SUPPLY CHAIN MANAGEMENT GLOSSARY.

Activity Based Costing (ABC): A methodology that measures the cost and performance of cost objects, activities and resources. Cost objects consume activities and activities consume resources. Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outputs) based on the cost objects proportional use of those activities.  Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources.

Accounts receivable (A/R): A component of a corporation's current assets that consists of money owed to the corporation for services or merchandise it sold to customers. It is a key factor in examining a corporation's "liquidity"--its capacity to meet current obligations without receiving additional revenues.

Accounts payable (A/P) : A type of short-term debt, accounts payable are amounts a business owes - bills from suppliers for goods or services purchased on credit. Accounts Payable is classified as a Current Liability because the obligation is generally due within 12 months from the initial transaction date.

Activity Based Costing Model: In activity-based cost accounting, a model, by time period, of resource costs created because of activities related to products or services or other items causing the activity to be carried out.

Advanced Planning and Scheduling (APS): Techniques that deal with analysis and planning of logistics and manufacturing over the short, intermediate, and long-term time periods.  APS describes any computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others.  These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise capabilities.  APS often generates and evaluates multiple scenarios.  Management then selects one scenario to use as the "official plan." The five main components of APS systems are demand planning, production planning, production scheduling, distribution planning, and transportation planning.

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. Synonym: finish-to-order. 

Available to Promise (ATP): The uncommitted portion of a company’s inventory and planned production maintained in the master schedule to support customer-order promising.  The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue.

Available to Sell (ATS): Total quantity of goods committed to the pipeline for a ship to or selling location. This includes the current inventory at a location and any open purchase orders.

Balanced Scorecard: A structured measurement system based on a mix of financial and non financial measures of business performance. A list of financial and operational measurements used to evaluate organizational or supply chain performance. The dimensions of the balanced scorecard might include customer perspective, business process perspective, financial perspective, and innovation and learning perspective. It formally connects overall objectives, strategies, and measurements. Each dimension has goals and measurements.

Benchmarking: The process of comparing performance against the practices of other leading companies for the purpose of improving performance. Companies also benchmark internally by tracking and comparing current performance with past performance.

Bill of Material (BOM): A structured list of all the materials or parts and quantities needed to produce a particular finished product, assembly, subassembly, manufactured part, whether purchased or not.

Business Performance Measurement (BPM): A technique which uses a system of goals and metrics to monitor performance. Analysis of these measurements can help businesses in periodically setting business goals, and then providing feedback to managers on progress towards those goals. A specific measure can be compared to itself over time, compared with a preset target or evaluated along with other measures.

Business Process Improvement: A methodology for focused change in a business process achieved by analyzing the AS-IS process using process models and other tools, then developing a streamlined TO-BE process in which automation may be added to result in a process that is better, faster, and cheaper. BPI aims at cost reductions of 10-40%, with moderate risk.

Business Process Reengineering (BPR): The fundamental rethinking and radical redesign of business processes to achieve dramatic organizational improvements.

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. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods. 2) A process philosophy for facilitating collaborative communications.  CPFR is considered a standard, endorsed by the Voluntary Inter-industry Commerce Standards.

Cost Driver: In accounting, any situation or event that causes a change in the consumption of a resource, or influences quantity or cycle time.  An activity may have multiple cost drivers.

Cost Driver Analysis: In cost accounting, the examination, quantification, and explanation of the effects of cost drivers. The results are often used for continuous improvement programs to reduce throughput times, improve quality, and reduce cost.

Cost to Serve is the chain of activities that are required to get your products into your customers store and onto their shelves. This includes all facets of order taking, picking and freighting the order, arranging promotions by sales reps, processing credits, merchandising the product and the like - essentially the cost of doing business with your customers.

Corporate performance management (CPM): An overarching term that describes the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise. Applications that enable CPM translate strategically focused information to operational plans and send aggregated results.

Customer/Order Fulfillment Process: A series of customers’ interactions with an organization through the order filling process, including product/service design, production and delivery, and order status reporting.

Demand management : The proactive compilation of requirements information regarding demand (i.e. customers, sales, marketing, finance) and the firm’s capabilities form the supply side (i.e. supply, operations and logistics management); the development of a consensus regarding the ability to match the requirements and capabilities; and the agreement upon a synthesized plan that can most effectively meet the customer requirements within the constraints imposed by supply chain capabilities.

Demand Planning: The process of identifying, aggregating, and prioritizing, all sources of demand for the integrated supply chain of a product or service at the appropriate level, horizon and interval.

