Section J

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

stock keeping unit (SKU)

An inventory item.

wall-to-wall inventory

An inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area.

general and administrative expenses

the category of expenses on an income statement that includes the costs of general managers, computer systems, research and development, etc

product cost

Cost allocated by some method to the products being produced. Initially recorded in asset (inventory) accounts, product costs become an expense (cost of sales) when the product is sold.

service parts

"those modules, components, and elements that are planned to be used without modification to replace an original part

value added

1) In accounting, the addition of direct labor, direct material, and allocated overhead assigned at an operation. It is the cost roll-up as a part goes through a manufacturing process to finished inventory.

Safety stock

1) In general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply.

Transportation inventory

: Inventory that is in transit between locations.

Maintenance, repair, and operating (MRO) supplies

: Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations.

Job costing

A cost accounting system in which costs are assigned to specific jobs

hedge inventory

A form of inventory buildup to buffer against some event that may not happen

Work in process (WIP

A good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory

on-time schedule performance

A measure (percentage) of meeting the customer's originally negotiated delivery request date.

level of service

A measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers' requested delivery dates and quantities.

stockout percentage

A measure of the effectiveness with which a company responds to actual demand or requirements

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.

Cost of goods sold (COGS

An accounting classification useful for determining the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.

liabilities

An accounting/financial term (balance sheet classification of accounts) representing debts or obligations owed by a company to creditors

decoupling inventory

An amount of inventory maintained between entities in a manufacturing or distribution network to create independence between processes or entities

Capital costs

Capital cost, also called the cost of capital reflects the opportunity cost of carrying inventory

Pipeline stock

Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points

Transit inventory

Inventory in transit between manufacturing and stocking locations.

Risk costs

Inventory might be perishable, in which case it could spoil, but even nonperishable inventory can suffer from deterioration such as damage from rot or evaporation. Another risk is obsolescence. When new and improved products come on the market, the old model loses value. Some products lose value simply because tastes change. Transportation and materials handling also pose a risk of product damage. Goods may be subject to pilferage, which includes theft as well as goods that are misplaced. The cost of insurance for the inventory may be included. Perishable goods, innovative technology, and items with a high street value can have high risk costs, while other products will have low risk costs. Estimates of the types of risks are made by product, and an average percentage risk cost is determined.

Fluctuation inventory

Inventory that is carried as a cushion to protect against forecast error

Lot-size inventory

Inventory that results whenever quantity price discounts, shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes

Inventory buffer

Inventory used to protect the throughput of an operation or the schedule against the negative effects caused by delays in delivery, quality problems, delivery of an incorrect quantity, and so on.

Distribution inventory

Inventory, usually spare parts and finished goods, located in the distribution system

days of supply

Inventory-on-hand metric converted from units to how long the units will last

Direct labor

Labor that is specifically applied to the good being manufactured or used in the performance of the service.

In-transit inventory

Material moving between two or more locations, usually separated geographically; for example, finished goods being shipped from a plant to a distribution center.

Direct material

Material that becomes a part of the final product in measurable quantities.

Production control costs

The cost of issuing, closing, scheduling, loading, dispatching, moving, and expediting open orders.

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.

stockout costs

The costs associated with a stockout.

Raw material

Purchased items or extracted materials that are converted via the manufacturing process into components and products.

Setup costs

Setup goes from the last good part of the prior operation to the first good part of the next operation, so it includes teardown costs.

Storage costs

Storage costs reflect the fact that warehouses cost money—for the land, the building, the material-handling equipment, the labor, and the overhead, such as utilities.

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

ordering costs

The costs that increase as the number of orders placed increases.

Variance

The difference between the expected (budgeted or planned) value and the actual

profit margin

The difference between the sales and cost of goods sold for an organization, sometimes expressed as a percentage of sales

Gross margin

The difference between total revenue and the cost of goods sold.

cash flow

The net flow of dollars into or out of the proposed project. The algebraic sum, in any time period, of all cash receipts, expenses, and investments. Also called cash proceeds or cash generated.

inventory turnover

The number of times that an inventory cycles, or "turns over," during the year.

velocity

The rate of change of an item with respect to time.

Fixed overhead

Traditionally, all manufacturing costs—other than direct labor and direct materials— that continue even if products are not produced.

Standard costs

The target costs of an operation, process, or product including direct material, direct labor, and overhead charges.

Finished goods inventory

Those items on which all manufacturing operations, including final test, have been completed.

inventory

Those stocks or items used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts).

unit cost

Total labor, material, and overhead cost for one unit of production (e.g., one part, one gallon, one pound).

Lost capacity cost.

Whenever another order is placed, the setup time reduces the available run time for the work center, so it is an opportunity cost related to capacity.

income statement

a financial statement showing the net income for a business over a given period of time.

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

generally accepted accounting principles

accounting practices that conform to conventions, rules, and procedures that are generally accepted by the accounting profession.

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.

owners' equity

an accounting/financial term (balance sheet classification of accounts) representing the residual claim by the company's owners or shareholders, or both, to the company's assets less its liabilities.

total costs

considering all cost impacts, rather than just one cost impact, on customer service improvement."

capacity-related costs

costs generally related to increasing (or decreasing) capacity in the medium- to long-range time horizon.

Cycle stock

depletes gradually as customer orders are received and is replenished cyclically when supplier orders are received

Overhead :

he costs incurred in the operation of a business that cannot be directly related to the individual goods or services produced

seasonal inventory

inventory built up to smooth production in anticipation of a peak seasonal demand.

inventory management

the branch of business management concerned with planning and controlling inventories