Supply Chain Management - Jargon A to L - PART - I

A

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 – 20% by number of items and 50 –70% by projected dollar volume. The next grouping, B, represents about 20% of the items and about 20% of the dollar volume. The C class contains 60 – 70% of the items and represents about 10 – 30% of the dollar volume.

ABC Inventory Control: An inventory control approach based on the ABC classification.

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.

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?

Also see: Outlier.

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.

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. Also see: Acceptance Sampling.

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 cutoff 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.

Accessory: A choice or feature added to the good or service offered to the customer for customizing the end product. An accessory enhances the capabilities of the product but is not necessary for the basic function of the product. In many companies, an accessory means that the choice does not have to be specified before shipment but can be added at a later date. In other companies, this choice must be made before shipment.

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.

Accounts payable (A/P): The value of goods and services acquired for which payment has not yet been made.

Accounts receivable (A/R): The value of goods shipped or services rendered to a customer on whom payment has not yet been received. Usually includes an allowance for bad debts.

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 U.S. generic standards (X12) for Electronic Data Interchange.

Accumulation bin: A place, usually a physical location, used to accumulate all components that go into an assembly before the assembly is sent out to the assembly floor. Syn: assembly bin.

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.

Acknowledgment: A communication by a supplier to advise a purchaser that a purchase order has been received. It usually implies acceptance of the order by the supplier.

Acquisition Cost: In cost accounting, the cost required to obtain one or more units of an item. It is order quantity times unit cost.

Action Message: An output of a system that identifies the need for and the type of action to be taken to correct a current or potential problem. Examples of action messages in an MRP system include release order, reschedule in, reschedule out, and cancel. Synonym: exception message, action report.

Activation: In constraint management, the use of non-constraint resources to make parts or products above the level needed to support the system constraint(s). The result is excessive work- in-process inventories or finished goods inventories, or both. In contrast, the term utilization is used to describe the situation in which non-constraint resource(s) usage is synchronized to support the needs of the constraint.

Active Inventory: The raw materials, work in process, and finished goods that will be used or sold within a given period.

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 (outputs) 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 Costing System: A set of activity-based cost accounting models that collectively define data on an organization’s resources, activities, drivers, objects, and measurements.

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. ABM uses activity-based cost information and performance measurements to influence management action.

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-based budgeting (ABB) is based on the outputs of activity-based planning.

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 is 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 Costs: The labor, material, and associated overhead costs that are charged against a job as it moves through the production process.

 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 upon 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.

Adaptive Control: 1) The ability of a control system to change its own parameters in response to a measured change in operating conditions. 2) Machine control units in which feeds and/or speeds are not fixed. The control unit, working from feedback sensors, is able to optimize favorable situations by automatically increasing or decreasing the machining parameters. This process ensures optimum tool life or surface finish and/or machining costs or production rates.

Adaptive Smoothing: In forecasting, a form of exponential smoothing in which the smoothing constant is automatically adjusted as a function of forecast error measurement.

Advance Material Request: Ordering materials before the release of the formal product design. This early release is required because of long lead times.

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 mathematical 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 APS systems are demand planning, production planning, production scheduling, distribution planning, and transportation planning.

Advanced Shipping Notice (ASN): Detailed shipment information transmitted to a customer or consignee in advance of delivery, designating the contents (individual products and quantities of each) and nature of the shipment. May also include carrier and shipment specifics including time of shipment and expected time of arrival. See also: Assumed Receipt

 After-Sale Service: Services provided to the customer after products have been delivered. This can include repairs, maintenance and/or telephone support. Synonym: Field Service.

Aggregate Forecast: An estimate of sales, often time 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 Inventory: The inventory for any grouping of items or products involving multiple stockkeeping units. Also see: Base Inventory Level.

Aggregate Inventory Management: Establishing the overall level (dollar value) of inventory desired and implementing controls to achieve this goal.

Aggregate Plan: A plan that includes budgeted levels of finished goods, inventory, production backlogs, and changes in the workforce to support the production strategy. Aggregated information (e.g., product line, family) rather than product information is used, hence the name aggregate plan.

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 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, highquality products and services with short lead times and varying volumes that provides enhanced value to customers through customization. Agility merges the four distinctive competencies of cost, quality, dependability, and flexibility.

Algorithm: A clearly specified mathematical process for computation; a set of rules, which, if followed, give a prescribed result.

Allocated item: In an MRP system, an item for which a picking order has been released to the stockroom but not yet sent from the stockroom.

Allocation: 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. (Contrast with Tracing and Assignment.)

Allocation Costing: See Absorption Costing

Alternate Routing: A routing, usually less preferred than the primary routing, but resulting in an identical item. Alternate routings may be maintained in the computer or off- line via manual methods, but the computer software must be able to accept alternate routings for specific jobs.

American National Standards Institute (ANSI): A non-profit organization chartered to

develop, maintain, and promulgate voluntary U.S. national standards in a number of areas, especially with regards to setting EDI standards. ANSI is the U.S. representative to the International Standards Organization (ISO).

American Society for Quality (ASQ): Founded in 1946, a not- for-profit educational

organization with 144,000 members who are interested in quality improvement.

American Standard Code for Information Interchange (ASCII): ASCII format - simple text based data with no formatting. The standard code for information exchange among data processing systems. Uses a coded character set consisting of 7-bit coded characters (8 bits including parity check).

Animated GIF: A file containing a series of GIF (Graphics Interchange Format) images that are displayed in rapid sequence by some Web browsers, giving an animated effect. Also see: GIF.

ANSI: See American National Standards Institute.

ANSI ASC X12: American National Standards Institute Accredited Standards Committee X12. The committee of ANSI that is charted with setting EDI standards.

ANSI Standard: A published transaction set approved by ANSI. The standards are reviewed every six months.

Anticipated Delay Report: A report, normally issued by both manufacturing and purchasing to the material planning function, regarding jobs or purchase orders that will not be completed on time and explaining why the jobs or purchases are delayed and when they will be completed. This report is an essential ingredient of the closed-loop MRP system. It is normally a handwritten report. Synonym: delay report.

Anticipation Inventories: Additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations.

A/P: See Accounts Payable

Application Service Provider (ASP): A company that offers access over the Internet to application (examples of applications include word processors, database programs, Web browsers, development tools, communication programs) and related services that would otherwise have to be located in their own computers. Sometimes referred to as & quot;apps-ontap", ASP services are expected to become an important alternative, especially for smaller companies with low budgets for information technology. The purpose is to try to reduce a company's burden by installing, managing, and maintaining software.

Application-to-Application: The direct interchange of data between computers, without rekeying.

Appraisal Costs: Those costs associated with the formal evaluation and audit of quality in the firm. Typical costs include inspection, quality audits, testing, calibration, and checking time.

ASC X12: Accredited Standards Committee X12. A committee of ANSI chartered in 1979 to develop uniform standards for the electronic interchange of business documents.

ASCII: See American Standard Code for Information Interchange

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, semi- finished, intermediate, subassembly, 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. Synonym: finish-to-order. Also see: Make-to-Order, Make-to-Stock.

Assembly: A group of subassemblies and/or parts that are put together and that constitute a major subdivision for the final product. An assembly may be an end item or a component of a higher level assembly.

Assembly Line: An assembly process in which equipment and work centers are laid out to follow the sequence in which raw materials and parts are assembled.

Assignment: A distribution of costs using causal relationships. Because cost causal

relationships are viewed as mo re relevant for management decision- making, assignment of costs is generally preferable to allocation techniques. (Synonymous with Tracing. Contrast with Allocation.)

Assumed Receipt: The principle of assuming that the contents of a shipping or delivery note are correct. Shipping and receiving personnel do not check the delivery quantity. Used in conjunction with bar codes and an EDI-delivered ASN to eliminate invoices.

Attachment: An accessory that has to be physically attached to the product.

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.

Audit Trail: Manual or computerized tracing of the transactions affecting the contents or origin of a record.

Auditability: A characteristic of modern information systems, gauged by the ease with which data can be substantiated by trading it to source documents and the extent to which auditors can rely on pre- verified and monitored control processes.

Authentication: 1) The process of verifying the eligibility of a device, originator, or individual to access specific categories of information or to enter specific areas of a facility. This process involves matching machine-readable code with a predetermined list of authorized end users. 2) A practice of establishing the validity of a transmission, message, device, or originator, which was designed to provide protection against fraudulent transmissions.

Authentication Key: A short string of characters used to authenticate transactions between trading partners.

Automated Call Distribution (ACD): A feature of large call center or “Customer Interaction Center” telephone switches that routes calls by rules such as next available employee, skill-set etc.

Automated Clearinghouse (ACH): Automated Clearinghouse. A nationwide electronic

payments system, which more than 15,000 financial institutions use, on behalf of 100,000 corporations and millions of consumer in the U.S. The funds transfer system of choice among businesses that make electronic payments to vendors, it is economical and can carry remittance information in standardized, computer processable data formats.

Automated Guided Vehicle System (AGVS): A transportation network that automatically routes one or more material handling devices, such as carts or pallet trucks, and positions them at predetermined destinations without operator intervention.

Automated Storage/Retrieval System (AS/RS): A high-density rack inventory storage system with un- manned vehicles automatically loading and unloading products to/from the racks.

Automatic Relief: A set of inventory bookkeeping methods that automatically adjusts

computerized inventory records based on a production transaction. Examples of automatic relief methods are backflushing, direct-deduct, pre-deduct, and post-deduct processing.

Automatic Rescheduling: Rescheduling done by the computer to automatically change due dates on scheduled receipts when it detects that due dates and need dates are out of phase. Ant: manual rescheduling.

Available Inventory: The on-hand inventory balance minus allocations, reservations,

backorders, and (usually) quantities held for quality problems. Often called beginning available balance. Synonym: beginning available balance, net inventory.

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 lookahead, and cumulative ATP without lookahead.

Available to Sell (ATS): Total quantity of goods committed to the pipeline for a ship to or selling location. This includes the current inventory at a location and any open purchase orders.

