Glossary
A technique for allocating indirect costs to production activities, making indirect costs more comparable to direct costs and permitting a better assessment of the true cost of creating each product.
A type of software that uses mathematical models and related techniques to find optimal solutions to complex production and supply problems.
See also [optimizer]
See also [linear programming]
A document sent by a supplier to a customer to indicate when an order will be shipped. ASNs are usually transmitted electronically.
A forecast based on product or customer data that has been grouped by similarity.
See also [aggregation]
The practice of grouping similar products or customers to simplify planning and achieve more stable forecasts.
The practice of building product components in advance of demand, but postponing final assembly until demand is realized. An intermediate strategy between the make-to-stock and make-to-order strategies.
The inventory status of a product that is currently on hand and available for immediate shipment.
See also [capable to promise]
The practice of scheduling activities by working backward from the planned completion date, adding activities to the schedule in the reverse order in which they will be executed.
See also [forward scheduling]
A shipment that moves in the opposite direction along a route just taken by a vehicle in making a delivery, allowing it to make use of its hauling capacity on the return trip.
A document listing all the goods contained within a shipment and stating the terms governing its transportation. Some bills of lading also serve as title to the goods.
A listing of the parts and materials that become part of a finished product, organized in a hierarchical structure that reflects their components, subassemblies, or intermediate forms.
A list of the procedures necessary to produce a finished product from its constituent materials, organized as a hierarchical structure that reflects the sequence in which these procedures must be carried out..
An alternative name for demand amplification.
The inventory status of a product that is not immediately on hand but that can be produced within the required fulfillment lead time..
See also [available to promise]
A private electronic exchange that is owned by one or more of the participating organizations and restricted to selected trading partners of the owning organizations.
See also [private exchange]
See also [public exchange]
A company that specializes in transporting goods.
The incremental cost of placing orders due to increases in product quantities. So named because the majority of this variable cost is the expense of carrying inventory that is not immediately consumed. Also known as holding cost.
See also [order cost]
A measure of the efficiency with which cash is used in the business. Calculated as the interval between the time a company pays for raw materials and the time it receives payment for the finished goods produced from those materials.
The practice of organizing inventory management, promotions, and related activities around products that consumers view as roughly equivalent in meeting their needs.
A multi-industry program that uses the Internet to achieve cooperation across the members of a supply chain to better forecast, plan, and execute the flow of goods.
A representation of a real-world system, such as a supply chain, that is constructed out of terms and concepts of the sort listed in this glossary. Conceptual models are expressed as diagrams and descriptions.
See also [mathematical model]
See also [simulation model]
A range of numbers within which a predicted value will fall with a specified probability. For example, 9 out of 10 observations will fall within a 90% confidence interval. Confidence intervals are often shown in graphs as small bars above and below the expected value to indicate the range of likely values.
An inventory control practice in which a supplier maintains ownership of inventory on a customer's site until the inventory is sold, monitoring its level and replenishing it as needed.
In an optimization procedure, a mathematical expression or equation that restricts the range of solutions the method will evaluate. A typical constraint would be an upper bound on capital spending in the design of a supply chain.
See also [linear programming]
The individual or organization that acquires a product in order to use it for its intended purpose rather than reselling it to someone else. As the terms are used in this book, a consumer is a special type of customer.
An extension of the quick response (QR) program to cover the full range of retail merchandise and to add the techniques of supplier forecasting and vendor-managed inventory.
An inventory replenishment policy in which a continuous count of inventory is maintained at all times, with orders being placed whenever the count falls below a set threshold.
See also [periodic review]
A specialized facility for transferring in-transit inventory between trucks. Typically a long building consisting primarily of receiving docks on one side, shipping docks on the other, and assembly areas between the two. Although nominally a type of storage facility, cross docks do not usually hold goods for more than 24 hours.
The practice of using cross docks or distribution centers to reallocate shipments across trucks en route from suppliers to customers, allowing each truck to remain full throughout its journey. Products are moved directly from receiving docks to shipping docks, with no intermediate storage.
The individual or organization that purchases a product or service in a supply chain transaction. The term is used inconsistently throughout the business literature, leading to unproductive debates over who the "real" customer is. In this book, the term is used to denote a role within a transaction and can be applied to any link in the chain. In this usage, the final customer is the consumer at the end of the supply chain.
