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# A B C D E F G H I J K L M
# A B C D E F G H I J K L M

# A B C D E F G H I J K L M

A Class Items: A general meaning of this term is the most important items. When a
group of products is analysed according to some criterion and the individual
products in the group ranked - ie placed in order - according to the criterion used, it
is common to subdivide the products in the ordered list into three categories. The
"A" category, or A Class, products are those products at the top of the list; the "B"
category products are next, and the "C" category products are those at the bottom
of the list. A common criterion applied in the analysis of the original group of
products is according to each product's "annual value". Annual value is often
thought of as reflecting a product's importance, and is defined as the product's
annual usage multiplied by its unit value. (For example, if 200 products are used per
annum and one unit costs £7, the annual value is £1,400.) It will typically be found
that if the A Class items are defined as the top 20% of the items at the top, that they
account for 80% of the total value of all the items. See ABC Classification and the
vital few.

ABAP: Advanced Business Application Engineering.

ABB: Activity Based Budgeting.

ABC: In costing, Activity Based Costing.

ABC Classification: The division of products in a group into three sub-groups:

Group A, Group B and Group C. Division is usually accomplished by the following
three step process: (1) the calculation for each product of its annual value, this being
its "annual usage x its unit value"; (2) the ranking, or ordering, of all the products
into an order based on their annual values, as calculated in Step 1, thus forming a
list of products in descending order of annual value; and (3) the sub-division of the
list in Step 2 into three groups according to Pareto principles. (The Pareto principle
is that the top 20% (approx) of the products in the ordered list will account for some
80% of the total annual value of all the products together.) Thus the products in the
list are split into the top group, called "A" (20% of the products, but 80% of the
total annual value), the next group "B" (say, 30% of the products, about 15% of the
total annual value) and the bottom group "C" (50% of the products, 5% of the total
value). In fact, the split is arbitrary and it may be preferable to subdivide the
products in other ways (eg the top 10% A, the next 15% B and the bottom 75% C).
It may also be desirable to create a fourth group D - say, the bottom 20%, perhaps
representing a mere 1% of the total annual value. Note also that if A products are to
be looked after closely, and C products not at all so, then it may be desirable to
promote a few "line stoppers" from Class C to Class A. The notion of the vital few
and the trivial many is widely used. For example, in quality, Dr Joseph Juran
maintained that 80% of trouble was caused by 20% of the problems, so, he
recommended, fix the 20% as first priority!

ABCD Checklist: The late Oliver Wight, and, through him, the MRP training
company that bears his name, have established an assessment and scoring system
whereby companies that have installed MRPII can judge how well they have
succeeded. Originally, there were 20 or so criteria, and the rating of a company
(Class A, Class B, Class C and Class D) was simply a bit of fun. In Wight's eyes,
Class A companies are using the system and literally working to the numbers it
produces; Class B are using the system but still retain "little black books", Class C
are running the system but not using it, and in Class D companies only the computer
department ever see the output! There are now over 300 criteria and the process is
taken very seriously. Very few companies - perhaps 20 in the UK - have attained
Class A. Instead of concluding from this that it is MRP which is the problem, the
promoters of this methodology conclude that the problems lie with the staff of the
Class B to D companies (who clearly did not spend enough money on training).

Abnormal Demand: See Non-Consuming Demand and Unreasonableness Checks.

Absenteeism: This phenomenon relates to employee absence from work which, so

far as the employer is concerned, is unauthorised and therefore unanticipated. A
company analysing absenteeism among its employees may distinguish between
absence due to illness, supported by medical evidence, and absence due to other
reasons. For a company department, a percentage measure of absenteeism is: (total
number of staff days lost) / (total number of staff working days) x 100%.

Absorption Costing: See Costing (Absorption).

Acceptable Quality Level (AQL): If a supplier sends parts to a buyer, then the
two parties may agree that a sampling plan should be used by the buyer to validate
their quality on receipt. Among other things, the sampling plan will be selected on
the basis that the incoming parts are to be at an agreed quality level of "p%" or
better. Naturally, the supplier of the items wishes to be assured that if the quality of
parts he actually sends is indeed equal to or better than p%, then there will be a
very high probability that they will be duly accepted under the plan (ie that the plan
will not result in their rejection). On the other hand, the recipient wishes to be
assured that if the quality of the goods he receives is worse than p%, then there is a
very high chance that they will be rejected. In summary, the term acceptable quality
level means the level of quality (p%) at which a sampling plan is liable to result in
the parts' acceptance. In fact, the "Dodge-Romig/Military Plans" plans give the
supplier 95% assurance that if quality is at p% or better, material will be accepted.
Note therefore that the word "acceptable" means, literally, "liable to acceptance" -
it does not have the alternative common English meanings of "welcome" or
"satisfactory". See AQL sampling tables. See also ATI.

Acceptance (of Goods): A formal acknowledgement by a recipient that goods

which have been physically delivered are satisfactory with regard to their identity
(ie type), quality, quantity and other matters of central concern in the contract. By
the Sale of Goods Act 1979, goods which are merely delivered are not deemed to be
accepted until the recipient has been given a chance to inspect them or until a
reasonable time has elapsed (without the recipient saying he rejects them) or unless
the recipient begins to use the goods. The significance of legal acceptance is that the
buying company thereby acknowledges that the main points of the contract have
been fulfilled, and so cannot terminate the contract for breach of conditions.

Acceptance of Offer (by Post, Fax or E-mail): The convention is adopted in

law that a party is deemed to accept a contractual offer at the moment he posts a
letter saying he has so accepted it, not when the letter is actually received. This
convention applies only to an acceptance: it does not apply, for example, to other
matters such as counteroffers, revocations or the making of offers themselves. When
the party transmits his acceptance of an offer by fax or e-mail, acceptance is deemed
to take place when the transmission is actually received by the other party, not when
it was sent.

Account (An): A logical grouping of either receipts, expenditures, stocks or

transactions relating to some particular activity having financial consequencies.
Examples of accounts are: the VAT account; the wages account; the copper raw
materials account; the fuel expenditure account etc. (The term "accounting"
originally meant the management of these accounts.)

Accounting Equation: In financial accounting, the accounting equation relating

to a company's finances is: (assets + expenses) = (capital + liability + revenue). The
effect of the equation may be summarised thus: if there is an increase in the
company's assets, or if there is an incurrence of an expense, the increase must be
balanced by a corresponding increase in liabilities, or capital, or revenue. These
principles are incorporated in "double entry bookkeeping".

Accounts (Type of): Asset accounts, expense accounts, liability accounts, capital
accounts and revenue accounts.

Accuracy (of a measurement). A measurement process that has a small variability

is said to have high precision. This does not mean, however, that the measured value
is the true value. If the measured value is M and the true value is T, then the total
error = M - T. This expression can be split into Total Error = (M - dx) + (dx - T). The
first expression (M - dx) is the random deviation inherent in making any
measurement - random error that can be "averaged away" by taking many
repeated measurements. The second expression (dx - T) is bias due to a systematic
fault in the measuring process (perhaps due, say,to an uncalibrated instrument).
Bias can only be detected and removed by investigation. The term (dx - T) can be
found by averaging many measurements, and is referred to as the accuracy of the
measuring process.

ACSI: American Customer Satisfaction Index - a metric devised by the ASQ and
others attempting to express and track customer satisfaction as delivered by a wide
range of companies and government institutions.

Action Date: The day that the next action on a part is scheduled to take place.

Activity Based Costing (ABC): A costing procedure devised by Robert Kaplan

(*) and Robin Cooper in 1988 whereby the costs incurred in manufacturing are not
accumulated by geographic area, and then assigned to products based on a simple
"cost driver", such as the number of employees in the area, but instead are
accumulated by type of activity undertaken. Examples of activities are machine set
ups; quality management; purchase order placement; etc.. The costs incurred in
these activities are then allocated to products based on the demand the products
make on the activities. The argument against the adoption of ABC is that action
taken by staff to reduce the demand of a particular product on an activity, and so
reduce its cost, are likely to be disruptive. For example, a manager may reduce the
demand of a product on purchase placement costs by ordering very large lots of
material at infrequent intervals. (*Kaplan is also co-inventor of the balanced

ACV: All Commodity Volume.

Adaptive Exponential Smoothing: Adaptive Smoothing is the only naive

forecasting technique to incorporate a built-in ability to adapt its own behaviour as
circumstances change. The exponent alpha in single exponential smoothing is
replaced by a variable "A", calculated from the past "n" forecast errors, where A =
(sum of the errors where signs cancel) / (absolute sum of the errors). In short, as
errors start to increase, A gets bigger and the forecasts start to catch up to the new
level of demand. Adaptive smoothing is not a sound forecasting technique and is no
longer used; it is regarded as a curiosity.

ADC: Analogue to Digital Converter, or Automated Data Collection.

Added Value: see Value Added.

ADC: Automated data capture.

ADE: Automated Data Entry.

ADSL: Assymmetric Digital Subscriber Line, a methodology enabling a single

copper wire carrying a telephone signal to transmit data at anything from 10x the
normal rate to 40x the normal rate - ie it is a digital connection over a normal
telephone line that is also capable of carrying high speed traffic. "Asymmetric"
means that the user cannot send ("upload") data as fast as he can receive it. As well,
what is important from the user's point of view, is that the connection is "always
on". ADSL Max denotes new technology intended to improve performance,
especially for users a long way from the telephone exchange.

Ad Valorem: A customs duty levied according to the value of the goods.

Advance Shipping Notice: see ASN.

Advanced Planning and Scheduling: See APS.

Advice Note: A message from a supplier to a receiving company stating that goods
ordered are in the process of being actually despatched. The advice note may be
paper or electronic, and will include the relevant Order Number. An advice note is
equivalent to an ASN.

AEN: Ambient electromagnetic noise. The electrical and magnetic waves measured
in decibels that are generated in the air by electrical devices - sortation systems,
conveyors, alarm systems, radio VDUs etc.. A major problem with AEN lies in the
installation of RFID - the radio waves generated and read by the RFID devices are
interfered with by the AEN. Prior to setting up an RFID system, therefore, it is
necessary to carry out a site assessment or site survey. In the site assessment, a Full
Faraday Cycle Analysis is performed over a 24-hour working day of the proposed
RFID interrogation zone to determine the AEN present. By doing so, RFID readers
can be positioned so as to minimise AEN radio interference. The subjects of AEN,
site surveys and Full Faraday Cycle Analyses remind us that in setting up an RFID
system, in, say, a warehouse, problems are as much matters of physics and electronic
engineering as they are of systems analysis.

AFI: Average Fraction Inspected. A term used in quality and acceptance sampling
to gauge the financial effectiveness, to a recipent of incoming goods, of a sampling
inspection table or procedure. AFI is defined as ATI / N, where N is the number of
the incoming items.

Agent (legal): An employee is the "agent" of an employer, whose function it is to

assist the employer in the fulfilment of a contract. The limit of the agent's
contractual involvement is that a contract of agency exists between him and his
employer, and it is from this that he derives his authority to act. Such authority may
be express, implied, apparent, ratified or of necessity. In general, the principal (ie
employer) is bound by his agent's actions. This is not the case, however, if the agent
acts contrary to the employer's specific instructions.
Agile Manufacturing: Agile is an adjective from the Manufacturing Consultant's
Golden Lexicon - a powerful word suggesting immediately that a company that is
not agile is inferior to one that is (but we are not to enquire in what way the non-
agile company is inferior). If agile manufacturing does have a meaning, it is that the
company responds to a customer's requirement by the immediate commencement of
fast manufacture, rather than through a reliance on forecasting and stock holding.
Two examples of agile manufacture are: (1) in Just-in-Time, the instant response to
market demand, through group technology, kanban and SMED; and (2) in quick
response/assemble-to-order, the prior manufacture of machine options and their use
in a final assembly stage.

AGV (Automated Guided Vehicle): A computer controlled device used in

materials handling and factory internal transportation.

AID: Automatic Identification .... bar codes, RFID and contact memory buttons.

AIDAS: The tasks which the salesman must undertake in selling have been
summarised by the mnemonic AIDAS, as follows: A = attention (making contact); I
= interest; D = desire (showing the potential customer how the goods will benefit
him); A = action (closing the sale); and S = satisfaction (making sure the business is

AIT: Automatic Identification Technology (Auto ID) ... bar codes, RFID and contact
memory buttons.

ALE: Application Level Events (Standard). A software standard connected with

RFID which deals with the collection, management and routing of data. (For
example, an RFID reader is capable of multiple readings of the same RFID tag in a
fraction of a second ... this "dirty data" must be filtered.)

All Time Order: See All Time Supply.

All Time Supply: An expression coined by R. G. Brown to mean that quantity of

stock that would just satisfy all remaining future demand for a product. Brown's use
of the expression is in the calculation of the total potential remaining demand for a
spare part related to a machine assembly, where the machine assembly itself has
been discontinued by the manufacturer. For a few short years in this situation, the
demand for spares for the main (discontinued) machine is normal and in accordance
with normal service requirements. But as the discontinued machines remaining in
the marketplace are withdrawn from service or are scrapped, it is found that the
demand for spares for the surviving machines declines at an even rate, year on year.
For example, the demand for spares in Year 2 may be 80% of the demand in Year 1,
and the demand in Year 3 may be 80% of the demand in Year 2. The rate of decline
is a geometric series, which can therefore be summarised: if demand in one year is D
and the rate of decline per year is L, the summation to infinity is D x L / (1 - L). For
example, if the demand in one year is 100 units and the rate of decline of sales is 0.8
per year, the total remaining demand is 100 x 0.8 / (1 - 0.8), or 400 units. If the
company guarantees providing spares for 5 years after withdrawal of the main
machine, the demand over the 5 years can be readily calculated ( 100 x 0.8 + 64 x 0.8
+ ... = 269 units). Consequently, in this case, by manufacturing a single lot of 400
units to cover the all time supply, and notwithstanding the cost of holding stock, the
company is providing for the likely demand in its guarantee period, plus a "safety
stock" of 131 units.

Allocation: see Stock (Allocated).

Allocation Basis: See Cost Driver.

Alpha Risk: See Producer's Risk (in sampling).

Alphanumeric Code: "Alpha" means allowing letters of the alphabet, and

"numeric" means numbers 0 to 9. Thus an alphanumeric code is one potentially
containing letters (A, B, C and/or a,b,c ...) and numbers (1, 2, 3 ...). The number on a
UK car number plate is alphanumeric (eg R754ORX).

Always-on: a permanently open connection (a term usually used in relation to the


AM: Amplitude Modulation.

AMH: Automated Materials Handling.

Amortisation: synonymous with depreciation.

Analysis of Features: In the design of a new product, "analysis of features" is a

formal method, employing a matrix, for analysing competitive products. See also
parametric analysis.

Ancestor: A material anywhere within a product's bill of material at a lower level.

Thus if A and B are used to make material C, A and B are C's ancestors. If D is used
to make A, D is also C's ancestor.

Andon Board: In Just-in-Time and lean manufacture, a large electronic board

suspended from the ceiling in the workplace bearing constantly updated figures
relating to achieved and target production. The andon is also used to communicate
warnings on quality and production flow through a simple coloured light system

ANN: Artificial Neural Networks.

Annual Stock Check: Stock which is manufactured by a company is regarded
from the financial viewpoint as an investment waiting to be sold. Consequently, in
order to strike the balance sheet at the end of its financial year, the company must
report its stock, valued at cost price, as part of its current assets (*). If the stock
records are not reliable and there is no programme of cycle counting in place, a
major counting exercise must be embarked on to do so, usually over a short period
such as a long weekend. The annual stock take is a significant cause of errors in
stock records since the counting performed is often not accurately done and
discrepancies between the counts recorded and the stock records are not verified or
investigated as they should be, due to pressure of time. Other causes of error in
annual stock counting are: (1) failure to prepare the stores or warehouse for the
counting exercise (eg by tidying the environment and making sure everything is
correctly labelled); (2) employing inexperienced staff to perform the counting; (3)
rushing the counting exercise through the imposition of a completion deadline. If a
company has reasonably good records accuracy and a cycle counting programme in
place, it should definitely not allow annual stock check figures to overwrite the
records. (* Current assets are assets which are cash or will soon become cash, as
opposed to fixed assets such as land and buildings.)

Annual Usage Value (AUV): The quantity of a material used per annum,
multiplied by its unit cost. The figure is widely used in ABC Classification, since it
reflects both a material's commercial and manufacturing importance.

ANOVA (Single Factor, analysis of variances): The conduct of a process or

procedure may give rise to certain outputs which are recordable as quantitative
data. For example, a job shop produces units of output in the course of a day, and
the number of units produced may be recorded, say, as 100 pieces. However, the
process can proceed under alternative factor levels, or alternative conditions. The
recorded output from the process may then be different depending on the particular,
unique factor or condition prevailing. For example, the number of units of output
produced by the job shop in the day may be different depending whether the day is
Monday, or Tuesday, or Wednesday, or Thursday or Friday. Single factor ANOVA is
used to determine whether the differences in output emanating from the alternative
levels of a particular factor are statistically significant. For example, it may be used
to determine whether the job shop's output is dependent on the day of the week.

To begin, the analyst must first calculate the variance of the observed data at each
factor level (eg the variance in the output figures as observed for each of the days of
the week.) Next, two statisical measures are calculated. The first, SST, is known as
the Between Treatments(*) Variation, or "sum of the squares for treatment". The
SST is a meaure of the closeness, or difference between, the variances calculated.
The second statistical measure is known as the Within Treatment Variation, or "sum
of the squares for error" (SSE). This is a measure of the variation within each set of
observed data. Finally, both the SST and SSE are adjusted for statistical averaging
purposes to take account of the number of degrees of freedom permitted, to give the
MST (mean square for treatment) and the MSE (mean square error). The last step
is to calculate MST/MSE, known as the test statistic F. If F is sufficiently large
(greater than 1, but probably much greater), then there is statistical significance as a
result of the alternative factor levels (eg that the job shop output on Monday is
significantly different from the output on Tuesday, from ... Friday). ANOVA is
widely used in industry, including at the Analyse phase of Six Sigma. Naturally, the
analyst so using it need not be concerned with the statistics ... all he need do is enter
the numbers on, say, a MINITAB screen! Note that multifactor ANOVA allows
significance to be explored when several factors themselves are present. For
example, the output observed between the days of the week, but also qualified by
which season of the four seasons of the year is involved - Mondays in Summer, v.
Tuesdays in Winter .... (* The term "treatment" used in ANOVA and DOE harks
back to the experiments of Sir Ronald Fisher in 1915, using ANOVA and DOE to
investigate the yields from potato crops with different types of types of potato and
different types of manure.) See also The Null Hypothesis.

ANS: Advanced Networks and Services.

ANSI: American National Standards Institute.

ANSI/ISO/ASQC Q9000: The US terminology for ISO 9000.

ANSI ASC X.121 : also known as X.12, a technical standard for the transmission
of EDI messages over telecommunications links. The dominant standard in North
America, Australia and New Zealand.

Anticipated Delay Report: A printout or VDU display showing which works

orders will be completed later than their planned due dates.

Anticipation Stock: see Stock (Anticipation).

ANX: Automotive Network Exchange.

AOG: Aircraft on (the) ground - the ultimate horror for stockists of aircraft spares,
apparantly justifying the abandonment of scientific inventory principles and the
storage of gross and wildly excessive levels of stock.

AOI: Automated Optical Inspection.

AOQ: Average Outgoing Quality. The quality level of parts which have been
subject to sampling. The level will be affected by the probability that certain lots will
be rejected, and that, as a consequence, these lots will be 100% inspected. Since
there has been 100% inspection of some of the parts, with rectification of any defects
found, the overall outgoing quality will be improved. (If all lots are liable to be
rejected by sampling, outgoing quality will be 100%.)
AOQL: Average Outgoing Quality Limit. The worst possible outgoing quality
associated with items that have been subject to a particular sample plan (see AOQ).

API: Application Program Interface.

APICS: The American Production and Inventory Control Society.

APO: Advanced Planning & Optimisation.

APQP: Advanced Product Quality Planning.

APS (UK - Advanced Planning & Scheduling System; US - Advanced

Planning System): A comprehensive planning and operational control system
based on proprietary software and comprising a number of distinct modules, or sub-
elements. The sub-systems include MPS, Forecasting, BOM and many others
common to MRPII and ERP. However, a notable absentee among the modules is
Closed-Loop MRP. The day to day plan control which is effected by Closed-Loop
MRP in an MRPII/ERP system is replaced in an APS by a Finite Scheduling
"Engine". That is, what is at the heart of an APS is the capability to produce a
realistic schedule of work detailing the order of jobs, start and finish times and so
on, taking account of practical scheduling and production rules and the desirability
of optimising throughput. Unlike the cumbersome manner of MRP, APS provides
for interactive interrogation of the scheduling situation and interactive resolution of
problems (eg planning difficulties due to plant breakdowns). See also Finite
Capacity Scheduling.

AQL: See Acceptable Quality Level.

AQL Sampling Tables: See Sampling Tables (AQL or Military).

ARIMA (Autoregressive Integrated Moving Average): A refinement of

ARMA, and better known as Box-Jenkins Technique.

ARMA (Autoregressive Moving Average): A causal forecasting technique and

the forerunner of ARIMA.

Articles of Association: along with the Memorandum of Association, one of the

two key founding documents of a company, the Articles setting out internal
company rules and regulations as they affect shareholders and directors.

ASAP: "As Soon As Possible" - office jargon.

Ascertained Goods: Ascertained goods are a seller's stockholding of particular

goods from which a buyer's order has already been picked or put to one side. That
is, the goods have been identified and selected for sale. See also unascertained goods.
ASCII: American Standard Code for Information Interchange. A worldwide
standard of 128 seven bit binary character codes used in computers to represent
characters (ie numbers, the alphabet and punctuation marks etc.).

As is: A statement that the supplier of goods will not be responsible for the
condition or quality thereof after the buyer receives them. Note importantly, that the
statement has no legal effect unless it was agreed between the supplier and buyer
beforehand at the time the contract was formed. In other words, "received as is" has
no validity if it appears for the first time written on a delivery note.

ASN: Advance Shipping Notice, or Advance Shipping Notification. An Advice Note

- a document sent either electronically or by some other means to a customer
informing him that actual despatch of an accepted order has commenced. The data
on an ASN will typically include the customer order number and purchase order
number, and, for the goods despatched, SKU/product code numbers and quantities,
lot numbers, pallet/ container numbers; and carton numbers. A slightly risky means
available to the customer for updating his records is to enter data direct from the
ASN, and "backflush" the data automatically when the shipment is actually

AS/RS: Automated Storage & Retrieval System - a planned combination of

materials handling devices and materials storage media forming a single integrated
system. Depending on the vendor's specification, an AS/RS type might be a miniload
AS/RS; a unit load AS/RS; an order picking AS/RS; a human-aboard AS/RS; or an
end-of-aisle AS/RS. The typical function of an AS/RS might be that a shuttle travels
to the picking location to retrieve the items to be picked and delivers them to a
station, a dispenser then dropping them into a container or onto a conveyor for
eventual removal and despatch.

Assemble-to-Order: see two-level master scheduling.

Assembly: A structure or machine which is put together (or "built") by fitting

together two or many sub-assemblies. By contrast, a sub-assembly usually has a
defined, single function within the overall assembly in which it is incorporated. Sub-
assemblies themselves are likely to be built from individual product components.

Asset (Current): Assets which are expected to be turned into cash in due course,
or consumed in the course of operations. Current assets are entered in the balance
sheet in increasing order of liquidity (i.e. stocks, then debtors, then cash itself).

Asset (Fixed): Buildings, land and equipment acquired by the company and which
have a continuing use in its business. Fixed assets are entered in the balance sheet in
descending order of permanence (i.e. land first, then buildings ...). Small items such
as typewriters are usually omitted.
Asset (Intangible): an asset having no physical existence but which is nevertheless
identifiable and controllable - four examples of many are the ownership of licenses,
patent rights, trademarks and brand names.

Asset (Monetary): An asset having a stated, unequivocal value (eg cash and

Asset (Non Monetary): An asset which must be sold in the market, and therefore
has a value that is not definite (its value depends on what the market will pay!).

Asset (Wasting): A wasting or sinking asset is a fixed asset that is steadily

declining in value, with no hope of recovery in its value. An example is a mine which
is being gradually depleted of minerals as mining takes place.

Asset turns: a measure of company performance, defined as (sales revenue)/(total

assets). Thus with sales of £25m and total assets of £5m, asset turns are 5.0. Also see
stock turns.

Assumption of Constancy: The reasonable contention that the forces which lead
buyers in the marketplace to purchase goods are rationally based, although liable to
change. The rational behaviour of buyers ... the assumption of the constancy ...
stands behind the validity of sales forecasting (and much else).

ATI: Average Total Inspection. A term used in quality and acceptance sampling to
gauge the financial effectiveness, to the recipient of goods, of a sampling /
acceptance procedure.The ATI is defined as the sum of two costs: (1) the cost of the
required inspection of the sample taken of the incoming parts, and (2) the cost of the
required inspection of incoming lots that have been rejected by the sample plan,
even though their quality was at the level of quality agreed as being satisfactory. As
far as cost (2) is concerned, the possibility of rejecting incoming lots which prove on
later 100% inspection to be satisfactory is inherent in the very activity of sampling.
Clearly, however, the lower this possibility, the better the sampling plan and
methodology. Cost (2) cannot be completely eliminated except through 100%
inspection of incoming parts. However, cost (2) can be reduced in some sampling
methodologies if larger samples are taken - ie if cost (1) is increased. For superior,
effective sampling, a balance should be found such that the total of cost (1) and cost
(2) is minimised. Perhaps a more popular measure than ATI is AFI, Average
Fraction Inspected. This is defined as ATI / N, where N is the number of the
incoming items.

ATO: Assemble to Order.

ATP: see Available to Promise.

Attenuation: reduction. For example, the attenuation of a radio wave's power as
the distance from its origin is increased. (In the case of a radio wave, the attenuation
follows the inverse square relationship - ie as the distance doules, the original power
falls to a quarter.)

Attribute Control Chart: In quality and SPC, an "attribute" is a particular

undesirable quality characteristic such as a blemish, spot, hole or crack in a
manufactured object. One method of monitoring a manufacturing process with
regard to the production of manufactured objects is to take a sample every so-often,
and inspect each part for the presence of any undesirable quality attribute. (A
sample of 50 parts might be taken.) The number of parts having one or more
attributes is then plotted on a graph (the horizontal axis representing time, the
vertical axis the percentage of parts with one or more undesirable quality
attributes). See also Count Chart.

ATR: Automated Trouble Reporting.

Audit Trail: See Transaction Trail.

AutoID: Automatic Identification Technology ... bar codes, RFID and contact
memory buttons.

AUV: annual usage value. See also DGR.

Autarky: Self sufficiency (see Industrial Autarky).

Autonomous Maintenance: The principal component of TPM (Total Productive

Maintenance, since it may be said that shop floor workers have a unique knowledge
of their machines. To make autonomous maintenance a reality, managers must be
willing to give operators the freedom to make their own decisions about machine
performance and machine adjustments, and must provide the training necessary to
enable them to do so.

Available Hours: The total time available at a work centre over a period of time
(usually one week).

Available-to-Promise: It is essential, if customer orders are to be delivered on the

dates promised, that such orders do not exceed the company's commitment to future
manufacture (ie do not exceed the company's declared master schedule. To ensure
that this is so, a portion of the available master schedule effort is allocated to each
customer order as it is accepted. That portion of the master schedule effort which
has not been so allocated remains "available to promise (to future customers)". See
also Capacity Available to Promise, and Capable to Promise.

Average Total Inspected: see ATI.

Az: A shorthand calculation used in SPC
# A B C D E F G H I J K L M

B2B: Business to business. That is, companies which sell directly to other
companies, rather than to private consumers.

B2C: Business to Consumer. Contrast B2B above.

B Class Items: Those products which are in the B Class when a group of products
is analysed and ranked according to annual usage x unit value - see ABC

BAA: Broad Agency Announcement.

Backflushing: The practice of calculating the amounts of stock of components in

an assembly area or on a shop floor by reference to three sources of data: (1) the
original amounts known to have been delivered to assembly or to the shop floor; (2)
the amounts of achieved production of finished work involving the use of the
components; and (3) the Bill of Materials. For example, suppose that 1 unit of
component C1 and 2 units of component C2 go to manufacture 1 unit of P. Next
suppose that 100 units of C1 are delivered to the shop floor and 140 units of C2 are
delivered. Finally, suppose 30 units of P are manufactured. From backflushing, we
deduce that the stock of C1 is now 70 units (100 - 30) and the stock of C2 is 80 (140 -
(2 x 30)). (Account must be taken of any scrapped manufacturing units, of course ...
despite quality improvement drives, scrap in some processes is inevitable, especially
in the chemical and food industries.) Three circumstances where backflushing is
useful or mandatory are (i) where bulk materials are used in long production runs,
and these materials are withdrawn by bulk handling methods as needs be, and
where exact quantities cannot be picked; (ii) where scrap amounts vary widely,
forcing increases in production run quantities until the point is reached where
sufficient good quality material has been produced; and (iii) in closed processes,
especially in food or chemical manufacture. Backflushed records go wrong very
quickly for five main reasons. (1) There may be discrepancies in the recorded Bill of
Materials held on file from actuality, perhaps due to the recorded BOM being out of
date; (2) variances from standard scrap, waste or yield figures are likely to occur,
which are then not taken account of properly (or are not able to be taken into
account); (3) production workers may make product substitutions during assembly
or manufacture; (4) the backflushing of the records being maintained is not carried
out at the time that the component stock is actually used, leading to lack of
synchronisation of records and actual stock; and (5) other unrecorded actions that
constantly take place against the open stock. Consequently, if possible, the original
amounts of stock supplied should be as small as possible, to enable frequent, fast
counting of the remaining floor stock followed by the direct correction of the
backflushed records. Normally, backflushing is performed when an operator
initiates a transaction to do so. Note that if backflushing is used in order to calculate
the expected (future) material amounts to be used in a production job, it is referred
to as pre production issuing or pre production backflushing. However, in most
circumstances, it is initiated after actual production has taken place, and is called
post production issuing or post production backflushing. If the backflushing is not
specifically initiated by the production worker, but instead takes place automatically
in the background, it referred to as blind post production issuing, or blind
backflushing. See also deduct point.

Backlog: In a make-to-order environment, those accepted customer orders on

which work has not yet been started. In a make-to-stock environment, backlog may
also mean accepted customer orders which have not been despatched. If the reason
for their non-despatch is a shortage of stock, the backlog is also a backorder.

Backhaul: In distribution, when a vehicle has delivered goods to an outlying point,

it will be forced to return empty to its home base unless a customer can be found,
near to the delivery point, who requires a load to be transported back (ie
"backhauled") to the original base, or somewhere near it. Backhaul opportunities
are always welcome in distribution, but are often difficult to find. The problem is
not merely finding a customer requiring a delivery back to the original spot, but
finding one who who wants the delivery at the very time that the empty vehicle is
ready to return. However, Roy Harmon* maintains that this is a supine response
and that "old fashioned backhaul" is outmoded. Harmon talks of "circulating
density", and asks why data relating to the disposition and location of vehicles
which have completed their original deliveries should not be communicated to a
consortium's central computer, so that they can be directed to points where they are
now required by members of the consortium for a further (return) journey. See also
cabotage. (* Reinventing the Warehouse, by Roy L Harmon, p 55).

Backload: The load carried in backhaul.

Backorders: In a make-to-stock environment, customer orders still current but

which have not been fulfilled because of a shortage of stock. The existence of
backorders implies that customers are willing to allow their orders to stand until
stock becomes available - ie that they do not cancel the orders and either go
elsewhere or purchase substitute products. See also backlog,

Backscheduling: calculation of the quantities and times of needed step-by-step

materials manufacture by first starting with the quantity and time/date required of
the final manufacture, and then working back in time to the various prior stages.
MRP is a backwards scheduling system - the user specifies the dates required for
master scheduled materials, and the system uses leadtimes to calculate the required
completion dates of supporting manufacture by back calculation through the bill of
materials. APS, on the contrary, is a forwards scheduling system - the system starts
with the current date and schedules plan manufacture forward, consequently
finding the earliest starting dates of other materials next on the product's
manufacturing route.

BACS: Banks' Automated Clearing System - an interbank data exchange and

communication system whereby a company may make direct payment to a
supplier's bank account.

Back Door Selling: a common informal US purchasing term for the selling of
goods or services to companies without their seeking competitive offers or bids.

Backwardation: Normally, but not always, the price of a commodity future is less
than the current spot price. As time progresses towards the maturation date of the
future, the futures price rises until, at the maturity date, the futures price and the
spot price are equal. The rise in the futures price up to the spot price is referred to
as backwardation. But contrast contango.

Backwards Scheduling: The creation of a schedule by assuming that planned

production will be completed at the date in the future when the work is required to
be ready, and then working backwards in time to the current day to find when work
should start to meet this required date. MRP is a backwards scheduling system.

Bailee - see Bailor.

Bailment - see Bailor .

Bailor: A party (such as a person or company) committing goods, known as

"bailments", on trust to a "bailee", the bailee being contracted to do work on the
goods so committed. Thus the bailor commits his jacket to a dry cleaner, the jacket
being the bailment and the dry cleaner being the bailee. The contract (for the
cleaning of the jacket) is between the bailor (the customer) and the bailee (the dry

Balance Sheet: A major financial statement required by law and good accounting
practice to be completed and filed as part of a company's annual returns (along with
the Profit and Loss Account. The balance sheet shows the assets and liabilities of the
company at the point in time it is struck - ie the financial year end. Since the capital
value of the company equals assets less liabilities, the balance sheet also indirectly
gives the value of the company.

Balanced Scorecard, The (BSC): An idea put forward by Robert Kaplan (*) and
David Norton that organisational management within the company must take into
account a complete range of sub-objectives, some of which may appear to be in
conflict and some of which may be mutually reinforcing. A balance must be arrived
at by weighing the conflicting requirements for ... (1) corporate learning and
growth; (2) superior operation of the company's business processes (especially in
relation to its "mission"); (3) intense focus on the company's customers; and (4)
soundness of financial status. So far, so good - nothing new there. However, what is
then put forward is the meaningless phrase you can't improve what you can't
measure (if the visitor to this glossary does not think that the phrase is meaningless,
he should reflect on both the word improve and the word measure in this context.)
But if the phrase is indeed accepted as having meaning, and if we want our company
to "improve", then we must follow Kaplan and Norton's logic further. For it follows
that there must literally be a balanced scorecard, one quantitatively measuring the
perspectives (1) to (4) previously related. From this point, Kaplan & Norton's
Balanced Scorecard idea drifts into a dreamworld haunted by silly numbers, psycho
babble and highfalutin consultants, and the generation of more froth than you get
from the caffe latte machine at your local Starbucks. (* Prof. Kaplan was also co-
inventor with Robin Cooper of Activity Based Costing, a concept also deeply suspect
for reasons very similar to those surrounding The Balanced Scorecard.)

BAM: (1) Bottleneck Allocation Methodology, or (2) Business Activity Monitoring -

the monitoring of key performance indicators, perhaps as a substitute for old-
fashioned good management.

Bandwidth: the capacity of a communication link, measured in bits per second.

Bank Bill: see Bill of Exchange.

Bankruptcy: A company cannot become "bankrupt": this term is reserved

exclusively for private individuals, and comes about when a person's creditors
successfully petition the Official Receiver (*). The Receiver will appoint a trustee,
who is then responsible for investigating the person's assets. A bankrupt person is
permitted to carry on a business, but must do so under severe restrictions. If a
company cannot pay its debts, its creditors may appy to the courts to "wind it up" -
an insolvency practitioner is appointed to liquidate its assets, the proceeds being
then distributed among them in an order laid down by law. See also "Chapter 11" in
this Glossary. (*) The Bankrupcy Court is located in Carey Street, in the City of
London - probably the origin of the slang expression in queer street.

BAPI: Business Application Programming Interface.

Bar Code: One Dimensional (1D) bar codes are the familiar (*) representation of
the individual characters and digits making up an item's code by a succession of
vertical lines of varying thickness, the lines capable of being read and interpreted by
a computer scanning device. There are numerous alternative 1D systems for
representing an item's code. Examples are Interleaved 2 of 5 (having the advantage
of high physical density of the code); Code 39 (popular in manufacturing industry);
EAN (European Numbering System); and UPC (Universal Product System). See the
individual entries for these four systems. See also RFID tags. Two Dimensional (2D)
bar codes, also known as stacked bar codes, comprise small postage stamp size
complex patterns that appear to the naked eye as square dots and other tiny
geometric shapes. 2D bar codes convey vastly more data than their 1D cousins and
have been referred to as portable databases. Technologies include PDF417,
MaxiCode and DataMatrix. They require to be read by special scanners. (* The first
consumer item ever to be bar coded and scanned with a bar code reader was a
packet of Wrigley's gum on June 26th 1974.)

Barrel: the customary unit of measure of oil and other petroleum products, being
42 US gallons (= 35 imperial gallons or 159 litres). There are approximately 7.33
barrels of crude oil per tonne.

Barter: The exchange of goods for other goods, rather than for money. It is
estimated that some 10 to 15%. of world trade is conducted in this way. Barter is
especially likely to be encountered in trade between countries with "non
convertible" currencies, these being currencies with no value outside their countries
of origin.

Base Index: A seasonal factor, used in forecasting (see Seasonal Factors).

Batch: A quantity of material manufactured in a single production run.

Batch (Costing): See Costing (Batch).

Batch (Production): A method of production by which many units of material are

produced in a single manufacturing operation. In engineering, batch production
may mean the production of a lot of X units (say 200 units, cut from a single sheet of
metal). In the process industries, it is likely that a batch of material will be made
according to a specific recipe ... for example, a batch of 1000kgs of X made by
mixing 600kgs of ingredient Y, 700kgs of ingredient Z ...

Batch (Split): See Split Batch.

Batch Number: A unique identification number assigned by production

management to a specific, identifiable batch of production. Records of production
are identified by batch number, and such records help if it becomes necessary to
trace final material later (ie the fault that caused one unit of production to be
defective may be present in all units in the batch).

Batch (Order) Picking: in stores and warehouse operations, picking the stock for
two, or several, orders together, then accumulating the picked stock at a further
location, in order to reduce the overall picking time, especially time spent travelling
to the stock. See wave picking.
Batch Progress Control: Batch Progress Control is the name that has been given
to a simple way of keeping track of a product's stock count, by keeping track of the
stock of separate batches of the product as they are used up over time. Suppose two
batches of material M are delivered, each batch comprising 1000 units. Stock of M is
2000 units in all, but two separate accounts are held on its record: Batch 1 (1000
units) and Batch 2 (1000 units). Stock over time is used on a strictly FIFO basis,
each withdrawal transaction referring to a specified batch. After a time, physical
stock of Batch 1 will be reduced to nil. At this time, the record for Batch 1 should
show 0 units (with Batch 2 showing 1000 units, of course). If the record for Batch 1
is not 0, an adjustment is made (since it known that the physical stock is nil). Batch
Progress Control is especially effective in a Variable Location warehouse, since with
this method of storing stock, locations are continually becoming empty - as each
location becomes empty, the fact is reported to the system as a stock "count" of zero.

Batch Scale: a multiplying factor, such as 1.62 or 0.78, applied to a normal product
batch quantity and the normal quantities of the batch's material components, to
adjust all such quantities to non-standard conditions. Thus the normal batch
production quantity might be 1000kgs, but the plant manager may decide to make
1200kgs instead, employing a batch scale of 1.2.

Battle of the Forms (legal): Where a purchase negotiation is not face-to-face, but
conducted by post, the so-called Battle of the Forms might determine what
constitutes an offer and what constitutes a counteroffer. The supplier offers to sell
on his conditions, 'attached hereto', perhaps in the letter, hoping the contract will be
set up on his own standard terms. The buyer 'accepts', agreeing the supplier's price,
but does so by way of his own purchase order document, containing his standard
terms, enclosed in his letter. This is a not acceptance of the supplier's offer, including
the supplier's standard conditions. Instead, it is a counteroffer substituting the
buyer's standard terms. If the supplier now goes ahead and delivers the goods
without more ado, the contract is formed on the buyer's terms. It is clearly
important for each party to know the state that has been reached - ie what the
prevailing position is with regard to standard forms, letters, faxes and e-mails. Note
that the convention is followed in law that if there is acceptance of an offer by post,
it occurs at the moment such acceptance it is posted (Such acceptance is still valid
even though the physical document might be lost in the post.) Note that this rule (of
defining acceptance as the moment of posting) applies only to the acceptance of an
offer. It does not apply to making an offer, or revoking an offer, or any other matter
in negotiation. (Thinking otherwise is a trap many people fall into. Note, however,
that the contract itself may stipulate that acceptance is to be made in some other
way than posting, for example, by actual communication.) Note finally that the
problem which the posting convention overcomes (ie delay) does not apply when fax
or email are used. Legally, then, in these cases, acceptance is deemed to take place
when the fax or email is received.

Bayesian Forecasting: A powerful technique ideally suited to the manufacturing

environment because of the rapidity of change of behaviour often present in product
demand. The technique was derived in 1948 from Bayesian Statistics by Prof. David
Champernowne and refined by Prof. Jeff Harrison and Colin Stevens. The method
is mathematically highly complex, and relies on tracking the relative probabilities
that a time-series under analysis is in one or other of four states: (1) stationarity; (2)
trend; (3) step change; and (4) random fluctuation. The method is particularly good
at distinguishing between a random fluctuation in demand and a step change. For
example, when unusually high (or low) demand is first recorded, a high probability
will be assigned to its being a random outlier. If a second high (or low) demand is
now received, a rapid downward adjustment is made to this probability and an
equally rapid adjustment made to the probability of a step change. The forecasts are
thus quickly brought into line with the new level. Bayesian forecasting is being
extensively taken up by forecasting software vendors.

