Terms and Definitions Set 1 Flashcards
Effective
Adjective denoting real capacity of a processing unit is fully utilized when it was available.
Capacity
For a process or activity, the maximum THROUGHPUT that can be sustained.
Five Why’s
The process of repeatedly asking why until the root cause of the problem is found. The purpose is to keep asking why until the root cause of the problem is known and the solution found. Toyota has found that asking “why” five times usually leads one to the root cause.
Lean
A term used to indicate that an operation adheres to the Toyota Production System and has achieved the level of quality, productivity, and customer satisfaction associated with application of that system
Cost of Goods Sold (COGS)
The term appearing on the income statement of a company or plant representing the manufacturing cost of the goods sold. The COGS does not include sales and marketing, engineering, and corporate administration.
Equipment
Those assets that are used to produce product in a manufacturing or operating environment
CIM
Computer-integrated-manufacturing. Popular in the 1980s, it implied fully computer-controlled manufacturing processes. It has been supplanted by lean manufacturing concepts in the main.
Demand
Customer requirements measured in production or sales per unit time
Efficiency
Measure of total processing cost of an activity or process.
Centralization
Combining of disparate inventories at a central location implying that the total inventory and logistics cost needed to meet anticipated demand can be lower. Availability may be a problem at regional locations.
DCF
Discounted cash flow. The process by which a stream of cash is related to its value at present by discounting future cash flows by an interest rate.
Acquisition
Typically the purchase of a company or a significant business asset. In the defense industry, acquisition means the purchase of products and systems.
Inventory
Goods and products held by a company in the product value stream that are eventually intended for sale to customers on their own or as part of a product system. Inventory includes the material cost of the goods and the value added by the operation to reach its state of manufacture. Raw materials, work in process, and finished goods are three categories of inventory.
Classification
The designation of the job function that an employee is proficient in and assigned to, e.g. machinist, welder, assembler.
Assets
The tangible and intangible goods, intellectual property, and goodwill that are listed under the asset column in the balance sheet for a company. Any beneficial item owned by a company.
Inputs
The material or products that are presented or flow into an activity.
CAD
Computer aided design is a process of generating and manipulating product designs through computer software. The software allows all information of a part to be generated and stored electronically at a computer terminal and transferred to other sites or machines.
Dispute Resolution
The process of arbitration, mediation, or other means to settle disputes without going to court.
ABC
An ABC system identifies and then classifies the major activities of a facility’s production process into one of the following four categories: unit-level, batch-level, product-level, and facility-level activities. Costs in the first three categories of activities are assigned to products using bases (i.e. cost drivers) that capture the underlying behavior of the costs that are being assigned. The costs of facility-level activities, however, are treated as period costs or allocated to products in some arbitrary manner.
Life Cycle Costing
Using the full cost of a component or system over its useful life in a financial decision process instead of just original purchase price. For example, life cycle costs brought to present value may justify a higher initial purchase price.
A/P
Accounts Payable
Cash Flow
The beginning and ending net cash as a result of cash that has flowed through an operation over a given period of time.
CNC
Computer numerical control generally refers to equipment that is operated through the use of digital information rather than human input. For instance, a CNC milling machine will automatically produce the desired net shape of a part as specified by the controlling program.
ISO 9000
International Standards Organization quality standard. The “9000” designation is a general one. Levels of quality achievement encompassing wider functions in a firm from manufacture to complete product design, customer service, and manufacture progress from “9003” to “9001”. This quality standard is administered by approved consulting firms and denotes a company’s commitment to follow standard processes in its business practice.
Blue Sky
Goodwill associated with an acquisition of a company or asset.
Heijunka (Goal Congruency)
The Deployment of matched goals throughout the organization
Dies
Those special forms that are used in general purpose equipment to make specific parts. See tooling also.
EVA
Economic Value Added- The amount the profits of a company or entity differs from its cost of capital times its net assets. EVA is increasingly used as a performance measure replacing return on equity and return on investment.
Borrowings
Debt
Absentee Policy
The policy that covers allowed absence from the workplace and the penalties that accrue for excessive absence. This policy is typically part of the employee handbook.
Direct Material Purchasing
Is purchasing from suppliers on a contractual basis for a fixed period of time or amount of product. For job shops, the purchasing contract can be for only one job. For repetitive manufacturing, the materials are usually purchased on contracts that last for a model run or at least a year. The contract specifies the price, the delivery requirements, the tooling agreements, the quality standards, the release communications and data receipt requirements, and a host of other terms and conditions. The purchase contract does not specify the releases. That is done by the receiving plant as their forecasts or orders require. There can be confusion between purchasing and releasing. Purchasing usually does not release nor do operations purchase.
Fringes (Fringe benefits)
Employee non-cash compensation such as medical coverage, insurance, etc.
