Term
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Definition
| the costs of inspection, testing, measuring, and other activities designed to ensure conformance of the product or service |
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Term
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Definition
| assumes, of necessity, a certain minimum measure of suitability but considers ultimate customer needs, cost and pro curability, transportation, and disposal as well |
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Term
| Common or Chance Causes of Variation |
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Definition
| intrinsic to the process; will always be there unless the process is changed |
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Term
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Definition
| sometimes called by its Japanese name, kaizen, refers to the relentless pursuit of product and process improvement through a series of small, progressive steps |
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Term
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Definition
| adjusts the Cp for the effect of non-centered distribution |
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Term
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Definition
| incurred when poor-quality goods or services are passed on to the customer and include costs of returns, warranty costs, and management time handling customer complaints |
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Term
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Definition
| the action(s) that an item or service is designed to perform |
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Term
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Definition
| the costs incurred within the operating system as a result of poor quality |
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Term
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Definition
| the motivation to work hard and well may be replaced by a "don't care" attitude |
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Term
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Definition
| foolproof, simple devices that permit inexpensive, rapid 100% inspection to ensure zero defects, for example, a three prong power cable connector that can only be inserted in the proper manner |
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Term
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Definition
| all activities that eliminate the occurrence of future defects |
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Term
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Definition
| when there are no special or assignable causes of variation, only common or chance causes, a process is capable of meeting specifications consistently; the process is in statistical control or stable and predictable |
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Term
| Process Capability Index (Cp) |
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Definition
| combines process spread and tolerance into one index and indicates whether process variation is satisfactory |
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Term
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Definition
| a key aspect of TQM; a method of monitoring a process using quality control charts to prevent defects |
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Term
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Definition
| conformance to specifications; in the total quality management context, quality represents a combination of corporate philosophy and quality tools directed toward satisfying customer needs |
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Term
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Definition
| in processes using repetitive operations, the quality control chart. The output can be measured by tracking a mean and dispersion. The (X-bar) chart is useful for charting the population means and the R chart the dispersion |
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Term
| Quality Function Deployment (QFD) |
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Definition
| an important aspect of TQM; it is a method for developing higher-quality new products at less cost and in less time |
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Term
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Definition
| every element in the population has an equal chance of being selected |
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Term
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Definition
| the mathematical probability that a product will function for a stipulated period of time |
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Term
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Definition
| a small number of items, selected from a larger group or population of items, that is representative of the total population being tested; results of testing or inspecting the sample are used to accept or reject the entire batch or lot |
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Term
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Definition
| based on the cumulative effect of information that every additional item in the sample adds as it is inspected |
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Term
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Definition
| supplier options exist, but the decision is made to source the entire requirement from only one supplier |
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Term
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Definition
| an approach to quality that focuses on preventing defects by using data to reduce variation and waste; means there are no more than 3.4 defects per million opportunities |
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Term
| Special/Assignable Causes of Variation |
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Definition
| outside, nonrandom problems such as breakdown of machinery, material variation, or human error that must be identified and eliminated |
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Term
| Statistical Process Control (SPC) |
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Definition
| a technique that involves testing a random sample of output from a process in order to detect if nonrandom, assignable, changes in the process are occurring |
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Term
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Definition
| the ability of a material, good, or service to meet the intended functional use |
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Term
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Definition
| a process of evaluating and recognizing the quality performance of an organization's suppliers in order to reduce or eliminate incoming inspection |