Average Annual Production Materials Related A/P (Accounts Payable): The value of direct materials acquired in that year for which payment has not yet been made. Production-related materials are those items classified as material purchases and included in the Cost of Goods Sold (COGS) as raw material purchases. Calculate using the 5-Point Annual Average.

Average Cost per Unit: The estimated total cost, including allocated overhead, to produce a batch of goods divided by the total number of units produced.

Average Inventory: The average inventory level over a period of time.

Average Payment Period (for materials): The average time from receipt of production-related materials and payment for those materials. Production-related materials are those items classified as material purchases and included in the Cost of Goods Sold (COGS) as raw material purchases. (An element of Cash-to-Cash Cycle Time)

Calculation: [Five point annual average production-related material accounts payable] /

[Annual production-related material receipts/365]

Avoidable Cost: A cost associated with an activity that would not be incurred if the activity was not performed (e.g., telephone cost associated with vendor support).

B

B2B: See Business to Business

B2C: See Business to Consumer

Back Order: Product ordered but out of stock and promised to ship when the product becomes available.

Back Sscheduling: A technique for calculating operation start dates and due dates. The schedule is computed starting with the due date for the order and working backward to determine the required start date and/or due dates for each operation.

Backflush: A method of inventory bookkeeping where the book (computer) inventory of

components is automatically reduced by the computer after completion of activity on the

component’s upper-level parent item based on what should have been used as specified on the bill of material and allocation records. This approach has the disadvantage of a built-in differential between the book record and what is physically in stock. Synonym: explode-todeduct.

Also see: Pre-deduct Inventory Transaction Processing

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 and thereby allowed 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

Backlog Customer: Customer orders received but not yet shipped; also includes backorders and future orders.

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 and order or order line. Also see: Balance to Ship

Backsourcing: Pulling a function back in-house as an outsourcing contract expires

Back Order: Product ordered but out of stock and promised to ship when the product becomes available.

Balance-of-Stores Record: A double-entry record system that shows the balance of inventory items on hand and the balances of items on order and available for future orders. Where a reserve system of materials control is used, the balance of material on reserve is also shown.

Balance to Ship (BTS): Balance or remaining quantity of a promotion or order that has yet to ship. Also see: Backorder

 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, and 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.

Barrier to Entry: Factors that prevent companies from entering into a particular market, such as high initial investment in equipment.

Base Demand: The percentage of a company’s demand that derives from continuing contracts and/or existing customers. Because this demand is well known and recurring, it becomes the basis of management’s plans. Synonym: Baseload Demand.

Base Index: See Base Series

Base Inventory Level: The inventory level made up of aggregate lot-size inventory plus the aggregate safety stock inventory. It does not take into account the anticipation inventory that will result from the production plan. The base inventory level should be known before the production plan is made. Also see: Aggregate Inventory.

Base Series: A standard succession of values of demand-over-time data used in forecasting seasonal items. This series of factors is usually based on the relative level of demand during the corresponding period of previous years. The average value of the base series over a seasonal cycle will be 1.0. A figure higher than 1.0 indicates that the demand for that period is more than the average; a figure less than 1.0 indicates less than the average. For forecasting purposes, the base series is superimposed upon the average demand and trend in demand for the item in question. Synonym: Base Index. Also see: Seasonality

  

Base Stock System: A method of inventory control that includes as special cases most of the systems in practice. In this system, when an order is received for any item, it is used as a picking ticket, and duplicate copies, called replenishment orders, are sent back to all stages of production to initiate replenishment of stocks. Positive or negative orders, called base stock orders, are also used from time to time to adjust the level of the base stock of each item. In actual practice, replenishment orders are usually accumulated when they are issued and are released at regular intervals.

Basic Producer: A manufacturer that uses natural resources to produce materials for other manufacturing. A typical example is a steel company that processes iron ore and produces steel ingots; others are those making wood pulp, glass, and rubber.

Baseload Demand: See Base Demand

Batch Control Totals: The result of grouping transactions at the input stage and establishing control totals over them to ensure proper processing. These control totals can be based on document counts, record counts, quantity totals, dollar totals, or hash (mixed data, such as customer AR numbers) totals.

Batch Number: A sequence number associated with a specific batch or production run of products and used for tracking purposes. Synonym: Lot Number.

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. Also See: Discrete Order Picking, Order Picking, Zone Picking

Batch Processing: A computer term which refers to the processing of computer information after it has been accumulated in one group, or batch. This is the opposite of “real-time”processing where transactions are processed in their entirety as they occur.

Baud: A computer term describing the rate of transmission over a channel or circuit. The baud rate is equal to the number of pulses that can be transmitted in one second, often the same as the number of bits per second. Common rates are now 1200, 2400, 4800, 9600 bits and 19.2 and 56 kilobytes (Kbs) for “dial- up” circuits, and may be much higher for broadband circuits.

BCP: See Business Continuity Plan

Beginning Available Balance: See Available Inventory

 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.

Best-in-Class: An organization, usually within a specific industry, recognized for excellence in a specific process area.

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.

Bilateral Contract: An agreement wherein each party makes a promise to the other party.

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 Lading (BOL): A transportation document that is the contract of carriage containing the terms and conditions between the shipper and carrier.

Bill of Material (BOM): A structured list of all the materials or parts and quantities needed to produce a particular finished product, assembly, subassembly, manufactured part, whether purchased or not.

Bill of Material Accuracy: Conformity of a list of specified items to administrative

specifications, with all quantities correct

Bill of Resources: A listing of resources required by an activity. Resource attributes could

include cost and volumes.

Bin: 1) A storage device designed to hold small discrete parts. 2) A shelving unit with physical

dividers separating the storage locations.

Binary: A computer term referring to a system of numerical notation that assumes only two

possible states or values, zero (0) and one (1). Computer systems use a binary technique where

an individual bit or “Binary Digit” of data can be “on” or “off” (1 or 0). Multiple bits are

combined into a “Byte” which represents a character or number.

Bisynchronous: A computer term referring to a communication protocol whereby messages are

sent as blocks of characters. The blocks of data are checked for completeness and accuracy by

the receiving computer.

Bitmap Image (BMP): The standard image format on Windows-compatible computers. Bitmap

images can be saved for Windows or OS/2 systems and support 24-bit color.

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. Often blanket orders cover only

one item with predetermined delivery dates. Synonym: Blanket Order, Standing Order.

Blanket Release: The authorization to ship and/or produce against a blanket agreement or

contract.

Bleeding Edge: An unproven process or technology so far ahead of its time that it may create a

competitive disadvantage.

Blowthrough: 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, but the MRP system

usually retains its ability to net against any occasional inventories of the item. Also see:

Phantom Bill of Material

BMP: See Bitmap Imagine

BOL: See Bill of Lading

BOM: See Bill of Materials

Book Inventory: An accounting definition of inventory units or value obtained from perpetual

inventory records rather than by actual count.

Bookings: The sum of the value of all orders received (but not necessarily shipped), net of all

discounts, coupons, allowances, and rebates.

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.

Bottleneck: A constraint, obstacle or planned control that limits throughput or the utilization of

capacity.

Bottom-up Replanning: In MRP, the process of using pegging data to solve material

availability or other problems. This process is accomplished by the planner (not the computer

system), who evaluates the effects of possible solutions. Potential solutions include compressing

lead time, cutting order quantity, substituting material, and changing the master schedule.

Box-Jenkins Model: A forecasting method based on regression and moving average models.

The model is based not on regression of independent variables, but on past observations of the

item to be forecast at varying time lags and on previous error values from forecasting. See:

Forecast.

BPM: See Business Performance Measurement

BPO: See Business Process Outsourcing

BPR: See Business Process Reengineering

Bracketed Recall: Recall from customers of suspect lot numbers plus a specified number of lots

produced before and after the suspect ones.

Branding: The use of a name, term, symbol, or design, or a combination of these, to identify a

product.

Breadman: A specific application of Kanban, used in coordinating vendor replenishment

activities. In making bread or other route type deliveries, the deliveryman typically arrives at the

customer's location and fills a designated container or storage location with product. The size of

the order is not specified on an ongoing basis, nor does the customer even specify requirements

for each individual delivery. Instead, the supplier assumes the responsibility for quantifying the

need against a prearranged set of rules and delivers the requisite quantity.

Break-Bulk: The separation of a single consolidated bulk load into smaller individual shipments

for delivery to the ultimate consignees. This is preceded by a consolidation of orders at the time

of shipment, where many individual orders which are destined for a specific geographic area are

grouped into one shipment in order to reduce cost.

Break-Even Chart: A graphical tool showing the total variable cost and fixed cost curve along

with the total revenue curve. The point of intersection is defined as the break-even point, i.e., the

point at which total revenues exactly equal total costs. Also see: Total Cost Curve

  

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. Also see: Total Cost Curve

Bricks and Mortar: The act of selling through a physical location. The flip side of clicks and

mortar, where selling is conducted via the Internet. An informal term for representing the old

economy versus new economy or the Industrial economy versus information economy.

Broadband: A high-speed, high-capacity transmission channel. Broadband channels are carried

on radio wave, coaxial or fiber-optic cables that have a wider bandwidth than conventional

telephone lines, giving them the ability to carry video, voice, and data simultaneously.

Brokered Systems: Independent computer systems, owned by independent organizations or

entities, linked in a manner to allow one system to retrieve information from another. For

example, a customer's computer system is able to retrieve order status from a supplier's

computer.

Browser: A utility that allows an internet user to look through collections of things. For

example, Netscape Navigator and Microsoft Explorer allow you to view contents on the World

Wide Web.

BTS: See Balance to Ship

Bulletin Board: An electronic forum that hosts posted messages and articles related to a

common subject.

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.

Bucketless system: An MRP, DRP, or other time-phased system in which all time-phased data

are processed, stored, and usually displayed using dated records rather than defined time periods,

or buckets.