Demand Supply Balancing: The process of identifying and measuring the gaps and imbalances between demand and resources in order to determine how to best resolve the variances through marketing, pricing, packaging, warehousing, outsource plans or some other action that will optimize service, flexibility, costs, assets (or other supply chain inconsistencies) in an iterative and collaborative environment.

Distribution Center (DC): The warehouse facility which holds inventory from manufacturing pending distribution to the appropriate stores.

Distribution Planning: The planning activities associated with transportation, warehousing, inventory levels, materials handling, order administration, site and location planning, industrial packaging, data processing, and communications networks to support distribution.

Distribution Logistics: Logistics is a term employed in manufacturing and commerce to describe the broad range of activities concerned with the efficient movement of finished products from the end of the production line to the consumer, and in some cases includes the movement of raw materials from the source of supply to the beginning of the production line. These activities include freight transportation, warehousing, materials handling, protective packaging, inventory control, plant and warehouse site selection, order processing, market forecasting, and customer service.

Economic Order Quantity (EOQ): An inventory model that determines how much to order by determining the amount that will meet customer service levels while minimizing total ordering and holding costs.

Enterprise Resource Planning (ERP) System: A class of software for planning and managing “enterprise-wide” the resources needed to take customer orders, ship them, account for them and replenish all needed goods according to customer orders and forecasts.  Often includes electronic commerce with suppliers.

Extended Enterprise: The notion that supply chain partners form a larger entity working together as though it were a single unit.

Financial supply chain : The Financial Supply Chain refers to the end-to-end trade processes and information that drive a company’s cash, accounts, and working capital. From a buyer’s perspective, this involves the full procurement-to-payment process. For the seller, it is the order-to-cash cycle.

Fourth-Party Logistics (4PL): Differs from third party logistics in the following ways; 1) 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners; 2) 4PL organization acts as a single interface between the client and multiple logistics service providers; 3) All aspects (ideally) of the client’s supply chain are managed by the 4PL organization; and, 4) It is possible for a major third-party logistics provider to form a 4PL organization within its existing structure.

Inbound Logistics: The movement of materials from suppliers and vendors into production processes or storage facilities.

Integrated Logistics: A comprehensive, system-wide view of the entire supply chain as a single process, from raw materials supply through finished goods distribution. All functions that make up the supply chain are managed as a single entity, rather than managing individual functions separately.

Inventory Management: The process of ensuring the availability of products through inventory administration.

Inventory Planning Systems: The systems that help in strategically balancing the inventory policy and customer service levels throughout the supply chain by calculating time-phased order quantities and safety stock, using selected inventory strategies. Including conducting what-if analysis and that compares the current inventory policy with simulated inventory scenarios and improves the inventory ROI.

Key Performance Indicator (KPI): A measure which is of strategic importance to a company or department. For example, a supply chain flexibility metric is Supplier On-time Delivery Performance which indicates the percentage of orders that are fulfilled on or before the original requested date.

Lead Time: The total time that elapses between an order's placement and its receipt. It includes the time required for order transmittal, order processing, order preparation, and transit.

Lean Six Sigma: A business improvement methodology that maximizes shareholder value by achieving the fastest rate of improvement in customer satisfaction, cost, quality, process speed, and invested capital. [Lean Six Sigma Institute]

Lean manufacturing or lean production, which is often known simply as "Lean", is the practice of a theory of production that considers the expenditure of resources for any means other than the creation of value for the presumed customer to be wasteful, and thus a target for elimination. In a more basic term, More value with less work. Lean manufacturing is a generic process management philosophy derived mostly from the Toyota Production System (TPS) and identified as "Lean" only in the 1990s[1]. It is renowned for its focus on reduction of the original Toyota seven wastes in order to improve overall customer value, but there are varying perspectives on how this is best achieved.

Logistics Management as defined by the Council of Logistics Management (CLM): Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.

Make-or-buy decision: The act of deciding whether to produce an item internally or buy it from an outside supplier. Factors to consider in the decision include costs, capacity availability, proprietary and/or specialized knowledge, quality considerations, skill requirements, volume, and timing.

Make-to-Order (MTO): A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release, rather than a market forecast. For Make-to-Order products, more than 20% of the value-added takes place after the receipt of the order or release, and all necessary design and process documentation is available at time of order receipt.

Make-to-Stock (MTS): A manufacturing process strategy where finished product is continually held in plant or warehouse inventory to fulfill expected incoming orders or releases based on a forecast.