Leveled Production
The distribution of production of different kinds of items evenly through the day and week to allocate work evenly and thereby use resources optimally; also Heijunka.
Fill Rate
Fraction of total demand satisfied by inventory on hand.
Attribute
A critical property of an activity or operation
Activity
Generally the processing at a work station or equipment location
Debt
Monies owed by a company or plant
Indirect Labor
Denotes the production workers that support the direct labor function. Indirect labor functions can include maintenance, material handling, setup, product testing, and inspection. Best practice limits indirect functions and indirect people by, for example, assigning direct responsibility for all functions at routing stations to teams that would include direct operations, maintenance, material movement, and scheduling.
Jidoka
The principle of stopping work (or the line) when there is a quality problem- the process for correcting that problem
AD&D
Disability insurance as part of an employee benefit package
Best Practice
Denotes that practice considered the most effective for an industry. Best practices continually evolve. Best practices are often assessed across industries to set new “best practice” standards.
Economic Order Quantity (EOQ)
The optimal batch size for an order that minimizes the total period cost, including cost of ordering (setup cost), inventory holding cost, and cost of materials procured. For setup cost S, holding cost H, and throughput R, the optimal batch size Q* is given by Q* = square root (2 x S x R/H)
JIT
Just-in-time manufacturing system. In a full JIT system, the only parts that enter a plant or move from process to process in a plant are those identified uniquely with a final product, no more or no less. Thus, every part being supplied and every part in the plant can be related directly to a bill of material of a product that is either in production or will shortly to be in production.
Cost of Sales (COS)
This abbreviation denotes the “cost of sales”. It denotes all the costs in a plant. It is the sum of materials cost and value added. The COS can also be referred to as “cost of goods sold”.
File Folder (PARTS)
There are many names for a parts file folder. The concept is simple, however. A parts file folder contains all the required information about a part including cost, lead times for production, approved suppliers, tooling requirements and cost, drawings of the part, its tooling, and fixturing, computer data if it has been programmed for production on a computer-controlled machine, quality specifications, key characteristics, etc.
Lead Time
Time that is required to fill an order or meet customer demand.
Expected Value
In probability theory the mean value expected at any time or over a specified set of random variables.
Foreword Buying
Buying of materials in advance of need.
Job Shop
Job shops refer to those operations where each order is more or less unique and where the volumes are small or only one order. The clearest example of a job shop is a construction firm that constructs unique buildings. The book manufacturing industry is another example of a job shop if the production runs are small as is the case for a textbook. The automotive, appliance, towel, petroleum refining, and computer industries are examples of repetitive manufacturing. See also repetitive manufacturing. Several industries have characteristics of both repetitive manufacturing and job shops in their operations. Even in job shops, standardized materials, machines, and tooling and fixtures are desirable. Standard sizes, capacities, and performance are characteristic of the construction industry. Also, either industry may incur high tooling costs. Even in the construction industry, repetitive manufacturing is gaining as modular assemblies are replacing craftwork in many of the subassemblies.
Benchmarking
Benchmarking is defined as a process of continuous comparison of a company?s performance on predetermined measure against that of the best in an industry or a class, considered the standard or the reference. Benchmarking is one of the most popular business management tools for establishing competitive advantage and initiating performance improvements. The Benchmarking process supports the adoption of best practices with enhanced organization performance. The goal is to attain low-cost producer status. BENEFITS:
Discounted Cash Flow (DCF)
The process by which a stream of cash is related to its value at present by discounting future cash flows by an interest rate.
Batch
The number of production units in an aggregation of units that can be produced by an activity that produces in batches. A multiple of units in a plant designated for any purpose such as packaging, outside services, etc.
Fixed Cost
That set of costs in an operation that does not vary with production volume.
Buffers
Inventory between processing or activity units.
Amortization
The systematic reduction of an asset, specifically when referring to a long-lived intangible asset such as goodwill or intellectual property. It usually means the allocation of costs of intangible assets to the periods that benefit from these assets. See also depreciation.
Direct
Usually associated with functions that are directly associated with the production of a part.
EBITDA
Earnings before interest, taxes, amortization, and depreciation. The single most used measure in valuing companies. It represents free cash flow quite accurately.
Distribution
This term denotes the process and/or entities that take manufactured products and make them available to the ultimate customer. In the automotive and appliance industries, it is the automobile and appliance dealers. Distribution can be quite complicated. In the beverage industry, there may be bottlers who have their own distribution so that there are two levels of distribution. There may be several parallel distribution paths to consumers. Original equipment manufacturers (OEMs) may distribute to other OEMs.
Burden
Also known as overhead and sometimes as indirect costs. It is the support system cost with respect to the direct costs for manufacturing a product. Burden rates vary widely among operations depending on the equipment investment and other factors. Burden rates include all indirect costs and are usually referenced to direct labor cost excluding fringes required for the direct product manufacture.