Buffer: 1) A quantity of materials awaiting further processing. It can refer to raw materials,

semifinished 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.

Buffer Stock: See Safety Stock.

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 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 Application: Any computer program, set of programs, or package of programs created

to solve a particular business problem or function.

Business Continuity Plan (BCP): A contingency plan for sustained operations during periods

of high risk, such as during labor unrest or natural disaster. CLM provides suggestions for

helping companies do continuity planning in their Securing the Supply Chain Research. A copy

of the research is available on the CLM website.

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. See: long-term planning, strategic 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 which uses a system of goals and

metrics to monitor performance. Analysis of these measurements can help businesses in

periodically setting business goals, and then providing feedback to managers on progress

towards those goals. A specific measure can be compared to itself over time, compared with a

preset 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 Process Reengineering (BPR): The fundamental rethinking and radical redesign of

business processes to achieve dramatic organizational improvements.

Business-to-Business (B2B): As opposed to business-to-consumer (B2C). Many companies are

now focusing on this strategy, and their 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 Websites that

are B2B as the entire business model, strategy, execution, and fulfillment is different.

Business Unit: A division or segment of an organization generally treated as a separate profitand-

loss center.

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.

Byte: A computer term used to define a string of 7 or 8 bits, or binary digits. The length of the

string determines the amount of data that can be represented. The 8-bit byte can represent

numerous special characters, 26 uppercase and lowercase alphabetic characters, and 10 numeric

digits, totaling 256 possible combinations.

C

CAE: See Computer Aided Engineering

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 inhouse

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 the additional holding cost that would be

incurred should the item be ordered early.

Capable to Promise (CTP): A technique used to determine if product can be assembled and

shipped by a specific date. Component availability throughout the supply chain, as well as

available materials, is checked to determine if delivery of a particular product can be made. The

process of committing orders against available capacity as well as inventory. This process may

involve multiple manufacturing or distribution sites. Capable-to-promise is used to determine

when a new or unscheduled customer order can be delivered. Capable-to-promise employs a

finite-scheduling model of the manufacturing system to determine when an item can be

delivered. It includes any constraints that might restrict the production, such as availability of

resources, lead times for raw materials or purchased parts, and requirements for lower-level

components or subassemblies. The resulting delivery date takes into consideration production

capacity, the current manufacturing environment, and future order commitments. The objective

is to reduce the time spent by production planners in expediting orders and adjusting plans

because of inaccurate delivery-date promises.

Capacity: The physical facilities, personnel and process 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

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, nonproductive,

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.

CAPEX: A term used to describe the monetary requirements (CAPital EXPenditure) of an initial

investment in new machines or equipment.

Cargo: A product shipped in an aircraft, railroad car, ship, barge, or truck.

Carload Lot: A shipment that qualifies for a reduced freight rate because it is greater than a

specified minimum weight. Since carload rates usually include minimum rates per unit of

volume, the higher LCL (less than carload) rate may be less expensive for a heavy but relatively

small shipment.

Carrier: A firm which transports goods or people via land, sea or air.

Cartel: A group of companies that agree to cooperate, rather than compete, in producing a

product or service, thus limiting or regulating competition.

Case Code: The UPC number for a case of product. The UPC case code is different from the

UPC item code. This is sometimes referred to as the “Shipping Container Symbol” or ITF-14

code.

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

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

Catalog Channel: A call center or order processing facility that receives orders directly from the

customer based on defined catalog offerings and ships directly to the customer.

Categorical Plan: A method of selecting and evaluating suppliers that considers input from

many departments and functions within the buyer’s organization and systematically categorizes

that input. Engineering, production, quality assurance, and other functional areas evaluate all

suppliers for critical factors within their scope of responsibility. For example, engineering

would develop a category evaluating suppliers’ design flexibility. Rankings are developed

across categories, and performance ratings are obtained and supplier selections are made. Also

see: Weighted-Point Plan

Category Management: The management of product categories as strategic business units. The

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 judge more accurately 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.

Causal Forecast: In forecasting, a type of forecasting that uses cause-and-effect associations to

predict and explain relationships between the independent and dependent variables. An example

of a causal model is an econometric model used to explain the demand for housing starts based

on consumer base, interest rates, personal incomes, and land availability.

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.

Centralized 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.

Centralized Inventory Control: Inventory decision making (for all SKUs) exercised from one

office or department for an entire company.

Certificate of Analysis (COA): A certification of conformance to quality standards or

specifications for products or materials. It may include a list or reference of analysis results and

process information. It is often required for transfer of the custody/ownership/title of materials.

Certificate of Compliance: A supplier’s certification that the supplies or services in question

meet specified-requirements.

Certified Supplier: A status awarded to a supplier who consistently meets predetermined

quality, cost, delivery, financial, and count objectives. Incoming inspection may not be required.

CFD: See Continuous Flow Distribution

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.

Challenge and Response: A method of user authentication. The user enters an ID and password

and, in return, is issued a challenge by the system. The system compares the user's response to

the challenge to a computed response. If the responses match, the user is allowed access to the

system. The system issues a different challenge each time. In effect, it requires a new password

for each logon.

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 date; 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 web based electronic storefront. 2) A push technology that allows users to

subscribe to a website to browse offline, automatically display updated pages on their screen

savers, and download or receive notifications whe n pages in the website 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

CI: See Continuous Improvement

CIF: Abbreviation for cost, insurance, freight.

Clearinghouse: A conventional or limited purpose entity generally restricted to providing

specialized services, such as clearing funds or settling accounts.

Click-and-Mortar: With reference to a traditional brick-and-mortar company that has expanded

its presence online. Many brick-and- mortar stores are now trying to establish an online presence

but often have a difficult time doing so for many reasons. Click-and- mortar is "the successful

combination of online and real world experience."

Clip Art: A collection of icons, buttons, and other useful image files, along with sound and

video files that can be inserted into documents/web pages.

Clipboard: A temporary storage area on a computer for cut or copied items.

CLM: See Council of Logistics Management

Closed-loop MRP: A system built 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 processes 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.

CMI: See Co-managed Inventory

COA: See Certificate of Analysis

Co-destiny: The evolution of a supply chain from intra-organizational management to interorganizational

management.

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 CPG 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.

Code: A numeric, or alphanumeric, representation of text for exchanging commonly used

information. For example: commodity codes, carrier codes,

Codifying: The process of detailing a new standard.

COGS: See Cost of Goods Sold

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 Interindustry

Commerce Standards.

 

  

Combined Lead Time: See Cumulative Lead Time

Commercial Invoice: The commercial invoice is a legal document between the supplier and the

customer that clearly describes the sold goods, and the amount due on the customer. The

commercial invoice is one of the main documents used by customs in determing customs duties.

It is also the primary document used for billing and accounts receivable.

Committed Capability: The portion of the production capability that is currently in use, or is

scheduled for use.

Commodity: An item that is traded in commerce. The term usually implies an undifferentiated

product competing primarily on price and availability.

Commodity Buying: Grouping like parts or materials under one buyer’s control for the

procurement of all requirements to support production.

Commodity Procurement Strategy: The purchasing plan for a family of items. This would

include the plan to manage the supplier base and solve problems.

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.

Communication Protocol: The method by which two computers coordinate their

communications. BISYNC and MNP are two examples.

Company Culture: A system of values, beliefs, and behaviors inherent in a company. To

optimize business performance, top management must define and create the necessary culture.

Competitive Advantage: Value created by a company for its customers that clearly

distinguishes it from the competition, and provides its customers a reason to remain loyal.

Competitive Benchmarking: Benchmarking a product or service against competitors. Also see:

Benchmarking

Competitive Bid: A price/service offering by a supplier that must compete with offerings from

other suppliers.

Complete & On-Time Delivery (COTD): A measure of customer service. All items on any

given order must be delivered on time for the order to be considered as complete and on time.

Complete Manufacture to Ship Time: Average time from when a unit is declared shippable by

manufacturing until the unit actually ships to a customer.

Compliance: Meaning that products, services, processes and/or documents comply with

requirements.

Compliance Checking: The function of EDI processing software that ensures that all

transmissions contain the mandatory information demanded by the EDI standard. Compares

information sent by an EDI user against EDI standards and reports exceptions. Does not ensure

that documents are complete and fully accurate, but does reject transmissions with missing data

elements or syntax errors.

Compliance Monitoring: A check done by the VAN/third party network or the translation

software to ensure the data being exchanged is in the correct format for the standard being used.

Compliance Program: A method by which two or more EDI trading partners periodically

report conformity to agreed upon standards of control and audit. Management produces

statements of compliance, which briefly note any exceptions, as well as corrective action

planned or taken, in accordance with operating rules. Auditors produce an independent and

objective statement of opinion on management statements.

Component: Material that will contribute to a finished product but is not the finished product

itself. Examples would include tires for an automobile, power supply for a personal computer,

or a zipper for a ski parka.

Computer Aided Engineering (CAE): The use of computers to model design options to

stimulate their performance.

Configuration: The arrangement of components as specified to produce an assembly.

Configure/Package-to-Order: A process where the trigger to begin 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 been retrieved by the addressee.

Confirming Order: A purchase order issued to a supplier, listing the goods or services and

terms of an order placed orally or otherwise before the usual purchase document.

Conformance: An affirmative indication or judgment that a product or service has met the

requirements of a relevant specification, contract, or regulation. Synonym: Compliance.

Consignee: The party to whom goods are shipped and delivered. The receiver of a freight

shipment.

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 product 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.

Consignor: The party who originates a shipment of goods (shipper). The sender of a freight

shipment, usua lly the seller.

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.

Consortium: A group of companies that work together to jointly produce a product, service, or

project.

Constraint: A bottleneck, obstacle or planned control that limits throughput or the utilization of

capacity.

Consumer-Centric Database: Database with information about a retailer’s individual

consumers, used primarily for marketing and promotion.

Consuming the Forecast: The process of reducing the forecast by customer orders or other

types of actual demands as they are received. The adjustments yield the value of the remaining

forecast for each period.