Manufacturing Execution Systems (MES): Programs and systems that participate in shop floor control, including programmed logic controllers and process control computers for direct and supervisory control of manufacturing equipment; process information systems that gather historical performance information, then generate reports; graphical displays; and alarms that inform operations personnel what is going on in the plant currently and a very short history into the past. Quality control information is also gathered and a laboratory information management system may be part of this configuration to tie process conditions to the quality data that are generated. Thereby, cause-and-effect relationships can be determined.  The quality data at times affect the control parameters that are used to meet product specifications either dynamically or off line.

Manufacturing Resource Planning (MRP II): A method for the effective planning of all resources of a manufacturing company.  Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It is made up of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material.

Materials Requirements Planning (MRP): A decision-making methodology used to determine the timing and quantities of materials to purchase.

Operational Performance Measurement: 1) In traditional management, performance measurements related to machine, worker, or department efficiency or utilization. These performance measurements are usually poorly correlated with organizational performance. 2) In theory of constraints, performance measurements that link causally to organizational performance measurements. Throughput, inventory, and operating expense are examples.

Outbound Logistics: The process related to the movement and storage of products from the end of the production line to the end user.

Pareto: A means of sorting data for example. For example, number of quality faults by frequency of occurrence. An analysis that compares cumulative percentages of the rank ordering of costs, cost drivers, profits or other attributes to determine whether a minority of elements have a disproportionate impact. For example, identifying that 20 percent of a set of independent variables is responsible for 80 percent of the effect. 

Performance Management Systems: The systems that report on the key measurements in the supply chain : inventory days of supply, delivery performance, order cycle times, capacity use, etc. Using this information to identify causal relationships to suggest actions in line with the business goals.

Performance Measures: Indicators of the work performed and the results achieved in an activity, process, or organizational unit. Performance measures should be both non-financial and financial. Performance measures enable periodic comparisons and benchmarking.  For example, a common performance measure for a distribution center is % of order fill rate.

Performance Measurement Program: A performance measurement program goes beyond just having performance metrics in place. Many companies do not realize the full benefit of their performance metrics because they often do not have all of the necessary elements in place that support their metrics.

Product Lifecycle Management:  Product Lifecycle Management (PLM) generally refers to the process of managing all data related to the product over its life cycle. It broadens the concept of product data management (PDM) to address managing the product configuration and the availability of product data into its later lifecycle stages of production, operation, support and disposal and to address managing the product's related process data.  ARC Advisory Group defines six components of PLM: innovation and portfolio management, project and program management, collaborative design, product data management, manufacturing process planning, and service and support management.

Product Portfolio Management: The process of managing new product ideas, proposed projects and current projects under development as a portfolio to 1.) maximize the value of the portfolio, 2.) keep it in balance, and 3.) align it with company strategy. By characterizing and reviewing the projects in a company’s portfolio as a whole, a big picture is presented and used to prioritize and select projects.

Production Planning and Scheduling: The systems that enable creation of detailed optimized plans and schedules taking into account the resource, material, and dependency constraints to meet the deadlines.

Profitability Analysis: The analysis of profit derived from cost objects with the view to improve or optimize profitability. Multiple views may be analyzed, such as market segment, customer, distribution channel, product families, products, technologies, platforms, regions, manufacturing capacity, etc.

Sales and Operations Planning (S&OP): A strategic planning process that reconciles conflicting business objectives and plans future supply chain actions.  S&OP usually involves various business functions such as sales, operations and finance to agree on a single plan/forecast that can be used to drive the entire business.

SCOR: Supply Chain Operations Reference Model. This is the model developed by the Supply Chain Council and is built around six major processes: plan, source, make, deliver, return and enable. The aim of the SCOR is to provide a standardized method of measuring supply chain performance and to use a common set of metrics to benchmark against other organizations.

Supply Chain: A supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to customers through a distribution system.

Supply chain performance management : The goal of supply chain performance management is to enable better decision making by providing supply chain managers with correct information on the performance of their supply chain from a broad perspective. The two traditional approaches to monitor performance are metrics projects and balanced scorecards. 

Supply management : The term supply management describes the methods and processes of modern corporate or institutional buying. This may be for the purchasing of supplies for internal use, purchasing raw materials for the consumption during the manufacturing process, or for the purchasing of goods for inventory to be resold as products in the distribution and retail process.

Supply Planning : The process of identifying, prioritizing and aggregating, as a whole with constituent parts, all sources of supply that are required and add value in the supply chain of a product or service at the appropriate level, horizon and interval.