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Term
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Definition
| the allowable difference between a physical feature and its intended design |
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Term
| Total Quality Management TQM) |
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Definition
| a philosophy and system of management focused on long-term success through customer satisfaction |
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Term
| Upper and Lower Control Limits |
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Definition
| Upper (UCL) and lower (LCL) control limits can be set so that operator action is required only when the process or machine starts to fall outside of its normal desirable operating range |
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Term
| Upper & Lower Specification Limit |
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Definition
| the minimum and maximum acceptable level of output. Design engineers establish these based on a specific design function, independent of any process. |
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Term
| Anticipation or Certainty Inventories |
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Definition
| accumulated for a well-defined future need, for example seasonal inventories |
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Term
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Definition
| uses info rom the engineering and/or process records to detail the subcomponents necessary to manufacture one finished item |
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Term
| Buffer or Uncertainty Inventories or Safety Stocks |
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Definition
| exist as a result of variability in demand or supply |
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Term
| Capacity Requirements Planning (CRP) |
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Definition
| capacity is how much work can be done in a set amount of time; CRP translates the MRP plan into the required human and machine resources by workstation and time bucket and compares the required resources against available resources |
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Term
| Carrying, Holding, or Possession Costs |
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Definition
| any cost associated with having, as opposed to not having, inventory, including handling charges; the cost of storage facilities or warehouse rentals; the cost of equipment to handle inventory; storage, labor, and operating costs; insurance premiums; breakage; pilferage; obsolescence; taxes; and investment or opportunity costs |
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Term
| Casual Forecasting Models |
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Definition
| one class of quantitative forecasting techniques that tries to identify leading indicators, from which linear or multiple regression models are developed |
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Term
| Collaborative Planning, Forecasting and Replenishment (CPFR) |
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Definition
| one example of a business practice in which multiple trading partners agree to exchange knowledge and share risks to generate the most accurate forecast possible and develop effective replenishment plans. It links sales and marketing processes to supply chain planning and execution processes |
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Term
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Definition
| arise because of management's decision to purchase, produce, or sell in lots rather than individual units or continuously; accumulate at various points in operating systems |
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Term
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Definition
| make it possible to carry on activities on each side of a major process linkage point independently of each other |
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Term
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Definition
| a formal approach to qualitative forecasting |
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Term
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Definition
| the item is part of a larger component or product, and its use is dependent on the production schedule for the larger component |
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Term
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Definition
| dependent demand items are said to be derived because their use is dependent on a larger component |
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Term
| Economic Order Quantity (EOQ) |
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Definition
| a lot-sizing technique that balances inventory holding and setup (or order) costs by using the EOQ's formula to set lot sizes, which requires estimates for annual demand, inventory holding costs, and setup (or order) costs |
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Term
| Enterprise Resource Planning (ERP) Systems |
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Definition
| software that allows all areas of the company--manufacturing, finance, sales, marketing, human resources, and supply--to combine and analyze information |
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Term
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Definition
| orders are placed only at review time |
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Term
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Definition
| orders are placed when the reorder point is reached |
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Term
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Definition
| the usage of the inventory item is not driven by the production schedule and is determined directly by customer orders, the arrival of which is independent of production scheduling decisions |
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Term
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Definition
| contains information such as open orders, lead times, and lot-size policy so that the quantity and timing of orders can be calculated |
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Term
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Definition
| components, raw materials, and services arrive at work centers exactly as they are needed |
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Term
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Definition
| materials arrive when they were scheduled to arrive |
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Term
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Definition
| Japanese word translating into card visual; a simple but effective control system used to plan the timing and quantity of purchased materials and internally manufactured materials that helps make JIT production work; double-card systems use conveyance and production cards; single-card systems use only the C |