Bayesian Statistics: Bayesian statistics are experiential statistics. That is, they are
based on experience and observation. The fundamental Bayseian formula relates a
prior probability and a posterior probabability and can be stated as PRIOR
is meant with an example, suppose we have equal numbers of two types of biassed
six-sided dice in an urn - Type A dice come up with a '6' 30% of the time, and Type
B come up with a '6' 60% of the time. We first take a die from the urn - the
probability of its being Type A is .5 and the probability of its being Type B is also .5.
If we were now to roll the die, the chance of its being Type A and getting a 6 with the
roll is .5 x .3 (= .15). The chance of its being Type B and getting a 6 with the roll is .5
x .6 (= .30). Suppose we now roll the die we have just removed from the urn and
obtain a 6. According to Bayes' theorem, the probability of the die being Type A is
given by: (the probability of rolling a 6 and its being Type A)/(the probability of
rolling a 6 and its being Type A + the probability of rolling a 6 and its being Type B).
In other words, with our example, if we roll a 6, the chance of the die being Type A is
.15/(.15 + .30) = 1/3, and the chance of its being Type B is .30/(.15 + .30) = 2/3. In
summary, the outcome of the roll of the die has allowed us to modify our original
probabilities as to the type of die we withdrew from the urn very considerably from
the original .5 and .5.

Bear (also Bull and Stag): A bear is stock exchange jargon for a trader on the
stock market speculating that a share price will fall; a bull is jargon for a trader
speculating on a price increase. A stag is a trader who subscribes to an initial public
company flotation of shares with the intention of immediately selling his holding
when the shares are later traded - ie the stag is expecting the price later traded to be
higher than the issue price.

Bell Curve: a popular term for the Normal, or Gaussian distribution.

Benchmark: To an organisation seeking to improve its own "performance",

benchmarks are quantitative measures of performance achieved by others, extolled
as desirable targets to which it should aspire. Benchmarks are usually chosen from
three sources: (1) internal operations (ie within a large corporation, other companies
within that organisation); (2) external companies (in other industries); and (3)
competitive companies (rival companies in the same industry). Just a few years ago,
"benchmarking" was being promoted as a means of enhancing a company's current
performance in some particular sphere. That is, find another company doing better
than yourself (ie having a superior benchmark), study it to identify how the conduct
of its operations is different or better, and copy it. One realisation that followed was
that, often, the reasons for differences between ones own performance and the
standards of others may be due to fundamental differences between ones own
systems and those of the others. As well, there are likely to be significant or
fundamental and unavoidable differences from company to company between the
capabilities and motivation of their staff and the natures of their markets. (An
example of false comparison is warehousing/distribution cost as a percentage of
sales income - this ratio cannot be compared across companies because of company-
to-company differences in pricing policy and sales volume.) Nevertheless,
benchmarking may achieve four objectives: (1) regularly comparing KPIs (Key
performance indicators), despite the pitfalls just mentioned; (2) identifying and
understanding the reasons for differences in performance; (3) sharing best practice
and new ideas; and (4) reviewing progress and ensuring continuous improvement.
See also targets , productivity and value added.

Benchmark Jobs: One of the tasks required to be performed as a part of Reward

Management is that of job evaluation. In evaluation, either by a quantitative system
such as point-factor or by a qualitative system such as simple grading, certain
company jobs may be regarded intuitively as absolutely typical of others. It will be
believed that an in-depth analysis of any such typical job will give results that can be
applied to many others, without the need for the individual analysis of these others.

BER: Beyond Economic Repair, or Bit Error Rate..

Beta Risk: See Consumer's Risk (in sampling).

Beyond Economic Repair: A tool or piece of equipment requiring repair, but

where the cost of the repair necessary is estimated to be greater than X% of the cost
of a new replacement. The percentage X is set by technical management. For
example, if X = 80% and the cost of a replacement tool was £200, the tool would be
beyond economic repair if the expected repair cost was over £160.

BGO: blinding glimpse of the obvious.

Bi Modal: See Mode.

Bias (in measurements): see Accuracy.

BIC: Best in Class (see BOB).

Big Bang Implementation: A number of MRP consultants recommend that in
developing a new system, the "cut over" (as they call it) to the new system from the
old one should be undertaken over a very short time (a few days). The
recommendation is risky and expensive - by contrast, see "Evolutionary

Bill of Configurations: Synonymous with Modular Bill of Materials.

Bill of Events: a critical path analysis - see PERT.

Bill of Exchange: A bill of exchange is a key financial "instrument", or device,

used for the exchange of money in international trade. It comprises a document
signed by the drawer of the bill (ie the party originating it, such as the company
buyer) ordering a payee (eg the buyer's bank) to pay a specified amount of money to
a third party, the drawee (eg the supplier of the goods bought). If the bill of exchange
is "accepted", or guaranteed, by the payee, it can be traded in the money markets.
If the payee is indeed a bank, it is termed a bank bill; if the payee is a trader or
broker, it is a trade bill. The exchange and use of a bill of exchange between the
parties concerned will be governed either by The Bill of Exchange Act, 1884 or by
the Geneva Convention of 1930. A bill of exchange is analogous to a domestic cheque
- the buyer may be the drawer of the cheque, the buyer's bank the payee and the
supplier the drawee. However, in international trade, the BOE has many further
uses than has a mere cheque: it facilitates the granting of trade credit; it provides
evidence of the validity of a supplier's demand for payment; if it is accepted, it gives
the supplier access to credit and finance; it provides the payee (ie the bank or
trader) with evidence of indebtedness; and its existence assists clarity in the settling
of possible disputes. In the US, the bill of exhange is referred to as a "note". Bills of
exchange have been used in Europe since the 14th century.

Bill of Features and Options: Synonymous with Modular Bill of Materials.

Bill of Imprest: an order authorising a person to draw money in advance (OED).

Bill of Labour: A structured listing resembling a bill of materials, but instead

showing the standard work hours needed to produce all components in a key work

Bill of Lading: Expressed in shipping terms rather than in terms of air or road
freight, a bill of lading is a memorandum issued by the captain of a vessel, on behalf
of the distribution company responsible for the shipment of the goods he is carrying,
stating that goods stowed on board are in (apparently) good condition. The
memorandum acts as the acknowledgment of receipt of the goods by the shipment
company and is evidence of a contract between the two parties. (Eventually, the bill
of lading provides proof of shipment and delivery - the document bears other details
such as the place of departure, the destination, the price of freight etc..) A bill of
lading is also assignable - that is, the company/person to which it has been assigned
can claim possession of the goods.

Bill of Materials: A single-level bill of materials, as the term is applied to a sales

product or assembly, is a representation of that product and the immediate
components of which it is composed. By "representation" is meant not only the
identities of the components but the number of them which go to make it up (eg, for
a bicycle, ... the components are two wheels, one frame etc.). This concept can be
extended further if the single level bills of materials of the individual component
materials themselves are included in the picture (for example, one wheel consisting
of a rim and 180 wheel spokes ...). Similarly, the bills of material of these constituent
sub-components can also be added, and so on all the way down to the basic raw
materials. If all of the sales products, together with all of their components, sub-
components and, eventually, raw materials, are included in a grand representation,
then the company's overall bill of materials is complete. Many components will be
common to more than one final sales product, of course, and many sub-components
will be common to more than one component, so that this final representation may
be thought to be a highly complex diagrammatic structure with intertwined
interdependencies. If an attempt were to be made to draw or illustrate the complete
structure literally, perhaps centred around a multi-level hierarchy, the complexity of
doing so would in most likelihood be too great. In practice, the representation of the
bill of materials is not made diagrammatically. Instead, it is made on the computer
and is relatively simple. Thus the bill of materials database contains one record
entry for each separate item involved in the total bill - ie one record for sales
product X, one record for sales product Y ... one record for component C1, one
record for component C2 ... and so on. Furthermore, the data associated with each
such record comprises only the identities of the product's immediate constituents.
Conceptualisation of the database is straightforward and its maintenance is simple.
When the user wishes to analyse the bill of materials' structure or investigate the
intertwined dependencies referred to above, this is done at the time required, by
immediate manipulation of the bill of materials file by the computer. (Questions that
the user might pose are: "what raw materials are involved in this sales product's
manufacture?", "what are all the sub-assemblies which contain this sub-
component?".) Computer manipulation of the bill of materials is a well-established
skill. The tools used for such manipulation are recursion (a program invoking itself)
and, particularly, the creation and searching of index lists. See also planning bill of

Bill of Materials (Levelled): The bill of materials can be pictured as a hierarchy

of constituent products, with sales products at the "top", components lower down,
then sub-components and finally raw materials. In the process industries, there may
be as many as a dozen levels in the hierarchy. For the purposes of materials
planning, it is necessary to determine the levels of all the constituent products. The
reason is that in calculating material plans, it is necessary to proceed methodically,
level by level, down the bill from the top level to the bottom, to ensure that the total
requirements are added for components which may be common to many higher
level structures. To find which products are at the top of the bill, each product on
the file must be checked to see whether any other product uses it (i.e. has it as a
component). If it does not, then that product is at the top and is assigned to Level 0.
Following the detection and assignment of all Level 0 products, the immediate
constituents of them can be assigned to Level 1.When all these assignments have
been made, the constituents of these products in turn can be assigned to Level 2 ...
and so on down the bill to the raw materials. Note that the level number to which
raw materials are assigned is "Level 99". This, however, is merely a numbering
convention to allow them to be distinguished from other entries in the bill - they are
not literally at this level. The bill of materials is said to be levelled when the
analytical process is complete. Most importantly, see also Low Level Coding.

Bill of Materials (Indented): A list of the components in the bill of materials of a

product, the list being set out diagrammatically such that the materials in each
successively lower level of the bill are typographically indented increasingly far from
the left-hand margin of the page. Thus "bicycle" is next to the left margin, "wheel"
is next, half an inch from the margin, "spoke" is next, one inch from the margin,
"tyre" and "inner tube" are next, each one and a half an inches from the margin ...
and so on.

Bill of Quantities: (hence the professional term quantity surveyor) A document

which itemises the quantities of materials and required labour in a construction
project. Quantities and labour are derived from design drawings used by
contractors for tendering, progress reporting, effecting design variations, stage
payments and so on to final commissioning and handover.

Bill of Resources: A list or other representation of all critical plant resources

needed to make an end-item. ("Critical" is usually taken to mean a resource known
in the past to have been a trouble from the capacity viewpoint.) The bill of resources
can be used in rough cut capacity planning to make a quick evaluation of the
viability, from the capacity viewpoint, of a potential master schedule.

Bin/Bin Card: A bin is an old-fashioned term for a receptacle for holding stores
stock. A bin card is, literally, a card kept within the bin, and on which the number of
items present is inscribed, along with the dates and numbers of issues and receipts
that have taken place. In effect, it is a manual stock record.

Binomial Distribution: a theoretical frequency distribution having a close

connection with the well known binomial expansion, the distibution being concerned
with the relative probabilities of an event being "true" or "untrue".

BIOS: Basic Input Output System.

BIS: Bank of International Settlements, a consortium of the world's major central

BIST: Built-in Self Test.

Black Belt: The leader of a project team (of green belts) in a Six Sigma project.
Black belts need to be thoroughly versed in the Six Sigma methodology of DMAIC,
familiar with the statistical techniques encountered in the Analyse phase of DMAIC
and in possession of qualities of leadership. On the appointment to a Black Belt
position of a person of suitable personal qualities, but without experience, intensive
Six Sigma training of perhaps several weeks will be necessary. The Ju Jitsu "belt"
terminology emanated from Motorola, the founders of Six Sigma. In companies
committed to Six Sigma, at least in the US, it is estimated that there will be one
certificated black belt per 100 employees.

Black Book (Little): A humorous term for an imaginary small book supposedly
containing a list of the jobs and dates which a foreman is working to. The jobs and
dates are presumed to have been arrived at by the day-to-day pressures of work, by
intuition and by other informal means - i.e. not arrived at via a formal planning
system. The "little black book" is a term used by those advocating a logical, formal
planning system (such as APS or MRP) who wish to denigrate informal alternative

Blanket Order: An order placed on a supplier for a raw material intended to cover
the buying company's requirements for a considerable period of time (say, for 6 or
12 months). However, the material is not to be delivered in a single lot. Instead, the
buyer will "call off" small amounts from the blanket order for individual delivery as
and when he needs them. The advantages of the blanket order to the buyer are the
need to raise only a single purchase order and the obviousness of the size of the
order to both parties when agreeing the unit price of the material. Blanket orders
are provided for in materials planning systems. They are not to be confused with the
wasteful and pernicious practice of consignment stock. When agreeing a blanket
order arrangement, the two parties should be quite clear whether the contract is
severable or non-serverable - see stage deliveries.

Blow Through: See Phantom Part.

BM: Buffer Management.

BMC: British Motor Corporation - a motor company formed from Austin Rover
and Morris Motors in 1952 by an ill-advised merger encouraged by government,
and which was subsequently not well served in its management and commercial
performance. BMC marques included Austin, Morris, Riley, Wolseley and MG.

BNQP: Baldridge National Quality Program (national = US).

BO: Business Objective.

BOB: Best of breed - usually software considered to be "the best" in its field (best
at scheduling, best at forecasting, best at ...). In order to obtain the software
functionality it requires, a company may prefer to purchase many individual BOB
packages from diverse software suppliers, with the probable requirement then, of
course, of swapping data between them, perhaps by inefficient intermediary data
files. It may prefer this strategy rather than the purchase of an integrated system
from a single software supplier, this course of action presenting no problems of data
swapping but risking the danger of the individual functional modules in the
integrated system being inferior to the BOB packages. Many analysts indeed
consider the multi-BOB solution to be superior to the installation of an ingrated
system with many critical components being inferior, but managers( who make the
final decisions) come under intense sales pressure by the integrated system vendor
and in any case love the sound of the phrase a fully integrated system. Synonymous
with BIC (best in class).

BOD: Business Object Definition.

BOGOF: "Buy one, get one free". This retail offer not only stimulates demand, it
temporarily shuts rival products out for longer.

BOH: Balance On Hand.

BOK: Body of knowledge - all that is known about a subject (referred to more
elegantly by the Latin term the corpus).

Bonded Warehouse: The colloquial term for an excise warehouse, this being a
storage facility approved by the Commissioners of Her Majesty's Revenue and
Customs for the deposit of goods liable to excise duty (ie tax) without the payment of
such duty. The purpose of the bonded warehouse is so that payment can be
postponed until the goods are removed for sale and use by final customers. Duty is
otherwise liable to be paid on alcoholic drinks and tobacco goods immediately on
manufacture. However, instead, such goods can be deposited "in bond" in the
bonded warehouse without payment taking place, payment being made immediately
only on their later removal. This privilege also applies to certain classes of goods
directly subject to duty on being imported from abroad. Bonded warehouses were
once policed by customs officers themselves, but are now managed by the company,
subject to approval and periodic inspection.

Bonus Schemes: When associated with shop floor work, especially as practised in
the engineering job shop, a bonus scheme is intended to reward machine operators
financially for achieving rates of production above average. Bonus schemes are often
complex and very particular to a specific production environment. For example,
management may believe that a rate of production above a certain level could be
achieved only at the expense of some other aspect of the job, such as the
maintenance of quality levels, and may wish to modify the bonus payable to
discourage the higher rate of output. Bonus schemes used in the past include
Halsey-Weir Premium; Barth Variable Sharing; Bedaux Point; Piece Rate; Gantt Task
& Bonus; Emerson Efficiency; Rowan Premium; and Taylor's Differentiated Rate.

Book Debts: in company accounts, cash sums owed to the company by customers.

Book of Account: Synonymous with Ledger.

Book of Prime Entry: Synonymous with Journal.

Bootstrapping: In demand forecasting, the creation of forecasts for more than one
period ahead, especially when the more distant forecasts are calculated by
employing the near-in forecasts themselves. For example, the forecast for July may
be calculated by averaging the three last months demand figures. If these were April
4 units, May 5 units and June 6units, the forecast for July is 5.0 units (ie (4 + 5 + 6)/3
= 5.0). The bootstrapped forecast for August, the next period after July, is therefore
5.3 (ie ((5 + 6 + 5.0) / 3). We see that we have used bootstrapping to calculate the
August forecast, since one of the figures in doing so was the July forecast.

Bottleneck: If a bottleneck is temporary, it is a work centre with insufficient

capacity to meet a schedule. The phenomenon of "wandering bottlenecks", for
example, arises when either (1) a large lot size of production causes a temporary
bottleneck first at one plant, and then, when output has at last been achieved, at the
next step along the way, or (2) when two or more large lots by coincidence require
processing at the same time on the same plant. If the bottleneck is permanent, it is a
work centre with insufficient capacity to meet the master schedule demand on it
over a long period of time. Apart from the matter of obtaining more capacity, the
issue then is how such output as is achieved is to be allocated to the next stages of
production. For example, component C may feed into product A and product B, but
the work centre making component C is bottlecked. So, are the total needs of
product A for component C to be fulfilled, leaving product B short, or are the total
needs of product B for component C to be fulfilled, leaving product A short? For a
glimpse of real complexity, imagine the decisions that must be made when
bottlenecks supply other bottlenecks. Such situations exist in industry and are
usually resolved using mathematical programming, a variant of mathematical
"optimisation" techniques. See OPT.

Bottom Up Re-Planning: The solving of a capacity problem relating to a material

lower in the bill of materials by examination of the materials and capacity situation
at increasingly higher levels. For example, the requirements for a component lower
in the bill will spring from the corresponding requirements to support plans for
material higher up in the bill of material. However, the higher level plans may
involve unnecessarily large lot sizes. If the lot sizes are reduced at this higher level,
the consequently reduced needs for components at the lower level may solve the
capacity problem there.
Bought Deal: In the City of London, a merchant bank or major investment house
may be engaged by a company to set the price of, and manage, an issue of new
shares, the bank agreeing to underwrite the issue (ie agreeing to purchase any unsold
shares itself). However, instead of proceeding in this fashion, the bank may buy the
whole of the issue itself, usually at a discounted rate, thus avoiding the risk and
expense of the public launch.

Box-Jenkins Technique: A causal forecasting technique refined and described in

the 1970s by George Box and Gwilym Jenkins in which current demand for a
product is related to many past demands for the product (say, the past 8 months
demand), the relationships being described by a set of autocorrelations. The key to
the technique is similar to exponential smoothing, namely the "weightings" applied
to the autocorrelations become less and less the older they are. To make the
application of Box-Jenkins practical, the user must first choose a demand pattern
describing the demand for a product in question from a menu of patterns suggested
by the software vendor. While popular in the 1980s, Box-Jenkins has lost ground to
Bayesian forecasting, and is actually now being omitted from models incorporated
in multi-model forecasting systems.

BPR: Business Process Re-engineering. The examination of the processes and

procedures which make up the operational activities of the company, and through
which its products and services are delivered, such examination being conducted
with a view to streamlining them to eliminate those which are wasteful (*) and to
focus those which "add value" more intently on customer requirements. BPR was
"flavour of the month" in the 1990s, but when attempted in practice, often
floundered due to the huge complexity of the upheavals and project work needed to
bring it about. To accomplish BPR typically required the assembly and management
of vast resources in terms of IT, training, materials and facilities ... not only were the
projects too ambitios per se, it was required that they should all knit together
perfectly from the start. (* Activities that add cost but do not add value - see Just-in-

BRC: British Retail Consortium, an organisation supported by the retail trade

which, among other things, keeps track of monthly consumer retail spending.

Breach of Contract (legal): In short, a breach comes about when one party or the
other fails to filfil the terms laid down in the contract. In fact, the breach may be a
breach of condition or a breach of warranty. (In the former case, the injured party
may if it wishes terminate the contract; in either case, it may sue in the courts for
damages.) Note that one party cannot, by an injurious act, bring a contract to an
end without the specific agreement of the other party. For example, if a supplier
states he does not intend to deliver the goods next month, the buyer can immediately
sue him in the courts - ie he does not have to wait until next month (an anticipatory
Breakback: local jargon for the explosion of the bill of materialsThe opposite of

Breakbulk: A node within a distribution network having a purpose opposite to that

of a consolidation centre. For example, a full container load may be transported
economically by a single vehicle to a distant breakbulk node, and the contents then
split into a few small loads for local despatch to individual customers or to other
subsidiary distribution depots.

Breakdown Maintenance: also known as Corrective Maintenance.

Breakeven Point: In incoming materials, an analysis of the cost of inspecting one

incoming part and the cost of allowing an incoming non-conforming part to enter
production (with the necessity eventually of correcting or repairing it). If the cost of
inspection is k1 and of repair is k2, the breakeven point is k1 / k2. That is, if the
fraction of non-conforming parts of incoming material is p, then if p > (k1 / k2),
100% inspect incoming parts. If p < (k1 / k2), admit all parts with no inspection.
Naturally, policy may dictate that some incoming parts should are always be 100%
inspected - say, items which are life critical. Other parts may never be 100%
inspected, such as those destroyed on test.

Breakforward: synonymous with implosion (of the bill of materials). Thus as a

verb, the manufacturer might determine that component X is eventually used used
in the manufacture of finished product Y by breaking forward X's bill of materials.
As a noun, a breakforward is a statement or list of later stage materials and their
usages in 1 unit of the starting component.

BRIC powers: Brazil, Russia, India and China, emerging today as new economic
"super nations".

Brief (The): see Product Brief.

Brisch Classification System: The Brisch system is a popular means of coding

parts and components for engineering classification purposes. Such purposes
typically include the filing of technical and drawings data, and the establishment of
manufacturing "families" having common production routes. In the Brisch system,
each item first has assigned to it a primary code, being dependent on its shape and
dimensions. Next, secondary codes are attached to the primary describing other
relevant aspects of the item, such as the machining operations involved in its
manufacture or the component's metallic finish. An advantage of the Brisch system
is that the coding can be tailored in part to a particular company's peculiarities.

Broadband cable network: an always-on direct connection to the Internet,

provided through a fibre optic cable. An alternative to ADSL.
Broadbanding: The establishing of a company pay structure of successive grades,
but with large grade differentials - say, 100% rather than the more usual 20% (see
differential). The effect of large differentials is to reduce drastically the number of
grades in the structure needed to accommodate the range of pay from from lowest to
highest. (For example, to cover a pay range from £10,000 pa to £100,000 pa may
require18 grades with 20% differentials. The same range of pay may be covered
with 5 or 6 grades with 100% differentials). The advantages of broadbanding are
claimed to be a reduction in competition among employees forever to improve their
grades; increased cross-company flexibility in so far that employees can be
transferred between jobs without a change of grade being involved; and an
increased ability of a manager to reward staff financially for good work, without
having to re-grade them to do so. A disadvantage of broadbanding may be the
removal from staff of the incentive represented by grade promotion.

Brooks Wilson Cycle Counting: A procedure suggested by Roger Brooks and

Larry Wilson in their book Inventory Records Accuracy (*) for selecting the items to
count each day in a cycle counting programme. Parts in a particular specified area
are selected to count on a particular day if visual inspection of the area on that day
shows they currently have very low stock (or that the stock present is very clearly
quite different from the quantity recorded). Brooks-Wilson cycle counting results in
an increase in cycle counting effectiveness of some 15 times - say, to 300 counts per
day, rather than 25 per day.

Brown Goods: An easy term for toasters, electric irons, kettles and similar small
scale consumer items. Contrast "white goods".

BSC: See Balanced Scorecard

BTF: Build to Forecast.

BTO: Build to Order - see make to order.

BTR: British Tyre and Rubber.

Bucket: Requirements calculated by a particular planning system are qualified by

the times when the plans must start and when they must finish. The divisions of time
on which the system is based are referred to as buckets (*). Thus a system which
calculates plans to the nearest week is a weekly bucketed system; divisions of time to
the nearest day means a daily bucketed system (ie start Plan X on Day 26 and finish
on Day 30; finish Plan Y on Day 36 ....). A disadvantage of weekly buckets is that
actual scheduling and, especially, sequencing is highly imprecise. The use of weekly
buckets suggests that the materials planning system incorporating them is used only
in a very broad way, and that the bulk of planning, in reality, is done in little black
books! A daily bucketed system has also been called a "bucketless" system. (* The
origin of the term "bucket" is the physical picture of a segment of hard disk surface
on which all plans were stored in the past as they related to a given time division,
and the resemblance of the picture of the segment, literally, to a bucket.)

Budget: In the manufacturing company, there are various types of budget, used to
plan and monitor from the financial angle the activities of different departments
and groups. From the costing viewpoint, a budget is the sum of money it is
calculated will be spent in a cost centre over a year in order to produce the
"production forecast". The production forecast is the production quantity that it is
forecast that the cost centre will be called on to make in the year. This quantity is
used in the calculation of the standard costs.

Buffer Stock: see Stock (Buffer).

Build to Order: Synonymous with Make-to-Order.

Bull: see bear.

Bullwhip Effect: The effect on inventory levels across a supply chain of delays in
communicating changed requirements - see Forrester's Curves.

Burden: In costing, the indirect cost element of a production cost. A term chiefly
used in the US.

Buyback: In countertrade, the agreement by the supplier of capital plant to take

part of the plant's future output in part payment.

By Products (in Materials Planning): When two different products are

produced as a result of the same process, but only one is required and the second is
regarded as scrap, or waste, materials planning must take account of the situation.
# A B C D E F G H I J K L M

3C: See CCC.

4C: See CCCC.


c Chart: See Count Chart.

C Class Items: Sometimes used as a general term for unimportant or insignificant

items. Strictly, however, C-Class items are those products which fall into the C Class
when a group of products is analysed and ranked in some way (ie placed in order in
some way). The ranking is often in accordance with "annual usage x unit value" -
see ABC Classification and "the trivial many". As explained under ABC
Classification, the C items are regarded as being relatively unimportant. For all
that, note however that a number of them, albeit having low annual usages and low
values, may be "line stoppers" - difficult and troublesome to replenish, but
absolutely vital to ongoing operations. These may merit honorary promotion to A-
Class in order that tighter control can be kept over them.

Cabotage: If a vehicle delivers goods to a foreign point, and then picks up a new
load for delivery to a second point within the foreign territory, the action is referred
to as cabotage, not backhaul. (Backhaul applies only if the second point is back in
the vehicle's own country.) Because cabotage is seen as threatening to the foreign
country's haulage business, regulations exist to prohibit it in such European
countries as France.

CAD: See Computer Aided Design.

CAGR: Compound Annual Growth Rate.

Calling Population: See Queues (2)

CALS: Continuous Acquisition and Life-Cycle Support, or Commerce At Light


CAM: Computer-Aided Manufacture, or Customer Asset Management.

Campaign: in the process industries - chemicals, glass, steel and so on -
manufacture becomes increasingly efficient as more and more product is made on
dedicated plant. That is, percentage yields increase from batch to batch and the
operation of the plant by process workers becomes increasingly efficient. A
campaign is the manufacturing undertaking from the start of manufacture to its
final completion some time later when sufficient material has been produced at high
efficiency. The campaign might be expressed as a duration of time (a campaign of
three weeks) or as a certain amount of production (a campaign of 22 batches). In
industries involved in campaign manufacturing, a minimum campaign is usually

CAMU: Computerised Assembly Mock Up.

Cando: (Literally the English phrase able to do something). A Japanese inspired

technique, in English standing for C Clean Up (get rid of what is unnnecessary); A
Arrange (organise the workplace); N Neatness (ensure everything is in its right
place); D Discipline (conform to standard procedures); O Ongoing Improvements
(look for ways to make procedures more effective). Closely related to SSSSS.

Capability Index: A succinct measure of the capability of a process to

manufacture parts of given upper and lower specification limits. If the standard
deviation of the spread of a variable is s, one possible capability index may be
defined as (Upper Specification Limit - Lower Specification Limit) / 6s. If the
capability index is 1.0, then 99.73% of the output of the process is just within the
specification limits, and the process is said to be "just capable". In practice, an
index is often aimed for of 1.33, although perhaps nowadays the target may be
raised to 1.66. See also Six Sigma - with Six Sigma, the aim is for systems and
processes to have a capability index of 2.0, with only 3.4 parts per million out of

Capable to Promise: With Available-to-Promise, what is available (to promise to a

customer) is the anticipated production currently in the Master Schedule less what
has been actually already been sold, or promised. With capable to promise, however,
what is deemed to be "available" is the maximum output that could be
manufactured (less what what has been sold, or promised). Capable to promise may
be more useful indicator in answering customer enquiries when dealing with the
output from a major device such as an extruder or a furnace.

Capacity Available to Promise: As with Available-to-Promise, if customer orders

are to be delivered on the dates promised, such orders must not exceed the
company's commitment to future manufacture. With ordinary available-to-promise,
a portion of the available master schedule effort is allocated to each customer order
as it is accepted. With capacity available-to-promise, incoming orders are translated
into the time they will take up on some nominated critical resource. That portion of
the time on the resource scheduled to be available which has not been allocated
remains "capacity available to promise (to future customers)". (If the critical
resource is operating at maximum output, capacity available to promise is identical
to capable to promise.

Capacity Management: the tailoring of capacity to meet a planned

manufacturing load. In a number of manufacturing environments, manufacturing
capability (ie capacity) may be changed by, say, redeploying labour or authorising
overtime. The creation of practical material plans is clearly easier if capacity
management is possible, since capacity plans can then be stretched to fit the
demands of the material output. In manufacturing environments with strictly fixed
capacity plant, such as often pertain in the process industries, the creation of
practical material plans is more troublesome - if capacity is slightly out of the strict
material requirements for it, the materials plans must then be manipulated until
they fit the capacity available.

Capacity Requirements Planning: a means of evaluating the work centre

capacity demands of a materials plan. After the time-phased material requirements
have been determined, a so-called "capacity database" is accessed to find the work
centres where the materials are manufactured and the durations that will be
required to do so. For example, Material X (requirement 600 units) may be made on
Work Centre Y, the time required being 1 minute per unit of X. The demand on Y is
consequently 10 hours. By adding up all the demands on each work centre,
comparison can be made with each work centre's capacity. Typically, the results are
shown on the VDU, one screen per work centre, with potential future overloads
highlighted in colour. CRP is very broad brush. It does not take account, for
example, of set up times and technical feasibility. An obvious further difficulty is in
defining the capacity of a work centre, since capacity may be affected by local
management action such as transferring in additional staff (see Capacity
Management). CRP is usually associated with Rough Cut Capacity Planning in the
formulation of the master schedule, where its use is generally very satisfactory in
determining the go/no-go status of the potential MPS.

Capital: Finance, or money.

Capital Equipment: Machinery, equipment, tools and so on entered on the

company's asset register along with its financial value, and so included in its fixed
assets on the balance sheet. Note that small items of equipment such as fax machines
or typewriters are usually lumped together under current assets.

Capital Reconstruction: With the permission of its shareholders and creditors, a

company may vary its shareholders' rights and alter its capital structure (issued
share capital, debentures, debts etc) as a means of "relaunching" itself with fresh
funds and without the burden of existing debt.

Capital Value (of a Company): A company's assets less its liabilities, as deduced
from the Balance Sheet. This is a strictly arithmetical view of a company's capital -
it does not include, say, its prospects or the know-how of its staff.
Capitalisation Issue (of shares): a company may believe that certain financial
entries within its accounts are in reality permanent, and that a more accurate view
might be taken of its finances if they were indeed made permanent. It may therefore
issue share capital covering the sum concerned, issuing the share capital free to
existing ordinary shareholders and removing the financial entry they previously
represented from the accounts. See also shares.

CAR: Capital authorisation request - a request by a manager or department in the

form of a formal proposal that the company should purchase an item of equipment
or build a new facility etc.. The proposal will be supported by a financial evaluation
in the form of DCF calculations, qv..

Cardinal Number: a fundamental number - thus 1, 2 and 3 are the first three
cardinal numbers, as opposed to an ordinal number ... first, second, third etc..

Carousel (Horizontal): An electromechanical storage and stock-to-picker stock

retrieval device consisting of numerous stacks of trays or receptacles. All of the
stacks move horizontally in relation to each other along a continuous rectangular
circuit. Carousels are expensive items of equipment and are usually associated with
the storage of small, expensive and frequently accessed items (see volume
movement). Nevertheless, it has been said that it is not the carousel's inherent
advantage as a storage medium which is of value, but the fact that it eliminates the
inefficiency and travel times associated with the previous method of storage that it
has replaced.

Carousel (Vertical): An electromechanical storage and stock-to-picker stock

retrieval cabinet about 10' to 15' high, especially suitable for small objects. The
carousel itself consists of stacked trays ascending or descending within the body of
the device on a continuous pulley. See the comments under horizontal carousel.

Carrying Cost: Normally, the cost to the company of supporting the holding of
stock (whether in the form of raw materials, components or finished goods). The
cost is usually expressed as a percentage per annum of the value of the stock
concerned and may be estimated at 25% pa. This percentage is arrived at by adding
(i) the percentage to be applied to the money tied up in the stock (by reference to the
company's target rate of return on invested capital, as set by senior management),
(ii) the cost of the stock's insurance, (iii) its warehousing costs, (iv) the percentage
cost due to any deterioration that might result, (v) general stock management, and
(vi) the percentages applying to very many more small incidental costs.

Cartel: A group of companies that have conspired to fix prices of some product or
service, contrary to the spirit of competition and free trade. Cartels are illegal in
most first world countries.

CASE: Computer Aided System Engineering.

Cash Book: An account kept of cash at the bank, cash on hand and the receipts
and payments of money.

Cash Flow: Estimations of cash incomings set down alongside corresponding

estimations of cash outgoings, both estimations being over future time. Companies
typically prepare several types of cash flows: operations, taxation, assets etc.. Cash
enables the company to proceed with its day to day operational activities.

Causal Forecasting: . (See also, by way of contrast to Causal Forecasting, Naive

Forecasting. Also particularly see the overall subject of Demand Forecasting) Causal
forecasting encompasses a small but powerful family of forecasting techniques based
on the application of regression statistics. Normally, in the application of statistics,
regression is used to investigate the relationship between the occurrence of one
phenomenon and a second different phenomenon such as that discovered by Sir
Richard Doll in the 1950s - ie between smoking and lung cancer. In forecasting,
autoregression is used ... i.e. the relationship of current and future sales demand and
past sales demand for the same products. It should be noted that regression and
autoregression deal entirely with statistical probabilities and are not concerned with
scientific relationships such as that propounded, say, in Ohm's Law to express the
relation between current, voltage and resistance. For further detail on Causal
Forecasting, see ARMA, ARIMA and MARIMA.

CCAS: Component Commonality Analysis System - a method developed by

William Tallon for determining which component parts within a family of
alternative assembled structures are common and which are unique. By "family"
might perhaps be meant (say) a range of pumps or a range of motor cycles. Tallon's
method involves a computer search of the family's bills of materials. (PhD
dissertation, 1986, University of Iowa).

CCB:Change Control Board - see Engineering Change Committee.

CCC: In banking and finance, the attributes the lender looks for in the person
borrowing money - ie Capital (his own!); Competence; and Character.

CCCC: In Health & Safety management, the four attributes looked for in the
management and ethos of an organisation - that is: Control (the allocation of
responsibilities and the securing of commitment); Competence (the provision of
training and advice); Co-operation ( ... between individuals and working groupp);
and Communication.

CCCCCC: The six Cs are a notion of the quality guru Philip Crosby and represent
Comprehension, Commitment, Competence, Communication, Correction and
CCD: Charged Coupled Device. Bar code "imaging" scanners which are less
expensive than the traditional laser scanners. The CCD is in effect a tiny digital
camera which takes a digital photograph of the bar code.

CE Mark: The CE mark placed on a particular product is a declaration by the

manufacturer that the product meets all the provisions of the relevant legislation
implementing certain EU directives. Note that the initials "CE" do not stand for any
specific words, but are merely a declaration of compliance. The mark is not a
statement of quality or a statement that any particular design features or testing
methods have been employed in the product's manufacture.

CEDAC: Cause-and-Effect Diagram with Additional Cards - a continuous

improvement methodology involving many participants.

Cell Manufacture: In Just-in-Time or lean manufacture, the company's plant

must be laid out so as to permit the frequent manufacture of small quantities of
product. To achieve this economically, plant must be rearranged to create mini
flowlines, each one dedicated to the production of a few families of parts. (A
"family" comprising parts having similar shapes and sizes and involving similar
materials). It is efficient to arrange each mini flowline in the form of a open U shape,
to promote good communications and teamwork, and eliminate delay. The machines
and men constituting each U-shaped line is referred to as a cell. Also see functionally
oriented layout and group oriented layout.

Central Limit Theorem: Suppose that, from a large population of parts, or items,
we were to take a number of samples of the same size, and measure some given
characteristic of each part in each sample. Suppose further that we were to calculate
the mean, or average, of the measurements relating to each sample (which we now
refer to as the sample-mean). Then the central limit theorem states three
conclusions, of which the third is the basis of Statistical Process Control (SPC): (1)
The grand average of the sample-means is the mean of the population of parts from
which the samples are taken; (2) The standard deviation of the sample-means is the
same as the standard deviation of the population of parts, divided by the square root
of the size of the sample taken; (3) The statistical distribution of the sample-means is
normal, or Gaussian, regardless of the distribution of the population.

Certainty of Terms (legal): All of the stipulations needed to perform a contract

must be known to the contracting parties before the contract is agreed between
them (or before the contract can come into existence).

Certificate of Incorporation: a legal document issued by Companies House,

Cardiff, which in effect brings a company into existence.

Centre of Gravity Method: See Location of Distribution Depots.

CFAR: Collaboration Forecasting and Replenishment.

CFM: Continuous Flow Manufacture.

CFR (followed by a named port of destination): Cost and Freight - see

Incoterms (Group C, "main carriage paid"). The seller has fulfilled his obligations
when the goods pass the ship's rail in the port of shipment. Although the seller must
pay the costs and freight necessary to bring the goods to the named port of
destination, the risk of loss or damage to them, as well as any additional costs due to
events occurring after the time of delivery, are transferred from the seller to the
buyer. The seller must clear the goods for export. CFR can only be used for sea and
inland waterway transport. If the parties do not intend to deliver the goods across
the ship's rail, the CPT term should be used.

CG: Consumer Goods.

CGI: Common Gateway Interface.

CGMP: Current Good Manufacturing Practice.

Chaku-Chaku: A Japanese term for the conduct of single piece manufacturing

flow, whereby the machine operator personally conveys the object under
manufacture from one work station to the next, setting up and running each
machine at each step along the production route.

Chapter 11: Shorthand for a provision in the US insolvency code whereby, on

application to the court, an insolvent company is permitted to continue trading but
is under no obligation to pay creditors' invoices dated from before the protection
came into force. It must pay invoices on or from that date however. (Suppliers in
these circumstances usually insist on COD (cash on delivery)). No such provision is
made in UK law - all invoices are due. See also Bankrupt.

Change Over: The action of converting a machine from its state of manufacture
for Product A to its required state of manufacture for Product B. Synonymous with
"Set Up".

Charge: a liability or financial obligation placed on a company, secured in some

agreed way against the company's assets. (In everyday life, our mortgage is a charge
against our house - we cannot sell the house without discharging the outstanding

Chauvenet's Criterion: A test put forward by William Chauvenet to decide

whether a seemingly unusual experimental reading/measurement should be rejected
as an error or accepted for what it is and incorporated with other readings.
Chauvenet's criterion involves calculating the number of standard deviations (i.e.
probability) that the suspect measurement lies from the mean of all measurements
taken. Specifically, the test states that if there is less than a 0.5 probability of the
suspect value occurring among the measurements recorded, it should be rejected.
Many are reluctant to apply Chauvenet's criterion, and it is certainly true that if the
suspect measurement can be repeated, it should be. However, an application of the
criterion in manufacturing control would be in highlighting "non consuming
demand" when consuming the forecast in master scheduling.

Check Digit: In order to verify the validity of a numeric code, a simple arithmetic
procedure may be applied to the digits which constitute the code in order to derive a
further number. When this further number (or part of it) is appended to the end of
the original code, it is said to be a check digit. For example, a check digit may be
derived by the addition of the individual digits in the code. Thus the check digit
calculated for code 123 is 6 - i.e. 1 + 2 + 3 = 6. The new code is now the original code
with the check digit appended - in this case, 1236. If the code is subsequently written
as 1237, it is clearly in error. Check digits are now defunct and should be consigned
to the dustbin. They are a relic of the 1950s and the days of comptometers, which
were capable of very limited arithmetical checking. The validity of codes are now
checked directly by reference to a central database.

Check Standard: A stable, well-understood in-house physical standard that is re-

measured at intervals to ensure that the measurement process remains in a state of
statistical control. The difference between a check standard and a further reference
material, such as a customer's sample, is the level of certification and traceability to
some agreed, accepted standard.

Chi Squared Test: A statistical test to decide whether a series of observations or

the results of an experiment fall into the pattern of a specific theoretical
distribution, such as the Normal, Binomial or Poisson distribution. The test
proceeds by comparing the actual achieved results to the distribution of values that
would have been obtained had they followed the theoretical distribution perfectly. If
the differences between the two sets of figures are acceptably small, the observations
are probably distributed according to the theoretical distribution. If they are large,
there is probably no theoretical correspondence. An example of the use of the chi
squared test is in examining sales forecast errors: it cannot be assumed that forecast
errors are Normal, and until their distribution has been determined, it is impossible
to set product safety stocks.

