Terms and Definitions Set #1

Question 1

ABC

Answer 1

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.

Question 2

Absentee Policy

Answer 2

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.

Question 3

Accounts Payable

Answer 3

Liabilities that result from a purchase of goods or services on an open account. Amounts owed to suppliers of goods or services.

Question 4

Accounts Receivable

Answer 4

Amounts owed to a company by customers as a result of delivering goods or services and extending credit in the ordinary course of business.

Question 5

Acquisition

Answer 5

Typically the purchase of a company or a significant business asset. In the defense industry, acquisition means the purchase of products and systems.

Question 6

Activity

Answer 6

Generally the processing at a work station or equipment location

Question 7

Activity Based Costing (ABC)

Answer 7

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.

Question 8

AD&D

Answer 8

Disability insurance as part of an employee benefit package

Question 9

ADD

Answer 9

American Disabilities Act of 1990

Question 10

Aggregation

Answer 10

The concept indicating that pooling of demand or other random variables reduces the variance of the resulting aggregated variable.

Question 11

Allocation

Answer 11

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.

Question 12

Amortization

Answer 12

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.

Question 13

Andon

Answer 13

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.

Question 14

A/P

Answer 14

Accounts Payable

Question 15

A/R

Answer 15

Accounts Receivable

Question 16

Assets

Answer 16

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.

Question 17

Attribute

Answer 17

A critical property of an activity or operation

Question 18

Availability

Answer 18

That time or percentage of time that a resource unit or activity center is ready to process or be activated.

Question 19

Backlog

Answer 19

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.

Question 20

Backroom Costs

Answer 20

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.

Question 21

Batch

Answer 21

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.

Question 22

Benchmarking

Answer 22

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:

Question 23

Best Practice

Answer 23

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.

Question 24

Bill of Material (BoM)

Answer 24

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.

Question 25

Blockage

Answer 25

Prevention of a processing unit to produce more units because of inadequate storage space or lack of authorization to produce

Question 26

Blue Sky

Answer 26

Goodwill associated with an acquisition of a company or asset.

Question 27

Borrowings

Answer 27

Debt

Question 28

Buffers

Answer 28

Inventory between processing or activity units.

Question 29

Building to Customer Order vs. Building to Forecast

Answer 29

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.

Question 30

Burden

Answer 30

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.

Question 31

CAD

Answer 31

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.

Question 32

CAM

Answer 32

Computer aided manufacturing (often used synonymously with CAD) is a similar process of generating manufacturing processes electronically.

Question 33

Capacity

Answer 33

For a process or activity, the maximum THROUGHPUT that can be sustained.

Question 34

Capital Expenditure (CAPEX. Capital)

Answer 34

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.

Question 35

Cash Flow

Answer 35

The beginning and ending net cash as a result of cash that has flowed through an operation over a given period of time.

Question 36

Centralization

Answer 36

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.

Question 37

CIM

Answer 37

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.

Question 38

Classification

Answer 38

The designation of the job function that an employee is proficient in and assigned to, e.g. machinist, welder, assembler.

Question 39

CNC

Answer 39

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.

Question 40

Coefficients of Variation

Answer 40

The ratio of the standard deviation to the mean for statistical demands & processes. See P-K Formula

Question 41

Contribution Margin

Answer 41

Sales minus the variable costs?the contribution of a sale to the fixed costs of an operation

Question 42

Control Charts

Answer 42

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.

Question 43

Correlated Demands

Answer 43

Implies that aggregated demand would have less variability than separate demands because of correlation among demands.

Question 44

Cost of Goods Sold (COGS)

Answer 44

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.

Question 45

Cost of Sales (COS)

Answer 45

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”.

Question 46

Critical Path

Answer 46

That path through a process or activity system that has the longest theoretical flow time (see flow time).

Question 47

Current

Answer 47

Meaning in the present period. Current assets mean cash, AR, inventories, and all accrued benefits on a balance sheet for the current time period.

Question 48

Customer Satisfaction

Answer 48

A term in Total Quality Management that implies the degree to which customers are pleased with a product or service.

Question 49

Days (Days Outstanding)

Answer 49

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.

Question 50

DCF

Answer 50

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.

Question 51

Debt

Answer 51

Monies owed by a company or plant

Question 52

Demand

Answer 52

Customer requirements measured in production or sales per unit time

Question 53

Depreciation

Answer 53

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.

Question 54

DFM

Answer 54

Design for manufacturing. The process by which designs are completed mindful of the cost of manufacturing.

Question 55

Dies

Answer 55

Those special forms that are used in general purpose equipment to make specific parts. See tooling also.

Question 56

Direct

Answer 56

Usually associated with functions that are directly associated with the production of a part.

Question 57

Direct Labor

Answer 57

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.

Question 58

Direct Material Purchasing

Answer 58

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.

Question 59

Disability

Answer 59

That limitation of capacity that is covered by the American Disabilities Act or that limits a function in a plant or company.

Question 60

Discounted Cash Flow (DCF)

Answer 60

The process by which a stream of cash is related to its value at present by discounting future cash flows by an interest rate.

Question 61

Dispute Resolution

Answer 61

The process of arbitration, mediation, or other means to settle disputes without going to court.

Question 62

Distribution

Answer 62

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.

