SUPPLY CHAIN JARGONS

Pegging
In MRP and MPS, the capability to identify the sources of its gross requirements and/or
allocations for the given item. Pegging can be thought of as active where-used information.
ABC Inventory Control
An inventory control approach based on the ABC classification. According to this classification,
the groups of items are placed in the decreasing order of annual dollar volume (price multiplied
by projected volume) or some other criteria. This array is then split into three classes, called A, B,
and C. The A group usually represents 10% to 20% by number of items and 50% to 70% by
projected dollar volume. The next grouping, B, usually represents about 20% of the items and
about 20% of the dollar volume. The C class contains 60% to 70% of the items and represents
about 10% to 30% of the dollar volume. The ABC principle states that effort and money can be
saved through applying looser controls to the low-dollar-volume class items than will be applied
to high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing,
sales, etc.
Available Inventory
The on-hand inventory balance minus allocations, reservations, backorders, and (usually)
quantities held for quality problems. Often called beginning available balance
Safety Stock
The level of inventory desired at any time to counterbalance the many uncertainties met in a
supply chain.
Cycle count
An inventory verification method that uses periodic, scheduled counts of inventory and associated
locations to determine accuracy. Count schemes may be designed based on usage volume, all
parts in specific warehouse rows, or other methods and normally involve the use of trained count
personnel.
WIP (Work in Process)
The inventory under assembly in an assembly plant
Backlog
All the customer orders received but not yet shipped. Sometimes referred to as open orders or the
order board
Bill of Material (BOM)
A listing of all the subassemblies, intermediates, parts, and raw materials that go into a parent
assembly showing the quantity of each required to make an assembly. It is used in conjunction
with the master production schedule to determine the items for which purchase requisitions and
production orders must be released.

Carrying Cost
The cost of holding inventory, usually defined as a percentage of the dollar value of inventory per
unit of time (generally one year). Carrying cost depends mainly on the cost of capital invested as
well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage,
and space occupied. Such costs vary from 10% to 35%
Economic Order Quantity (EOQ)
A type of fixed-order-quantity model that determines the amount of an item to be purchased or
manufactured at one time
Aggregate planning
Sales, revenue, inventory and production planning done at total organization, facility or family
levels
Backorder
Backorder is a current or past due customer order (or line item) that cannot be shipped due to lack
of inventory availability. Customer agreements govern how backorders are handled (ship when
available, ship whole order only, cancel, etc.).
Electronic data interchange (EDI)
The paperless (electronic) exchange of trading documents, such as purchase orders, shipment
authorizations, advanced shipment notices, and invoices, using standardized document formats
Forecasting
The business function that attempts to predict sales and use of products so they can be purchased
or manufactured in appropriate quantities in advance
Buffer
Stock positioned at a processing or usage point to allow for demand or process variations, or to
maintain continued operation of a constrained resource.
Decoupling
The point in the supply chain which provides a buffer between differing input and output rates
Distribution requirements planning (DRP)
The function of determining the need to replenish inventory at branch warehouses A time-phased
order point approach is used where the planned orders at the branch warehouse level are
exploded via MRP logic to become gross requirements on the supplying source. In the case of
multilevel distribution networks, this explosion process can continue down through the various
levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to
the master production schedule.

Continuous replenishment
A method typically used between retailers and distributors or manufacturers that uses point-ofsale inventory and sales data to trigger automatic replenishments, with the vendor assuming
responsibility for initiation and fulfillment.
Cross docking
A logistics activity that attempts to reduce costs and total lead time by breaking down received
items on the loading dock and immediately matching them with outgoing shipment requirements,
instead of stocking the items in warehouse locations and returning to pick for orders at a later
time.
Cycle time
The total time required to complete a transformation from one status to another. Total cycle time
is composed of many elements, often broken into active (running or operating) time and idle
(queue or wait) time
Drop Ship
Directing a vendor to send purchased material directly to a third party instead of delivering to the
owner's facility for inspection or stocking.
Fill Rate
A customer order delivery performance measurement of the percentage of times line item
shipments met requested dates and quantities. Whole order shipments may be used instead of
individual line items for customers who require the entire order to be shipped complete.
VMI
The process by which the vendor manages the inventory of its products in its distribution center is
called as VMI. The vendor receives stock information from the customer and then calculates what
should be shipped to maintain adequate inventory levels at the retailer's facility. It is the preferred
method by which customers dump their inventory woes on vendors.
CPFR
Collaborative Planning, Forecasting, and Replenishment (CPFR) is the sharing of forecast and
related business information among business partners in the supply chain to enable automatic
product replenishment.
Bull whip effect
Bullwhip is a pervasive supply chain problem whereby order variability grows as demand signals
propagate upstream. Essentially, demand spikes as orders flow back from retailer to distributor to
original equipment manufacturers to tier-one suppliers, and so on.
Continuous Replenishment (CR)
A time-based strategy where the supplier eliminates the need for replenishment orders by
receiving daily transmission of retail sales or warehouse shipments and then assuming

responsibility for replenishing retail inventory in the required quantities, colors, sizes, and styles.
The agreement to replenish is honored as a purchase commitment. The result is a reduction in
total logistics cost and an improvement in inventory velocity.