CI: Continuous Improvement (see continuous improvement, or the Channel


CIDM: Computer-Integrated Decision Making.

CIF (followed by a named port of destination): Cost, Insurance and Freight - see
Incoterms (Group C, "main carriage unpaid"). The seller has fulfilled his
obligations when the goods pass the ship's rail in the port of shipment. 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 of delivery, are transferred from the
seller to the buyer. However, under CIF, the seller must procure marine insurance
against the buyer's risk of loss or damage to the goods during the carriage.

CIP (followed by a named place of destination): Carriage and Insurance Paid

To ... see Incoterms (Group C - "main carriage paid"). The seller delivers the goods
to the carrier nominated by him, but the seller must in addition pay the cost of
carriage necessary to bring the goods to the named destination. This means the
buyer bears all risks and any additional costs occurring after the goods have been so
delivered. However, the seller must procure insurance against the buyer's risk of loss
or damage during the carriage.

Circulating density: A notion encountered in logistics to denote the degree to

which distribution infrastructure (ie vehicles, FLTs and so on) is actually engaged in
useful work carrying goods. For example, backhaul increases circulating density.

CIRM: Certified in Integrated Resource Management, personal certification

obtainable through APICS (the American Production & Inventory Control,

CLASS: Capacity Loading and Sequence Scheduling - finite scheduling software.

Class A: A company that has installed MRP with maximum possible success - see
ABCD Checklist.

Classification (of a Job): A simple qualitative job evaluation technique carried

out as follows. First, a small number of representative key jobs are described and
considered. Second, job grades are allocated to these key jobs. Third, the remaining
non-key jobs within the company are discussed and compared to the key jobs, and
assigned grades accordingly.

CLT: cumulative lead time - usually, the total leadtime of all stages of manufacture
to make a product ab initio.

Clock-Card: A card usually about 8" x 3" used by an employee in conjunction

with a special clock (a "time clock") for recording the time of his arrival at, and
time of departure from, work. (Hence "clocking on" and "clocking off" - arriving at
work and departing therefrom.)

Closed loop MRP - see MRP.

CM: Contract Manufacturing, or Change Management.

CMOS: Complementary Metal Oxide Semiconductor, a family of low power
microchips used to store and process digital data.

CMRP: Capacitated Materials Requirements Planning.

CNC: Computer Numerical Control.

Co-Product (in Materials Planning): Two different products may both be

manufactured by the same production process, both products being required in
further stages of production. (Contrast the manufacture of a by-product, where the
second product, the by-product, is not required.) The planning of co-products is
difficult and usually entails specialist software, such as a "process industries" ERP

COA: Continuous Ordering Agreement. See Stage Deliveries.

COC: Cost of cConformance, a notion contradicting Crosby's maxim that quality is


COD: Cash On Delivery.

Code 39: a bar coding system capable of encoding both numbers and letters.

COGS: Cost Of Goods Sold.

Coinciding Indicator: In sales or economic forecasting, two phenomena may

occur in tandem, so that observation of one allows one to infer that the other
phenomenon is also occurring. A silly but correct example is the occurrence of heavy
rain and the sudden demand for umbrellas. A more useful example is the degree of
industrial "activity" (which is difficult to gauge) and the industrial consumption of
electricity. See also Leading Indicator.

Cold Stores: A storage area maintained at a cool or cold temperature. A first

critical factor in its operation is the activity taking place at the door, since the entry
of warm air will allow ice to form, this being then expensive to remove. Conveyor
tunnels and air locks are required. A second factor is the exposure of FLTs (*) and
racking to the cold, since steel may become brittle. (*Specially modified fork lift
trucks are obtainable, suitable for cold working.) Staff required to work in a cold
stores work to a special shift system, so that the number of total and continuous
hours exposed to the cold are strictly controlled.

Collaborative Forecasting: Akin to consensus forecasting and Delphi forecasting,

but with input from customers as well. More broadly, collaborative forecasting is
also taken to mean demand forecasting carried out as a joint exercise by
participants in a supply chain (eg suppliers, manufacturers and customers). As with
Delphi, the value of this type of collaborative forecasting is less the derivation of
hard numbers and more the sharing of market knowledge and opinions.

Co-Managed Stock: see Stock (Co-Managed).

COMAH: Control of Major Accident Hazards.

Commission: Typically, a cash bonus paid to a salesman on his achieving an actual

sale, the size of the bonus depending on the value of the sale See bonus schemes.

Commodity: Commodities are primary products at the bottom of the supply chain
such as metal, crops and oil, sold in worlwide markets. Because the sources of
commodities are essentially limited by the amounts that can be supplied (ie by the
limitations of mines, estates and oil wells), the prices of commodities are liable to
very large fluctuations. To protect itself against a rise in the price of a commodity, a
buyer can purchase a commodity future, entitling him to buy X amount of the
commodity at future date Y. Then, when future date Y is reached, the buyer can sell
his future and buy the commodity at the prevailing spot price. If this spot price is
higher than it was originally, the profit on the sale of the future will offset the extra
cost of the commodity; if the spot price is lower than than it was originally, the loss
on the sale of the future will be offset by the lower cost of the commodity. A
commodity future therefore protects a buyer from a price rise, but blocks him from
obtaining advantage of a price fall. In reverse, a commodity future protects the
commodity producer from a price fall, but blocks him from taking advantage of a
price rise.

Common Carrier: In distribution, a haulier whose vehicles are for hire to the

Common Causes (of Variation): A manufacturing process or system of

procedures will not produce end results absolutely and exactly as intended. Instead,
the end results will exhibit variation from the ideal (possibly extremely minute
variation), due to "common causes". Common causes of variation are causes
inherent in the process or system itself. The output from a system which is subject
only to common cause variation will be consistent within limits that can be
statistically calculated. In this state, the system is said to be under statistical control.
If the variation recorded is greater than engineering or management finds
satisfactory, the only recourse is to change the system giving rise to it. The term
"common cause" variation was introduced by W Edwards Deming. An alternative
term preferred by Walter Shewhart was "unassignable variation". If the variation
observed is greater than the calculated limits, a special cause of variation has
intruded into the system's operation - see Special Causes of Variation.

Common Parts: In conjunction with assemble-to-order, a component or part is

common if it is used in all of the final variants of the product that may be specified
by the customer. The determination of which parts are common is a necessary
precursor to the adoption of assemble-to-order planning.

Competency-based Pay: Pay awarded to an employee on the basis of his

acquisition of a relevant skill or his acquisition of relevant knowledge.

Competent Person: This definition has been put forward by the HSE (2003): A
competent person is one with sufficient professional or technical training,
knowledge, actual experience and authority to enable him to: (1) carry out his
assigned duties at the level of responsibility allocated to him; (2) to understand fully
any potential hazards related to the work (or equipment) under consideration; (3) to
detect any technical defects or omissions in that work (or equipment), recognise any
implications for health and safety caused by those defects or omissions, and be able
to specify a remedial action to mitigate those implications.

Component: A single item formed by the application of an engineering operation

on a yet more basic component. Components are typically fitted together to form a
sub-assembly or, perhaps, an assembly (see assembly).

Computer Aided Design: The use of computer software to assist in product

design - for example, by the performance of calculations and by enabling final
designs to be represented by 3D images on the VDU screen.

CONC: cost of non-conformance, a figure estimated by the quality guru Armand

Feigenbaum to be 15% to 40% of turnover, and generally guessed at about 30%.

Conceptual Design: The conceptual design document describes how a product

under design is to work - how it will be put together and how the components which
constitute it will function so as to deliver the requirements laid down in the PDS (see
Product Design Specification). Again, as with the PDS, conceptual design is not
detailed design, although the end result here will include a drawing and, perhaps, a
scale model.

Concurrent Engineering: synonymous with Simultaneous Engineering.

Condition (of a contract): a central requirement in a contract between two (or

more) parties. An obvious example of a condition in a contract to purchase goods
from a supplier is the identity of the goods to be supplied - if the wrong goods are
sent, it may make no sense to persevere with the contract. (Compare warranty, an
incidental requirement - for example, the style of packaging in which the goods are
to enclosed may be stipulated in the contract but may be regarded as a warranty.) If
a contractual condition is not met, the party adversely affected is able to terminate
the contract and sue for damages, whereas if a warranty is not met, the party
adversely affected may not terminate the contract (although it may still sue for
damages). Note that the date of delivery of the goods is usually considered to be a
warranty. However, if the buyer holds that a date of delivery is absolutely critical,
all he needs to do is to draw attention to its importance in the wording of the
contract - he might simply put "the date of delivery is a condition of this contract",
although lawyers often use the phrase time is of the essence. Note that a condition
may be express or implied. See however innominate.

Conforming Unit: A manufactured part conforming to specifications. See Non-

Conforming Unit.

Consensus Forecasting: A means of preparing sales forecasts over a specified time

by combining the predictions of sales personnel, the totals arrived at then being
successively scrutinised by sales management and corporate planners. See also
Delphi Forecasting and Collaborative Forecasting.

Consideration (legal): (see also "contract"). Consideration has been defined as

The thing given or done by the promisee in exchange for the promise. In
manufacturing, that is typically the money to be paid by the buyer in exchange for
the goods to be supplied. Executory consideration refers to the exchange of promises
- ie to deliver and pay at some point in the future. Executed consideration means
that what is done and paid takes place at the same moment as the contract is formed
- eg a cash settlement by a dealer for an ad hoc delivery of scrap iron.

Consignment Note: A formal note from a supplier to a purchaser verifying that

goods being despatched have been consigned to a third party for delivery (ie
consigned to a haulier or distribution organisation).

Consignment Stock: See Stock (Consignment).

Consistency: a match of characteristics with those described in documentation,

advertising, deadlines and industry standards.

Consolidation Centre: A node within a supply and distribution network used to

effect the consolidation of many small incoming lots of material into fewer, larger
loads for efficient onward despatch. Thus deliveries from Suppliers A, B and C,
intended for Factory X, may be consolidated at the Consolidation Centre into a
single container for economic onward delivery to X. See also node, crossdocking,
postponement centre and breakbulk. Logisticians considering the establishment of a
consolidation centre might also wish to investigate the employment of a shuttle
vehicle to pick up loads direct from suppliers in a single "consolidation trip".

Consumable: A component or raw material widely and frequently used throughout

the manufacturing site. Examples of consumables might be fuel, screws, wire, grease
and cloth. It is not uncommon to control consumables by a two-bin system, thus
ensuring that they are replenished in a timely fashion but without the maintenance
of stock records or some elaborate replenishment system.
Consumed Forecast: When the projected stock balance is calculated in the course
of master schedule management, the calculation is made by adding to the stock or
projected stock any master scheduled lot size and subtracting from it the forecast of
demand. However, while this is correct and satisfactory in a make-to-stock
environment, in make-to-order it is also necessary to take account of actual demand
already received and booked into the schedule. If both actual demand and the full
sales forecast were to be taken account of together, clearly there would be double
counting. That is, actual demand is the forecast itself, "come true" and become
manifest in the form of customer orders. To overcome the trap of double counting, a
composite figure is introduced, termed the "consumed forecast". This is the greater
of the sales forecast in a period and the actual demand in that period. The projected
stock calculation then ignores both actual demand and the forecast - instead, it is
calculated from "stock + master schedule amounts, less the consumed forecast".
Note that the "greater of" rule is always applied, even though sometimes the actual
demand may be less than the forecast in a specified period and it may be unlikely
that any further demand will be received. For example, if actual demand is 4 units
in a given period, and the forecast in the period is 5 units, the consumed forecast is 5
units, even though it may be unlikely that any further actual demand will be
received to increase the 4 units. See also Demand (Consuming, Non-Consuming).

Consumer: An everyday purchaser of goods, a retail shopper. The concept of a

private consumer is recognised legally - for example, in The Consumer Protection
Act , The Unfair Contract Terms Act and under consumer rights. See also Returns

Consumer Protection Act, 1987: An act relating to the supply of goods and
services, including their hire. The supply of goods under this Act relates only to
consumers, not to industrial users.

Consumer's Risk: The risk inherent in a sampling plan that an incoming lot of
parts that it was intended should be rejected will, in fact, be accepted. (See also
Producer's Risk.)

Consumer Tolerance: (see also LD50 and Loss to Society) Although there are strict
physical limits of quality and product performance for the engineer or
manufacturer, the consumer may be willing to tolerate actual performance and
quality outside such limits. Taguchi maintained that as far as departure of
performance from the ideal was concerned, the consumer's limits of toleration could
be represented by the following expression: SQRT (A/A0) x (T/2), where A = the
price of the product, A0 = the cost to the consumer of obtaining a non-conforming
unit, and T = the physical tolerance limits of manufacture.

Consuming Site: The factory site using Material M, as described under Multi-Site
Netting. See also Originating Site.
Containers (ISO): a standard container measuring 8' (wide) x 8' (high) x one of
four standard lengths (10', 20', 30' and 40'). The ISO container is a type of unit load.
The manufacturer wishing to despatch his goods overseas by container contacts a
container base. The container is delivered by vehicle. It is packed and sealed, and
returned to the container base. It then proceeds to a railway station where it is
loaded onto a container train, which conveys it to a container port such as
Southamptom or Immingham. (Container ports are those specialising in servicing
container vessels, by providing such standard materials handling equipment as end
loaders; side loaders; straddle carriers; and gantry cranes.) At the port, the
container is loaded into a slot within a container vessel. See tue, a unit of
measurement of container capacity.

Contango: the opposite of backwardation. The situation existing when a

commodity futures price is above the spot price, so that, as the maturity of the
future approaches, the futures price falls until, at maturity, it has fallen to the same
value as the spot price.

Continuous Improvement: see kaizen (which has a slightly different flavour to

CI). CI is a quasi-philosophy of quality and a principle of lean manufacture that
holds that further improvements are alway possible to a manufacturing process or
procedure and should always be sought, evaluated and implemented. The status quo
is never acceptable. Means of following the CI philosophy include MBWA and the
instigation of worker discussion groups (see Kaizen Teian). In lean manufacture, an
example of CI is the successful reduction in the number of kanban cards in the
system (see especially the Toyota Equation.) See also benchmarking.

Continuous Production: Usually, but not necessarily, the manufacture of free

flowing material in a lengthy production run (rather, say, than the manufacture of
discrete items in a separate lot). An example of continuous production is the bottling
of Glenmorangie Highland Malt Whisky by the distillery responsible for eventual
sale to its highly discriminating, and very content, customers.

Contract (legal): An agreement between two or more parties for the supply of
goods or the performance of a service. To be legally enforceable, there must be an
offer (to supply), an acceptance of the offer and consideration. Consideration is the
prospect of money, and its existence proves that the agreement is a traditional
bargain. The law encompassing contracts is a major branch of Common Law,
termed the Law of Contract. It comes about from basic principles and previous
decisions of the courts. That is, there is no specific statute law passed by parliament
(although some statute laws have a bearing on contract law).

Contract Costing: See Costing (Contract).

Contract Price Adjustment: See CPA.

Contribution Costing: Synonymous with Costing (Variable).

Control Account: Used in Integrated Accounting.

Control Board: See planning board.

Control Chart: See Variable Control Chart, Attribute Control Chart, Control
Chart, Number Percentage Chart and U-Chart.

Control Group (in stock records management): a control group is a given

selection of parts, or products, within a stores or warehouse chosen on the basis of
being typical of the parts there stored and, most importantly, chosen because they
are fast moving - ie because they have high levels of activity recorded against them.
The items within the control group are counted every day (or, perhaps, twice a
week) and any discrepancy between the physical count and the stock record is
investigated vigorously to discover the root cause of the inaccuracy. It is to be hoped
that since the inaccuracy came about only in the last 24 hours, it will not be difficult
to find the cause. Two notes of caution in managing a control group are as follows:
(1) the number of items in the group should not be so many that the member of staff
responsible cannot fully investigate the root causes of errors found - ie the time to
conduct the investigations may be greater than the time to carry out the counts
themselves; and (2) the reconciliation of the physical counts and the stock records
must be carried out with great care, since there may be recent outstanding
transactions still in the IT system which have yet to modify the computer stock
records - ie records that may at first appear to be wrong may be made correct a
couple of hours later as late transactions are finally submitted. Note that two further
very valuable uses of a control group are (i) to track the operation of a new stock
recording IT system immediately after its implementation; and (ii) to verify that the
method of reconciling a physical count with the stock record is correct. (In this last
respect, it is pointed out that incorrect reconciliation is a significant source of record

Control Limits: Two horizontal lines are drawn on a control chart denoting the
upper control limit (UCL) and the lower control limit (LCL). The sample-means and
the ranges drawn on the chart every so often must lie within these limits. If they do
so, the process is behaving normally and is said to be under control. If any point lies
outside either of the limits, this denotes loss of control - the process must be halted
and the reason determined.

Control of Substances Hazardous to Health: see COSHH

Controlled Convergence: A method advocated by the product design expert

Stuart Pugh as a means of evaluating how well a product design meets the
specifications originally aimed for. In his book on product design, Pugh also
advocates controlled convergence as a way of deciding between many alternative
design solutions. For an alternative, not dissimilar means of deciding between
alternatives, see "Weights & Marks".

Convertible Loan Stock: Loan stock issued by a company that can be converted
to ordinary shares at a specified future date at a price set at the time of issue.

Convertible Preference Shares: Preference shares which can optionally be

converted to ordinary shares (allowing the shareholder the initial security of the
preference share dividend and the option of cashing in on the hoped for rise in value
of the ordinary share).

COO: Cost of Ownership.

COPQ: Cost of Poor Quality - see (The) Hidden Factory.

Co-products: the joint, simultaneous production of two or more products as the

result of a single manufacturing operation. An example in the chemical industry is
the producion of sodium and chlorine from the electrolysis of sodium chloride (ie
salt). The planning of co-product production can be somewhate involved, since the
demands for the two products are different and independent.

Corn Laws: A system of tariffs protecting British agriculture from foreign imports,
as a result of which British manufacturing exports were inhibited. The Corn Laws
were famously repealed in 1846, ushering in an era of free trade.

Corporate Culturism: a hot topic of HR conversation in the 1980s. The corporate

culture is one that emphasises the adoption of shared values and common
assumptions about what is "the right way" to achieve company success. The
adoption of corporate culturism is said to benefit the manufacturing concern by
putting organisational objectives before the self interest of individual members of
staff - staff become"a community bound together by shared beliefs and the propect
of a common fate". Staff groups may be invited to go on weekend survival trips to
the Lake District (those that decline to go are shown the tent flap).

Corporation Tax: In the UK, a government tax levied on the profits of a company.

Corrective Maintenance: one of the components of TPM, and concerned with the
carrying out of investigations into past trouble and malfunctions with a view to
changing procedures in operation or making equipment modifications. In addition,
corrective maintenance is concerned with the need for actual repairs to get machines
back and running after a breakdown (also referred to as breakdown maintenance).

COS: Class of Service.

COSHH: The Control of Substances Hazardous to Health Regulations (1988) - 19
regulations and 4 codes of practice passed by the HSC in 1988, setting out principles
to be followed in occupational health, including medicine and hygiene. The main
requirements of the regulations are that the employer must take account of the
properties of substances and hazardous agents used at work, by making health risk
assessments, controlling the exposure of employees, carrying out monitoring and
arranging for health surveillance/environmental monitoring and control measures.
The starting point for making health risk assessments is the hazard data
information supplied by the manufacturer or importer of the substance at issue as
required under Section 6 of the HASAWA.

Cost/Benefit Analysis: The setting out of the estimated future costs of acquiring
and operating an asset over time, usually year by year, alongside the estimated
financial benefits likely to be gained year by year in doing so. The sums each year of
cost less benefit is set out for each year. In evaluating the year by year totals, careful
account must be taken of the "time value" of money - ie if one was to spend £100
now and then gain a benefit of £100 from doing so in a years time, he would be one
worse of if the accepted opportunity value of money (ie the accepted rate of interest
on money) was 10% pa. That is, the £100 in the first year could be earning interest
over the year, so, at 10% pa, one would need a benefit of £110 in one years time in
order to break even. In considering a cost/benefit case, the executive should pay
particular attention to the financial value of the benefits. Costs are usually not
difficult to estimate, but benefits are notoriously problematical. For example,
consider the benefits of building a new plant - will sales department be able to sell
the increased output, and, if so, at what price? Sometimes, even the costs are
dubious - for example, how does one cost the destruction of the environment in
evaluating a proposal for a windfarm? Frequently, we find cost/benefit analyses
used to disguise very shaky assumptions, and to back up semi-political objectives.
See importantly DCF and NPV.

Cost/Quantity/Price Analyses: Cost analyses centred round the CQP Equation,

as follows:
Q (s - v) + F + P , where Q = quantity sold, s = selling price, v = variable cost, F =
fixed overheads and P = profit. As an example of its use, suppose that s = £4, v = £1,
F = £2000 and Q = 2000 units. What is the profit? Thus 2000 (4 - 1) - 2000 = P,
whence P = £4000.

Cost (Direct): A cost which is unequivocally incurred in the manufacture of a

specific product, such as the cost of flour and the cost of yeast in the manufacture of
a loaf of bread.

Cost (Fixed): A cost incurred in the manufacture of a product which is relatively

fixed regardless of the number of items made. An example is the cost of supervision
of a bakery as a component of the cost of loaves of bread.
Cost (Fully Absorbed): A product's production cost, plus additional cost elements
associated with it due to general company overheads, such as R&D, distribution,
administration etc.

Cost (Imputed): synonymous with Standard Cost.

Cost (Indirect): A cost which is indirectly incurred in manufacture, but which

cannot be directly attributed to a specific product. If a bakery made Loaf A and
Loaf B, the costs of the bakery supervision must be allocated to the production of
the two loaves in an indirect way (eg by estimating the time the supervisor spent in
dealing with problems involved in the two loaves).

Cost (Normal): Synonymous with Cost (Standard).

Cost (Notional): Synonymous with Cost (Standard).

Cost (Prime): That part of an item's product cost which is directly incurred. That
is, the sum of direct materials costs, direct labour costs and direct expenses.

Cost (Product): The financial resources calculated to have been incurred in the
manufacture of one unit of a manufactured product. Two stages are involved in the
calculation: (I) all manufacturing costs and expenditures are assigned to the
production cost centres where they are incurred, and (II) the cost in each production
cost centre from Stage I is allocated to the products made there. Allocations are
made in a way reflective of the demand made by products on manufacturing
resources (eg according to the number of employees involved, or according to the
value of the capital machinery employed). Cost accounting was devised in c.1870 by
Andrew Carnegie (1835 - 1919), founder of the US steel industry. It was
instrumental in enabling him to reduce the then cost of steel rails at his Homestead,
PA, factory of $160/ton to $17/ton, itself leading to the opening up of the American
West. Nowadays, an important factor in determining a product cost is the ability to
"implode" the bill of materials.

Cost (Production): A product cost made up of the sum of the production overhead
and the prime cost. The production cost excludes any element attributable to
general company overheads such as R & D, sales and marketing etc..

Cost (Standard): A product cost calculated before the start of the company's
financial year based on production forecasts, standard assumed materials costs,
standard assumed labour costs and standard assumed expense costs. A standard
cost, estimated or otherwise, is an essential requirement in setting the selling price of
a new product.

Cost (Sunk): an irrecoverable cost.

Cost (Variable): A cost incurred in the manufacture of a product which varies in
accordance with the number of items made. An example is the cost of electricity in
running a machine.

Cost Centre: An area of operating activity where the manager in charge has
control of, and responsibility for, costs and expenditures incurred. The notion of a
cost centre is central to product costing, since a budget can be set for the area and
the manager's (cost) performance monitored.

Cost Driver: The specific means by which indirect costs incurred in a cost centre
are allocated to the various products made there. The "allocation basis". See "cost
driver", mentioned in the entry for indirect costs.

Cost Pool: Synonymous with Cost Centre. Cost pool is the preferred term in the

Costing (Absorption): A method of ascribing a cost to a product in which cost

centre overheads and other indirect costs are ascribed to the products made using a
Cost Driver. See also Cost (Fully Absorbed). In absorption costing, profit is
proportional to both sales and production, and may appear erratic due to
fluctuating stocks.

Costing (Batch): The identification and assignment of those costs incurred in

completing the manufacture of a specified batch of components. Having arrived at
the batch cost, the unit cost is simply derived by dividing it by the number of
components in the batch.

Costing (Contract): Mainly associated with civil engineering works, although

sometimes also with the manufacture of a major engineering structure over a
considerable time (for example, a contract to manufacture a turbine generator).

Costing (Contribution): Synonymous with Costing (Variable).

Costing (Direct): Synonymous with Costing (Variable).

Costing (Job): The identification and assignment of those costs incurred in

completing a specified, individual works order on behalf of a customer
commissioning it.

Costing (Marginal): Synonymous with Costing (Variable).

Costing (Process): Costs associated with the operation of a process over a

specified period of time. The expenditures incurred from the beginning of the period
(say, 6am Day 1) to the end (6am, Day 2) are collected and divided by the number of
units produced, to arrive at a unit cost.
Costing (Variable): A problem with Absorption Costing (See Costing
(Absorption)) is that the costs calculated depend on assumptions as to output, sales
and stockholding that are most unlikely to prevail in practice. As a consequence, and
in the event, misleading financial results are likely to result. To obtain a cleaner,
clearer picture, an alternative to absorption costing is variable costing, in which the
cost ascribed to the product comprises simply direct costs only, and which therefore
vary only in proportion to the product output achieved. (Note that a variable cost is
not necessarily the same as a prime cost, since a prime cost can include costs which
do not vary in proportion to output - eg the cost of a catalyst.) In variable costing,
profits are strictly proportional to sales, and are unaffected by stockholding.

Costs (Direct Expenses): The costs of services and sundries (not labour or
materials) directly incurred in physical production (eg the cost of electricity
consumed during the production run).

Costs (Direct Labour): The cost of labour directly undertaking the physical work
of manufacture - eg the wages of machine operators.

Costs (Direct Materials): The cost of materials directly going into manufacture
itself - ie taking part in physical production.

Costs (Indirect): Costs associated with the manufacture of a product but which
are not directly incurred in the product's literal manufacture. (For example, the
shop supervisor's wages.) A problem with the treatment of indirect costs is that
while they must be taken account of, their allocation to the costs of the products
made must be accomplished somewhat artificially (using a so-called cost driver). In
the example of the supervisor's wages, the cost driver used to allocate his wages to
the various different products made might be the number of man hours involved in
the manufacture of the different products, or the consumption during their
manufacture of, say, electricity.

Costs (Indirect Expenses): The costs of services, utilities or other sundry items
(everything except materials and labour) associated with manufacture but not
directly incurred in the manufacture itself. Examples are cleaning services and the
cost of regular planned equipment maintenance.

Costs (Indirect Labour): The cost of personnel not directly involved in literal
manufacture, such as the cost of management, supervision and so on.

Costs (Indirect Materials): Materials costs incurred in manufacture, where the

materials do not directly contribute to the manufacture itself. Examples are the cost
of tote trucks and other apparatus needed in the general running of the plant.

COTS: Commercial Off The Shelf.

Count Chart: When a single major structure is manufactured, such as an engine
or an aircraft wing, there are likely to be many undesirable quality attributes, such
as burrs, scratches or paint flecks. The total number of such attributes can be
plotted on a count chart(with time on the horizontal axis and the number of
undesirable attributes on the vertical axis).

Counteroffer (legal): A counteroffer is an alternative offer, or rather, an offer of

alternative contractual conditions, made in response to an original offer by the other
party. The counteroffer in effect rejects the original offer. For example, A offers to
sell something to B for £10. B refuses, and makes a counteroffer to buy for £5. See
The Battle of the Forms.

Counterpurchase: An aspect of countertrade in which a supplier undertakes to

purchase from a country a specified quantity of goods or to engage services offered
by the country as a condition of securing business.

Countertrade: A general term for deals between companies in which payment for
suppliers is made through the further exchange of goods, services or favours, rather
than by cash. Countertrading includes barter, buyback , direct and indirect offset

Counting Scales: see Weigh Counting.

CP: (1) Cost Performance (see seven entries under "Costs" above); (2) critical path
- see PERT.

CPA: (1) Contract Price Adjustment. A contract between supplier and buyer may
provide for the prices and costs to be paid to be varied between the contract date
and the completion date. This is usually done to take account of inflation and/or
changes in foreign exchange rates over the duration of the work. It is vital for the
two parties to specify exactly what costs are to be subject to adjustment, and the
basis or bases on which they are to be made. See especially BEAMA.

CPG: Consumer Packaged Goods.

CPI: Continuous Process Improvement.

CPM: Critical Path Method - see PERT.

CPT (followed by a named place of destination): see Incoterms (Group C "main

carriage paid"). The seller delivers the goods to the carrier* nominated by him, but
the seller must in addition pay the cost of carriage necessary to bring the goods to
the named destination. This means that the buyer bears all risks and any other costs
occurring after the goods have been so delivered. (* "Carrier" means any person
who, in a contract of carriage, undertakes to transport the goods or procure
transportation services.) CPT requires the seller to clear the goods for export. The
term CPT may be used in multimodal transportation.

CQP Analysis: Cost/Quantity/Price Analysis.

Cr: Credit or creditor - the right hand side of an account (UK, not US, where it is
on the left).

CRC: Cyclic Redundancy Test.

Credit: A major term used if financial accounting, being a benefit received by the
company - ie the supply by others of value to our company. Thus a supplier who has
delivered raw materials to our factory is a creditor.

Critical Path: That succession of tasks and jobs in a schedule or project, none of
which can be late in completion without making the whole schedule or project
correspondingly late. Also, Critical Path Analysis (CPA) - the analysis of the
durations and interdependencies of the tasks and jobs anticipated as being
necessary to complete a project in order to determine which particular continuous
sucession of tasks from the starting point to final completion will be the longest in
duration. (The particular sucession of tasks is "critical" because it defines the
remaining maximum duration of the project, and any delay on this path will cause a
delay in ultimate completion of the project.) See also slack .and PERT.

Critical Ratio: A shop floor prioritisation rule in which jobs are prioritised
according to the quotient: (time due minus time now) / (leadtime remaining). The
lower the CR, the higher the priority. A critical ratio of 1.0 means the job is exactly
on time. The merit of CR is that the priorities tend to restore the leadtime element of
jobs, and consequently to restore the queue element of jobs on the shop floor.

Critical Resource: Any reasonable definition of this term is acceptable - say, a

piece of equipment or a work centre or specialised skill group the continued operation
of which is central to the achievement of the company's master plan.

CRM: Customer Relationship Management - the establishment of a way of

servicing, helping, influencing and interacting with a customer contributed to by the
whole company. Whole company includes master scheduling, order
processing/despatch and any relevant technical function, all working together for
the good of the relationship, not simply Sales & Marketing department.
Notwithstanding these fine words, it is pointed out by Gartner Inc. and Meta Group
Inc that the majority of CRM initiatives fail. See also Supplier Relationship

Crossdocking: A crossdocking facility within a distribution network will typically

comprise a large enclosed area with many receiving docks on one side and many
despatching docks on the other. Incoming loads made up of many diverse SKUs
from many suppliers are broken up and the materials then reassembled into new
groupings for forward despatch to various destinations. A crossdocking operation
might be established, say, by a consortium of food companies in a particular
geographic area supplying to the regional warehouses of a number of different
supermarkets. See also consolidation and breakbulk.

CRP: Capacity Requirements Planning.

CSR: Corporate Social Responsibility - the notion that a company has

responsibility not only to its shareholders, but to its staff (health and safety,
pensions) and to society itself in such matters as environmental issues, waste
management, pollution, global warming, immigration etc.. Policies must be
formulated and a balance struck.

CTE: Coefficient of Expansion.

CTQ: "Critical to Quality" - an aspect of a service or manufactured item that is

regarded by the customer as a quite essential attribute thereof, a sine qua non. For
example, a roadside rescue and repair service would be a CTQ aspect of a driver's
membership of a motoring organisation. Also CTQC - critical to quality
characteristic. See as well CTQ Tree.

CTQ Tree: An hierarchical tree diagram used to identify CTQ aspects of a service
or manufactured item. For example, a motoring organisation might place at the top
of a CTQ Tree the goal "Response to members' breakdown calls". Branching from
this might be the two measures (1) "Breakdowns fixed per day", and (2) Time to
effect the breakdown repair. Beneath (1) might be (1a) Call outs per day and (1b) %
Breakdowns fixed at the roadside; beneath (2) might be (2a) Time to respond to
request, (2b) .... etc.

CTO: Configure to Order.

Cube: Volume - the term is frequently used in transport planning.

Cumulative Available to Promise: The future master scheduling effort which is

"available to promise" is usually set down showing the available effort in each
period, one after the other (say 0, 6, 20, 25 ...). However, the figures can also be
displayed by accumulating the effort period by period (0, 6, 26, 51 ... in the
preceding example). It is usually a software-provided option as to whether single
figure available-to-promise should be displayed or the cumulative figures.

Current Asset: See Asset (Current).

Custom and Practice (legal): Provided they can be shown to be the case, the
customs and practices of a business or trade will be assumed to be included in the
implied terms of a contract. It will usually be held that both parties should be aware
of custom and practice, and, if one is not, he is nevertheless bound by them.
However, in the express terms of the agreement itself, a particular custom or
practice can be specifically excluded or modified.

Customer Order: A request by an external party for goods or services supplied by

the company. The request may not be a legal offer ... the legal offer may come in
response to the customer order (request), setting out the terms of the supply of the
goods, including their price. If this is the case, agreement by the customer
constitutes acceptance of the offer, resulting in the formation of the legal contract.
Note that a scheduled customer order is a customer order requesting deliveries of
items at designated times in the future.

Customer Service Target: A quantitatively expressed goal set by the Sales &
Marketing Manager for the satisfaction of customer orders. The goal may be set in
quality terms (say, % conforming parts), delivery date and quantity (on-time, in
full, or "OTIF") or, in the context of safety stocks, in terms of stock availability. A
stock availability target might be, say, "every line of 95% of all orders fulfilled from
stock, and 60% of all remaining lines ...".

Cycle: In sales forecasting, a period over which sales demand assumes a particular
pattern of highs and lows. Although cyclicality therefore seem similar to seasonality,
a major difference is that cycles are not of a fixed duration. Consequently, a first
task of forecasting is to detect the start and finish of the cycle. Well known cycles in
the UK in the past have been the industrial cycle (about 7 years) and the textile
cycle. Cycles appear to be dying out, however, perhaps because of increasing

Cycle Counting: (Also known as PI Checking - perpetual inventory checking). A

technique for organising the physical counting of a group of products and the
subsequent reconciliation of the quantities counted with the stock records of the
items concerned. Instead of counting all of the products in the group over a very
short period of time, with the high concentration of human effort thereby demanded
(see Annual Stock Count), the products are counted over a "cycle" of many weeks.
Thus 1000 products might be counted and reconciled over a cycle of, say, 10 weeks,
so entailing 100 counts per week, or 20 counts per day. When the cycle has been
completed, a further cycle is commenced, and so on in perpetuity. See also Stock
Records Accuracy. Also see Batch Progress Control and Control Group.

Cycle Stock: see Stock (Cycle).

# A B C D E F G H I J K L M

DAF (followed by a named place*): Delivered at Frontier - see Incoterms (Group
D "Arrival"). The seller has fulfilled his obligations when the goods are placed at
the disposal of the buyer on the arriving means of transport, not unloaded, cleared
for export from whence they have come, but not cleared for import at the named
point and place at the frontier, but before the customs border of the adjoining
country. * Because the term "frontier" could be any frontier, it is of vital importance
in DAF that the frontier in question be defined precisely by always naming the point
and place in the term. When delivery is by sea, the Incoterms DES or DEQ should
be used.

DAMA: Design Anywhere, Manufacture Anywhere.

Damage Limitation Clause (legal): A supplier may attempt to insert into a

contract a statement limiting his liability for potential non-performance of the
agreed terms. It is not as easy for him to do so as he might think - see Exclusion
Clause and Liquidated Damages.

Dangling Dependency: An alarming term for an activity that has been incorrectly
created or added to a project flowchart such that the activity does not link in with a
next stage or later activity. Dangling dependencies can be inadvertently created
when a project flowchart is being updated by reporting completed activities. (As the
activities are duly reported, they are physically removed from the project flowchart
to make it increasingly simpler to comprehend.) See critical path.

Date (Due): The date a manufacturing order is intended to be finally completed

according to the factory's materials plan.

Date (Effectivity): See Effectivity Date.

Date (Need): The date a manufacturing order is needed so as to prevent a shortage

arising in the stock of the product in question (as determined by materials

Date (Start): The date a manufacturing order is planned to be started in accorance

with the materials plan. With standard materials planning, the start date + the
leadtime (in days) = the need date.
Dawn Raid: Stock Exchange Jargon - when Company A wishes to acquire the
shares of Company B, Company A begins the vigorous, unannounced purchase of
B's shares before the market gets wind of the takeover and therefore before the
shares begin to rise in price.

Day Book: Synonymous with Journal.

Days Cover: the number of days that stock on hand will last before running out,
based on past average daily demand.

DC: Distribution Centre. US logistics terminology for what is usually referred to in

the UK as a depot.

DCE: Distributed Computing Environment.

DCF: Discounted Cash Flow (synonymous with IRR - Internal Rate of Return).
The rate of interest that would need to prevail in order for a stream of costs over
time to have the same net value as a stream of benefits. The calculation of the DCF
rate of return only became feasible with the advent of computers. Because the DCF
is standard and does not presume a particular rate of interest, it is often preferred to
Net Present Value as a means of evaluating the value of a cost/benefit stream. In the
example given undrer NPV , if a rate of interest had been selected for the project
whereby the net present value finally equalled zero, this rate of interest would have
been the project's DCF rate of return. See cost/benefit analysis for a short critique of
the use of these techniques..

DCM: see Demand Chain Management.

DCS: Distributed Control System, or Digital Cellular System.

DDP (followed by a named place of destination): Delivered, Duty Paid - see

Incoterms (Group D "Arrival"). The seller delivers the goods to the buyer, cleared
for import, and not unloaded from any arriving means of transport at the named
place of destination. The seller must bear all costs and risks in bringing the goods
thereto, including, where applicable, any "duty"for import in the country of
destination. The term should not be used if the seller is unable to obtain the import
licence. DDP is the maximum obligation of a seller, in contrast to EXW, which is the
minimum obligation.

DDU (followed by a named place of destination): Delivered, Duty Unpaid - see

Incoterms (Group D "Arrival"). The seller delivers the goods to the buyer at the
named place of destination, not cleared for import and not unloaded from any
arriving means of transport. The seller must bear the cost and risks involved in
bringing the goods thereto, other than any "duty" for import into the country of
destination (duty here including the responsibility for and the risks of the carrying
out of customs formalities and the payment of formalities, customs duties, taxes and
other charges). When delivery is to take place in the port of destination, on board a
vessel, the terms DES or DEQ should be used instead.

De kit: On the abandonment of a works order, the break up of the kitted

components and their individual return to stores.

Deadheading: (1) The planning of load distribution such that a vehicle is to return
to its originating site empty after delivery of its load (compare backhaul and
cabotage). The verb to deadhead is used to mean to convey a vehicle with an empty
load. (2) The removing of dead flowers from a rose bush after they have bloomed.

Dead Load: Jargon for manufacturing orders not yet released to the shop floor.

Debenture: A long term loan issued by a company and bearing a specified rate of
interest and specified redemption date. Debenture holdings can be publically traded.
A mortgage debenture is one in which the holder has preference over all other

Debit: A major term in financial accounting, a debit is a benefit that is received by

others - ie it is the supply by us of a value to others. Examples are the supply by us
of goods to our customer, or the payment by us of wages to our staff.

Decoder: see wedge.

Decoupling (of demand and supply): the building up of stock ahead of forecast
demand. For example, manufacturing extra output in September in anticipation of
large sales later at Christmas.

Deduct Point: The point in the manufacturing process at which it is deemed, for
financial and record keeping purposes, that all of the parts used in the manufacture
are used up. That is, up to the deduct point, all starting materials are assumed to
continue to exist; and after the deduct point, they are all assumed to have been used.
Many deduct points can be created at stages in a lengthy product route, each one
intended for materials used at that stage. The designation of deduct points is
especially important in backflushing. See also Lead-Time Offset.

Deep Sea: In transportation, ocean going shipping (in the US, Ocean Going.)

