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SUPPLY CHAIN and LOGISTICS
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 to 20% by number of items, and 50 to 70% by projected dollar volume. The next grouping, B, represents about 20% of the items and about 20% of the dollar volume. The C-class contains 60 to 70% of the items, and represents about 10 to 30% of the dollar volume.
ABC Costing: See Activity Based Costing
ABC Inventory Control: An inventory control approach based on the ABC volume or sales revenue classification of products (A items are highest volume or revenue, C—or perhaps D—are lowest volume SKUs).
ABC Model: In cost management, a representation of resource costs during a time period that are
consumed through activities and traced to products, services, and customers or to any other object that creates a demand for the activity to be performed.
ABC System: In cost management, a system that maintains financial and operating data on an
organization’s resources, activities, drivers, objects and measures. ABC models are created and
maintained within this system.
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
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.
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.
Action Plan: A specific method or process to achieve the results called for by one or more objectives. An action plan may be a simpler version of a project plan.
Active Inventory: The raw materials, work in process, and finished goods that will be used or sold within a given period.
Active Stock: Goods in active pick locations and ready for order filling.
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. See also Activity-Based Costing
Activity Based Planning (ABP): Activity-based planning (ABP) is an ongoing process to determine
activity and resource requirements (both financial and operational) based on the ongoing demand of
products or services by specific customer needs. Resource requirements are compared to resources
available and capacity issues are identified and managed. Activity-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 Network Diagram: An arrow diagram used in planning and managing processes and
projects.
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.
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
Agency Tariff: A publication of a rate bureau that contains rates for many carriers.
Agent: An enterprise authorized to transact business for, or in the name of, another enterprise.
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 stock keeping 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.
Aggregate Tender Rate: A reduced rate offered to a shipper who tenders two or more class-rated
shipments at one time and one place.
Agility: The ability to successfully manufacture and market a broad range of low-cost, high-quality
products and services with short lead times and varying volumes that provides enhanced value to
customers through customization. Agility merges the four distinctive competencies of cost, quality,
dependability, and flexibility.
Air Cargo: Freight that is moved by air transportation.
Air Cargo Containers: Containers designed to conform to the inside of an aircraft. There are many
shapes and sizes of containers. Air cargo containers fall into three categories: 1) air cargo pallets 2)
lower deck containers 3) box type containers.
Airport and Airway Trust Fund: A federal fund that collects passenger ticket taxes and disburses
those funds for airport facilities.
Air Taxi: An exempt for-hire air carrier that will fly anywhere on demand: air taxis are restricted to a
maximum payload and passenger capacity per plane.
Air Transport Association of America: A U.S. airline industry association.
Air Waybill (AWB): A bill of lading for air transport that serves as a receipt for the shipper, indicates
that the carrier has accepted the goods listed, obligates the carrier to carry the consignment to the
airport of destination according to specified conditions.
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: 1) In cost accounting, a distribution of costs using calculations that may be unrelated to
physical observations or direct or repeatable cause-and-effect relationships. Because of the arbitrary
nature of allocations, costs based on cost causal assignment are viewed as more relevant for
management decision-making. 2) In order management, allocation of available inventory to customer
and production orders.
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.
Anti-Dumping Duty: An additional import duty imposed in instances where imported goods are
priced at less than the normal price charged in the exporter's domestic market and cause material
injury to domestic industry in the importing country.
Any-Quantity Rate (AQ): The same rate applies to any size shipment tendered to a carrier; no
discount rate is available for large shipments.
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.
Approved Vendor List (AVL): List of the suppliers approved for doing business. The AVL is usually
created by procurement or sourcing and engineering personnel using a variety of criteria such as
technology, functional fit of the product, financial stability, and past performance of the supplier.
Arrival Notice: A notice from the delivering carrier to the Notify Party indicating the shipment's
arrival date at a specific location (normally the destination).
Arrow diagram: A planning tool to diagram a sequence of events or activities (nodes) and the
interconnectivity of such nodes. It is used for scheduling and especially for determining the critical
path through nodes.
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.
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.
