveries, improved safety, and higher availability rate.
FA: *See Functional Acknowledgement (FA)
FAS: See Final Assembly Schedule
Fabricator: A manufacturer that turns the product of a raw materials supplier into a larger variety of products. A fabricator may turn steel rods into nuts, bolts, and twist drills, or may turn paper into bags and boxes.
FAS: *See Free Along Side. (FAS)
FCL: See Full Container Load (FCL).
Field Services: See After-Sale Service.
Field Warehouse: A warehouse that stores goods on the goods’ owner’s property while the goods are under a bona fide public warehouse manager’s custody. The owner uses the public warehouse receipts as collateral for a loan.
Fill Rate: The percentage of order items that the picking operation actually found.
Fill Rates by Order: Whether orders are received and released consistently, or released from a blanket purchase order, this metric measures the percentage of ship-from-stock orders shipped within 24 hours of order “release.” Make-to-stock schedules attempt to time the availability of finished goods to match forecasted customer orders or releases. Orders that were not shipped within 24 hours due to consolidation but were available for shipment within 24 hours are reported separately. In calculating elapsed time for order fill rates, the interval begins at ship release and ends when material is consigned for shipment.
Calculation: [Number of orders filled from stock shipped within 24 hours or order release]/[Total number of stock orders]
The same concept of fill rates can be applied to order lines and individual products to provide statistics on percentage of lines shipped completely and percentage of products shipped completely.
Final Assembly: The highest level assembled product, as it is shipped to customers. This terminology is typically used when products consist of many possible features and options that may only be combined when an actual order is received. Also see: End Item, Assemble to Order
Final Assembly Schedule (FAS): A schedule of end items to finish the product for specific customers’ orders in a make-to-order or assemble-to-order environment. It’s also referred to as the finishing schedule because it may involve operations other than just the final assembly; also, it may not involve assembly, but simply final mixing, cutting, packaging, etc. The FAS is prepared after receipt of a customer order as constrained by the availability of material and capacity, and it schedules the operations required to complete the product from the level where it is stocked (or master scheduled) to the end-item level.
Financial Responsibility: Motor carriers must have bodily injury and property damage (not cargo) insurance of not less than $500,000 per incident per vehicle; higher financial responsibility limits apply for motor carriers transporting oil or hazardous materials.
FIPS: Federal Information Processing Standards.
Firewall: A computer term for a method of protecting the files and programs on one network from users on another network. A firewall blocks unwanted access to a protected network while giving the protected network access to networks outside of the firewall. a company will typically install a firewall to give users access to the Internet while protecting their internal information.
First In First Out (FIFO): In inventory control and financial accounting, this refers to the practice of using stock from inventory on the basis of what was received first and is consumed first. Antonym: Last In First Out.
First Mover Advantage: Market innovator, putting the company in the leadership position.
Fixed Order Quantity: A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a pre-determined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity.
Fixed Overhead: Traditionally, all manufacturing costs, other than direct labor and direct materials, that continue even if products are not produced. Although fixed overhead is necessary to produce the product, it cannot be directly traced to the final product. Also see: Indirect Cost
Fixed Quantity Inventory Model: A setup wherein a company orders the same (fixed) quantity each time it places an order for an item.
Floor-Ready Merchandise (FRM): Goods shipped by suppliers to retailers with all necessary tags, prices, security devices, etc. already attached so goods can be cross docked rapidly through retail DCs, or received directly at stores.
Flow-Through Distribution: A process in a distribution center in which products from multiple locations are brought in to the D.C. and are re-sorted by delivery destination and shipped in the same day. Also known as a “cross-dock” process in the transportation business. See Cross Docking.
FOB: A term of sale defining who is to incur transportation charges for the shipment, who is to control the shipment movement, or where title to the goods passes to the buyer; originally meant “free on board ship.” See Free on Board.
Forecast: An estimate of future demand. A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and can be based on extrinsic (external) or intrinsic (internal) factors. Various forecasting techniques attempt to predict one or more of the four components of demand: cyclical, random, seasonal, and trend.
Forecasting: Predictions of how much of a product will be purchased by customers. Relies upon both quantitative and qualitative methods. Also see: Forecast.
Forwarder’s Bill of Lading: See Consolidator’s Bill of Lading.
Fourth Party Logistics (4PL): Differs from third party logistics in the following ways: (1) 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; (2) 4PL organization acts as a single interface between the client and multiple logistics service providers; (3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; (4) It is possible for a major third party logistics provider to form a 4PL organization within its existing structure (Strategic Supply Chain Alignment; John Gattorna).
FPA: Free of Particular Average. See Marine Cargo Insurance.
Free Along Side (FAS): The seller agrees to deliver the goods to the dock alongside the overseas vessel that is to carry the shipment. The seller pays the cost of getting the shipment to the dock; the buyer contracts the carrier, obtains documentation, and assumes all responsibility from that point forward.
Free Alongside Ship: A term of sale indicating that the seller is liable for all changes and risks until the goods sold are delivered to the port on a dock that will be used by the vessel. Title passes to the buyer when the seller has secured a clean dock or ship’s receipt of goods.
Free of Particular Average: See Marine Cargo Insurance (FPA).
Free Trade Zone (FTZ): See Foreign Trade Zone (FTZ).
Freight Consolidation: The grouping of shipments to obtain reduced costs or improved utilization of the transportation function. Consolidation can occur by market area grouping, grouping according to scheduled deliveries, or using third party pooling services such as public warehouses and freight forwarders.
Freight Forwarder: An organization which provides logistics services as an intermediary between the shipper and the carrier, typically on international shipments. Freight forwarders provide the ability to respond quickly and efficiently to changing customer and consumer demands and international shipping (import/export) requirements.
FTL: See Full Truck Load.
FTZ: See Foreign Trade Zone and Free Trade Zone.
Functional Acknowledgement (FA): A specific EDI Transaction Set (997) sent by the recipient of an EDI message to confirm the receipt of data but with no indication as to the recipient application’s response to the message. The FA will confirm that the message contained the correct number of lines, etc., via control summaries, but does not report on the validity of the data.
Functional Group: Part of the hierarchical structure of EDI transmissions, a functional group contains one or more related transaction sets preceded by a functional group header and followed by a functional group trailer.
Functional Silo: A view of an organization where each department or functional group is operated independently of other groups within the organization. Each group is referred to as a “Silo.” This is the opposite of an integrated structure.
Gain Sharing: A method of incentive compensation where supply chain partners share collectively in savings from productivity improvements. The concept provides an incentive to both the buying and supplier organizations to focus on continually reevaluating, reenergizing, and enhancing their business relationship. all aspects of value delivery are scrutinized, including specification design, order processing, inbound transportation, inventory management, obsolescence programs, material yield, forecasting and inventory planning, product performance, and reverse logistics. The focus is on driving out limited value cost while protecting profit margins.
GB/L: See Government Bill of Lading (GB/L).
General Average: See Marine Cargo Insurance.
Global Strategy: A strategy that focuses on improving worldwide performance through the sales and marketing of common goods and services with minimum product variation by country. Its competitive advantage grows through selecting the best locations for operations in other countries.
GO: See General Order (GO).
Going-Concern Value: The value that a firm has as an entity, as opposed to the sum of the values of each of its parts taken separately; particularly important in determining a reasonable railroad rate.
Goods: A term associated with more than one definition: 1) Common term indicating movable property, merchandise, or wares. 2) All materials which are used to satisfy demands. 3) Whole or part of the cargo received from the shipper, including any equipment supplied by the shipper.
Grandfather Clause: A provision that enabled motor carriers engaged in lawful trucking operations before the passage of the Motor Carrier Act of 1935 to secure common carrier authority w/o proving public convenience and necessity; a similar provision exists for other modes.
Gross National Product (GNP): A measure of a nation’s output; the total value of all final goods and services a nation produces during a time period.
GTIN: Global Tracking Identification Number or Global Trade Item Number. GTIN is the globally-unique EAN.UCC System identification number, or key, used for trade items (products and services). It’s used for uniquely identifying trade items (products and services) sold, delivered, warehoused, and billed throughout the retail and commercial distribution channels. Unlike a UPC number, which only provides information specific to a group of products, the GTIN gives each product its own specific identifying number, giving greater accuracy in tracking. Also see: EPC.
Guaranteed Loans: Railroad loans that the federal government cosigns and guarantees.
Harmonized Commodity Description & Coding System (Harmonized Code): An international classification system that assigns identification numbers to specific products. The coding system ensures that all parties in int’l. trade use a consistent classification for the purposes of documentation, statistical control, and duty assessment.
Haulage: The inland transport service which is offered by the carrier under the terms and conditions of the tariff and of the relative transport document.
HAWB: See House Air Waybill (HAWB).
Hawthorne Effect: From a study conducted at the Hawthorne Plant of Western Electric Company from 1927-1932 which found that the act of showing people that you are concerned usually results in better job performance. Studying and monitoring of activities are typically seen as being concerned and results in improved productivity.
Hazardous Goods: Articles or substances capable of posing a significant risk to health, safety, or property, and that ordinarily require special attention when transported. Also called Dangerous Goods.
Hazardous Material: A substance or material which the Department of Transportation has determined to be capable of posing a risk to health, safety, and property when stored or transported in commerce.
Hierarchy of Cost Assignability: In cost accounting, an approach to group activity costs at the level of an organization where they are incurred, or can be directly related to. Examples are the level where individual units are identified (unit level), where batches of units are organized or processed (batch level), where a process is operated or supported (process level), or where costs cannot be objectively assigned to lower level activities or processes (facility level). This approach is used to better understand the nature of the costs, including the level in the organization at which they are incurred, the level to which they can be initially assigned (attached), and the degree to which they are assignable to other activity and/or cost object levels, i.e., activity or cost object cost, or sustaining costs.
Highway Use Taxes: Taxes that federal and state governments assess against highway users (the fuel tax is an example). The government uses the use tax money to pay for the construction, maintenance, and policing of highways.
Home Page: The starting point for a web site. It’s the page that’s retrieved and displayed by default when a user visits a web site. The default home-page name for a server depends on the server’s configuration. On many web servers, it is index.html or default.htm. Some web servers support multiple home pages.
House to House: See Door to Door.
House to Pier: See Door to Port.
HR: See Human Resources (HR).
Hub: 1) A large retailer or manufacturer having many trading partners. 2) A reference for a transportation network as a “hub and spoke” which is common in the airline and trucking industry. For example, a hub airport serves as the focal point for the origin and termination of long-distance flights where flights from outlying areas are fed into the hub airport for connecting flights. 3) A common connection point for devices in a network. 4) A web “hub” is one of the initial names for what is now known as a “portal.” It came from the creative idea of producing a web site which would contain many different “portal spots” (small boxes that looked like ads with links to different, yet related content). This content, combined with Internet technology, made the idea a milestone in the development and appearance of web sites, primarily due to the ability to display a lot of useful content and store one’s preferred information on a secured server. The web term “hub” was replaced with portal.