Defective Unit: A part which fails or is otherwise unsatisfactory in actual use. The
ISO definition of a defect is the non-fulfilment of a requirement related to an intended
or specified use; advice is given to avoid the term, since it may seem to give non-
quality people grounds for legal action (!) See Non-Conforming Unit.
Degrees of Freedom (df): The "variance" of a group of numbers is a widely
accepted way of expressing how spread out the numbers are in the group, and is
denoted for n numbers by s SQUARED. The formula is s SQUARED = SUM ((x -
xbar) SQUARED) / (n - 1), where xbar denotes the mean, or average, of the
numbers in question. Thus since the mean of the three numbers 4, 5 and 6 is 5 (ie x
bar = 5), then the variance of the three numbers is ((4 - 5) SQUARED + (5 - 5)
SQUARED + (6 - 5) SQUARED) / 2, which equals 1. The term (n - 1) which makes
up the denominator of the variance is the number of degrees of freedom. To illustrate
degrees of freedom, consider two variables "x & y". x can be any number at all, and
so can y (say, x = 7 and y = 53). In other words, there are two degrees of freedom
with regard to the expression. Now consider the relationship "x + y = 9". Only one
of the two variables x and y can be chosen freely. As soon as it has been chosen, the
other number is fixed, since the sum of the two numbers must equal 9. For example,
if x is freely chosen as 7, then y cannot be freely chosen ... it must equal 2. Now
consider the formula for the variance of a group of n numbers. If you know (n - 1) of
the numbers and the mean x bar, then the final number ... ie the nth number ...
cannot be chosen freely. The nth number must be such that, along with the (n - 1)
numbers already freely chosen, the mean of all of the numbers together equals the
value x bar used in the calculation. For example, if the mean of three numbers is
15.0, and we freely choose two of the numbers as 12 and 8, then the third number
cannot be freely chosen ... it must be 25, since 25 is the only number which results in
a mean of 15.0 (ie (12 + 8 + 25) / 3 = 15.0). A formal definition of degrees of freedom
is df = the number of observations minus the number of required relationships
among these observations. (In the case of the variance, we are determining the
variance of n numbers and we have 1 required relationship (ie the mean), so that the
number of degrees of freedom for the n numbers is (n - 1)). The value in using
degrees of freedom in the calculation of the variance is that its use corrects a
tendency otherwise to understate the uncertainty in the measuremens, especially
where n is small.

Delinquent Order: Sometimes used of a manufacturing order not yet received but
which is past its due date.

Delivery (of Goods): The transfer of goods from a carrier to a recipient, and of no
legal significance except that the recipient has a duty to take reasonable care of
them. ("Reasonable care" would include keeping goods out of the rain and
preventing direct physical damage, but would not extend to storing them in special
conditions, such as under refrigeration.) A delivery note sent by the supplier is
merely a brief record describing what has been sent in general terms (usually
quoting the buyer's order number). An unpacking note is a document recording the
full details of the delivery - individual items and quantities etc.. It is most important
to distinguish delivery from acceptance.

Delivery Note: a document describing in general terms the contents of a delivery

made by a supplier to customer. Associated with the delivery note is almost always
an Order Number assigned by the buyer at the time the order is raised. See Delivery
of Goods.

Delivery Timeliness: A contract comprises conditions (its central points) and

warranties (incidental points). In general, timeliness of the delivery of goods is
generally regarded in commerce and legal convention as a warranty. If this is so, the
contract cannot be terminated for late delivery, since, under the law of contract, a
contract can be terminated only for breach of conditions, not for breach of warranty
(*). If adherence to the date of delivery is vitally important to a buyer, he should
specifically make it into a condition in the contract by saying so in the wording.
(Traditionally, the phrase "time is of the essence" is inserted into the wording of the
contract, in relation to the date, to draw attention to the requirement for timeliness.)
If this has been done and delivery is then late, at least the buyer then has the option
of terminating the deal. (* Note that a company can be sued for damages in the
court for breach of warranty just as it can for breach of condition.)

Delphi Forecasting: (From the Oracle of Delphi, in Ancient Greece.) A means of

preparing long-range forecasts, typically many years in the future, by canvassing
and querying the opinions of experts. An organiser gathers the views of the experts,
who initially submit forecasts without collusion. The experts are then brought
together, and those with "extreme" views are required to defend their opinions. See
also collaborative forecasting.

DEM: Dynamic Enterprise Modelling.

Demand (Consuming and Non-Consuming): As customer demand for a

product is received by a company, it is necessary continually to assess whether the
product's master schedule is sufficient to meet the orders received and forecast to be
received in the future. (See the projected available balance.) As actual demand is
received, it is, in effect, the forecast "come true". For companies which make to
order, however, the assessment of the position must take into account not only
forecasts in future periods, but actual demand placed in advance for future
manufacture. To avoid the double counting of both the forecasts and the advanced
actual orders, therefore, the technique is employed of consuming the forecast. The
forecast must only be consumed, however, by incoming orders which are in fact
legitimately associated with the forecast. For example, if the forecast was calculated
entirely on the basis of UK demand, an order from France, while very welcome,
could not be considered part of the forecast. Similarly, if orders for spares were
generally small, from small stockists, a massive one-off order from the MOD to
restock the entire British Army is also not legitimately associated with the forecast.
Unusual demand such as the French order and the MOD order should not consume
the forecast. It should be treated separately and reduce the projected available
balance separately and directly. Such demand is referred to as non-consuming
demand. The ordinary demand which does consume the forecast in the standard way
is referred to simply as consuming demand. It may not be so easy to spot incoming
demand as being non-consuming, however, if every order cannot be individually
examined by order processing staff. To trap non-consuming demand, it will be
necessary to institute statistical tests, such as determing the mean order size and
marking as non-consuming any order more than (say) 3 standard deviations from
the mean. Alternatively, Chauvenet's criterion might be used.

Demand (Dependent): The demand for a part or component, the quantity

concerned being derived or calculated by reference to the plans for a part higher in
the bill of materials. Thus the demand for bicycle wheels is dependent, being derived
by calculation directly from the plans to manufacture bicycles.

Demand (Independent): The demand for a part (almost always a finished

product or spare) which does not depend on plans elsewhere in the materials
planning system. The demand for bicycles is independent, since it arises from the
vagaries of the consumer market.

Demand (Latent): Inherent demand for an existing product which has not been
placed by potential customers because of a failure in the selling company to hold
stock or a failure to provide a ready means of communication. Latent demand
persists when the customer is fobbed off by the supplier with substitutes that are
accepted reluctantly. In demand forecasting, especially as it concerns consumer
goods, it is important to obtain a picture of the true demand, not the demand for
substitutes or after-the-event, late invoice statistics. An example of latent demand
arose many years ago regarding the sales of Jonquil Yellow paint, a pale shade of
yellow. Since Jonquil is very similar to Standard Pale Yellow, customers who phoned
the company asking for Jonquil, which was out of stock, were persuaded by the sales
girls to take Standard Pale. These sales (of Standard Pale) were recorded as
demand, resulting in erroneous demand data for forecasting purposes. Although the
sales were for Standard Pale, what should have been recorded as the demand were
the turned-away requests for the Jonquil.

Demand (Patent): Sales demand which is made known to the selling company in
the form of customer orders (contrast Demand (Latent)).

Demand (Sales): The wish and ability of a customer to buy a particular good of
specified physical qualities at the price offered for sale. Demand is patent if the
customer makes his wish to buy known to the seller. It is latent if the customer is
unable to place his order, perhaps because of inadequacies in the sales operation or
insufficient stock. The seller must be careful not to record as demand the sale to a
customer of a second-choice substitute rather than his original requirement. The
seller must also record the full amount asked for by the customer, even though only
part of his requirement has been satisfied due to lack of stock. (It has been suggested
that the difference in volume between the sale of paint and the demand for paint is
2%.) The manufacturing company must forecast demand, not sales, even though it
is common to speak of sales forecasting, rather than demand forecasting.
Demand Forecasting: Demand forecasting, also commonly but erroneously called
sales forecasting, is the prediction of the future demand for products that will be
placed by customers. Forecasts are prepared by the application of statistics to
demand data. (See Demand (Sales)). The company should employ one of the many
excellent software packages on the market * - calculations are too complex to be
attempted in any other way. (But see Delphi Forecasting and collaborative
forecasting.) As a first step, the company must recognise that attempting to make
manual demand forecasts is unacceptable. Sales staff may be "nearer the market",
but clearly cannot manually detect and describe subtle trends and fluctuations,
including seasonal effects etc.. Statistical demand forecasting does not pretend to
produce accurate forecasts per se. What it does is to detect and mathematically
describe established and emerging demand patterns. The difference, then, between
the forecast obtained by extrapolating the demand pattern and the demand that
eventually transpires is termed the forecast error. If forecast errors themselves are
analysed, it will be found that they constitute random data (a statistical test can be
applied to data to show whether or not they are "random"). Random data cannot by
definition be forecast, although a buffer of safety stock can be provided to protect
customer service for those times when the forecast is too low - see Safety Stock. The
installation of a forecasting system and its companion safety stocks system is one of
the easiest and most effective actions that a company can take - typically, immediate
stock reductions of 30% will be observed. Packages vary widely in sophistication
and price and include those in the list at the end of this Glossary entry. Note that
since the mid 1990s, relatively inexpensive "multi model" packages have been
developed. Multi model packages are those incorporating as many as 20 different
forecasting models (including many otherwise identical models but each with
different parameters). Each month, the multi model software makes multiple
forecasts. The following month, multiple forecasts are again calculated, but the one
issued for use by the system user is the one emanating from the model which proved
to be most accurate the previous month. There are two basic families of forecasting
techniques - see Causal Forecasting and Naive Forecasting.

Demand Management, Demand Chain Management: The control and

organisation of the planning function as it is directly affected by customer demand.
Usually this is taken to mean the calculation of forecasts and safety stocks; the day
to day management of the sales order processing system; the day to day
management of the available-to-promise system (in make to order); and the
replenishment of the distribution network by, say, DRP or DRPII. More broadly, in
his book Kotler on Marketing, guru Philip Kotler writes that "Marketing's main
thrust and skill is demand management, namely to influence the level, timing and
composition of demand in pursuit of company objectives". A popular model of
demand management shows a circle turning through a four stage never ending
process: (1) demand planning (eg forecasting); (2) communicating demand (making
product available); (3) influencing demand (carrying out the sales plan); and (4)
prioritising demand (product allocation).
Demerit Chart: A type of attribute control chart in which the undesirable quality
attributes occurring in the samples of parts are each given a "score" according to its
perceived severity (eg crack = 10 points, hole = 20 points etc.). See Quality Score

The Deming Circle: a name sometimes given to the PDCA circle (qv).

Deming Prize: One of a small number of prizes related to quality, the Deming
Prize being originally funded by royalties made available by the late W. Edwards
Deming and administered in Japan by the JUSE. The Deming Prize is thought by
many as being the premier quality prize worldwide, and immense prestige is gained
by those winning it.

Demonstrated Capacity: The work (in hours) able to be achieved at a work

centre in a given period, so called because the figure should be arrived at by
observation rather than, say, by theoretical calculation or by assumption. The late
Oliver Wight suggested that the demonstrated capacity figure to use for a work
centre should be the recorded output from the previous week.

Demurrage: (literally, detention) When a ship arrives in port and is unable to

unload because prior arrangements to do so have not been made, she must wait
until a quay and facilities become free. The port authority will make a hefty charge
to cover the time spent waiting in port. Demurrage is also relevant to wagons of
goods held in railway sidings awaiting collection.

Dependent Demand: See Demand (Dependent).

Depot (Logical): In a distribution network, a "node" may be established purely

for the purposes of planning and calculation, without any requirement for the
holding of physical stock. An example is a major customer, regarded for planning
and replenishment purposes as a logical depot on a par with the real, physical
depots established throughout the geographical area.

Depreciation: When an asset is originally acquired, it is entered in the balance

sheet at its purchase price (ie at its price as new), and is expected to have a life in use
of a certain duration. As each year passes, one might say that as a consequence the
asset becomes partly "used up" and that its value has declined from its previous
value. In accounting terms, one says that the asset depreciates in value; the extent by
which its value has declined is termed its financial depreciation. (One advantage of
showing assets' depreciated value in the balance sheet is that it gives a more realistic
picture of the company's capital than if all assets appeared as if they were new.)
Ways of depreciating an asset's life and value are: (1) evenly by age, assuming a
likely maximum lifespan; (2) by the same percentage each year; and (3) by use,
assuming a given use over its life. Examples relating to the depreciation of a £20,000
car expected to have a life of 10 years and 150,000 miles are as follows: (1) to
depreciate the car's value by £2000 per year; (2) to depreciate its value by p% per
annun, where p = (1 - (v2 - v1)**(-n))/100% (where v1 = the initial value, v2 = final
value and n = the number of years.); and (3) to depreciate the asset by the fraction
(miles this year)/150,000. Although the depreciated amount is not "paid" as if it
were a cash sum, it is a considered to be a genuine accounting expense, and is
entered in the profit and loss account as an expense (under the sub-heading
depreciation expenses). There are government regulations relating to depreciation.
The reason for this is that because depreciation is an expense, the company's profit
is therefore reduced, and with it the company's liability to tax.

DEQ (followed by a named port of destination): Delivered Ex Quay - see

Incoterms (Group D "Arrival"). The seller has fulfilled his obligations when the
goods are placed at the disposal of the buyer on the quay or wharf of the named port
of destination but not cleared for import The seller must bear all costs and risks in
bringing the goods to the named port of destination and discharging the goods on
the quay. The DEQ term requires the buyer to clear the goods for import and to pay
for all formalities, duties, taxes and other charges upon import (NB this latter
obligation - Incoterms January 1st 2000 - is the opposite of the DEQ Incoterm issued
in previous years).

Derivative: A financial entity having a value arrived at from other financial

entities. An example is a share in a unit trust fund - the share's value is derived from
the value of the stocks and shares owned and managed by the unit trust fund's

DES (followed by a named port of destination): Meaning 1 - Delivered Ex Ship

(see Incoterms Group D "Arrival".) The seller has fulfilled his obligations when the
goods are placed at the disposal of the buyer on board the ship, but not cleared for
import at the named port of destination. The seller has to bear all the costs and risks
in bringing the goods to the named port before discharging. If the parties wish the
seller to bear the costs and risk of discharging the goods, then the Incoterm DEQ
should be used.

DES: Meaning 2 - Distributed Execution System.

Descendant: from the viewpoint of the bill of materials, the descendants of a

product are products at any later stages of manufacture. Thus if product A is used to
make product B, product B is a descendant of A. In this case, where B is a direct
descendant of A, product A is also said to be B's parent. However, if product B is
later used to make product X, product X is also said to be a descendant of A.
Contrast the term ancestor.

Design (of Product): see "Product Design Specification" and "Conceptual

Design of Experiments: see DOE.

Design Review: Design review is an essential recurring feature of engineering

design management. At the centre of the review process must be constant reference
to the Product Design Specification, since the PDS defines the company's product
development target.

Despatching Rule: A means of calculating the order in which jobs waiting at a

machine are to be loaded - ie a job priority rule. Typical rules are SPT, Critical
Ratio, FCFS, FIFO and Slack Time .

Deterministic Model: In creating a simulation, mathematical or other model of a

set of procedures, such as one of a production scheduling situation, various
parameters must be defined. Examples are rates of production; job leadtimes; and
quantities of output achieved per unit of time. The model is said to be deterministic if
the assumption is made that matters will proceed exactly as specified with regard to
the operation of procedures and the applicability of the parameters specified - ie
that the rates of production will not be more than has been specified, or less, but will
be exactly as stated. Contrast probabilistic model.

DEUCE: An early British computer developed by The English Electric Company

in 1954.

DFA: Design For Assembly.

DFAA: Design For Automated Assembly.

DFD: (Meaning 1) Data Flow Diagram - A flowchart of a computer system

drawn in the manner devised by Chris Gane and Trish Sarson (and popularised by
Ed Yourdan). The technique involves only 5 different types of symbol, one such
denoting a process or procedure. The essence of a DFD is that the flowchart is
"structured" - that is process symbols 1, 2, 3, 4 and 5 on one sheet of paper, are
broken down to sub-processes 1.1, 1.2 ... 2.1, 2.2 ... 3.1, 3.2 ... etc. on 5 further sheets
of paper. Sub-process 1.1 is broken down to yet a further depth of detail as 1.1.1,
1.1.2, 1.1.3 ... on yet another sheet of paper, and so on to any level of detail necessary.
The advantages of data flow diagramming are clarity and the easy ability to
communicate to others (eg potential system users). (Meaning 2) Design for

DFL: Demand Flow Leadership.

DFM: Demand Flow Manufacturing, or Design for Manufacturability, or Demand

Flow Management.
DFR: design for realisation, where realisation is deployment in use (eg
manufacture, assembly etc.).

DFS: Distributed Factory System.

DFSS: Design for Six Sigma, a methodology entailing rigorous data gathering to
ensure that "the voice of the customer" is given highest prominence, and entailing
also rigorous consideration of the intended process to ensure that output will be
within the six sigma limits (ie that there will be a process capability index of 2.0 or
better, and with non-conformancies at fewer than 3.4 per million.) In the 1998
General Electric Annual Report, the CEO Jack Welch stated that Every new GE
product and service in the future will be "DFSS" - Designed for Six Sigma. These new
offerings will truly take us to a new definition of "World Class". See Six Sigma.

DFT: Demand Flow Technology.

DGR: Daily Going Rate - a material's annual usage value divided by the number of
working days.

DGSA: Dangerous Goods Safety Awareness.

Dial-Up Access: In relation to the Internet, connection to a service by dialling an

ISP (Internet Service Provider).

DID: Digital Image Decoding.

Differential: In pay structures and grading, a differential is((maximum grade pay

rate - minimum grade pay rate) / (minimum grade pay rate)) x 100%.

DIFPAK: A collective waste compliance scheme involving the dairy industry - see
Packaging Waste.

Dimension: In the Hay System of job evaluation, a dimension is a subdivision of a

Hay "factor" - see Hay Guide Chart.

Direct Cost: See Cost (Direct).

Direct Costing: Synonymous with Costing (Variable).

Directors' Report: An appraisal of a business in the form of a statement prepared

yearly and submitted as part of a company's annual return. The appraisal must give
a "fair" view of the company's prospects and position..

Discounted Cash Flow: See DCF.

Discrepancy: the difference between two measured values of the same quantity.
Note that if the uncertainty in the first measurement is dx and the uncertainty in the
second measurement is dy, the uncertainty in the discrepancy is (dx + dy).

Discrete Lot Size: Synonymous with "lot-for-lot" - that is, the manufacture of
precisely the number of units needed to satisfy net requirements, rather than the
manufacture of a specified lot quantity which may be greater than the net

Distribution (Gamma): A statistical distribution usually less skewed than the

negative exponential distribution and which under certain circumstances can
approach that of the normal distribution.

Distribution (Gaussian): See Distribution (Normal).

Distribution (Negative Exponential): A statistical distribution similar to the

Poisson distribution. Sales forecast errors relating to the sale of retail goods often
assume this relationship.

Distribution (Normal): Suppose that a succession of events occurs, each event

capable of description by a single numeric value. One such example might be the
occurrence of 48 successive forecast errors relating to a product over 4 years;
another might be the recording of data relating to production output every hour
over 5 days. Suppose next that we arrange the values so recorded in numerical order
from the lowest to the highest. Finally, we note how many of the recorded values are
at the low end of the scale, how many are at the high end, and how many are at all
points in between. These event values are said to have a distribution. For example,
the top 25% of the scale may account for 5% of all of the recorded values, or the
middle 10% of the scale may account for 65% of all of the values, and so on. The
distribution of the values can be represented on paper as a graph, or curve. If the
bulk of values lay in the centre of the scale and very few values were at the low end
or at the high end, the curve's appearance would be a hump. Specifically, if the
curve is symmetrical and has the profile of a church bell, the distribution is said to
be "normal" or "Gaussian". The shape of the normal distribution can be
represented by a very complex formula discovered in the 18th century by the
application of advanced statistical techniques. The phenomenon of the normal curve
is met in numerous instances in manufacturing, especially in TQC, SPC and
forecasting. Although a manufacturing practitioner may not care to become
involved with the mathematics of the normal distribution, he should be closely
familiar with the bell shape; aware of the existence of tables of values relating to it;
and be aware that, while there are an infinity of normal curves - ie curves with a bell
shape - the curves differ in the degrees to which they are spread out (flat bell shapes)
or peaked (tall bell shapes). (One of the terms in the formula for the bell is the
curve's standard deviation (traditionally denoted by the Greek letter sigma): the
greater the value of the standard deviation, the more spread out the bell.)
Distribution (Poisson): A mathematical distribution of a group of variables which
is not symmetrical like the normal distribution, but instead is skewed to the left.
That is, with Poisson, the bulk of the variables are to the left of the median, or
centre, value. A useful and unusual property of the Poisson distribution is that its
standard deviation equals the square root of the mean.

Distribution Mix: The five most important factors needed to provide an effective
distribution operation and provide for customer satisfaction in the distributor's
service. The factors are: inventory; warehousing facilities; communications;
packaging and transport.

Distribution Network: The physical storage points, transport routes and means
of communication by which (1) goods are conveyed to ultimate consumers, and (2)
information about activity and requirements is gathered for central analysis. In its
simplest form, the network will comprise a central source location, such as a factory,
a small number of major regional warehouses supplied from the centre, and a larger
number of depots supplied by the regional warehouses. The data collected will
include customer demand (at the depots) and stocks (at all points of storage). See
also echelon.

Distribution Resource Planning: See DRP.

DMAIC: The essential six-step methodology by which Six Sigma quality

improvements are effected. In six sigma, the acronym is spoken as a "word" thus:
Deh-MAY-ihk (*). The individual letters stand for the following: D - Define (define
and select the goals and scope of a project); M - Measure (measure the performance
of the current process, or procedure); A - Analyse (identify the differences between
the current performance and the future required performance, applying statistical
methods to prove causes and effects); I - Improve (come up with ways and means of
reaching the required improved state); and C - Control (intall data tracking to
ensure the changes remain permanent). The DMAIC methodolgy is very similar to
the "Plan-Do-Check-Action cycle. (* And this being English, in which any noun can
be verbed, we can therefore use the verb "to DMAIC", meaning to subject
something to the DMAIC process.) See also Six Sigma.

DNC: Direct Numerical Control.

DNS: Domain Name System - a naming/coding system used to identify computers

connected to the Internet and to networks.

Dock Leveller: a hinged bridge installed between the surface of a goods receiving
or despatching dock and a vehicle to compensate for the difference in height
between the two surfaces. Dock levellers automatically adjust in height as the height
of the vehicle changes during the loading or unloading process.
Dock Receipt: an internal stores or warehouse transaction that may be completed
when goods have been received from a supplier but not yet "put away" into their
eventual storage location. The dock receipt holds the id of the material and states its
location merely as the company's receiving dock. The quantity received is shown on
the stock record, along with its location, but is held in a special category rather than
as available stock. A second transaction must be raised and submitted when the
goods are finally moved from the receiving dock to their eventual storage location.

Dodge-Romig: See Sampling Tables (Dodge-Romig).

DOE: (1) Department of Energy (US Government). (2) Design of Experiments - the
name given to the methodology for examining the simultaneous effect of two or
more factors on a particular system. The reaction of the system is termed its
response, and is manifest in the form of a response variable. An experiment is an
investigation of the behaviour of a system. Its purpose is to analyse the effect on the
system of one or more factors. If it is the intention of the analyst to study only the
effect of a single factor on the system ... ie to conduct an experiment with one factor
... this can be readily achieved by varying the intensity of the factor and duly
recording the system's response, verifying the results with ANOVA. However, it is
likely that for many systems, response will be affected by two or more factors. Not
only that, but the effect of one such factor on system response may depend on the
presence and intensity of a second factor. In other words, if there are two factors A
and B, then the effect of Factor A on the response may depend on the presence and
level of Factor B, and the effect of Factor B on the response may depend on the
presence and level of Factor A. Investigation of mutually dependent factors on a
response is known as design of experiments. The first step in experiments with more
than one factor is to select a factorial design. Factorial design is the setting out of the
combinations of factors and factor levels that are to be the subject of the
experimentation. "Factor level" means the degree of intensity of the factor in the
experiment. (For example, high temperature or low temperature.) For simplicity in
almost all instances, it can be supposed that each factor should be tested at just two
levels: high (+) and low (-). When this is assumed, the number of combinations of
factor levels needed to complete an experiment involving n factors and two levels is
given by 2 **n. (for example, 8 combinations for 3 factors). The four combinations
for two factors is given below; the eight combinations for three factors is illustrated
under Orthogonal in this Glossary.

Combination 1: A - B -

Combination 2: A + B -

Combination 3: A- B+

Combination 4: A + B+
Having decided on the factorial design, the next step in DOE is to carry out the
experiments, varying the factor levels between the high and low levels in strict
accordance with the design as described. The results are meticulously recorded, and
the experiment may be replicated. As well, individual tests may be carried out in
random order so as to reduce possible experimental bias. Finally, data from the
experiments are analysed as series of paired combinations, one factor pair at a time.
The results of these factor analyses can be illustrated as a set of response diagrams.
A given response diagram relates to a specific, chosen factor - say, Factor A - and is a
plot of degree of response on the vertical axis and the two factor levels for A (ie low -
and high +) on the horizontal axis. What is sketched on the plot is a straight line
joining the response value at the low level - and the response value at the high level
+. However, what is of interest in the response diagram is that there are in fact two
straight lines, not just one. The first joins the low and high reponse points when a
second Factor B is at a low level, and the second straight line joins the low and high
response points when the second Factor B is at a high level. It is very frequently the
case that only two factors ever have a mutual interaction as described. The set of
response diagrams able to be drawn through Design of Experiments will identify
these two factors and indicate how they might be mutually set so as to optimise their
effect on the system response.

Dogs: A humorous marketing term for products on the selling range with low
market share and low market growth (see also Cash Cows).

Double Entry Bookkeeping: A formal accounting method following the

principles of the Accounting Equation.

Double Exponential Smoothing: See Linear Exponential Smoothing.

Double Sampling: The inspection of a first sample of size n1 and then the taking
of one of three courses of action: (1) accepting the incoming lot at once if the
number of non conforming items is less than or equal to the acceptance plan
number c1; (2) rejecting the incoming lot at once if the number of non conforming
items is greater than the acceptance number c2; (3) taking a second sample n2 and
accepting the incoming lot if the total number of non conformancies in the two
samples combined is less than or equal to c2.

Downdate: a jocular term that is a play on the verb update, and meaning to change
a numeric value to a lower value (eg to downdate the proposed manufacturing
quantity of 100 units to 60 units). The verb is principally used in closed-loop MRP
when the production expected from a scheduled receipt is reported as having been
achieved - the stock quantity is updated and the outstanding scheduled receipt itself
is downdated. Also in closed-loop MRP, the planner might talk of downdating
certain planned orders and simultaneously updating the number of firm planned
Downtime: The period of time a machine is not being used. (The implication is
usually that the shop floor would wish to have used the machine, but was unable to
do so because of its malfunction.)

DPMO: Defects Per Million Opportunities (also referred to as ppm). A measure of

achieved quality. For example, if a manufacturing process produced 100,000 parts,
and 90 of them were defective, or non-conforming, the quality rate would be 900
DPMO (*). Similarly, if 156 invoices were in errors out of 10,000 invoices produced,
the DPMO rate would be 15,600 DPMO (*). The measure is often usefully used as a
shorthand to estimate the "sigma rating" of a process. The following DPMO /sigma
ratings relate to the area under the Normal (bell) curve, depending on how far the
capability of the process is from the upper and lower specifications required:

one sigma : 691,500 DPMO; two sigma : 308,500 DPMO; three sigma : 66,800
DPMO; four sigma: 6,200 DPMO; five sigma: 230 DPMO; six sigma: 3.4 DPMO.

The manufacturing process and invoicing system cited above would be

approximately 4.6 sigma and 2.5 sigma processes respectively (a full table is needed
to find the sigma values accurately). (* In practice, the DPMO rates quoted might be
adjusted to allow for the actual number of physical opportunities for a defect as the
parts were actually made or as the invoices were actually prepared - say 20
opportunities for making a defect in one manufacturing operation, or 5
opportunities for a mistake per individual invoice. If this were done, the number of
production defects equals 90 per 2,000,000 opportunities (= 45 DPMO), and the
invoice errors equal 156 per 50,000 opportunities (= 3120 DPMO). Consequently,
the calculated sigma ratings would be far higher, namely 5.4 and 4.25 respectively. )

DPU: Defects per Unit. See u-chart.

Dr: Debit or debtor .

Draft: There are numerous alternative meanings of this term. One of them is "an
instrument signed by a drawer to a drawee requesting payment at a future time
either by a third party or by the drawee". Hence sight draft = a draft payable on
demand, time draft = a draft payable at a specified time in the future and date draft =
a draft that matures a certain number of days after its issue.

DRAM: Dynamic Random Access Memory.

DRP (Distribution Resource Planning): A formal means of calculating the

replenishment requirements of a distribution network. The system works in a way
that is wholly analogous to the planning of materials requirements by MRP. That is,
starting at the distribution echelon most distant from the centre of the network,
planned replenishment needs are calculated based on forecasts, stocks on hand and
distribution lot sizes. The replenishment lot sizes at the next lower echelon are
calculated based on the MRP principal of covering net requirements (ie gross
requirements less stock) with a further lower level planned replenishment shipment.
Terms in DRP include planned replenishment orders, firm planned orders and open
orders. Major problems in DRP include the difficulty of scheduling plans to
transport schedules, and the inability of the system to react to the flexibility
required in distribution. DRP has not been generally successful, except in a few
instances involving infrequent large shipments carried over long distances. See
DRPII however.

DRPII (Fair Shares, or Lean DRP): A procedure devised by R. G. Brown for the
replenishment of a distribution network. The steps involved are: (1) determining
which SKUs in the network will shortly reach critical levels of stock; (2) notionally
allocating stock held at the centre to fulfil the potential shortages; and (3)
authorising actual despatches of allocated stock in a convenient way and in
convenient quantities.

Drum, Buffer, Rope: The often extravagent, or at least picturesque, language of

OPT invokes the analogy of drum, buffer, rope as follows. If a supply chain or
manufacturing route has a point which is bottlenecked, the output from the
bottleneck determines the output from the supply chain itself. The bottleneck is the
drum beat of the system. The bottleneck must be kept working at its maximum rate,
so that a buffer of stock is placed in front of it to ensure it is never starved of
material (and advantage can be taken of any temporary increases in its capacity).
The "rope" is the supply chain / manufacturing route itself.

DSC: Digital Still Camera.

DSEAR: Dangerous Substances And Exposives Regulations (2002).

DSIR: Department of Scientific and Industrial Research, a UK government body.

DSO: Days Sales Outstanding (or Distinguished Service Order, a UK military


DSOM: Distributed System Object Module.

DTP: Desk Top Publishing (eg through the Quark Express Software), or
Distributed Transaction Processing.

Due Date: See Date (Due).

Dummy Variables: In the forecasting of a product's sales, dummy variables can

be employed to represent the occurrences of a specific event by setting up a time-
series for the event in question. The data recorded for each month in the time-series
is simply either the value 0 or the value 1. If "1" is recorded, the event to which the
dummy variable refers has occurred; if "0" is recorded, the event has not occurred.
For example, in the year 2002, the occurrence of four major specified national
sporting events may have been be at April, May, August and December. If so, the
occurrence of the events would then be represented by the following time-series, in
which a "1" has been recorded for April, May, August and December:
000110010001. Regression mathematics can now be applied to determine if there is
any correlation between the sales levels in these four months and the presence of the
dummy variable in the months. Having established the degree of correlation, if any,
between better (or worse) sales in each of the months, it is now possible to set up a
further time-series of dummy variables for the same national sporting events in the
year 2003, to forecast the extent to which future sales in these months will be

Dunnage: any material such as boards, blocks, metal or cardboard supports used
externally to support or secure products and packages in storage or under
transportation in order to protect them from physical damage or to assist in their
handling. Dunnage is also used to refer to purely filler material used as loose
packaging, such as foam, bubble wrap and air pillows. Originally, dunnage was used
in shipping to denote brushwood or mats stowed beneath the cargo of a vessel to
protect it against damage.

Durability: the degree or length of use of an object until its replacement becomes
preferable to its repair.

DUT: Device Under Test.

Duty: A tax levied by a government, especially in relation to exports; imports; the

sale of alcohol and tobacco; the issue of licences; and on the estates of deceased
persons. Import duty is a complex area of taxation (itself a complex subject) and, as
well as taxation policy, involves foreign relations and treaties.

Duty of Care: In common law, the precept that one should take reasonable care to
avoid acts or omissions which can reasonably be foreseen as being likely to injure his
neighbour. One's neighbour is anyone closely and directly affected by what he does
or fails to do. Note that the duty of care is a civic one, not a requirement imposed by
statute law. If the citizen fails in his duty and this failure leads to another's injury,
he is guilty of a tort and can be sued in the courts for damages.

DVD: Digital Versatile Disk. In the consumer market, machines capable of playing
DVDs - ie DVD players. DVD players are either "non-recordable" or, far more
desirably, "recordable", these being capable of also recording TV programmes, not
merely playing pre-recorded material.

DW: Data Warehousing.

Dynamic Despatching Rule: A despatching rule whereby a job's priority is
calculated in accordance with its timeliness and progress through the shop at the
moment the calculation is made. The application of a dynamic despatching rule
seems to presuppose the existence of a shop floor data feedback system to obtain
data on timeliness and progress to be obtained. See also static despatching rule.

Dynamic Market (The): An acknowledgement that buyers and sellers in the

marketplace are forever seeking to improve their positions by taking new and
alternative courses of action. The company that does not move on is liable to find
itself bypassed by events.

Dynamic Programming: See Mathematical Programming.

# A B C D E F G H I J K L M

e: (inscribed on packages as relating to the weight or volume of contents) - see TNE.

E2: A shorthand calculation used in SPC.

Ea, or Each or "Eaches": the numeration of units or objects simply by the

number of them present, rather than by their weight, volume or by some other
physical attribute of them. For example, our stock of oranges might be expressed as
112 lbs (their total weight), or as 259 eaches (the total number of oranges present).
See millihelen.

EAN: European Article Number, an international convention of product coding

used in the retail groceries business, and prominent in bar code applications.

Easter: Eastertime in the Christian calendar comprises two days of very

considerable significance: (1) Good Friday, the commemoration of Jesus'
crucifixion, and (2) Easter Sunday, two days following, the commemoration of Jesus'
resurrection. In the UK, Easter is a public holiday, and includes Easter Monday, the
day following Easter Sunday. (Note that the day following Good Friday is called
Holy Saturday.) Eastertime's significance as a national holiday is, perhaps, made the
stonger by a recognition that Winter truly is over and Spring has arrived. On Easter
Sunday, chocolate Easter eggs, boxed chocolates and flowers are typically given as
gifts. However, Easter is a moveable feast - that is, the dates from one year to the
next at which it is celebrated vary by as much as five weeks and may fall in March
or April (*). They are calculated in arcane fashion by Church authorities having
reference to phases of the Moon, although they are available for any number of
years into the future. This substantial variation may present a problem to certain
manufacturing companies providing stock for consumer sales that have a very
pronounced Easter bias - the simple use of seasonal factors within the company's
demand forecasting system will weight both March and April, but neither
sufficiently heavily, not March or April. It may be necessary either to employ a
dummy variable (qv) or simply (as in Easter eggs) to take control of the system
manually. Note that the actual manufacturing response (ie production and the
provision of stock) is determined through master scheduling in the standard way -
what is at issue in dealing with Easter is demand forecasting and the question of
safety stocks. (* The earliest possible date is March 22nd and the latest April 25th.)
EBITDA: in company finance, Earnings Before Interest, Tax, Depreciation and
Amortisation. A company's EBITDA closely approximates its cash flow.

EC: Electronic Commerce.

Echelon (pronounced escheloñ): A logical level of a distribution network. The

lowest logical level is the place from which stock is originally distributed to the
network (ie usually, the factory, often called Level 0). The next echelon perhaps
comprises the regional warehouses served directly by the central (master) source of
supply (Level -1). The next echelon after this may comprise the depots supplied by
the regional warehouses (Level -2), and so on. The final echelon (ie the outermost
level in the distribution network) is the one at which stocking points are situated
which directly supply customers. The word echelon is derived from echelle (French
= ladder) and refers to a military formation.

ECIA: Engineering Construction Industry Association, a UK body.

ECM: Engineering Change Management.

ECN: Engineering Change Notice (ie synonymous with ECO).

ECO: Engineering Change Order.

Economic Order Quantity: When raw material stock is ordered from a supplier,
two classes of cost are incurred apart from the cost of the material itself (ie apart
from the invoiced amount). These are: (1) the costs incurred literally in placing the
order itself and seeing to its delivery, unloading and putting away; and (2) the costs
of holding the stock in store before its ultimate use (see Carrying Cost). These two
costs are "in opposition" - that is, we can make the ordering costs smaller by
ordering larger quantities less frequently, but at the same time increasing the stock
holding costs. Or we can make the stock holding costs smaller by ordering small
quantities at very frequent intervals, but at the same time increasing the order costs.
The economic order quantity, or least cost order quantity, pupports to be that
quantity of stock ordered which minimises the total of the two classes of costs. The
amount is calculated as SQRT (2AO/iv), where A = the annual amount ordered, O =
the cost of placing this order, i = the rate of interest on stock capital and v = the unit
value of the stock. The formula for the EOQ is believed to be the earliest materials
management formula ever published. It is widely known and just as widely ignored.
Perhaps the reason no-one uses it, is that it does not (and cannot) take cognisance of
such factors as price discounts for volume, vehicle scheduling and payment/credit
terms. The quickest way of reducing stockholding and quality costs appears to be
the lean manufacturing principle of arranging frequent, small deliveries, and taking
care that such deliveries are themselves accomplished as smoothly and economically
as possible.
ECP: Engineering Change Proposal.

ECR: (1) Engineering Change Request (qv); (2) Efficient Consumer Response.

ECSC: European Coal and Steel Community, a trading block of six countries
promoted and launched in 1950 through Robert Schuman of France (though largely
devised by Jean Monnet).

EDA: Electronic Document Access, or Electronic Design Automation.

EDI: Electronic Data Interchange. The transmission of data from one computer to
another, usually involving different companies (ie the buying company, or rather its
order placement system, and the supplying company, or rather its order processing
system) and usually involving also substantial distances. EDI is often used as an
expensive fax facility by large customers such as supermarkets terrorising small
suppliers. The technology is expensive, and seems to have been marginalised with
the arrival of the (cheap) Internet.

EDIFACT : EDI For Administration, Commerce & Transport. EDIFACT is an

EDI "protocol" ... ie a technical standard for the transmission of EDI messages over
telecommunications links.

EDQ: Economic Delivery Quantity - synonymous with an economic order quantity,


EDSAC: The world's first operational computer, commissioned at Cambridge

University, UK, in 1949.

EEC: European Economic Community.

EEF: The Engineering Employers' Federation, a lobbying body with 6000 member
companies ("The Voice of UK Manufacturing Industry"). Visit

Effectivity Date: The date on which an intended engineering change is to come

into effect. Bill of materials software is usually able to hold alternative product
structures, one structure being the current one and the other being an impending
second one, and having an effectivity date. When the effectivity date is reached, the
second structure comes into effect and the first one is abandoned. The subject of an
effectivity date is usually bound up with effectivity quantity.

Effectivity Quantity: A problem in making an engineering change on a particular

date is usually that in doing so, the old material still in stock is thereby made
obsolete, since it is not required in the newly constituted bill of materials. To counter
this problem, bill of materials software has been written whereby an engineering
change comes into effect not on an effectivity date but when the amount of old stock
has fallen to zero (or, at least, a specified low quantity). One problem with this
solution is that material quantities usually do not fall to zero - they fall to a low
point somewhere between zero and a replenishment lot quantity, and when they do,
the replenishment system triggers the generation of a new purchase order. A second
problem is that the small quantity of remnant stock which remains may be
uneconomical to use, leading to its scrap. Many inventory controllers abandon
effectivity quantities. Instead, they estimate the date the stock will be used up, and
take control of the change manually.

EFI: Electronic Freight Invoice.

Efficient Consumer Response (ECR): Quick response to changed requirements

in the consumer market, especially in retail. Examples of the activities which must
be addressed are: product innovation; replenishment of stocks; and speedy

EFQM: European Foundation for Quality Management. The EFQM's quality

model consists of 5 "enablers" (leadership, strategy, people, partnerships and
resources) and 4 "results" (customers, people, society and key performance

EFT: Electronic Funds Transfer.

EFTA: European Free Trade Association, an organisation that the UK applied to

join in 1959.

EIS: Executive Information System.

Elasticity (of demand): A term used in economic theory to describe the extent to
which the demand for a good will change as its price changes. Goods are said to be
price elastic if demand is considerably affected by changes in price (eg cars,
furniture and luxury items). They are price inelastic if demand changes very little on
a price alteration (eg necessities such as staple groceries).

Electronic Data Interchange: See EDI.

Elimination of Waste: see Waste.

ELV: End of Life Vehicle.

EMAS: Employment Medical Advisory Service, a UK body, being the medical

services division of the Health & Safety Executive, and comprising a national
network of 200 or so doctors and nurses undertaking medical examinations of
employees referred to it and covered by the Chemical Works Regulations 1922 and
EMC: Electromagnetic Compatibility.

EMI: (1) Early Manufacturing Involvement, or (2) Electronic Magnetic

Interference, or (3) Electric and Music Industries PLC, the large, well-known music
publishing company.

Employee Suggestion Scheme: see Kaizen Teian .

Employment Rights Act (1996): Among other things, it is required under this
law to send to a new employee, within two months of his starting work, a written
statement containing basic particulars of his contract of employment, such as his
rate of pay, hours of work, job title etc..

EMQ: Economic manufacturing quantity. The (ideal) amount of material it is

calculated should be manufactured to minimise the overhead cost of set-up (see
SMED), the subsequent cost of stockholding and other costs. The EMQ is related to
the EOQ, but is in fact an even more dubious concept. For one thing, the amount to
manufacture should surely be dictated by the production schedule.

EMS: Environmental Management System, or Electronic Manufacturing Services.

EMU: European Monetary Union, a doomed enterprise. See Euro.

End Item: A finished product.

End of Life Legislation: see WEEE.