Available Inventory: The on-hand inventory balance minus allocations, reservations, backorders,
and (usually) quantities held for quality problems. Often called “beginning available balance".
Synonyms: 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 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. Implicit in this definition is a
“sampling period” which is the amount of time between inventory measurements. For example, daily
inventory levels over a two-week period of time, hourly inventory levels over one day, etc. The
average inventory for the same total period of time can fluctuate widely depending upon the sampling
period used.
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
Back Order: Product ordered but out of stock and promised to ship when the product becomes
available.
Back Scheduling: 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-to-deduct. 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: The process of recapturing and taking responsibility internally for processes that were
previously outsourced to a contract manufacturer, fulfillment or other service provider. Backsourcing
typically involves the cancellation or expiration of an outsourcing contract and can be nearly as
complex as the original outsourcing process.
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 of Trade: The surplus or deficit which results from comparing a country's exports and
imports of merchandise only.
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 developed by David Norton and Robert
Kaplan of the Harvard Business School. It is 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.
Bar code scanner: A device to read bar codes and communicate data to computer systems.
Barge: The cargo-carrying vehicle used primarily by inland water carriers. The basic barges have
open tops, but there are covered barges for both dry and liquid cargoes.
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 is derived 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 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.
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.
Basing-Point Pricing: A pricing system that includes a transportation cost from a particular city or
town in a zone or region even though the shipment does not originate at the basing point.
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 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.
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. Benchmarking seeks to improve
any given business process by exploiting "best practices" rather than merely measuring the best
performance. Best practices are the cause of best performance. Studying best practices provides the
greatest opportunity for gaining a strategic, operational, and financial advantage.
Benefit-cost ratio: An analytical tool used in public planning; a ratio of total measurable benefits
divided by the initial capital cost.
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 Lading, Through: A bill of lading to cover goods from point of origin to final destination when
interchange or transfer from one carrier to another is necessary to complete the journey.
Bill of Material (BOM): A structured list of all the materials or parts and quantities needed to
produce a particular finished product, assembly, subassembly, or manufactured part, whether
purchased or not.
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.
Block Diagram: A diagram that shows the operation, interrelationships and interdependencies of
components in a system. Boxes, or blocks (hence the name), represent the components; connecting
lines between the blocks represent interfaces. There are two types of block diagrams: a functional
block diagram, which shows a system's subsystems and lower level products and their
interrelationships and which interfaces with other systems; and a reliability block diagram, which is
similar to the functional block diagram except that it is modified to emphasize those aspects
influencing reliability.
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.
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
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.
Bulk Area: A storage area for large items which at a minimum are most efficiently handled by the
pallet load.
Bulk storage: The process of housing or storing materials and packages in larger quantities,
generally using the original packaging or shipping containers or boxes.
Bulk packing: The process or act of placing numbers of small cartons or boxes into a larger single
box to aid in the movement of product and to prevent damage or pilferage to the smaller cartons or
boxes.
Business Logistics: The systematic and coordinated set of activities required to provide the physical
movement and storage of goods (raw materials, parts, finished goods) from vendor/supply services
through company facilities to the customer (market) and the associated activities—packaging, order
processing, etc.—in an efficient manner necessary to enable the organization to contribute to the
explicit goals of the company.
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 oftentimes, 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 profit-and 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.
C
Calculation:
To convert from days to calendar days: if work week
= 4 days, multiply by 1.75
= 5 days, multiply by 1.4
= 6 days, muworking ltiply 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 centers may be in-house or outsourced.
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. 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, non-productive, and
productive views.
Capacity Planning: Assuring that needed resources (e.g., manufacturing capacity, distribution center
capacity, transportation vehicles, etc.) will be available at the right time and place to meet logistics
and supply chain needs.
investment in new machines or equipment.
Capital: The resources, or money, available for investing in assets that produce output.
Car Supply Charge: A railroad charge for a shipper’s exclusive use of special 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.
Cash-to-Cash Cycle Time: The time it takes for cash to flow back into a company after it has been
spent for raw materials. Synonym: Cash Conversion Cycle
Calculation:
Total Inventory Days of Supply + Days of Sales Outstanding - Average Payment Period for
Material in days
Category Management: The management of product categories as strategic business units. 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.
