GLOSSARY

ABC Analysis A tool for classifying inventory based on degree of importance.

Alliances The most comprehensive of buyer-supplier relationships reflected by high interaction frequency, and significant trust and commitment between supply chain partners.

Anticipation Inventory Inventories carried in anticipation of events, such as seasonality or price increases.

Assemble-To-Order Strategy An inventory strategy where the product is partially completed and kept in a generic form, then finished when an order is received.

Assignable Variation Variation that is caused by factors that can be clearly identified and managed.

Batch Process A process used to produce small quantities of products in groups or batches based on customer orders or product specifications.

Benchmarking A method for comparing and quantifying operational performance to establish internal targets based on best in class results.

Bill of Materials (BOM) A list that shows all the raw materials, components, and subassemblies that go into a product. It also shows the quantities and relationships of items needed to make a final product.

Break-Even Analysis A tool used to compute the product quantity that needs to be sold for a company to cover their costs—called the “break-even point.”

Bullwhip Effect The phenomenon where fluctuation and distortion of information increases as it moves up the supply chain, from retailers, manufacturers, to suppliers.

Business Process A structured set of activities or steps with specified outcomes.

Business Strategy A plan for the company that defines the company's long-term goals, how it plans to achieve these goals, and the way the company plans to differentiate itself from its competitors.

Carbon Footprint An ecological footprint metric that measures the amount of carbon released into the atmosphere, which is correlated with adverse effects on climate stability.

Cash-To-Cash Cycle The time it takes to convert an order into cash.

Causal Models Forecasting models based on the assumption that the variable being forecast is related to other variables in the environment; a model is developed identifying these relationships, expressing them in mathematical terms, and using that information to forecast the future.

Cellular Layouts Sometimes called Group Technology Cell (GT Cells), these are hybrid layouts group items based on similar processing characteristics and arrange workstations to form a number of small assembly lines called work cells.

Common (Random) Variation Variation that is inherent in the process itself.

Core Competency The distinctive competency of a company it uses to compete in the marketplace.

Channel of Distribution The way products and services are passed from the manufacturer to the final consumer.

Concurrent Engineering All organizational functions simultaneously working together in product design.

Continuous Processes Operations processes that produce a high volume of a standardized product on a continual basis. Examples include oil refineries, water treatment plants, and certain paint facilities.

Collaborative Planning, Forecasting, and Replenishment (CPFR) A collaborative process of developing joint forecasts and plans with supply chain partners, rather than doing them independently.

Cross-Docking An approach used to reconfigure bundles of products where larger shipments are broken down into small shipments for local delivery in an area.

Cycle Stock Also called lot size inventories, this is inventory for immediate use and is computed based on expected demand over a certain time period.

Culture Acceptable behaviors, beliefs, and norms characteristic of a particular global region.

Customer Relationship Management (CRM) Software designed to focus on the interface between the firm and its customers.

Customer Service A process of enhancing the level of customer satisfaction by meeting or exceeding customer expectations.

Customer Segmentation Identification of unique groups of customers with similar needs.

Cycle Time The maximum amount of time each station on the assembly line has to complete its assigned tasks. It is also called takt time.

Demand Management The process of attempting to modify demand through efforts such as promotional campaigns and advertisements, sales incentives, and cost cutting.

Dependent demand Demand for component parts or subassemblies.

Design for manufacture (DFM) A series of guidelines for producing a product easily and profitably.

Distribution Strategy A plan for how a company will get its products and services to customers.

E-Auctions The use of Internet technology to conduct auctions as a means of selecting suppliers and determining aspects of the purchase contract.

Early Supplier Involvement (ESI) The practice of including suppliers in new product development in order to tap into their expertise in product, process, and supply chain design.

Electronic data Interchange (EDI) The inter-organizational, computer-to-computer communication of business transactions for orders, confirmations, invoices, and shipping notices.

Enterprise Resource Planning (ERP) Large software programs used for planning and coordinating all resources throughout the entire enterprise.

Environmental sustainability The preservation of diverse biological systems that remain productive over time.

Experience Curve A phenomenon where organizational costs are reduced due to experience and learning effects that result from processing a higher volume.