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Term
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Definition
| an approach where relationships with suppliers are managed based on a long-term prospective to eliminate waste and add value |
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Term
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Definition
| a management philosophy focused on eliminating seven forms of wast: (1) overproduction, (2) waiting, time in queue, (3) transportation, (4) non-value-adding processes, (5) inventory, (6) motion, and (7) costs of quality: scrap, rework and inspection |
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Term
|
Definition
| a dynamic lot-sizing method that compares the cost implications of various lot-sizing alternatives and selects the lot size that provides the least total cost |
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Term
|
Definition
| a dynamic lot-sizing method which factors inventory holding and setup (or order) costs into the unit cost |
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Term
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Definition
| the most common lot sizing technique based on producing net requirements for each period; it does not take into account setup costs, carrying costs, or capacity limitations |
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Term
| Manufacturing Resource Planning (MRP II) |
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Definition
| links the firm's planning processes with the financial system to combine the capability of "what if" production scenario testing with financial and cash flow projections to help achieve the sales and profitability objectives of the firm |
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Term
| Master Production Schedule |
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Definition
| the requirements forecast by time period which details how many end items are to be produced during a specified time period |
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Term
| Material Requirements Planning (MRP) System |
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Definition
| used to plan the timing and quantity of purchased materials and internally manufactured materials to meet the needs of the master production schedule |
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Term
| Ordering or Purchase Costs |
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Definition
| include the managerial, clerical, material, telephone, mailing, fax, e-mail, accounting, transportation, inspection, and receiving costs associated with a purchase or production order |
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Term
|
Definition
| often called the 80-20 rule or ABC analysis; where A is about 70-80 percent of dollars and 10% of items in inventory, B is 10-15% of dollars and 10-20% of items, and C is 10-20% of dollars and 70-80% of items in inventory |
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Term
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Definition
| gathering opinions from a number of people such as sales staff and district sales managers and using these opinions with a degree of judgment to give a forecast |
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Term
|
Definition
| uses past data to predict the future |
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Term
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Definition
| the portion of user requests served, for example, if there are 400 requests for a particular item in a year and 372 were immediately satisfied, the service coverage would be 372/400 = 93% |
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Term
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Definition
| all the costs of setting up a production run |
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Term
|
Definition
| the costs of not having the required parts or materials on hand when and where they are needed |
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Term
|
Definition
| rely on periodic billing procedures; allow nonpurchasing personnel to issue order releases; employ special catalogs; require suppliers to maintain minimum inventory levels, but normally do not specify the volume of contract items a buyer must buy; and improve inventory turnover rates. |
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Term
|
Definition
| Assumes that sales (or other items to be forecast) follow a repetitive pattern over time; the analyst identifies the pattern and develops a forecast. |
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Term
| Transit/Pipeline Inventories |
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Definition
| Used to stock the supply and distribution pipelines linking an organization to its suppliers and customers as well as internal transportation points. |
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Term
| Vendor-Managed Inventory (VMI) or Supplier Managed Inventory (SMI) |
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Definition
| a merging of the ordering and inventory functions in which a supplier manages and conducts all or some of the inventory management activities. |
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Term
|
Definition
| The key document in the movement of goods; it contains information about the products being shipped including weight and quantity, the origin of the shipment, contract terms between the carrier and shipper, and the final destination. |
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Term
|
Definition
| Charge shippers a fee for arranging transportation services with a carrier. |
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Term
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Definition
| Transports property or people by any means of conveyance (truck, auto, taxi, bus, railroad, ship, airplane), almost always for a charge. Carriers for RF waves are air (wireless), copper wire and fiber optic cable. |
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Term
|
Definition
| offer transportation service to all shippers at published rates, in a nondiscriminatory basis, between designated points; have considerable flexibility in establishing rates and routes. |
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Term
|
Definition
| a for-hire carrier that provides service to a limited number of shippers and operates under specific contractual arrangements that specify rates and services. |
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Term
|
Definition
| used for importing products; they ensure that documentation is accurate and complete, and can provide a variety of other services, such as providing estimates of landed costs, payments to foreign suppliers, and insurance. |