Equity
The assets minus the liabilities of a company. Stockholders equity implies joint ownership of the value of this equity in proportion to the stock held.
Current
Meaning in the present period. Current assets mean cash, AR, inventories, and all accrued benefits on a balance sheet for the current time period.
Finished Goods
Finished goods inventory consists of goods that have been completed and are awaiting sale. Finished goods are valued at the cost of sales.
Grievance
A formal complaint filed by a union member against a company. The resolution of grievances is a formal process also defined by contract.
ERP:
Enterprise Resource Planning–the latest designation of company-wide computer integrated information system. The term implies that disparate computers, information databases, and communications networks are integrated.
Kaizen
The process whereby teams attack a manufacturing operation to make a series of quick, small steps to improve the process. It is also the process by which such small improvements are continued. Standardized work is the result of Kaizens
Control Charts
Statistical charting process that is used to identify sporadic and chronic faults in a process. Mean and variance measurements of a product are charted and acceptable limits are set on these values. An out of control process can be identified and adjustments made to remedy the situation through the use of control charts.
Kanban
A card that signals the replenishment requirements in a production process. Associated with delivering just the amount of inventory needed at the right time. The heart of a pull system where the process need for inventory is signaled by the placement of a demand card with the supply process.
Gross Margin
The ratio in percent with the numerator the difference between sales and cost of sales and the denominator sales. Gross margin for a plant is revenue minus COS divided by revenue.
Internal Rate of Return
Internal rate of return- that period interest rate that makes the present value of the discounted cash flows zero. Given a stream of cash flows, iteration is required to find that interest rate that makes the net present value zero.
Availability
That time or percentage of time that a resource unit or activity center is ready to process or be activated.
EPS
Earnings per share of common stock for a company
Layoff
The process by which employees that are not needed for some extended period of time are given notice that their services are not needed. Layoffs are usually associated with unionized operations although not always so. Layoffs do not necessarily imply that the employee will be called back, but in union contracts, laid-off employees have callback rights. Eligibility for unemployment benefits also depends on the layoff process. Seniority generally rules for layoffs, although voluntary layoffs where employees volunteer to a layoff are effective ways to allow flexibility in the layoff process. Benefits may or may not continue in a layoff.
Aggregation
The concept indicating that pooling of demand or other random variables reduces the variance of the resulting aggregated variable.
Contribution Margin
Sales minus the variable costs?the contribution of a sale to the fixed costs of an operation
Economies of Scale
The unit cost reduction that accrues from larger volume production or distribution of similar products or products produced in similar operations.
Blockage
Prevention of a processing unit to produce more units because of inadequate storage space or lack of authorization to produce
Dividends
Distribution of monies to shareholders from company cash flow
Hazmat
Hazardous material handling process defined by environmental laws and legal precedents. A process has been defined by regulations that impose stiff fines for a plant if the regulations are ignored.
Depreciation
The systematic allocation and reduction of the acquisition cost of long-lived or fixed assets to the expense accounts over particular period to functions that benefit from the use of the assets. Also see amortization.
Allocation
The assignment of costs incurred in one area or function of a plant or company to another because of the service to the charged unit.
Disability
That limitation of capacity that is covered by the American Disabilities Act or that limits a function in a plant or company.
Forklift
A general-purpose small truck for lifting and transporting materials and containers in a plant; not conducive to lean operations
Activity Based Costing (ABC)
An ABC system identifies and then classifies the major activities of a facility’s production process into one of the following four categories: unit-level, batch-level, product-level, and facility-level activities. Costs in the first three categories of activities are assigned to products using bases (i.e. cost drivers) that capture the underlying behavior of the costs that are being assigned. The costs of facility-level activities, however, are treated as period costs or allocated to products in some arbitrary manner.
Forecast
Usually the prediction of customer sales and the subsequent manufacturing schedule.
A/R
Accounts Receivable
Indirect Costs
All costs that are not direct costs. Usually associated with the functions in an operation that may be necessary to support direct production.
FASB
The Financial Accounting Standards Board is a private-sector body that determines generally accepted accounting standards in the United States.
Building to Customer Order vs. Building to Forecast
Building to customer order means that at least the final assembly, packaging, and shipping awaits a firm order for the product. Building to forecast means that the product is manufactured to a forecasted demand. Building to customer order means that the product is pulled by customer order rather than pushed by a forecast.
Goodwill
The excess of the cost of an acquired company over the book value. Intangible values on a company balance sheet.
IRR
Internal rate of return- that period interest rate that makes the present value of the discounted cash flows zero. Given a stream of cash flows, iteration is required to find that interest rate that makes the net present value zero.