5) An Internet web site that provides a central repository for data or a central planning capability in an industry or supply network.
IMB: See International Maritime Bureau (IMB).
Independent Trading Exchange (ITE): Often used synonymously with B2B, e-marketplace, or Virtual Commerce Network (VCN). ITE is a more precise term, connoting many-to-many transactions, whereas the others do not specify the transactions.
Indirect Cost: A resource or activity cost that cannot be directly traced to a final cost object since no direct or repeatable cause-and-effect relationship exists. An indirect cost uses an assignment or allocation to transfer cost.
Indirect/Distributor Channel: Your company sells and ships to the distributor. The distributor sells and ships to the end user. This may occur in multiple stages. Ultimately, your product may pass through the Indirect/Distributor Channel and arrive at a retail outlet. Order information in this channel may be transmitted by electronic means. These means may include EDI, brokered systems, or linked electronic systems.
Insurance: A system of protection against loss under which a number of parties agree to pay certain sums (premiums) for a guarantee that they will be compensated under certain conditions for specified loss and damage.
Integrated Logistics: A comprehensive, system-wide view of the entire supply chain as a single process, from raw materials supply through finished goods distribution. All functions that make up the supply chain are managed as a single entity rather than managing individual functions separately.
Interchange: In EDI, the exchange of electronic information between companies. Also, the group of transaction sets transmitted from one sender to one receiver at one time. Delineated by interchange control segments.
Intercorporate hauling: A private carrier hauling a subsidiary’s goods and charging the subsidiary a fee; this is legal if the subsidiary is wholly owned or if the private carrier has common carrier authority.
Interline: Two or more motor carriers working together to haul a shipment to a destination. Carriers may interchange equipment but usually they rehandle the shipment without transferring the equipment.
Internal Customer: The recipient (person or department) of another person’s or department’s output (good, service, or information) within an organization. Also see: Customer.
International Import Certificate: A document required by the importing country indicating that the importing country recognizes that a controlled shipment is entering their country. The importing country pledges to monitor the shipment and prevent its re-export, except in accordance with its own export control regulations.
International Maritime Organization (IMO): A United Nations-affiliated organization representing all maritime countries in matters affecting maritime transportation, including the movement of dangerous goods. The organization also is involved in deliberations on marine environmental pollution.
International Standards Organization (ISO): An organization within the United Nations to which all national and other standard-setting bodies (should) defer. Develops and monitors international standards, including OSI, EDIFACT, and X.400.
Internet: A computer term which refers to an interconnected group of computer networks from all parts of the world, i.e., a network of networks. Accessed via a modem and an online service provider, it contains many information resources and acts as a giant electronic message routing system.
Interstate Commerce Commission (ICC): An independent regulatory agency that implements federal economic regulations controlling railroads, motor carriers, pipelines, domestic water carriers, domestic surface freight forwarders, and brokers.
In-Transit Inventory: Material moving between two or more locations, usually separated geographically; for example, finished goods being shipped from a plant to a distribution center. In-transit inventory is an easily overlooked component of total supply chain availability.
Intrastate Commerce: The transportation of persons or property between points within a state. A shipment between two points within a state may be interstate if the shipment had a prior or subsequent move outside of the state and the shipper intended an interstate shipment at time of shipment.
Inventory: Raw materials, work in process, finished goods, and supplies required for creation of a company’s goods and services. The number of units and/or value of the stock of goods held by a company.
Inventory Carrying Cost: One of the elements comprising a company’s total supply chain management costs. These costs consist of the following:
1. Opportunity Cost: The opportunity cost of holding inventory. This should be based on your company’s own cost of capital standards using the following formula.
Calculation: Cost of Capital x Average Net Value of Inventory
2. Shrinkage: The costs associated with breakage, pilferage, and deterioration of inventories. Usually pertains to the loss of material through handling damage, theft, or neglect.
3. Insurance and Taxes: The cost of insuring inventories and taxes associated with the holding of inventory.
4. Total Obsolescence for Raw Material, WIP, and Finished Goods Inventory: Inventory reserves taken due to obsolescence and scrap and includes products exceeding the shelf life, i.e., spoils and is no good for use in its original purpose (do not include reserves taken for Field Service Parts).
5. Channel Obsolescence: Aging allowances paid to channel partners, provisions for buy-back agreements, etc. Includes all material that becomes obsolete while in a distribution channel. Usually, a distributor will demand a refund on material that goes bad (shelf life) or is no longer needed because of changing needs.
6. Field Service Parts Obsolescence: Reserves taken due to obsolescence and scrap. field service parts are those inventories kept at locations outside the four walls of the manufacturing plant i.e., distribution center or warehouse.
Inventory Planning Systems: The systems that help to strategically balance the inventory policy and customer service levels throughout the supply chain. These systems usually calculate time-phased order quantities and safety stock using selected inventory strategies. Some inventory planning systems conduct what-if analysis and compare the current inventory policy with simulated inventory scenarios to improve the inventory ROI.
Inventory Turns: The cost of goods sold divided by the average level of inventory on hand. This ratio measures how many times a company’s inventory has been sold during a period of time. Operationally, inventory turns are measured as total throughput divided by average level of inventory for a given period. How many times a year the average inventory for a firm changes over or is sold.
Inventory Turnover: See Inventory Turns.
ISO 9000: A series of quality assurance standards compiled by the Geneva, Switzerland-based International Standards Organization. In the United States, ISO is represented by the American National Standards Institute based in Washington, DC.
ISO 14000 Series Standards: A series of generic environmental management standards under development by the International Organization of Standardization which provide structure and systems for managing environmental compliance with legislative and regulatory requirements and affect every aspect of a company’s environmental operations.
ITE: See Independent Trading Exchange (ITE).
Jidoka: The concept of adding an element of human judgment to automated equipment. In doing this, the equipment becomes capable of discriminating against unacceptable quality, and the automated process becomes more reliable.
JIT II: *See Just In Time II (JIT II)
JIT: *See Just in Time (JIT)
JSA: See Joint Supplier Agreement (JSA).
Just In Time (JIT): An inventory control system that controls material flow into assembly and manufacturing plants by coordinating demand and supply to the point where desired materials arrive just in time for use. An inventory reduction strategy that feeds production lines with products delivered just in time. Developed by the auto industry, it refers to shipping goods in smaller, more frequent lots.
Just in Time II (JIT II): Vendor-managed operations taking place within a customer’s facility. JIT II was popularized by the Bose Corporation. The supplier reps, called “inplants,” place orders to their own companies, relieving the customer’s buyers from this task. Many also become involved at a deeper level such as participating in new product development projects and manufacturing planning (concurrent planning).
Kaizen: A Japanese term for improvement – continuing improvement involving everyone – managers and workers. In manufacturing, kaizen relates to finding and eliminating waste in machinery, labor, or production methods. Also see: Continuous Process Improvement.
Kanban: Japanese word for visible record, loosely translated means card, billboard, or sign. Popularized by Toyota Corporation, it uses standard containers or lot sizes to deliver needed parts to the assembly line just in time for use.
Keiretsu: A form of cooperative relationship among companies in Japan where the companies largely remain legally and economically independent, even though they work closely in various ways, such as sole sourcing and financial backing. A member of a keiretsu generally owns a limited amount of stock in other member companies. A keiretsu generally forms around a bank and a trading company but distribution (supply chain) keiretsus exist, linking companies from raw material suppliers to retailers.
Key Performance Indicator (KPI): A measure which is of strategic importance to a company or department. For example, a supply chain flexibility metric is Supplier On-Time Delivery Performance which indicates the percentage of orders that fulfilled on or before the original requested date. Also see: Scorecard.
Kitting: Light assembly of components or parts into defined units, Kitting reduces the need to maintain an inventory of pre-build, completed products, but increases the time and labor consumed at shipment.
Also see: Postponement
KPI: See Key Performance Indicator.
Laid-Down cost: The sum of the product and transportation costs. The laid-down cost is useful in comparing the total cost of a product shipped from different supply sources to a customer’s point of use.
LAN: See Local Area Network (LAN).
Land bridge: The movement of containers by ship-rail-ship on Japan-to-Europe moves; ships move containers to the U.S. Pacific Coast, rails move containers to an East Coast port, and ships deliver containers to Europe.
LASH Vessel: A ship measuring at least 820 feet long with a deck crane able to load and unload barges through a stern section that projects over the water. The acronym LASH stands for Lighter (barge) Aboard Ship.
Last In First Out (LIFO): In inventory control and financial accounting, this refers to the practice of using stock from inventory on the basis of what was received last is consumed first. This has limited use in stock keeping and is primarily a cost-accounting method.
Lead Logistics Provider (LLP): An organization that organizes other third party logistics partners for outsourcing of logistics functions. Also see: Fourth Party Logistics.
Less-Than-Containerload (LCL): A term used when goods do not completely occupy an entire container. When many shipper’s goods occupy a single container, each shipper’s shipment is considered to be LCL.
Letter of Credit (LOC): A method of payment for goods in which the buyer established his credit with a local bank, clearly describing the goods to be purchased, the price, the documentation required, and a time limit for completion of the transaction. Upon receipt of documentation, the bank is either paid by the buyer or takes title to the goods themselves and proceeds to transfer funds to the seller.
Life Cycle Cost: In cost account, a product’s life cycle is the period that starts with the initial product conceptualization and ends with the withdrawal of the product from the marketplace and final disposition. A product life cycle is characterized by certain defined stages, including research, development, introduction, maturity, decline, and abandonment. Life cycle cost is the accumulated costs incurred by a product during these stages.
LIFO: See Last In First Out (LIFO).
Lift on, Lift off (LO/LO): A method by which cargo is loaded onto and unloaded from an ocean vessel, which in this case is with a crane.
Lighter: A barge-type vessel used to carry cargo between shore and cargo ship. While the terms barge and lighter are used interchangeably, a barge usually refers to a vessel used for a long haul, while a lighter is used for a short haul.
Line Functions: The decision-making areas companies associate with daily operations. Logistics line functions include traffic management, inventory control, order processing, warehousing, and packaging.
Linked Distributed Systems: Independent computer systems owned by independent organizations linked in a manner to allow direct updates to be made to one system by another. For example, a customer’s computer system is linked to a supplier’s system and the customer can create orders or releases directly in the supplier’s system.
LLP: See Lead Logistics Partner (LLP).
Local Area Network (LAN): A data communications network spanning a limited geographical area, usually a few miles at most, providing communications between computers and peripheral devices.
