Term
| Activity-Based Cost Accounting (ABC) |
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Definition
| A cost accounting system that accumulates costs based on activities performed and then uses cost drivers to allocate these costs to products or other bases, such as customers, markets, or projects. It is an attempt to allocate overhead costs on a more realistic basis than direct labor or machine hours. |
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Term
| Activity-Based Management (ABM) |
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Definition
| The use of activity-based costing information about cost pools and drivers, activity analysis, and business processes to identify business strategies; improve product design, manufacturing, and distribution; and remove waste from operations. |
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Term
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Definition
| An agreement should clearly state what you are buying and its cost. Delivery terms and responsibility, Installation related issues, if applicable, an acceptance provision detailing how and when the buyer will accept the products, warranty issues, and your remedial actions should be clearly spelled out in the agreement. Arbitration and conflict resolution mechanisms should also be included in the contract because even the best written agreements are subject to misinterpretation. A well-developed agreement can provide adequate protection against economic opportunism between parties and lead to a positive relationship. Effective long-term agreements generally have specific, measurable objectives stated in them, including pricing mechanisms, delivery and quality standards and improvements, cost savings sharing, evergreen clauses, and termination of the relationship. |
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Term
| Business-to-Business Commerce (B2B) |
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Definition
| Business being conducted over the Internet between businesses. The implication is that this connectivity will cause businesses to transform themselves via supply chain management to become virtual organizations, reducing costs, improving quality, reducing delivery lead time, and improving due-date performance. |
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Term
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Definition
| The function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules; i.e., the production plan, master production schedule, material requirements plan, and dispatch list. Capacity management is executed at four levels: resource requirements planning, rough-cut capacity planning, capacity requirements planning, and input/output control. |
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Term
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Definition
| The process of determining the amount of capacity required to produce in the future. This process may be performed at an aggregate or product-line level (resource requirements planning), at the master-scheduling level (rough-cut capacity planning), and at the material requirements planning level (capacity requirements planning). |
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Term
| Capacity Requirements Planning |
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Definition
| The function of establishing, measuring, and adjusting limits or evels of capacity. The term capacity requirements planning in this context refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production. Open shop orders and planned orders in the MRP system are input to CRP, which through the use of parts routings and time standards translates these orders into hours of work by work center by time period. Even though rough-cut capacity planning may indicate that sufficient capacity exists to execute the MPS, CRP may show that capacity is insufficient during specific time periods. |
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Term
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Definition
| One of the strategic choices that a firm must make as part of its manufacturing strategy. There are three commonly recognized capacity strategies: lead, lag, and tracking. A lead capacity strategy adds capacity in anticipation of increasing demand. A lag strategy does not add capacity until the firm is operating at or beyond full capacity. A tracking strategy adds capacity in small amounts to attempt to respond to changing demand in the marketplace. |
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Term
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Definition
| A measure (usually expressed as a percentage) of how intensively a resource is being used to produce a good or service. Utilization compares actual time used to available time. Traditionally, utilization is the ratio of direct time charged (run time plus setup time) to the clock time available. Utilization is a percentage between 0% and 100% that is equal to 100% minus the percentage of time lost due to machine, tool, worker, etc., unavailability. |
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Term
| Capacity – Information Flows |
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Definition
| Capacity is the capability of a worker, machine, work center, plant, or organization to produce output per time period. Information aids us in addressing capacity availability, unused capacity and performance issues that impact a business’s revenue and productivity as well as its image and reputation |
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Term
| Capacity – Physical Flows |
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Definition
1) The capability of a system to perform its expected function.
2) The capability of a worker, machine, work center, plant, or organization to produce output per time period.