Container: 1) A "box", typically ten to forty feet long, which is used primarily 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.

 

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.

Continuous Flow Distribution (CFD): The streamlined pull of products in response to

customer requirements while minimizing the total costs of distribution.

Continuous Improvement (CI): A structured measurement driven process that continually

reviews and improves performance.

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.

Continuous Replenishment Planning (CRP): A program that triggers the manufacturing and

movement of product through the supply chain when the identical product is purchased by an

end user.

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 Administration: Managing all aspects of a contract to guarantee that the contractor

fulfills his obligations.

Contract Carrier: A carrier that does not serve the general public, but provides transportation

for hire for one or a limited number of shippers under a specific contract.

Contribution: The difference between sales price and variable costs. Contribution is used to

cover fixed costs and profits.

Contribution Margin: An amount equal to the difference between sales revenue and variable

costs.

Cookie: A computer term. A piece of information from your computer that references what the

user has clicked on, or references information that is stored in a text file on the user's hard drive

(such as a username). Another way to describe cookies is to say they are tiny files containing

information about individual computers that can be used by advertisers to track online interests

and tastes. Cookies are also used in the process of purchasing items on the Web. It is because of

the cookie that the "shopping cart" technology works. By saving in a text file, the name, and

other important information about an item a user "clicks" on as they move through a shopping

Website, a user can later go to an order form, and see all the items they selected, ready for quick

and easy processing.

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 is 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. For example, 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.

Core Process: That unique capability that is central to a company’s competitive strategy.

Cost Accounting: The branch of accounting that is concerned with recording and reporting

business operating costs. It includes the reporting of costs by departments, activities, and

products.

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 Center: In accounting, a sub- unit in an organization that is responsible for costs.

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 Element: In cost accounting, the lowest level component of a resource, activity, or cost

object.

Cost, Insurance, Freight: A freight term indicating that the seller is responsible for cost, the

marine insurance, and the freight charges on an ocean shipment of goods.

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 will have utility in setting and evaluating an

organization’s strategies.

Cost of Capital: The cost to borrow or invest capital.

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 Variance: In cost accounting, the difference between what has been budgeted for an

activity and what it actually costs.

COTD: See Complete & On-Time Delivery

Council of Logistics Management (CLM): The CLM is a not- for-profit professional business

organization consisting of individuals throughout the world who have interests and/or

responsibilities in logistics and the related functions that make up the logistics profession. Its

purpose is to enhance the development of the logistics profession through logistics professionals

by providing them with educational opportunities and relevant information through a variety of

programs, services, and activities.

CPFR: See Collaborative Planning Forecasting and Replenishment

CPI: See Continuous Process Improvement

 

  

  

  

  

  

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Critical Differentiators: This is what makes an idea, product, service or business model unique.

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 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-Shipment: Material flow activity where materials are shipped to customers from a

secondary shipping point rather than from a preferred shipping point.

Cross-Subsidy: In cost accounting, the inequitable assignment of costs to cost objects, which

leads to over costing or under costing them rela tive to the amount of activities and resources

actually consumed. This may result in poor management decisions that are inconsistent with the

economic goals of the organization.

CRP: See Continuous Replenishment Program

Critical Success Factor (CSF): Those activities and process that must be done to enable the

company to reach its goals.

CRM: See Customer Relationship Management

CSF: See Critical Success Factor

CSR: See Customer Service Representative

CTP: See Capacity to Promise

Cubage: Cubic volume of space being used or available for shipping or storage.

Cube Utilization: In warehousing, a measurement of the utilization of the total storage capacity

of a vehicle or warehouse.

Cubic Space: In warehousing, a measurement of space available or required in transportation

and warehousing.

Cumulative Available-to-Promise: A calculation based on the available-to-promise (ATP)

figure in the master schedule. Two methods of computing the cumulative available-to-promise

are used, with and without lookahead calculation. The cumulative with lookahead ATP equals

the ATP from the previous period plus the MPS of the period minus the backlog of the period

minus the sum of the differences between the backlogs and MPSs of all future periods until, but

not to include, the period where point production exceeds the backlogs. The cumulative without

lookahead procedure equals the ATP in the previous period plus the MPS, minus the backlog in

the period being considered. Also see: Available-to-Promise

Cumulative Lead Time: The total time required to source components, build and ship a

product.

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, To tal 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: 1) In VMI, the Trading Partner or reseller, i.e. Wal-Mart, Safeway, or CVS. 2) In

Direct-to-Consumer, the end customer or user.

Customer Acquisition or Retention: The rate by which new customers are acquired, or existing

customers are retained. A key selling point to potential marquis partners. Also see: Marquis

Partner

Customer Driven: The end user, or customer, motivates what is produced or how it is delivered.

Customer Interaction Center: See Call Center

Customer Order: An order from a customer for a particular product or a number of products. It

is often referred to as an actual demand to distinguish it from a forecasted demand.

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 status reporting.

Customer Receipt of Order to Installation Complete: Average lead-time from receipt of

goods at the customer to the time when installation (if applicable) is complete, including the

following sub-elements: time to get product up and running, and product acceptance by

customer. (An element of Order Fulfillment Lead Time)

Note: Determined separately for Make-to-Order, Configure/Package-to-Order,

Engineer-to-Order, and Make-to-Stock products.

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 Service Ration: See Percent of Fill

Customer Service Representative (CSR): The individual who provides customer support via

telephone in a call center environment.

Customer Signature/Authorization to Order Receipt: Average lead-time from when a

customer authorizes an order to the time that that order is received and order entry can

commence. (An element of Order Fulfillment Lead Time)

Note: Determined separately for Make-to-Order, Configure/Package-to-Order,

Engineer-to-Order, and Make-to-Stock products.

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.

Customs House Broker: A business firm that oversees the movement of international

shipments through customs and ensures that the documentation accompanying a shipment is

complete and accurate.

CWT: See Hundredweight

Cycle Counting: An inventory accuracy audit technique where inventory is counted on a cyclic

schedule rather than once a year. A cycle inventory count is usually taken on a regular, defined

basis (often more frequently for high- value or fast-moving items and less frequently for lowvalue

or slow- moving items). Most effective cycle counting systems require the counting of a

certain number of items every workday with each item counted at a prescribed frequency. The

key purpose of cycle counting is to identify items in error, thus triggering research,

identification, and elimination of the cause of the errors.

Cycle Time: The amount of time it takes to complete a business process.

Cycle Time to Process Excess Product Returns for Resale: The total time to process goods

returned as Excess by customer or distribution centers, in preparation for resale. This cycle time

includes the time a Return Product Authorization (RPA) is created to the time the RPA is

approved, from Product Available for Pick-up to Product Received and from Product Receipt to

Product Available for use.

Cycle Time to Process Obsolete and End-of-Life Product Returns for Disposal: The total

time to process goods returned as Obsolete & 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 Pick-up 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 Pick-up to Product

Received, from Product Receipt to Product Repair/Refurbish begin, and from Product

Repair/Refurbish begin to Product Available for use.

Cyclical Demand: A situation where demand patterns for a product run in cycles driven by

seasonality or other predictable factors.

D

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 targets for its metrics. 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 such as suppliers to ensure that

supplier’s objectives and practices align. Synonym: Scorecard.

Data Communications: The electronic transmission of data, usually in computer readable form,

using a variety of transmission vehicles and paths.

Data Dictionary: Lists the data elements for which standards exist. The Joint Electronic

Document Interchange (JEDI) committee developed a data dictionary that is employed by many

EDI users.

Data Interchange Standards Association (DISA): The secretariat, which provides clerical and

administrative support to the ASC X12 Committee.

Data Mining: The process of studying data to search for previously unknown relationships. This

knowledge is then applied to achieving specific business goals.

Data Warehouse: A repository of data that has been specially prepared to support decisionmaking

applications. Synonym: Decision-Support Data.

Database: Data stored in computer-readable form, usually indexed or sorted in a logical order

by which users can find a particular item of data they need.

Date Code: A label on products with the date of production. In food industries, it is often an

integral part of the lot number.

Days of Supply: Measure of quantity of inventory-on-hand, in relation to number of days for

which usage which 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.

Days Sales Outstanding (DSO): Measurement of the average collection period (time from

invoicing to cash receipt).

Calculation: [5 Point Annual Gross Accounts Receivables] / [Total Annual Sales

/ 365]

DBR: See Drum-Buffer-Rope

DC: See Distribution Center

Deadhead: The return of an empty transportation container to its point of origin. See:

backhauling.

Decision Support System (DSS): Software that speeds access and simplifies data analysis,

queries, etc. within a database management system.

Decomposition: A method of forecasting where time series data are separated into up to three

components: trend, seasonal, and cyclical; where trend includes the general horizontal upward or

downward movement over time; seasonal includes a recurring demand pattern such as day of the

week, weekly, monthly, or quarterly; and cyclical includes any repeating, non-seasonal pattern.

A fourth component is random, that is, data with no pattern. The new forecast is made by

projecting the patterns individually determined and then combining them.

Dedicated Contract Carriage: A third-party service that dedicates equipment (vehicles) and

drivers to a single customer for its exclusive use on a contractual basis.

Delimiters: 1) ASCII, characters which are used to separate data elements within a data stream.

2) EDI, two levels of separators and a terminator that are integrals part of a transferred data

stream. Delimiters are specified in the interchange header. From highest to lowest level, the

separators and terminator are segment terminator, data element separator, and component

element separator (used only in EDIFACT).

Delivery-Duty-Paid: Supplier/manufacturer arrangement in which suppliers are responsible for

the transport of the goods they have produced, which is being sent to a manufacturer. This

responsibility includes tasks such as ensuring products get through Customs.

  

Delivery Performance to Commit Date: The percentage of orders that are fulfilled on or 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 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

customer's request date] / [Total number of orders delivered]

Delphi Method: A qualitative forecasting technique where the opinions of experts are combined

in a series of iterations. The results of each iteration are used to develop the next, so that

convergence of the experts’ opinions is obtained.