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Term
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Definition
| A daily penalty charge incurred by shippers or receivers of merchandise when a rail car or a motor van is tied up beyond the normal time for loading or unloading; sometimes called detention charges for motor carriers. |
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Term
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Definition
| For-hire carriers exempt from regulation of rates and services. |
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Term
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Definition
| Any shipment that requires pickup service and includes a specific delivery guarantee. |
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Term
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Definition
| Applying pressure to a supplier, in this case the transportation carrier, in an attempt to encourage faster-than-normal delivery service. |
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Term
|
Definition
| Goods are delivered to a specified point with all transport charges paid. |
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Term
|
Definition
| buy dedicated space on scheduled carriers. |
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Term
|
Definition
| integrating modes of transportation. |
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Term
| Intermodal Freight Services |
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Definition
| Includes containers on flatcars (COFC) and truck trailers on flatcars (TOFC), referred to as piggyback systems. |
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Term
| Less-than-Truck-Load (LTL) |
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Definition
| Typically short haul route of a partially filled truck compared to truckload (TL) shipments, while the cost per hundredweight (cwt) is generally higher compared to TL shipments over the same distance. |
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Term
|
Definition
| management of inventory in motion and at rest; defined by the Council of Logistics Management as "that part of the supply chain that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers' requirements." |
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Term
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Definition
| the means by which people, freight or information gain mobility. The three basic means of mobility are: land (road, rail and pipeline), water and air. Radio frequency (RF) waves are a transportation mode that moves information instantaneously. |
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Term
|
Definition
| A mode of transportation that can only transport products in either a liquid or gaseous state. |
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Term
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Definition
| Provides transportation for its company's own products and the company owns (or leases) all related equipment and facilities. |
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Term
| Radio Frequency (RF) Waves |
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Definition
| a mode of transportation for information; carriers for RF waves are air (wireless), copper wire and fiberoptic cable |
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Term
| Third-Party Logistics (3PL) Service Providers |
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Definition
| Provide a wide range of logistics services for clients, with the most popular being warehousing, outbound and inbound transportation, freight bill auditing and payment, freight consolidation and distribution, cross-docking, product marking, and packaging and returns |
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Term
|
Definition
| Similar to follow-up; attempt to determine the status (location) of items that have been shipped but have not yet been received, and thus are somewhere within the transportation system |
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Term
|
Definition
| Typically long-haul routes of full truckload at a lower cost per hundredweight (cwt) than an LTL shipment over the same distance. |
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Term
| Uniform Order Bill of Lading |
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Definition
| A sight draft bill of lading; a negotiable instrument that must be surrendered to the carrier at destination before goods can be obtained; prevents delivery until payment is made for the goods. |
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Term
| Uniform Straight Bill of Lading |
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Definition
| The complete bill of lading containing the complete contract terms and conditions. The straight bill of lading–short form contains those provisions uniform to both motor and rail. Short bills are not furnished by carriers but instead are preprinted by shippers |
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Term
|
Definition
| Includes the railroad's way-bill which moves with the shipment and may be of assistance in expediting freight movement. |
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Term
|
Definition
| Guarantees that if the bidder wins it will accept the purchase contract; if the supplier refuses, the extra costs to the buyer of going to an alternative source are borne by the insurer. |
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Term
|
Definition
| Long-term tangible or intangible assets that are not bought or sold in the regular course of business, have an ongoing effect on the organization's operations, have an expected use of more than one year, involve large sums of money, and generally are depreciated. |
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Term
|
Definition
| Price discount offered for early payment; for example, a 2/10 net 30 cash discount means a discount of 2 percent if payment is made within 10 days, with the gross amount due in 30 days. This is the equivalent of earning an annual interest rate of approximately 36 percent. |
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Term
|
Definition
| An organized commodity exchange provides an established marketplace where the forces of supply and demand may operate freely as buyers and sellers carry on their trading |
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Term
| Cost-No-Fee (CNF) Contract |
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Definition
| If the buyer can argue persuasively that there will be enough subsidiary benefits to the supplier from doing a particular job, then the supplier may be willing to do it provided only the costs are reimbursed. |
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Term
| Cost-Plus-Fixed-Fee (CPFF) Contract |
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Definition