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.
Cell: A manufacturing or service unit consisting of a number of workstations, and the materials
transport mechanisms and storage buffers that interconnect them.
Cellular Manufacturing: A manufacturing approach in which equipment and workstations are
arranged to facilitate small-lot, continuous-flow production. In a manufacturing "cell," all operations
necessary to produce a component or subassembly are performed in close proximity, thus allowing for
quick feedback between operators when quality problems and other issues arise. Workers in a
manufacturing cell typically are cross-trained and, therefore, able to perform multiple tasks as
needed.
Centralized Authority: Management authority to make decisions is restricted to few managers.
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.
Certificate of origin: An international business document that certifies the country of origin of the
shipment.
Certificate of Public Convenience and Necessity: The grant of operating authority that is given to
common carriers. A carrier must prove that a public need exists and that the carrier is fit, willing, and
able to provide the needed service. The certificate may specify the commodities to be hauled, the area
to be served, and the routes to be used.
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.
Certificated Carrier: A for-hire air carrier that is subject to economic regulation and requires an
operating certification to provide service.
Chain of Customers: The sequence of customers who in turn consume the output of each other,
forming a chain. For example, individuals are customers of a department store, which in turn is the
customer of a producer, who is the customer of a material supplier.
Change agent: An individual from within or outside an organization who facilitates change within the
organization. May or may not be the initiator of the change effort.
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 when pages in the website are modified. Channels are available
only in browsers that support channel definitions, such as Microsoft Internet Explorer version 4.0 and
above.
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
Charging Area: A warehouse area where a company maintains battery chargers and extra batteries
to support a fleet of electrically powered materials handling equipment. The company must maintain
this area in accordance with government safety regulations.
CL: Carload rail service requiring shipper to meet minimum weight.
Claim: A charge made against a carrier for loss, damage, delay, or overcharge.
Class I Carrier: A classification of regulated carriers based upon annual operating revenues—motor
carriers of property: > or = $5 million; railroads: > or =$50 million; motor carriers of passengers: >
or =$3 million.
Class II Carrier: A classification of regulated carriers based upon annual operating revenues—motor
carriers of property: $1-$5 million; railroads: $10-$50 million; motor carriers of passengers: < or =
$3 million.
Class III Carrier: A classification of regulated carriers based upon annual operating revenues—motor
carriers of property: < or = $1 million; railroads: < or = $10 million.
Classification: An alphabetical listing \of commodities, the class or rating into which the commodity
is placed, and the minimum weight necessary for the rate discount; used in the class rate structure.
Classification yard: A railroad terminal area where rail cars are grouped together to form train units.
Class Rate: A rate constructed from a classification and a uniform distance system. A class rate is
available for any product between any two points.
Clearinghouse: A conventional or limited purpose entity generally restricted to providing specialized
services, such as clearing funds or settling accounts.
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.
Collaboration: Joint work and communication among people and systems – including business
partners, suppliers, and customers – to achieve a common business goal.
Collaborative Planning, Forecasting and Replenishment (CPFR): 1) A collaboration process
whereby supply chain trading partners can jointly plan key supply chain activities from production and
delivery of raw materials to production and delivery of final products to end customers. Collaboration
encompasses business planning, sales forecasting, and all operations required to replenish raw
materials and finished goods. 2) A process philosophy for facilitating collaborative communications.
CPFR is considered a standard, endorsed by the Voluntary Inter-industry Commerce Standards.
Collect Freight: Freight payable to the carrier at the port of discharge or ultimate destination. The
consignee does not pay the freight charge if the cargo does not arrive at the destination.
Commercial Invoice: A document created by the seller. It is an official document which is used to
indicate, among other things, the name and address of the buyer and seller, the product(s) being
shipped, and their value for customs, insurance, or other purposes.
Commercial Off-the-Shelf (COTS): A computer software industry term which describes software
which is offered for sale by commercial developers. This includes products from vendors such as SAP,
Oracle, Microsoft, etc. and all of the smaller vendors.