Inventory Pull System

System whereby a firm waits to produce product until customers demand it.
Inventory Push System
System whereby a firm produces then pushes product through the channel without orders in hand.
Here, production and inventory levels are guided by forecasted or anticipated sales to customers.
Inventory Velocity
The speed of inventory moving through a facility during a given time, as measured by turnover
(annual dollar sales volume at cost /average dollar inventory investment)
Efficient Consumer Response (ECR)
A demand driven replenishment system, common in the grocery industry, designed to link all
parties in the channel to create a massive flow-through distribution network. The system is driven
by time-phased replenishment based on consumer demand. The sharing of information allows the
manufacturer or supplier to anticipate demand and react to it. Instead of waiting for an order to
arrive, they can initiate or manufacture product based on point of sale information. The sharing of
accurate, instantaneous data is essential to this concept.
Postponement
A cost reduction strategy that moves product differentiation nearer to the time of purchase (and
thereby reducing risk and uncertainty) by postponing changes to the form and identity of a
product or its inventory location to the last possible point in the supply chain.
Reverse Logistics
The process of planning, implementing, and controlling the efficient, cost-effective flow of
product back upstream for the purposes of source reduction/conservation, recycling, substitution,
and disposal
Supply Chain (Value Chain)
The alignment of firms that bring products or services to market
Vertically Integrated
Where the same company owns several levels (echelons) of the supply chain
Bonded
Storage of certain goods under charge of customs viz. customs seal until the import duties are
paid or until the goods are taken out of the country. Bonded warehouse (place where goods can be
placed under bond)

Cost and Freight (CFR)

Cost and Freight" means that the seller must pay the costs and freight necessary to bring the
goods to the named port of destination but the risk of loss of or damage to the goods, as well as
any additional costs due to events occurring after the time the goods have been delivered on board
the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port
of shipment.
CIF
"Cost, Insurance and Freight" means that the seller has the same obligations as under CFR but
with the addition that he has to procure marine insurance against the buyer's risk of loss of or
damage to the goods during the carriage.
Detention Charges
Charges levied on usage of equipment exceeding free time period as stipulated in the pertinent
inland rules and conditions.

Manufacturing Resource Planning MRP-II

A method for the effective planning of a manufacturing company, being a direct out-growth and
extension of MRP-I.
Frozen zone: material, capacity committed to specific orders. No changes accepted in MPS as it
would lead to high cost.
Slushy Zone: capacity and materials are partially committed. Any trade off can be taken care of
between marketing and production team.
Liquid Zone: any change can be made to the MPS as long as it is within the limit of liquid zone
decided by the production team.
Seasonal Index = actual period demand / average demand of all periods i.e. deseasonalized
demand
Deseasonalized demand = actual seasonal demand / seasonal index
Average annual transit inventory = transit time in days * annual demand / 365
Average cost of placing one order = ( fixed cost / no. of orders ) + variable cost
LOT : it is the quantity produced together which shares same production cost and specifications
Average lot size inventory = order quantity / 2
Number of orders per year = annual demand / order quantity
Annual ordering cost = no. of orders * costs per order
Annual carrying cost = average inventory * unit cost * carrying cost
5S : Sort, straighten, shine, standardize, sustain
Kanban helps in identifying reordering point, card system

Kaizen : continuous improvement in manufacturing , engineering and business improvement

processes
Production strategies: chase strategy, production levelling, sub-contracting

Re-order Point: When quantities fall to a predetermined level, an order is placed. The point of
inventory level at which a new order has to be made for replenishment of stocks is Reorder point.
Re-order point (R) = (Average daily demand * Lead time) + Safety Stock
Back flush
The deduction from inventory records of the component parts used in an assembly or
subassembly by exploding the bill of materials by the production count of assemblies produced.
See: post-deduct inventory transaction processing.
Back scheduling
A technique for calculating operation start dates and due dates. The schedule is computed starting
with the due date for the order and working backward to determine the required start date and/or
due dates for each operation. Syn: backward scheduling. Ant: forward scheduling
Blanket order
A long-term commitment to a supplier for material against which short-term releases will be
generated to satisfy requirements. Often blanket orders cover only one item with predetermined
delivery dates.
Control Chart
A graphic comparison of process performance data with predetermined computed control limits.
The process performance data usually consist of groups of measurements selected in regular
sequence of production that preserve the order. The primary use of control charts is to detect
assignable causes of variation in the process as opposed to random variations. The control chart is
one of the seven tools of quality.
Cumulative lead-time
The longest planned length of time to accomplish the activity in question. For any item planned
through MRP, it is found by reviewing the lead time for each bill of material path below the item;
whichever path adds up to the greatest number defines cumulative lead time.
Final assembly schedule (FAS)
A schedule of end items to finish the product for specific customers orders in a make-to-order or
assemble-to-order environment. It is also referred to as the finishing schedule because it may
involve operations other than just the final assembly; also, it may not involve assembly, but
simply final mixing, cutting, packaging, etc. The FAS is prepared after receipt of a customer
order as constrained by the availability of material and capacity, and it schedules the operations