Question 63

Dividends

Answer 63

Distribution of monies to shareholders from company cash flow

Question 64

Decoupling

Answer 64

Implies that through buffers and inventory, processes in a product line can operate relatively independently of the each other.

Question 65

EBIT

Answer 65

Earnings before interest and taxes.

Question 66

EBITDA

Answer 66

Earnings before interest, taxes, amortization, and depreciation. The single most used measure in valuing companies. It represents free cash flow quite accurately.

Question 67

Economies of Scale

Answer 67

The unit cost reduction that accrues from larger volume production or distribution of similar products or products produced in similar operations.

Question 68

Economic Order Quantity (EOQ)

Answer 68

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)

Question 69

EEOC

Answer 69

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.

Question 70

Effective

Answer 70

Adjective denoting real capacity of a processing unit is fully utilized when it was available.

Question 71

Efficiency

Answer 71

Measure of total processing cost of an activity or process.

Question 72

EPS

Answer 72

Earnings per share of common stock for a company

Question 73

Equipment

Answer 73

Those assets that are used to produce product in a manufacturing or operating environment

Question 74

Equity

Answer 74

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.

Question 75

ER&D

Answer 75

Engineering, Research, and Development–usually appearing on the income statement of a company implying development costs for new products.

Question 76

ERP:

Answer 76

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.

Question 77

Error Proofing (Poka Yoka)

Answer 77

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.

Question 78

EVA

Answer 78

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.

Question 79

Expected Value

Answer 79

In probability theory the mean value expected at any time or over a specified set of random variables.

Question 80

FASB

Answer 80

The Financial Accounting Standards Board is a private-sector body that determines generally accepted accounting standards in the United States.

Question 81

File Folder (PARTS)

Answer 81

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.

Question 82

Fill Rate

Answer 82

Fraction of total demand satisfied by inventory on hand.

Question 83

Finished Goods

Answer 83

Finished goods inventory consists of goods that have been completed and are awaiting sale. Finished goods are valued at the cost of sales.

Question 84

Five S’s: Toyota defines the fives S (for keeping an operation clean)

Answer 84

1. Seison: Maintaining a clean plant
2. Seiton: Ordered placement & identification of all parts & work items
3. Sheiri: Identifying & separating necessary from unnecessary items
4. Seiketsu: Maintaining Seiri, Seiton, & Seison
5. Shitsuke: Instilling Seiri, Seiton, Seison, & Seiketsu in workforce

Question 85

Five Why’s

Answer 85

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.

Question 86

Fixed Cost

Answer 86

That set of costs in an operation that does not vary with production volume.

Question 87

Fixtures

Answer 87

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.

Question 88

Flow Shop

Answer 88

An operation that produces products at volume in a continuous flow or by a well-defined, connected sequence of activities or processes.

Question 89

Flow Time

Answer 89

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.

Question 90

Flow Time Efficiency

Answer 90

The ratio of theoretical flow time to the actual flow time through a process.

Question 91

FMEA

Answer 91

Failure mode and effects analysis–the process by which failures are hypothesized, valued, and corrected.

Question 92

Foreword Buying

Answer 92

Buying of materials in advance of need.

Question 93

Forecast

Answer 93

Usually the prediction of customer sales and the subsequent manufacturing schedule.

Question 94

Forklift

Answer 94

A general-purpose small truck for lifting and transporting materials and containers in a plant; not conducive to lean operations

Question 95

Fringes (Fringe benefits)

Answer 95

Employee non-cash compensation such as medical coverage, insurance, etc.

Question 96

Goodwill

Answer 96

The excess of the cost of an acquired company over the book value. Intangible values on a company balance sheet.

Question 97

Grievance

Answer 97

A formal complaint filed by a union member against a company. The resolution of grievances is a formal process also defined by contract.

Question 98

Gross Margin

Answer 98

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.

Question 99

Hazmat

Answer 99

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.

Question 100

Heijunka (Goal Congruency)

Answer 100

The Deployment of matched goals throughout the organization

Question 101

Indirect Costs

Answer 101

All costs that are not direct costs. Usually associated with the functions in an operation that may be necessary to support direct production.

Question 102

Indirect Labor

Answer 102

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.

Question 103

Inputs

Answer 103

The material or products that are presented or flow into an activity.

Question 104

Internal Rate of Return

Answer 104

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.

Question 105

IRR

Answer 105

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.

Question 106

ISO 9000

Answer 106

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.

Question 107

ISO Certification

Answer 107

Denotes that a firm or plant has received an ISO quality standard. Also, it is the process by which a firm achieves such certification.

Question 108

Inventory

Answer 108

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.

Question 109

Jidoka

Answer 109

The principle of stopping work (or the line) when there is a quality problem- the process for correcting that problem

Question 110

JIT

Answer 110

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.

Question 111

Job Shop

Answer 111

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.

Question 112

Kaizen

Answer 112

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

Question 113

Kanban

Answer 113

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.

Question 114

Layoff

Answer 114

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.

Question 115

Labor

Answer 115

The workforce in a plant, the people activity that produces value in a product stream.

Question 116

Lead Time

Answer 116

Time that is required to fill an order or meet customer demand.

Question 117

Lean

Answer 117

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

Question 118

Leveled Production

Answer 118

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.

Question 119

Liabilities

Answer 119

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.

Question 120

Life Cycle Costing

Answer 120

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.