Demand Chain: Another name for the supply chain, with emphasis on customer or end-user

demand pulling materials and product through the chain.

Demand Chain Management: Same as supply chain management, but with emphasis on

consumer pull vs. supplier push.

Demand Planning: The process of identifying, aggregating, and prioritizing, all sources of

demand for the integrated supply chain of a product or service at the appropriate level, horizon

and interval.

The sales forecast is comprised of the following concepts:

o The sales forecasting level is the focal point in the corporate hierarchy

where the forecast is needed at the most generic level, i.e. Corporate

forecast, Divisional forecast, Product Line forecast, SKU, SKU by

Location.

o The sales forecasting time horizon generally coincides with the time frame

of the plan for which it was developed, i.e. Annual, 1-5 years, 1- 6

months, Daily, Weekly, Monthly.

o The sales forecasting time interval generally coincides with how often the

plan is updated, i.e. Daily, Weekly, Monthly, and Quarterly.

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 or 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. It in effect eliminates the queue from in front of a work center,

but it can cause a queue at the end of a previous work center.

Demand-Side Analysis: Techniques such as market research, surveys, focus groups, and

performance/cost modeling used to identify emerging technologies.

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.

Demand Time Fence (DTF): 1) That point in time inside of which the forecast is no longer

included in total demand and projected available inventory calculations; inside this point, only

customer orders are considered. Beyond this point, total demand is a combination of actual

orders and forecasts, depending on the forecast consumption technique chosen. 2) In some

contexts, the demand time fence may correspond to that point in the future inside which changes

to the master schedule must be approved by an authority higher than the master scheduler. Note,

however, that customer orders may still be promised inside the demand time fence without

higher authority approval if there are quantities available-to-promise (ATP). Beyond the

demand time fence, the master scheduler may change the MPS within the limits of established

rescheduling rules, without the approval of higher authority. See: planning time fence, time

fence.

Deming Circle: The concept of a continuously rotating wheel of plan-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

Demographic Segmentation: In marketing, dividing potential markets by characteristics of

potential customers, such as age, sex, income, and education.

Demurrage: The carrier charges and fees applied when rail freight cars and ships are retained

beyond a specified loading or unloading time. Also see: Detention, Express

Denied Party List (DPL): A list of organizations that are unauthorized to submit a bid for an

activity or to receive a specific product. For example, some countries have bans for certain

products such as weapons or sensitive technology.

Derived Demand: Demand for component products that arises from the demand for final design

products. For example, the demand for steel is derived from the demand for automobiles.

Design For Manufacture / Assembly (DFMA): A product design methodology that provides a

quantitative evaluation of product designs.

Design of Experiments (DoE): A mathematical method of determining the minimum number of

experiments that can be carried out on a process to isolate its variables.

Destination-Enhanced Consolidation: Ganging of smaller shipments to cut cost, often as

directed by a system or via pooling with a third party.

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

Deterministic Models: Models where no uncertainty is included, e.g., inventory models without

safety stock considerations.

DFMA: See Design for Manufacture/ Assembly

Dial Up: Access a network by dialing a phone number or initiating a computer to dial the

number. The dial- up line connects to the network access point via a node or a PAD.

Digital Signature: Electronically generated, digitized (as opposed to graphically created)

authorization that is uniquely linkable and traceable to an empowered officer.

Direct Channel: Your own sales force sells to the customer. Your entity may ship to the

customer, or a third party may handle shipment, but in either case your entity 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 trans mitted by electronic means.

Direct Cost: A cost that can be directly traced to a cost object since a direct or repeatable causeand-

effect relationship exists. A direct cost uses a direct assignment or cost causal relationship

to transfer costs. Also see: Indirect Cost, Tracing

Direct Production Material: Material that is used in the manufacturing/content of a product

(example: Purchased parts, solder, SMT glues, adhesives, mechanical parts etc. Bill-of-

Materials parts, etc.)

Direct Retail Locations: A retail location that purchases products directly from your

organization or responding entity.

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

Direct Transmission: A transmission whereby data is exchanged directly between sender and

receiver computers, without an intervening third-party service. Also called a point-to-point

transmission.

Direct-to-Store (DTS) Delivery: Same as Direct Store Delivery.

DISA: See Data Interchange Standards Association.

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.

Discontinuous Demand: A demand pattern that is characterized by large demands interrupted

by periods with no demand, as opposed to a continuous or steady (e.g., daily) demand.

Synonym: Lumpy Demand.

Discrete Available-to-Promise: A calculation based on the available-to-promise figure in the

master schedule. For the first period, the ATP is the sum of the beginning inventory plus the

MPS quantity minus backlo g for all periods until the item is master scheduled again. For all

other periods, if a quantity has been scheduled for that time period then the ATP is this quantity

minus all customer commitments for this and other periods until another quantity is scheduled in

the MPS. For those periods where the quantity scheduled is zero, the ATP is zero (even if

deliveries have been promised). The promised customer commitments are accumulated and

shown in the period where the item was most recently scheduled. Also see: Available-to-

Promise

Discrete Manufacturing: Discrete manufacturing processes create products by assembling

unconnected distinct parts as in the production of distinct items such as automobiles, appliances,

or computers.

Discrete Order Picking: A method of picking orders in which the items on one order are picked

before the next order is picked. Also see: Batch Picking, Order Picking, Zone Picking

Discrete Order Quantity: An order quantity that represents an integer number of periods of

demand. Most MRP systems employ discrete order quantities. Also see: Fixed-period

Requirements, Least Total Cost, Least Unit Cost, Lot-for-Lot, Part Period Balancing, Period

Order Quantity, Wagner-Whitin Algorithm

Disintermediation: When the traditional sales cha nnels are disassembled and the middleman

gets cut out of the deal. Such as where the manufacturer ships direct to a retailer, bypassing the

distributor.

Distributed Inventory: Inventory that is geographically dispersed. For example, where a

company maintains inventory in multiple distribution centers to provide a higher level of

customer service.

Distribution: Outbound logistics, from the end of the production line to the end user. 1) 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 field warehouses. Synonym: Physical Distribution. 2) The systematic division of a

whole into discrete parts having distinctive characteristics.

Distribution Center (DC): The warehouse facility which holds inventory from manufacturing

pending distribution to the appropriate stores.

Distribution Channel: One or more companies or individuals who participate in the flow of

goods and services from the manufacturer to the final user or consumer.

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.

Distributor: A business that does not manufacture its own products, but purchases and resells

these products. Such a business usually maintains a finished goods inventory. Synonym:

Wholesaler.

Diversion: The practice of selling goods to a competitor that the vendor assumes would be used

to service that Customer's store. Example; Grocery Store Chain A buys orange juice from

Minute Maid. Grocery Store Chain A, because of their sales volume or because of promotion,

can buy product for $12.50 per case. Grocery Store Chain B, because of a lower sales volume,

buys the same orange juice for $14.50 per case. Grocery Store Chain A and Grocery Store Chain

B get together and make a deal. Grocery Store Chain A resells that product to Grocery Store

Chain B for $13.50 per case. Grocery Store Chain A makes $1.00 per case and Grocery Store

Chain B gets product for $1.00 less per case than it can buy from Minute Maid.

Dock-to-Stock: A program by which specific quality and packaging requirements are met before

the product is released. Pre-qualified product is shipped directly into the customer's inventory.

Dock-to-stock eliminates the costly handling of components, specifically in receiving and

inspection and enables product to move directly into production.

Document: In EDI, a form, such as an invoice or a purchase order, that trading partners have

agreed to exchange and that the EDI software handles within its compliance-checking logic.

Design of Experiments (DOE): 1) A process for structuring statistically valid studies in any

science. 2) A quality management technique used to evaluate the effect of carefully planned and

controlled changes to input process variables on the output variable. The objective is to improve

production processes.

DOE: See Design of Experiments

Domain: A computer term for the following: 1) Highest subdivision of the Internet, for the most

part by country (except in the U.S., where it's by type of organization, such as educational,

commercial, and government). Usually the last part of a host name; for example, the domain

part of ibm.com is .com, which represents the domain of commercial sites in the U.S. 2) In

corporate data networks, a group of client computers controlled by a server system.

Double Order Point System: A distribution inventory management system that has two order

points. The smallest equals the original order point, which covers demand during replenishment

lead time. The second order point is the sum of the first order point plus normal usage during

manufacturing lead time. It enables warehouses to forewarn manufacturing of future

replenishment orders.

Downstream: One or more companies or individuals who participate in the flow of goods and

services moving from the manufacturer to the final user or consumer.

DPC: See Dynamic Process Control

DPL: See Denied Party List

Drop Ship: To take the title of the product 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 Disaster Recovery Planning

DRP: See Distribution Requirements Planning

DRPII: See Distribution Resources Planning

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.

Also see: Finite Scheduling,

DSD: See Direct Store Delivery

DSO: See Days Sales Outstanding

DSS: See Decision Support System

DTF: See Demand Time Fence

DTS: See Direct Store Delivery

Dumping: Selling goods below costs in selected markets.

Dunnage: The packing material used to protect a product from damage during transport.

DUNS Number: A unique nine-digit number assigned by Dun and Bradstreet to identify a

company. DUNS stands for Data Universal Numbering System.

DUNS: Data Universal Numbering System.

Durable Goods: Generally, any goods whose continuous serviceability is likely to exceed three

years (e.g., trucks, furniture).

Dynamic Lot Sizing: Any lot-sizing technique that creates an order quantity subject to

continuous recomputation. See: Least total cost, Least unit cost, Part period balancing, Period

order quantity, Wagner-Whitin algorithm.

Dynamic Process Control (DPC): Continuous monitoring of process performance and

adjustment of control parameters to optimize process output

 

E

EAI: See Enterprise Application Integration

EAN: See European Article Number

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 designs 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

EC: See Electronic Commerce

ECO: See Engineering Change Order

E-Commerce: See Electronic Commerce

Economic Order Quantity (EOQ): An inventory model that determines how much to order by

determining the amount that will meet customer service levels while minimizing total ordering

and holding costs.