A special format for an order spanning multiple shipments in which line items are grouped by delivery date.
The target level of product availability for a particular region and product. Service level can be specified in wide a variety of ways, ranging from the maximum distance of inventory from a customer's site to the percent of orders that can be filled from inventory within a specified time.
The amount of inventory required to support the operations of a facility, with no reserve to cover unforeseen events.
See also [safety stock]
This term is used to denote either (a) the interval between successive repetitions of a cyclical process, as in the cycle time of a machine or assembly line, or (b) the duration of a business process. These conflicting definitions lead to confusion and reduce the value of the term.
A measure of inventory level, calculated by dividing the quantity on hand by the average daily consumption. Provides the same information as the inventory turnover ratio but in a form more suitable to high-turn environments.
A technique in which products with characteristics in common are left in their common form until demand is realized, allowing a better match of production to realized demand. Also called postponement.
A procedure in which forecasts generated by multiple analysts are repeatedly combined and reviewed until a consensus forecast is reached.
The tendency for fluctuations in demand to increase as they move up the supply chain. Often referred to as the bullwhip effect in recent literature.
A phenomenon in which an otherwise smooth flow of demand up a supply chain is grouped into larger chunks than is necessary to meet operational requirements. Demand lumping is a major contributor to demand amplification. It is known to be caused by batching, forward buying, and hoarding.
The demand for a product from customers who are not the end consumers of that product. So named because this demand ultimately depends on consumer demand.
See also [independent demand]
The practice of engineering a product in a way that facilitates its flow through the supply chain.
A distribution practice in which goods that would normally move by way of a warehouse or distribution center are transported directly from a supplier to a customer.
A storage facility in which goods may be staged, sorted, assembled, packaged, and/or stored temporarily as they pass through a particular segment of a supply chain. Distribution centers differ from warehouses primarily in the focus on facilitating distribution rather than holding inventory.
The set of facilities and lanes that transports finished goods from a production facility to the downstream customers of that facility. A distribution network may be divided into echelons.
The practice of revising current forecasts at the end of each period to incorporate the data for that period rather than leaving these forecasts unchanged over successive periods.
See also [static forecasting]
In a distribution network, a set or layer of facilities functionally equidistant from the production facility that serves them. Comparable to a tier in a procurement network.
When centrally managed, the total inventory distributed across the echelons of a distribution network.
The calculated amount of inventory that should be ordered at one time to minimize the total cost of replenishment, taking into account the opposing effects of order costs and holding costs.
A supply-chain program used in the grocery industry that combines rapid retail replenishment with the techniques of category management and activity-based costing.
A curve describing the most advantageous possible combination of cost and flexibility in a supply chain. This curve is constantly being advanced by best practices in supply chain management.
An auction conducted entirely over the Internet, with sellers submitting products to a Web site and buyers using e-mail or Web browsers to place their bids..
A directory of products stored in digital form, usually accessible over the Web, that provides access to product by type and supplier.
A set of protocols for transferring information regarding demand and supply over private electronic networks.
The practice of shipping products in electronic form across the Internet or other electronic medium. Electronic distribution is used for music, documents, software, photographs, tickets, and other products that can be transmitted in digital form.
A digital marketplace, accessible over the Web, that brings together buyers and sellers of a particular type of product and provides them with tools for carrying out transactions.
A suite of software that combines tactical-level applications for production and distribution planning with execution systems for order management, inventory control, accounting, and related operations.
The portion of a supply chain that spans facilities outside the ownership boundaries of a particular company.
See also [internal supply chain]
A special kind of supplier that takes raw materials from the earth in either living or inert form. Examples include mines, saw mills, farms, and ranches.
An influence on demand or some other supply chain characteristic that is beyond a firm's control, such as the state of the economy or the actions of a competitor.
A physical or information flow from the output of a system into the input side of that system. The appropriate use of feedback is essential for regulating the behavior of a system.
See also [positive feedback]
See also [negative feedback]
The store of completed products on the output side of a production facility.
The date furthest in the future for which events are predicted in a forecast.