Engineering Change: An alteration made to the bill of materials. Examples are

the replacement of one component by a substitute component; a change in the usage
of a component by the higher level part using it; and substitutions and amendments
made to whole sub-assemblies, assemblies and raw materials. To preserve product
design integrity; to manage material plans and stock effectively; and to maintain
financial and cost control, engineering changes must be vetted and permitted by
management only at a relatively senior level.

Engineering Change Committee: A group of managers charged by the company

with managing engineering changes, the committee's constitution typically
comprising personnel from engineering (technical), sales & marketing, production,
purchasing and others. If such personnel are not literally on the committee,
individual members of the committee may be charged with representing their

EOQ: Economic Order Quantity - qv.

EPC (or ePC): electronic product code, a code assigned to an item through the
medium of a radio frequency identification tag. Standards for ePCs are being
rapidly developed as RFID tagging becomes more popular. EPCs themselves are
assigned to companies by EPCglobal, and comprise three sections: (1) a
manufacturer's number - the company's number assigned to members by
EPCglobal; (2) the product number, or "object class", and (3) a serial number. The
serial number is perhaps the most important part of the code - it means that
specific, individual products can be identified, eg usable by retailers instead of shop
receipts. The format of the EPC follows the GEN2 protocol. See also GTAG.

EPCglobal (or ePCglobal): a division of The Uniform Code Council, an

international standards body, which has developed a standard for EPCs in support
of RF tagging. EPCglobal is responsible for assigning blocks of numbers to member
companies for use in their own internal assignment of ePC tag numbers, within their
own RFID applications. ePCglobal has also defined a framework for implementing
an RFID solution. See also GEN2 . Also visit

EPOS: Electronic Point Of Sale - the recording of retail sales at the till in the
store/shop on a data storage device, and its communication to a central controlling
point, possibly for the purpose of direct stock replenishment.

Equity: (1) the value of shares issued by a company (or a person's own particular
shareholding); (2) in law, a person's original financial position (see
misrepresentation); (3) "fairness".

Equivalent Products: in the process industries, two or more products made at

different manufacturing sites may be chemically identical (or very nearly so), but
for costing and control purposes may have different product codes and names. In
materials planning, one of the equivalent products can be nominated as the
"primary product". Total requirements are then expressed in terms of this single
primary product, and all stock of the non-primary products is then credited to the
primary product's "account". See The Manufacturing Manager, Chapter 9, for a full
description of process industry materials planning problems of this nature.

ERA: Electronic Remittance Advice.

Ergonomics: The science or study of the interaction of a person and a machine or

system. For example, the study of the checkout arrangements provided for
supermarket checkers-out, and the study of a new product as it will be operated by
a consumer. Attention to ergonomic design can have a significant effect in reducing
employee stress, reducing the incidence of accidents and improving productivity.
Areas to consider are : (1) the human system ... eg the need for strength, reaction ..:
(2) the working environment ... extremes of temperature, dust, fumes: (3) the man-
machine interface ... the location of controls, badly designed displays; and (4) the
total working system ... potential for fatigue associated with required work rates.
The following aspects should be taken into account in ergonomic design: Vision,
Posture, Layout, Comfort and Work Rate. Ergonomics is a major consideration in
industrial health & safety.

Erotic Gherkin, The: See Building the Gherkin - The Swiss Re Tower in the City
of London, home to the Baltic Exchange.

ERP (Enterprise Resource Planning): (1) The total gamut of manufacturing

activities, as with MRPII, and including activities linking distribution sites and
suppliers, globally if relevant. ERP is not quite URP (Universal Resource Planning),
which includes links with the spiritual world. (2) European Recycling Platform - see

Error (true): The difference between a measured value and the corresponding true
value. In metrology, true value is almost never known. However, certain well-known
measured values such as the universal gas constant R or the acceleration due to
gravity g have been established with such thoroughness that the published values of
them can be regarded as "true".

Error (systematic): an error in measurement attributable to a wrongly calibrated

measuring device, the device giving a reading that is consistently too small or too

Error Addback: This technique is also called "consuming the forecast" as it

relates to a product made to stock. (But see also Consumed Forecast (Make-to-
Order).) When the projected stock balance of a product being evaluated during
master schedule management falls below the safety stock level of the product, a
rescheduling message is not generated. Safety stock is provided to guard against
forecast errors and it is natural that it should be "used" in the course of
manufacture and the receipt of orders. If the projected stock balance falls below
zero, however, a reschedule-in message is generated so that the master scheduler can
review the position. However, a large number of products will carry zero safety
stock, since, in general, they are able to provide high stock availability merely from
their replenishment lot sizes. Because of the unevenness of the arrival of customer
demand, therefore, the projected balances of such products will be continually
falling below zero somewhere over their planning horizons, and rescheduling
messages will consequently be continually generated. To suppress these messages
and so prevent them from flooding the system, a so called "error addback" amount
is calculated. This is the sales forecast (to the point we have reached in the month)
less the actual demand (also to the point we have reached). Example 1: if the sales
forecast in the month to date was 100 units, and the demand in the same period was
80 units, the error addback would be +20 units. Example 2: if the sales forecast in
the month to date was 100 units, and the demand in the same period was 130 units
so far, the error addback is -30 units. In both examples, a new figure is now
introduced, often termed the consumed forecast (*). This consists of the standard
sales forecast plus the error addback. In the two examples, the consumed forecasts
would be (1) 120 units (100 + 20); and (2) 70 units (100 - 30). The effect on the
projected stock balance of using the consumed forecast, or error addback, is to
change it to the same value it would have reached if the demand had been precisely
as forecast. As a consequence, no rescheduling messages are output. See The
Manufacturing Manager, Ch 7.

Escow: To illustrate escrow, consider two football supporters Algernon (who

supports Aston Villa) and Bertram (who supports Birmingham City). The two
football teams are to meet each other in the cup final on May 3rd, and the two fans
each bet the other £500 that his own team will win. Because they are distrustful of
each other about paying up, they each now deposit the full £500 with their pub
landlord Charles, who therefore acts as a traditional stakeholder and will release the
£1000 to the winner. Algernon and Bertram have in fact entered into an escrow
agreement, in which each has paid £500 into escrow, Charles being the escrow agent.
Note that while there must be a legal contract between A and B (*), there must also
be a separate (threeway) contract enjoining C - ie jointly between A, B and C, signed
by all three parties. In drawing up the contract involving C, thought must be given
to other outcomes than a straight win/lose result. What is to happen if the match is
abandoned, or if it proceeds but then has to be replayed at a later date? A real life
example of escrow might be an agreement between Company A and Company B, in
which A is purchasing an important software package from (small) supplier B.
Company A is not given access to the clear, uncrypted software computer code, but
is fearful that B might become insolvent, leaving the computer package
unsupported. What is deposited in escrow at the offices of a local solicitor C is a
copy of the clear, uncrypted code; the "event" under which C will release the code to
A is the insolvency of B. Question ... how do you know that the genuine clear code
has been deposited with C! (* A legal contract might be difficult to draw up, since
gambling debts are not enforceable under law in the UK!)

ESE: Environmentally Sustainable Electronics.

ESFR: Early Suppression, Fast Response. A preferred type of sprinkler system

often now installed in warehouses and industry generally. Two superior
characteristics of an ESFR system are a faster response time and a heavier water
discharge. Faster response eliminates the need with conventional sprinklers for in-
rack siting of sprinkler heads. Because ESFR sprinkler systems require access to
higher volumes of water, they are not always able to be retrofitted into older

Estoppel (legal): A party to a contract must rely on what is specifically stated in

the terms and conditions therein - ie set down in black and white. One party cannot
rely on what was in his mind, or what he mistakenly thought were the facts of the
situation. For example, in 2001, William Baird PLC were estopped from claiming
breach of contract by Marks & Spencer for M & S's termination of business, since
there was no formal agreement between the two parties. Baird was estopped from
claiming that its cooperation and conduct in previously supplying Marks amounted
to a legal contract. This last case is referred to as estoppel by convention; there also
exists, however, proprietory estoppel (concerned with land) and estoppel by
representation (eg being overpaid by mistake).

Ethics: Rules of conduct governed by the morals, or values, of a company or

institution or individual. Morals or values are what are held to be guiding
principles, such as adherence to the law, concern for health and safety, the
eschewing of racial prejudice etc.. The rules of conduct, or ethics, can consequently
be written down as an ethical code - a set of do's and don'ts, governing everyday
behaviour in difficult circumstances, such as what a company buyer is to do on
being offered an unduly expensive gift by a supplier.

ETO: Engineer To Order.

EU: European Union, an organisation founded on 1950s ideas, lacking in

democratic accountability or any semblance of patriotic support by the citizens it
puports to represent. The EU seems opposed to free and unfettered competition and
the dominance of the competitive market - ie the traditions of the UK and the US.
Instead, it appears to value regulation and prescription - "red tape" which is slowly
strangling the ability of its member states to compete in the global marketplace. It
may be unwise, however, to criticise it or foretell its eventual doom, since the EU's
Racism and Xenophobia Monitoring Unit, based in Vienna may issue an arrest
warrant - see "euro" below . US readers of this Glossary should not be mistaken
into thinking the EU is a European version of the US. The ideals of the US, including
liberty, free enterprise and small (central) government control are the exact opposite
of the EU, as well as the obvious fact that the unity and history of the US are the
complete opposite of the sad, bureaucratic artficialality of the EU. No-one would lay
down his life for the EU, even if his bloated EU pension was threatened.

Euro: an ultimately doomed unit of currency that will one day collapse into its
component parts (one size cannot fit all). The currency was made up of the
combined currencies of the previous currencies of European Monetary Union
members, namely Germany (Deutschmark), France (Franc), Italy (Lire), Holland
(Guilder), Spain (Peseta), Portugal (Peseta), Luxembourg (Franc) and Greece
(Drachma). Mercifully, the UK did not join. Note that the EU's Racism and
Xenophobia Monitoring Unit has stated (June 2002) that it regards criticism of the
euro as constituting "monetary xenophobia" - see EU above.

EVA: Economic Value Added.

EVM: Earned Value Management.

Evaporating Cloud, The: An analogy in the Theory of Constraints employed by

Eliyahu M.Goldratt, the Israeli manufacturing guru also associated with the OPT
software. When seeking to resolve a conflict or remove an obstacle to progress, the
seeming impossibility of doing so (= the cloud) should be analysed and expressed in
precise terms. The assumptions relating to them can then be challenged and, it is
hoped, removed one by one (= the evaporation). See the similar notion of The 5

Evolutionary Development: In order to eliminate the risks inherent in big-bang

implementation (qv), Tom Gilb and others recommend that systems should be
designed with very small building blocks, using so-called "open ended system
architecture", including small non-complex database structures. More importantly,
such systems should be delivered (ie implemented) in very small steps, one small
function at a time. By doing so, say its advocates, the risk of implementing
something that does not work is virtually eliminated and financial benefit is felt at
once from the start. (This philosophy is the direct opposite to the "cut overs" and
pilots advocated by the late Oliver Wight in his books on MRP.)

Evolutionary Operation (EVOP): the running of "experiments" on a process

while it is in actual operation. EVOP studies are designed to be conducted by
operators on a full-scale manufacturing operation while the process produces (good
quality) output.

Exception Logic: See Manufacturing Logic.

Exception Message: See Manufacturing Logic.

Exchange Curve: A graph showing two individual curves. If the two axes of the
graph are variable X and variable Y, then (1) for the first curve, as the values on
axis X increase, the corresponding values on axis Y decrease, and (2) for the second
curve, as the values of X increase, the values of Y also increase. A prime example of
an exchange curve is the EOQ curve: as the order size increases, the costs per unit of
product ordered which are attributable to stockholding increase, but as the order
size increases also, the costs per unit of product ordered attributable to the placing
of the order decrease.

Exclusion Clause: An exclusion clause is an attempt within a contract between

buyer and supplier to excuse one party or the other from carrying out its
contractual obligations or limit the party's liability for having failed to do so.
Regardless of the fact that the contract was signed by both parties, first
consideration as to the validity of the clause must be whether it really was
incorporated in the contract at the time it came into force. (For example, an
exclusion notice that first comes to attention of a buyer by being attached to a
delivery note is clearly not part of the contract, and can be disregarded.) Note that
statutory control of exclusion clauses exists through The Unfair Contract Terms Act,
Expectation: A statistical term meaning the average probability of a chance
occurrence. For example, there are 11 possible scores from throwing two 6 sided
dice. The most frequent occurrence, having 6 possibilities out of a total of 36
possible scores is a score of 7. 7 is thus said to be the expectation. See also partial

Expeditor: A shop floor worker charged with speeding up the progress of a

particular works order, usually by attaching a red ticket to expedite its queue or
move priority, and perhaps by discussing with the foreman whether other action
could be taken. (See Leadtime Management.)

Expenses: In relation to product costing, expenses are expenditures incurred other

than those relating to materials or labour. Examples are heat, lighting and
packaging. Expenses may be direct or indirect.

Experience Curve (Cost Experience Curve): see learning curve.

Experiential: pertaining to experience, an adjective used in connection with

Bayesian Forecasting and Bayesian Statistics.

Explosion (of the Bill of Materials): The materials planning procedure whereby
the plan requirements of products at the top of the bill are successively translated
into requirements and plans at lower and lower levels. For example, the plan for a
bicycle is exploded to show the need for two bicycle wheels and one frame,
whereupon the plan for one of the wheels is exploded to reveal the need for one
wheel rim and 150 spokes. The term "explosion" is a colourful term reflecting that
the few planned requirements at the top of the bill lead to ever increasing numbers
of requirements at the levels lower down. See also Implosion.

Explosive Environment: a physical environment such that there is a danger of

explosion is classed either as "Zone 1" - being where an exposive atmosphere is
likely to be present, or "Zone 2", where an explosive atmosphere is not likely to be
present under normal operating conditions.

Exponential Smoothing - see Single Exponential Smoothing.

Exposures: The number of times the inventory level of an item reaches a low point
prior to its replenishment, obtained by A/q, where A is annual usage and q is the
replenishment quantity.

Express Terms (legal): Terms of a contract which are expressed - ie written down,
rather than merely implied. Implied terms by contrast are not written down - they
are assumed to exist either by commonsense or by the custom and practice of the
trade. See also implied terms.
External Set Up Time: In changing over a machine from the manufacture of one
product to the manufacture of the next, the external set-up time is the duration of
time required to carry out activities preparatory to the set-up, but while the
machine is still working on the previous product (or after work has commenced on
the next product). Examples of external set-up activities which take time to perform
are the fetching of the tools that will be needed for the set up, or the putting away or
sharpening of tools that have just been used. Contrast Internal Set Up Time. See

Extrinsic Forecasting: The employment of external intervention in forecasting (eg

manual adjustments) and / or the employment of independent data (ie the use of a
leading indicator). Independent data are data of the type other than the data being
forecast - for example, one might be forecasting sales of paint brushes based on
established sales of paint. In this case, the sales figures for paint would be regarded
as extrinsic data.

EXW (followed by a named place): Ex-works - one of the 13 Incoterms. The

seller has fulfilled his obligations when he places the goods at the disposal of the
buyer at the seller's premises or some other previously designated place (such as the
seller's factory), with immediate wrapping (ie not wrapped for a journey), not
cleared for export and not loaded on any collecting vehicle. If the buyer and seller
wish the seller to be responsible for the loading of the goods on departure and to
bear the costs and risk of such loading, this should be made clear by adding explicit
wording to this effect at the time the contract is agreed. (The recommendation of the
ICC however is that the Incoterm FCA should be used instead.) It will lead to
smoother warehouse operations if the company despatching the goods avoids the
term EXW altogether - the reason is that a major problem arises when the firm
collecting the goods (ie usually the buyer) does not collect the goods at the time or on
the date it says it will. Consequently, the despatching company must then bear the
cost of double handling the goods, as they are shifted out of the way when the
vehicle fails to turn up. A better plan long term plan resulting in smoother
operations is for the seller himself to take charge of delivery through the Incoterm
DDP, making an agreed charge for doing so and organising deliveries to his own
# A B C D E F G H I J K L M

FA: Flexible Automation.

Fab: Jargon for a semiconductor manufacturing plant.

Fabrication: Literally, "manufacture", the term being used usually in relation to

the operations involved in the manufacture of a component rather than in the
manufacture of an assembly or final product.

Factor (in ANOVA and DOE): A set of conditions that has an effect on a system
and which can be varied or controlled fo observe that effect. For example, the
incidence of office invoice errors per 1000 invoices issued may be the observed
result, and the factor under which they occur (ie the set of conditions) may be the
employment of untrained invoice clerks. Two other factor levels under which invoice
errors could be recorded might be the employment of clerks with 2 weeks training,
and with 6 weeks training.

Factor Comparison: A quantitative job evaluation methodology which proceeds

as follows. (1) First, 20 or 30 key company jobs are selected as a basis, and the
various principle factors are identified as being required in their performance
(examples might be mental ability; responsibility; working conditions, etc). (2) Next,
the key jobs are evaluated by group discussion to verify that they are indeed
representative and that all the vital factors have been identified. The jobs are then
ranked against each other according to their degree of involvement in the factors -
for example, Factor F1 is top in the requirements of Job A, but 2nd in the
requirements for Job B. (3) Each job is then considered individually to allocate the
split of its total work requirements among the factors involved in it - for example,
splitting 100 points for Job A, we determine that Factor 1 takes 50 points, Factor 2
takes 30 points .... By arithmetic, the results from Steps 2 and 3 can be analysed to
arrive at a pay rate for each job on the basis of existing rates and the jobs' various
work contents. Factor comparison is relatively quick and easy to apply and was at
one time a popular method. A full description of the method is difficult to find in HR
literature, but see The Manufacturing Manager, p. 832.

Factory Gate Pricing: see FGP

Fail Safe (= "Failure to Safety"): an interlocking machinery guard system, being

a guard with a moveable part connected with the macinery controls, such that (1)
the parts of the machinery constituting a danger cannot be set in motion until the
guard is closed, or (2) such that the power is switched off and the motion braked
before the guard can be opened to allow access to the dangerous parts. Fail Safe is
defined in BS 5304, and might be defined briefly as the characteristic of a device,
system or manufactured part that ensures that when it fails due to malfunction, it
remains safe or the assembly in which it is incorporated remains safe.

Failure Mode: The reaction of a manufactured product to a cause of failure. For

example, the cause of failure may a surge of current; the failure mode of the product
as a result of the surge may be a burnt out circuit. The concept of failure mode is
employed in FMECA, qv.

Failure Rate: Usually denoted by the Greek letter lamda. Under operational
conditions, the failure rate of a particular type of component or unit expresses the
number of failing units to have occurred by a certain time as a fraction of the
number of surviving units. See The Manufacturing Manager, Equation 3.5.

Fair Shares (lean DRP, or DRPII): A formal means of calculating the

replenishment requirements of a distribution network. The system consists of three
stages: (1) identification of those SKUs in the network that will require
replenishment at some short time ahead; (2) calculation of the ideal quantities of
material to be despatched to fulfil future needs of these SKUs; and (3) the making
up of loads and schedules to despatch the quantities calculated in stage 2. Note that
at stage 2, regarding the ideal quantities to be despatched, if there is insufficient
stock at the network centre to fulfil needs at the depots fully, what stock that is
available is allocated in the "fairest" way (for example, depots where there are
emergency orders or where stocks are below their safety level will be allocated
material in preference to those with enough stock to last several days). The fair
shares system is more complicated and more difficult to follow than conventional
DRP, but has the overwhelming advantage of actually working and being practical.
See The Manufacturing Manager, Chapter 20.

Fairtrade: a global scheme initiated by government development agencies within

"first world" countries intended to persuade Western consumers to purchase
fairtrade commodities in shops and supermarkets. Fairtrade commodities - coffee,
cotton goods, fruit, tea ... - are commodities grown in "third world" countries,
currently sold at very low prices and produced under poor working conditions and
low wages. Under the scheme, fairtrade growers (typically small scale farmers) sell
direct into their consuming markets at better prices than they would otherwise
obtain. Fairtrade administrators also provide growers with marketing and technical
expertise. For UK retailers, a Fairtrade label on a commodity has itself become a
marketing weapon. For much more information on Fairtrade, visit

FAK: (Freight All Kinds) A system of tariff charging applied in Deep Sea
transportation employed by non-conference operators whereby a charge is made by
the shipper dependent only on the cubic capacity of the load carried and the
distance it is conveyed. Contrast the tariff rates charged by a Conference operator
which is set depending on the cargo's financial value. (* See also Shipping
Conference). Note that FAK is not one of the standard Incoterms.

Family Forecast: Synonymous with "Group Forecast" (qv).

Fao: office jargon meaning "for the attention of".

FAS (followed by a named port of shipment): Meaning 1 -Free Alongside Ship -

Incoterms (Group F, "main carriage unpaid"). The seller has discharged his
obligations when the goods are placed alongside the vessel at the named port of
shipment. The buyer must bear all costs and risks from that moment. The term can
only be used for sea or inland waterway transport.

FAS (Final Assembly Schedule): Meaning 2 - A product may consist of a basic

structure but incorporate a number of alternative features specified on an
individual basis by the customer when he places the order. An example is a standard
Ford Focus, but with the customer specified options of a blue exterior, a 1400cc
engine, automatic transmission etc.. Manufacture proceeds in two stages. Stage I is
the manufacture of the basic parts and unassembled options. These are maintained
in stock and master scheduled in an almost standard manner. Stage II is the final
assembly schedule of the ultimate product, taking place over a short period and
commenced on receipt of the customer's order. Because the company can offer the
customer a vast range of semi-bespoke products in this way, two-level master
scheduling, as it has been called, has been referred to as mass customisation. And
because the customised product is available with minimum delay, it has been also
been called QR (quick response). See The Manufacturing Manager, Chapter 8.

FASB: In the UK, Financial Accounting Standards Board.

FCA (followed by a named place): Free Carrier - see Incoterms (Group F, "main
carriage unpaid"). FCA means that the seller delivers the goods cleared for export
to the carrier nominated by the buyer at the named place. Note that if delivery
occurs at the seller's premises, the seller is responsible for loading, but if delivery
occurs at any other place, the seller is not responsible for unloading.

FCA (alternative meanings) (1) Flip Chip Assembly, or (2) Fellow of the Institute
of Chartered Accountants, a UK body.

FCFS: See First come, first served.

FCS: Finite Capacity Scheduling, qv.

FDI: foreign direct investment.

Federation of Shipbuilding and Engineering Trades: A UK national trade

Feeder Operation: Synonymous with Gateway Work Centre (qv).

FED: Field Emission Display.

FEM: Finite Element Method.

FFCA: Full Faraday Cycle Analysis - see AEN.

FGP: Factory Gate Pricing - the assumption of responsibility by the retailer or

wholesaler for the costs and responsibility of the primary distribution of goods from
the supplier's factory to the next point in the supply chain - ie to the retailer's or
wholesaler's warehouse. In negotiating an FGP deal, the retailer/wholesaler must
clearly bear in mind two obvious changes: (1) that the price he previously paid
covered the supplier's primary distribution costs and these will no longer be
incurred by him, and (2) that he himself must now bear those costs.

FHBR: Finance House Base Rate, the basic rate of interest charged by a lending
insitution such as a leasing company. However, the company may charge its
customers, say, 1% above its base rate in many circumstances, or may vary the rate
charged in relation to its FHBR.

FIFO: First In, First Out - a commonsense and near universal principal of stock
rotation (but see LIFO). FIFO is sometimes used synonymously with First Come,
First Served (qv) as a simplistic despatching rule, its effectiveness being used as a
benchmark whereby other, more sophisticated, despatching rules can be judged.

Fill Rate: Usually, the percentage of lines of customer orders filled from stock
immediately on receipt. For example, if 10 orders were received each with 10 lines
on each order, and 98 of the lines were filled straightaway, the fill rate of the
company would be 98%. Other definitions relating to this common phrase are, of
course, quite possible. See also First Pick Ratio.

Final Assembly Schedule: See FAS (2).

Finished Product: A product after its final stage of manufacture has been

Finish-to-order: synonymous with assemble-to-order - see two-level master


Finite Capacity Scheduling: The scheduling by computer of materials plans onto

work centres and operations, taking strict account in so doing of: (1) the lengths of
time the planned requirements will occupy the resources; (2) the limited availability
of the resources; (3) the technical rules and restrictions relating to materials made
on the work centres concerned; and (4) clashes in job priorities. Finite scheduling is
at the heart of APS (qv).

Firm Planned Order (also Fixed Planned Order, or FPO): A plan type in
closed-loop MRP, being a plan in the system the timing and quantity of which is
specifically under the control of the (human) planner, not of the MRP system itself.
A firm planned order may be created by directly changing the plan type of an MRP
planned order from planned status to firm status, or may be created ab initio by the
planner. The start and finish dates of a firm plan can be directly set by the planner
so that the plan can be given a non-standard leadtime.The FPO may also have a
non-standard manufacturing quantity, a non-standard set of immediate components
(ie non-standard usages) and a non-standard scrap factor. The production controller
may create firm plans in order to interject technical reality on the plan overall as
produced by MRP, since capacity and scheduling issues are not directly taken
account of by MRP. He may also have confused the term "firm plan" with a sales
order that has been confirmed ("firmed") by a customer, so inserting these sales
orders into the MRP manufacturing plan as MRP firm plans. Like open orders, firm
plans in the MRP system cannot be rescheduled by the materials planning logic of
the system when the calculations are applied each night to reappraise the timeliness
and quantities of the plan overall. If firm plans are coming in later or earlier that
the MRP arithmetical calculations determine that they ought to be coming in, the
system merely draws this to the attention of the planner or buyer by the output of
rescheduling messages. The need to manage firm plans and the hold-ups they can
create until they are attended to means that their number must be kept to a
minimum ... if the company finds it must continually "bend" its planning through
the extensive use of firm plans, the time has probably arrived when it should
consider migrating to an APS system.

Firm Zone: see Frozen Zone.

First Card Unload: An old shop floor practice of removing from the apparent
work load of a work centre the entire content of a job operation immediately the
first units of production have been reported as having been made. Although this
puts the work centre supervisor in a good light, it also understates the remaining
actual work requirements.

First Come, First Served: A popular everyday phrase, but here meaning a job
despatching rule operating as the name says. The outcome of potentially using the
FCFS rule in terms of job finishing times is used as a yardstick for judging the
performance of the other rules in simulation exercises examining the effectiveness of

First Pick Ratio: Where customer orders are being picked, the percentage of lines
completely filled from stock, as specified on the orders, immediately on receipt. This
definition is virtually the same as Fill Rate, except that Fill Rate may be thought to
allow some order lines to be only partially completed, while First Pick Ratio implies
that lines picked are100% satisfied as to quantity.

FIS: Factory Information System.

FISH: first in, still here ... a humourous reflection by a production or stores
supervisor in one of their more cynical moments.

Five Whys, The: A dialectical procedure put forward by Sakichi Toyoda (a

founding father of Toyota). A person asks why change needed to eliminate waste
cannot be made to an existing situation, and receives an explanation. The person
challenges the explanation with a second question - the second why, and so on,
coming eventually to the fifth question and a challenge which gets to the heart of the
matter. See also Goldratt's Evaporating Cloud.

Fixed Asset: See Asset (Fixed).

Fixed Cost: See Cost (Fixed).

Fixed Interval Re-Order System: The application of the POQ rule with a fixed,
regular period (say, one month). Also referred to as the sales replenishment system.

Fixed Location Storage: A storage area in which each different product to be

stored is assigned to an exclusive, pre-specified location (everything in its place, and
a place for everything). See also Variable Location Storage and honeycombing. Also
see The Manufacturing Manager, Ch 18.

Fixed Order Interval: A variation of the Order Point Replenishment System (qv),
in which the reorder intervals are fixed. In the Order Point System proper, a new
replenishment is ordered when stock falls to the "reorder point". In the Fixed Order
Interval system, instead of ordering a specified replenishment lot R, what is ordered
is sufficient stock to last until the time the next order is to be placed. For example, if
the forecast of demand is M units per month, or M/30 units per day, and the fixed
order interval is 14 days, the amount ordered is M/30 x 14.

Fixed Planned Order: An alternative name for a firm planned order (qv) in

Flag of Convenience: An expression meaning that a ship owner has registered the
home port of his vessel outside his home country, usually for tax reasons and to
avoid restrictions imposed by his home government on manning levels and wage
rates. Panama, Liberia or Honduras are often chosen as countries of registration,
and the national flag of one of these countries will be flown from the vessel
concerned. (In justification, the owner of a British vessel, employing basic Chinese
or Phillipino crew members, would be unlikely to be able to afford to pay the UK
minimum wage rate.)

Flex (verb): To make an adjustment to a budget as described in Flexible Budget.

Flexible Budget: A budget in which an adjustment is made to allow for a

difference between actual activity (ie actual production) and forecast activity.

Float: Stock, including WIP, in excess of the immediate requirements for it. There
are a large number of dictionary definitions of "float", including (1) a dock or place
where vessels may float, and (2) an issuance of shares. See also Slack.

Floating Order Point System: An order point system in which the order point is
recalculated from time to time as the overall levels of sales demand fluctuate.

Floor (flatness of): In a stores or warehouses, the flatness of the floor is critical to
economical and safe working. Floors which are not flat will slow down fork lift
trucks and cause elevated loads to lean. "Flatness" is specified by BS8204 (Part 2).
The maximum elevation difference should be 3mm, although the standard for
"super flat" flooring is more exact, this being required where VNA trucks are
employed in placing and picking items stacked to heights over 12 metres. Services
relating to floor flatness are provided by a number of specialist UK companies,
including Monofloor. The flatness of a particular floor can be determined by a
prophilograph machine.

Floor Stocks: Commonly used C-Class items issued to the shop floor for general
use and replenished by the 2-bin system. Also known as line side stocks.

FLT: Fork Lift Truck.

Flytipping: the unauthorised and illegal dumping of rubbish on land, usually at


fmcg: Fast Moving Consumer Goods - typically groceries, bottled drinks and such
like. Sports cars are not fast moving consumer goods.

FME: Failing Manufacturing Enterprise.

FMEA: synonymous with FMECA, qv.

FMECA: (a) Failure mode, (b) Effect and (c) Criticality analysis. A formal four-
step procedure for investigating the reliability of a product currently under design.
The potential liability to failure of the product under design is investigated thus: (1)
Failure mode - what happened when it failed? (2) Failure mechanism - what was the
cause of the failure? (3) Effect of Failure - what actually happened - what was the
result? (4) Criticality analysis - what can be done about it, vis a vis the design?
FMECA is a tool to reduce customer dissatisfaction, not a tool to increase customer
satisfaction. See also Failure Mode and Risk Priority Number (RPN).

FO: Fibre Optic, or Foreign Office (UK).

FOB (followed by a named port of shipment): Free On Board - see Incoterms

(Group F, "main carriage unpaid"). The seller has fulfilled his obligations when the
goods pass the ship's rail at the named port of shipment. The buyer must bear all
costs and risks from that point. The seller must clear the goods for export. If the
parties do not intend to deliver the goods across the ship's rail, the FCA Incoterm
should be used.

Focussed Factory: There appear to be a number of alternative definitions as to

what constitutes a focussed factory. (If searching the Internet, use the American
spelling of focused factory.) All definitions however relate to a lean/JIT
manufacturing environment. One definition is one of several semi-autonomous
manufacturing groups within a large factory overall, each group being treated as an
individual profit centre with its own marketing responsibilities. Another definition is
a unified set of manufacturing cells, unified by the fact that each set produces parts
and sub-assemblies relating to a particular final product. According to this second
definition, the focussed factory of cells will certainly include common
manufacturing planning and engineering expertise, and might also include other
common staff such as purchasing and administrative. The necessity for central
services and the need to maintain the total organisation's sense of purpose are major
problems in the management of focussed factories See The Manufacturing Manager,
Chapter 15.

Footprint: See Pallet.

Force Majeure (legal): Literally, Latin for "irresistable force" - an overwhelmng

event rendering a contract incapable of performance and void. Note the phrase
"incapable of performance" ... ie not just very difficult, or suddenly more expensive
than was originally envisaged. See also frustration.

Forcing: In hierarchical forecasting (qv), the imposition of a higher group forecast

total on the sum of the individual forecasts at the next level down. For example, the
group forecast for men's shirts, size 14, may be £100,000. However, if the individual
forecasts for men's shirts, size 14, at the lower level are (1) white- £30,000, (2) blue -
£40,000 , and (3) "other colours" - £50,000, together amounting to £120,000, then
these three individual forecasts must be reduced by 10/12 each, to £25,000, £33,350
and £41,650. In other words, the more "senior" figure of £100,000 has been
"forced" onto the three lower figures, to maintain consistency. Forcing techniques
are necessary where there are a great many substitutes possible - eg giftware, wines
and fashion. The forecasting package from American Software has a powerful
forcing capability (phone 01932-855554).
Forecast (Consumption): See also Consumed Forecast, Error AddBack. The
difference between a demand forecast and the actual demand placed by the
customer (ie the "error" is not a mistake in the usual sense of the word).

Forecast Period: In demand forecasting, past demand is organised as a time-series

(qv) - ie into divisions of equal duration. Forecasts are similarly calculated based on
these periods. The periods chosen are likely to be either (1) weeks, (2) calendar
months, or (3) costing periods of 4 weeks each, with 13 periods in the year. It is
usually preferable to chose calendar months: the argument against weeks is that
there is excessive randomness from week to week, requiring an overcompensating
amount of safety stock, and the argument against costing months is that everyday
users find them strange and confusing. However, since calendar months have
different numbers of "trading days" from one to the next, it is necessary to make an
adjustment to standardise the raw data to an "average month", with an average
number of days, and then adjust the final forecast taking account of the actual
number of trading days in the month to which it relates. (For example, if the
average month was 23.7 days, divide the demand in the actual month by the number
of trading days ... say, 26 ... and multiply it by 23.7. Then, before the forecast is
issued, adjust it to take account of the actual number of trading days in the month
to which it relates. See The Manufacturing Manager, Ch. 4.)

Forecasting : see Causal Forecasting, Naive Forecasting, Hierarchical Forecasting

and, particularly, Demand Forecasting..

Forecasting (Hierarchical): The calculation of forecasts at many levels of a

hierarchy, where the items at the bottom of the hierarchy are specific, individual
products, all being members of one or other "groups". (Groups being the next level
up in the hierarchy). Each group, however, is a member of one or other "super
groups" at the next higher level in the hierarchy, and so on up to the single
"supreme group" at the top of the hierarchy. Clearly the forecasts at the various
levels must be consistent. One use of hierarchical forecasting in demand forecasting
is where there are many substitutes in a product range (eg wine, giftware and
fashion items). Thus a forecast may be made at the top of the hierarchy for total
wine sales; at the next level down from the top, forecasts may be split between red,
white and sparkling wines; at the third level, the split may be by price ranges of
under £5, £5 to £10, £10 to £25, ... Finally at the bottom, forecasts may be according
to actual wine labels (Mouton D'Rothschild, ... etc). A second use of hierarchical
forecasting is in sales & operations planning, in which senior management judgment
may be imposed on total company sales at the corporate level, then forecasts
prepared at the next level down by marketing groups, and finally down to individual
products. As described under forcing (qv), in some circumstances it may be
necessary to impose a higher group forecast total on the sum of the individual
forecasts at the next level down. The example given under forcing is the group
forecast for men's shirts, size 14, which are forced onto the individual forecasts at
the lower level for men's shirts, size 14, which are (1) white, (2) blue and (3) "other
colours". These three individual forecasts should equal the overall forecast for the
size 14 shirts. A standard forecasting technique is used to calculate forecasts for for
the overall group; the lower level forecasts are derived merely by data manipulation
and standard arithmetical processing.

Forex: City jargon for foreign exchange.

Forrester's Curves: In 1961, Prof. Jay Forrester of the Massachusetts Institute of

Technology employed a continuous simulation program named DYNAMO to
illustrate the relationship of production rates, demand and stockholding in three
consecutive links of a supply chain (which he called a "retailer", a "wholesaler" and
a "manufacturer"). Theoretically, the stock and the demand on it in each of the
three locations should be in equilibrium and remain in equilibrium as the sources
communicate and despatch their interlinked requirements over time in the normal
way. However, if the external demand on the retailer increases by 10% above
forecast and there is a delay by him in communicating his changed requirements to
the wholesaler, then two things happen: (1) the retailer's stock is depleted by more
than he anticipated it would be, and (2) when the retailer eventually requests more
stock from the wholesaler, the amount so requested is far larger than usual, so that
he (the retailer) can cater for the 10% increased external demand and, in addition,
make up his abnormally low stock situation. In short, the demand on the wholesaler
is far more than the external 10% rise in demand since he is having to make up the
retailer's stock position. As a consequence of this very large requirement from the
retailer, the wholesaler's stock falls massively. If there is now a delay by the
wholesaler in recognising and communicating the massive new requirements he
must now make on the manufacturer, when he (the wholesaler) eventually makes
this demand on the manufacturer, it is not only to satisfy the amount he has
despatched to the retailer (including the increase in external demand), it is also to
make up his own low stock situation. In satisfying the wholesaler's very large extra
requirements, the stockholding of the manufacturer falls dramatically. At the end,
the original equilibrium in the supply chain is totally disrupted - in particular, at the
manufacturing stage, an attempt is made to deal with the huge downward swing in
stock by ramping up production. The Forrester effect is observed not only in
standard industrial inventory control, but in everyday life at the start and finish of
an economic recession. At the start, although consumer demand may have dropped
only (say) 3%, the drop in demand at the last link in the supply chain is
dramatically more, since there is enough stock in the supply chain at that point to
supply all the new, lower requirements. At the finish of the recession, when demand
rises by, say, 3%, demand in the various links in the chain escalates as each one
attempts to re-establish its pre-recession stock holding. The principals involved and
illustrations of the curves are given in The Manufacturing Manager, Chapter 4.

FORTRAN: FORmula TRANslation, the world's first high level computer

language developed at IBM in the late 1950s by John Backus and seen to be geared
to the programming of scientific and mathematical calculations. FORTRAN was
standardised in 1966. As a consequence, programs have very high portability
between computers. The publication of FORTRAN 2003 has given the language a
new lease of life. There is a British Computer Society Fortran Specialist Group -
visit the BCS at

Forward Market: When a company requires a foreign currency at a specified date

in the future, at the time the deal is struck it must immediately take action to protect
itself against an adverse movement in the exchange rate in the interval of time
leading up to the moment when actual payment will be demanded. (If the company
does nothing, in effect it is speculating.) The company's bank will purchase the
required exchange at the spot rate prevailing, and hold the currency for the period
required at the rate of interest offered by the foreign bank. The company will thus
pay the original spot rate. However, if the rate of interest at the Bank of England is
greater than the rate at the foreign bank, the company must pay a premium based
on its bank's loss due to its investment at a lower rate of interest. If the rate of
interest at the foreign bank is greater than the Bank of England's, the company will
receive a discount over the spot rate, since its bank will have gained money from the

Forwards Scheduling: The creation of a schedule by starting at the current date,

and working forwards in time to find when, in the future, the work will be
completed. Finite Schedulers and APS use forwards scheduling, although, as an
option, backwards scheduling can be specified. (MRP uses backwards scheduling -

Fourier Analysis (Harmonic Analysis): In the statistical treatment of seasonal

fluctuations of demand in sales forecasting, it can be shown that for a given number
of observations n in a period (ie in a season), any fluctuation pattern in the period
can be represented by n/2 sine waves of different amplitudes. That is, no more than
6 combined sine equations can represent the seasonality of the 12 months of the
year. In contrast to the use of seasonal factors, Fourier Analysis is not a base index
solution to seasonality.

Fourth Party Logistics (4PL): Multinational companies frequently outsource

their logistical operations to many third party distribution companies (perhaps a
different third party in each country in which inventory is held). The coordination
of the activities of these third parties and the overall control of the total logistical
operation by yet a further outside company - a single, principal logistical company -
is termed fourth party logistics.

Fox: See London Fox.

FP: Finite Planning.

fpm: feet per minute.

FPO: Firm Planned Order, or Fixed Planned Order (qv).

Fraction Rejected Chart: See Attribute Control Chart.

Fraser's Five Point Plan: A procedure put forward in 1958 by Munro Fraser for
assessing a job candidate at an interview. See also Rodger's Seven Point Plan.

Free Change Zone: the unfrozen part of the master schedule horizon - see 3rd
Time Fence.

Free Trade: Trade between nation states transacted without import barriers or
import quotas.

Freehold:Outright ownership of land or buildings, free of such charges as rent or

leasehold. (Flying freehold refers to the freehold of property which is an elevated,
juxtaposed part of another property - for example, an attic extension.)

Freight Forwarding Agent: An individual or firm having great knowledge of the

practice of distribution and transport who will undertake to arrange the
transportation of goods from one point to another on behalf of a customer. A freight
forwarding agent may also assist the customer with customs and other
documentation, and will manage the payment of dock dues and similar charges.
Agents can be one-man firms or departments within considerable shipping
concerns. Some specialise in particular routes or in particular foreign countries;
others specialise in certain types of goods. Usually, no charge will be made to a
client, since the agent will receive booking fees from the shipping concerns he
engages for the transport.

Frozen Zone: also referred to as the firm zone - see Time Fence (1st).

FRT: Future Reality Tree.

FRU: Field Replaceable Unit.

Frustration (legal): The occurence of an event such as a flood or fire may make
the fulfilment of a contract impossible. The difference between frustration and force
majeure (qv) is purely semantic - ie it is the force majeure which causes the

FSAN: Full Services Access Network

FTA: Fault Tree Analysis - ie a methodology for predicting potential causes of

product failure - see FMECA.

FTP: File Transfer Protocol.