Capacity required represents the system capability needed to make a given product mix (assuming technology, product specification, etc.). As a planning function, both capacity available and capacity required can be measured in the short term (capacity requirements plan), intermediate term (rough-cut capacity plan), and long term (resource requirements plan). |
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Term
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Definition
| The management of firms or individuals that participate in the flow of goods and services from the raw material supplier and producer to the final user or customer. |
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Term
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Definition
| Collaboration is defined as the process by which partners adopt a high level of purposeful cooperation to maintain a trading relationship over time. The relationship is bilateral; both parties have the power to shape its nature and future direction over time. Mutual commitment to the future and a balanced power relationship are essential to the process. While collaborative relationships are not devoid of conflict, they include mechanisms for managing conflict built into the relationship. |
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Term
| Commodity Strategy Development |
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Definition
| The purchasing plan for a family of items. This would include the plan to manage the supplier base and solve problems. |
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Term
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Definition
| A never-ending effort to expose and eliminate root causes of problems; small step improvement as opposed to big step improvement. |
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Term
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Definition
| An agreement between two or more competent persons or companies to perform or not to perform specific acts or services or to deliver merchandise. A contract may be oral or written. A purchase agreement when accepted by a supplier, becomes a contract. Acceptance may be in writing or by performance, unless the purchase order requires acceptance in writing. |
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Term
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Definition
| Contract management is a strategic management discipline employed by both buyers and sellers whose objectives are to manage customer and supplier expectations and relationships, control risk and cost, and contribute to organizational profitability/success. For successful service contract administration, the buyer needs to have a realistic degree of control over the supplier’s performance. Crucial to success in this area is the timely availability of accurate data including the contractor’s plan of performance and the contractor’s actual progress. |
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Term
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Definition
| See: Activity-based Cost Accounting, Activity-based Management, Cost System Design, Target Costing, Total Costs, Total Cost of Ownership |
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Term
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Definition
| In terms of activity-based cost accounting, cost management involves control of activities to eliminate waste, improve cost drivers, and plan operations. This process should influence the organization’s strategy setting process. Factors such as product pricing, introduction of new products, and distribution of existing products are examples of strategic decisions that are affected by cost management. |
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Term
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Definition
An intelligent cost system design is one that is simple while still providing managers with information they need to make decisions. As most manufacturing processes were labor intensive at the turn of the century, a majority of cost management systems relied on direct labor to assign indirect costs to products and services. Indirect or overhead costs are costs that are associated with or caused by two or more operating activities jointly but are not traceable to each of them individually. Direct costs, on the other hand, are specifically traceable to or caused by a specific project or production operation.
The emergence of highly automated machines, which replaced direct labor with support labor, reduced the accuracy of direct labor as an estimator of indirect costs. This reduction first led to the emergence of machine hour-based cost systems. But both, labor based and machine hour based cost systems, rely on unit-level cost drivers and can provide adequate insights to managers about the costs of their products only in very simple manufacturing systems. As competition faced by firms increased, profit levels began to fall, and it became more important for the firm’s cost system to report accurate product costs. More accurate products costs enable firms to fine tune its product mix so it is inherently more profitable. Activity based costing or management is a tool that more accurately identifies and allocates indirect costs to the products they support because it identifies the drivers of the indirect costs. This identification allows management to identify and implement cost savings opportunities. |
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Term
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Definition
| Issues with currency conversion add complexity to the global sourcing process. The absence of fixed exchange rates can be a problem. Fluctuations in exchange rates can have a significant impact on the costs and profits made by the buyer and the seller. U.S. purchasing departments are particularly at a disadvantage. Their unfamiliarity in dealing with foreign currencies leads to higher costs in two ways: 1) the buyers attempt to put all currency risk on the supplier which causes the supplier to include charges for hedging; 2) In an attempt to avoid dealing with foreign currency, buyers’ use U.S. subsidiaries who accept U.S. dollars but charge higher markups. The unfamiliarity of vendors and suppliers with currency conversion issues can cause supply chain slowdowns and force businesses to revert to using paper invoices, bound ledgers and filing cabinets leading to delays and increased costs in the supply chain. |
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Term
| Customer Relationship Management (CRM) |
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Definition
| A marketing philosophy based on putting the customer first. It involves the collection and analysis of information designed for sales and marketing decision support 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. |
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Term
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Definition
The customer value approach focuses on how people choose among competing suppliers, customer attraction and retention, and market-share gains.