required to complete the product from the level where it is stocked (or master scheduled) to the
end-item level.
Finite forward scheduling
An equipment scheduling technique that builds a schedule by proceeding sequentially from the
initial period to the final period while observing capacity limits. A Gantt chart may be used with
this technique.
Finite loading
Assigning no more work to a work center than the work center can be expected to execute in a
given time period. The specific term usually refers to a computer technique that involves
calculating shop priority revisions in order to level load operation by operation.
Just in time (JIT)
A philosophy of manufacturing based on planned elimination of all waste and on continuous
improvement of productivity. It encompasses the successful execution of all manufacturing
activities required to produce a final product, from design engineering to delivery, and includes
all stages all stages of conversion from raw material onward. The primary elements of JIT are to
have only the required inventory when needed: to improve quality to zero defects: to reduce lead
times by reducing setup times, queue lengths, and lot sizes: to incrementally revise the operations
themselves: and to accomplish these activities at minimum cost. In the broad sense, it applies to
all forms of manufacturing-job shop, process, and repetitive-and to many service industries as
well.
Purchase order:
The purchasers authorization used to formalize a purchase transaction with a supplier. A
purchase order, when given to a supplier, should contain statements of the name, part number,
quantity, description, and price of the goods or services ordered, agreed-to terms as to payment,
discounts, date of performance, and transportation, and all other agreements pertinent to the
purchase and its execution by the supplier.
Purchase requisition:
An authorization to the purchasing department to purchase specified materials in specified
quantities within a specified time
Repetitive manufacturing:
The repeated production of the same discrete products or families of products. Repetitive
methodology minimizes setups, inventory, and manufacturing lead times by using production
lines, assembly lines, or cells. Work orders are no longer necessary, production scheduling and
control is based on production rates. Products may be standard or assembled from modules.
Repetitive is not a function of speed or volume. Syn: Repetitive Process.
Rough cut capacity planning (RCCP):
The process of converting the master production schedule into requirements for key resources,
often including labor, machinery, warehouse space, suppliers capabilities, and, in some cases,

money. Comparison to available or demonstrated capacity is usually done for each key resource.
This comparison assists the master scheduler in establishing a feasible master production
schedule. Three approaches to performing RCCP are the bill of labor (resources, capacity)
approach, the capacity planning using overall factors approach, and the resource profile approach.
Routing:
Information detailing the method of manufacture of a particular item. It includes the operations to
be performed, their sequence, the various work centers involved, and the standard for setup and
run. In some companies, the routing also includes information on tooling, operator skill levels,
inspection operations, and testing requirements, etc. Syn: Bill of operations, instruction sheet,
manufacturing data sheet, operation chart, operation sheet, operation list, route sheet, routing
sheet.
Supplier lead-time:
The amount of time that normally elapses between the time an order is received by a supplier and
the time the order is shipped.
Supplier partnering (partnership):
The establishment of a working relationship with a supplier organization whereby two
organizations act as one.
Tracking signal:
A ratio of cumulative algebraic sum of the deviations between forecasts and the actual values to
the mean actual deviation. Used to signal when the validity of the forecasting model might be in
doubt.
Two-bin system
A type of fixed order system in which inventory is carried in two dins. A replenishment quantity
is ordered when the first bin (working) is empty. During the replenishment lead-time material is
used from the second bin. (which contains a quantity to cover demand during lead-time plus some
safety stock is refilled and the excess is put into the working bin. At this time stock is drawn from
the first bin until it is again exhausted. This term is also used loosely to describe any fixed order
system even when physical bins do not exist.
Wait time:
1) Idle time
2) The time a job remains at a work center after an operation is completed until it is moved to the
next operation. It is often expressed as a part of move time.
Waste:
1) In Just-in-Time, any activity that does not add value to the good or service in the eyes of the
consumer

2) A by-product of a process or task with unique characteristics requiring special management

control. Waste production can usually be planned and somewhat controlled. Scrap is typically not
planned and may result from the production run as waste.
Where-used list:
A listing of every parent item that calls for a given component, and the respective quantity
required from a bill of material file.
Work cell
Dissimilar machines grouped together into a production unit to produce a family of parts having
similar routings