Load Tendering: The practice of providing a carrier with detailed information and negotiated pricing (the tender) prior to scheduling pickup. This practice can help assure contract compliance and facilitate automated payments (self billing).
Loading Port: The port where the cargo is loaded onto the exporting vessel. This port must be reported on the Shipper’s Export Declaration, Schedule D. Schedule D is used by U.S. companies when exporting to determine which tariff is used to freight rate the cargo for carriers with more than one tariff.
LOC: See Letter of Credit (LOC).
Local Service Carriers: A classification of air carriers that operate between less-populated areas and major population centers. These carriers feed passengers into the major cities to connect with major carriers. Local service carriers are now classified as national carriers.
Logistics: The process of planning, implementing, and controlling procedures for the efficient and effective storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements.
Also see the Council of Supply Chain Management Professional’s definition of Logistics.
Logistics Management as defined by the Council of Supply Chain Management Professionals (CSCMP): Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning and management of third party logistics services providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution – strategic, operational, and tactical. Logistics management is an integrating function which coordinates and optimizes all logistics activities with other functions, including marketing, sales, manufacturing, finance, and information technology.
LO/LO: See Lift on, Lift off (LO/LO).
LTL: See Less-Than-Truckload Carriers (LTL).
LTL shipment: A less-than-truckload shipment, one weighing less than the minimum weight a company needs to use the lower truckload rate.
Maintenance, Repair, and Operating Supplies (MRO): Items used in support of general operations and maintenance, such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.
Make-or-Buy Decision: The act of deciding whether to produce an item internally or buy it from an outside supplier. Factors to consider in the decision include costs, capacity availability, proprietary and/or specialized knowledge, quality considerations, skill requirements, volume, and timing.
Make to Order (Manufacture to Order): A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release rather than a market forecast. For make-to-order products, more than 20% of the value added takes place after the receipt of the order or release, and all necessary design and process documentation is available at the time of order receipt.
Make to Stock (Manufacture to Stock): A manufacturing process strategy where finished product is continually held in plant or warehouse inventory to fulfill expected incoming orders or releases based on a forecast.
Manufacture Cycle Time: The average time between commencement and completion of a manufacturing process, as it applies to make-to-stock products.
Calculation: [Average # of units in WIP]/[Average daily output in units]
Manufacturer’s Representative: One who sells goods for several firms but does not take title to them.
Manufacturing Calendar: A calendar used in inventory and production planning functions that consecutively numbers only the working days so that the component and work order scheduling may be done based on the actual number of workdays available. Synonyms: M-Day Calendar, Planning Calendar, Production Calendar, Shop Calendar
Manufacturing Execution Systems (MES): Programs and systems that participate in shop-floor control, including programmed logic controllers and process control computers for direct and supervisory control of manufacturing equipment; process information systems that gather historical performance information, then generate reports; graphical displays; and alarms that inform operations personnel what is going on in the plant currently and a short history into the past. Quality control information is also gathered – a laboratory information management system may be part of this configuration to tie process conditions to the quality data that are generated. Thereby, cause-and-effect relationships can be determined. The quality data at times affect the control parameters that are used to meet product specifications, either dynamically or offline.
Manufacturing Lead Time: The total time required to manufacture an item, exclusive of lower-level purchasing lead time. For make-to-order products, it’s the length of time between the release of an order to the production process and shipment to the final customer. For make-to-stock products, it’s the length of time between the release of an order to the production process and receipt into finished goods inventory. Included are order preparation time, queue time, set-up time, run time, move time, inspection time, and put-away time. Synonym: Manufacturing Cycle Time.
Manufacturing Resource Planning (MRP-II): A method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It consists of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports, such as business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP.
Marine Cargo Insurance – FPA (Free of Particular Average): A provision in a marine cargo insurance policy that no claim shall be paid for damage to goods in the course of a voyage unless a loss is sustained that totals or exceeds a certain percentage of the value as specified in the policy. The object of such a provision is the avoidance of petty claims.
Marine Cargo Insurance – General Average: A loss arising out of a voluntary sacrifice made of any part of a shipment or cargo to prevent loss of the whole and for the benefit of all persons concerned.
Marine Cargo Insurance – Open Policy: A cargo insurance policy that is an open contract; i.e. it provides protection for all of an exporter’s shipments afloat or in transit within a specified geographical trade area for an unlimited period of time, until the policy is cancelled by the insured or by the insurance company. It is “open” because the goods that are shipped are also detailed at that time. This is usually shown in a document called a marine insurance certificate.
Maritime Administration (Mar Ad): A U.S. government agency, not actively involved in vessel operation, that administers laws for maintenance of a merchant marine for the purposes of defense and commerce.
Market Dominance: The absence of effective competition for railroads from other carriers and modes for the traffic to which the rail rate applies. The Staggers Act stated that market dominance does not exist if the rate is below the revenue-to-variable-cost ratio of 160 percent in 1981 and 170 percent in 1983.
Market-Positioned Warehouse: Warehouse positioned to replenish customer inventory assortments and afford maximum inbound transport consolidation economies from inventory origin points with relatively short-haul local delivery.
Marquis Partners: Key strategic relationships. This has emerged as perhaps the key competitive advantage and barrier to entry of e-marketplaces. Get the big players in the fold first, offering equity if necessary.
Mass Customization: The creation of a high-volume product with large variety so that a customer may specify his or her exact model out of a large volume of possible end items, while manufacturing cost is low because of the large volume. An example is a personal computer order in which the customer may specify processor speed, memory size, hard disk size and speed, removable storage device characteristics, and many other options when PCs are assembled on one line and at a low cost.
Material Acquisition Costs: One of the elements comprising a company’s total supply chain management costs. These costs consist of the following:
1. Materials (Commodity) Management and Planning: All costs associated with the supplier sourcing, contract negotiation and qualification, and the preparation, placement, and tracking of a purchase order – including all costs related to buyer/planners.
2. Supplier Quality Engineering: The costs associated with the determination, development/certification, and monitoring of suppliers’ capabilities to fully satisfy the applicable quality and regulatory requirements. 3. Inbound Freight and Duties: Freight costs associated with the movement of material from a vendor to the buyer, including all associated administrative tasks. Duties are those fees and taxes levied by government for moving purchased material across international borders. Customs broker fees should also be included in this category.
4. Receiving and Put Away: all costs associated with taking possession of material and storing it. Note – inventory-carrying costs are normally covered in a separate worksheet. 5. Incoming Inspection: All costs associated with the inspection and testing of received materials to verify compliance with specifications.
Matrix Organizational Structure: An organization structure in which two (or more) channels of command budget responsibility, and performance measurement exist simultaneously. For example, both product and functional forms of organization could be implemented simultaneously; in other words, the product and functional managers have equal authority and employees report to both managers.
m-Commerce: Mobile commerce applications involve using a mobile phone to carry out financial transactions. This usually means making a payment for goods or transferring funds electronically. Transferring money between accounts and paying for purchases are electronic commerce applications. An emerging application, electronic commerce has been facilitated by developments in other areas in the mobile world, such as dual slot phones and other smarter terminals, and more standardized protocols which allow greater interactivity and therefore, more sophisticated service.
MES: See Manufacturing Execution Systems (MES).
Message: The EDIFACT term for a transaction set. A message is the collection of data, organized in segments, exchanged by trading partners engaged in EDI. Typically, a message is an electronic version of a document associated with a common business transaction, such as a purchase order or shipping notice. A message begins with a message header segment, which identifies the start of the message (e.g., the series of characters representing one purchase order). The message header segment also carries the message type code, which identifies the business transaction type. EDIFACT’s message header segment is called UNH; in ANSI X12 protocol, the message header is called ST. A message ends with a message trailer segment, which signals the end of the message (e.g., the end of one purchase order). EDIFACT’s message trailer is labeled UNT; the ANSI X12 message trailer is referred to as SE.
Metrics: See Performance Measures.
Micro-Land Bridge: An intermodal movement in which the shipment is moved from a foreign country to the U.S. by water and then moved across the U.S. by railroad to an interior, non-port city, or vice versa for exports from a non-port city.
Mini-Land bridge: An intermodal movement in which the shipment is moved from a foreign country to the U.S. by water and then moved across the U.S. by railroad to a destination that is a port city, or vice versa for exports from a U.S. port city.
MRP: See Material Requirements Planning (MRP).
MSDS: See Material Safety Data Sheet.
NAFTA: *See North American Free Trade Agreement (NAFTA)
National Carrier: A for-hire certificated air carrier that has annual operating revenues of $75 million to $1 billion; the carrier usually operates between major population centers and areas of lesser population.
Negotiable BOL: Provides for the delivery of goods to a named enterprise or to their order (anyone they may designate), but only upon surrender of proper endorsement and the bill of lading to the carrier or the carrier’s agents. Also known as an order bill of lading.
Net Assets: Total net assets are calculated as Total Assets – Total Liabilities; where the total assets are made up of fixed assets (plant, machinery, and equipment) and current assets which is the total of stock, debtors, and cash (also includes A/R, inventory, prepaid assets, deferred assets, intangibles, and goodwill). The total liabilities are made up in much the same way as long-term liabilities and current liabilities (includes A/P, accrued expenses, deferred liabilities).
NMFC: *See National Motor Freight Classification (NMFC)
Node: A fixed point in a firm’s logistics system where goods come to rest; includes plants, warehouses, supply sources, and markets.
Non Vessel Operating Common Carrier (NVOCC): A firm that offers the same services as an ocean carrier, but which does not own or operate a vessel. NVOCCs usually act as consolidators, accepting small shipments (LCL) and consolidating them into full container loads. They also consolidate and disperse international containers that originate at or are bound for inland ports. They then act as a shipper, tendering the containers to ocean common carriers. They are required to file tariffs with the Federal Maritime Commission and are subject to the same laws and statutes that apply to primary common carriers.
Not otherwise specified/Not elsewhere specified (NOS/NES): This term often appears in ocean or airfreight tariffs respectively. If no rate for the specific commodity shipped appears in the tariff, then a general class rate (for example: printed matter NES) will apply. Such rates usually are higher than rates for specific commodities.
NPI: See New Product Introduction (NPI).
NVOCC: See Non-Vessel Operating Common Carrier.
Obsolete Inventory: Inventory for which there is no forecast demand expected. A condition of being out of date. A loss of value occasioned by new developments that place the oldeer property at a competitive disadvantage.
OEM: See Original Equipment Manufacturer (OEM).
Offer: See Tender.
Open Policy: See Marine Cargo Insurance
Operational Performance Measurements: (1) In traditional management, performance measurements related to machine worker, or department efficiency or utilization. These performance measurements are usually poorly correlated with organizational performance. (2) In theory of contraints, performance measurements that link causally to organizational performance measurements. Throughput, inventory, and operating expense are examples. Also see: Performance Measures.