Answering three customer value questions is important in order to determine a company’s customer value proposition:
• What are the key buying factors that customers’ value when they choose among a business and its toughest competitors?
• How do customers rate a company’s performance versus its competitors’ performance on each key buying factor?
•What is the percentage importance of each of these components of customer value?
By highlighting the best performer on each key buying factor, marketers obtain a market derived, empirical aggregate of each supplier’s customer value proposition. Often the view from the marketplace differs from the organization’s internally developed customer value proposition. |
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Term
| Customer/Order Fulfillment Process |
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Definition
| A series of customers’ interactions with an organization through the order filling process, including product/service design, production and delivery, and order status reporting. |
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Term
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Definition
| The function of recognizing all demands for goods and services to support the market place. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results. |
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Term
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Definition
| The distribution route, from raw materials through consumption, along which products travel. |
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Term
| Distribution Channel Design |
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Definition
| The planned channels of inventory disbursement from one or more sources to field warehouses and ultimately to the customer. There are several levels in the distribution network structure. |
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Term
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Definition
| Location decisions are a basic determinant of profitability in international logistics. Decisions on where to manufacture, to assemble, to store, to transship and to consolidate can make the difference between profit and loss. Because of international differences in basic factor costs and because of exchange rate movements, location decisions are very important. Also, these decisions involve substantial involvement in fixed assets in the form of facilities and equipment. Location decisions, therefore, can have a continuing impact over time on the company’s financial and competitive position. As movement towards global manufacturing increases, organizations should consider location decisions through total cost analysis which includes activity related costs such as manufacturing, transportation and handling as well as inventory holding costs, tariffs, and taxes. |
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Term
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Definition
| The difference between actual demand and forecast demand, stated as an absolute value or as a percentage. E.g., average forecast error, forecast accuracy, mean absolute deviation, tracking signal. There are three ways to accommodate forecasting errors: One is to try to reduce the error through better forecasting. The second is to build more visibility and flexibility into the supply chain. And the third is to reduce the lead time over which forecasts are required. |
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Term
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Definition
| The difference between actual demand and forecast demand, stated as an absolute value or as a percentage. E.g., average forecast error, forecast accuracy, mean absolute deviation, tracking signal. There are three ways to accommodate forecasting errors: One is to try to reduce the error through better forecasting. The second is to build more visibility and flexibility into the supply chain. And the third is to reduce the lead time over which forecasts are required. |
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Term
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Definition
| Location decisions are a basic determinant of profitability in international logistics. Decisions on where to manufacture, to assemble, to store, to transship and to consolidate can make the difference between profit and loss. Because of international differences in basic factor costs and because of exchange rate movements, location decisions are very important. Also, these decisions involve substantial involvement in fixed assets in the form of facilities and equipment. Location decisions, therefore, can have a continuing impact over time on the company’s financial and competitive position. As movement towards global manufacturing increases, organizations should consider location decisions through total cost analysis which includes activity related costs such as manufacturing, transportation and handling as well as inventory holding costs, tariffs, and taxes. |
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Term
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Definition
A supply partnership between a buyer and supplier is based on mutual interdependency and respect and calls for information sharing between the involved parties. By sharing its demand forecast with the supplier, the buyer benefits in two ways:
1) the partner becomes familiar with the buyer’s needs, and
2) the buyer develops a dependable supply source. Forecast sharing allows the supplier to plan for and schedule production efficiently. |
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Term
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Definition
| The business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance. |
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Term
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Definition
Qualitative forecasting techniques
An approach to forecasting that is based on intuitive or judgmental evaluation. It is used generally when data are scarce, not available, or no longer relevant. Common types of qualitative techniques include: personal insight, sales force estimates, panel consensus, market research, visionary forecasting, and the Delphi method. Examples include developing long-range projections and new product introduction.
Quantitative forecasting technique
An approach to forecasting where historical demand data is used to project future demand. Extrinsic and intrinsic techniques are typically used.