Commercial Zone: The area surrounding a city or town to which rates quoted for the city or town
also apply; the area is defined by the ICC.
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.
Commodity rate: A rate for a specific commodity and its origin-destination.
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.
Common Carrier Duties: Common carriers are required to serve, deliver, charge reasonable rates,
and not discriminate.
Common Cost: A cost that cannot be directly assignable to particular segments of the business but
that is incurred for the business as a whole.
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.
Comparative Advantage: A principle based on the assumption that an area will specialize in the
production of goods for which it has the greatest advantage or least comparative disadvantage.
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.
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.
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.
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, usually 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.
Consolidator: An enterprise that provides services to group shipments, orders, and/or goods to
facilitate movement.
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 Packaged Goods (CPG): Consumable goods such as food and beverages, footwear and
apparel, tobacco, and cleaning products. In general, CPGs are things that get used up and have to be
replaced frequently, in contrast to items that people usually keep for a long time, such as cars and
furniture.
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.
Consumption Entry: An official Customs form used for declaration of reported goods, also showing
the total duty due on such transaction.
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 distributorgenerated
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.
Controlled Access: Referring to an area within a warehouse or yard that is fenced and gated. These
areas are typically used to store high-value items and may be monitored by security cameras
Conveyor: A materials handling device that moves freight from one area to another in a warehouse.
Roller conveyors make sue of gravity, whereas belt conveyors use motors.
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.
Coordinated Transportation: Two or more carriers of different modes transporting a shipment.
Co-product: The term co-product is used to describe multiple items that are produced simultaneously
during a production run. Co-products are often used to increase yields in cutting operations such as
die cutting or sawing when it is found that scrap can be reduced by combining multiple-sized products
in a single production run. Co-products are also used to reduce the frequency of machine setups
required in these same types of operations. Co-products, also known as byproducts, are also common
in process manufacturing such as in chemical plants. Although the concept of co-products is fairly
simple, the programming logic required to provide for planning and processing of co-products is very
complicated.
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 (CIF): 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 of lost sales: The forgone profit associated with a stockout.
Cost Trade-off: The interrelationship among system variables indicates that a change in one variable
has cost impact upon other variables. A cost reduction in one variable may be at the expense of
increased cost for other variables, and vice versa.
Cost Variance: In cost accounting, the difference between what has been budgeted for an activity
and what it actually costs.
Courier Service: A fast, door-to-door service for high-valued goods and documents; firms usually
limit service to shipments of 50 pounds or less.
Council of Logistics Management (CLM): See Council of Supply Chain Management Professionals.
Council of Supply Chain Management Professionals (CSCMP): The CSCMP is a not-for-profit
professional business organization consisting of individuals throughout the world who have interests
and/or responsibilities in logistics and supply chain management, and the related functions that make
up these professions. Its purpose is to enhance the development of the logistics and supply chain
management professions by providing these individuals with educational opportunities and relevant
information through a variety of programs, services, and activities.
Credit Level: The amount of purchasing credit a customer has available. Usually defined by the
internal credit department and reduced by any existing unpaid bills or open orders.
Critical Differentiators: This is what makes an idea, product, service or business model unique.
Critical value analysis: A modified ABC analysis in which a subjective value of criticalness is
assigned to each item in the inventory.
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 Functional: A term used to describe a process or an activity that crosses the boundary
between functions. A cross functional team consists of individuals from more than one organizational
unit or function.
Cross Functional “Process” Metric: A number resulting from an equation, showing the output of a
process that spans departments. These types of measures are also known as a process measures
because they span across the breadth of a process, regardless for functional/departmental segregation
within the process. Example: Perfect Order Index
Cross Sell: The practice of attempting to sell additional products to a customer during a sales call. For
example, when the CSR presents a camera case and accessories to a customer that is ordering a
camera
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 relative 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.
Cube: The volume of the shipment or package (the product of the length x width x depth).