Full Faraday Cycle Analysis: see AEN.

Functional Mapping: A simple charting technique used especially in company

planning to depict the behaviour of one or more critical variables over time.
Examples of critical variables are product price; reliability; product performance; and
field support. The value of the charts, or functional maps, is that the information
they display is clear to read and easy to review.

Functionally Oriented Manufacture: A factory or plant in which equipment is

physically organised according to the technical functions of the machines installed.
Thus, for example, all of the lathes are located in a small area (the lathe department)
and all of the presses are located in another area (the press shop). Functional
orientation is the intuitive way of organising plant as the company grows and its
product range gets wider. However, it eventually results in lengthy production routes
and complex scheduling, making the layout unsuitable for just-in-time manufacture.
Contrast Group Oriented Manufacture.

Fungible: goods of Type A ordered by a buyer are said to be fungible if it is

acceptable to him that the supplier can send goods of Type B instead. Fungible is a
legal term often used of money - the origin of money is irrelevant when considering
the total amount in the bank.

Future: On the London commodity market (or on any other global commodity
market), a future is a contract either to buy or to sell a quantity of a particular
commodity (raspberries, copper or American dollars, for instance) at a specified
date in the future. An industrialist wishing to sell physical goods in the future will
sell a future at a given price in order to protect himself from a subsequent fall in
their price - that is, if the price falls, he will pay less to buy back the future, so that
the profit on the futures deal will offset the reduction in the price obtained for the
physical goods. (On the other hand, if the price rises, he will lose money on the
future, the loss being offset by his gain on the sale of the physical goods.) Similarly,
an industrial buyer requiring goods in the future will buy a future contract. When
the time comes, if the price of the physical goods has risen, he will be able to sell the
future at a profit. The profit will offset the extra price he must now pay for the
physical goods. (On the other hand, if the price falls, he will lose money on the
future, his loss being offset by the lower price he now needs to pay for the physical
goods.) Futures protect the buyer against price rises, but block him from taking
advantage of price falls. They protect the seller from price falls, but block him from
taking advantage of price rises. See Commodity and see Hedging and Speculator.
See also The Manufacturing Manager, Ch 16.
# A B C D E F G H I J K L M

3G: Third generation mobile phone services, enabling very fast access of mobile
phones to the Internet, and the retrieval therefrom of, say, pictures and video.

g: the acceleration of a body due to gravity, being 32 feet per second per second ( = 9
metres per s per s).

GAAP: Generally Accepted Accounting Principles. It should be noted that the

GAAP accepted by the UK conform to the IFRS set of accounting standards. These
are not the same as the GAAP pertaining to the US. It is consequently necessary for
UK companies seeking to raise capital in the US to prepare a second set of accounts
complying with the US GAAP version.

Gage R&R: see Gauge R&R.

Gantt Chart: a horizontally oriented bar chart. When the horizontal axis denotes
time, as usually it does, the Gantt chart is particularly useful for illustrating work
schedules. See also planning board.

Gateway Work Centre: The first work centre that a job proceeds to, immediately
after its release to the shop floor. The measured control of the release of work to
gateway work centres is the vital function of I/O Control, qv.

GATT: General Agreement on Tariffs and Trade. A treaty originally devised and
launched by the US in 1947 to promote free world trade, and since extended many

Gauge R&R: Gauge Repeatability and Reproducibilty. In taking any

measurement in business, whether in SPC on the factory floor or in a customer
survey in the office, it is desirable that the means by which measurements are
recorded should have the required degree of accuracy and should be (1) repeatable -
ie if one person measures the same thing a second time in the same circumstances,
he will record the same measurement - and (2) reproducible - ie if two persons each
separately record the same thing, they will obtain the same measurement. Statistical
calculations can be applied to estimate bias due to failings in Gauge R&R.

Gaussian Curve or Gaussian Distribution: see Distribution (Normal).

Gaylord: a large corrugated container matching the dimensions of a pallet or
smaller (wooden) container. Gaylord is a tradename that has become accepted as

Gazette: In the UK, a daily publication of the Department of Trade & Industry, in
which are made official public announcements, including winding up orders (hence
to be gazetted ... to be made the subject of a winding up order).

Gbs: Gigabits per second.

GDP (Gross Domestic Product): See Glossary entry below.

Gearing: company indebtedness, defined by the relationship between the funds

provided by the company's ordinary shareholders, and funds carrying a fixed
interest charge or against which a dividend must be paid.

GEC: General Electric Company. There are, or were, two companies of that name.
First, there remains the rock-solid trillion dollar US company. Alas, the multi-
million £ British company changed its name to Marconi, and proceeded to make a
number of disastrous decisions, including selling off its "boring" defence and capital
goods businesses, and buying telecommunications companies at a high price just
before a collapse of the market for these goods. Shareholders in the British company
have paid a high price in terms of destruction of value.

Gemba: Gemba is Japanese for the "actual place" or workplace. In the context of
manufacturing, this is taken to mean the factory floor - the real place where activity
takes place and where product itself is made. Gemba keiei (pronounced gemba "K" -
"A") means managing the workplace as a physical entity and business (rather than
simply managing the people who work there). Gemba kaizen means continuous
improvement of the workplace.

GEN2: Gen 2 is a protocol (ie a set of standards and rules) issued by the EPCglobal
committee for formulating data to be used in an RFID radio environment. The
GEN2 protocol governs the air interface standard (ie the frequency at which data
are transmitted), the data structure of the EPC number, and the RFID network
rules. GEN2 has a "WORM" capability (write once, read many). It keeps data in
sequential order and manages data more easily than the RFID protocols which it
supersedes (Generation 1, Class 0 and Generation 1, Class 1). As with Generation 1,
there are also five classes of the GEN2 protocol. GEN2 enables RFID readers to read
multiple tags more quickly, to sort multiple codes, to deal with a temporary loss of
reader power and to deal easier with such problems as "ghost tags" (partial data
from tags which ought not to be read). The standard mode of operation defines
three states (1) single reader, (2) multi reader and (3) dense reader. GEN2 is an open
standard - ie it is universally available throughout industry to all tag
manufacturers.See also ALE, GTAG and Group Select.
General Stores: the stores, or stock room, itself. Often the term excludes stocks of
tools (which are in the tools store) and stocks of finished goods (which may be in the
finished goods store, or warehouse).

Genchi genbutsu! Japanese for Go and see for yourself - go to the "gemba" (the
actual workplace - see above) and see what is really happening!.

GEO: Geosynchronous Earth Orbit.

Ghz: Gigahertz, or billions of cycles per second.

Gilts (Gilt Edged Stock): In the UK, "stock", or certificates, issued and sold by
the UK Government. There are an extremely large number of such stocks issued by
the Government to raise funds, with different maturity dates, different rates of
interest (some rates being linked to indexes such as the RPI (retail price index)) ,
different redemption prices etc.. Gilts are widely traded on the London Stock
Exchange. They are called what they are because they are presumed to be free of
risk. (Unless their redemption value is indeed linked to the RPI, their value is not, of
course, free from the risk of erosion by inflation.)

Gimbal Tag: a perforated cardboard tag about 2 inches square attached to retail
objects, especially clothing, and used by stores and distributors to gather statistics
on sales. Now defunct.

GIS: Geographic Information System, or Graphical Information System

GKN: Guest, Keen and Nettlefold, a UK engineering company.

Globology Revolution: a term coined by one Peter Oppenheimer of Goldman

Sachs to mean the beneficial impact of technolgical change, globalisation and the
emergence of the "BRIC powers", in combination, on the world's economy.

GMROI: Gross Margin Return On Investment.

Goal, The: The Goal is a novel based on a manager who optimises his bottlenecked
production output so as maximise his profits. The book failed to win the Nobel prize
for literature but nevertheless outsold most novels that did, and was written to
promote the OPT planning system (qv). The Goal's existence is known to all
management consultants, some of whom, with a knowing wink, may well suggest to
clients that they have read it. The book is by Eliyahu Goldratt and Jeff Cox and was
published in 1984 by North River Press (see also The Race, 1986.)

Gompertz Curve: see S-Curve.

Golden Zone: Stores and warehouse jargon for the most easily picked storage
locations, typically those close to a central location and between waist and shoulder
height. Stores experts also talk of silver and bronze zones.

Good Count / Bad Count: in relation to stock records accuracy, qv.

Goodwill: A financial value, being the difference between the company's value as
"a going concern" and the fair value of its individual assets as recorded on the
balance sheet.

GOQ: Genuine Occupational Qualification.

Government: "A ponderous body uniquely lacking in visionary business

perspective and almost incapable of initiating reasonable legislation capable of
benefiting consumer and business alike." (Roy L. Harmon, ReInventing The
Warehouse, The Free Press, 1993, p37.) There are other definitions of Government,
such as "the body of persons charged with the duty of governing" (OED), but Roy
Harmons's will do.

GPRS: General Packet Radio System, a means of increasing the speed of data
communications on a mobile phone network.

GPS: Global Positioning System.

Grading (of a Job): see Classification of Jobs.

Grain & Feed Association: The City of London exchange dealing in agricultural

Grand Average (Xbarbar): The mean or average of a number of sample means.

Suppose the values in Sample 1 were 3, 4 and 5, and the values in Sample 2 were 6,
7, 8. The mean value of Sample 1 is 4.0 and the mean value of Sample 2 is 7.0. The
grand average is thus 5.5.

Great Circle Formula: A trigonometric relationship used in navigation, especially

in relation to aircraft, to compensate for the unsymmetrical curvature of the Earth.
The formula may be necessary in distribution planning in very large geographic

Green Belt: (1) A team member of Six Sigma quality improvement project, the
team being led by a Black Belt; (2) in the UK, a rural area protected from industrial
and housing development.

GRN: Goods Received Note, a document raised by a receiving company verifying

that goods have indeed been received. Note that the receiving company has no legal
obligation with respect to the goods beyond the reasonable safe keeping of the
delivery - see Receipt (of goods).

Gross: one meaning is entire and whole, as opposed to net. Gross also means a
dozen dozen (eg a gross of eggs = 144 eggs).

Gross Domestic Product (GDP): The GDP of a country is the total value of the
goods it produces and the services it provides in one year. For the UK, the GDP is
$1.25 trillion (2000).

Gross National Product (GNP): The GNP of a country is its Gross Domestic
Product (qv), plus the total of net income from abroad.

Gross Requirements: The total quantity of a component needed in a particular

time period to support the planned manufacture of products at the next level higher
in the bill of materials that will require to use that component. Thus if, at Level 0 of
the bill of materials, there are plans to make 15 electric toothbrushes at time T and
plans to make 12 electric pepper grinders at Time T, with one component motor
needed per toothbrush and one component motor needed per pepper grinder, the
gross requirements for motors (ie at Level 1 ... the next level down) at Time T is 27
(15 + 12). The individual 15 for the toothbrushes and the individual 12 for the
pepper grinders are, separately, known as partial requirements (qv). Note that if 9
motors are already in stock, the net requirements are 18 (qv). The formulae are: (1)
the sum of the partial requirements = gross requirements; and (2) gross
requirements less stock = net requirements. See The Manufacturing Manager, Ch 9.

Group Forecast: The aggregate forecast demand for a group of products. The
group is almost always a well-defined product marketing group (for example, "dairy
products", "office consumables"). In order to aggregate the individual forecasts,
they are usually expressed in monetary terms. Group forecasts are encountered in
Sales & Operations Planning (see The Manufacturing Manager, Ch 6.).

Group Oriented Manufacture: The physical arrangement of plant on the factory

floor so as to create many small flow lines, each flow line being dedicated exclusively
to one or a few manufacturing groups of products. In contrast, see Functionally
Oriented Manufacture and Product Oriented Manufacture.

Group Select: A feature of an RFID tag reader employing GEN2 technology

whereby an RFID reader or interrogator is provided with the capability to seek and
read groups of tags based on their specified data structure and ignore others.

Group Technology: When a factory floor and the products made there are being
converted from functionally oriented manufacture (qv) to group oriented
manufacture (qv), it may be thought necessary (*) to employ a methodology to find
which products should be assigned to which group flow lines. Group technology is
just such a methodology, and employs formal methods for describing similarities in
manufacturing requirements and simulating the capacity loads on potential group
flow lines. (* Richard Schonberger has criticised the use of complex and elaborate
methods for determining the arrangement of plant and products, and advocates the
simple use of routings data to make rapid progress, followed by straightforward,
pragmatic action to iron out any difficulties encountered.)

Groupage: In distribution, for purposes of economy and efficiency, groupage is the

practice of hauliers grouping together the loads of several customers for transport to
a particular place. While the practice may be economical and efficient for the
haulier, it may not be thought so by a particular customer, who sees his goods
delayed until the haulier can make up a full load - companies wanting reliable, quick
delivery must therefore verify a haulier's policy on these matters.

GSM: Global System Mobile.

GT: see Group Technology.

GTAG: Global Tag, an international coding standard used in conjunction with

electronic product codes in Radio Frequency Identification. See particularly GEN2.

GTT: GEC - Plessey Telecommunications.

GUI: Graphical User Interface.

Gulaosi: Chinese for death by working too hard. The next time someone talks about
outsoucing to China, they should think about those 24 hour shifts (*) in the
Guangzhou factories of the Guangdong manufacturing region. (* Yes, really ...
24hours. Gulaosi is a not uncommon phenomenon in China.)

GUS Classification: An unusual means of product classification intended to assist

in inventory control (compare the use of ABC analysis to assist in cycle counting). G
class products are general products widely used throughout the company; U class
products are unique to one specific group of products or cost centre; S class
products are specific to individual customer orders.
# A B C D E F G H I J K L M

HACCP: Hazard Analysis and Critical Control Points - the evaluation of potential
sources of failure in a product under design - see also FMECA.

HAL: Heuristically programmed ALgorithmic computer, famously the "name" of

the errant computer in Arthur C.Clarke's story 2001: a Space Odyssey.

Harmonic-Analysis: see Fourier Analysis.

Hash-Total: One way of checking that a set of records or documents is complete,

and that no individual document is missing, is to select an arbitrary data field
containing a number, the field selected being present on each record or document,
and calculate the total of such fields. This total is the hash total. Later, to double
check that all records and documents remain complete, the fields are again added
and the total checked against the hash total. If a document is missing, the newly
computed total will not equal the hash total. Note that the field on the document
does not have to be a numeric variable, and the hash total does not have to make
sense. For example, the birthdays of 3 people may be the 12th, the 9th and the 22nd ,
yielding a hash total of 43. Later, if the document relating to the person born on the
22nd is missing, the new total will be 21 - ie not equal to the established hash total .

Haulier: A company which transports goods on behalf of customers needing such a


Hauling: see kitting.

Hay Guide Chart: The Hay Guide Charts are the central instrument of a
proprietory point-factor job evaluation procedure devised and administered by the
Hay Group (in the UK, known as Hay-MSL). The Hay Group was founded in 1943
in Philadelphia, PA, by Ned Hay. In the Hay system, the individual requirements
needed in the performance of a job are regarded as universal, and are termed
factors, these being sub-divided into "dimensions". The three universal factors are
said to be: know-how; problem solving; and accountability. The dimensions within
each factor vary - three examples of dimensions within the know-how factor are (1)
depth and range of technical knowledge; (2) breadth of management know-how;
and (3) human relations skills. Each dimension as it applies to a specific job is split
as to the degree to which it applies (the degree of application is referred to as a
graduation). The Hay Guide Chart itself comprises a ready-made points system, so
that after job evaluation in terms of factors, dimensions and graduation, job scores
can simply be read from the chart. The Hay system is used worldwide and is by far
the most popular of the point-factor schemes. See The Manufacturing Manager,
Figure 19.3.

HAZOP: Hazard and Operability Studies, a term encountered in design quality

and failure avoidance.

HDB: High Density Printed Board.

HDD: Hard Disk Drive.

HDI: High Density Interconnect.

HE: Harsh Environment.

HEA: Harsh Environment - Automobile, or Health & Education Authority (UK).

Health & Safety: The existence of a safe and healthy working environment, its
provision being prime moral and legal imperatives of the company. See H&SAWA.

Hedge: In the commodities market, a hedge is the action taken by a buyer to

protect himself against a price rise or the action taken by a seller to protect himself
against a price fall. See "Future" and see "Speculator".

Hedging: If it is required to buy commodities such as oil, copper or raspberries at a

future date, the danger exists that at the future date when they are required, their
price will be higher than the current price. One way the buyer can protect himself
from this is to buy a "future" right to purchase the commodity (see Futures in the
Glossary). When the time comes, the buyer sells his future on the commodity
market. If, in the meantime, the price of the commodity has risen, he will make a
profit on the future (over the originally agreed price). This profit will more or less
match the extra money he has to pay for the physical material wanted. The
downside is that if, on the contrary, the price of the commodity has fallen, when he
sells his future, he will make a loss. However, because he is also paying less for the
material, overall he will break even. The process is called hedging. By hedging with
futures, the buyer protects himself against future price increases, but blocks himself
from being able to gain advantage from price falls. Similarly, the salesman protects
himself from price falls, but blocks himself from price rises. The operators in the
futures market are either hedgers or speculators (qv). The industrial buyer or
salesman must never speculate, and, in a very real sense, doing nothing about the
requirement to buy or sell a particular commodity in the future is speculation.

Hedonic Scale: In the OED, hedonics is defined as the science of pleasure. An

hedonic scale is one indicating pleasure and displeasure - for example, 0 on the scale
might mean "very unpleasant", and 10 mean "sheer ectasy". If the scale is being
used so that consumers can register their reactions on a form, say in a market
survey of food taste, it is helpful to display a sad face next to the 0 and a smiley face
next to the 10.

Heijunka: A Japanese word for "smoothing the waves of production", or, in more
prosaic terms, setting up an even flow of manufactured product by establishing a
succession of very small batches of production throughout the factory chain of
manufacture. Accomplishing this is a major goal of Just-in-Time, or lean,
manufacturing, and must be supported by fast set-ups and group-oriented plant
layout. See The Manufacturing Manager, Section 15.2.

HEM: Harsh Environment - Military.

HEMT: High Electron Mobility Transfer.

Heuristic: In scheduling, an heuristic is a mathematically based search algorithm

employed to determine a production schedule. More generally, a heuristic is any
pragmatic procedure leading to an answer to an operational research question. An
heuristic has also been defined as a rule of thumb that works! An example of a simple
heuristic is a dynamic despatching rule such as the Critical Ratio rule or the SPT
rule (see The Manufacturing Manager, Section 11.3.) See also Meta-Heuristic.

HH: Hand Held.

Hidden Factory, The: The hidden factory expresses the notion that much of the
endeavour of the company that is not quality minded is directed inadvertently to
creating waste and performing wasteful tasks - examples of wasteful activities are
the production of non-conforming products and the holding of excessive stock. The
hidden factory is the extra useful, positive output that would theoretically be
possible if the energy directed at creating waste were released and directed instead
at making good quality items. In 1977, the quality guru Armand Feigenbaum
estimated the endeavour within the hidden factory might be 15% to 40% of total
company effort. The notion of the hidden factory is bound up with the metric COPQ
(cost of poor quality). The COPQ may be estimated by multiplying the number of
defects per period of time by the average unit cost to fix a defect (labour and
materials). Such a sterile calculation however omits such costs as loss of goodwill
and loss of competitiveness, and such other matters as warranty costs and even legal
damages. See The Manufacturing Manager, Ch 13.

Hierarchical Forecasting: See Forecasting (Hierarchical).

Hierarchy: A structure comprised of layers, or levels, each successively lower layer

being subordinate in some way to the layer above it. In terms of management and
the corporate organisation, the highest layer of the company hierarchy comprises
the managing director. At Layer 2 are other members of the board. At Layer 3
below the board are heads of department, and so on downwards to the most junior
levels. The advantages of an hierarchical organisation in terms of human resource
management are: its ease of formation; the clarity it gives to lines of command; and
the flexibility of management that it confers. An hierarchical management is said to
be mechanistic (qv).

HIFO: Highest In, First Out - a stock rotation system whereby the most expensive
stock is issued first.

Hire Purchase (HP): Similar to a leasing arrangement, but with two differences:
(i) the company using the goods takes possession of them as owner at the end of the
payment period; and (ii) the using company is also permitted to depreciate the
goods over the time it pays for them. Since the company putting up the goods is
consequently not able to depreciate them, unlike a lessor, it will make a higher
charge to compensate.

Histogram: A graph of vertical bars illustrating how the values of some particular
phenomenon are distributed among all the possible values the phenomenon could
take. On the horizontal axis of the graph are the ranges of the values, set out on the
scale of the axis as so-called "class intervals". For example, the class intervals for
people's ages might be 0 - 9, 10 - 15, 16 - 25, 26 - .... On the vertical axis of the
histogram is the percentage (or number, or fraction) of values in each particular
class. For example, 20% of all age values of the population of a town might fall in
the 16 - 25 class. Consequently, the area of the bar on the histogram above the 16 -
25 class would be drawn such that it was 20% of the total area of all the bars on the
total graph.

HMD: Head Mounted Display.

Hold Order (noun): A works order on which work has been suspended for some
reason by management (eg due to the non-payment of his account by the customer).

Homologation: In manufacturing industry, the action of ensuring that a raw

material that has been received has indeed originated from a specific certified

Honeycombing: the often unavoidable creation of interstices, or empty spaces,

within a stock storage system, perhaps due to partial pallet loads or depleted rows.
The honeycombing factor is (net calculated capacity)/(gross storage capacity), and
might take a value of 0.8 (though much higher in a fixed location storage system). A
honeycombing factor cannot be calculated merely from (actual capacity)/(theoretical
capacity), since there are many other reasons for the existence of empty space in a
stores or warehouse.
Horizon (Forecast): in order to act as input to the master scheduling process,
demand forecasts must be prepared out to the master schedule horizon, plus one
month. (The extra month is needed because the master scheduling period begins
after the instant in which the forecasts are prepared, even if that is only one day
later.) See also bootstrapping.

Horizon (Master Schedule): The period ahead for which the master schedule
must be formulated. The minimum period of time is the sum of these two elements:
(1) the maximum cumulative leadtime of materials manufacture, including the time
to acquire raw materials*, and (2) the master schedule review period. Companies
setting their MPS horizon too short will find that there are material and raw
material requirement "past due" after they have performed the materials explosion
of the master schedule. Companies setting it unnecessarily far out will create
material plans which are unnecessarily far out in the future and which will consume
computer time to no useful purpose. (*See purchasing time horizon.)

Hoshin Planning, or Hoshin Kanri: "Policy Deployment", or "Management by

Strategy Deployment" - a term meaning the constant referral in setting goals and
objectives, and in deciding measures of performance, to the declared overall
strategic and policy aims of the enterprise. Hoshin is Japanese for "pointing the
way" and Kanri means simply "management policy".

Hot List: A list of items which are urgently required for a current works order, the
list having been compiled by informal means and requiring progress chasers to
commence a search for them. The items are likely to be recorded in a little black

House of Quality: In QFD (qv), it is common to draw up a matrix of Customer

Requirements x Product/Service Features, indicating on the intersections of the
matrix the degree the particular feature contributes to the customer's requirement.
A very detailed version of the matrix can then be drawn up in the form of a block
diagram bearing references to the original matrix. The diagramatic form of the
block diagram, comprising blocks on top of other blocks, have lead to its being
called a House of Quality.

HOV: High Occupancy Vehicle.

HP: (1) High Performance, or (2) Hosin Planning (qv), or (3) Hire Purchase, or (4)
Hewlett Packard, or (5) HP Sauce.

HPCC: High Performance Computing and Communications.

HPPS: High Performance Product Sector.

HPV: High Production Volume.

HR: see Human Resources.

HRM: Human Resources Management - see Human Resources.

HRXpert: A software package intended to assist a company in its application of the

Hay Guide Chart (qv) and the Hay point-factor job evaluation system.

H&SAWA: The Health & Safety At Work Act, 1974 - The original UK legislation
arising from the Robens Report, published in 1972 (latest legislation 1992 and 1999).
The Act is what is known as enabling legislation, and led to the establishment of the
HSC (Health & Safety Commission) and the HSE (Health & Safety Executive).
Although there are those who claim that the Act has brought about great
improvements in industrial safety, there are others who believe that it has been
something of a disaster, and has achieved the exact opposite of the objectives set out
in the original Robens Report. These were (1) that there was too much law, it was
too complex, and that matters should be simplified, (2) that the emphasis of
legislation should shift from being "prescriptive" to being "goal setting". The red
tape and regulation entangling industry, now added to by yet more destructive
nonsense from the EU, threaten to cripple the UK's competitive position.
Unfortunately, criticising anything with the words "Health & Safety" in its name is
equated by some classes of people as advocating child abuse. See also COSHH. Also
see The Manufacturing Manager, Section 19.4.

HSC: Health & Safety Commission, a UK body. The HSC is empowered to write
framework law in the field of industrial health and safety, and write its
accompanying regulations and codes of practice. While there is a requirement to
consult with industrial companies (a cosy arrangement), proposals are passed on a
minister's signature without the scrutiny of Parliament. See also The Health &
Safety Executive.

HSE: Health & Safety Executive, a UK body. The HSE is empowered to appoint
factory inspectors and to investigate premises and the circumstances of accidents.
The HSE may bring prosecutions before the courts. Question: How many HSE
Inspectors does it take to change a lightbulb? Answer: None - it's too dangerous.

HSM: Hierarchical Storage Monitor.

HTML: Hypertext Markup Language.

HTTP: Hypertext Transfer Protocol.

Hub: the dictionary definition of a "hub", apart from being the central, solid part
of a wheel, is a central point of revolution, activity, life, interest etc.. This definition is
not far from the many alternative uses of the word in logistics. That is, in logistics, a
hub may be a point at the centre of many distribution routes where goods are
received, consolidated, stored and despatched to other sites. Strictly, in formal
distribution planning, a hub is a node. In communications technology, a hub is an
alternative name for a router, especially one distributing other services such as
Internet telephony and TV.

HUD: Heads Up Display.

Human Capital Management: A number of consultants who wish to appear

ahead of the game are now referring to Human Resource Management as Human
Capital Management. "People are a company's greatest asset", they say, hence
human capital (geddit?). The term was originally due to one Theodore Schultz, The
Economic Value of Education, Columbia Press, 1960.

Human Resource Management: see Human Resources.

Human Resources (HR): The management of rules and procedures within the
company as they relate to people themselves. While HR policy at the broad level is
formulated by senior management, HR management and administration other than
at the local, working, level is the responsibility of the HR manager (= personnel
manager* ). HR department administrative responsibilities encompass reward
management (ie pay); recruitment; discipline and dismissal; and health & safety. *
The distinction between the terms "human resources" and "personnel" is a fine one.
HR may be preferred since it is said to emphasise such matters as personal
commitment and empowerment etc, while personnel may suggest merely wages and
pension schemes. See also Human Capital.

Hypergeometric Distribution: A statistical distribution that takes account of the

interdependence of a sample and the lot remaining after samples have been taken.
# A B C D E F G H I J K L M

IASB: International Accounting Standards Board.

IBM ( International Business Machines) : The world-famous computer

company! IBM Corporation started life in 1911 as The Computing Tabulating
Recording Company, becoming International Business Machines in 1924 under the
aegis of Thomas J. Watson Jr. (*) In 1935 IBM marketed the first commercially
successful electric typewriter; from the 1960s it developed a number of computer
families, including the famous System 360 series. IBM was slow to understand the
personal computer however, and began to suffer further in the 1980s as the prices of
even large computers began to fall. By the early 1990s the company was in serious
decline. Rescue came in 1993 with the appointment of "an outsider" as CEO - Louis
V. Gerstner. Gerstner halted the proposed solution to its troubles of breaking up the
company. Instead he switched marketing strategy from the sale of hardware alone to
the provision of comprehensive computer-based business solutions, with its
emphasis on (expensive) advice and know-how. He also terminated many
entrenched IBM company practices in order to eliminate departmental thinking and
speed up decision taking. Louis Gerstner retired from IBM in 2002 and is now
chairman of the investment company Carlyle Group. His name ranks in IBM with
the great Thomas Watson's. IBM meanwhile continues to make steady progress; it
seems Big Blue's glory days are to return! (* For all the esteem rightly shown
Watson, he is recorded in 1947 as having declared "I think there is a world market for
about 5 computers".). Visit; see also Big Blue.

IC: Integrated Circuit.

ICAEW: Institute of Chartered Accountants in England and Wales. Visit

ICC: International Chamber of Commerce, an international body with

headquarters in Paris and set up in the 1930s to promote international trade The
ICC is responsible for the periodic reissuing of the Incoterms and for issuing
standard terms of letters of credit. Visit

ICL: International Computers Limited, in the 1970s a company challenging IBM

for "big computer" supremacy.
ICT: In-Circuit Test, or International Computers and Tabulators, the predecessor
of ICL.

Idle Time: The time that a machine (or machine operator) is waiting for work
(does not include time under set-up or undergoing planned maintenance).

IED: Inside Exchange of Dies - synonymous with internal set-up time (qv).

IGD: visit the Institute of Grocery Distribution.

IMCS: Inventory Management & Control System.

IMPACT: The name of an IBM program of the 1950s, being the first to incorporate
the replenishment lot size into the calculation of safety stock.

Impersonal Ledger: see Ledger.

Implied Terms (legal): Implied terms are those which are not written down in a
contract, but are nevertheless assumed to be part of it, either by commonsense or by
the "custom and practice of the trade" (see Custom and Practice). For example, a
company purchases 100 bags of cement for delivery to its stockyard. On delivery, it
rains, but the bags turn out to be not waterproof and the cement is ruined. Even
though there is no express mention in the written contract that the bags will be
waterproof, the requirement for their being so is implied. Consequently, the supplier
will be deemed to be in breach of contract if it rains and the cement is ruined. To
determine whether a condition is implied or not, the company can use the"Officious
Bystander Test" (qv). Also, contrast "Express Terms".

Imprest Issue: see Issue (Imprest).

Implosion (of the Bill of Materials): Starting at a low level of the bill of
materials, "implosion" of the bill is the determination of the plans at increasingly
higher levels of the bill which give rise to them. (For example, starting with bicycle
wheel spokes, implosion leads us first to the bicycle wheel, whence further implosion
leads ultimately to the bicycle itself.) Implosion of the bill is a central requirement in
the calculation of product costs. (We start with the costs of raw materials, and
accumulate - or "roll up" - more and more costs as we go up the bill of materials,
finally arriving at the top product, the cost of which comprises all the lower costs
which have so far been accumulated.) See also explosion.

IMT: International Mobile Telephone.

Inactive Inventory: see Stock (Slow Moving).

Incentive Contract: Buyer and supplier may agree to a target cost for the
fulfilment of a large undertaking, but acknowledge that there is uncertainty of
outcome. The contract may specify, therefore, that the contractor (the supplier) will
bear - say - 3% of any overrun, and receive, as a bonus, a payment of - say - 3% of
any underrun. See especially CPA (Contract Price Adjustment).

Incoterms: "The International Chamber of Commerce Terms of Sale" (see ICC).

The Incoterms consist of 13 standard contractual terms relating to physical logistics
(ie distribution) and the carriage of goods. The 13 standard terms define alternative
arrangements, or obligations, of the seller, as the party providing the service of
actual transportation and delivery of the goods, and buyer, the party requiring the
goods to be transported, in such matters as: arranging for carriage; payment of
insurance; the payment of dock dues; the completion and presentation of customs
documents; and customs duty. For the buyer of service, the least onerous Incoterm
is "Ex Works"(EXW, followed by a named place from which the goods are to be
collected ). With EXW, the goods merely have to be placed by the buyer of the
service, with immediate wrapping, at his despatch dock, and all subsequent
activities involved in the move are the responsibility of the company undertaking it.
(Note that there is no obligation to load the vehicle.) As one moves through the 13
terms, the obligations of the seller (ie the company undertaking the move) increase
and those of the buyer correspondingly decrease. The maximum obligations of the
seller are "Delivered Duty Paid" (DDP, followed by a named place within the
country of destination). The Incoterms are revised about every ten years, the last
revision effective from 1.1.00 being end 1999. The year of publication should be
quoted on any agreement between seller and buyer involving the Incoterms (eg
"FOB the SS Mary Rose, Liverpool, Incoterms 2000"). A booklet published by the
ICC is available for about £26 setting out the terms in full, and may be ordered on
the Internet through It is essential that any glossary reader wishing
to become seriously involved in using an Incoterm should consult this booklet, and
the commentary on the Incoterms written by Jan Ramberg, also available from
Amazon. The complete list of Incoterms is: EXW ("Departure"), FCA, FAS and
FOB ("Main carriage unpaid"), CFR, CIF, CPT and CIP ("Main carriage paid"),
DAF, DES, DEQ, DDU, and DDP ("Arrival"). As stated, the two extremes are, of
course, EXW where the seller does very little, and DDP where the seller does

Independent Demand: See Demand (Independent).

Indeterminant Term (legal): synonymous with an innominate contractual term


Indirect Cost: See Cost (Indirect).

Indirect Costs: Costs associated with the manufacture of a product but which are
not directly incurred in the product's literal manufacture. A problem with the
treatment of indirect costs is that while they must be taken account of, their
allocation to products must be accomplished somewhat artificially (using a so-called
cost driver). An example of an indirect cost is the cost of supervision. A cost driver
might be the number of work hours involved in manufacture. In this case, suppose
the cost of supervision was £20,000 and the total number of work hours conducted
in the area supervised was 4,000 hours. Then a job taking 1000 hours would bear an
indirect supervision cost of £5,000 - ie £20,000 x (1000 / 4000).

Industrial Autarky: Industrial self sufficiency. For example, in order to promote

the development of its industry or make it invulnerable against foreign blockade, the
government of a country may pursue a policy of gaining industrial autarky,
promoting its policy with local development grants and tariff protection.

Inelasticity: see elasticity.

Infinite Capacity Scheduling: A humourous term which is the "opposite" of

finite capacity scheduling, and which is intended to highlight the fact that in the
creation of material plans in, say, MRP and MPS, direct account is not taken in the
actual calculation of the plans of the limited resources available for their
manufacture. (This failure to take direct account of capacity in the plans' actual
calculation is why rough cut capacity planning (RCCP) must subsequently be
performed before the master schedule's release.)

Innominate Term (legal): Innominate means, literally, "having no name", and is

applied to a contractual term which may be either a condition of the contract, or a
contractual warranty - one or the other, depending on the circumstances at the time.
For example, the contractual term may be to deliver on the 15th of the month. If the
delivery is late and the buyer is forced to scrap his production programme and tear
down his plant, the date of delivery was a condition. If it is late and as a result the
buyer merely manufactures a somewhat smaller batch, the date was a warranty.

Input / Output Control: A means of regulating the amounts of work waiting at

gateway and other work centres on the shop floor by use of the following self-
fulfilling equation: Queue at the end of this period = Queue at the end of the
previous period +Input over the period -Output over the period. Thus if the
previous queue at the end of Week 6 was 100 hours of work, the input during Week
7 was 50 hours of work to do and the output over Week 7 was 55 hours of work
completed, the new queue at the end of Week 7 (and the start of Week 8) is 95 hours.
It is important in I/O control to use an accurate and realistic figure for a work
centre's expected output - see Demonstrated Capacity. I/O Control is the prime
means of controlling production leadtimes including the emergence of viscious
circles, other than through an APS - see The Manufacturing Manager, Ch 11.)

Insolvency: A company is said to be insolvent either when (1) it cannot pay its
debts because it has insufficient money in the bank, or (2) its total liabilities exceed
its total assets. Situation (2) is referred to as balance sheet insolvency. An insolvent
company may be put under receivership, or alternatively be placed in
administration. If the receiver or administrator believes there is no chance of
"rescuing" it, it is likely to be liquidated - ie its assets are likely to be sold forthwith,
for what they will bring, to pay its debts. The term insolvency jurisdiction means the
court having the power to issue such a winding up order.

Inspection (100%): Inspection itself means the detailed examination of a part to

determine whether or not it conforms to specification. 100% inspection means that
all raw materials parts coming into the company will be individually inspected, and
non-conforming units returned to the supplier. Alternatively, it may mean that all
the items manufactured by the company will be inspected before sending them on to
the customer or onto the next stage of production. 100% inspection does not
guarantee 100% conformance to specifications, since the inspection process is itself
liable to error - ie inspectors grow weary and mistakenly pass non-conforming units.
In fact, it was estimated by the late Joseph Juran that 100% inspection was only
80% effective. That is, if a lot of 100,000 units really contains 1% non-
conformancies and is subjected to 100% inspection, 200 non-conforming items will
eventually "get through".

Inspection (Sampling): See Single Sampling and Double Sampling (of many
sampling topics).

Institute of Operations Management: see IOM.

Institute of Purchasing & Supply: see CIPS

Institutional Investors: pension funds, trusts and insurance companies which

have bought company shares. Institutional investors are usually the majority
shareholders of large public companies.

Integer Programming: See Mathematical Programming.

Integrated Accounting: In calculating product costs and accumulating various

classes of expenditure in cost centres, it is easy to lose sight of the fact that the
precepts and rules of financial accounting must continue to be followed. Integrated
accounting is a set of procedures whereby the expenditures considered in cost
accounting can be translated into financial accounting terms. The procedures
involve the setting up of a succession of "control accounts" in order to do so. Two
examples of control accounts are the stores ledger and the finished goods stock
account. See The Manufacturing Manager, Figure 17.27. See also interlocked

Interleaved 2 of 5: A numeric-only bar coding system, the advantage of which is

the high physical density of the code. Interleaved 2 of 5 is used for grocery cartons
(but not for the individual units within the cartons).
Interlocked Accounting: Like integrated accounting (qv), interlocked accounting
is also concerned with the financial accounting side of cost accounting. Two sets of
accounts are "interlocked" by a common ledger control account.

Intermediate: In the chemical industry, and in certain other process industries, an

intermediate is a product which is manufactured at one stage of the manufacturing
route, and is destined to be sent on to another stage - the engineering industry
equivalent of a semi-finished part.

Intermittent Demand: (Also referred to as sporadic demand and lumpy demand.)

Sales demand which occurs at infrequent and irregular intervals, the quantity
demanded being typically for a large but irregular amount. Intermittent demand is
associated with the sale of non-wearing spare parts (eg axles, steering wheels).
Attempts have been made to forecast intermittent demand directly (by John
Croston) and to deal with the problem by a modified order point system. (The
modification adds a term to normal order point to allow for the average order size -
ie the extent to which the order point has been passed by the time the new
replenishment is called for.) See The Manufacturing Manager, Ch 4.

Internal Set Up Time: In changing over a machine from the manufacture of one
product to the manufacture of the next, the internal set-up time is the duration
during which the machine must be switched off and stopped while the necessary
changes are carried out. Contrast External Set Up Time. See SMED.

Interoperation Time Compression: See Operation Compression.

Interpolation: the estimation or calculation of an intermediate value by reference

to other values which are already known. For example, a shop floor technician may
observe that a dimension lies on a measurement scale between 2 and 3, and may
interpolate his observed reading as, say, 2.4. It is said that a practised technician can
interpolate any reading between two adjoining scale values to one tenth of the
interval between them, regardless of the physical closeness of the two scale readings.

Intrinsic Forecasting: The preparation of demand forecasts entirely from data

relating to past demand - ie without further external inputs such as manual

Inventory: "Inventory" is synonymous with "stock". However, an inventory

usually means a formal counting of stock and property (For example, one might
hear the everyday statement "In order to make a quotation for his premium, the
insurance company said it would have to carry out an inventory" - ie that it would
have to inspect and record the stock goods which were to be insured).

Inventory Accuracy: see stock accuracy.

Inventory Management: A term very close to materials management (qv), but
perhaps less concerned with procedures affecting production and more slanted to
those relating to stock holding. Note that inventory is not itself directly managed.
Instead, the production and holding of inventory and the determination of the levels,
or quantities involved, are the result of many individual procedures working
together. (For example, the levels of work-in-progress on the factory floor come
about because of decisions made elsewhere as to the scheduling techniques to be
used and the manufacturing lot sizes to be manufactured - the WIP is not directly
"decided" by anyone.) The principal point where inventory levels are determined is
at the Sales and Operations Planning stage of master schedule formulation, and the
choice made there by senior management between (1) the maintenance of steady
production levels, with the consequence then of large variations in stocks, and (2)
constant change in production rates as demand rises and fall so as to preserve a low
stock balance. See The Manufacturing Manager, Ch 6.

Inventory topics: See under Stock ( ... topic...).

Investment Centre: An area of operating activity such as a factory where the

manager has responsibility for costs, revenues and capital investment.

Invitation to Treat (legal): Jargon for an inducement by a vendor to a potential

buyer persuade him to make an offer to purchase goods (ie to persuade him to form
a "treaty"). An object in a shop windows does not constitute a legal offer by the shop
keeper to passers-by - it is an invitation to treat. The foregoing distinction came to
prominence in 2000 when Argos mistakenly advertised TVs on the Internet for
£2.99. The company managed to persuade the judge that this was an invitation to
treat, not an offer. Consequently, persons who responded to Argos' advertisement
were judged merely to be reacting to the invitation to treat and making a separate
contractual offer to buy at £2.99 (which Argos refused!). If Argos' ad had been a
contractual offer instead, a person responding would have been accepting the offer,
and consequently a legal contract would have been formed.

Invoice: a bill requiring payment. A "VAT invoice" is an invoice bearing the VAT
registration number of the company raising the document. This is required by the
party paying the invoice in order for it to claim the VAT amount back from
H.M.Customs & Excise at the end of the quarter. Note that a pro forma invoice is an
invoice sent to a potential customer in advance - usually before the supply of goods
or service, or perhaps with goods sent on approval. The pro forma invoice may be
required by the customer in order to effect advance payment or for any other reason
to do with its payment controls.