Order Entry and Scheduling: The process of receiving orders from the customer and entering them into a company’s order processing system. Orders can be received through phone, fax, or electronic media. Activities may include “technically” examining orders to ensure an orderable configuration and provide accurate price, checking the customer’s credit and accepting payment (optionally), identifying and reserving inventory (both on hand and scheduled), and committing and scheduling a delivery date.
Order Management: The planning, directing, monitoring, and controlling of the processes related to customer orders, manufacturing orders, and purchase orders. Regarding customer orders, order management includes order promising, order entry, order pick, pack and ship, billing, and reconciliation of the customer account. Regarding manufacturing orders, order management includes order release, routing, manufacture, monitoring, and receipt into stores or finished goods inventories. Regarding purchase orders, order management includes order placement, monitoring, receiving, acceptance, and payment of supplier.
Order Management Costs: One of the elements comprising a company’s total supply chain management costs. These costs consist of the following:
1. New Product Release Phase In and Maintenance: This includes costs associated with releasing new products to the field, maintaining released products, assigning product ID, defining configurations and packaging, publishing availability schedules, release letters and updates, and maintaining product databases.
2. Create Customer Order: This includes costs associated with creating and pricing configurations to order and preparing customer order documents.
3. Order Entry and Maintenance: This includes costs associated with maintaining the customer database, credit check, accepting new orders, and adding them to the order system, as well as later order modifications.
4.Contract/Program and Channel Management: This includes costs related to contract negotiation, monitoring progress, and reporting against the customer’s contract, including administration of performance or warranty-related issues.
5. Installation Planning: This includes costs associated with installation engineering, scheduling and modification, handling cancellations, and planning the installation.
6. Order Fulfillment: This includes costs associated with order processing, inventory allocation, ordering from internal or external suppliers, shipment scheduling, order status reporting, and shipment initiation.
7. Distribution: This includes costs associated with warehouse space and management, finished goods receiving and stocking, processing shipments, picking and consolidating, selecting carriers, and staging products/systems.
8. Transportation, Outbound Freight, and Duties: This includes costs associated with all company-paid freight duties from point of manufacturer to end customer or channel.
9. Installation: This includes costs associated with verification of site preparation, installation, certification, and authorization of billing.
10. Customer Invoicing/Accounting: This includes costs associated with invoicing, processing customer payments, and verification of customer receipt.
Original Equipment Manufacturer (OEM): A manufacturer that buys and incorporates another supplier’s products into its own products. Also, products supplied to the original equipment manufacturer or sold as part of an assembly. For example, an engine may be sold to an OEM for use as that company’s power source for its generator units.
OS&D: See Over, Short, and Damaged.
Outbound Logistics: The process related to the movement and storage of products from the end of the production line to the end user.
Outlier: A data point that differs significantly from other data for a similar phenomenon. For example, if the average sales for a product were ten units per month, and one month the product had sales of 500 units, this sales point might be considered an outlier.
Outpartnering: The process of involving the supplier in a close partnership with the firm and its operations management system. Outpartnering is characterized by close working relationships between buyers and suppliers, high levels of trust, mutual respect, and emphasis on joint problem solving and cooperation. With outpartnering, the supplier is not viewed as an alternative source of goods and services (as observed under outsourcing), but rather as a source of knowledge, expertise, and complementary core competencies. Outpartnering is typically found during the early stages of product life cycle when dealing with products that are viewed as critical to the strategic survival of the firm. Also see: Customer-Supplier Partnership.
Outsourced Cost-of-Goods Sold: Operations performed on raw material outside of the responding entity’s organization that would typically be considered internal to the entity’s manufacturing cycle. Outsourced cost-of-goods sold captures the value of all outsourced activities that roll up as cost-of-goods sold. Some examples of commonly outsourced areas are assembly, test, metal finishing or painting, and specialized assembly process.
P2P: See Path to Profitability (P2P).
Packing List: A document containing information about the location of each Product ID in each package. It allows the recipient to quickly find the item he or she is looking for without a broad search of all packages. It also confirms the actual shipment of goods on a line item basis.
Pareto: A means of sorting data. For example, the number of quality faults by frequency of occurrence. An analysis that compares cumulative percentages of the rank ordering of costs, cost drivers, profits, or other attributes to determine whether a minority of elements have a disproportionate impact. Another example: identifying that 20% of a set of independent variables is responsible for 80% of the effect. Also see: 80/20 Rule.
Particular Average: See Marine Cargo Insurance.
Part Standardization: A program for planned elimination of superficial, accidental, and deliberate differences between similar parts in the interest of reducing part and supplier proliferation. A typical goal of part standardization is to reduce costs by reducing the number of parts that the company needs to manage.
Passenger-Mile: A measure of output for passenger transportation that reflects the number of passengers transported and the distance traveled; a multiplication of passengers hauled and distance traveled.
Pay on Use: Pay on use is a process where payment is initiated by product consumption, i.e., consignment stock based on withdrawal of product from inventory, This process is popular with many European companies.
PDCA: See Plan-Do-Check-Action (PDCA).
Perfect Order: The definition of a perfect order is one which meets all of the following criteria:
* Delivered complete, with all items on the order in the quantity requested
* Delivered on time to customer’s request date, using the customer’s definition of on-time delivery
* Delivered with complete and accurate documentation supporting the order including packing slips, bills of lading and invoices
* Delivered in perfect condition with the correct configuration, customer ready, without damage, and faultlessly installed (as applicable)
Performance and Event Management Systems: The systems that report on the key measurements in the supply chain – inventory days of supply, delivery performance, order cycle times, capacity use, etc. Using this information to identify causal relationships to suggest actions in line with the business goals.
Performance Measures: Indicators of the work performed and the results achieved in an activity, process, or organizational unit. Performance measures should be both non-financial and financial. Performance measures enable periodic comparison and benchmarking. Also see: Performance Measurement Program.
Performance Measurement Program: A performance measurement program goes beyond just having performance metrics in place. Typical characteristics of a good performance measurement program include the following:
* Metrics that are aligned to strategy, and linked to the shop floor or line-level workers.
* A process and culture that drives performance and accountability to deliver performance against key performance indicators.
* An incentive plan that is tied to performance goals, objectives, and metrics.
* Tools/technology in place to support easy data collection and use.
Physical Distribution: The movement and storage of finished goods from manufacturing plants to warehouses to customers; used synonymously with business logistics. See Distribution.
Plan-Do-Check-Action (PDCA): In quality management, a four-step process for quality improvement. In the first step (plan), a plan to affect improvement is developed. In the second step (do), the plan is carried out, preferably on a small scale. In the third step (check), the effects of the plan are observed. In the last step (action), the results are studied to determine what was learned and what can be predicted. The plan-do-check-act cycle is sometimes referred to as the Shewhart cycle (Walter A. Shewhart discussed the concept in his book Statistical Method from the Viewpoint of Quality Control) and as the Deming circle (W. Edwards Deming introduced the concept in Japan; the Japanese subsequently called it the Deming circle). Synonym: Shewhart Cycle.
Also see: Deming Circle.
PO: See Purchase Order (PO).
POD: See Proof of Delivery (POD).
Point of Sale Information (POS): Price and quantity data from the retail location as sales transactions occur.
Poka Yoke (mistake proof): The application of simple techniques that prevent process quality failure. A mechanism that either prevents a mistake from being made or makes the mistake obvious at a glance.
Police Powers: The United States’ constitutionally granted right for the states to establish regulations to protect their citizens’ health and welfare; truck weight; speed, length, and height laws are examples.
Portal: A web site that serves as a starting point to other destinations or activities on the Internet. Initially thought of as a home base-type of web page, portals attempt to provide all Internet needs in one location. Portals commonly provide services such as e-mail, online chat forums, shopping, searching, content, and news feeds.
Postponement: The delay of final activities (i.e., assembly, production, packaging, etc.) until the latest possible time. A strategy used to eliminate excess inventory in the form of finished goods which may be packaged in a variety of configurations.
Prepaid: A freight term which indicates that charges are to be paid by the shipper. Prepaid shipping charges may be added to the customer invoice, or the cost may be bundled into the pricing for the product.
Price Erosion: What causes old-line executives to break out in a cold sweat? No question about it; traditional business models are threatened by the market efficiencies of B2B. When prices begin to plummet, the margin structures of older industries are also threatened.
Primary-Business Test: A test the ICC uses to determine if a trucking operation is bona fide private transportation; the private trucking operation must be incidental to and in the futherance of the firm’s primary business.
Primary Manufacturing Strategy: Your company’s dominant manufacturing strategy. The primary manufacturing strategy generally accounts for 80-plus % of a company’s product volume. According to a study by Pittiglio Rabin Todd & McGrath (PRTM), approximately 73% of all companies use a make-to-stock strategy.
Private Carrier: A carrier that provides transportation service to the firm that owns or leases the vehicles and does not charge a fee. Private motor carriers may haul at a fee for wholly owned subsidiaries.
Private Label: Products that are designed, produced, controlled by, and which carry the name of the store or a name owned by the store; also known as a store brand or dealer brand. An example would be Wal-Mart’s “Sam’s Choice” products.
Private Trucking Fleets: Private fleets serve the needs of their owners, and do not ordinarily offer commercial trucking services to other customers. Private fleets typically perform distribution or service functions.
Process Benchmarking: Benchmarking a process (such as the pick, pack, and ship process) against organizations know to be the best in class in this process. Process benchmarking is usually conducted on firms outside of the organization’s industry. Also see: Benchmarking, Best in Class, Competitive Benchmarking.
Product: Something that has been or is being produced.
Product ID: A method of identifying a product without using a full description. These can be different for each document type and must, therefore, be captured and related to the document in which they were used. They must then be related to each other in context (also known as SKU, Item Code or Number, or other such name).
Production Planning and Scheduling: The systems that enable creation of detailed, optimized plans and schedules, taking into account the resource, material, and dependency constraints to meet the deadlines.
Profitability Analysis: The analysis of profit derived from cost objects with the view to improve or optimize profitability. Multiple views may be analyzed, such as market segment, customer, distribution channel, product families, products, technologies, platforms, regions, manufacturing capacity, etc.
Profitable to Promise: This is effectively a promise to deliver a certain order on agreed upon terms, including price and delivery. Profitable to Promise (PTP) is the logical evolution of Available to Promise (AtP) and Capable to Promise (CTP). While the first two are necessary for profitability, they aren’t sufficient. For enterprises to survive in a competitive environment, profit optimization is a vital technology.
Pro-forma: A type of quotation or offer that may be used when first negotiating the sales of goods or services. If the pro-forma is accepted, then the terms and conditions of the pro-forma may become the request.
Pro Forma Invoice: An invoice, forwarded by the seller of goods prior to shipment, that advises the buyer of the particulars and value of the goods. Usually required by the buyer in order to obtain an import permit or letter of credit.
