Supply Chain Management Glossary
Costs that have already been spent.
In this type of process, the products are assembled from standardized parts and modules. The flexibility for this process is in how the parts are assembled. Usually, you have several options available that allow the buyers to customize their assembled products. The processes structures used in this type of operation are repetitive, and some organizations use mass customization processes. Examples are Subway restaurants which use an assembly line to make a customized sandwich from standardized ingredients. The Home Depot paint department also makes a customized color for a customer by mixing standardized colors.
Assemble To Order
Printed bars and white space that contain optical characters with information that can be read by a scanner.
Bill of Lading
A contract document from shippers acknowledging specific goods have been delivered to specific locations and received by correct recipients.
Creates disruption and expense within the organization and has a ripple effect of customers and suppliers.
Costs of holding inventory; is derived from “carrying” the inventory on the books (see also Inventory Carrying Costs).
Capacity Requirements Planning (CRP)
Software used to ensure that sufficient labor, equipment, and supplies are in place to meet production demand.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
Uses a single agreed upon forecast through the supply chain.
Mechanism used to unload/load vehicles and/or route items through the warehouse. Also can be used as an automated sorting system, of which there are four major categories: pop-up sorter, surface sorter, tilt slat sorter, and tilt tray sorter.
Fundamental knowledge, ability, or experience in a specific area, or a skill set.
See Collaborative Planning, Forecasting, and Replenishment.
See Customer Relationship Management.
See Capacity Requirements Planning.
A person or organization that buys goods and/or services from stores or businesses.
A person who purchases goods and/or services for personal use.
Customer Relationship Management (CRM)
Term given to developing different strategies to better serve the variety of customers who interact with the company.
See Distribution Center.
As demand continues to drop, companies try to adopt product innovations to keep customers interested, but at some point, products do not appeal or meet customers’ expectations. At this stage, cost is a critical factor.
Stationary (even demand), Trend (predictable growth or decline), Seasonal (patterns of increase and decline that repeat cycle after cycle), Cyclical (patterns that are influenced by external factors, including recession and recovery), and Random (changes and variances that are not predictable).
The influence of demand to match planned supply.
A term in economics in which demand for one good or service occurs as a result of demand for another. This may occur as the former is a part of production of the second.
Costs that occur directly as an expense when items are being made.
Distribution Center (DC)
Two main types: physical distribution center and physical supply distribution center.
Distribution Requirements Planning (DRP)
Software used in the distribution system to plan how and when to have the finished end items at the right place by the right time.
A device used to bridge the gap between the dock and the trailer bed of the vehicle. It may be mechanically, hydraulically, or manually operated.
See Distribution Requirements Planning.
Electronically communicating with and handling customers, whether through email, phone, different means online, or another source using electronic devices.
Economic Order Quantity (EOQ)
An inventory model that determines how much to order by determining the amount that will meet customer service levels while minimizing total ordering and holding costs.
Electronic Data Interchange
Sometimes shortened to EDI, multiple-enterprise computer integration that allows different companies and industries to break through outdated boundaries by automating standard business transactions electronically instead of via traditional voice and paper methods. The benefits are increased accuracy, increased speed, and cost reductions across the board. A key enabling technology is bar code technology, which provides a fast way to enter data into a computer, usually at the point of sale.
This type of process usually has long lead times and includes highly customized products. Usually a customer order is required before any work begins. Once the order is received, then a new design is begun, and the process begins. These types of businesses are usually either a project or shop process because of the high customization and low volume.
Enterprise Resource Planning (ERP)
Software that combines MRP, DRP, and CRP into one system and merges all the business planning systems.
See Economic Order Quantity.
See Enterprise Resource Planning.
See Engineer to Order.
External customers tend to be consumers of products and services that a company sells.
Cost that is independent of the quantity ordered or manufactured.
The cost of transporting goods is reflective of a number of factors, aside from normal transportation costs. The main determining factors of freight rate are mode of transportation (e.g., truck, ships, train, air, and craft), weight size, distance, points of pickup and delivery, and the type of goods being shipped.
In this stage the sales of products are expanding. Changes to product design, manufacturing processes, and quality are all evolving to maximize this revenue stream. Also, the supply chain is monitored and evaluated to make sure production capacity can be maintained or even expanded.
See Carrying Costs and Inventory Carrying Costs.
The transport, storage, and delivery of goods coming into businesses. Inbound logistics covers anything that companies order from suppliers which can include tools, raw materials, office equipment, and inventory.