Graphical forecasting methods
The use of visual information to predict sales patterns typically involves plotting information in a graphical form. It is relatively easy to convert a spreadsheet into a graph that conveys the information visually. Trends and patterns of data are easier to spot, and extrapolation of previous demand can be used to predict future demands.
Trend forecasting models
Methods for forecasting sales data when a definite upward or downward pattern exists. Models include double exponential smoothing, regression, and triple smoothing. |
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Term
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Definition
| See: Currency Conversion, Language |
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Term
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Definition
| Following the receipt of materials, parts or resale products from external suppliers, the subsequent storage, handling, and transportation requirements to facilitate either manufacturing or market distribution constitute inbound logistics. |
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Term
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Definition
| An industrial standard is a uniform identification that is agreed on. Industrial standardization can be defined as the process of establishing agreement on uniform identifications for definite characteristics of quality, design, performance, quantity, service, etc. |
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Term
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Definition
| A strategic partnering relationship between suppliers and buyers is characterized by a willingness to be open, and to share forecasted demand and cost data as well as the benefits resulting from the information sharing. Both parties in the relationship generally follow a continuous improvement philosophy towards total cost of material acquisition and ownership along with quality and service. Cost, quality and schedule information that is confidential is shared both ways between firms during the early and ongoing stages of design and during the production life-cycle of the supplying relationship. This openness exists because of the high degree of trust earned through multiple successful interactions between the two organizations. |
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Term
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Definition
The technology of computers, telecommunications, and other devices that integrate data, equipment, personnel, and problem-solving methods in planning and controlling business activities. Information technology provides the means for collecting, storing, encoding, processing, analyzing, transmitting, receiving, and printing text, audio, or video information.
Hardware: In the context of information technology, the computer and its peripherals constitute the hardware.
Software: The programs and documentation necessary to make use of a computer constitute the software. |
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Term
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Definition
| 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. |
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Term
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Definition
| The shipment of a part or product by one plant to another plant or division within the corporation. |
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Term
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Definition
1) 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). Demand for inventory may be dependent or independent. Inventory functions are anticipation, hedge, cycle (lot size), fluctuation (safety, buffer, or reserve), transportation (pipeline), and service parts.
2) In the theory of constraints, inventory is defined as those items purchased for resale and includes finished goods, work in process, and raw materials. Inventory is always valued at purchase price and includes no value-added costs, as opposed to the traditional cost accounting practice of adding direct labor and allocating overhead as work in process progresses through the production process. |
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Term
| Inventory Management Systems |
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Definition
| Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level and notify the user of significant deviations from plans. Companies are provided with realistic estimates of when material will arrive.With Inventory visibility, organizations are able to make decisions that optimize supply chain performance. Information is available to reduce costs by removing inventory from the supply chain, reducing obsolescence, decreasing operational assets, lowering network operations cost, and decreasing transportation costs. Visibility also increases competitiveness by improving customer satisfaction and market responsiveness. |
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Term
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Definition
| Inventory positioning refers to the selective location of various items in the product line in plant, regional, or field warehouses. Inventory positioning has a bearing on facility location decision, and therefore, must be considered in the logistics strategy. |
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Term
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Definition
| An agreement between two or more firms to risk equity capital to attempt a specific business objective. |
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Term
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Definition
| Differences in culture, language, dialects or terminology may result in miscommunication and cause problems. While both parties may think that they understand what the other party has said, a true agreement may be missing. A simple word like “plant,” for instance, can be a source of confusion – in the Far East, the word “plant” is interpreted to mean only a living organism, not a physical facility. |
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Term
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Definition
| 1) A span of time required to perform a process (or series of operations). 2) In a logistics context, the time between recognition of the need for an order and the receipt of goods. Individual components of lead time can include order preparation time, queue time, processing time, move or transportation time, and receiving and inspection time. |
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Term
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Definition
| A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves identifying and eliminating non-value-adding activities in design, production, supply chain management, and dealing with the customers. Lean producers employ teams of multiskilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. It contains a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all manufacturing and support processes. |
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Term
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Definition
Purchasing law has been primarily developed from laws regarding contracts. In order for a contract to be valid, four conditions must be present: 1) Parties with full contractual capacity should willfully and in the absence of fraudulent activity have signed the contract; 2) the underlying purpose for the agreement must be legal; 3) all conditions regarding the offer and acceptance of the contract must be met; 4) the contract should have an element of mutual obligation; that is both parties must agree to do something they otherwise would not be required to do.
