Part I Detailed Planning Flashcards
ABC classification
The classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria. This array is then split into three classes […]. The [first] group usually represents 10 percent to 20 percent by number of items and 50 percent to 70 percent by projected dollar volume. The next grouping […] usually represents about 20 percent of the items and about 20 percent of the dollar volume. The [third] class contains 60 percent to 70 percent of the items and represents about 10 percent to 30 percent of the dollar volume. The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than to the high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing, and sales.
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.
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 backwards 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.
balance sheet
A financial statement showing the resources owned, the debts owned, and the owner’s share of a company at a given point in time.
capacity available
The capability of a system or resource to produce a quantity of output in a particular time period.
capacity management
The function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules (i.e., the production plan, master production schedule, material requirements plan, and dispatch list). [It] is executed at four levels: resource requirements planning, rough-cut capacity planning, capacity requirements planning, and input/output control.
capacity planning
The process of determining the amount of capacity required to produce in the future. This process may be performed at an aggregate or product-line level […], at the master-scheduling level […], and at the material requirements planning level […].
capacity requirements planning (CRP)
The function of establishing, measuring, and adjusting limits or levels of capacity. In this context, the term refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. Open shop orders and planned orders in the MRP system are input to CRP, which through the use of parts routings and time standards translates these orders into hours of work by work center by time period. Even though rough-cut capacity planning may indicate that sufficient capacity exists to execute the MPS, [this concept] may show that capacity is insufficient during specific time periods.
carrying cost
The cost of holding inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year). [This] depends mainly on the cost of capital invested as well as costs of maintaining the inventory such as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10 percent to 35 percent annually, depending on type of industry. [It] is ultimately a policy variable reflecting the opportunity cost of alternative uses for funds invested in inventory.
cash flow
The net flow of dollars into or out of the proposed project. The algebraic sum, in any time period, of all cash receipts, expenses, and investments. Also called cash proceeds or cash generated.
certified supplier
A status awarded to a supplier that consistently meets predetermined quality, cost, delivery, financial, and count objectives. Incoming inspection may not be required.
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.
continuous replenishment
A process by which a supplier is notified daily of actual sales or warehouse shipments and commits to replenishing these sales (for example, by size or color) without stockouts and without receiving replenishment orders. The result is a lowering of associated costs and an improvement in inventory turnover.
cost of goods sold (COGS)
An accounting classification useful for determining the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.
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 slow-moving items). [the most effective of these] systems require the counting of a certain number of items every workday with each item counted at a prescribed frequency. The key purpose of [this] is to identify items in error, thus triggering research, identification, and elimination of the cause of the errors.
cycle stock
One of the two main conceptual components of any item inventory, [this] is the most active component. [It] depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received. The other conceptual component of the item inventory is the safety stock, which is a cushion of protection against uncertainty in the demand or in the replenishment lead time.
days of supply
1) Inventory-on-hand metric converted from units to how long the units will last. For example, if there are 2,000 units on hand and the company is using 200 per day, then there are 10 [of these]. 2) A financial measure of the value of all inventory in the supply chain divided by the average daily cost of goods sold rate.
decoupling inventory
An amount of inventory maintained between entities in a manufacturing or distribution network to create independence between processes or entities. The objective of [this] is to disconnect the rate of use from the rate of supply of the item.
demonstrated capacity
Proven capacity calculated from the actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item.
direct labor
Labor that is specifically applied to the good being manufactured or used int he performance of the service.
direct material
Material that becomes a part of the final product in measurable quantities.
distribution inventory
Inventory, usually spare parts and finished goods, located in the distribution system (e.g., in the warehouses or in transit between warehouses and the consumer).
dock-to-stock
A program through which specific quality and packaging requirements are met before the product is released. Prequalified product is shipped directly into the customer’s inventory. [This] eliminates the costly handling of components, specifically in receiving and inspection, and enables product to move directly into production. Sometimes referred to as ship-to-stock.
economic order quantity (EOQ)
A type of fixed order quantity model that determines the amount of an item to be purchased or manufactured at one time. The intent is to minimize the combined costs of acquiring and carrying inventory. [To calculate this find the square root of ((2AS)/(iC)) where A = annual usage in units, S = ordering costs in dollars, i = annual inventory carrying cost rate as a decimal, and C = unit cost.]