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, Total Manufacture Cycle Time (Make-to-Order, Engineer-to-Order,
Configure/Package-to-Order) or Manufacture Cycle Time (Make-to-Stock), Complete Manufacture
to Ship Time
Note: Determined separately for Make-to-Order, Configure/Package-to-Order,
Engineer-to-Order, and Make-to-Stock products
Current Good Manufacturing Practices (CGMP): Regulations enforced by the U.S. Food and Drug
Administration for food and chemical manufacturers and packagers.
Customer: 1) In distribution, 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 Facing: Those personnel whose jobs entail actual contact with the customer.
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 Profitability: The practice of placing a value on the profit generated by business done
with a particular customer.
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 subelements:
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 Segmentation: Dividing customers into groups based on specific criteria, such as products
purchased, customer geographic location, etc.
Customer Service: Activities between the buyer and seller that enhance or facilitate the sale or use
of the seller’s products or services.
Customer Service Ratio: 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.
Customization: Creating a product from existing components into an individual order. Synonym:
Build to Order.
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.
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 low-value or slowmoving
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 Inventory: An inventory system where counts are performed continuously, often eliminating
the need for an annual overall inventory. It is usually set up so that A items are counted regularly
(i.e., every month), B items are counted semi-regularly (every quarter or six months), and C items
are counted perhaps only once a year.
Cycle Time: 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
Dangerous Goods: Articles or substances capable of posing significant health, safety, or
environmental risk, and that ordinarily require special attention including packaging and labeling when
stored or transported. Also referred to as Hazardous Goods or Hazardous Materials (HazMat).
Dashboard: A performance measurement tool used to capture a summary of the Key Performance
Indicators (KPIs)/metrics of a company. Metrics dashboards/scorecards should be easy to read and
usually have “red, yellow, green” indicators to flag when the company is not meeting its metrics
targets. Ideally, a dashboard/scorecard should be cross-functional in nature and include both financial
and non-financial measures. In addition, scorecards should be reviewed regularly – at least on a
monthly basis and weekly in key functions such as manufacturing and distribution where activities are
critical to the success of a company. The dashboard/scorecards philosophy can also be applied to
external supply chain partners 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.
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]
Dead on Arrival (DOA): A term used to describe products which are not functional when delivered.
Synonym: Defective.
Deadhead: The return of an empty transportation container to its point of origin. See: backhauling.
Deadweight: The total lifting capacity of a ship expressed in tons of 2240 lbs. It is the difference
between the displacement light (without cargo, passengers, fuel, etc.) and the displacement loaded.
Decentralized Authority: A situation in which management decision-making authority is given to
managers at many levels in the organizational hierarchy.
Decision Support System (DSS): Software that speeds access and simplifies data analysis, queries,
etc. within a database management system.
Declaration of Dangerous Goods: To comply with the U.S. regulations, exporters are required to
provide special notices to inland and ocean transport companies when goods are hazardous.
Declared Value: The value of the goods, declared by the shipper on a bill of lading, for the purpose
of determining a freight rate or the limit of the carrier's liability. Also used by customs as the basis for
calculation of duties, etc.
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.
Defective goods inventory (DGI): Those items that have been returned, have been delivered
damaged and have a freight claim outstanding, or have been damaged in some way during warehouse
handling.
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 Appointment: The time agreed upon between two enterprises for goods or transportation
equipment to arrive at a selected location. Typically used to help plan warehouse and receiving /
inspection operations and to manage backup of carriers at loading docks.
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]
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 versus supplier push.
Demand-Driven Supply Network (DDSN): A system of technologies and processes that sense and
react to real-time demand across a network of customers, suppliers and employees. In other words, a
consumer purchase triggers real-time information movement throughout the supply network, which
then initiates movement of product through the network.
Demand Management: The proactive compilation of requirements information regarding demand
(i.e., customers, sales, marketing, finance) and the firm's capabilities from the supply side (i.e.,
supply, operations and logistics management); the development of a consensus regarding the ability
to match the requirements and capabilities; and the agreement upon a synthesized plan that can most
effectively meet the customer requirements within the constraints imposed by supply chain
capabilities.
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:
1. 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.
2. 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.
3. 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 Signal: A signal from a consumer, customer or using operation that triggers the issue of
product or raw material. The demand signal is most efficiently an electronic data transmission, but
could be a physical document, kanban or telephone call.