Economic Value Added (EVA): A measurement of shareholder value as a company's operating

profits after tax, less an appropriate charge for the capital used in creating the profits.

Economy of Scale: A phenomenon whereby larger volumes of production reduce unit cost by

distributing fixed costs over a larger quantity.

ECR: See Efficient Consumer Response

EDI: See Electronic Data Interchange

EDIA: See Electronic Data Interchange Association

EDIFACT: Electronic Data Interchange for Administration, Commerce, and Transport. The

United Nations EDI standard.

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 easily. Also see: American National

Standards Institute, Uniform Code Council

EDI Transmission: A functional group of one or more EDI transactions that are sent to the

same location, in the same transmission, and are identified by a functional group header and

trailer.

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 upon consumer demand and point of sale information.

EFT: See Electronic Funds Transfer

Electronic Commerce (EC): Also written as e-commerce. Conducting business online. In the

traditional sense of selling goods, it is possible to do this electronically because of certain

software programs that run the main functions of an e-commerce website, such as product

display, online ordering, and inventory management. The definition of e-commerce includes

business activity that is business-to-business (B2B), 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, and 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 EDIA 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 bankto-

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 email

exchange.

Electronic Signature: A form of authentication that provides identification and validation of a

transaction by means of an authorization code identifying the individual or organization

E-mail: See Electronic Mail

Empirical: Pertaining to a statement or formula based upon experience or observation rather

than on deduction or theory.

Encryption: The transformation of readable text into coded text for security purposes.

End item: A product sold as a completed item or repair part; any item subject to a customer

order or sales forecast. Synonym: Finished Goods Inventory.

End-of-Life Inventory: Inventory on hand that will satisfy future demand for products that are

no longer in production at your entity.

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.

Engineering Change Order (ECO): A documented and approved revision to a product or

process specification.

Engineer-to-Order: A process in which the manufacturing organization must first prepare

(engineer) significant product or process documentation before manufacture may begin.

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 say 'firms implementing enterprise applications spend at least 30% on point-to-point

interfaces'.

Enterprise-Wide ABM: A management information system that uses activity-based

information to facilitate decision making across an organization.

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 functional 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.

Environmentally Sensitive Engineering: Designing features in a product and its packaging that

improve recycling, etc. It can include elimination of compounds that are hazardous to the

environment.

EOQ: See Economic Order Quantity

EPS: A computer term. Encapsulated Postscript. An extension of the PostScript graphics file

format developed by Adobe Systems. EPS lets PostScript graphics files be incorporated into

other documents.

ERP: See Enterprise Resources Planning System

ERS: See Evaluated Receipts Settlement

ESI: See Early Supplier Involvement

Ethernet: A computer term for the most commonly used type of local area network (LAN)

communication protocol using coaxial or twisted pair wiring.

Ethical standards: A set of guidelines for proper conduct by business professionals.

European Article Number (EAN): A defined numbering mechanism used in Europe to

uniquely identify every retail product and packaging option. The EAN is similar in concept and

design to the UPC code and is usually what the barcode represents on goods. Also see: Uniform

Product Code.

EVA: See Economic Value Added

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 the invoice is already transmitted in the

shipping documentation. Therefore, the invoice is eliminated and the shipping documentation is

used to pay the vendor.

Exception-Based Processing: A computer term for applications that automatically highlight

particular events or results which fall outside pre-determined parameters. This saves

considerable effort by automatically finding problems and alerting the right persons. An

example would be where a shorted item on a purchase order receipt would automatically notify a

purchasing agent for follow-up.

Exception Message: See Action Message

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.

Expediting: 1) Moving shipments through regular channels at an accelerated rate. 2) To take

extraordinary action because of an increase in relative priority. Synonym: Stockchase.

Explode-to-Deduct: See Backflush

Exponential Smoothing Forecast: In forecasting, a type of weighted moving average

forecasting technique in which past observations are geometrically discounted according to their

age. The heaviest weight is assigned to the most recent data. The smoothing is termed

exponential because data points are weighted in accordance with an exponential function of their

age. The technique makes use of a smoothing constant to apply to the difference between the

most recent forecast and the critical sales data, thus avoiding the necessity of carrying historical

sales data. The approach can be used for data that exhibit no trend or seasonal patterns. Higher

order exponential smoothing models can be used for data with either (or both) trend and

seasonality

Export: 1) In logistics, the movement of products from one country to another. For example,

significant volumes of cut flowers are exported from The Netherlands to other countries of the

world. 2) A computer term referring to the transfer of information from a source (system or

database) to a target.

Exports: A term used to describe products produced in one country and sold in another. Also

see: Export

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 secondday

delivery.

Extended Enterprise: The notion that supply chain partners form a larger entity which works

together as though it were a single unit.

Extensible Markup Language (XML): A computer term for a language that facilitates direct

communication among computers on the Internet. Unlike the older hypertext markup language

(HTML), which provides HTML tags giving instructions to a Web browser about how to display

information, XML tags give instructions to a Web browser or to application software 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 orga nizations and that 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.

Extrinsic Forecast: In forecasting, a forecast based on a correlated leading indicator, such as

estimating furniture sales based on housing starts. Extrinsic forecasts tend to be more useful for

large aggregations, such as total company sales, than for individual product sales. Ant: intrinsic

forecast method.

F

FA: See Functional Acknowledgment

Fabricator: A manufacturer that turns the product of a raw materials supplier into a larger

variety of products. For example, a fabricator may turn steel rods into nuts, bolts, and twist

drills, or may turn paper into bags and boxes.

Facilities: The physical plant, distribution centers, service centers, and related equipment.

Failure Modes Effects Analysis (FMEA): A pro-active method of predicting faults and failures

so that preventive action can be taken

Failure Modes Effects Analysis (FMEA): A pro-active method of predicting faults and failures

so that preventive action can be taken.

Fair-share Quantity Logic: In inventory management, the process of equitably allocating

available stock among field distribution centers. Fair-share quantity logic is normally used when

stock available from a central inventory location is less than the cumulative requirements of the

field stocking locations. The use of fair-share quantity logic involves procedures that “push”

stock out to the field, instead of allowing the field to “pull” in what is needed. The objective is

to maximize customer service from the limited available inventory.

FAS: See Final Assembly Schedule

FAS: See Free Alongside Ship

Feature: A distinctive characteristic of a good or service. The characteristic is provided by an

option, accessory, or attachment. For example, in ordering a new car, the customer mus t specify

an engine type and size (option), but need not necessarily select an air conditioner (attachment).

FG: See Finished Goods Inventory

FGI: See Finished Goods Inventory

Field Finished Goods: Inventory which is kept at locations outside the four walls of the

manufacturing plant (i.e., distribution center or warehouse).

Field Service: See After-Sale Service

Field Service Parts: Parts inventory kept at locations outside the four walls of the

manufacturing plant (i.e., distribution center or warehouse).

FIFO: See First In, First Out

File Transfer Protocol (FTP): The Internet service that transfers files from one computer to

another, over standard phone lines.

Fill Rate: The percentage of order items that the picking operation actually fills within a given

period of time.

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 of

order release] / [Total number of stock orders]

Note: 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 is 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.

Finished Goods Inventory (FG or FGI): Products completely manufactured, packaged, stored,

and ready for distribution. Also see: End Item

Finite Forward Scheduling: An equipment scheduling technique that builds a schedule by

proceeding sequentially from the initial period to the final period while observing capacity

limits. A Gantt chart may be used with this technique. Also see: Finite Scheduling

Finite Scheduling: A scheduling methodology where work is loaded into work centers such that

no work center capacity requirement exceeds the capacity available for that work center. See:

drum-buffer-rope, finite forward scheduling.

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.

Firm Planned Order: A planned order which has been committed to production. Also see:

Planned Order

First In, First Out (FIFO): Warehouse term meaning first items stored are the first used. In

accounting this tem is associated with the valuing of inventory such that the latest purchases are

reflected in book inventory. Also see: Book Inventory

First Mover Advantage: Market innovator, putting the company in the leadership position.

First Pass Yield: The ratio of usable, specification conforming output from a process to its

input, achieved without rework or reprocessing.

Fixed Costs: Costs, which do not fluctuate with business volume in the short run. Fixed costs

include items such as depreciation on buildings and fixtures.

Fixed Interval Order System: See Fixed Reorder Cycle Inventory Model

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 predetermined fixed quantity, or

multiples thereof if net requirements for the period exceed the fixed order quantity.

Fixed Order Quantity System: See Fixed Reorder Cycle Inventory Model

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-Period Requirements: A lot-sizing technique that sets the order quantity to the demand

for a given number of periods. Also see: Discrete Order Quantity

Fixed Reorder Cycle Inventory Model: A form of independent demand management model in

which an order is placed every “n” time units. The order quantity is variable and essentially

replaces the items consumed during the current time period. Let “M” be the maximum inventory

desired at any time, and let x be the quantity on hand at the time the order is placed. Then, in the

simplest model, the order quantity will be M – x. The quantity M must be large enough to cover

the maximum expected demand during the lead time plus a review interval. The order quantity

model becomes more complicated whenever the replenishment lead time exceeds the review

interval, because outstanding orders then have to be factored into the equation. These reorder

systems are sometimes called fixed- interval order systems, order level systems, or periodic

review systems. Synonyms: Fixed-Interval Order System, Fixed-Order Quantity System, Order

Level System, Periodic Review System, Time-Based Order System. Also see: Fixed Reorder

Quantity Inventory Model, Hybrid Inventory System, Independent Demand Item Management

Models, Optional Replenishment Model

Fixed Reorder Quantity Inventory Model: A form of independent demand item management

model in which an order for a fixed quantity is placed whenever stock on hand plus on order

reaches a predetermined reorder level. The fixed order quantity may be determined by the

economic order quantity, by a fixed order quantity (such as a carton or a truckload), or by

another model yielding a fixed result. The reorder point may be deterministic or stochastic, and

in either instance is large enough to cover the maximum expected demand during the

replenishment lead time. Fixed reorder quantity models assume the existence of some form of a

perpetual inventory record or some form of physical tracking, e.g., a two-bin system that is able

to determine when the reorder point is reached. Synonym: Fixed Order Quantity System, Lot

Size System, Order Point-Order Quantity System, Quantity Based Order System. Also see: Fixed

Reorder Cycle Inventory Model, Hybrid Inventory System, Independent Demand Item

Management Models, Optional Replenishment Model, Order Point – Order Management System

Fixed-Location Storage: A method of storage in which a relatively permanent location is

assigned for the storage of each item in a storeroom or warehouse. Although more space is

needed to store parts than in a random- location storage system, fixed locations become familiar,

and therefore a locator file may not be needed. Also see: Random-Location Storage

Flat File: A computer term which refers to any file having fixed-record length, or in EDI, the

file produced by EDI translation software to serve as input to the interface. Usually includes the

same fields as the original file, but each field is expanded to its maximum length. Does not have

delimiters.

