CSCP Module 2

Line haul costs

Basic costs of carrier operation to move a container of freight, including driver's wages and usage depreciation. These vary with the cost per mile, the distance shipped, and the weight moved.

Collaborative planning, forecasting, and replenishment (CPFR)

1) A collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. It encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods. 2) A process philosophy for facilitating collaborative communications. It is considered a standard, endorsed by the Voluntary Interindustry Commerce Standards.

Stock keeping unit (SKU)

1) An inventory item. For example, a shirt in six colors and five sizes would represent 30 different items. 2) In a distribution system, an item at a particular geographic location. For example, one product stocked at the plant and at six different distribution centers would represent seven items.

Waste

1) Any activity that does not add value to the good or service in the eyes of the consumer. 2) A by-product of a process or task with unique characteristics requiring special management control. Some of this can usually be planned and somewhat controlled. Scrap is typically not planned and may result from the same production run.

Waste exchange

1) Arrangement in which companies transfer their wastes for the benefit of both parties. 2) A transfer service of valuable information between generators and potential users of industrial and commercial wastes, whereby a beneficial use rather than disposal is the end result. This service identifies both the producers and potential markets for by-products, surpluses, unspent materials and other forms of solid waste that is no longer needed.

Pull system

1) In production, the production of items only as demanded for use or to replace those taken for use. 2) In material control, the withdrawal of inventory as demanded by the using operations. Material is not issued until a signal comes from the user. 3) In distribution, a system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant.

Distribution requirements planning (DRP)

1) The function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse level are "exploded" via MRP logic to become gross requirements on the supplying source. In the case of multilevel distribution networks, this explosion process can continue down through the various levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to the master production schedule. Demand on the supplying sources is recognized as dependent, and standard MRP logic applies. 2) More generally, replenishment inventory calculations, which may be based on other planning approaches such as period order quantities or "replace exactly what was used," rather than being limited to the time-phased order point approach.

Demand management

1) The function of recognizing all demands for goods and services to support the marketplace. It involves prioritizing demand when supply is lacking. Proper organization facilitates the planning and use of resources for profitable business results. 2) In marketing, the process of planning, executing, controlling, and monitoring the design, pricing, promotion, and distribution of products and services to bring about transactions that meet organizational and individual needs.

Waste hierarchy

A tool that ranks waste management options according to what is most environmentally sound. It gives top priority to preventing waste in the first place, and can be applied to various applications.

Landed cost

This cost includes the product cost plus the costs of logistics, such as warehousing, transportation, and handling fees.

Third-party logistics (3PL)

A buyer and supplier team with a third party that provides product delivery services. This third party may provide added supply chain expertise

Single-source supplier

A company that is selected to have 100 percent of the business for a part although alternate suppliers are available.

Reverse logistics

A complete supply chain dedicated to the reverse flow of products and materials for the purpose of returns, repair, remanufacture, and/or recycling.

Strategic sourcing

A comprehensive approach for locating and procuring key material suppliers, which often includes the business process of analyzing total-spend-for-material spend categories. There is a focus on the development of long-term relationships with trading partners who can help the purchaser meet profitability and customer satisfaction goals. From an information technology applications perspective, strategic sourcing includes automation of request for quote (RFQ), request for proposal (RFP), electronic auctioning (e-auction or reverse auction), and contract management processes.

Supplier relationship management (SRM)

A comprehensive approach to managing an enterprise's interactions with the organizations that supply the goods and services the enterprise uses. The goal of this approach is to streamline and make more effective the processes between an enterprise and its suppliers. It is often associated with automating procure-to-pay business processes, evaluating supplier performance, and exchanging information with suppliers. An e-procurement system often comes under the umbrella of a family of applications.

Plan-do-check-action (PDCA)

A four-step process for quality improvement. In the first step, a strategy to effect improvement is developed. In the second step, the strategy is carried out, preferably on a small scale. In the third step, the effects of the strategy are observed. In the last step, the results are studied to determine what was learned and what can be predicted. This cycle is sometimes referred to as the Shewhart cycle (because Walter A. Shewhart discussed the concept in his book Statistical Method from the Viewpoint of Quality Control) and as the Deming circle (because W. Edwards Deming introduced the concept in Japan; the Japanese subsequently called it the Deming circle)

Product family

A group of products or services that pass through similar processing steps, characteristics, and common equipment prior to shipment or delivery to the customer. These products can be overlapping different groups of products or services which are produced in one factory and often used in production planning (or sales and operations planning).