Scorecard: A performance measurement tool used to capture a summary of the Key Performance Indicators/metrics of a company. Metrics dashboards/scorecards should be easy to read and usually have “red, yellow, green” indicators to flag when the company is not meeting its targets for its metrics. Ideally, a dashboard/scorecard should be cross-functional in nature and include both financial and non-financial measures.  In addition, scorecards should be reviewed regularly – at least on a monthly basis and weekly in key functions such as manufacturing and distribution where activities are critical to the success of a company. The dashboard/scorecards philosophy can also be applied to external supply chain partners such as suppliers to ensure that suppliers’ objectives and practices align.

Stock Keeping Unit (SKU): A category of unit with unique combination of form, fit, and function (i.e. unique components held in stock). To illustrate: If two items are indistinguishable to the customer, or if any distinguishing characteristics visible to the customer are not important to the customer, so that the customer believes the two items to be the same, these two items are part of the same SKU.

Supply Chain Execution (SCE): The ability to move the product out the warehouse door. This is a critical capacity and one that only brick-and-mortar firms bring to the B2B table. Dot-coms have the technology, but that's only part of the equation. The need for SCE is what is driving the Dot-coms to offer equity partnerships to the wholesale distributors.

Supply Chain Management (SCM) as defined by the Council of Logistics Management (CLM): “Definition -Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.

Supply Chain Network Design: The optimization of the relationships among the various elements of the supply chain-manufacturing plants, distribution centers, points-of-sale, as well as raw materials, relationships among product families, and other factors-to synchronize supply chains at a strategic level.

Supply Chain Strategy Planning: The process of analyzing, evaluating, defining supply chain strategies, including network design, manufacturing and transportation strategy and inventory policy.

Supply Chain Planning: The process of identifying, prioritizing, and aggregating, as a whole with constituent parts, all sources of supply that are required and add value in the supply chain of a product or service at the appropriate level, horizon and interval.

Tactical Planning: The process of developing a set of tactical plans (e.g., production plan, sales plan, marketing plan, and so on). Two approaches to tactical planning exist for linking tactical plans to strategic plans—production planning and sales and operations planning. 

Third Party Logistics Provider: A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated, or "bundled" together by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers to distributors and retailers. Among the services which they provide are transportation, warehousing, cross-docking, inventory management, packaging, and freight forwarding.

Traceability: 1) The attribute allowing the ongoing location of a shipment to be determined. 2) The registering and tracking of parts, processes, and materials used in production, by lot or serial number.

Tracing: The practice of relating resources, activities and cost objects using the drivers underlying their cost causal relationships. The purpose of tracing is to observe and understand how costs are arising in the normal course of business operations. Synonym: Assignment.

Tracking and Tracing: Monitoring and recording shipment movements from origin to destination.

Transportation Planning: The process of defining an integrated supply chain transportation plan and maintaining the information which characterizes total supply chain transportation requirements, and the management of transporters both inter and intra company.

Value Chain: A series of activities, which combined, define a business process; the series of activities from manufacturers to the retail stores that define the industry supply chain.

Value Chain Analysis: A method to identify all the elements in the linkage of activities a firm relies on to secure the necessary materials and services, starting from their point of origin, to manufacture, and to distribute their products and services to an end user.

Vendor-Managed Inventory (VMI): The practice of retailers making suppliers responsible for determining order size and timing, usually based on receipt of retail POS and inventory data. Its goal is to increase retail inventory turns and reduce stock outs.

Working capital: Current assets minus current liabilities. Working capital measures how much in liquid assets a company has available to build its business. The number can be positive or negative, depending on how much debt the company is carrying. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth.

Working capital reduction: This item represents a reduction in long-term debt caused by long-term debt maturing (being classified as a current maturity), payments of long-term debt and the conversion of debt to stock.

Warehouse management: Warehouse Management monitors the progress of products through the warehouse. It involves the physical warehouse infrastructure, tracking systems, and communication between product stations. Warehouse management deals with receipt, storage and movement of goods, normally finished goods, to intermediate storage locations or to final customer.

Warehouse Management System (WMS): The systems used in effectively managing warehouse business processes and direct warehouse activities, including receiving, putaway, picking, shipping, and inventory cycle counts. Also includes support of radio-frequency communications, allowing real-time data transfer between the system and warehouse personnel.  They also maximize space and minimize material handling by automating putaway processes.

World Class Manufacturing: World Class Manufacturers are those that demonstrate industry best practice. To achieve this companies should attempt to be best in the field at each of the competitive priorities (quality, price, delivery speed, delivery reliability, flexibility and innovation). Organisations should therefore aim to maximise performance in these areas in order to maximise competitiveness.