Flexibility: Ability to respond quickly and efficiently to changing customer and consumer

demands.

Flexible Specialization: a strategy based on multi-use equipment, skilled workers and

innovative senior management to accommodate the continuous change that occurs in the

marketplace.

Float: The time required for documents, payments, etc. to get from one trading partner to

another.

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.

FMEA: See Failure Modes Effects Analysis

FOB: See Free on Board

FOB Destination: Title passes at destination, and seller has total responsibility until shipment is

delivered.

FOB Origin: Title passes at origin, and buyer has total responsibility over the goods while in

shipment.

Forecast: An estimate of future demand. A forecast can be constructed using quantitative

methods, qualitative methods, or a combination of methods, and it 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. Also see: Box-

Jenkins Model, Exponential Smoothing Forecast, Extrinsic Forecasting Method, Intrinsic

Forecasting Method, Qualitative Forecasting Method, Quantitative Forecasting Method

Forecast Accuracy: Measures how accurate your forecast is as a percent of actual units or

dollars shipped, calculated as 1 minus the absolute value of the difference between forecasted

demand and actual demand, as a percentage of actual demand.

Calculation: [1-(|Sum of Variances|/Sum of Actual)]

Forecast Cycle: Cycle time between forecast regenerations that reflect true changes in

marketplace demand for shippable end products.

Forecasting: Predictions of how much of a product will be purchased by customers. Relies

upon both quantitative and qualitative methods. Also see: Forecast

Foreign Trade Zone (FTZ): An area or zone set aside at or near a port or airport, under the

control of the U.S. Customs Service, for holding goods duty- free pending customs clearance.

Four P’s: A set of marketing tools to direct the business offering to the customer. The four P’s

are product, price, place, and promotion.

Fourier Series: In forecasting, a form of analysis useful for forecasting. The model is based on

fitting sine waves with increasing frequencies and phase angles to a time series.

Four Wall Inventory: The stock which is contained within a single facility or building.

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; and, 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). Also see: Lead Logistics Provider

Free Alongside Ship (FAS): A term of sale indicating 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 on Board (FOB): Contractual terms between a buyer and a seller, that define where title

transfer takes place.

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.

  

FRM: See Floor Ready Merchandise

Frozen Zone: In forecasting, this is the period in which no changes can be made to scheduled

work orders based on changes in demand. Use of a frozen zone provides stability in the

manufacturing schedule.

FTE: See Full Time Equivalents

FTP: See File Transfer Protocol

FTZ: See Free Trade Zone

Full-Service Leasing: An equipment- leasing arrangement that includes a variety of services to

support leased equipment (i.e., motor carrier tractors).

Full-time Equivalents (FTE): Frequently organizations make use of contract and temporary

employees; please convert contract, part-time, and temporary employees to full-time equivalents.

For example, two contract employees who worked for six months full-time and a half-time

regular employee would constitute 1.5 full-time equivalents. 1FTE = 2000 hours per year.

Functional Acknowledgment (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 independent of other groups within the organization. Each group is referred to as a

“Silo”. This is the opposite of an integrated structure.

Future order: An order entered for shipment at some future date. This may be related to new

products which are not currently available for shipment, or scheduling of future needs by the

customer.

  

G

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 re-evaluating, re-energizing,

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.

Gateway: The connection that permits messages to flow freely between two networks.

GIF: See Graphics Interchange Format.

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.

Global Trade Item Number (GTIN): A unique number that comprises up to 14 digits and is

used to identify an item (product or service) upon which there is a need to retrieve pre-defined

information that may be priced, ordered or invoiced at any point in the supply chain. The

definition covers raw materials through end user products and includes services, all of which

have pre-defined characteristics.

Globalization: The process of making something worldwide in scope or application.

Goods Received Note (GRN): Documentation raised by the recipient of materials or products.

Graphics Interchange Format (GIF): A graphical file format commonly used to display

indexed-color images on the World Wide Web. GIF is a compressed format, designed to

minimize file transfer time over standard phone lines.

GRN: See Goods Received Note

Gross Inventory: Value of inventory at standard cost before any reserves for excess and

obsolete items are taken.

   

Gross Margin: The difference between total revenue and the cost of goods sold. Syn: gross

profit margin.

GTIN: See Global Trade Item Number

H

Handling Costs: The cost involved in moving, transferring, preparing, and otherwise handling

inventory.

Hawthorne Effect: From a study conducted at the Hawthorne Plant of Western Electric

Company in 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 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. Also see: Material Safety Data Sheet

Hedge Inventory: A form of inventory buildup to buffer against some event that may not

happen. Hedge inventory planning involves speculation related to potential labor strikes, price

increases, unsettled governments, and events that could severely impair a company’s strategic

initiatives. Risk and consequences are unusually high, and top management approval is often

required.

Heijunka: In the Just- in-Time philosophy, an approach to level production throughout the

supply chain to match the planned rate of end product sales.

  

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.

Home Page: The starting point for a website. It is the page that is retrieved and displayed by

default when a user visits the website. 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.

Horizontal Play/Horizontal Hub: This is a term for a function that cuts across many industries,

usually defines a facility or organization that is providing a common service.

Hoshin Planning: Breakthrough planning. A Japanese strategic planning process in which a

company develops up to four vision statements that indicate where the company should be in the

next five years. Company goals and work plans are developed based on the vision statements.

Periodic audits are then conducted to monitor progress.

HR: See Human Resources

HTML: See HyperText Markup Language

HTTP: See HyperText Transport Protocol

Hub: 1) A large retailer or manufacturer having many trading partners. 2) A reference for a

transportation network as in “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 website, 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 this idea a milestone in the development and appearance of websites, 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.

  

Human Resources (HR): The function broadly responsible for personnel policies and practices

within an organization.

Hundredweight (cwt): A pricing unit used in transportation (equal to 100 pounds).

Hybrid Inventory System: An inventory system combining features of the fixed reorder

quantity inventory model and the fixed reorder cycle inventory model. Features of the fixed

reorder cycle inventory model and the fixed reorder quantity inventory model can be combined

in many different ways. For example, in the order point-periodic review combination system, an

order is placed if the inventory level drops below a specified level before the review date; if not,

the order quantity is determined at the next review date. Another hybrid inventory system is the

optional replenishment model. Also see: Fixed Reorder Cycle Inventory Model, Fixed Reorder

Quantity Inventory Model, Optional Replenishment Model

Hyperlink: A computer term. Also referred to as “link”. The text you find on a website which

can be "clicked on" with a mouse which, in turn, will take you to another web page or a different

area of the same web page. Hyperlinks are created or "coded" in HTML

Hyperlink: Also known as link. The text you find on a website which can be "clicked on" with a

mouse which, in turn, will take you to another web page or a different area of the same web

page. Hyperlinks are created or "coded" in HTML

HyperText Markup Language (HTML): The standard language for describing the contents

and appearance of pages on the World Wide Web.

HyperText Transport Protocol (HTTP): The Internet protocol that allows World Wide Web

browsers to retrieve information from servers.

  

I

Image Processing: allows a company to take electronic photographs of documents. The

electronic photograph then can be stored in a computer and retrieved from computer storage to

replicate the document on a printer. The thousands of bytes of data composing a single document

are encoded in an optical disk. Many carriers now use image processing to provide proof-ofdelivery

documents to a shipper. The consignee signs an electronic pad that automatically

digitizes a consignee's signature for downloading into a computer. A copy of that signature then

can be produced to demonstrate that a delivery took place.

Import: Movement of products from one country into another. For example, the import of

automobiles from Germany to the U.S.

Import/Export License: Official authorization issued by a government allowing the shipping or

delivery of a product across national boundaries.

Impressions: With regard to online advertising, it is the number of times an ad banner is

downloaded and presumably seen by users. Guaranteed impressions refer to the minimum

number of times an ad banner will be seen by users.

Inbound Logistics: The movement of materials from suppliers and vendors into production

processes or storage facilities.

INCOTERMS: International terms of sale developed by the International Chamber of

Commerce to define sellers' and buyers' responsibilities.

Independent Demand Item Management Models: Models for the management of items whose

demand is not strongly influenced by other items managed by the same company. These models

can be characterized as follows: (1) stochastic or deterministic, depending on the variability of

demand and other factors; (2) fixed quantity, fixed cycle, or hybrid -(optional replenishment).

Also see: Fixed Reorder Cycle Inventory Model, Fixed Reorder Quantity Inventory Model,

Optional Replenishment Model

Independent Trading Exchange (ITE): Often used synonymously with B2B, e- marketplace or

Virtual Commerce Network (VCN) Exchange is a more precise term, connoting many-to-many

transactions, whereas B2B can be too many.

  

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. Also see: Direct Cost, Support Costs

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 products 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.

Indirect Retail Locations: A retail location that ultimately sells your product to consumers, but

who purchases your products from an intermediary, like a distributor or wholesaler.