Anticipation inventories

Additional inventories above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations.

Master production schedule (MPS)

A line on the master schedule grid that reflects the anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this, and in turn, it becomes a set of planning numbers that drives material requirements planning. It represents what the company plans to produce expressed in specific configurations, quantities, and dates. It is not a sales item forecast that represents a statement of demand. It must take into account the forecast, the production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals.

Blanket purchase order

A long-term commitment to a supplier for material against which short-term releases will be generated to satisfy requirements. Often these cover only one item with predetermined delivery dates.

Customer relationship management (CRM)

A marketing philosophy based on putting the customer first. The collection and analysis of information designed for sales and marketing decision support (as contrasted to enterprise resources planning information) to understand and support existing and potential customer needs. It includes account management, catalog and order entry, payment processing, credits and adjustments, and other functions

Vendor-managed inventory (VMI)

A means of optimizing supply chain performance in which the supplier has access to the customer's inventory data and is responsible for maintaining the inventory level required by the customer. This activity is accomplished by a process in which resupply is done by the vendor through regularly scheduled reviews of the on-site inventory. The on-site inventory is counted, damaged or outdated goods are removed, and the inventory is restocked to predefined levels. The vendor obtains a receipt for the restocked inventory and accordingly invoices the customer.

Kanban

A method of Just-in-Time production that uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centers signal with a card that they wish to withdraw parts from feeding operations or suppliers. The term, loosely translated, means card, billboard, or sign but other signaling devices such as colored golf balls have also been used. The term is often used synonymously for the specific scheduling system developed and used by the Toyota Corporation in Japan.

Risk pooling

A method often associated with the management of inventory risk. Manufacturers and retailers that experience high variability in demand for their products can pool together common inventory components associated with a broad family of products to buffer the overall burden of having to deploy inventory for each discrete product.

Portal

A multiservice website that provides access to data that may be secured by each user's role. Users can aggregate data and perform basic analysis. Ownership can be independent, private, or consortium-based. Business versions are often connected with a customer relationship management or supplier relationship management system. These can include structured data, such as ERP information, pictures, and documents. Unlike exchanges or marketplaces, these generally can display and aggregate data without integration between application software.

Time fence

A policy or guideline established to note where various restrictions or changes in operating procedures take place. For example, changes to the master production schedule can be accomplished easily beyond the cumulative lead time, while changes inside the cumulative lead time become increasingly more difficult to a point where changes should be resisted. This guideline can be used to define these points.

Seasonality

A predictable repetitive pattern of demand measured within a year where demand grows and declines. These patterns are calendar related and can appear annually, quarterly, monthly, weekly, daily and/or hourly.

Sales and operations planning (S&OP)

A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level. The process must reconcile all supply, demand, and new-product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company's plans for the near to intermediate term, covering a horizon sufficient to plan for resources and to support the annual business planning process. Executed properly, the process links the strategic plans for the business with its execution and reviews performance measurements for continuous improvement.

Assemble-to-order

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.

Make-to-order

A production environment where a good or service can be made after receipt of a customer's order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer.

Make-to-stock

A production environment where products can be and usually are finished before receipt of a customer order. Customer orders are typically filled from existing stocks, and production orders are used to replenish those stocks.

Level strategy

A production planning method that maintains a stable production rate while varying inventory levels to meet demand.

Strategic alliance

A relationship formed by two or more organizations that share information (proprietary), participate in joint investments, and develop linked and common processes to increase the performance of both companies. Many organizations form these arrangements to increase the performance of their common supply chain.

Rapid replenishment

A replenishment strategy in which the supplier prepares shipments at predetermined intervals and varies the quantity based on recent sales data. Sales data may be supplied via a point-of-sale system.

Data warehouse

A repository of data that has been specially prepared to support decision-making applications.

Incoterms®

A set of rules established by the International Chamber of Commerce that provides internationally recognized rules for the interpretation of the most commonly used trade terms in foreign trade and are routinely incorporated in the contracts for the sale of goods worldwide to provide guidance to all parties involved in the transaction.

Material requirements planning (MRP)

A set of techniques that uses bill of material data, inventory data, and the master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for material. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. The time-phased version of this begins with the items listed on the MPS and determines (1) the quantity of all components and materials required to fabricate those items and (2) the date that the components and materials are required. This time-phased approach is accomplished by exploding the bill of material, adjusting for inventory quantities on hand or on order, and offsetting the net requirements by the appropriate lead times.