A business model that can be expressed in mathematical or executable form, allowing it to generate numerical predictions from a set of inputs. Of the three types of models discussed in this book, mathematical and simulation models are formal while conceptual models are not.
The practice of buying supplies before they are needed to take advantage of favorable prices or avoid potential shortages.
The practice of scheduling activities by beginning with the planned start date and adding activities to the schedule in the order in which they will be executed.
See also [back scheduling]
The sequence of events in a supplier organization that manage the three key flows in the fulfillment process: order flow, product flow, and cash flow.
The interval between the time an order is placed with a supplier and the time the goods are received by the customer.
A pallet of goods that contains only a single kind of product.
See also [mixed pallet]
A shipment of goods that consumes the capacity of a truck, requiring the truck to be dedicated to the shipment.
See also [less-than-truckload (LTL) shipment]
A technique used to search for a superior configuration of a system such as a supply chain by making a series of small, beneficial changes to the system until no further improvements appear to be possible.
The incremental cost of placing orders due to increases in product quantities. So named because the majority of this variable cost is the expense of holding inventory that is not immediately consumed. Also known as carrying cost.
See also [order cost]
The demand for a product on the part of its end consumers. So named because it is the ultimate source of demand, and doesn't depend on a source of demand further down in the supply chain.
See also [dependent demand]
The practice of using more than one medium of transportation, such as rail and ship, within a single shipment.
The portion of a supply chain that joins the facilities owned by the same company.
See also [external supply chain]
Inventory that is currently in a transportation lane between two facilities.
An influence on demand or some other supply chain characteristic that is within a firm's control, such as the price of a product or the speed of delivery.
A measure of how quickly inventory is used once it arrives at a facility, calculated as the annual sales of a product divided by its average inventory level.
Shorthand for inventory turnover ratio.
The speed with which inventory moves through the supply chain. Despite the way the term is commonly used, it does not represent a measure of performance, and companies that seek to increase their inventory velocity continue to rely on such traditional measures as the inventory turnover ratio and days on hand.
The percentage of line items, calculated across all orders, for which the full quantity of the requested product is available for immediate shipment.
See also [order fill rate]
The collection of forecasting techniques based on cause-and-effect reasoning rather than statistical analysis. Also known as subjective techniques.
The practice of reducing inventory levels by scheduling materials to arrive just as they are needed in the production process. More broadly, a comprehensive program for improving manufacturing operations to yield higher quality products at reduced expense.
The Japanese term for a type of integration in which a manufacturing firm takes partial ownership positions in key suppliers and appoints its own personnel to some management positions.
A shipment of goods that consumes only a fraction of the capacity of a truck, requiring that the truck be shared with other shipments.
See also [full truckload (FTL) shipment]
In time-series analysis, the portion of the forecast demand that is constant and unvarying.
See also [trend]
See also [seasonal]
See also [random components]
A technique for finding optimal solutions to mathematical models in which all relations between inputs and outputs are linear in form.
The practice of making products in response to realized demand rather than making them to stock in advance of demand.
The practice of making products in advance of demand and holding them in finished goods inventory until demand is realized.
A representation of a real-world system, such as a supply chain, that is constructed out of mathematical terms and relations. Mathematical models are expressed as formulas and/or procedures for solving equations to predict the behavior of the system.
See also [conceptual model]
See also [simulation model]
A measure of the average deviation between forecast values and their corresponding observed values, regardless of the direction (sign) of those deviations.
See also [tracking signal]
A technique in which separate shipments are combined en route and delivered as a single unit.
A pallet of goods that contains two or more kinds of products.
See also [full pallet]
The medium by which a vehicle moves products from one facility to another. The primary modes are truck, rail, boat, barge, airplane, and pipeline.
The technique of running a simulation model repeatedly using random variables on each run in order to understand behavior of the model across normal variations of business conditions.
The mean value obtained by summing the last N values of a measure and dividing by N, where N is set according to need. Used in forecasting and other applications to obtain a typical value for recent observations of some measure. Increasing the value of N produces more stable values that are less sensitive to recent changes.
A form of feedback in which movement of an output of a system in a particular direction is decreased, decelerating that movement. Negative feedback usually leads to stable, bounded outputs that facilitate control of a system.