Infinite Loading: Calculation of the capacity required at work centers in the time periods

required regardless of the capacity available to perform this work.

Insourcing: The opposite of outsourcing, that is, a serve performed in-house.

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.

Integrated Services Digital Network (ISDN): A computer term describing the networks and

equipment for integrated broadband transmissions of data, voice, and image, from rates of 144

Kbps to 2 Mbps. ISDN allows integration of data, voice, and video over the same digital links.

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.

Intermediately Positioned Warehouse: A warehouse located between customers and

manufacturing plants to provide increased customer service and reduced distribution cost.

Intermodal Transportation: Transporting freight by using two or more transportation modes

such as by truck and rail or truck and oceangoing vessel.

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

  

Internal Labor and Overhead: The portion of COGS that is typically reported as labor and

overhead, less any costs already classified as "outsourced."

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 on- line service

provider, it contains many information resources and acts as a giant electronic message routing

system.

Intra-Manufacturing Re-plan Cycle: Average elapsed time, in calendar days, between the time

a regenerated forecast is accepted by the end-product manufacturing/assembly location, and the

time that the revised plan is reflected in the Master Production Schedule of all the affected

internal sub-assembly/component producing plant(s). (An element of Total Supply Chain

Response Time)

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.

Intrinsic Forecast Method: In forecasting, a forecast based on internal factors, such as an

average of past sales.

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 Accuracy: When the on-hand quantity is equivalent to the perpetual balance (plus or

minus the designated count tolerances).

Inventory Balance Location Accuracy: When the on- hand quantity in the specified locations is equivalent to the perpetual balance (plus or minus the designated count tolerances).

  

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 goes 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 inventory kept at locations outside the four

walls of the manufacturing plant i.e., distribution center or warehouse.

Inventory Days of Supply (for RM, WIP, PFG, and FFG): Total gross value of inventory for

the category (RM, WIP, PFG, or FFG) at standard cost before reserves for excess and

obsolescence. It includes only inventory that is on the books and currently owned by the

business entity. Future liabilities such as consignments from suppliers are not included.

Calculation: [5 Point Annual Average Gross Inventory] / [Calendar Year Value

of Transfers / 365]

Inventory Deployment: A technique for strategically positioning inventory to meet customer

service levels while minimizing inventory and storage levels. Excess inventory is replaced with

information derived through monitoring supply, demand and inventory at rest as well as in

motion.

  

Inventory Management: The process of ensuring the availability of products through inventory

administration.

Inventory Planning Systems: The systems that help in strategically balancing the inventory

policy and cus tomer service levels throughout the supply chain by calculating time-phased order

quantities and safety stock, using selected inventory strategies. Including conducting what- if

analysis and that compares the current inventory policy with simulated inventory scenarios and

improves 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

Inventory Velocity: The speed with which inventory moves through a defined cycle (i.e., from

receiving to shipping).

ISDN: See Integrated services digital network

ISO: See International Standards Organization

ISO 9000: A series of quality assurance standards compiled by the Geneva, Switzerland-based

International Standardization Organization. In the United States, ISO is represented by the

American National Standards Institute based in Washington.

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

Item: Any unique manufactured or purchased part, material, intermediate, subassembly, or

product.

  

J

Java: A computer term for a general-purpose programming language created by Sun

Microsystems. Java can be used to create Java applets. A Java program is downloaded from the

web server and interpreted by a program running on the computer running the Web browser.

Java Applet: A computer term for a short program written in Java that is attached to a web page

and executed by the computer on which the Web browser is installed.

Java Script: A computer term for a cross-platform, World Wide Web scripting language

developed by Netscape Communications. JavaScript code is inserted directly into an HTML

page.

JIT: See Just-In-Time

JIT II: See Just-In-Time II

Joint Photographic Expert Group (JPEG): A computer term which is an abbreviation for the

Joint Photographic Expert Group. A graphical file format used to display high-resolution color

images on the World Wide Web. JPEG images apply a user-specified compression scheme that

can significantly reduce the large file size usually associated with photo-realistic color images.

A higher level of compression results in lower image quality, whereas a lower level of

compression results in higher image quality.

Joint Supplier Agreement (JSA): Indicative of Stage 3 Sourcing Practices, the JSA includes

terms & conditions, objectives, process flows, performance targets, flexibility, balancing and

incentives.

JPEG: See Joint Photographic Expert Group

JSA: See Joint Supplier Agreement

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,

manufacturing planning (concurrent planning), and so on.

K

Kaizen: The 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

Kaizen Blitz: A rapid improvement of a limited process area, for example, a production cell.

Part of the improvement team consists of workers in that area. The objectives are to use

innovative thinking to eliminate non- value-added work and to immediately implement the

changes within a week or less. Ownership of the improvement by the area work team and the

development of the team’s problem-solving skills are additional benefits.

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.

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 assembly line "just in time" for use.

Key Custodians: The persons, assigned by the security administrators of trading partners, that

send or receive a component of either the master key or exchange key used to encrypt data

encryption keys. This control technique involves dual control, with split knowledge that requires

two key custodians

  

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 are 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-built completed products, but increases the time and labor

consumed at shipment. Also see: Postponement

KPI: See Key Performance Indicator

L

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

Landed Cost: Cost of product plus relevant logistics costs such as transportation, warehousing,

handling, etc. Also called Total Landed Cost or Net Landed Costs

Last In, First Out (LIFO): Accounting method of valuing inventory that assumes latest goods

purchased are first goods used during accounting period.

LCL: See Less-Than-Carload

Lead Logistics Partner (LLP): An organization that organizes other 3rd party logistics partners

for outsourcing of logistics functions. Also see: Fourth Party Logistics

Lead Time: The total time that elapses between an order's placement and its receipt. It includes

the time required for order transmittal, order processing, order preparation, and transit.

  

Lead Time from Complete Manufacture to Customer Receipt: Includes time from when an

order is ready for shipment to customer receipt of order. Time from complete manufacture to

customer receipt including the following elements: pick/pack time, prepare for shipment, total

transit time (all components to consolidation point), consolidation, queue time, and additional

transit time to customer receipt.

Lead Time from Order Receipt to Complete Manufacture: Includes times from order receipt

to order entry complete, from order entry complete to start to build, and from start to build to

ready for shipment. Time from order receipt to order entry complete includes the following

elements: order revalidation, configuration check, credit check, and scheduling. Time from

order entry complete to start to build includes the following elements: customer wait time and

engineering and design time. Time from start to build to ready for shipment inc ludes the

following elements: release to manufacturing or distribution, order configuration verification,

production scheduling, and build or configure time.

Least Total Cost: A dynamic lot-sizing technique that calculates the order quantity by

comparing the setup (or ordering) costs and the carrying cost for various lot sizes and selects the

lot size where these costs are most nearly equal. Also see: Discrete Order Quantity, Dynamic

Lot Sizing

Least Unit Cost: A dynamic lot-sizing technique that adds ordering cost and inventory carrying

cost for each trial lot size and divides by the number of units in the lot size, picking the lot size

with the lowest unit cost. Also see: Discrete Order Quantity, Dynamic Lot Sizing

Less-Than-Carload (LCL): Shipment tha t is less than a complete rail car load (lot shipment).

Less-Than-Truckload (LTL) Carriers: Trucking companies that consolidate and transport smaller

(less than truckload) shipments of freight by utilizing a network of terminals and relay points.

Leverage: Taking something small and exploding it. Can be financial or technological.

Less-Than-Truckload (LTL): Trucking companies that consolidate and transport smaller (less

than truckload) shipments of freight by utilizing a network of terminals and relay points.

Leverage: Taking something small and exploding it. Can be financial or technological.

Life Cycle Cost: In cost accounting, 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

Line: 1) A specific physical space for the manufacture of a product that in a flow shop layout is

represented by a straight line. In actuality, this may be a series of pieces of equipment connected

by piping or conveyor systems. 2) A type of manufacturing process used to produce a narrow

range of standard items with identical or highly similar designs. Production volumes are high,

production and material handling equipment is specialized, and all products typically pass

through the same sequence of operations. Also see: Assembly Line

Line Scrap: Value of raw materials and work- in-process inventory scrapped as a result of

improper processing or assembly, as a percentage of total value of production at standard cost.

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

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.

Logistics Channel: The network of supply chain participants engaged in storage, handling,

transfer, transportation, and communications functions that contribute to the efficient flow of

goods.

Logistics Management as defined by the Council of Logistics Management (CLM): “Definition

- 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. Boundaries and Relationships - 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,

as well as integrates logistics activities with other functions including marketing, sales

manufacturing, finance and information technology.”

  

Lot-for-Lot: A lot-sizing technique that generates planned orders in quantities equal to the net

requirements in each period. Also see: Discrete Order Quantity

Lot Number: See Batch Number

Lot Sized System: See Fixed Reorder Quantity Inventory Model

LTL: See Less-than-truckload Carriers

Lumpy demand: See Discontinuous Demand

Please note: This blog does not take responsibility for the content of these definitions, nor does the owner of this blog endorse these as official definitions except as noted.

  

Some terms used in the   Logistics Glossary are based on the

following sources:

The Supply-Chain Council's Supply-Chain Operations Reference-model (SCOR). For more information on

the Supply-Chain Council and SCOR, visit www.supply-chain.org .

The American Production and Inventory Control Society’s (APICS) Dictionary. For more information on

APICS, visit www.apics.org.

Information Access’s Glossary of Data Integration Terminology. For more information on Information

Access, visit www.infoaccess.net.

Manufacturing System’s Glossary of Special Terms used in Client/Server Computing, Production

Management and Process Automation. For more information on MSI, visit www.manufacturingsystems.com.

The Performance Measurement Group’s Supply Chain Metrics Definitions & Calculations. For more

information on PMG, visit www.pmbenchmarking.com.

The ABC/M Glossary, Consortium for Advanced Manufacturing-International. For more information on

Activity Based Costing and advanced manufacturing practices, visit www.cam-i.org