Another topical area of commercial law that is relevant to purchasing professionals has to do with laws regarding agency. The laws regarding agency outline the types of authority that an agent possesses in performing duties for the principal. An agent is a person, who, by express or implied agreement is authorized to act for someone else in business dealings with a third party. This is precisely what purchasing managers and buyers do. By law, a buyer operates under two types of authority – actual authority and apparent authority. Apparent authority is that level of authority perceived by outside parties to be available to the purchasing manager. The concepts of actual and apparent authority are important in terms of a buyer’s legal liability. If a purchasing manager, in carrying out normal procurement activities, exceeds his or her actual authority but not apparent authority, then the employer is still responsible for performance of the contract but could seek legal action against the purchasing manager personally. If, on the other hand, the agent exceeds both his or her actual and apparent authority, a seller cannot usually hold the buying firm liable but may be able to hold the agent personally liable for his actions. |
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Term
| Logistics Information Systems |
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Definition
Converting data to information, portraying it in a manner useful for decision making, and interfacing the information with decision-assisting methods are considered to be at the heart of an information system. Logistics information systems are a subset of the firm’s total information system, and it is directed to the particular problems of logistics decision making. There are three distinct elements that make up this system: the input, the database and its associated manipulations, and the output. The inputs are data items needed for planning and operating logistics system obtained from sources like customers, company records, and published data and company personnel. Management of the database involves selection of the data to be stored and retrieved, choice of the methods of analysis and choice of the basic data-processing procedures. The outputs of a logistics information system include:
1) summary reports of cost or performance statistics,
2) status reports of inventories or order progress,
3) exception reports that compare desired performance with actual performance, and
4) reports that initiate action. Output can also be in the form of documents such as transportation bills of lading and freight bills. |
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Term
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Definition
| Logistics management is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such as way that current and future profitability are maximized through the cost-effective fulfillment of orders. |
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Term
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Definition
| See: Preventative Maintenance, Total Product Maintenance (TPM) |
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Term
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Definition
| See: Lean Manufacturing, Manufacturing Layout Strategy, Reverse Logistics, Order Management, Scheduling |
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Term
| Manufacturing Layout Strategy |
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Definition
| An element of manufacturing strategy. It is the analysis of physical capacity, geography, functional needs, corporate philosophy, and product-market/process focus to systematically respond to required facility changes driven by organizational, strategic, and environmental considerations. |
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Term
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Definition
| See: Business-to-Business, Channel Management, Customer Relationship Management (CRM), Customer Value, Promotions |
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Term
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Definition
| Negotiation is a process of formal communication where two or more people come together to seek mutual agreement over an issue or issues. Negotiation is particularly appropriate when issues besides price are important for the buyer or when competitive bidding will not satisfy the buyer’s requirements on those issues. |
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Term
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Definition
| See: Lead Times/Cycle Times, Supplier Integration in New Product Development |
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Term
| Operating Policies and Procedures |
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Definition
| Definitive statements of what should be done in the business, and a formal organization and indexing of a firm’s procedures. They are usually outlined in manuals which are printed and distributed to the appropriate functional areas. |
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Term
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Definition
| Order management involves the seamless integration of orders from multiple channels with inventory databases, data collection, order processing including credit card verification, fulfillment systems and returns across the entire fulfillment network. For proper execution the process involves real-time visibility into the entire order lifecycle starting from the placement of order and ensuring that orders (SKUs) are not lost, delayed, or corrupted during the fulfillment process. The system may also comply with and support parcel carriers and provide sophisticated, centralized freight management and tracking/tracing capabilities. Clients, Customer service representatives account managers and suppliers will thus have the ability to track real-time inventory levels for each SKU and inquire about order and shipment status via the web – anytime, anywhere. |
