Part I Terminology 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, called A, B, and C. The A 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 B, usually represents about 20 percent of the items and about 20 percent of the dollar volume. The C 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 losses 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.
advanced planning and scheduling (APS)
Techniques that deal with analysis and planning of logistics and manufacturing during 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 (1) demand planning, (2) production planning, (3) production scheduling, (4) distribution planning, and (5) transportation planning.
advance ship notice (ASN)
An electronic data interchange (EDI) notification of shipment of product.
andon
A sign board with signal lights used to make workers and management aware of a quality, quantity, or process problem.
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.
assemble-to-order (ATO)
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.
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.
assignable cause
A source of variation in a process that can be isolated, especially when its significantly larger magnitude or different origin readily distinguishes it from random causes of variation.
available inventory
The on-hand inventory balance minus allocations, reservations, backorders, and (usually) quantities held for quality problems. Often called beginning available balance.
available-to-promise (ATP)
(1) In operations, 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 look-ahead, and cumulative ATP without look-ahead. (2) In logistics, the quantity of a finished good that is or will be available to commit to a customer order based on the customer’s required ship date. To accommodate deliveries on future dates, ATP is usually time-phased to include anticipated purchases or production receipts.
average inventory
One-half the average lot size plus the safety stock, when demand and lot sizes are expected to be relatively uniform over time. The average can be calculated as an average of several inventory observations taken over several historical time periods; for example, 12-month ending inventories may be averaged. When demand and lot sizes are not uniform the stock level versus time can be graphed to determine the average.
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.
backhauling
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.
backlog
All the customer orders received but not yet shipped. Sometimes refereed to as open orders or the order board.
backorder
An unfilled customer order or commitment. A backorder is an immediate (or past due) demand against an item whose inventory is insufficient to satisfy the demand.
balance sheet
A financial statement showing the resources owned, the debts owed, and the owner’s share of a company at a given point in time.
bar code
A series of alternating bars and spaces printed or stamped on parts, containers, labels, or other media, representing encoded information that can be read by electronic readers. A bar code is used to facilitate timely and accurate input of data to a computer system.
batch
(1) A quality scheduled to be produced or in production. (2) For discrete products, the batch is planned to be the standard batch quantity, but during production, the standard batch quantity may be broken into smaller lots. (3) In nondiscrete products, the batch is a quantity that is planned to be produced in a given time period based on a formula or recipe that often is developed to produce a given number of end items. (4) A type of manufacturing process used to produce items with similar designs; it also may cover a wide range of order volumes. Typically, items ordered are of a repeat nature, and production may be for a specific customer order or for stock replenishment.
batch picking
A method of picking orders in which order requirements are aggregated by product across orders to reduce movement to and from product locations. The aggregated quantities of each product are then transported to a common area where the individual orders are constructed.
bias
A consistent deviation from the mean in one direction (high or low). A normal property of a good forecast is that it is not biased.
bill of lading (uniform)
A carrier’s contract and receipt for goods the carrier agrees to transport from one place to another and to deliver to a designated person. In case of loss, damage, or delay, the bill of lading is the basis for filing freight claims.
bill of material (BOM)
(1) A listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent assembly, showing the quantity of each required to make an assembly. It is used in conjunction with the master production schedule to determine the items for which purchase requisitions and production orders but be released. A variety of display formats exists for bills of material, including the single-level bill of material, indented bill of material, modular (planning) bill of material, transient bill of material, matrix bill of material, and costed bill of material. (2) A list of all the materials needed by a contract manufacturer to make one production run of a product’s piece parts/components for its customers. The bill of material may also be called the formula, recipe, or ingredients list in certain process industries.
bonded warehouse
Buildings or parts of buildings designated by the U.S. Secretary of the Treasury for storing imported merchandise, operated under U.S. Customs supervision.
bottleneck
A facility, function, department, or resource whose capacity is less than the demand placed upon it. For example, a bottleneck machine or work center exists where jobs are processed at a slower rate than they are demanded.
break-bulk
(1) Dividing truckloads, railcars, or containers of homogeneous items into smaller, more appropriate quantities for use. (2) A distribution center that specializes in break-bulk activities. (3) Unitized cargo in bales, boxes, or crates that is placed directly in a ship’s holds rather than in containers.
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.
buffer
(1) A quantity of materials awaiting further processing. It can be 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 that constraint and missed customer due dates. In addition, the reason items are missing from the buffer are identified, and the frequency of occurrence is used to prioritize improvement activities.
bullwhip effect
An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. The bullwhip effect can be eliminated by synchronizing the supply chain.
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. (2) A document consisting of the business details (organization, strategy, and financing tactics) prepared by an entrepreneur to plan for a new business.
capable-to-promise (CTP)
The process of committing orders against available capacity as well as inventory. This process may involve multiple manufacturing or distribution sites. Used to determine when a new or unscheduled customer order can be delivered. Employs a finite-scheduling model of the manufacturing system to determine when an item can be delivered. 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 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). Capacity management 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 (resource requirements planning), at the master-scheduling level (rough-cut capacity planning), and at the material requirements planning level (capacity requirements planning).
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, CRP 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). Carrying cost 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. Carrying cost is ultimately a policy variable reflecting the opportunity cost of alternative uses for funds invested in inventory.