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.
De-Manufacturing: Refers to the process of going in and taking back assets and harvesting the
components and parts. After the components are tested, they may be sold into the secondary market
or may be upgraded to "as new" and used in production again.
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
Density Rate: A rate based upon the density and shipment weight.
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 branch of applied statistics dealing with planning, conducting,
analyzing, and interpreting controlled tests to evaluate the factors that control the value of a
parameter or group of parameters.
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 transmitted by electronic
means.
Direct Cost: A cost that can be directly traced to a cost object since a direct or repeatable cause-and effectrelationship exists. A direct cost uses a direct assignment or cost causal relationship to transfer
costs. Also see: Indirect Cost, Tracing
Direct Debit (DD): A method of ACH collection used where the debtor gives authorization to debit his
or her account upon the receipt of an entry issued by a creditor. See also automated clearinghouse
Direct Product Profitability (DPP): Calculation of the net profit contribution attributable to a
specific product or product line.
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.
Directed tasks: Tasks that can be completed based upon detailed information provided by the
computer system. An order picking task where the computer details the specific item, location, and
quantity to pick is an example of a directed task. If the computer could not specify the location and
quantity forcing the worker to choose locations or change quantities, it would not be a directed task.
Directed tasks set up the opportunity for confirmation transactions.
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 backlog 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-
Whit in Algorithm
Disintermediation: When the traditional sales channels are disassembled and the middleman gets
cut out of the deal. Such as where the manufacturer ships direct to a retailer, bypassing the
distributor.
Dispatching: The carrier activities involved with controlling equipment; involves arranging for fuel,
drivers, crews, equipment, and terminal space.
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 Channel Management: The organizational and pipeline strategy for getting products to
customers. Direct channels involve company sales forces, facilities, and/or direct shipments to
customers. Indirect channels involve the use of wholesalers, distributors, and/or other parties to
supply the products to customers. Many companies use both strategies, depending on markets and
effectiveness.
Distribution On Demand (DOD): The order fulfillment state a distribution operation achieves when
it can respond, closest to real time, to changes in demand while shipping 100 percent customer
compliant orders at the least cost.
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.
Distribution Warehouse: A warehouse that stores finished goods and from which customer orders
are assembled.
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-tostock
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.
Dock Receipt: A receipt that indicates an export shipment has been delivered to a steamship
company by a domestic carrier.
Documentation: The papers attached or pertaining to goods requiring transportation and/or transfer
of ownership. These may include the packing list, hazardous materials declarations, export / customs
documents, etc.
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.
Domestic Trunk Line Carrier: An air carrier classification for carriers that operate between major
population centers. These carriers are now classified as major carriers.
Dormant route: A route over which a carrier failed to provide service 5 days a week for 13 weeks out
of a 26-week period.
Double Bottoms: A motor carrier operation involving two trailers being pulled by one tractor.
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.
Double-pallet jack: A mechanized device for transporting two standard pallets simultaneously.
Double Stack: Two containers, one on top of the other, loaded on a railroad flatcar; an inter-modal
service.
Downstream: Referring to the demand side of the supply chain. 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. Opposite of Upstream.
Drayage: Transportation of materials and freight on a local basis, but inter-modal freight carriage may
also be referred to as drayage.
Driving Time Regulations: Rules administered by the U.S. Department of Transportation that limit
the maximum time a driver may drive in interstate commerce; both daily and weekly maximums are
prescribed.
Drop: A situation in which an equipment operator deposits a trailer or boxcar at a facility at which it is
to be loaded or unloaded.
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 Distribution Requirements Planning
DRPII: See Distribution Resources Planning
DSD: See Direct Store Delivery
Dual Operation: A motor carrier that has both common and contract carrier operating authority.
Dual Rate System: An international water carrier pricing system where a shipper signing an
exclusive use agreement with the conference pays a lower rate (10% to %15) than non-signing
shippers for an identical shipment.
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).
Duty Free Zone (DFZ): An area where goods or cargo can be stored without paying import customs
duties while awaiting manufacturing or future transport.
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.