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Term
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Definition
| The process related to the storage and movement of the final product and related information flows from the end of the production line to the end user. |
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Term
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Definition
| Packaging has a significant impact on the cost and productivity of logistics. Inventory control depends upon the accuracy of manual or automatic identification systems keyed by product packaging. Order selection speed, accuracy and efficiency are influenced by package identification, configuration, and handling ease. Handling efficiency is affected by package design, unitization capability and techniques, and communication or information transfer between channel partners. Transportation and storage costs are driven by package size and density. Customer service depends upon packaging to allow quality control during distribution to provide, customer education and convenience, and to comply with environmental regulations. Given the increasing length and complexity of global supply chains and the costs of locating new facilities, the concept of packaging postponement to achieve strategic flexibility is particularly important. |
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Term
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Definition
| Supplier performance measurement and evaluation includes the methods and techniques used to collect information that can be used to measure, rate or rank supplier performance on a continuous basis. The measurement system is a crucial part of supplier management and development. |
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Term
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Definition
| The activities, including adjustments, replacements, and basic cleanliness, that forestall machine breakdowns. The purpose is to ensure that production quality is maintained and that delivery schedules are met. In addition, a machine that is well cared for will last longer and cause fewer problems. |
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Term
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Definition
| The coordinated management of a portfolio of projects to achieve a set of business objectives is called program management. Or, a program might refer to an ongoing set of activities internal to the organization, for example, a Total Quality Management program, workplace safety program, supplier development program, etc. |
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Term
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Definition
| Project management is the application of knowledge, skills, tools and techniques to a broad range of activities in order to meet the requirements of the particular project. A project is a temporary endeavor undertaken to achieve a particular aim. Project management knowledge and practices are best described in terms of their component processes. These processes can be placed into five Process Groups: Initiating, Planning, Executing, Controlling and Closing. – and nine Knowledge Areas – Project Integration Management, Project Scope Management, Project Time Management, Project Cost Management, Project Quality Management, Project Human Resource Management, Project Communications Management, Project Risk Management, and Project Procurement Management. |
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Term
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Definition
| One of the four P’s (product, price, place, and promotion) that constitute the set of tools used to direct the business offering to the customer. Promotion is the mechanism whereby information about the product offering is communicated to the customer and includes public relations, advertising, sales promotions, and other tools to persuade customers to purchase the product offering. |
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Term
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Definition
| See: Specifications, Industry Standards, Statement of Work, Service Level Agreement |
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Term
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Definition
| Conformance to requirements or fitness for use. Quality can be defined through five principal approaches: (1) Transcendent quality is an ideal, a condition of excellence. (2) Product-based quality is based on a product attribute. (3) User-based quality is fitness for use. (4) Manufacturing-based quality is conformance to requirements. (5) Value-based quality is the degree of excellence at an acceptable price. Also, quality has two major components: (1) quality of conformance—quality is defined by the absence of defects, and (2) quality of design—quality is measured by the degree of customer satisfaction with a product’s characteristics and features. |
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Term
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Definition
Some of quality programs that are currently used include:
Total Quality Management (TQM):
TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work.
Total Quality Engineering (TQE):
TQE is the discipline of designing quality into the product and manufacturing processes by understanding the needs of the customer and performance capabilities of the equipment.
Total Quality Control (TQC):
TQC is the process of creating and producing the total composite good and service characteristics by marketing, engineering, manufacturing, purchasing, etc., through which the good and service will meet the expectations of customers.
Statistical Quality Control (SQC):
SQC is the application of statistical techniques to control quality.