Proof of Delivery (POD): Information supplied by the carrier containing the name of the person who signed for the shipment, the time and date of delivery and other shipment delivery-related information. POD is also sometimes used to refer to the process of printing materials just prior to shipment (Print on Demand).
Public Warehouse receipt: The basic document a public warehouse manager issues as a receipt for the goods a company gives to the warehouse manager. The receipt can be either negotiable or nonnegotiable.
Pull or Pull-Through Distribution: Supply chain action initiated by the customer. Traditionally, the supply chain was pushed; manufacturers produced goods and pushed them through the supply chain and the customer had no control. In a pull environment, a customer’s purchase sends replenishment information back through the supply chain from retailer to distributor to manufacturer so goods are pulled through the supply chain.
Pull Ordering System: A system in which each warehouse controls its own shipping requirements by placing individual orders for inventory with the central distribution center. A replenishment system where inventory is “pulled” into the supply chain (or “demand chain” by POS systems, or ECR programs). Associated with “build to order” systems.
Purchase Order (PO): The purchaser’s authorization used to formalize a purchase transaction with a supplier. The physical form or electronic transaction a buyer uses when placing an order for merchandise.
Push Distribution: The process of building product and pushing it into the distribution channel without receiving any information regarding requirements. Also see: Pull or Pull-Through Distribution.
Push Technology: Web casting (push technology) is the prearranged updating of news, weather, or other selected information on a computer user’s desktop interface through periodic and generally unobtrusive transmission over the World Wide Web (including the use of the web protocol on intranet). Web casting uses so-called push technology in which the web server ostensibly pushes information to the user rather than waiting until the user specifically requests it.
Put Away: Removing the material from the dock (or other location of receipt), transporting the material to a storage area, placing that material in a staging area, and then moving it to a specific location and recording the movement and identification of the location where the material has been place.
QFD: See Quality Function Deployment (QFD).
QR: See Quick Response (QR).
Quality: Conformance to requirements or fitness for use. Quality can be defined through five principal approaches:
1) Transcendent quality is an ideal, a condition of excellence.
2) Product-based quality is based on a product attribute.
3) User-based quality is fitness for use.
4) Manufacturing-based quality is conformance to requirements.
5) Value-based quality is the degree of excellence to an acceptable price.
Also, quality has two major components:
a) quality of conformance – quality is defined by the absence of defects.
b) quality of design – quality is measured by the degree of customer satisfaction with a product’s characteristics and features.
Quality Circle: In quality management, a small group of people who normally work as a unit and meet frequently to uncover and solve problems concerning the quality of items produced, process capability, or process control. Also see: Small Group Improvement Activity.
Quality Control: The management function that attempts to ensure that the goods or services in a firm manufacturers or purchases meet the product or service specifications.
Quality Function Deployment (QFD): A structured method for translating user requirements into detailed design specifications using a continual stream of “what-how” matrices. QFD links the needs of the customer (end user) with design, development, engineering, manufacturing, and service functions. It helps organizations seek out both spoken and unspoken needs, translate these into actions and designs, and focus various business functions toward achieving this common goal.
Quick Response (QR): A strategy widely adopted by general merchandise and soft lines retailers and manufacturers to reduce retail out of stocks, forced markdowns, and operating expenses. These goals are accomplished through shipping accuracy and reduced response time. QR is a partnership strategy in which suppliers and retailers work together to respond more rapidly to the consumer by sharing point-of-sale scan data, enabling both to forecast replenishment needs.
Radio Frequency (RF): A form of wireless communications that lets users relay information via electromagnetic energy waves from a terminal to a base station which is linked, in turn, to a host computer. The terminal can be placed at a fixed station, mounted on a forklift truck, or carried in a worker’s hand. The base station contains a transmitter and receiver for communication with the terminal. RF systems use either narrow-band or spread-spectrum transmissions. Narrow-band data transmissions move along a single limited radio frequency, while spread-spectrum transmissions move across several different frequencies. When combines with a bar code system of identifying inventory items, a radio frequency system can relay data instantly, thus updating inventory records in so-called real time.
Radio Frequency Identification (RFID): The use of radio frequency technology such as RFID tags and tag readers to identify objects. Objects may include virtually anything physical, such as equipment, pallets of stock, or even individual units of product.
Rationing: The allocation of product among customers, or components among manufactured goods during periods of short supply. When price is used to allocate product, it’s allocated to those willing to pay the most.
Receiving: The function encompassing the physical receipt of material, the inspection of the shipment for conformance with the purchase order (quantity and damage), the identification and delivery to destination, and the preparation of receiving reports.
Reengineering: (1) A fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance. (2) A term used to describe the process of making (usually) significant and major revisions or modifications to business processes. (3) Also called Business Process Reengineering.
Release-to-Start Manufacturing: Average time from order release to manufacturing to the start of the production process. This cycle time may typically be required to support activities like material movement and line changeovers.
Replenishment: The process of moving or resupplying inventory from a reserve (or upstream) storage location or facility to a primary (or downstream) storage or picking location, or to another mode of storage in which picking is performed.
Request for Proposal (RFP): A document which provides information concerning needs and requirements for a manufacturer. This document is created in order to solicit proposals from potential suppliers. For example, a computer manufacturer may use an RFP to solicit proposals from suppliers of third party logistics services.
Resource Driver: In cost accounting, the best single quantitative measure of the frequency and intensity of demands placed on a resource by other resources, activities, or cost objects. It’s used to assign resource costs to activities and cost objects, or to other resources.
Resources: Economic elements applied or used in the performance of activities or to directly support cost objects. They include people, materials, supplies, equipment, technologies, and facilities. Also see: Resource Driver, Capacity.
Return Goods Handling: Processes involved with returning goods from the customer to the manufacturer. Products may be returned because of performance problems or simply because the customer doesn’t like the product.
Return Material Authorization or Return Merchandise Authorization (RMA): A number usually produced to recognize and give authority for a faulty (perhaps) good to be returned to a distribution center or manufacturer. A form generally required with a warranty/return which helps the company identify the original product and the reason for the return. The RMA number often acts as an order form for the work required in repair situations, or as a reference for credit approval.
Return Order Management Costs: The costs associated with managing Return Material Authorization (RMA). Includes all applicable elements of the Level 2 component order management cost of total supply chain management cost.
Return Product Authorization (RPA): Also called Return Material or Goods Authorization (RMA or RGA). A form generally required with a warranty/return which helps the company identify the original product and the reason for the return. The RPA number often acts as an order form for the work required in repair situations or as a reference for credit approval.
Returns Inventory Costs: The costs associated with managing inventory returned for any of the following reasons: repair, refurbish, excess, obsolescence, end of life, ecological conformance, and demonstration. Includes all applicable elements of the Level 2 component Inventory Carrying Cost of Total Supply Chain Management Cost.
Returns Material Acquisition, Finance, Planning, and IT Costs: The costs associated with acquiring the defective products and materials for repair or refurbishing items, plus any finance, planning, and information technology costs to support return activity. Includes all applicable elements of the Level 2 components material acquisition cost (acquiring materials for repairs), supply chain-related finance and planning costs, and supply chain management cost.
Returns Processing Cost: The total cost to process repairs, refurbished, excess, obsolete, and end-of-life products, including diagnosing problems and replacing products. Includes the costs of logistics support, materials, centralized functions, troubleshooting service requests, on-site diagnosis and repair, external repair, and miscellaneous. These costs are broken into Returns Order Management, Returns Inventory Carrying, Returns Material Acquisition, Finance, Planning, IT, Disposal, and Warranty Costs.
Returns to Scale: A defining characteristic of B2B. Bigger is better. It’s what creates the “winner takes all” quality of most B2B hubs. It also places a premium on being first to market and first to achieve critical mass.
Reverse Logistics: A specialized segment of logistics focusing on the movement and management of products and resources after the sale and after delivery to the customer. Includes product returns for repair and/or credit.
RF: See Radio Frequency (RF).
RFID: Radio Frequency Identification. Also see: Radio Frequency.
RFP: See Request for Proposal (RFP).
RFQ: See Request for Quote (RFQ).
RGA: Return Goods Authorization. Also see: Return Material Authorization.
RM: See Raw Materials (RM).
RMA: Return Material Authorization. Also see: Return Product Authorization.
Routing or Routing Guide: (1) Process of determining how shipment will move between origin and destination. Routing information includes designation of carrier(s) involved, actual route of carrier, and estimate time en route. (2) Right of shipper to determine carriers, routes, and points for transfer shipments. (3) In manufacturing, this is the document which defines a process of steps used to manufacture and/or assemble a product.
Routing Accuracy: When specified activities conform to administrative specifications, and specified resource consumptions (both man and machine) are detailed according to administrative specifications and are within 10% of actual requirements.
RTV: See Return to Vendor (RTV).
S&OP: See Sales and Operations Planning.
SAE: Society of Automotive Engineers
Sales and Operations Planning (S&OP): A strategic planning process that reconciles conflicting business objectives and plans future supply chain actions. S&OP usually involves various business functions, such as sales, operations, and finance to agree on a single plan/forecast that can be used to drive the entire business.
Sales Plan: A time-phased statement of expected customer orders anticipated to be received (incoming sales, not outgoing shipment) for each major product family or item. It represents sales and marketing management’s commitment to take all reasonable steps necessary to achieve this level of actual customer orders. The sales plan is a necessary input to the production planning process (or sales and operations planning process). It is expressed in units identical to those used for the production plan (as well as in sales dollars). Also see: Sales and Operations Planning.
Sales Planning: The process of determining the overall sales plan to best support customer needs and operations capabilities, while meeting general business objectives of profitability, productivity, competitive customer lead times, and so on, as expressed in the overall business plan. Also see: Sales and Operations Planning.
1) How quickly and efficiently a company can ramp up to meet demand.
2) How well a solution to a problem will work when the size of the problem increases. The economies of scale don’t really kick in until your reach the critical mass, then revenues start to increase exponentially.
Scanlon Plan: A system of group incentives on a companywide or plantwide basis that sets up one measure that reflects the results of all efforts. The Scanlon plan originated in the 1930s by Joe Scanlon and MIT. The universal standard is the ratio of labor costs to sales value added by production. If there’s an increase in production sales value with no change in labor costs, productivity has increased while unit cost has decreased.
SCE: *See Supply Chain Execution (SCE)
SCEM: *See Supply Chain Event Management (SCEM)
Scenario Planning: A form of planning in which likely sets of relevant circumstances are identified in advance, and used to assess the impact of alternative actions.
SCOR: Supply Chain Operations Reference Model. This is the model developed by the Supply-Chain Council (SCC), and is build around six major processes: plan, source, make, deliver, return, and enable. The aim of the SCOR is to provide a standardized method of measuring supply chain performance, and to use a common set of metrics to benchmark against other organizations.