Facility Layout The physical arrangement of all resources within a facility.

Facility Location The physical location of all facilities, including warehouses, factories, and retail locations.

Factor Rating A tool that can be used to make location decisions.

Fill Rate The percent of products ordered that are actually delivered.

Fixed Position Layout A layout arrangement used when a product cannot be moved during production, usually due to size.

Forecasting The process of predicting future events.

Functional products Products that satisfy basic functions or needs.

Holding Cost Holding cost—sometimes called carrying cost—includes all the costs that vary with the amount of inventory held in stock. This includes storage facilities, handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes, and the opportunity cost of capital.

Import quotas A quantitative restriction on the volume of imports. It is one of the most common forms of nontariff barriers.

Independent demand Demand for a finished product.

Information Technology (IT) Technology that enables communication, storage, and processing of information within and between firms.

Infrastructure Availability and access to roads and transportation, equipment and communication networks, distribution systems, and skilled labor.

Innovative Products Products that are purchased for reasons other than basic needs, such as innovation or status. These include high fashion items or technology products, such as those seen in the computer industry.

Information technology (IT) Communication technology that enables data sharing, communication, and process synchronization. IT is the backbone of supply chain management that enables managing processes.

Intermittent processes A process used to produce a large variety of products with different processing requirements in low volumes.

Inventory Quantities of goods in stock.

Inventory Policy Inventory decisions that answer the questions of when and how much to order.

Inventory Turnover A measure of how quickly inventory moves. It is computed as:

Jidoka An element of Lean which allows workers to “stop the line” when discovering production problems.

Kaizen An element of quality which means continuous improvement.

Keiretsu A close-knit network of suppliers that continuously learn, improve, and prosper along with their parent companies.

Key Performance Indicators (KPI) Quantifiable measurements that reflect a company's critical success factors.

Lean A management approach for creating value for the end customer through the most efficient utilization of resources possible.

Lean Six Sigma A management philosophy that combines the benefits of both Lean and Six-Sigma approaches, utilizing the tools from each.

Leverage Leverage is the amount of bargaining power in negotiation.

Life cycle assessment (LCA) An approach that considers environmental stewardship by analyzing the environmental aspects and potential impacts associated with a product, process, or service.

Line Processes Processes designed to produce a large volume of a standardized product for mass production. They are also known as flow shops, flow lines, or assembly lines.

Logistics The business function responsible for transporting and delivering products to the right place at the right time throughout the supply chain.

Make-to-Order A strategy used to produce products to customer specifications after an order has been received.

Make-to-Stock A strategy that produces finished products for immediate sale or delivery, in anticipation of demand. Companies using this strategy produce a standardized product in larger volumes.

Marketing The business function responsible for linking the organization to its customers and is concerned with the “downstream” part of the supply chain.

Material Requirements Planning (MRP) An inventory control system used to compute order quantities for dependent demand inventory items.

Negotiation The process of gaining concessions from another party.

Offshoring Another name for outsourcing to a different country.

Operations Strategy A strategy of a company that involves decisions about how it will produce goods and services.

Operations Management (OM) The business function responsible for producing a company's goods and services, in an efficient and cost effective way.

Ordering Cost Costs involved in placing an order and procuring the item.

Order Winners Characteristics that win the company orders in the marketplace. A company should excel on their order winners.

Order Qualifiers Characteristics that qualify the company to be a participant in a particular market.

Outsourcing Outsourcing is hiring a third party to perform a set of tasks for a fee.

Pareto Principle A rule that suggests that 80 percent of an outcome is generated by 20 percent of an activity.

Physical Distribution Outbound logistics.

Pipeline inventory Also called transportation inventory, this is inventory that is in transit. It exists because the points of demand and supply are not the same.

Planning The process of selecting actions in anticipation of the forecast.

Product Design The process of specifying the exact features and characteristics of a company's product.

Power Distance The extent to which there is a strong separation of individuals based on rank.

Product Life Cycle (PLC) A marketing concept that states that products and services evolve through a life cycle, and that the specific management concerns vary with each stage of the life cycle.

Purchase Order (PO) A document that specifies the terms and conditions of the purchase agreement and initiates supplier action.