Six-Sigma Quality:
Six sigma quality is a term used generally to indicate that a process is well controlled, i.e., tolerance limits are ±6 sigma from the centerline in a control chart. |
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Term
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Definition
| See: Agreements, Collaboration, Contract, Joint Venture, Strategic Alliance, Supplier-Customer Partnership |
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Term
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Definition
| A supply chain that is dedicated to the reverse flow of products and materials for returns, repair, remanufacture, and/or recycling. |
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Term
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Definition
| Scheduling involves taking decisions regarding the allocation of available capacity or resources (equipment, labor and space) to jobs, activities, tasks or customers over time. Scheduling thus results in a time-phased plan, or schedule of activities. The schedule indicates what is to be done, when, by whom and with what equipment. Scheduling seeks to achieve several conflicting objectives: high efficiency, low inventories and good customer service. Scheduling can be classified by the type of process: line, batch and project. |
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Term
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Definition
| Service-level agreements (SLAs) are contracts between service providers and customers that define the services provided, the metrics associated with these services, acceptable and unacceptable service levels, liabilities on the part of the service provider and the customer, and actions to be taken in specific circumstances. |
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Term
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Definition
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Term
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Definition
A successful sourcing strategy requires a thorough understanding of a company’s business strategy, the resources required to deliver that strategy, the market forces and the unique risks within the company associated with implementing specific approaches. A periodic review of the sourcing strategy ensures achievement of desired results and continued alignment with business objectives. Some of the sourcing strategies that are used in supply chain management today include:
Single sourcing: A method whereby a purchased part is supplied by only one supplier. A JIT manufacturer will frequently have only one supplier for a purchased part so that close relationships can be established with a smaller number of suppliers. These close relationships (and mutual interdependence) foster high quality, reliability, short lead times, and cooperative action.
Multisourcing: Procurement of a good or service from more than one independent supplier. Companies may use it sometimes to induce healthy competition between the suppliers in order to achieve higher quality and lower price.
Outsourcing: The process of having suppliers provide goods and services that were previously provided internally. Outsourcing involves substitution—the replacement of internal capacity and production by that of the supplier.
Insourcing: The goods or services are developed internally. |
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Term
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Definition
| Specifications are the most detailed method of describing requirements. Various types of design specifications are the detailed descriptions of the materials, parts, and components to be used in making a product. Hence, they are the descriptions that tell the seller exactly what the buyer wants to purchase. |
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Term
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Definition
1) An established norm against which measurements are compared. (APICS 10th ed.)
2) The Internet has transformed supply chain management into something closer to an exact science. However for information to be shared, systems, both hardware and software, must be able to communicate and be compatible so that all supply chain activities can be optimized across company boundaries. Standards promote interoperability and compatibility among operating environments. |
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Term
| Statement of Work (S.O.W) |
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Definition
| The most critical ingredient of a successful procurement of services is the development and documentation of the requirements – the statement of work. The S.O.W. identifies what the contractor is to accomplish. It first clearly identifies the primary objective and then the subordinate objectives. One of the goals of the S.O.W. is to gain understanding and agreement with a contractor about the specific nature of the technical activity to be performed. The S.O.W. also impacts the administration of the contract by defining the scope of the contract, that is, what the contractor is supposed to do and the purchaser supposed to receive. |
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Term
| Statistic Quality Control |
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Definition
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Term
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Definition
| A relationship formed by two or more organizations that share (proprietary), participate in joint investments, and develop linked and common processes to increase the performance of both companies. Many organizations form strategic alliances to increase the performance of their common supply chain. |
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Term
| Supplier Development Training |
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Definition
| Education and training is the most common approach to supplier development and improvement. A purchaser may provide training in statistical process control, quality improvement techniques, just-in-time delivery or any other crucial performance area. In order for purchasing to adequately assess and aid suppliers in improving quality, purchasers need to become familiar with the important components of quality management. In many organizations, purchasing may request the assistance of quality and engineering departments in assisting with the supplier quality training. Purchasing companies emphasize four areas of quality training with their suppliers: 1) Total quality management and quality improvement training, 2) statistical quality control techniques training, 3) training focusing on integrating quality into the design of products and processes to reduce variability, and 4) training in problem solving techniques. |
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Term
| Supplier Integration in New Product Development |
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Definition