Scorecard: A performance measurement tool used to capture a summary of the key performance indicators (KPIs)/metrics of a company. Metrics dashboards/scorecards should be easy to read and usually have red, yellow, green indicators to flag when the company is not meeting its metrics targets. Ideally, a dashboard/scorecard should be cross functional in nature and include both financial and non-financial measures. In addition, scorecards should be reviewed regularly – at least on a monthly basis and weekly in key functions, such as manufacturing and distribution where activities are critical to the success of a company. The dashboard/scorecards philosophy can also be applied to external supply chain partners like suppliers to ensure that their objectives and practices align. Synonym: Dashboard
Seasonality: A repetitive pattern of demand from year to year (or other repeating time interval), with some periods considerably higher than others. Seasonality explains the fluctuation in demand for various recreational products which are used during different seasons.
Selling, General, and Administrative (SG&A) Expenses: Includes marketing, communication, customer service, sales, salaries and commissions, occupancy expenses, unallocated overhead, etc. Excludes interest on debt, domestic or foreign income taxes, depreciation and amortization, extraordinary items, equity gains or losses, gain or loss from discontinued operations and extraordinary items.
Serial Number: A unique number assigned for identification to a single piece that will never be repeated for similar pieces. Serial numbers are usually applied by the manufacturer but can be applied at other points by the distributor or wholesaler. Serial numbers can be used to support traceability and warranty programs.
Service Level: A measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customer’s requested delivery dates and quantities.
Service Parts Revenue: The sum of the value of sales made to external customers and the transfer price valuation of sales within the company of repair or replacement parts and supplies, net of all discounts, coupons, allowances, and rebates.
SET: See Secure Electronic Transaction.
Shared Services: Consolidation of a company’s back-office processes to form a spinout (0r a separate “shared services” unit to be run like a separate business), providing services to the parent company and sometimes, to external customers. Shared services typically lower overall cost due to the consolidation, and may improve support as a result of focus.
Shelf Life: The amount of time an item may be held in inventory before it becomes unusable. Shelf life is a consideration for food and drugs which deteriorate over time, and for high-tech products which become obsolete quickly.
Shewhart Cycle: See Plan-Do-Check-Action.
Shingo’s Seven Wastes: Shigeo Shingo, a pioneer in the Japanese just-in-time philosophy, identified seven barriers to improving manufacturing. They are the waste of overproduction, waste of waiting, waste of transportation, waste of stocks, waste of motion, waste of making defects, and waste of the processing itself.
Shipper-Carriers: Shipper-carriers (also called private carriers) are companies with goods to be shipped that own or manage their own vehicle fleets. Many large retailers, particularly groceries and “big box” stores, are shipper-carriers.
Shipping Lane: A predetermined, mapped route on the ocean that commercial vessels tend to follow between ports. This helps ships avoid hazardous areas. In general transportation, the logical route between the point of shipment and the point of delivery used to analyze the volume of shipment between two points.
Shipping Manifest: A document that lists the pieces in a shipment. A manifest usually covers an entire load regardless of whether the load is to be delivered to a single destination or many destinations. Manifests usually list the items, piece count, total weight, and the destination name and address for each destination in the load.
Shop Calendar: See Manufacturing Calendar
Shop Floor Production Control Systems: The systems that assign priority to each shop order, maintaining work-in-process quantity information, providing actual output data for capacity control purposes, and providing quantity by location by shop order for work-in-process inventory and accounting purposes.
Six-Sigma Quality: A term generally used to indicate that a process is well controlled, I.e., tolerance limits are +-6 sigma (3.4 defects per million events) from the centerline in a control chart. The term is usually associated with Motorola which named one of its key operations initiatives Six-Sigma Quality.
SKU: *See Stock-Keeping Unit (SKU)
Skills Matrix: A visible means of displaying people’s skill levels in various tasks. Used in a team environment to identify the skills required by the team and which team members possess those skills.
Slotting: Warehouse slotting is defined as the placement of products within a warehouse facility. Its objective is to increase picking efficiency and reduce warehouse handling costs through optimizing product location and balancing the workload.
Small Group Improvement Activity: An organizational technique for involving employees in continuous improvement activities. Also see: Quality Circle.
SMART: See Specific, Measurable, Achievable, Realistic, Time Based.
Specific, Measurable, Achievable, Realistic, Time Based (SMART): A shorthand description of a way of setting goals and targets for individuals and teams.
SOW: *See Statement of Work (SOW)
Spam: A computer industry term referring to the act of sending identical and irrelevant postings to many different newsgroups or mailing lists. Usually this posting is something that has nothing to do with the particular topic of a newsgroup or of no real interest to the person on the mailing list.
SPC: See Statistical Process Control (SPC).
Split Delivery: A method by which a larger quantity is ordered on a purchase order to secure a lower price, but delivery is divided into smaller quantities and is spread out over several dates to control inventory investment, save storage space, etc.
Spot Demand: Demand with a short lead time that’s difficult to estimate. Usually supply for this demand is provided at a premium price. An example of spot demand would be when there’s a spiked demand for building materials as a result of a hurricane.
Staging: Pulling material for an order from inventory before the material is required. This action is often taken to identify shortages, but it can lead to increased problems in availability and inventory accuracy. Also see: Accumulation Bin
Stakeholders: People with a vested interest in a company, including manager, employees, stockholders, customers, suppliers, and others.
Standard Cost Accounting System: A cost accounting system that uses cost units determined before production for estimating the cost of an order or product. For management control purposes, the standards are compared to actual costs, and variances are computed.
Statement of Work (SOW): 1) A description of products to be supplied under a contract. A good practice is for companies to have SOWs in place with their trading partners – especially for all top suppliers. 2) In projection management, the first project planning document that should be prepared. It describes the purpose, history, deliverables, and measurable success indicators for a project. It captures the support required from the customer and identifies contingency plans for events that could throw the project off course. Because the project must be sold to management, staff, and review groups, the statement of work should be a persuasive document.
Stock-Keeping Unit (SKU): A category of unit with a unique combination of form, fit, and function (i.e., unique components held in stock). To illustrate: If two items are indistinguishable to the customer, or if any distinguishing characteristics visible to the customer are not important to the customer so that the customer believes the two items to be the same, these two items are part of the same SKU.
As a further illustration: consider a computer company that allows customers to configure a complete computer from a selection of standard components. For example, they can choose from three keyboards, three monitors, and three CPUs. Customers may also individually buy keyboards, monitors, and CPUs. If the stock were held at the configuration component level, the company would have nine SKUs. If the company stocks at the component level, the company would have 36 SKUs. (9 component SKUs + 3*3*3 configured product SKUs.) If, as part of a promotional campaign, the company also specially packaged the products, the company would have a total of 72 SKUs.
Strategic Alliance: Business relationship in which two or more independent organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives.
Sub-Optimization: Decisions or activities in part made at the expense of the whole. An example of sub-optimization is where a manufacturing unit schedules production to benefit its cost structure without regard to customer requirements or the effect on other business units.
Subhauler: A subhauler drives a tractor under contract for a company. Usually a subhauler is an owner/operator or a small company.
Sunk Cost: 1) The unrecovered balance of an investment. It’s a cost already paid that is not relevant to the decision concerning the future that is being made. Capital already invested that for some reason cannot be retrieved.2) A past cost that has no relevance with respect to future receipts and disbursements of a facility undergoing an economic study. This concept implies that since a past outlay is the same regardless of the alternative selected, it should not influence the choice between alternatives.
1) A provider of goods or services. Also see: Vendor.
2) A seller with whom the buyer does business, as opposed to vendor, which is a generic term referring to all sellers in the marketplace.
Supplier Certification: Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer’s requirements. Such requirements can include cost, quality, delivery, flexibility, maintenance, safety, and ISO quality and environmental standards.
Supplier-Owned Inventory: A variant of Vendor-Managed Inventory and Consignment Inventory. In this case the supplier not only manages the inventory, but also owns the stock close to or at the customer location until the point of consumption or usage by the customer.
Supply Chain: (1) Starting with unprocessed raw materials and ending with the final customer using the finished goods, the supply chain links many companies together. (2) The material and informational interchanges in the logistical process, stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers, and customers are links in the supply chain.
Supply Chain Design: The determination of how to structure a supply chain. Design decisions include the selection of partners, the location and capacity of warehouse and production facilities, the products, the modes of transportation, and supporting information systems.
Supply Chain Execution (SCE): The ability to move the product out of the warehouse door. This is a critical capacity and one that only brick-and-mortar firms bring to the B2B table. Dot coms have the technology, but that’s only part of the equation. The need for SCE is what is driving the dot coms to offer equity partnerships to the wholesale distributors.
Supply Chain Event Management (SCEM): SCEM is an application that supports control processes for managing events within and between companies. It consists of integrated software functionality that supports five business processes: monitor, notify, simulate, control, and measure supply chain activities.
Supply Chain Integration (SCI): Likely to become a key competitive advantage of selected e-marketplaces. Similar concept to the back-end integration, but with greater emphasis on the moving of goods and services.
Supply Chain Inventory Visibility: Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level, and notify the user of significant deviations from the plans. Companies are provided with realistic estimates of when the material will arrive.
Supply Chain Management (SCM): Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activites. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply chain management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive, high-performing business model. It includes all of the logistics managment activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance, and information technology. — as defined by the Council of Supply Chain Management Professionals (CSCMP)
Supply Chain Network Design Systems: The systems employed in optimizing the relationships among the various elements of the supply chain manufacturing plants, distribution centers, points of sale, as well as raw materials, relationships among product families, and other factors to synchronize supply chains at a strategic level.
Supply Chain-Related Finance and Planning Cost Element: One of the elements comprising a company’s total supply chain management costs. These costs consist of the following:
1. Supply-Chain Finance Costs: Costs associated with paying invoices, auditing physical counts, performing inventory accounting, and collecting accounts receivable. Does NOT include customer invoicing/accounting costs (See Order Management Costs).
2. Demand/Supply Planning Costs: Costs associated with forecasting developing finished goods, intermediate, subassembly or end-item inventory plans, and coordinating demand/supply.
Supply Chain-Related IT Costs: Information technology (IT) costs (in US dollars) associated with major supply chain management processes as described below. These costs should include:
* Development costs (costs incurred in process reengineering, planning, software development, installation, implementation, and training associated with new and/or upgraded architecture, infrastructure, and systems to support the described supply chain management processes),
* Execution costs (operating costs to support supply chain process users, including computer and network operations, EDI and telecommunications services, and amortization/depreciation of hardware)
* Maintenance costs (costs incurred in problem resolution, troubleshooting, repair, and routine maintenance associated with installed hardware and software for described supply chain management processes. Includes costs associated with database administration systems configuration control, release planning, and management).