| The buyer agrees to reimburse the supplier for all reasonable costs incurred (under a set of definite policies under which "reasonable" is determined) in doing the job or producing the required item, plus a specified dollar amount of profit. |
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Term
| Cost-Plus-Incentive-Fee (CPIF) Contract |
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Definition
| Both buyer and seller agree on a target cost figure, a fixed fee, and a formula under which any cost over- or underruns are shared. |
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Term
|
Definition
| Varies in proportion to the quantity purchased over a period of time not on the size of any one order. |
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Term
|
Definition
| Can be specifically and accurately assigned to a given unit of production, for example, direct material is 10 pounds of steel or direct labor is 30 minutes of a person's time on a machine or assembly line |
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Term
|
Definition
| Provides for either an increase or decrease, or both, in price if costs change. |
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Term
|
Definition
| The lowest price that ensures a continuous supply of the proper quality where and when needed and returns a reasonable profit to the supplier. |
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Term
|
Definition
| A policy of notifying suppliers that original bids must be final and revisions will not be permitted under any circumstances |
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Term
| Firm-Fixed-Price (FFP) Contract |
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Definition
| The price set is not subject to change, under any circumstances |
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Term
|
Definition
| Generally remain the same regardless of the number of units produced |
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Term
|
Definition
| The commitment of purchases in anticipation of future requirements beyond current lead times |
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Term
|
Definition
| A simultaneous purchase and sale in two different markets which are assumed to operate so that a loss in one will be offset by an equal gain in the other. |
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Term
|
Definition
| Incurred in the operation of a production plant or process, but normally cannot be related directly to any given unit of production |
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Term
| Most-Favored-Customer Clause |
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Definition
| A price protection clause (sometimes referred to as a "most-favored-nation clause") specifies that the supplier, over the duration of the contract, will not offer a lower price to other buyers, or if a lower price is offered to others, it will apply to this contract as well |
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Term
|
Definition
| For example, 10, 10, and 10 means that for an item listed at $100, the actual price to be paid by the purchaser is ($100 - 10%) - 10%($100 - 10%) - 10%[($100 - 10%) - 10%($100 - 10%)] = $100 - $10 - $9 - $8.10 = $72.90. The 10, 10, and 10 is, therefore, equivalent to a discount of 27.1% |
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Term
|
Definition
| Protects the buyer against liens that might be granted to suppliers of material and labor to the bidder, in the event the bidder does not make proper payment to its suppliers |
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Term
|
Definition
| Guarantees work will be done according to specifications and in the time specified. If another supplier does rework or completes the order, purchasing is indemnified for these extra costs |
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Term
|
Definition
| In a long-term contract for raw materials or other key purchased items with one or more suppliers, the buyer may want to keep open the option of taking advantage of a lower price offered by a different supplier |
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Term
|
Definition
| Applies to particular quantities and varies roughly in proportion to the amount purchased. |
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Term
|
Definition
| Includes sensitive commodities, such as copper, wheat, and crude petroleum, but also steel, cement, and so forth |
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Term
|
Definition
| Fully capable and willing to perform the work |
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Term
|
Definition
| Can be subdivided into two groups (1) items that formerly were manufactured in-house but have been outsourced to a manufacturing supplier, and (2) items sold in the retail sector, such as clothing sold in general-line department stores and food sold through supermarkets. |
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Term
| Robinson-Pathan Act (Federal Anti-Price Discrimination Act of 1936) |
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Definition
| States that a supplier must sell the same item, in the same quantity, to all customers at the same price. |
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Term
|
Definition
| May vary with the number of units produced but are partly variable and partly fixed. |
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Term
|
Definition
| Submits a bid that conforms to the invitation for bid |
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Term
|
Definition
| Includes many types of acquisitions from intangible to a combination of intangible with a tangible component; includes advertising, auditing, consulting, architectural design, legal, insurance, personnel travel, copying, security, and waste removal. |
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Term
| Sherman Antitrust Act of 1890 |
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Definition
| States that any combination, conspiracy, or collusion with the intent of restricting trade in interstate commerce is illegal. |
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Term
|
Definition
| Includes items of small comparative value such as maintenance, repair, and operating (MRO) supplies. |
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Term
|
Definition
| Includes custom-ordered items and materials that are special to the organization's product line. |
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Term
| Standard Production Items |
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Definition
| Includes nuts and bolts, many forms of commercial steel, valves, and tubing, whose prices are fairly stable and are quoted on a basis of "list price with some discount." |
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Term
|
Definition
| Granted by a manufacturer to a particular type of distributor or user. |
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Term
| ABC Analysis or the Pareto Curve |