See also [positive feedback]
In linear programming, the equation that defines the quantity being optimized, such as total cost or a weighted combination of cost and other performance measures.
A measure of fulfillment effectiveness, calculated as the percentage of orders that arrive at the customer site within the agreed-upon time.
Using a mathematical or procedural technique to explore the space of all possible configurations of a system and identify the configuration that maximizes (or minimizes) a designated output measure. Optimization is usually carried out using a specialized program called an optimizer.
See also [linear programming]
A software program capable of automating the process of optimizing a system using a particular mathematical or procedural technique.
See also [optimization]
See also [linear programming]
The fixed cost of placing an order, regardless of the quantities involved.
See also [holding cost]
The percentage of orders for which the full quantities of all products on the order are available for immediate shipment.
See also [item fill rate]
A document enclosed with a shipment that lists the goods included in that shipment together with information about the origin, destination, and means of transport.
A quantity whose value is set prior to performing an analysis that depends on that quantity. Example: Order cost and holding cost are parameters used in the calculation of economic order quantity.
A technique for analyzing sales data to determine the extent to which a small number of products accounts for the majority of sales. A common result, often stated as the 80:20 rule, is that 80% of sales come from 20% of the products.
A measure of fulfillment effectiveness, calculated as the percentage of orders that ship complete, arrive on time, contain the correct goods, are free of damage, and have accurate paperwork.
An inventory replenishment policy in which inventory is counted at fixed intervals and orders are placed whenever the current count falls below a set threshold.
See also [continuous review]
A software application that prices and records the sale of products to customers who are physically on site and take immediate possession of their purchases.
The set of attributes on which a company chooses to differentiate itself from its competition, together with methods for improving those attributes and communicating them to potential customers. In the manufacturing sector, the most common attributes are quality of product, quality of service, and price.
A form of feedback in which movement of an output of a system in a particular direction is increased, accelerating that movement. If unchecked by other mechanisms, positive feedback usually leads to exponential growth and "out of control" behavior.
See also [negative feedback]
An alternate term for delayed differentiation.
The level of packaging that immediately encloses a product, such as a bottle, box, can, or blister pack.
See also [secondary packaging]
See also [transport packaging]
An electronic exchange with membership rules that exclude parties that would otherwise be qualified to buy and sell the products handled on the exchange.
See also [public exchange]
The set of facilities and lanes that transports raw materials to a production facility from the upstream suppliers of that facility. A procurement network may be divided into tiers.
A facility that exists primarily to create products from raw materials, storing materials and products only as necessary to support production operations.
See also [storage facility]
An electronic exchange that is open to all qualified buyers and sellers of the products handled on the exchange.
See also [private exchange]
A supply chain in which inventory is produced only in response to realized demand at each stage of the chain, with product being "pulled" down the chain by actual orders.
A supply chain in which inventory is produced in advance of demand and "pushed" down the chain toward the consumer.
The point in a supply chain in which the driving force switches from pull to push, with pull operating downstream to the consumer and push acting upstream to the extractor.
A supply chain program on the part of the apparel industry that applied just-in-time (JIT) techniques to retail replenishment.
In time-series analysis, the variability in demand that remains after the systematic components have been removed. In other words, the aspect of demand that can't be forecast by the model.
The inventory of incoming materials maintained at a production facility for use in the production process.
In systems, a mapping of inputs to outputs that yields one or more outputs for any given input. Relations are usually described by one or more lines in a graph, and they range in form from straight lines (linear relations) to complex curves.
The level or count at which the inventory for a particular product is replenished.
The sequence of events within a customer organization that manage the three key flows in the replenishment process: order flow, product flow, and cash flow.
The interval between the time a company places an order for raw materials and the time it receives those materials.
The set of rules by which a firm decides when to replenish its inventory, how large to make its orders, and how much inventory to maintain on site.
An auction in which customers post requests for quotes and suppliers bid against each other to win the business.
An inventory management technique in which the safety stock necessary to handle expected fluctuations in supply and demand is reduced by treating two or more physically separate inventories as a single logical inventory.
The amount of inventory that must be maintained in order to handle fluctuations in supply and demand.
See also [cycle stock]
In time-series analysis, the portion of the forecast demand that varies in a cyclical manner over the course of the year.