These costs are associated with the following processes:
1. Product Data Management – Product phase-in/phase-out and release; post-introduction support and expansion; testing and evaluation; end-of-life inventory management. Item master definition and control.
2. Forecasting and Demand/Supply Manage and Finished Goods – Forecasting; end-item inventory planning, DRP, production master scheduling for all products, all channels.
1. Sourcing/Material Acquisition – Material requisitions, purchasing, supplier quality engineering, inbound freight management, receiving, incoming inspection, component engineering, tooling acquisition, accounts payable.
2. Component and Supplier Management – Part number cross references, supplier catalogs, approved vendor lists.
3. Inventory Management – Perpetual and physical inventory controls and tools.
1. Manufacturing Planning – MRP, production scheduling, tracking, manufacturing engineering, manufacturing documentation management, inventory/obsolescence tracking.
2. Inventory Management – Perpetual and physical inventory controls and tools.
3. Manufacturing Execution – MES detailed and finite interval scheduling, process controls, and machine scheduling. DELIVER
1. Order Management – Order entry/maintenance, quotes, customer database, product/price database, accounts receivable, credits and collections, invoicing.
2. Distribution and Transportation Management – DRP, shipping, freight management, traffic management.
3. Inventory Management – Perpetual and physical inventory controls and tools.
4. Warehouse Management – Finished goods, receiving and stocking, pick/pack.
5. Channel Management – Promotions, pricing and discounting, customer satisfaction surveys.
6. Field Service/Support – Field service, customer and field support, technical service, service/call management, returns, warranty tracking.
EXTERNAL ELECTRONIC INTERFACES
Plan/Source/Make/Deliver – Interfaces, gateways, and data repositories created and maintained to exchange supply chain-related information with the outside world. E-commerce initiatives. Includes development and implementation costs.
Note: Accurate assignment of IT-related cost is challenging. It can be done using activity-based costing methods or using other approaches, such as allocation based on user counts, transactions counts, or departmental headcounts. The emphasis should be on capturing all costs. Costs for any outsourced IT activities should be included.
Supply Planning: The process of identifying, prioritizing, and aggregating, as a whole with constituent parts, all sources of supply that are required and add value in the supply chain of a product or service at the appropriate level, horizon, and interval.
Support Costs: Costs of activities not directly associated with producing or delivering products or services. Examples are the costs of information systems, process engineering, and purchasing. Also see: Indirect Cost.
Surrogate [item] Driver: In ABC costing, a substitute for the ideal cost driver, but closely correlated to the ideal driver, where [item] is Resource, Activity, or Cost Object. A surrogate driver is used to significantly reduce the cost of measurement while not significantly reducing accuracy. For example, the number of production runs is not descriptive of the material-disbursing activity, but the number of production runs may be used as an activity driver if material disbursements correlate well with the number of production runs.
SWOT: See SWOT Analysis (SWOT).
Synchronization: The concept that all supply chain functions are integrated and interact in real time; when changes are made to one area, the effect is automatically reflected throughout the supply chain.
3D Loading: 3D loading is a method of space optimizing designed to help quickly and easily plan the best compact arrangement of any 3D rectangular object set (boxes) within one or more larger rectangular enclosures (containers). It’s based on three-dimensional, most-dense packing algorithms.
3PL: *See Third Party Logistics (3PL)
Tactical Planning: The process of developing a set of tactical plants (e.g., production plan, sales plan, marketing plan, and so on). Two approaches to tactical planning exist for linking tactical plans to strategic plans – production planning and sales and operations planning. Also see: Sales and Operations Planning.
Taguchi Method: A concept of offline quality control methods conducted at the product and process design states in the product development cycle. This concept, expressed by Genichi Taguchi, encompasses three phases of product design, parameter design, and tolerance design. The goal is to reduce quality loss by reducing the variability of a product’s characteristics during the parameter phase of product development.
Takt Time: Sets the pace of production to match the rate of customer demand and becomes the heartbeat of any lean production system. It’s computed as the available production time divided by the rate of customer demand. For example, assume demand is 10,000 units per month, or 500 units per day, and planned available capacity is 420 minutes per day. The takt time = 420 minutes per day/500 units per day = 0.84 minutes per unit. This takt time means that a unit should be planned to exit the production system on average every 0.84 minutes.
Target Costing: A target cost is calculated by subtracting the desired profit margin from an estimated or market-based price to arrive at a desired production, engineering, or marketing cost. This may not be the initial production cost, but one expected to be achieved during the mature production stage. Target costing is a method used in the analysis of product design that involves estimated a target cost, then designing the product/service to meet that cost.
T’s & C’s: See Terms and Conditions.
Tender: The document which describes a business transaction to be performed.
Theory of Constraints (TOC): A production management theory which dictates that volume is controlled by a series of constraints related to work center capacity, component availability, finance, etc. Total throughput cannot exceed the capacity of the smallest constraint, and any inventory buffers or excess capacity at non-related work center is waste.
Third Party Logistics Provider (3PL): A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated or bundled together, by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers, and finished products from manufacturers to distributors and retailers. Among the services they provide are transportation, warehousing, cross docking, inventory management, packaging, and freight forwarding.
TL: *See Truckload Carriers (TL)
TMS: See Transportation Management System
TOC: See Theory of Constraints
TOFC: *See Trailer on a Flat Car, Piggyback (TOFC)
Total Annual Sales: Total Annual Sales are Total Product Revenue plus post-delivery revenues (e.g., maintenance and repair or equipment, system integration) royalties, sales of other services, spare parts revenue, and rental/lease revenues.
Total Cost Analysis: A decision-making approach that considers minimization of total costs and recognizes the inter-relationship among system variables, such as transportation, warehousing, inventory, and customer service.
Total Cost Curve: 1) In cost-volume-profit (break-even) analysis, the total cost curve is composed of total fixed and variable costs per unit multiplied by the number of units provided. Break-even quantity occurs where the total cost curve and total sales revenue curve intersect.2) In inventory theory, the total cost curve for an inventory item is the sum of the costs of acquiring and carrying the item.
Total Cost of Ownership (TCO): Total cost of a computer asset throughout its life cycle, from acquisition to disposal. TCO is the combined hard and soft costs of owning networked information assets. “Hard” costs include items such as the purchase price of the asset, implementation fees, upgrades, maintenance, contracts, support contracts, disposal costs, and license fees that may or may not be up-front or charged annually. These costs are considered “hard costs” because they are tangible and easily accounted for.
Total Cumulative Manufacture Cycle Time: Average time between commencement of upstream processing and completion of final packaging for shipment operations as well as release of approval for shipment. Does not include WIP storage time.
Calculation: [Average # of units in WIP]/[Average daily output in units] – WIP days of supply
Total Make Cycle Time: The average processing time between commencement of upstream processing and completion of all manufacturing process steps up to, but not including, packaging and labeling operations (i.e., from start of manufacturing to final formulated product ready for primary packaging.) Does not include hold or test and release times. Calculation: [Average # of units in active manufacturing]/[Average daily output in units.]
Total Product Revenue: The total value of sales made to external customers plus the transfer price valuation of intra-company shipments, net of all discounts, coupons, allowances, and rebates. Includes only the intra-company revenue for product transferring out of an entity, installation services if these services are sold bundled with end products, and recognized leases to customers initiated during the same period as revenue shipments, with revenue credited at the average selling price.
Note: Total Product Revenue excludes post-delivery revenues (maintenance and repair of equipment, system integrations), royalties, sales of other services, spare parts revenue, and rental/lease revenues.
Total Supply Chain Management Cost (five elements): Total cost to manage order processing, acquire materials, manage inventory, and manage supply chain finance, planning, and IT costs as represented as a percent of revenue. Accurate assignment of IT-related cost is challenging. It can be done using activity-based costing methods, or more traditional-based approaches. Allocation based on user counts, transaction counts, or departmental headcounts are reasonable approaches. The emphasis should be on capturing all costs, whether incurred in the entity completing the survey or in a supporting organization on behalf of the entity. Reasonable estimates founded in data were accepted as means to assess overall performance. All estimates reflected fully-burdened actuals inclusive of salary, benefits, space and facilities, and general and administrative allocations.
Calculation: [Order Management Costs + Material Acquisition Costs + Inventory Carrying Costs + Supply-Chain Related Finance and Planning Costs + Total Supply Chain-Related IT Costs]/[Total Product Revenue]
(Please see individual component categories for component detail and calculations.)
Total Supply Chain Response Time: The time it takes to rebalance the entire supply chain after determining a change in market demand. Also, a measure of a supply chain’s ability to change rapidly in response to marketplace changes.
Calculation: [Forecast Cycle Time] + [Re-Plan Cycle Time] + [Intra-Manufacturing Re-Plan Cycle Time] + [Cumulative Source/Make Cycle Time] + [Order Fulfillment Lead Time]
Total Test Release Cycle Time: The average total test and release time for all tests, documentation reviews, and batch approval processes performed from start of manufacturing to release of final packaged product for shipment.
Calculation: [Average number of units in test and release]/[Average daily output in units]
Touch Labor: The labor that adds value to the product – assemblers, welders, packagers, etc. This does not include indirect resources like material handlers who move and stage product, and mechanical and electrical technicians who maintain equipment.
Tracing: The practice of relating resources, activities, and cost objects using the drivers underlying their cost causal relationships. The purpose of tracing is to observe and understand how costs are arising in the normal course of business operations. Synonym: Assignment.
Traceability: 1) The attribute allowing the ongoing location of a shipment to be determined. 2) The registering and tracking of parts, processes, and materials used in production, by lot or serial number.
Transaction: A single completed transmission, e.g., transmission of an invoice over an EDI network. Analogous to usage of the term in data processing in which a transaction can be an inquiry or a range of updates and trading transactions. The definition is important for EDI service operators who must interpret invoices and other documents.
Transaction Set: Commonly used business transactions (e.g., purchase order, invoice, etc.) organized in a formal, structured manner consisting of a transaction set header control segment, one or more data segments, and a transaction set trailer control data segment.
Transactional Acknowledgement: Specific transaction sets, such as the Purchase Order Acknowledgement (855), that both acknowledges receipt of an order and provides special status information, such as reschedules, price changes, back order situation, etc.
Transparency: The ability to gain access to information without regard to the system’s landscape or architecture. An example would be where an online customer could access a vendor’s web site to place an order and receive availability information supplied by a third party outsource manufacturer or shipment information from a third party logistics provider. Also see: Visibility.
Transportation Management System: A computer system designed to provide optimized transportation management in various modes along with associated activities, including managing shipping units, labor planning and building, shipment scheduling through inbound, outbound, intra-company shipments, documentation management (especially when international shipping is involved), and third party logistics management.