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Definition
| Assigns items to either the A, B or C category where A items are high dollar items, B are medium dollar and C are low dollar items. |
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Term
| Activity-Based Costing (ABC) |
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Definition
| an attempt to turn indirect costs into direct costs by tracking the cost drivers behind indirect costs. |
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|
Term
| General and Administrative Expense |
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Definition
| Includes items such as selling, promotion, advertising, executive salaries, and legal expense. |
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Term
|
Definition
| Provides an analytical framework for quantifying the commonly recognized principle that one becomes more proficient with experience. |
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Term
|
Definition
| The term for total cost of ownership used in capital acquisitions. |
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Term
|
Definition
| An attempt to find an agreement that allows both parties to realize their objectives |
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Term
|
Definition
| costs generally consist of indirect costs incurred in the manufacturing, research, or engineering facilities of the company. |
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Term
|
Definition
| enables a supply management team to place each major spend category on a spend map based on the risks to acquire in the marketplace and the value of the category to the organization. |
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Term
| Strategic Cost Management |
|
Definition
| an externally focused process of analyzing costs in terms of the overall value chain. |
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Term
|
Definition
| the organization establishes the price at which it plans to sell its finished product, then subtracts out its normal operating profit, leaving the target cost that the organization seeks. |
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|
Term
| Total Cost of Ownership (TCO) |
|
Definition
| For non-capital goods acquisition, the acquisition price plus all other associated costs becomes the total cost of ownership; this includes all relevant costs, such as administration, follow-up, expediting, inbound transportation, inspection and testing, rework, storage, scrap, warranty, service, |
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Term
|
Definition
| refers to the application of value methodology to the redesign of a product or service |
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|
Term
|
Definition
| refers to the application of value methodology to the design stage of a product or service |
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Term
|
Definition
| A systematic approach to analyzing the functions of a product, part, service, or process to satisfy all needed quality and user requirements at optimum total cost of ownership where value can be expressed as: Value = Function/Cost |
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Term
|
Definition
| Medium to high risk to acquire, are difficult to manage because of the uniqueness built into the specification |
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Term
|
Definition
| Between low and medium market risk which means there are multiple suppliers and market forces keep prices competitive, items are fairly standard, quality is comparable and substitutes are available; leverage opportunities increase with volume and price per unit becomes a critical variable. |
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Term
|
Definition
| There are multiple sources available and the decision has been made to split the requirement between two (dual sourcing) or more suppliers. |
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Term
|
Definition
| Between low and medium market risk which means there are multiple suppliers and market forces keep prices competitive, items are fairly standard, quality is comparable and substitutes are available |
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Term
|
Definition
| Typically assesses supply market risks and focuses attention on the value-generating capability of a purchase in light of the risks of acquiring the purchase in the marketplace. |
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|
Term
| Request for Bid (RFB or Invitation to Bid IFB) |
|
Definition
| The assumption is that the specifications are sufficiently descriptive and standard so that multiple suppliers can meet them. Therefore, the price and terms quoted become the differentiation between various suppliers |
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|
Term
| Request for Information (RFI) |
|
Definition
| an expression of interest which signals that the supply professional has identified a supplier as a potential source of supply, or that a supplier has indicated its willingness to enter into a potential business relationship; it is clear to both parties that the RFI does not commit either party to future business. |
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|
Term
| Request for Proposal (RFP) |
|
Definition
| When it is difficult to describe a requirement adequately, or the supply organization lacks the ability to create an RFQ or the supply professional expects that innovation or creativity in the market might result in a superior solution, the RFP allows more latitude to the supplier than an RFQ. The RFP permits the supplier to fit the proposal to its strengths. |
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|
Term
| Request for Quotation (RFQ) |
|
Definition
| The RFQ and its equivalents ask the supplier to declare at what price and what terms they are prepared to supply; the price and terms quoted become the differentiation between various suppliers |
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|
Term
| Reverse Marketing or Supplier Development |
|
Definition
| The purchaser, not the supplier, has the initiative and will predetermine prices, terms, and conditions as part of the aggressive role in developing new or existing suppliers. |
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Term
|
Definition
| There are multiple sources available, but the decision has been made to source the entire requirement from one supplier. |
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|
Term
|
Definition
| There is only one supplier capable of meeting the requirement; the buyer has no choice. |
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|
Term
|
Definition
| Medium to high risk to acquire; represent both the greatest risk and the greatest opportunity for reward for an organization and its supply network; often highly customized which limits the number of viable suppliers. |
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