Liabilities
Economic obligations of the organization to outsiders or claims against the assets by outsiders. Debt, accounts payable, taxes owed, and wages to be paid are examples of liabilities.
Andon
The visible light or sign that denotes the state of an operation (i.e., on, trouble or off.) The process can be stopped or investigated for quality issues or defects as a result of the status of the lights. In addition, everyone in the immediate area can see that the problem is being addressed.
FMEA
Failure mode and effects analysis–the process by which failures are hypothesized, valued, and corrected.
Correlated Demands
Implies that aggregated demand would have less variability than separate demands because of correlation among demands.
Critical Path
That path through a process or activity system that has the longest theoretical flow time (see flow time).
Coefficients of Variation
The ratio of the standard deviation to the mean for statistical demands & processes. See P-K Formula
Accounts Payable
Liabilities that result from a purchase of goods or services on an open account. Amounts owed to suppliers of goods or services.
CAM
Computer aided manufacturing (often used synonymously with CAD) is a similar process of generating manufacturing processes electronically.
ISO Certification
Denotes that a firm or plant has received an ISO quality standard. Also, it is the process by which a firm achieves such certification.
Five S’s: Toyota defines the fives S (for keeping an operation clean)
- Seison: Maintaining a clean plant
- Seiton: Ordered placement & identification of all parts & work items
- Sheiri: Identifying & separating necessary from unnecessary items
- Seiketsu: Maintaining Seiri, Seiton, & Seison 5. Shitsuke: Instilling Seiri, Seiton, Seison, & Seiketsu in workforce
ER&D
Engineering, Research, and Development–usually appearing on the income statement of a company implying development costs for new products.
ADD
American Disabilities Act of 1990
Direct Labor
Denotes that portion of the workforce directly assigned to manufacture the product. Direct labor also refers to the standard direct hours that are needed to manufacture a component or system, e.g., there are 1.25 hours DL in a Honda seat set. See also indirect labor.
DFM
Design for manufacturing. The process by which designs are completed mindful of the cost of manufacturing.
Accounts Receivable
Amounts owed to a company by customers as a result of delivering goods or services and extending credit in the ordinary course of business.
Flow Shop
An operation that produces products at volume in a continuous flow or by a well-defined, connected sequence of activities or processes.
EBIT
Earnings before interest and taxes.
Bill of Material (BoM)
A bill of material is an ordered listing of all the parts in a finished product. The listing usually includes the part number, how many of each part is required, and a brief word description of the part. It is best practice to use only words that appear in a parts dictionary. Bills of material are usually organized by indenting subsystems.
Decoupling
Implies that through buffers and inventory, processes in a product line can operate relatively independently of the each other.
Customer Satisfaction
A term in Total Quality Management that implies the degree to which customers are pleased with a product or service.
Flow Time Efficiency
The ratio of theoretical flow time to the actual flow time through a process.
EEOC
Equal Employment Opportunity Commission is the administrative agency that administers Title VII of the Civil Rights Act. It is headed by five commissioners appointed by the President. Title VII prohibits discrimination in employment based on race, color, religion, sex, or national origin.
Capital Expenditure (CAPEX. Capital)
The cash cost of acquiring capital equipment or goods. Capital expenditures result in depreciation that is the cost that appears on the P&L statement.
Backlog
The amount of actual demand, orders or contracts that are in the pipeline for future sales. Can be expressed in units of production time or dollars; e.g. six weeks of firm orders for a plant that can produce $2 million dollars per week would be a $12 million backlog.
Error Proofing (Poka Yoka)
Error proofing seems to be a simple concept, but there are many variations on the primary theme. The basic concept is that a product is prohibited from being taken out of its fixture if it has a quality defect as a result of the machine or operator action. The defect must be corrected prior to release of the product from the fixture.
Days (Days Outstanding)
Usually an adjective implying the amount of an asset or liability measured in days of sales, e.g. AP days is the average days that a company or plant delays payments of invoices to its suppliers.
Fixtures
Fixtures are what secure tools and components to general-purpose machines. The location and fixture type make a significant difference in the speed with which tools can be changed and in the quality or the part produced. It is best practice to fix a tool at just the right point so that the key characteristics are produced with the most accuracy given the machine and tools being used to make the part.
Flow Time
The average (actual) time for a unit of production to flow through a process unit or activity including input and output inventories. Theoretical Flow Time is the flow time without inventories.
Backroom Costs
Indirect costs that do not add direct value to a product and may or may not be necessary to support its production. Examples are matching supplier material receipts to their invoices to make sure that they are being paid accurately; sending invoices to customers; matching computer inventory records to actual inventory; accounting for product costs at each station on a production routing; keeping track of hazardous materials receipt, control, and proper disposal; tracking customer warranty issues; operation of the computer systems that control the production process, etc.