Transportation Planning: The process of defining an integrated supply chain transportation plan and maintaining the information which characterizes total supply chain transportation requirements, and the management of transporters, both inter- and intra- company.
Transportation Planning Systems: The systems used in optimizing assignments from plants to distribution centers, and from distribution centers to stores. The systems combine moves to ensure the most economical means are employed.
1) Typically refers to inventory turnover
2) In the United Kingdom and certain other countries, turnover refers to annual sales volume. Also see: Inventory Turns.
ULD: See Unit Load Device (ULD).
Uniform Code Council (UCC): A US association that administrates UCS, WINS, and VICS and provides UCS identification codes and UPC codes. Also, a model set of legal rules governing commercial transmissions, such as sales, contracts, bank deposits and collections, commercial paper, and letters or credit. Individual states give legal power to the UCC by adopting its articles of law.
Uniform Product Code (UPC): A standard product numbering and bar coding system used by the retail industry. UPC codes are administered by the Uniform Code Council. They identify the manufacturer as well as the item, and are included on virtually all retail packaging. Also see: Uniform Code Council.
Uniform Resource Locator (URL): A string that supplies the Internet address of a web site or resource on the World Wide Web, along with the protocol by which the site or resource is accessed. The most common URL type is http://, which gives the Internet address of a web page. Some other URL types are gopher:/, which gives the Internet address of a Gopher directory, and ftp://, which gives the network location of an FTP resource.
Uniform Warehouse Receipts Act: The act that sets forth the regulations governing public warehousing. The regulations define a warehouse manager’s legal responsibility and define the types of receipts he or she issues.
Unit Cost: The cost associated with a single unit of product. The total cost of producing a product or service divided by the total number of units. The cost associated with a single unit of measure underlying a resource, activity, product, or service. It’s calculated by dividing the total cost by the measured volume. Unit cost measurement must be used with caution as it may not always be practical or relevant in all aspects of cost management.
Unit of Measure (UOM): The unit in which the quantity of an item is managed, e.g., pounds, each, box of 12, package of 20, or case of 144. Various UOMs may exist for a single item. For example, a product may be purchased in cases, stocked in boxes, and issued in single units.
United Nations Standard Product and Service Code (UN/SPSC): Developed jointly between the United Nations and Dun & Bradstreet (D&B). It has a five-level coding structure (segment, family, class, commodity, business function) for nearly 9,000 products.
UOM: See Unit of Measure (UOM).
UPC: See Uniform Product Code.
Upside Production Flexibility: The number of days required to complete manufacture and delivery of an unplanned sustainable 20% increase in end-product supply of the predominant product line. The one constraint that is estimated to be the principal obstacle to a 20% increase in end-product supply as represented in days is Upside Flexibility: Principal Constraint. Upside flexibility can affect three possible areas: direct labor availability, internal manufacturing capacity, and key components or material availability.
Upstream: Principal direction of movement for customer orders which originate at point of demand or use, as well as other flows, such as return product movements, payments for purchases, etc. Opposite of downstream.
Urban Mass Transportation Administration: A U.S. Department of Transportation agency that develops comprehensive mass transport systems for urban areas and for providing financial aid to transit systems.
URL: See Uniform Resource Locator (URL).
Value-Added Network (VAN): A company that acts as a clearinghouse for electronic transactions between trading partners. A third party supplier that receives EDI transmissions from sending trading partners and holds them in a mailbox until retrieved by the receiving partners.
Value-Added Productivity Per Employee: Contribution made by employees to total product revenue minus the material purchases divided by total employment. Total employment is total employment for the entity being surveyed. This is the average full-time equivalent employee in all functions, including sales and marketing, distribution, manufacturing, engineering, customer service, finance, general and administrative, and other. Total employment should include contract and temporary employees on a full-time equivalent (FTE) basis.
Calculation: Total Product Revenue-External Direct Material/[FTEs]
Value Adding/Non-Value Adding: Assessing the relative value of activities according to how they contribute to customer value or to meeting an organization’s needs. The degree of contribution reflects the influence of an activity’s cost driver(s).
Value Analysis: A method to determine how features of a product or service relate to cost, functionality, appeal and utility to a customer (i.e., engineering value analysis). Also see: Target Costing.
Value Chain Analysis: A method of identifying all the elements in the linkage of activities a firm relies on the secure the necessary materials and services starting from their point of origin to manufacture, and to distribution of their products and services to an end user.
VAN: See Value-Added Network.
VBR: See Value-Based Return (VBR).
Vendor: The manufacturer or distributor of an item or product line. Also see: Supplier.
Vendor Code: a unique identifier, usually a number and sometimes the company’s DUNS number, assigned by a customer for the vendor it buys from.
Example: a grocery store chain buys Oreo cookies from Nabisco. For accounting purposes, the grocery store chain identifies Nabisco as Vendor #76091. One company can have multiple vendor codes. Example: Welch’s Foods sells many different products – frozen grape juice concentrate, chilled grape juice, bottled grape juice, and grape jelly. Because each of these items is a different type of product (frozen food, chilled food, beverages, dry food), they may also have a different buyer at the grocery store chain, requiring a different vendor code for each product line.
Vendor-Managed Inventory (VMI): The practice of retailers making suppliers responsible for determining order size and timing, usually based on receipt of retail POS and inventory data. Its goal is to increase retail inventory turns and reduce stock outs.
Vendor-Owned Inventory (VOI): See Consignment Inventory.
Vertical Hub/Vertical Portal: Serving one specific industry. Vertical portal web sites are ones that cater to customers within a particular industry. Similar to the term “vertical industry,” these web sites are industry specific, and, like a portal, they make use of Internet technology by using the same kind of personalization technology. In addition to industry-specific vertical portals that cater to consumers, another definition of a vertical portal is one that caters solely to other businesses.
Vertical Integration: The degree to which a firm has decided to directly produce multiple value-adding stages, from raw material to the sale of the product to the ultimate consumer. The more steps in the sequence, the greater the vertical integration. A manufacturer that decides to begin producing parts, components, and materials that it normally purchases is said to be backward integrated. Likewise, a manufacturer that decides to take over distribution and perhaps sale to the ultimate consumer is said to be forward integrated.
Viral Marketing: The concept of embedding advertising into web portals and pop ups, and as e-mail attachments to spread the word about products or services that the target audience may not otherwise have been interested in.
Virtual Corporation: The logical extension of outpartnering. With the virtual corporation, the capabilities and systems of the firm are managed with those of the suppliers, resulting in a new type of corporation where the boundaries between the suppliers’ systems and those of the firm seem to disappear. The virtual corporation is dynamic in that the relationships and structures formed change according to the changing needs of the customer.
Virtual Factory: A changed transformation process most frequently found under the virtual corporation. It’s a transformation process that involves merging the capabilities and capacities of the firm with those of its suppliers. Typically, the components provided by the suppliers are hose that are not related to a core competency of the firm, while the components managed by the firm are related to core competencies. One advantage found in the virtual factory is that it can be restructured quickly in response to changing customer demands and needs.
Vision: The shared perception of the organization’s future – what the organization will achieve and a supporting philosophy. This shared vision must be supported by strategic objectives, strategies, and action plans to move in in the desired direction. Synonym: Vision Statement.
VMI: *See Vendor-Managed Inventory (VMI)
VOI: *See Vendor-Owned Inventory (VOI)
Voice Activated: Systems which guide users such as warehouse personnel via voice commands.
Warehouse Management System (WMS): The systems used in effectively managing warehouse business processes and direct warehouse activities, including receiving, putaway, picking, shipping, and inventory cycle counts. Also includes support of radio frequency communications, allowing real-time data transfer between the system and warehouse personnel. they also maximize space and minimize material handling by automating putaway processes.
1) In just in time, any activity that does not add value to the good or service in the eyes of the consumer.
2) A by-product of a process or task with unique characteristics requiring special management control. Waste production can usually be planned and controlled. Scrap is typically not planned and may result from the same production run as waste.
Wave Picking: A method of selecting and sequencing picking lists to minimize the waiting time of the delivered material. Shipping orders may be picked in waves combined by a common product, common carrier, or destination, and manufacturing orders in waves related to work centers.
Waybill: Document containing description of goods that are part of common carrier freight shipment. Shows origin, destination, consignee/consignor, and amount charged. Copies travel with goods and are retained by originating/delivering agents. Used by carrier for internal record and control, especially during transit. Not a transportation contract.
Web Services: A computer term for information processing services that are delivered by third parties using Internet Portals. Standardized technology communications protocols; network services a collections of communication formats or endpoints capable of exchanging messages.
Weight-Point Plan: A supplier selection and rating approach that uses the input gathered in the categorical plan approach and assigns weights to each evaluation category. A weighted sum for each supplier is obtained and a comparison made. The weights used should sum to 100% for all categories. Also see: Categorical Plan.
Weight Unit Qualifier: The unit of measure that the user wants to see for weight.
WMS: See Warehouse Management System
Work in Process (WIP): Parts and subassemblies in the process of becoming completed finished goods. Work in process generally includes all of the material, labor, and overhead charged against a production order which has not been absorbed back into inventory through receipt of completed products.
World Trade Organization (WTO): An organization established on January 1, 1995 replacing the previous General Agreement on Tariffs and Trade GATT that forms the cornerstone of the world trading system.
World Wide Web (WWW): A “multi-media hyper-linked database that spans the globe” providing information on desktop and handheld computers and other devices such as web compliant phones and televisions. Unlike earlier Internet services, the “web” provides more than just text combining text, pictures, sounds, and even animation in a graphical user interface for ease of navigation.
WPA: With particular average. See Marine Cargo Insurance.
WWW: See World Wide Web (WWW).
XML: *See Extensible Markup Language (XML)
Yield: The ratio of usable output from a process to its input.
Zone of Rate Flexibility: Railroads may raise rates by a percentage increase in the railroad cost index that the ICC determines; the railroads could raise rates by 6 percent per year through 1984 and 4 percent thereafter.
Zone of Rate Freedom: Motor carriers may raise or lower rates by 10 percent in one year without ICC interference; if the rate change is within the zone of freedom, the rate is presumed to be reasonable.
Zone Picking: A method of subdividing a picking list by arrears within a storeroom for more efficient and rapid order picking. A zone-picked order must be grouped to a single location and the separate pieces combined before delivery, or must be delivered to different locations such as a work center.
Sources: CSMP – Council of Supply Chain Management Professionals and its member companies; WERC – Warehouse Education and Research Council and its member companies; Transportation and Logistics Basics-A Handbook, by R. Neil Southern, PhD, Continental Traffic Publishing, copyright 1997; U.S. Department of Transportation – Maritime Administration 1-800-99-MARAD; Tradeport-California’s Gateway to International Trade-tradeport.org