The finished goods that will be sold.
Costs exist to allow the manufacturing process but are not used directly to perform the manufacturing function.
Intermodal freight transport involves using railroads, ships, and/or trucks without any handling of cargo when changing modes.
Customers within the same company.
The summation of many months and/or years of market evaluation, product designs, testing, and packaging. This will also require designing and setting up the supply chain.
The number of units and/or value of the stock of goods companies hold.
Inventory Carrying Costs
The cost of holding goods, usually expressed as a percentage of the inventory value; includes the cost of capital, warehousing, taxes, insurance, depreciation, and obsolescence (see also Carrying Costs).
Used to control inventory, administer inventory through planning, position stock, monitor product usage, and ensure product availability.
The number that keeps track of how often product is used and replaced in a given time period—usually one year.
A method of supplying production lines using a strategy of shipping in smaller, more frequent lots with deliveries that arrive as they are needed rather than stockpiling materials or parts.
Key Performance Indicators (KPIs)
A measure of strategic importance to companies or departments.
See Key Performance Indicators.
Average time from placing orders with suppliers to the receipt of the goods.
Refers to operational and procedural practices that create efficient flow.
A bar code serial number assigned to items when they arrive at the warehouse if there is a need for intermediate storage. It is used to track the movement of the items within the warehouse.
The extent that any asset can be converted into cash.
The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements.
An aggregate plan used to ensure that the major resources are adequate to meet demand.
Maintenance, Repair, and Operating (MRO)
Product that is consumed to support the operations to manufacture and manage inventory.
Geared towards a larger class of customers that allows for some customization. Typically, orders are required to begin the production process. However, unlike the ETO, most of the design work is complete, and part may be in inventory. This reduces the amount of time required to process the order. The process structures used in MTO are batch, job shop, and cellular process.
Companies will mass produce goods to keep in inventory so when customers order, the product is ready to ship. Companies will use demand forecast to estimate production requirements. Products that are in the mature stage are usually the best ones to use this type of process because demand is readily known. The process structures used in this type of setting are repetitive assembly lines and continuous processes.
Operations specifically used for making products, including dish soap to automobiles; they make tangible items that can be sold to consumers through stores, shops, and online.
Requires lower customization and customer interaction, but the labor intensity cost is relatively high. Operations managers are concerned with improving service times and will try and employ automated technologies.
Master Production Schedule
Sometimes shortened to MPS, it is created from the demand forecast and tells the factory how many end item products are needed by a certain time frame.
Materials Requirements Planning (MRP)
A software system used in production to determine how many and when raw materials and parts are needed for manufacturing.
The demand for the product is relatively stable. This means that product changes and production changes are minimal. Now the focus becomes to reduce cost and increase production and supply chain efficiency. A major threat in this stage is low-cost competitors coming into the marketplace.
Outlining what will be produced by period, but not a finite schedule.
Also referred to as common carriers, the most widely used domestic mode of transportation as most freight is regional in nature.
See Maintenance, Repair, and Operating.
See Materials Requirements Planning.
See Make to Order.
See Make to Stock.
Term used to describe discussions used to reach a formal agreement as to the terms of the sale.
The order process for international orders of products and services and includes farshoring (e.g., Asia) and nearshoring (e.g., Mexico).
The management of the transformation process where inputs are made into products and services.
Order Cycle Time
The time that elapses from placement of order to receipt of order, including time for order transmittal, processing, preparation, and shipping.
The process of fulfilling purchase demand (sales or orders) for companies’ products and includes how firms receive orders (by phone, fax, or computer), how firms fill orders (order processing), and how orders are shipped to customers.
Refers to the process of picking products off the shelves in warehouses (see also Picking).
The trigger for the distribution process; includes order entry, scheduling, invoicing, status inquiries, tracing, expediting, information requests, credit checking, and accounts receivable processing and collection.
A process in which customer sale orders are received through different sales channels: email, internet, sales person, fax, or some other method, such as electronic data interchange.
Order to Delivery Lead-Time
See Order Cycle Time.
The transport, storage, and delivery of goods leaving businesses. Outbound logistics deals almost exclusively with end products.
Functions or activities that were formerly company managed and are now handled by outside sources (e.g., third-party operators).
A device used as a base for assembling, sorting, stacking, handling, and transporting goods as a unit load. Usually about four square feet in size and constructed to facilitate placement of forklift forks between the levels of a platform.