efficiency
A measurement (usually expressed as a percentage) of the actual output relative to the standard output expected. [This] measures how well something is performing relative to existing standards; in contrast, productivity measures output relative to a specific input (e.g., tons/labor hour). [It] is the ratio of (1) actual units produced to the standard rate of production expected in a time period, or (2) standard hours produced to actual hours worked (taking longer means less [of this]), or (3) actual dollar volume of output to a standard dollar volume in a time period. For example: (1) There is a standard of 100 pieces per hour and 780 units are produced in one eight-hour shift; [this] is 780 ÷ 800 converted to a percentage, or 97.5 percent. (2) The work is measured in hours and took 8.21 hours to produce 8 standard hours; [this] is 8 ÷ 8.21 converted to a percentage, or 97.5 percent. (3) The work is measured in dollars and produces $780 with a standard of $800; [this] is $780 ÷ $800 converted to a percentage, or 97.5 percent.
external setup time
The time associated with elements of a setup procedure performed while the process or machine is running.
finished goods inventory
Those items on which all manufacturing operations, including final test, have been completed. These products are available for shipment to the customer as either end items or repair parts.
fixed order quantity
A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiple thereof, if net requirements for the period exceeds [this].
fixed overhead
Traditionally, all manufacturing costs—other than direct labor and direct materials—that continue even if products are not produced. Although [this] is necessary to produce the product, it cannot be directly traced to the final product.
fluctuation inventory
Inventory that is carried as a cushion to protect against forecast error.
general and administrative expenses (G&A)
The category of expenses on an income statement that includes the costs of general managers, computer systems, research and development, etc.
generally accepted accounting principles (GAAP)
Accounting practices that conform to conventions, rules, and procedures that are generally accepted by the accounting profession.
gross margin
The difference between total revenue and the cost of goods sold.
hedge inventory
A form of inventory buildup to buffer against some event that may not happen. [Planning] involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair a company’s strategic initiatives. Risk and consequences are unusually high, and top management approval is often required.
income statement
A financial statement showing the net income for a business over a given period of time.
internal setup time
The time associated with elements of a setup procedure performed while the process or machine is not running.
in-transit inventory
Material moving between two or more locations, usually separated geographically; for example, finished goods being shipped from a plant to a distribution center.
inventory accuracy
When the on-hand quantity is within an allowed tolerance of the recorded balance. This important metric usually is measured as the percent of items with inventory levels that fall within tolerance. Target values usually are 95 percent to 99 percent, depending on the value of the item. For logistical operations (location management) purposes, it is sometimes measured as the number of storage locations with errors divided by the total number of storage locations.
inventory adjustment
A change made to an inventory record to correct the balance in order to bring it in line with actual physical inventory balances. The adjustment either increases or decreases the item record on-hand balance.
inventory buffer
Inventory used to protect the throughput of an operation or the schedule against the negative effects caused by delays in delivery, quality problems, delivery of an incorrect quantity, and so on.
inventory control
The activities and techniques of maintaining the desired levels of items, whether raw materials, work in process, or finished products.
inventory management
The branch of business management concerned with planning and controlling inventories.
inventory ordering system
Inventory models for the replenishment of inventory. Independent demand inventory ordering models include fixed reorder cycle, fixed reorder quantity, optional replenishment, and hybrid models, among others. Dependent demand inventory ordering models include material requirements planning, kanban, and drum-buffer-rope.
inventory turnover
The number of times that an inventory cycles, or “turns over,” during the year. A frequently used method to compute inventory turnover is to divide the annual cost of sales by the average inventory level. For example, an annual cost of sales of $21 million divided by an average inventory of $3 million means that inventory turned over seven times.
job costing
A cost accounting system in which costs are assigned to specific jobs. This system can be used with either actual or standard costs in the manufacturing of distinguishable units or lots of products.
landed cost
This cost includes the product cost plus the costs of logistics, such as warehousing, transportation, and handling fees.
lead time
1) A span of time required to perform a process (or series of operations). 2) In a logistics context, the time between recognition of the need for an order and the receipt of goods. Individual components […] can include order preparation time, queue time, processing time, move or transportation time, and receiving and inspection time.
level of service
A measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers’ requested delivery dates and quantities. In a make-to-stock environment, [this] is sometimes calculated as the percentage of orders picked complete from stock upon receipt of the customer order, the percentage of line items picked complete, or the percentage of total dollar demand picked complete. In make-to-order and design-to-order environments, [it] is the percentage of times the customer-requested or acknowledged date was met by shipping complete product quantities.
liabilities
An accounting/financial term (balance sheet classification of accounts) representing debts or obligations owed by a company to creditors. [These] may have a short-term time horizon, such as accounts payable, or a longer-term obligation, such as mortgage payable or bonds payable.