Automatic identification and data capture (AIDC)

A set of technologies that collect data about objects and then send these data to a computer without human intervention. Examples include radio frequency wireless devices and terminals, bar code scanners, and smart cards.

Quick-response program (QRP)

A system of linking final retail sales with production and shipping schedules back through the chain of supply; employs point-of-sale scanning and electronic data interchange, and may use direct shipment from a factory to a retailer.

Private trading exchange (PTX)

A trade exchange hosted by a single company to facilitate collaborative e-commerce with its trading partners. As opposed to public e-marketplaces, this type of exchange provides the host company with control over many factors, including who many participate (and in what manner), how participants may be connected, and what contents should be presented (and to whom). The ultimate goal might be to improve supply chain efficiencies and responsiveness through improved process visibility and collaboration, advanced integration platforms, and customization capabilities.

Globally harmonized system of classification and labeling of chemicals (GHS)

An International standard, created by the United Nations Economic Commission for Europe (UNECE), for classifying chemicals according to their health, physical and environmental hazards. The system defines and classifies the hazards of chemical products, and communicates health and safety information on labels and material safety data sheets

Trade bloc

An agreement between countries intended to reduce or remove barriers to trade within member countries. Frequently, but not always, those countries are geographically close. Examples of trade blocs are the European Economic Community and the North American Free Trade Agreement (NAFTA).

Joint venture

An agreement between two or more firms to risk equity capital to attempt a specific business objective.

Safety lead time

An element of time added to normal lead time to protect against fluctuations in lead time so that an order can be completed before its real need date. When used, the MRP system will plan both order release and order completion for earlier dates than it would otherwise

Harmonized system classification codes

An internationally standardized description of goods that uses a system of numbers to provide increasingly detailed classification and descriptions.

Reverse auction

An internet auctionin which suppliers attempt to underbid their competitors. Company identities are known only by the buyer.

Tariff

An official schedule of taxes and fees imposed by a country on imports or exports.

Horizontal marketplace

An online marketplace used by buyers and sellers from multiple industries. This marketplace lowers prices by lowering transaction costs.

Consortia trade exchanges (CTX)

An online marketplace, usually owned by a third party, that allows members to trade with each other. This site lowers members search costs and enables lower prices for the buyer.

Virtual trading exchange

An online trading exchange that enables both information integration and collaboration between multiple trading partners.

Payment terms

Conditions surrounding payment for a sale, providing a time frame in which a customer can pay without late penalties or additional fees.

Supplier certification

Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customer's requirements. Such requirements can include cost, quality, delivery, flexibility, maintenance, safety, and ISO quality and environmental standards.

Joint replenishment system

Coordinating the lot sizing and order release decision for related items and treating them as a family of items. The objective is to achieve lower costs because of ordering, setup, shipping, and quantity discount economies. This term applies equally to joint ordering (family contracts) and to composite part (group technology) fabrication scheduling.

Free/foreign trade zone (FTZ)

Designated areas within a country which are considered to be outside of the country. Material in the zone is not subject to duties and taxes until the material is moved outside the zone for consumption. There is no limit on the time material may remain in the zone.

Safety stock

In general, a quantity of inventory planned to be on hand to protect against fluctuations in demand or supply. In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. Overplanning can be used to create this buffer.

Market demand

In marketing, the total demand that would exist within a defined customer group in a given geographical area during a particular time period given a known marketing program.

Total cost of ownership (TCO)

In supply chain management, this is the sum of all the costs associated with every activity of the supply stream. The main insight that this measure offers to the supply chain manager is the understanding that the acquisition cost is often a very small portion of overall costs.

Harmonized tariff schedule (HTS)

The mechanism by which international tariffs are standardized. Importers and Exporters use them to determine the amount of tariff to pay and must classify all goods moved across international borders using the system of the country of import.

Business intelligence

Information collected by an organization on customers, competitors, products or services, and processes. It provides organizational data in such a way that the organizational knowledge filters can easily associate with this data and turn it into information for the organization. Persons involved in these processes may use application software and other technologies to gather, store, analyze, and provide access to data, and present that data in a simple, useful manner. The software aids in business performance management and aims to help consumers make better business decisions by offering them accurate, current, and relevant information. Some businesses use data warehouses because they are a logical collection of information gathered from various operational databases for the purpose of creating this.