Term used when an order is delivered with 100% accuracy, according to every customer service requirement.
A system in which a computer automatically illuminates a light at the next pick location, where the quantity to be picked is displayed on an RFT or CRT. The order picker follows the light to the location, makes the pick according to the quantity displayed, and pushes a button to verify that the pick has been made.
The process of collecting the appropriate items in the right quantities to fill a customer order. A combination of different methods can be used within a single warehouse.
Mode of transportation used for handling inter-city ton-mileage of freight.
Port of Entry
A harbor, border town, or airport by which people and goods may enter a country.
Set of activities that produce a product, service, and/or a combination of products and services.
The ability of the process to generate a certain level of performance for its output.
The area of supply chain management that controls the buying of materials, equipment, and services. In many corporations, it is also called supply management.
Product Life Cycle
The cycle through which every product goes through, from introduction to withdrawal, or eventual demise.
A way to link marketing decisions and a product’s life cycle to an organization’s operations capabilities.
Determines what type of machinery will need to be purchased and what type of inventory will need to be built up to meet the future demand.
Characterized by high customization and customer interaction and high labor cost. Organizations that fit this model are accountants, consultants, doctors, and lawyers. These types of businesses are highly educated, and the service they perform is time-consuming and customized.
A term that refers to being a prospective or potential customer.
Using intuition or expert judgment because little to no historical data exists.
Forecasting based on numbers or historical data.
Used in manufacturing and can sometimes be true raw materials (i.e., basic materials derived from nature); all consumed to make the finished goods.
Items from the bulk storage area are picked to restock the primary picking area as stock levels reach a predetermined minimum.
The transport of goods when they need to be returned back through the supply chain because of defects or because products have reached the end of their usage, and parts may be recycled or remanufactured.
See Sales and Operations Planning.
Sales and Operations Planning (S&OP)
A collaborative approach between the sales and marketing team and the manufacturing team.
Cost remains fixed up to a particular quantity ordered or manufactured.
This sector typically requires low labor cost, low customization, and customer interaction. Examples of service organizations are hotels, trucking companies, and airlines. A key customer trait in this area is low price. The customer is looking for the best deal based mainly on the price of the service. Operations managers will focus their efforts on facilities and equipment utilization, maximizing output and keeping costs low.
Actual performance does not meet customers’ expected performance.
Involve companies that provide intangible products or services directly to consumers, such as getting cars washed and buying internet service.
A grid that breaks out different services by customization and customer interaction along the x-axis and along the vertical axis according to labor and capital requirements. The four types of service areas are service factory, service shop, mass service, and professional service.
The process to following up to a service failure.
Requires a high degree of customization and customer interaction but relatively low labor costs.
Seven Rights of Logistics
Transporting the right product to the right customer in the right quantity and the right condition at the right place and the right time and for the right cost.
Scheduling and control to make sure that all resources, including raw materials, will be available when production is scheduled to start.
See Stock Keeping Unit.
Stock Keeping Unit (SKU)
Package that contains a number of individual items identified by UPCs.
Implies that the supply relationship will continue to improve and develop.
Strategic Supply Plan
Includes decisions about major capital expenditures and how to rationalize various assets.
All processes from end user through original suppliers that provide products, services, and information that add value for customers.
Supplier Relationship Management
Building, maintaining, and developing relationships for the future of each company.
Third-Party Logistic Provider (3PL)
An organization who does not want to manage their transportation process may outsource to a 3PL. Not only are 3PLs integrated providers of warehousing and transportation services, but they also utilize state-of-the-art logistics software and inventory management technologies.
Total Landed Cost
All costs involved in making a product and delivering the product to its final destination.
Total Quality Management
Sometimes shortened to TQM, designing processes to produce consistent quality.
Cost that is incremental and varies based on the quantity ordered or manufactured.
Vendor Managed Inventory (VMI)
A vendor is responsible for monitoring and replenishing inventory as needed.
See Vendor Managed Inventory.
A place in which inventory is held for varying periods of time.
Warehouse Management System (WMS)
The central brain of managing a warehouse and distribution center.
A method for comparing multiple choices along with various factors.
See Warehouse Management System.
Work in Process
Reduced by either being consumed to make finished goods, returned to raw materials, or re-categorized as scrap.
Refers to the process of sustainability in which all products and materials to create products are completely reused, recycled, or composted.
Shipping origins and destinations would be grouped into certain zones. The shipper will pay the inter-zone rate between these zones.
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