See also [level]
See also [trend]
See also [random components]
The level of packaging that groups a standard number of primary packages together for convenience in handling, storage, and sales. The most common form of secondary packaging is the carton.
The amount of stock acquired by a customer under a promotion that is passed on to that customer's customers during the promotional period. Suppliers may limit the amount of product a customer can buy under a promotion to the sell-through amount in order to reduce forward buying.
A constraint placed on an order that requires all items in the order to arrive in a single shipment.
The reduction in inventory that occurs through pilferage, misplacement, and related forms of attrition.
A representation of a real-world system, such as a supply chain, that is constructed out of software objects that represent real-world objects. Simulation models are expressed as computer programs that execute the models to observe their expected behavior.
See also [conceptual model]
See also [mathematical model]
The practice of generating a forecast and then leaving it unchanged until a new forecast is created.
See also [dynamic forecasting]
The situation in which there is not enough inventory on hand to fill a received order.
A facility that exists primarily to hold goods in anticipation of future demand. Some storage facilities may also perform final assembly and packaging in order to move these operations closer to the end consumer.
See also [production facility]
The collection of forecasting techniques based on cause-and-effect reasoning rather than statistical analysis. Also known as judgmental techniques.
The organization that provides a product or service in a supply chain transaction. In this book, the term is used as a counterpart to customer, denoting a role within a transaction that can be applied to any link in the chain. In some contexts, the term refers specifically to companies that provide raw materials and is not applied to downstream members of the chain.
A network of facilities and transportation lanes that transforms raw materials into finished products and delivers those products to consumers.
The set of activities involved in designing, planning, and executing the flow of demand, supply, and cash across a supply chain.
In time-series analysis, any component of demand (level, trend, or seasonal) that can be predicted from the model. In other words, everything but the random component .
See also [level]
See also [trend]
See also [seasonal components]
In a procurement network, a set or layer of facilities functionally equidistant from the production facility they serve. Comparable to an echelon in a distribution network.
A forecasting technique in which future values of a measure are predicted from a mathematical analysis of historical values of that measure.
A phenomenon observed in the spread of ideas in which the prevalence of the idea makes a sudden leap from a slow-growth curve to a different, fast-growth curve. Originally discovered in the study of infectious diseases and subsequently found to apply to product sales, crime waves, and other social activities.
A measure of the bias of a forecast to either overestimate or underestimate the observed value.
See also [mean absolute percentage error (MAPE)]
A level of packaging, such as a pallet, that is added to facilitate shipping and storing large quantities of product.
See also [primary packaging]
See also [secondary packaging]
A designated pathway for moving goods from one facility to the next within in a supply chain. Lanes are categorized as highways, railways, waterways, air lanes, and pipelines.
A technique in which goods are shipped laterally within the same echelon of a distribution system, such as between warehouses or between retail stores.
In time-series analysis, the portion of the forecast demand that shows a constant, linear increase over time.
See also [level]
See also [seasonal]
See also [random components]
A policy in which suppliers limit customer purchases to the quantity of goods they "turn" by shipping them out as finished goods to their own customers. Used to reduce hoarding during periods of limited availability.
An inventory control practice in which a supplier monitors and replenishes inventory on a customer's site.
The practice of owning facilities across a large segment of a supply chain in order to control as much of the chain as possible.
See also [virtual integration]
A practice in which members of a supply chain collaborate closely with each other in order to gain the benefits of centralized supply chain management while retaining independent ownership and control.
See also [vertical integration]
A storage facility that holds controlled quantities of goods in a particular location within a supply chain.
See also [distribution center]
A set of technologies that allows software programs to invoke each other's functions using XML and standard Internet protocols.
Inventory currently being used in a production process or held for use within the production area. Includes all materials that have been removed from raw materials inventory but not yet deposited in finished goods inventory.
The extensible markup language for communicating data in a structured format over the Internet.
Any interaction between two parties in which the total gain across the two is fixed, leaving the parties to compete with each other over their relative shares of that gain. Many supply chain relationships that are traditionally viewed as zero-sum interactions are actually much richer than this, including outcomes in which the total gain can be increased or decreased depending on how the parties conduct themselves.
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