| Supplier integration into new product/process/service development suggests that suppliers are providing information and directly participating in decision making for purchases used in the new product/process/service. This integration can occur during idea generation, preliminary business/technical assessment, product/process/service concept development, product/process/service design and development and prototype build, test or production ramp up. |
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Term
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Definition
| Supplier Intelligence is the purposeful, coordinated and ethical monitoring of strategic suppliers, within a specific marketplace. |
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Term
| Supplier Performance Evaluation |
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Definition
| The main objective of the supplier evaluation process is to reduce purchase risk and maximize the overall value of the purchaser. It typically involves evaluating, at a minimum, supplier quality, cost competitiveness, potential delivery performance and technological capability. Some of the other criteria used in the preliminary evaluation of suppliers include financial risk analysis, evaluation of previous performance, and evaluation of supplier provided information. |
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Term
| Supplier-Customer Partnership |
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Definition
| A long-term relationship between a buyer and a supplier characterized by teamwork and mutual confidence. The supplier is considered an extension of the buyer’s organization. The partnership is based on several commitments. The buyer provides long-term contracts and uses fewer suppliers. The supplier implements quality assurance processes so that incoming inspection can be minimized. The supplier also helps the buyer reduce costs and improve product and process designs. |
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Term
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Definition
| Supply chain design involves the determination of how to structure a supply chain. Design decisions include the selection of partners, the location and capacity of warehouse and production facilities, the products, the modes of transportation, and supporting information systems. |
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Term
| Supply Chain Inventory Visibility |
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Definition
| Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level and notify the user of significant deviations from plans. Companies are provided with realistic estimates of when material will arrive. See: Inventory Management Systems |
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Term
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Definition
| It is the process of designing a product to meet a specific cost objective. Target costing involves setting the planned selling price, subtracting the desired profit as well as marketing and distribution costs, thus leaving the required manufacturing or target cost. |
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Term
| Total Cost of Ownership (TCO) |
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Definition
| In supply chain management, the total cost of ownership of the supply delivery system is the sum of all the costs associated with every activity of the supply stream. The main insight that TCO offers to the supply chain manager is the understanding that the acquisition cost is often a very small portion of the total cost of ownership. |
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Term
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Definition
| The sum of the variable, fixed and semivariable costs (costs that cannot be classified as variable or fixed ) comprises total costs. As the volume of production increases, total costs increase. However, the cost to produce each unit of product decreases. This is because the fixed costs do not increase, they are simply spread over a larger number of units of products. |
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Term
| Total Productive Maintenance (TPM) |
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Definition
| Preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows. It is operator-oriented maintenance with the involvement of all qualified employees in all maintenance activities. |
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Term
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Definition
Managers must ensure that appropriate personnel receive periodic training with respect to the organization’s ethical and professional standards. Supply managers should ensure that their personnel receive training on current thinking and techniques in the areas of requirements planning, source selection, pricing, cost analysis, negotiation and supply management as well as ethical and professional standards.
Some examples of types of training in organizations:
Cross-Training: The providing of training or experience in several different areas, e.g., training an employee on several machines rather than one. Cross-training provides backup workers in case the primary operator is unavailable.
On-the-Job Training (OJT): Learning the skills and necessary related knowledge useful for the job at the place of work or possibly while at work. |
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Term
| Warehouse Management Layouts |
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Definition
| This refers to the configuration of the warehouse site with lines, storage areas, aisles, etc. Layout or storage plan of a warehouse should be planned to facilitate product flow. Special attention should be given to location, number, and design of receiving and loading docks. |
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Term
| What is Supply Chain Management? |
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Definition
The concept of Supply Chain Management is based on two core ideas. The first is that practically every product that reaches an end user represents the cumulative effort of multiple organizations. These organizations are referred to collectively as the supply chain.
The second idea is that while supply chains have existed for a long time, most organizations have only paid attention to what was happening within their “four walls.” Few businesses understood, much less managed, the entire chain of activities that ultimately delivered products to the final customer. The result was disjointed and often ineffective supply chains.
Supply chain management, then, is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.
The organizations that make up the supply chain are “linked” together through physical flows and information flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows. Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain. |
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