Pipeline inventory

Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points. The flow time through the system has a major effect on the amount of inventory required. Time factors involve order transmission, order processing, scheduling, shipping, transportation, receiving, stocking, review time, and so forth.

Distribution inventory

Inventory, usually spare parts and finished goods, located in the distribution system (e.g., in warehouses, in-transit between warehouses and the consumer.)

Cross-selling

Occurs when customers buy additional products or services after the initial purchase.

Fourth-party-logistics (4PL)

Often a separate entity formed by a joint venture or other long-term contract between a client and one or more partners. The entity, or organization, is an interface between the client and multiple logistics services providers. Ideally, all aspects of the client's supply chain are managed by this organization.

Interplant demand

One plant's need for a part or product that is produced by another plant or division within the same organization. Although it is not a customer order, it is usually handled by the master production scheduling system in a similar manner.

Demand forecasting

Predicting the need for a particular good, component, or service.

Multisourcing

Procurement of a good or service from more than one independent supplier.

Mix forecast

Projection of the proportion of products that will be sold within a given product family, or the proportion of options offered within a product line. Product and option mix as well as aggregate product families must be projected. Even though the appropriate level of units is forecasted for a given product line, an inaccurate projection can create material shortages and inventory problems.

Sole-source supplier

The only supplier capable of meeting (usually technical) requirements for an item.

Subcontracting

Sending production work outside to another manufacturer.

Alliance development

Strengthening the capabilities of a key supplier.

Global trade management

The management and optimization of shipments across international borders including: ensuring compliance with all international regulations and documentation, streamlining and accelerating the movement of goods, to improve operating efficiencies and cash flows.

Planning horizon

The amount of time a plan extends into the future. For a master schedule, this is normally set to cover a minimum of cumulative lead time plus time for lot sizing low-level components and for capacity changes of primary work centers or of key suppliers. For longer term plans it must be long enough to permit any needed additions to capacity.

Cross-docking

The concept of packing products on the incoming shipments so they can be easily sorted at intermediate warehouses or for outgoing shipments based on final destination. The items are carried from the incoming vehicle docking point to the outgoing vehicle docking point without being stored in inventory at the warehouse. It reduces inventory investment and storage space requirements.

Independent demand

The demand for an item that is unrelated to the demand for other items. Examples include demand for finished goods, parts required for destructive testing, and service parts requirement.

Inventory visibility

The extent to which inventory information is shared within a firm and with supply chain partners.

Electronic data interchange (EDI)

The paperless (electronic) exchange or trading documents, such as purchase orders, shipment authorizations, advanced shipment notices, and invoices, using standardized document formats.

Reverse supply chain

The planning and controlling of the processes of moving goods from the point of consumption back to the point of origin for repair, reclamation, recycling, or disposal.

Demand planning

The process of combining statistical forecasting techniques and judgment to construct estimates for products or services (both high and low volume; lumpy and continuous) across the supply chain from the suppliers' raw materials to the consumer's needs. Items can be aggregated by product family, geographical location, product life cycle, and so forth, to determine an estimate of consumer demand for finished products, service parts, and services. Numerous forecasting models are tested and combined with judgment from marketing, sales, distributors, warehousing, service parts, and other functions. Actual sales are compared with forecasts provided by various models and judgments to determine the best integration of techniques and judgment to minimize forecast error.

Outsourcing

The process of having suppliers provide goods and services that were previously provided internally. It involves substitution the replacement of internal capacity and production by that of the supplier.

Tactical buying

The purchasing process focused on transactions and nonstrategic material buying. It is closely aligned with the "ordering" portion of executing the purchasing transaction process. The characteristics include stable, limited fluctuations, defined standard specifications, noncritical to production, no delivery issues, and high reliability concerning quality-standard material with very little concern for rejects.

Total cost to serve

The sum of the supply chain cost to deliver products and services to customers. Total cost to serve includes the cost to: plan the supply chain, source materials, products, goods, merchandize and services, produce, manufacture, remanufacture, refurbish, repair and maintain goods and services, manage orders, customer inquiries and returns, and deliver products and services at the agreed location (point of revenue). Total cost to serve comprises both direct cost and indirect cost.

Demand pull

The triggering of material movement to a work center only when that work center is ready to begin the next job. In effect, it shortens or eliminates the queue at the end of a previous work center. It can also occur within a supply chain, in which case it often is called a demand chain.

Ordering cost

Used in calculating order quantities, the costs that increase as the number of orders placed increases. It includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable.

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 stock 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.