I/O Control: see Input/Output Control.

IOM: The Institute of Operations Management, a UK professional body concerned
with production and inventory control. The IOM is in Coventry, phone 02476-
692266. The web site is at

IP: Intellectual Property, or Internet Protocol.

IPPD: Integrated Product and Process Development (see The Manufacturing

Manager, Ch 3.)

IPR: Intellectual Property Rights.

IPT: Integrated Product Team.

IQR: Inventory Quality Ratio.

IR: Infra Red.

IRR: Internal Rate of Return, synonymous with DCF rate of return, qv.

IS: Information System.

ISAM: index sequential access method, a computer term.

ISDN: Integrated Services Digital Network.

Ishikawa, Kaoru: A notable Japanese quality guru credited in 1952 with devising
the PDCA circle of continuous improvement (qv).

ISO: International Standards Organisation, a body located in Geneva, Switzerland.

ISO 9000: A set of procedures, controls and documentation requirements issued by

the International Standards Organisation in Geneva, Switzerland, which the ISO
believes must be followed by an organisation in order for it to deliver "quality"
goods or services. There have been two major issues of the standard: (1) ISO 9000 :
1994, including ISO 9001 : 1994, ISO 9002 : 1994, ISO 9003 : 1994 and ISO 9004 :
1994 and (2) ISO 9000 : 2000, ISO 9001 : 2000 and ISO 9004 : 2000. In December
2003, 9002 and 9003 of the 1994 standard will become obsolete. See ISO 9000 (The
Case Against): a book by John Seddon, 2nd edition, Oak Tree Press. See The
Manufacturing Manager, Ch 13.

ISO TS 16949: An ISO standard, successor to QS 9000.

ISP ( Internet Service Provider): a company providing access to the Internet

and almost always providing such other services as the renting of disk space,
customised web design, management of arrangements for acquiring domain names
and e-mail addresses, and even, occasionally, comprehensible help and advice.

ISPM15: International Standards for Phytosanitary Measures (v. 15) - an

international standard by which wooden packaging is "treated", to prevent the
spread of plant pests and diseases. For more information, visit Inka Presswood
Pallets' site.

Issue (Allocated): material may be received into store from a supplier intended for
a specific, identified works order or department. Care must be taken to ensure it is
strictly reserved for and issued to the relevant job or user, and no-one else. A
variation of this is the receipt in certain industries of material of the same item but
different quality grades, with particular grades to be allocated only to certain jobs.

Issue (Bulk): A large quantity of material (eg components) typically issued to the
factory floor for handy use over a reasonable period of time (eg for a day or week).
Careful monitoring of bulk issues should be made to prevent waste.

Issue (Capital): The issue from the stores, for factory use, of a machine or tool, the
machine or tool being individually identified in the company's Asset Register.
Because it is individually identified, the fact of the issue should also to be recorded
in the Register.

Issue Deck (Pick Deck): An issue deck is a number of documents, often in the
form of cards, each one individually holding the details of each item to be picked.
Storesmen and warehousemen often find issue decks easier to manage than long
multi-item issue lists (see Issue List below) - for example, there may be problems
with an issue list if many warehousemen are involved in picking the items or if, at
the end of a shift, some items have been picked and some not picked.

Issue (Documents): Documents relating to the issue of stock from a store.

Issue (Imprest): an impress is a loan or advance, and hence an imprest issue is an

issue of stock from the stores to a local stocking point such as a production line or an
assembly point in anticipation of its use there (ie for production or assembly). The
amount of stock subject to the imprest issue is often calculated by backflushing - ie
by calculation involving data on the activity performed at the point of stock usage.
As well, the imprest issue may be considered as a regular replenishment needed to
top-up stock held on a semi-permanent basis in the factory area concerned, the
required amount of stock will typically being calculated and requested by a local

Issue List (Pick List): Normally, a single document listing all parts to be issued by
the stores for a production job (the original meaning of a bill of materials!).
Although those responsible for computer data input and output may find the issue
list convenient, storesmen required to pick from a long list may find it less so. Care
must be taken in stock recording as well, at the end of a shift, if certain items on a
list have been picked and others not picked. Issue decks may be preferred to issue
lists, qv.

Issue (Loan): A tool or instrument issued by the stores, perhaps to enable a repair
to be effected, and which must be returned after use.

Issue (Replacement): A tool or part issued by the stores only in exchange for a
used-up or burnt-out old tool.

Issue (Ticket): A document signed by a supervisor authorising the withdrawal of

items from the store.

ISTC: Iron and Steel Trades Confederation, a trade union.

Item (invisible): Items coded and entered on the item master file may be present
purely for their use in planning and as planning references - that is, they may in
reality have no physical existence. Examples are pseudo parts (qv) and super items
(qv). An everyday example is a sports pack, being a customer option on a motor
vehicle indicating that the customer requires a number of distinct, separate features.
Note that a phantom part (qv) is not an invisible item - it really does exist, albeit

Item Master File: A file of records relating to the products, components and raw
materials of concern to the manufacturing company. Each record will be keyed on
the item's code and contain permanent or relatively permanent data about the
product in question - for example, its name, leadtime and standard cost.

ITS: Intelligent Transportation System.

# A B C D E F G H I J K L M

JEIDA: Japan Electronic Industry Development Association.

JESSI: Joint European Submicron Silicon Initiative.

JICARS: Joint Industry Committee for National Reader Surveys. See entry under
Media Research.

Jidoka: (a Japanese/Lean word) - the automatic stopping or adjustment of a

production line when a non-conforming unit or other problem is detected. "Ji"
means the production operator himself; "do" means motion, or work; and "ka" is a
Japanese suffix used to complete the word. Jidoka has been termed automation with
a human mind - the welding of human intelligence to a machine.

JIPM: Japanese Institute of Plant Management.

JIT: See Just-in-Time.

Job Classification: See Classification of Jobs.

Job Costing: See Costing (Job).

Job Evaluation: The general procedure in both commerce and industry through
which the pay of staff is determined is first to determine the rates of pay to apply to
the company's jobs, and then to assign staff to the various jobs - that is, strictly, a
person's rate of pay is decided indirectly, not offered directly. There are two basic
methods for evaluating a job so as to be able to allocate to it a rate of pay:
qualitatively and quantitatively. Qualitative job evaluation means regarding the job in
its entirety, and then assigning to it a grade based on one of three methods - ranking,
classification or market pricing. See separate Glossary headings under these three
entries. Quantitative evaluation requires that the demands of the job be analysed
from such distinct viewpoints as the need for original thinking; the requirement to
assume responsibility; the need to apply manual skill etc., and then assigning to each
such facet a certain number of points, to arrive at a job score. The job score is then
translated to a pay rate. The two quantitative techniques are point-factor and factor
comparison. See The Manufacturing Manager, sub-section 19.2.3.

Job Grading: See Classification of Jobs.

Job Lot: An individual batch of components, usually associated with a specific
works order, the batch of components always being identified and handled as a

Job Score: See Job Evaluation.

Job Shop: A plant or shop floor given over to the manufacture of individual works
orders, usually on a once-off basis. All work undertaken in the job shop is thus
unique, or, at least, is individually undertaken. Many products in the job shop will
have been specially designed and will thus have unique product routes. The length
of time of manufacture in a job shop is typically days or weeks rather than hours.
Repetitive or batch manufacture is not associated with work undertaken in the job

Jolada: A proprietary system of steel channels on the floor of a vehicle on which

pallets may be mounted and moved by jacks.

Johnson's Rule: the primary static job despatching rule.

Journal: In accounting, the journal holds basic financial data and supporting
evidence that the financial accounts are based on actual, real transactions. Evidence
may include supplier and customer receipts, contracts, business letters etc..

Journeyman: a person who has completed an apprenticeship and is now in the

position of earning his living in the trade or profession concerned.

JPEG: Joint Photographic Experts Group.

Judgment Creditor: If a company or person sues another company for debt and
obtains judgment in the court for that debt, the company/person is said to be a
"judgment creditor".

JUSE: Japanese Union of Scientists and Engineers.

Just in Time: The system of manufacturing employed at the Toyota Motor

Company, and devised by the late Taiichi Ohno, a former general manager and MD
at Toyota's main plant at Koromo, Tokyo. The system involves the rearrangement of
plant and the reorganisation of procedures so that material required for processing
arrives exactly at the time it is needed. The overall goals of JIT are to eliminate
waste (*) and to synchronise production with the demands of the market. (* The
seven categories of waste are said to be: (1) over-production; (2) time spent waiting;
(3) time in transportation; (4) processing time itself; (5) time spent in moving the
product; (6) the production of non-conforming product; and (7) the creation of
stock.) The elements which go to make up JIT, such as cell production, SMED, TPM
etc were rechristened "Lean" a few years ago and relaunched as such by the
consultancy and conference markets. See The Manufacturing Manager, Ch 15.
# A B C D E F G H I J K L M

Kaizen: The effecting of continuous improvement by systematically making small
beneficial changes on a continuous basis. Two kinds of change are possible in a
company: (1) wholescale major changes associated with the introduction of new
technology or systems; and (2) gradual, never-ending change using existing
resources to effect small improvements. Kaizen is concerned with (2) - for example,
kaizen is concerned with SSSSS. The principal exponent of kaizen is Masaaki Imai,
who also holds that the subject subsumes personal, or self improvement, as well as
improvement of the work environment.

Refers to the Japanese process of continuous improvement using problem-solving

and analysis techniques that may include fishbone diagrams, control charts, affinity
diagrams and other tools.

Kaizen Teian: an employee suggestion scheme set up as an adjunct of a continuous

improvement drive. Suggestions are elicited from shop floor and other employees,
these then being evaluated by management and, if beneficial to the manufacturing
process, duly put into effect. Financial awards may be made to staff based on the
merits of the ideas they come up with.

Kalman Filters: Synonymous with Bayesian Forecasting (qv), the term Kalman
filters having its origin in engineering science.

Kanban: A Japanese word with no equivalent in English (except, perhaps,

"signage"), used by The Toyota Car Company since 1953 to mean a card about 3" x
5" in a plastic vinyl pouch holding brief, simple information relating to the
manufacture to hand. A formal definition of kanban is: a card or signal conveying
information and indicating the need to take action within a Just-in-Time or lean
manufacturing system. Toyota use kanban to control the production of parts (the
production kanban) and the movement of parts (the movement kanban). The number
of kanban cards in the system is critical, since this determines the amount of stock
present on the factory floor: every effort is made to operate with fewer and fewer
cards so as to reduce such stock. To calculate the number of cards, see the Toyota
Equation. Kanban in Japanese is pronounced "con bon". Note that a "two bin"
system of replenishment, whereby a new lot is called for from supplies when a
previous lot has been used up, is often (wrongly) called a kanban system - people
who insist on calling their simple two-bin system "kanban" also like to call the two-
bin replenishment ticket a kanban ticket. (God bless the British amateur.)
A concept related to just-in-time production; the inventory-storage process revolves
around a pull system in which a supply batch is ordered only when a previous batch
is withdrawn.

Kano Analysis: A diagramming method devised by the Japanese quality expert

Noriaki Kano in which each customer requirement relating to a manufactured
object or service is placed in one or other of three classes: (1) Dissatisfiers or Basic
Requirements - these are essential requirements and define the minimum baseline
(for example: the car is provided with brakes; the TV set gives a picture); (2)
Satisfiers or Variable Requirements - attributes of the object/service which will please
the customer either more or less depending on the degree to which it is present
(examples are price, or the acceleration capabilty of a sports car); and (3) Delighters
or Latent Requirements - features which go beyond what the customer might
ordinarily expect (eg a built-in satellite navigation system in the car). A Kano
diagram in the form of a cross can be drawn to help show which requirements have
been well/poorly provided for and the customer satisfaction resulting therefrom. For
example, an excellent standard of provision of a Class 1 feature will not elicit
customer satisfaction, whereas even quite a poorly provided Class 3 feature will
cause some satisfaction.

Katatataki: allegedly, Japanese for an employee getting a tap on the shoulder so

that his employer can say Goodbye! (Better than just being handed a black bin bag,
one supposes.)

KBE: Knowledge-Based Engineering.

Kerf Allowance: An addition to the stated requirements of bar, rod, tubing and
similar material to compensate for the small amount of material that will be lost in
cutting operations.

KGD: Known Good Die.

Kiss: keep it simple stupid.

Kit: The collection of those parts needed to complete a manufacturing job. Thus a
job to make 50 bicycles will require a kit of 100 wheels, 50 frames, 50 handlebars ...

Kitting and Kitting Area: An area in which a kit of parts is to be assembled prior
to the commencement of a production job. In unruly and less than brilliantly
managed factories, it has been known for kits to be "robbed" - ie for material in kits
to be removed surreptitiously by operators wanting those parts for other jobs. If
stock records are 100% correct, physical kitting is unnecessary ... kits (if necessary
at all) can be assembled "on the computer" by moving the stock into a special
category of the stock record (ie into "allocated status"). Although kitting is often
held to be synonymous with the terms staging and hauling, staging at least is
perhaps more associated with assembling material in preparation for its despatch.

Knowledge Mapping: A knowledge map is a type of functional map depicting

what is known about some particular, critical variable relating to a product, over
time (for example, what is known about the top speed of the average motor car, year
by year from 1918 to the present).

kph: kilometres per hour.

KPI: Key Performance Indicator. A measurement believed by a company to be

indicative of its business performance. For example, a KPI for an organisation
concerned with production monitoring and control might be its inventory records
accuracy, expressed as a percentage. See BAM and see also benchmarking.

Krupp, Alfred: A prominent German iron and steel industrialist, and founder of a
major steel firm bearing his name.

KWA: Key Word Analysis, a technique associated with design quality and failure

KWIC: Key Word in Context - a library and text classification and search

KWOC: Key Word out of context - a library classification and search technique.
# A B C D E F G H I J K L M

L4L: Lot for Lot (qv).

Labour Costs: In relation to product costing, labour costs are expenditures

incurred relating to wages and salaries. Labour costs may be direct or indirect.
Contrast "Materials Costs" and "Expenses".

Labour Stability: In Human Resources, this can be defined as (the number of

employees exceeding one years service)/ ((total number of employees that were also,
themselves, employed one year ago) x 100%.

Labour Turnover: In Human Resources, often defined as (number of employees

who left during a given year)/ (average number employed during the year) x 100%.

Lagging Indicator: If a second event is known always to take place following a

prior event, observation and analysis of the second event may allow conclusions to
be drawn about the prior event. An example might be an uncrease in the demand
for anti-theft devices following an increase in the rate of burglaries in an area. More
importantly, see Leading Indicator.

Lake Wobegon Effect, The: Lake Wobegon is a fictional town in Minnesota, the
invention of author Garrison Keillor, where all the women are strong, all the men are
good looking, and all the children are above average. The remarkable statistic
relating to the children is the significance of Lake Wobegon's presence in this
Glossary - in manufacturing quality, as Deming never tired of saying, there is an
average and, as a result of common causes of variation, there is a statistical
distribution above and below it. If the manager doesn't like the lower boundaries of
performance of a system under his control, he should get to work and improve it.
See The Manufacturing Manager, Ch. 13. See also target.

LAN: Local Area Network (see also WAN).

LAP: Large Area Processing.

Lap Phasing: Synonymous with Operation Overlapping, qv.

Lb: An abbreviation, from the Latin libra, for a "pound", being the principal unit
of weight in the Imperial system of weights and measures. 1 lb = 0.453 592 37 kgs.
LBO: leveraged buy-out (ie a buy out by a person or group made with the help of
someone else's money).

L/C: See Letter of Credit.

LC: Low Cost.

LCA: Life Cycle Assessment (see also Terotechnology).

LCD: Liquid Crystal Display.

LCL: (1) Less than Carload Lot, a largely American term meaning a vehicle or rail
shipment which occupies less volume than a full load. (2) Lower Control Limit (on
control charts in SPC).

LCOC: Liquid Crystal On Silicon.

LCPC: Life Cycle Product Cost (see also LCA).

LD50: (Live/die 50:50). A theoretical yardstick in drug marketing, meant to

represent the point in product efficacy at which half the consumers in the market
will buy the product (and live) and half will not (and die). The concept of an LD50
point relates to Taguchi's loss to society (qv) - that is, for the consumer, there is no
strict cut off point which divides good quality from bad quality. As product
performance deteriorates, acceptability to the consumer declines exponentially.

Leading Indicator: In sales forecasting, if one event is known always to precede a

second event, observation and analysis of the first event may allow conclusions
(especially in regard to sales demand volumes) to be drawn about the second.
Examples are: (1) statistics relating to births and the sale six months later of baby
foods; and (2) housing starts and carpet sales - ie after the building's completion, the
new owner will require to carpet his house.

Leadtime: In manufacturing, leadtime is the assumed elapsed time from the point
of entry of a job into production to its completion and final emergence therefrom. It
is normal to consider manufacturing leadtime as consisting of five separate elements
: queue time (time spent in queues waiting to begin); set-up (time to set the machine
up for the job); run (the time occupied by actual manufacture); wait (the time
waiting after manufacture has been completed); and move (the time spent moving
the job to its next destination). However, other elements might also be relevant in
other environments - for example, inspection time and tear down time. In whatever
way it may be sliced, almost always in the traditional job shop environment, 90% of
leadtime is found to comprise queue time. (Sometimes a cause of excessive queue
time is the operation of a viscious circle - qv.) Note that leadtime in distribution has
a completely different make up - for example, order processing + packing & despatch
+ transit time + order receipt + putting away.

Leadtime Demand: The demand for a product that is forecast to occur over the
time necessary to secure its replenishment from the source of supply. If the forecast
is F units/month, and the month comprises 20 days, then the daily forecast is F/20
units. Now if the replenishment leadtime is D days, the leadtime demand is F/20 x D

Leadtime Management: Action taken at the shop supervisor level to shorten the
leadtime of a current production job - see Operation Splitting, Operation
Overlapping and Operation Compression.

Leadtime Offset: In materials planning, all components needed in a

manufacturing job are usually required to be available at a date equal to "the job's
due date, less the job's overall leadtime". However, all of the components may not be
needed together right from the start - for example, some may enter the production
process part way through, after initial work on the job has been started. If a
component is not needed at the start, and it is very expensive or it is in short supply,
a lead time offset can be applied to it so that the materials planning system does not
call for it until an appropriate time after the job has indeed started. A problem in
practice with lead time offsets is that software writers fail to provide a check at the
start of the job as to whether a complete kit of parts is and will be available. The
parts with a lead time offset are not supposed to be present at the start of the job,
and may well be literally unavailable at the start. What the planner needs to know is
whether they will become available later when they are due.

Leakage: See Shrinkage Factor.

Lean; Lean Manufacturing: "Lean" means the conduct of manufacturing

operations with minimum waste - ie with a minimum of the seven wastes of over
production; waiting time; transportation; processing time itself; movement; the
production of non-conforming product; and the maintenance of stock. In truth, the
elimination of waste and the pursuit of lean manufacturing operation are identical
to the aims and practice of Just-in-Time. But instead of adopting the full JIT
philosophy, especially as it relates to the synchronisation of production to market
demand, consultants have taken the various elements needed to support JIT, such as
SMED, TPM and kaizen, and promoted them as individual tools in a "lean kitbag".

A production philosophy that emphasizes the minimization of the amount of

resources--including time--used in various activities. It involves identifying and
eliminating nonvalue-adding activities in all areas of the organization.

Lean DRP: See Fair Shares and DRPII.

Learning Curve: As more and more units of a product are produced, the time to
make each one gets increasingly short and the cost of doing so increasingly less
compared with the time and cost needed when the product was completely novel.
The learning curve expresses the relationship between: (1) on the horizontal axis,
the total number of units made so far, and (2) on the vertical axis, the average time,
or cost, to make each unit. (The scales of the graph are usually logarithmic so that
the learning curve itself appears as a straight line.) The learning curve is useful to
the buyer negotiating the price to be paid for further units of a product after the
initial manufacture on his behalf of a novel product . In order for a manufacturer
and buyer to make use of the learning curve, they should jointly agree on its
adoption and cooperate in establishing the data needed - see The Manufacturing
Manager, Ch 3.

Lease: A means of financing the payment for an asset. The company wishing to
acquire the asset (the lessee) arranges with the organisation putting up the money
(the lessor), and a simultaneous transaction then takes place as follows: The supplier
of the asset sells the equipment to the lessor, and the lessee agrees to pay the lessor
money to have immediate, exclusive use of it for a limited number of years (often
either 2 or 3). Payments made by the lessee to the lessor depend on the cost of the
equipment and the prevailing rate of interest on money. A financial lease is one
where the lessor is a financial institution, usually a finance house such as Mercantile
Credit, but perhaps a bank. An operating lease is one where the supplier himself is
the lessor (usually, the leasing division of a large company). Computers are very
often leased through operating leases, since the lessee will probably wish to upgrade
to a new model at the end of the payment period and therefore does not wish to buy
the equipment outright. The government has an interest in leasing, since the lessee's
payments are, financially speaking, expenses, and their payment reduces his profit
and hence liability to tax. Contrast Hire Purchase.

Lease Purchase: Synonymous with Hire Purchase, qv.

Least Processing Time: See SPT.

LED: Light Emitting Diode.

Ledger: The collection of accounts maintained by a company. Typically, ledger

types are distinguished as follows: personal ledger; private ledger; and nominal
ledger (or impersonal ledger). Ledger records (records of sales, depts, receipt,
encashments and so on and sometimes referred to as the company's "books".

Leeway: In a Closed-Loop MRP system, the "leeway" is the number of days by

which an open or firm plan should theoretically be rescheduled, so that plans in
practice comply with the latest planning schedule calculated through MRP, but in
fact will not be so rescheduled. For example, an open plan might need to be
rescheduled in by 2 days to bring its due date into line with a newly calculated need
date. However, if a 3 day leeway had been set, no message to reschedule in by 2 days
would be output by the system. The reason for instituting a leeway is to maintain the
stability of the existing plan and eliminate the need for planners to attend to too
many rescheduling messages. It is important to see nervousness on this matter.

LEO: Low Earth Orbit, or the acronym for Lyons Electronic Office, a British
computer developed in 1955 by the food company J.Lyons Ltd in conjunction with
engineers from Cambridge University. (See A Computer called LEO, by Georgina
Ferry, published 2003.)

Letter of Comfort: An encouragement by a party, to a lender of money, that the

lender should advance money to a third party. Such letters are often deliberately
phrased in a vague manner, and are intended to fall short of being guarantees. Since
they are usually come across in a commercial context, the writer of a letter of
comfort should be very cautious in his phraseology, since it might be held that he
intends the letter to form the basis of a legal agreement.

Letter of Credit (L/C): A letter of credit is a document, along with certain other
accompanying certificates, intended to facilitate international trade. The form of the
L/C and the commercial and legal procedures accompanying it have been laid down
by the International Chamber of Commerce (qv). The purpose of the L/C is to
eliminate or reduce certain risks involved in international trade incurred by both
supplier and buyer. The particular risks targetted include: (1) one side swindling the
other; (2) those risks arising from the unfamiliarity of the parties with each other's
court or language; (3) customs problems; and (4) political uncertainty (for example,
in relation to prohibited imports). Note that if a buyer is fully familiar with a foreign
supplier and the supplier's country, he will not usually care to incur the cost of a
letter of credit ... perhaps £250. The "letter of credit" itself is issued by the buyer's
bank, referred to as the Issuing Bank, and specifies the activities to be performed by
a nominated bank in the supplier's country of origin, and the documents and data to
be furnished by this bank (The Advising Bank). A letter of credit may be revocable
or irrevocable. Often, a standard form, UCP1993, is employed. See The
Manufacturing Manager, Section 16.5.2.

Letter of Intent: A "letter of intent" is often sought from a purchaser by a supplier

to give the supplier assurance that initial work on the purchaser's behalf can safely
be commenced and that a fully specified contract will duly be agreed. If the later
formal contract is not, however, signed, the status of the letter of intent will in fact
depend on circumstances. It may be regarded as a written contract in itself, or as
evidence of acceptance of an oral contract, or it may be stated to have no legal force
at all. If sent, letters of intent should clearly state what work the supplier is
authorised to start and what specific limits of expense he may incur. CIPS' advice,
however, is that buyers should refuse to send them because of the attendant

Levelling (of the Bill of Materials): see Low Level Coding.

Leverage: when applied to financial management, the application of other people's
money to our own.

LIBOR: London Inter-Bank Offered Rate - The rate of interest at which London
banks offer to lend money to other banks, the rate being based on the lending bank's
base rate.

Life Cycle (of a Product): The period from a product's launch to its final
withdrawal from the selling range. Usually, the life cycle can be illustrated by the
familiar changes in demand levels which occur. Thus, on launch, demand increases
very rapidly in accordance with the product's appeal to the marketplace. Demand
then flattens out and remains at a high, steady level for a lengthy period of time.
Eventually, it declines as the product loses its appeal and alternative, competitive
products appear. Finally as sales further decline, marketing withdraw it. One tricky
phase for the manufacturer is the launch - it is difficult to predict what sales will be,
and statistical forecasts made after the upwards acceleration will clearly be in error.
A second problem phase is decline - when marketing department take the decision
to terminate it, what about existing stocks and any continuing demand for spares
and service? See The Manufacturing Manager, Section 2.1.2 and Figure 2.1.

Lifed Item: A tool or piece of equipment against which the supplier or tools store
supervisor has assigned a likely life span. The life span will typically be nominated
in terms of usage - say, 1000 hours, or 50,000 miles.

LIFFE (pronounced "life"): The London International Financial Futures

Exchange, the market in the City of London in which bonds and currencies are
bought and sold. The value of contracts in a given month amount to many
thousands of billion pounds - see The Manufacturing Manager, Section 16.5.

LIFO (Last in, First out): The opposite of FIFO (qv). From the viewpoint of
stock rotation, it can rarely be correct to retain the oldest stock. However, if the
stocked items are not liable to deteriorate with age, normal stock rotation may be
irrelevant. Consequently, with heavy goods such as concrete blocks and other
building materials, it may be convenient to store incoming items on top of items
already present, and issue the new items first from the top. An example of LIFO in
everyday queue management is a lift (US = elevator).

Limiting Quality Level (LQL): A quality level that a supplier agrees with a
customer that it will equal or exceed, expressed as a percentage of non-conforming

Line Department: a company department which generates revenue or which

acquires, distributes or manufactures material. Contrast staff department (qv).
Line Side Stocks: Commonly used C-Class items issued to the shop floor for
general use and replenished by the 2-bin system. Also known as floor stocks.

Line Stopper: A heart-felt term for a stocked item, whether a production

component or a machine spare, which is essential for the continuation of production
and which has a very long replenishment leadtime. The line stopper is usually
inexpensive, stocked in small quantities and replenished at infrequent intervals.
Since line stoppers are almost always "Class C" as defined by ABC Analysis (qv),
and so will receive little management attention, it is wise to promote them manually
to the honorary status of Class A!

Linear Exponential Smoothing: (Double Exponential Smoothing) A refinement

of single exponential smoothing especially applicable when there is an upwards or
downwards trend in the time-series. If a moving average lags behind the original
data because of trend in the data (and the trend is linear), it is possible to take a
further moving average of the moving average already taken, and measure this
degree of lag between this second moving average and the first one. This degree of
lag is the extent to which the first moving average lags the original data.
Consequently, it can be used to correct the first moving average. Although it
appears somewhat complex, linear smoothing is not so and is merely involved. It
results in a very worthwhile improvement in forecasting accuracy. See The
Manufacturing Manager, Ch 4.

Linear Loss Function: A term that has been used for the Partial Expectation, qv.

Linear Programming: See Mathematical Programming.

Liquidated Damages (legal): A buyer may insert into a contract a stipulation that
if some specified activity required of the supplier is not, in fact, performed, then the
supplier will pay a certain sum to the buyer as recompense. For example, "delivery
of the goods is to be made on the 15th, and the supplier will pay liquidated damages of
£1000 per day for every day they are delivered later than the 15th ... ". From the legal
point of view, it is essential that the liquidated damages should be a fair reflection of
the buyer's real likely loss. If they are not, the supplier will refuse to pay them, and
will be supported in his refusal by the courts regardless of the fact that he signed the
contract in the first place. From the practical point of view, the circumstances under
which the liquidated damages become due, and when they are to be paid, should be
quite clear. Liquidated damages are dealt with in the on-line training course notes
Successful Negotiating (off site).

Liquidity Ratio: the ratio of (current assets less stock)/current liabilities.

Little's Law: Manufacturing Process Leadtime = (Number of Items in Process) /

(Number of Item Completions per Hour).
Live/die 50:50: See LD50.

Live Storage: Roll through storage systems typically based on chutes or metal

LLP: Limited liabilty partnership (also see Ltd )

LLU: Local Loop Unbundling.

LMDS: Local Multi-Point Distribution System.

LME (London Metal Exchange): The market in the City of London for buying
and selling non-ferrous metals and metal futures. The LME is the largest non-iron
market in the world. It trades in US dollars and dealing is still (2006) done by "open
outcry" rather than by way of computer.

LNA: Local Noise Amplifier.

Load: When applied to capacity planning, the total amount of work standing at a
work centre waiting to be processed. (The figure is usually expressed in hours.)

Load Factor: A decimal fraction calculated as follows: (demonstrated capacity) /

(available hours). Thus if the demonstrated capacity of a work centre is 80 hours
and the available hours is only 60 hours, the load factor is 1.33 (80/60).

Loading Bay: The area of a stores or warehouse which receives the vehicles and
goods of suppliers of raw materials or from which vehicles and goods are
despatched to customers - where the stores meets the outside world. Critical issues are
side loading of vehicles (speed of access) v. end-loading (economy of parking,
temperature control and safety); safety; temperature control; and efficient vehicular
traffic management. It may be preferable that incoming goods should be delivered
direct to their points of use within the factory. If this is to be arranged, there must
be good data communications to a controlled central area.

Local Delivery: In the context of distribution, the conveyance of relatively small

loads from a depot or DC to customers' premises. Issues in local delivery are likely
to include tailoring the delivery service to the varying requirements of customers (eg
as to timing), rather than load efficiency. See also Trunking.

Location Code (stores or warehouse): Storage areas are often organised by aisle
(A), rack number (RR), shelf (S) and bin number (B). If so, a location code C10B4 is
aisle C, rack 10, shelf B, bin 4.

Location of Distribution Depots: When a distribution facility is established at a

particular location within the area covered by a distribution network (qv), it is
desirable that it should be located at the optimum point. "Optimum" is usually
taken to mean the point at which least cost is incurred in servicing the customers
who are to be supplied by the facility (although other definitions could be adopted).
One method of finding the optimum location is by computer simulation. A far
simpler method is by a so-called "mechanical analogue", a fancy name meaning a
plywood board cut out to represent the area to be served, and a set of strings and
weights for customers (the heavier the weight, the greater the business with the
customer). The optimum, least cost point is the literal centre of gravity of the board
and weights. Mathematically, the calculations are trivial, involving the moments of
each customer (ie weighting of the customer's business x distance from the required
location) - see The Manufacturing Manager, Section 20.1.

Logistics: "The art of moving and quartering troops, and associated supplies - ie a
quarter-master's work." (OED). Logistics now means what distribution used to
mean in the 1960s - ie the calculation of needed external supplies and the
arrangement for their receipt and replenishment, and the determination of channels
of supply and communication.

London Fox: London Futures and Options Exchange. The market in the City of
London dealing in coffee, tea, cocoa, sugar and other similar commodities.

Longitudinal Analysis: examination of the performance of a company over a

period of many years, in order to pinpoint significant changes that have occurred
and determine the causes of them.

Loop (in Production): Each component and raw material constituting a bill of
materials of a product will occur only once in that bill. That is, P is made from Q, Q
from R, R from S etc.. Technically, however, it is possible for a component to appear
more than once: P made from Q, Q from R, R from Q ... An example is the use of
oxide to coat video tape, and the later recovery of the oxide when the tape is cut. The
recovered oxide is fed back into an earlier stage of the process. In order to explode
and level the bill of materials, loops must first be discovered and removed. See The
Manufacturing Manager, Figure 9.5.

Loss to Society: For the engineer or manufacturer regarding the quality of a

product, there are strict limits limits defined by tolerance dimensions. Within the
limits, there is quality; outside them, there is not. For the consumer, said Taguchi
(qv), there are no such cut-off points. While he certainly seeks a level of quality
within the targets of manufacture, he is likely nevertheless to accept "quality"
outside them. However, his degree of glad acceptance, or toleration, of any
departure from the target limits diminishes exponentially the further outside the
limits the quality lies. Taguchi regarded this loss of acceptability (ie as quality moves
further and further away from what is really wanted) as a social or human loss, or,
in his phrase, a "loss to society". See also LD50.
Lot for Lot (L4L: The manufacture of precisely the number of units required to
satisfy net requirements, rather than the manufacture of a stadard lot size which
may be more than the number required.

Lot Number: See Batch Number.

Lot Tolerance: Synonymous with Limiting Quality Level (aka LQL).

Low Level Coding: In the process of levelling the bill of materials (see Bill of
Materials), it is very likely to be found that a given component contributes to the
manufacture of two or more higher level products. It is quite possible that the
component may be assigned to one particular level from the viewpoint of one of
these higher components, but later in the procedure assigned to a different, lower
level from the viewpoint of the second higher product. It is essential for the integrity
of the materials planning procedure that all the component's requirements should
be considered together. Consequently, when there is a clash of levels, the lower of the
levels is assigned to the component. (Doing so may somewhat distort the pictorial
representation of the bill.) A computer program is permanently resident to ensure
that the low level integrity of the bill of materials is maintained whenever a change
is made to the bill's structure.

Lower Control Limit: See Control Limit.

LQL: See Limiting Quality Level.

LSE: The London School of Economics.

LSI: Large Scale Integration.

Ltd. : initials indicating a private company incorporated with Limited liability, as

opposed to Co.Ltd., a public limited company. (Shares in a private limited company
have been subscribed to by private invitation; in a public limited company,
invitations to subscribe have been issued to the public at large.) Compare LLP :
Limited liability partnership).

LTL: Less Than Truckload.

Lumpy Demand - see Intermittent Demand

# A B C D E F G H I J K L M

M&A: City talk for mergers and acquisitions.

M&S: Marks & Spenser, a UK retail chain specialising in clothing and food, or
Modelling & Simulation.

Ma Bell: synonymous with AT & T, qv.

M-Day Calendar: See Shop Calendar.

Machine Capability: Machine capability is calculated in the same way as process

capability, but is intended to represent the capability of the machine in isolation,
thus excluding such sources of variation as human operation, incoming material
differences and changes in the environment (eg temperature). The data to calculate
machine capability are thus gathered over as short a period as possible (compare
process capability, where the data are gathered over, say, a month, so as to include
all sources of variation).

MAD: Mean Absolute Deviation. A short-cut technique popularised in the 1950s

because of the inability of computers in those days to calculate square roots, as
required in the calculation of the standard deviation. The approximate relationship
between the two measures is as follows: Standard Deviation = 1.25 x MAD. For
example, to find the standard deviation of forecast errors, over 12 months would
ordinarily require a person to add the square of the difference between the twelve
forecasts and twelve actual demand readings, divide the total by 11 (ie 12 - 1), and
take the square root of the resulting number. Using MAD, all that is necessary to
find the MAD is to add the twelve absolute errors between the forecasts and actual
demand readings ("absolute" means that errors of -12 and -7 are counted as +12
and +7), and divide the total by 12. Multiplication by 1.25 now gives an
approximation to the standard deviation. While MAD no longer has value from the
general computing viewpoint, the simplicity of explanation and the arithmetical
simplicity of calculations involving it continue to remain very attractive - for
example, in getting over to members of staff how to work out system control limits
which have been set at the mean plus and minus 3 standard deviations.

MADE: Manufacturing Automation and Design Exploration (proprietary

application software).
Madogiwazoku: allegedly, Japanese for employees who have no job but have been
retained nevertheless (ie in British parlance, on gardening leave).

Maintenance (Autonomous): see Autonomous Maintenance:

Maintenance (Breakdown): see Breakdown Maintenance.

Maintenance (Corrective): see Corrective Maintenance.

Maintenance (Predictive): see Predictive Maintenance.

Maintenance (Preventive): see Preventive Maintenance.

Maintenance Prevention: that aspect of TPM related to how easily the design of
equipment lends itself to maintenance - in a word, the machine's maintainability. A
mistake in ensuring maintainability is permanent.

Make and Pack: When production is followed immediately by a packing or

bottling operation, without any intervening storage of the material just made, the
joint planning of the production and packing presents considerable scheduling
difficulties (see Co-Products). In continuous flow APS systems, much expertise has
been put into dealing effectively with the problems that arise - see The
Manufacturing Manager, Section 12.3.

Make to Order: Many products required by customers are not held by the
manufacturer in stock, but are made ab initio on receipt of the customer's order. The
reasons may be the products' expense or degree of specialisation or their required
customisation. One problem for the customer in ordering a product on this basis
may be the possibility of its eventual late delivery. A problem for the manufacturer
may be the financing of the manufacturing operation.

Makespan: somewhat out-of-date shop floor jargon for the time to process a set of

Manifest: (noun) a list of a ship's cargo signed by the ship's master for use by
customs officers (OED).

Manufacturing Day Calendar: See Shop Calendar.

Manufacturing Logic, The: In the heyday of MRP in the 1980s, this term was
used to subsume the following: the netting logic - the activity of subtracting stock on
hand from gross requirements to determine net requirements; the exception logic -
the determination of any rescheduling necessary to the current due dates of open
and firm planned orders to new dates when arithmetic shows they are now needed;
and the reporting logic - the display of rescheduling messages to the planner in
relation to the exception logic. See The Manufacturing Manager, Ch 10.

Manufacturing Resource Planning: - see MRPII

Marginal Costing: Synonymous with Costing (Variable).

MARIMA (Multivatiate Autoregressive Integrated Moving Average): A

causal forecasting technique better known as Bayesian Forecasting (qv).

Market Demand: See Demand Patent, and Demand Latent.

Market Pricing: A qualitative job evaluation technique by which company jobs

are directly graded by taking note of the rates of pay of seemingly comparable jobs
offered by external companies (ie rates within the external market). Care must
clearly be taken in market pricing to ensure that outside jobs really are comparable
in content, rather than carrying merely the same job title - a small number of
management consultancies and institutions publishing yearly salary surveys also
include detailed descriptions of the jobs themselves. Note that whatever semi-
scientific quantitative job evaluation technique is used, such as point-factor, results
from it must bear some reasonable accord with rates in the external market. See
also Pay Posture.

Market Research: Market Research is the gathering and analysis of facts relating
to the sale of goods. The activity first includes the investigation of markets
themselves, such as the determination of their sizes and composition and the
preferences of consumers within them. (A "market" might be defined as, say,
"young couples with children", or "pensioners living in retirement homes".) Market
research also includes, second, an analysis of the activities of marketing itself, such
as an analysis of TV viewing habits, vis a vis TV advertising, and the readership of
magazines. Market research is carried out by a wide range of organisations, from
large multinational companies to one-man bands, including market research
sections of large companies. Types of market research include retail audits (for
example, as carried out by AC Neilson Inc, which conducts shop audits); syndicated
research (surveys of aspects of consumer behaviour); qualitative research (in depth
interviews); advertising research; and media research (see JICARS).

Market Share: If the total market demand for a product is 100%, the company's
market share is as follows: (actual sales of the product) / (total market demand in
units) x 100%. Market share is a vital indicator of a product's prospects - if market
share is diminishing, it means that competitors' products are being preferred and
chosen either by existing customers or by new ones coming onto the market for the
first time.
Marketing Concept: "Marketing is the management process responsible for
identifying, anticipating and satisfying customer requirements profitably" ...
definition published by the Chartered Institute of Marketing.

Marketing Mix: (PPPP + S) In marketing, it is said thar a customer looks for

many different aspects of satisfaction in a product. These are i. P (the inherent
product itself ... is it useful and wanted), ii. + P (price), iii. + P (place ... how far does
he have to go to lay hands on it), iv. + P (promotion ... the product's aura), v. + S
(service ... does he need and receive help after the sale).

Markov Process (Markov Chain): A mathematical treatment of a situation in

which there is a possibility in a given period that a transition may occur from one
state to another. In manufacturing, Markov chain theory assists in (1) manpower
planning - the likelihood of staff promotions, or likelihood of staff resignations; and
(2) in marketing - the likelihood of a consumer switching brands.

Mass Customisation: A term given to two-level master scheduling, or assembly-

to-order production. With mass customisation applied to products with many option
variants on an otherwise basic structure, the option variants are master scheduled
and the final unique configuration of the product is assembled to the customer's
requirements from the chosen variants in a so-called final assembly schedule (see
also FAS).

Mass Production: Production in high volumes - a somewhat outmoded term.

Master Black Belt: An expert in charge of a number of black belts, in six sigma
quality. At the technical level, the master black belt will be very knowledgeable
about use of the more "difficult" procedures in the Six Sigma Analyse phase - DOE,
ANOVA etc.. At the practical level, the MBB will give advice on team working and
company politics.

Master Plan: See Master Production Schedule.