Product Layout A layout design that arranges resources in sequence to enable efficient production of the product.

Process Design The design of a production process that can create the exact product desired.

Process Layout A layout design where similar processes are grouped together.

Product Postponement A strategy where the product is kept in the most generic form as long as possible in the production and distribution process.

Product Traceability The ability to easily trace a product from point of origin in the supply chain, through to the customer, and back down the supply chain in the case of returns.

Process Capability The evaluation of the production process as to its ability to meet or exceed the set product specifications.

Process Control Charts A statistical quality control tool used to monitor the process to ensure products are being produced with characteristics that are within the set limits.

Productivity A measure of how well a company uses its resources. It is computed as a ratio of outputs to inputs.

Project Processes A process used to make one-of-a-kind products exactly to customer specifications.

Purchasing A term that defines the process of buying goods and services.

Quality A measure of whether or not a product lives up to customer expectations.

Quality Function Deployment (QFD) A tool for translating the voice of the customer into specific technical requirements.

Qualitative forecasting methods Often called judgmental forecasting methods, these are forecasting methods based on subjective opinions and judgment of individuals, such as managers, sales staff, or customers.

Quantitative forecasting methods Forecasting methods based on mathematical modelling.

Radio Frequency Identification (RFID) A wireless technology that uses memory chips equipped with tiny radio antennas that can be attached to objects to transmit streams of data about the object.

Relationship View A view of supply chains focused on managing relationships across the supply chain.

Remanufacturing A process that uses components of old products in the production of new ones.

Repetitive Process A process used to produce one, or a few, standardized products in high volume. Examples include an automobile assembly line, a cafeteria, and an automatic car wash.

Reverse Logistics The process of moving products upstream from the customer back toward manufacturers and suppliers.

Safety Stock Also called buffer stock, is extra inventory carried to serve as a cushion for uncertainties in supply and demand.

Sales and Operations Planning (S&OP) An organizational process intended to match supply and demand through functional collaboration between marketing, operations, and finance, in order to ensure that supply can meet demand requirements.

Setup Cost Costs involved in preparing a production run when items are made in-house.

Statistical Quality Control (SQC) Statistical tools used to measure quality and identify quality problems in both the product and process.

Shortage costs Costs that occur when a company runs out of stock.

Six Sigma A quality management process that uses rigorous measurement to reduce process variation and eliminate defects. Six Sigma defines quality as no more than 3.4 parts per million defective (ppm).

Sourcing The business function responsible for all activities and processes required to purchase goods and services from suppliers.

Supply Chain A network of all entities involved in producing and delivering a finished product to the final customer.

Supply Chain Management (SCM) The management of flows of products, information, and funds throughout the supply chain.

Supply Chain Network Design The physical structure and business processes included in the system.

Supply Chain Strategy A long-range plan for the design and ongoing management of all supply chain decisions that support the business strategy.

Sustainability The meeting of present needs without compromising the ability of future generations to meet their own needs.

Takt time Also called cycle time, the maximum amount of time each station on the assembly line has to complete its assigned tasks.

Time Series Models Models that generate a forecast by identifying and analysing patterns in a time series of the data.

Third-Party Logistics (3PL) An entity that provides some combinations of logistics services to their customers.

Total cost of ownership (TCO) The purchase price plus all other costs associated with acquiring the item.

Trade Agreements Pacts between countries that encourage trade in a region by eliminating or lowering tariffs, quotas, and other trade barriers.

Transactional View The view of supply chains with a focus on making supply chain processes more efficient and effective based on quantitative metrics.

Transportation The primary function of logistics that enables logistics to provide place utility. There are five primary modes of transportation: truck, water, air, rail, and pipeline.

Value Stream Mapping A specific application of process mapping, based on lean manufacturing principles.

Vendor Managed Inventory (VMI) An arrangement where the vendor is responsible for managing the inventory located at a customer's facility.

Vertical Integration Ownership of upstream suppliers and downstream customers.

Voice of the customer (VOC) The process of capturing customer needs and preferences.

Waste In Lean systems waste is defined as anything that does not add value.

Weeks of Supply The length of time demand can be met with on-hand inventory.