Master Production Schedule: A time phased schedule of plans to acquire (*)

material that will thus be available to satisfy anticipated or actual customer
demand. (* Acquisition of material will normally be by manufacture, of course, but
could be simply the buying in of finished goods for direct resale.) Although there are
a few exceptions, only end products are master scheduled. The schedules and plans
for lower level components and for raw materials are obtained by exploding the
master schedule itself down through the bill of materials. In make-to-stock
environments, fulfilment of the master schedule leads to the creation of stock ready
to satisfy future orders. In make-to-order, the master schedule is really a schedule of
final manufacturing work, since when the stock is produced, it is immediately and
directly transferred to the customer for whom it has been made. Note that a number
of practitioners define the master schedule as the schedule of manufacture that must
be manually created and managed - for example, a master schedule for a metal ore
mining operation may be the actual mining programme, rather than the plans to
despatch the final washed ore. Two important subjects closely associated with
master scheduling are Sales & Operations Planning and rough cut capacity planning.
See The Manufacturing Manager, Chapters 6 and 7. Note also that the full text,
illustrated course Notes relating to GMCS's 2-day course on Master Production
Scheduling are obtainable direct from GMCS price £79 inc UK p&p - visit GMCS.

Master Schedule: See Master Production Schedule.

Materials Costs: In relation to product costing, materials costs are expenditures

incurred relating to "things" such as raw materials, rather than costs relating to
labour or expenses. Materials costs may be direct or indirect. Contrast "Labour
Costs" and "Expenses".

Materials Management: A composite term for all those procedures and actions
which govern the manufacture of product and the disposition of inventory.
Examples of procedures may include: master scheduling; materials planning;
distribution; and others such as sales forecasting. In addition, materials
management may include the setting of manufacturing lot quantities and the
management of forecasts and safety stocks. See also Inventory Management.

Materials Movement (Discontinuous): Movement effected by lifting equipment

(winches, pulleys); mobile equipment (FLTs); stacker cranes; or order pickers.

Materials Movement (Continuous): Movement effected by towing mechanisms;

powered conveyors; roller conveyors; and continuous propelling mechanisms (eg

Materials Requirements Planning: see MRP

Mathematical Programming: A number of combinatorial optimisation

techniques used extensively in very many applications throughout manufacturing
industry to find "best", or optimal, solutions in the face of limited resources. In
mathematical terms, "best", or optimal, means the maximisation or minimisation of
a so-called objective function. The best known family member is linear
programming, allowing solutions involving decimal fractions. Integer programming
is more complex than linear, but can confine solutions to whole numbers. Dynamic
programming allows the user to specify changes to the ranges and constraints of the
model as calculation proceeds. Mixed Integer programming is a combination of
linear and integer.

MBB: In Six Sigma, a Master Black Belt (qv).

MBWA: Management By Wandering (or Walking) Around - the management by
the manufacturing manager of the actual production workplace, closely observing
matters and taking note of control charts and other evidence as to the state of
machines, set-up times, quality and so on. MBWA is associated with Just-in-Time
environments, although it is clearly applicable universally. MBWA is an activity
associated with continuous improvement.

MC: Mass Customisation, qv.

MCS: Manufacturing Control System, or Multiple Constraint Synchronisation.

Mean Time to Failure (MTTF): A critical measure of component reliability,

estimated when a product is under design by consideration of its observed failure
rate and the application of either the exponential distribution or the Weibull
distribution to the probability of its survival. The MTTF is customarily denoted by
the Greek letter theta, and is equal to 1/(failure rate). See The Manufacturing
Manager, Ch 3.

Mean Square: = Mean Square Deviation from the Mean, synonymous with
variance, qv.

Mechanistic: When applied to human resources, an organisational structure

defined by authority and command - see "hierarchy".

Media Research: the conduct of market research in order to find which types of
consumers read which magazines and newspapers, and watch which TV
programmes. In the UK, consumers are classed by the JICARS classification (qv)
into seven social groups as follows: (1) higher management and professional (eg
directors, accountants); (2) lower managerial and professional (eg supervisors, bank
managers); (3) intermediate occupations (eg machine operators, policemen); (4) small
employers and sole traders (eg self-employed builders, farmers); (5) lower
supervisory and technical (eg plumbers, bakery workers); (6) semi-routine
occupations (eg security guards, postmen); and (7) routine occupations (eg
bricklayers, cleaners). The classification scheme was introduced in 2001, replacing a
long-established six-class system (see * below). The changes were felt necessary
because of the decline in the number of blue collar workers and the increase in
numbers of white collar workers and working women. The previous 6-class scheme
was (A) higher managerial (3%), (B) intermediate managerial, administrative and
professional (12%), (C1) supervisory, clerical , junior administrative and junior
professional (29%), (C2) skilled manual (29%), (D) semi-skilled manual and
unskilled (19%), and (E) state pensioners, widows, casual and low earners (8%). See
The Manufacturing Manager, Chapter 2, Sub-Section 2.2.2.

Memorandum of Association: along with the articles of association (qv), one of

the two key founding documents of a company, the memorandum showing the
origin of the company's capital and setting out its name and trading objectives. See
The Manufacturing Manager Section 1.1.

MEMS: Micro-electronic mechanical system. A device incorporated in a sensor or

actuator which converts a physical condition into an electronic system or into a data
element. An example is an actuator which converts an electrical signal into a garage
door opener. An RFID tag is not a MEMS device - the RFID signal needs a further
device or system before physical action is taken.

Merchandising: The management of retail sales operations, encompassing such

subjects as the layout of the stores or shop, ensuring the best mix of goods is
available to buy, advertising displays, stock availability and facilities for actual

MES: Manufacturing Execution System, a term that never quite made it, and
intended to cover the area between general materials planning and the actual
detailed scheduling on the shop floor. "MES" has probably been subsumed by the
more popular acronym APS (qv).

Meta Heuristic: An overall search strategy which guides the operation of a

subordinate heuristic. The guiding principle of a meta-heuristic is usually derived
from artificial intelligence studies (AI), mathematics, biological science or physics.
For example, techniques borrowed from physics include observations and studies of
"annealing" - the controlled heating or cooling of a liquid.

Metrology: The science of weights and measures, but a term more often used in
relation to the practice and procedures in using measuring devices within industry
and the problems associated them. See also Gauge R&R.

Mezzanine: A low storey between two others, usually in general buildings between
the ground floor and the storey above. A mezzanine floor has also been defined as "a
raised platform independent of the host building structure, supported by steel
columns". (Two further dictionary meanings are: (1) a small window that is less in
height than breadth, and (2) a floor beneath a theatre stage.) In logistics and in the
context of warehouses, a mezzanine floor creates additional floor space and is
usually seen as a rapid, cost effective alternative to re-locating, with minimum
disruption to on-going operations. Mezzanine floors must comply with BS5950
(parts 1 & 5) and BS6399. Floors are usually made of steelwork with a choice of
decking, and can typically be installed in a few weeks. For further information on
the subject, be aware that Link 51 Ltd has produced a 40 page guide to the subject
(Guide to Building Regulations for Raised Storage Areas and Mezzanine Floors).
Contact Link 51 - phone 0800-169-1515, or email at or through

MHz: Megahertz, or millions of cycles per second.

MIL STD 105E: A military sampling table issued in 1989, and one of a family of
such tables going back to 1942.

Military Sampling Tables: Sampling tables originally devised in World War II in

relation to the acceptance from suppliers of ordnance by the US Army.

Millihelen: that degree of feminine beauty that will launch exactly one ship.

Minitab: A long-establised and well regarded commercial statistical software

package that has been found especially useful in the Data Analysis phase of the Six
Sigma DMAIC procedure. Minitab is easy to use, powerful and reasonably priced -
in the UK, phone 0124-7643-7500 (Coventry). Also visit

Min/Max System: See Order Point System.

MIS: Management Information System.

Misfeasance: legal parlance often reserved for a breach of duty to a company

committed by a director.

Misrepresentation (legal): - a statement made by one party about some matter

that induces another party to enter into a contract relating to the matter, even
though the facts of the statement are not themselves directly incorporated in the
contract. (For example, the supplier of a second-hand machine tool may make a
representation that the machine he is selling has done only 10,000 hours of work,
although the number of hours done by the machines is not in the contract.)
Misrepresentation can give rise to legal liability and, if it is fraudulent rather than
innocent, even criminal prosecution. It is divided into three classes: (i)
misrepresentation of fact - the supplier has made an untrue statement about a
factual matter; (ii) material misrepresentation - the fact which has been
misrepresented is inherently important, and is not a triviality; and (iii) the
misrepresentation induced the contract. In the last case, the aggrieved party will go
to the courts to seek "equity" - ie seek a return to his financial situation before the
contract was entered into.

Mistake Proofing: see Poka Yoke.

Mistake (legal): A contract can be brought to an end due to a central mistake that
is either (1) common to both parties; or (2) mutual, or (3) unilateral. Mistake here
has a legal meaning: it never has the everyday meaning of misjudgment or lack of
wisdom. See The Manufacturing Manager, Ch 16.

Mixed Integer Programming: See Mathematical Programming.

MLC: Multi Layer Ceramic.

MMS: Materials Management System.

Mode: The most frequently occurring value in a distribution. For example, if we

take the ages in years of all pupils at The Manchester Grammar School, the most
frequently occurring age may be 14 years - ie in this case,14 years is the mode. If
two ages had the same frequency, say 14 years and 16 years, the population of pupils
is said to be bi-modal with regard to age. In manufactured quality, the distribution
of some quality characteristic may be bi-modal if the parts in the population have
been screened out or rejected. (For example, 40% of the parts may have been
rejected, leaving only those parts with readings in two narrow, distinct ranges of

Mode (of Transport): The general means by which transportation is to proceed -

ie whether by road, rail, sea or inland waterway*. (* Inland waterways include
canals and rivers, and constitute major freight carrying routes in continental
Europe.) Multimodal means transport involving two or more different modes - for
example, the transport of goods first by road to a port, then by ship to another port
and then by train to a final destination is a multimodal journey involving three

Modular Bill of Materials: The word "modular" means pertaining to a module,

a module being an alternative term for an option. It would be confusing, however, to
refer to a bill as optional, ie pertaining to an option. - hence the choice of the term
modular. The modular bill of materials is a means of making clear which option
types are available, and which variants are available relating to each option type.

Money Equation, The: This famous equation is held to be central by the

economics guru Milton Friedman and other economists who reject "Keynesianism".
The Equation states MV = PT, where M is money quantity, V is velocity of
circulation, P is price levels, and T is transactions.

Monopolies and Mergers Commission: A body corporate based in the City of

London which will examine any proposed merger between companies which may
result in the merged companies having a market share of 40% or more of some
product or service. The Commission is empowered to block any such merger it sees
as being "against the public interest" - ie which it sees as creating a monopoly
situation and therefore being potentially inimical to competition.

Monopoly: The sole supplier of a good or service. Theoretically, the monopolist can
dictate the price of what he sells, since there is no competition. In practice, he must
be careful - the customer forced to pay an excessive price will seek substitutes or
alternative paths of business - see the "Dynamic Market".

Monopsomy: The market condition where there are many sellers of a good, but
only one buyer. The situation arose in the "command economies" - ie the old defunct
communist economies and others controlled by the state. A market condition with
many sellers but few buyers is termed an oligopsomy. In the UK, a manufacturer of
grocery products might believe he is in an environment such as this vis-a-vis the big
supermarket chains.

Month (Calendar): One of the twelve months of the year. If calendar months are
used in time-series forecasting, an adjustment must be made to account for the
different number of trading days in each one. For example, the average number of
trading days in a month may be 26.1 (ie one twelfth of the total number of trading
days in a particular year), so that a demand of 1000 units in February (say, 22
trading days) will be considered for forecasting purposes to be (1000 / 22) x 26.1

Month (Costing): Cost accountants may divide the year into 13 months of 4 weeks
each, to avoid the problem described under Month (Calendar). A problem for those
using the system, however, is that they must recognise that CP7 (cost period 7) is not
July, but only part of the calendar month July.

Moore's Law: Computer processing speed tends to double every 18 months.

Move Ticket: A brief document authorising the movement of material on the shop
floor, either to the next operation or into stock. A shop floor can be plagued by
unauthorised materials movements, making it difficult to track jobs, and the
insistence on move tickets is an attempt to mitigate the problem.

MOS: Metal Oxide Semiconductor.

MPEG1: Moving Pictures Expert Group 1. (A video file compression format used
on Video CDs.)

mph: miles per hour.

MPS: See Master Production Schedule.

MRO: See Stock (MRO).

MRP (Materials Requirements Planning and Closed-Loop MRP): In

common parlance, MRP may mean Manufacturer's Recommended Price. To the
manufacturing professional, however, MRP is a computer-centred system for
creating and maintaining a set of manufacturing and purchasing plans so as to
support the manufacture of a master schedule (see, importantly, MPS). The initial
creation of the materials and purchasing plans is carried out by "exploding" the
MPS through successive levels of the bill of materials of the master schedule
products. More pertinently, the plans so created by this explosion can be kept up-to-
date and synchronised with the on-going MPS by feeding information back into the
MRP system as it relates to manufacture that has now been completed and the latest
stock quantities to hand. After the feedback, the planning calculations can be rerun
and differences noted from the previously calculated requirements. The
performance of this feedback, recalculation and reporting of differences is referred
to as "closed-loop MRP", and the feedback itself is referred to as closing the loop.
(Closed-Loop MRP has its origins in a development by IBM in 1965, although the
methodology is often attributed to work in 1971 by Joseph Orlicky, George Plossl
and Oliver Wight - that is, before the age of telecommunications systems, graphics
and interactive computing.) Most companies investing in Closed-Loop MRP systems
have experienced truly dismal returns for the time and money spent, but a large
army of software vendors, consultants and trainers have managed to convince them
that the reasons for their failure are mainly their own. The methodology can be
made to work where manufacturing proceeds in disjunctive steps, each step taking a
relatively lengthy time (ie days, not hours). It is least likely to be successful where
manufacturing steps are relatively short in duration and, perhaps, where daily
decisions on procedures must be made by planning staff. Closed-Loop MRP seems
now to have been displaced by APS, a more practical and successful approach. In
studying MRP, the student would do well to separate the mechanism of materials
planning (eg the bill of materials explosion) from the activities involved in closing of
the loop. The result of splitting the overall subject in this way is for the reader to
gain considerably greater clarity of understanding. For a critical overview of MRP
and other alternatives, see the Course Notes relating to GMCS's 1-day course on
production control at

MRPII (Manufacturing Resource Planning): A term coined in 1974 by the late

Oliver Wight, whose vision it was, to mean an integrated system of such system
components as: closed-loop MRP; MPS; Shop Floor Control; Sales Order
Processing; Accounting; and other elements of manufacturing business - see also
ERP. Note that a comparison between MRPII and alternative planning methods is
made in GMCS's 1-day course on Production Control - the full text, illustrated notes
relating to this course are obtainable direct from GMCS price £69 inc UK p&p -
visit GMCS.

MTBA: Mean Time Between Assists.

MTO: Make to Order, qv.

MTS: Make to Stock.

MTTF: See "Mean Time To Failure".

MTTR: Mean Time To Restore, or Mean Time To Respond.

Multi Model Forecasting Systems: Many proprietary forecasting packages, such

as Demand Solutions, Focus Forecasting and Forecast Pro, consist of some 20 or 25
different forecasting techniques, or techniques with different parameters. All of the
techniques and models are run each month in parallel. The forecast issued to the
user is the one emanating from that technique or model which proved most accurate
in the previous month. Consequently, the forecasts issued from one month to the
next could each have a different basis depending on the winning techniques /
models. Doubts arise in multi model forecasting regarding (1) the effect of the
constant switching of the forecast basis on the long leadtime forecasts used, say, in
master planning; (2) the failure of the forecast user to get to know a specific model
and refine its operation; and (3) the laconic observation that the incorporation of 20
techniques is of little value if they are all inferior. Nevertheless, multimodel systems
are likely to yield reasonably satisfactory results, and appear not to be expensive (*)
compared with the cost of more sophisticated systems such as those using Bayesian
Forecasting. It is surprising that academic personnel have not conducted
simulations of contending techniques in the way that they conducted simulations in
the past relating to Despatching Rules. (* Dragging the prices of their products out
of forecasting software vendors is like pulling teeth, leading one to suppose that a
price is often what a salesman thinks he can get at the time.)

Multi-Level Master Scheduling: The independent master scheduling of items at

two or more levels in a bill of materials. An example is the master scheduling of
bottled whisky and the independent master scheduling of the distillation of whisky -
although they share the same bill of materials, the activities are separated in time by
many years. Note that multi-level master scheduling is akin to the scheduling of co-
products and is not the same as two-level master scheduling.

Multi-Level Pegging: see full pegging in the Glossary entry for pegging.

Multi Site Netting: When one factory is responsible for the production of material
M, and Material M is actually used at a second company factory site, it is necessary
to formulate plans for the production of M by considering the net requirements at
the second consuming site and the transit times between the two. See The
Manufacturing Manager, Figure 9.8.

Multiple Netting: See Multi-Site Netting.

Multiple Sampling: an ingenious extension of double sampling, involving the

taking of many samples of size n1, n2, n3 ... each having an acceptance criterion c1,
c2, c3 .... Multiple sampling is not especially more effective than double sampling,
and is far harder to administer.

Murphy's Law: A rule ascribed to by the cynical, the weary and those who have
been too long in manufacturing industry, that what can go wrong, will go wrong
either (a) at the worst possible moment for doing so, or (b) as soon as one takes his eye
off it. See also O'Leary's Corollary.
MVP: Modular Variable Pricing.
# A B C D E F G H I J K L M

NAFTA: North American Free Trade Agreement, an agreement between the US,
Canada and Mexico providing for equal opprtunity - ie free of import restrictions
and customs tax - regarding the supply of certain goods.

nagara: Japanese for smoothing the flow of production by the synchronisation of

production and supply, particularly through the institution of small production lots
and group technology. See also shojinka. In addition, see The Manufacturing
Manager, Chapter 15.

Naïve Forecasting: Also see Demand Forecasting. Naive forecasting encompasses

a family of forecasting techniques based on averaging, or "smoothing". The
techniques are so called because no attempt is made to use regression mathematics
to establish causal relationships (ie statistically proved cause-and-effect
relationships) among the data being subject to analysis (contrast Causal
Forecasting). With naive forecasting, on each occasion a forecast is to be calculated,
the data are analysed (ie averaged) in precisely the way they were analysed the
previous time.

Naïve One: A forecast simply comprising the last actual demand value recorded.
That is, if the last recorded demand was 17 units, 17 units is now made the one-
ahead forecast. Naive One is used purely as a yardstick to compare the efficacy of
other more sophisticated forecasting methods. See Naive Forecasting and Causal

NAM: National Association of Manufacturers (US body) - visit

NASA: National Aeronautics and Space Administration, the famous American


NCPU: non-conformities per unit. See non-conformity and defect.

NDI: Non-Development Items.

NEC: Nippon Electric Corporation, a Japanese electronics company.

Need Date: See Date (Need).

Negative Stock: (1) A negative stock balance can arise on a stock record due to
stock (data) transactions being submitted in a sequence other than the sequence of
the physical events to which they relate. For example, suppose the stock record
initially stands at 10 units, and the next two things actually to happen in order are
(a) a receipt of 22 units of new stock, and (b) an issue of 17 units. Then the amount
of actual stock is now 15 units (10 + 22 - 17). However, now suppose that the receipt
and issue transactions are submitted to the stock records system in the wrong order.
After the issue transaction is received, the stock record will be - 7 (ie 10 - 17). It will
not be correct until after the receipt transaction has been received (- 7 + 22 = 15). It
is important for inventory controllers to know how their systems deal with this
situation. Some systems will not accept a transaction that creates a negative balance,
but instead will "hold" the offending transaction in the backgroung until there is
sufficient stock. If negatives are allowed, planners should also know what their
planning systems will do if they read negative balances. In general, planning systems
should behave normally and merely plan sufficient production to overcome the
degree of negativity. Note that, finally under this heading, negative inventory can
also result due to a plain transaction mistake, such as raising a transaction for a
stock withdrawal and specifying thw wrong location or the wrong amount. (2)
Negative Safety Stock is also permissible. When a safety stock amount is calculated,
the underlying calculation is based among other things on the probability of a sales
forecast error. The error, of course, could be positive or negative. If it is negative - ie
if actual sales are larger than forecast - the safety stock will be needed to protect
customer service. If it is positive - ie if actual sales are smaller than forecast - the
company will be left with excess stock. If stock is both very expensive and
particularly vulnerable to being made worthless if not sold (eg fashion goods), the
company may set a negative safety stock ... ie deliberately make or stock less than it
calculates it would sell if demand were to be average ... in the hope and expectation
that all stock will be sold and none will be left on the shelf. (With a negative safety
stock, of course, customers will not obtain the service and stock availability they
would like. A similar effect can be obtained by ignoring safety stock provision
altogether.) (3) Phlogiston, if it were to exist and could be stocked, would also result
in a negative stock balance. When natural philosophers of olden times weighed
material and then re-weighed it after burning it, they found its weight had
increased. We know, of course, that the reason for this is that the material has
combined with oxygen to form an oxide, which is heavier than the starting
substance. In olden times, before the discovery of oxygen, the startling conclusion
was reached that the burning had released an invisible "substance", which they
called phlogiston, and that, because the new weight after burning was greater than
before, the phlogiston which escaped must therefore have had a negative weight.
The notion of phlogiston was once widely taught and universally accepted by
received society. We should reflect on that when we consider certain "accepted"
theories and ideas put about nowadays, which result in our ridicule if we refute
them as being nonsense like phlogiston - modern art, psychoanalysis, socialism, the
Kyoto treaty ...
Negotiation: In sales or purchasing, a negotiation may be defined as a discussion
between a vendor and buyer intended to result in an agreement to sell / purchase
and over which either party has the power of veto. Negotiation is not about
achieving a "fair" agreement (eg a "fair" price), since a fair price cannot be
defined. Fair is a moral concept having no direct relevance to the conditions of sale /
purchase of a business agreement. Instead, in negotiation, the only logical objective
of a participant is to secure for himself maximum advantage, although advantage
may be judged by other criteria merely than the price paid. Note that the full text
contents of the GMCS training course on "Successful Negotiation" have been / are
being placed on the Internet for the benefit of glossary visitors. Visit

Nemawashi: Allegedly, Japanese to prepare a tree for transplanting, a term used in

lean production to denote the review of a strategic plan with all affected parties
prior to its implementation.

Nervousness: In MRP, especially as it is applied in a manufacturing environment

with relatively small planned lot sizes, continual changes in requirements, even
small changes, are likely to give rise to the need to make equivalent continual
adjustments to the supporting schedules of plans. (As the US manufacturing guru
Hal Mather put it in a witty article many years ago: Reschedule the Reschedules you
just rescheduled - a Way of Life for MRP?) Change presents little difficulty with
regard to what MRP terms "planned orders", since these are automatically
rescheduled by the system (*). For the MRP "open orders" and "firm planned"
orders, however, which the system is not permitted to reschedule, such constant
changes in the timings of the plans will result in rescheduling messages for them and
the consequent need for the planner to give effect to the changes demanded by
rescheduling these plans himself. The situation of constant plan changes arising in
this way is referred to as nervousness. Proprietory MRP software systems therefore
almost always allow the user to "suppress" nervousness, in so far that the software
will suppress the output of any rescheduling message if the extent of change
calculated is less than a user-specified length of time (say, 3 days). The number of
days chosen by the user is known as "leeway" (qv). (* Even though the planned
order dates are replanned automatically, much may still need to be done to change
the practical work-to schedule.)

Net Change: One view of an overall material plan is of plans created at one level of
the bill of materials giving rise to requirements at the next level lower in the Bill.
Plans for components at this lower level are then created to cover the net
requirements for them themselves - see Closed-Loop MRP. When data arising from
plan amendments and completions are fed back into the overall materials plan,
clearly the lower level net requirements are also liable to have changed. If so, the
plans that had been formulated to satisfy these net requirements may also now have
changed, and so on down the bill of materials. Net change is essentially a data
processing solution to this problem: when a change occurs that might affect plans
and lower level requirements, action by the system is not taken immediately.
Instead, the product potentially affected by the change is "flagged", and any
repercussions of the change dealt with later *. When they are so dealt with, change is
confined to the product directly affected. (In MRP, any change will include the
recalculation of planned orders and the recalculation of their corresponding lower
level requirements.) * In a continuous net change system, the localised recalculation
of change is performed continually, the advantage then being that the system is
always largely up to date; in batch net change system, recalculation is performed
from time to time. Contrast Regenerative MRP.

Net Piece Variance: in relation to stock records accuracy, qv.

Net Present Value: See NPV.

Net Requirements: Defined as : gross requirements less on-hand stock (on-hand

stock is thereby said to have been netted off). In the example given under gross
requirements (qv), if gross requirements are 27 motors and the stock of motors is 8,
the net requirements are 19 units. See also Partial Requirements.

Nettable Locations: For a particular product, nettable locations are all of the
locations where any stock of it held can be netted against the product's gross
requirements to determine its net requirements. (Remember that gross
requirements less stock = net requirements.) Thus a storage area holding stocks of
components reserved for direct sale as spare parts will be a non-nettable location as
far as the parts are concerned, since the parts are reserved for spares, while an off-
site emergency depot holding the parts would be a nettable location.

Netting Logic: See Manufacturing Logic.

Neural Computer: See Neural Networks.

Neural Networks: The human brain consists of a very large number of

interconnected cells termed neurons, these being stimulated by chemical and
electrical impulses. This arrangement - or neural network - is essential to the
recognition of previously encountered situations and external patterns. Attempts
have been made to emulate the brain's neural network by the arrangement of
processors within a computer. Neural computers may one day be useful in sales
forecasting, market research and even in the scrutiny of security video images.
London University in 1996 constructed a neural computer (MAGNUS); neural
networking software is available from Right Information Systems, London. See also

Nielson A.C.: see under retail audit.

Nimble Manufacturing: the efficient, low cost manufacture of small quantities of

product, allied with an ability to change product mix easily and quickly - in short,
lean manufacture. See agile manufacturing and lean manufacturing.
NIST: National Institute of Standards and Technology. (US).

NLP: Neuro Linguistic Programming - programming of the mental procedures that

we invoke when we perform the various tasks in our lives. What hidden factors
make the critical difference between success and failure? And how can these crucial
factors be incorporated in new programs in the future?

Node (Distribution): A formally established point within a supply and

distribution network which is brought into account when the movement and storage
of material is under consideration. Usually, especially within simpler distribution
systems, the node will be a stocking point - perhaps a local depot or a regional
warehouse. In more complex networks, a node may be used for stock consolidation,
to allow crossdocking or for breakbulk. However, nodes in the network may not
physically exist. That is, they could be points introduced purely for planning or
calculative purposes - see Depot (Logical). The premises of major customers may
also be considered to be network nodes.

Noise: random disturbance intruding on some measured phenomenon. See White


Nominal Ledger: see Ledger.

Non Conforming Unit: A manufactured part not conforming to specifications.

The ISO definition of a non-conformity is a non-fulfilment of a requirement. See also
Defective Unit.

Non Consuming Demand: Sales demand received by the company which is

radically different in origin from the demand which normally constitutes sales
orders. Because it is radically different, it is over and above the demand from the
normal sources forecast in the usual way. Because it is separate and extra, non-
consuming demand should be isolated and should not take part in the mechanism of
"Consuming the Forecast" (qv) in Master Schedule Management. One way of
recognising non-consuming orders is to examine each individual order received and
apply a set of rules for deciding whether it is non-consuming. If that is not possible,
a method for spotting unusually large orders likely to be non-consuming would be to
track each product's average order size and its standard deviation, and declare any
order which is (say) 4 standard deviations larger than the mean as being non-
consuming. Two examples of non-consuming demand are: (1) An order from France,
although the vast bulk of customer orders are from within the UK, and it is these on
which the the forecasting system is based; and (2) a big one-off order for 15 units
from the Ministry of Defence although most other orders from normal customers
are for ones and twos. See The Manufacturing Manager, Ch 7.

Non Severable Agreements / Deliveries: see Stage Deliveries.

Normal Cost: See Cost (Standard).

Normal Curve: see Distribution (Normal).

North West Corner: A term used in the operation of the transportation algorithm
(the starting point of the solution at the top, left corner of the "initial tableau"). See
The Manufacturing Manager, Ch 20.

Note: US for Bill of Exchange, qv.

Notional Cost: See Cost (Standard).

Np chart: See Number Rejected Control Chart.

NPV: Net Present Value, a method of evaluating a stream of costs and benefits over
time assuming a nominated rate of interest applying to the value of money. For
example, if a rate of interest of 20% pa were to be assumed, a £100 cost now would
need to be matched by a benefit of £120 in one years time for the cost (£100 now) and
benefit (£120 in Year 1) to be equal. Consider a project that costs £500 to start and
which will yield returns of £600 in year 1 and £400 in year 2, then finishes. Assuming
an interest rate of 20% pa, the net present value of the start up amount is £500
(obviously!), the net present value of £600 in one year is £500 (ie £500 for 1 year at
20% equals £600), and the net present value of £400 in two years is £278 (ie £278 for
2 years at 20% pa equals £400). Thus the net present value of the project at this rate
of interest is - £500, + £500, and + £278, = £278. The DCF rate of return is the
interest rate whereby the NPV equals zero. As an example of a DCF rate of return,
consider the following "cost/benefit stream" - ie complete succession each year for
the life of a project of costs less benefits ... +£1000; -£500; -£600; -£500; -£300. If this
stream of costs less benefits related to a particular project, we could evaluate it
assuming various alternative rates of interest. For example, if we used 10% pa, the
resulting value of the the project works out as - £532. (Note however that the chief
executive of the company might have stated that all company projects are to be
evaluated at some interest rate specified by him - say 20% pa., not 10% pa, the
specified percentage being his strategic investment target.) However, it may be
preferable to work out the DCF of the project instead. In the instance given, this is
34.5% pa. That is, if we use a rate of interest of 34.5% pa, the stream of costs less
benefits given previously work out as +£1000; -£371; -£332; -£205; -£92. The total of
these five figures is zero. One advantage of using DCF is that it makes the
comparison of projects more meaningful, especially from a historical perspective.
See especially cost/benefit analysis for a brief critique of the pitfalls of these
comparative methods.

NRDC: National Research Development Corporation, a UK government institution

intended to promote the commercial exploitation of scientific advances.
Nuisance Variable (or lurking variable, or extraneous variable): A term
used in data analysis to denote an unknown background variable possibly present
during the conduct of a process or experiment. The variable is a nuisance because it
can affect the response of a response variable.

Null Hypothesis, The: The starting assumption in ANOVA (qv), namely that there
is no statistical significant difference between two or more populations - ie that any
difference between them is due purely to random causes.

Number Rejected Control Chart (Np Chart, or sometimes pn Chart): In

tracking the on-going stability of a manufacturing process with respect to the
incidence of non conformancies, it is usual to calculate and record the percentage of
items produced which are non conforming (see p chart under attribute control
chart). However, provided that the samples of output taken are strictly of fixed size,
for some processes it may be more natural to track the actual number of non
conforming items instead. (If the samples were not of fixed size, it would be
constantly necessary to redraw the chart's control limits - an impractical
# A B C D E F G H I J K L M

O'Leary's Corollary: (to Murphy's Law) - Murphy was an optimist. (An
alternative version states if everything seems to be going well, you have clearly
overlooked something.)

OA: Optical Amplifier.

OAG: Open Application Group.

Obligated Producer: See Packaging Waste Regulations.

Obsolete Machines (Spares For): See All Time Supply.

Obsolete Stock: see Stock (Obsolete).

Obsolescent Stock: see Stock (Obsolescent).

OC Curve: In sampling, a sample plan is obtained from a published sampling table,

and specifies the size (N) of an incoming lot of material, the quality (p%) required of
this incoming lot, the size (n) of the sample to be taken, and the acceptance criterion
c. Now, when such a sample plan is "operated" (ie used) in material receipt, an OC
curve is a function or graph illustrating the probabilities of acceptance of the
incoming lot of material over a successive range of possible incoming quality levels.
For example, the OC curve will show: (1) the probability of acceptance of the
incoming lot if the quality is 0.5% non-conforming; (2) the probability of acceptance
of the lot (with the same sample plan) if the lot has 0.6% non-conforming; (3) the
probability of acceptance of the lot if the lot has 0.7% non-conforming ... and so on.
It is desirable that OC curves should be "steep" - that is, that they should show big
differences in probabilities of acceptance from one incoming quality level to the
next. In order for an OC curve to be steep, the sample plan chosen must specify a
relatively large sample. See also Operating Characteristic and see The
Manufacturing Manager, Section 14.4.

Ocean going: (US term) In transportation, shipping on the open sea (in UK
English, deep sea.)

Occupational Health: the prediction and prevention of work-related ill health,

and of health issues associated with work.
OED: (1) Outside exchange of dies - synonymous with external set-up time (qv);
and (2) The Oxford English Dictionary, the prime reference to the vocabulary and
usage of the English language (UK version), published in 13 volumes by Oxford
University Press, and available in a 2 volume shorter edition (The Shorter OED).

OEE: Original Equipment Effectiveness, or Overall Equipment Effectiveness. The

overall equipment effectiveness is the product of (1) equipment availability, (2)
equipment performance and (3) equipment quality ... say (1) 80%, (2) 80% and (3)
80%, making an OEE of 51.1%.

OEM: Original Equipment Manufacturer.

OFAT (One Factor At A Time): A method of experimentation for examining the

effect of a number of possible causes. Contrast Full Factorial.

Off the Shelf Satisfaction: See First Pick Ratio.

Offer (legal): A proposal by a party to supply goods or service in exchange for

money. The making of an offer is the first step in forming a contract.

Officious Bystander Test: A contract between the company and a supplier is

comprised of express terms (ie written down) and implied terms (obvious terms
implied by commonsense, and by custom and practice). To determine later whether
some particular term X is implied or not, the company might imagine what reply
would have been given by both parties while the contract was being drawn up to an
officious bystander (ie a nosy passer-by) if he had asked them "Is X intended to be
included?". If both parties would have replied in unison "Yes - the inclusion of X is
obvious! X is essential from the business point of view!", then X is indeed an implied
term. Note that X must be essential at the time the contract is being drawn up; it is
not an implied term simply because it later seems reasonable, or on lenghthy
reflection seems a reasonable extension of the agreement.

Offset: (See also leadtime offset.) In countertrading (qv), direct offset is where the
supplier agrees to incorporate materials from the country of export in the actual
goods being supplied. Indirect offset is where the exporting company or exporting
country places business with, or provides assistance to, the country of export, the
business or assistance not being directly connected with the goods being exported.
See The Manufacturing Manager, Ch 16.

OFT: Office of Fair Trading, a UK body which investigates alleged breaches of the
Competition Act, and is empowered to take legal action as it deems fit.

OLE: Open Link Embedding.

Oligopoly: A market in which there are only a small number of suppliers, and no
prospect of new ones, thus limiting competitive choice and, perhaps, presaging the
emergence of a cartel (qv). Contrast Monopsomy.

One Piece Flow: another alias of Just-in-Time (qv).

OOP: Out of Production.

Open Order (or Scheduled Receipt): One of the three plan types in closed-loop
MRP (along with the planned order and the firm plan), the open plan being a plan
which has been released to the shop floor for work to start (*). Similarly, an open
purchase order is a planned purchase in the MRP system which a supplier has
committed to transit. When materials plans are assessed by the closed-loop MRP
system with regard to their timeliness and the appropriateness of their quantities,
open plans cannot be rescheduled to different dates if they are found to have due
dates earlier or later than that those that are indicated by strict materials planning
logic as being needed. Instead, the open plans are left with their existing dates (and
quantities). However, messages are produced by the system commanding the
planner, shop supervisor or buyer to reschedule the plans by direct manual
intervention in the system. (*When planned or firm planned orders are "released to
manufacture", usually by the planner in charge, the MRP system changes their
status to that of being "open".) The open plan is also referred to as a scheduled
receipt, which self obviously it is. The difference is purely semantic.

Open Plan - see Open Order.

Open Purchase Order - see Open Order.

Operating Characteristic: The probabilities of acceptance of incoming lots of

parts of various quality levels, resulting from the employment of a given sample
plan. The operating characteristics of a plan can be handily illustrated as a curve -
see OC Curve. OC curves were at one time termed "probability of acceptance

Operation Compression: In order to reduce the leadtime of a multi-operation

job, the job's wait and move activities may be controlled by a coloured ticket system.
For example, a red ticket may indicate the job is to be moved to the head of the
queue, and given priority by shop floor materials handling staff. When the job is
back on schedule, the ticket should be removed. The degree of catch-up to be
expected must be estimated by a supervisor. The term is synonymous with window
scheduling and, more correctly, interoperation time compression.

Operation Overlapping: In order to reduce the leadtime of a job involving the

processing of many components, it may be possible to send some of the completed
components ahead to the next operation before the first operation has finished, so
that a start can be made on them. If the duration of the first operation is shorter
than that of the second, calculation of the savings in leadtime is straightforward. If
the first operation is longer than the second, however, calculation of the point at
which to send the units ahead is slightly complex, since it is desirable that the arrival
of the final units sent over should be synchronised with the completion of the units
previously sent ahead to the second operation. See The Manufacturing Manager,
Figure 11.5.

Operation Splitting: When a number of components are to be processed by a

machine operation, the leadtime required to do so may be halved if 50% of the
components are able to be processed by a second alternative machine. (Naturally,
the operation splitting between the two machines requires that a second operator
should be available, and a second set of tools.) It is noted that since there are now
two works orders, each for half the original amount, planned quantities in the
planning system must be corrected and an additional set of shop floor paperwork
generated. It is also noted that a second set-up is required, casting doubt over the
economics of splitting an operation between three machines. See also Split Batch.

Operations Research: see OR.

OPT: A manufacturing planning system originally written by Eliyahu Goldratt (see

Theory of Constraints) for the resolution of planning difficulties in the presence of
bottlenecked work centres. OPT first analyses master plan and material
requirements in the normal way, and then, in a module called SPLIT, separates the
products required by the plan into two lists, or divisions. (1) The first division
comprises all those products for which the quantities required in the plan are in no
way constrained or affected by the bottlenecks. These are known as "free products".
Because they are unaffected by the bottlenecks, free products are scheduled and
managed as they would be in a normal materials planning or MRP / CRP
environment. (2) The second division comprises "bottlenecked products" - that is,
products where the quantities required cannot be satisfied in full either because of
direct capacity limitations of the equipment used in their manufacture or because
components used in their manufacture cannot themselves be fully supplied because
they (the components) are themselves bottlecked. The materials plans for the
bottlenecked products, and all products directly or indirectly affected by them (ie
because they are either ancestors or descendants of them), are calculated by the
application of mixed integer programming, this being a variant of mathematical
programming. What mathematical programming, or mathematical optimisation,
does is to produce a valid solution (ie here, a material plan), but a solution taking
account of the stated capacity restrictions and in which there are consequently
shortfalls in output. The shortfalls are (obviously) not decided arbitrarily. Instead,
they are decided on by calculation, such that some particular, chosen measure of
output (which we call an objective function) from the whole plan is optimised (ie
either maximised or minised). The module of OPT in which the optimisation
mathematics comes into play on the bottlenecked products' plans is called "The
Brain of OPT". It is usually assumed in using OPT that the objective function that
will be specified by the planner will be to maximise contribution (ie total sales
revenue less cost). This, of course, is the fallacy at the centre of OPT: in the event of
bottlenecked output, it must be Sales & Marketing who decide what is to be made
and not made, based on the company's widest commercial interests, including an
assessment of competing customer claims. Unfortunately, the application of OPT
frequently falls into the hands of the company's IT experts, who are blinded by the
power of mathematical optimisation. The allocation of bottlenecked output cannot
be made by a mathematical program based merely on maximum profit. See also
Drum, Buffer, Rope for an OPT analogy. Note that the criticism of the allocation of
output by mathematical means does not apply to output where Sales & Marketing -
and customers - are indifferent as to the product mix, such as grades of petrol from
a petroleum refinery.

Option Forecast: a term coined by John Proud in his book Master Scheduling to
replace "production forecast (meaning (2))" used in two-level master scheduling.

Option Overplanning: see Over Planning.

OR: Operations Research. The application of mathematical and similar techniques

to problems in manufacturing industry. Three examples of OR are the use of linear
programming to optimise the allocation of output from a capacity bottleneck; the
application of queuing theory to shop floor control; and the mathematical treatment
of the scheduling of continuous flow production. The modern application of
mathematics to practical problems is attributed to the study by Sir Henry Tizard
just before WWII of the optimum tactics for the interception of German bombers. It
was named operations research because of its use in analysing the effects afterwards
of completed WWII operations. In the UK, there is a very well respected Operations
Research Society (for the US visit

Oral Agreement (legal): A legal contract between two parties that has been
agreed verbally ("Oral contracts aren't worth the paper they're written on " -
Samuel Goldwyn).

Orange Book, The: The name given to the book Production & Inventory
Management in The Computer Age, by Oliver Wight, following its publication in
1974, on account of the colour of its dust jacket. The Orange Book included the first
published exposition of Closed-Loop MRP.

Order (Customer): see Customer Order.

Order Point System (= Min/Max System): A means of replenishing stock. A

new replenishment of stock is requested from the supplier (or other replenishment
source) when the company's current stock level falls to its calculated order point.
The order point is calculated from three factors: (1) the forecast offtake of stock,
expressed in units per time period (*); (2) the replenishment leadtime of a new
delivery (*); and (3) the safety stock provided to cover forecast error. The order
point is then calculated as the "leadtime demand", plus safety stock ... ie the offtake
demand from stock forecast to occur during the replenishment leadtime, plus safety
stock. Note that if the replenishment lot size is R, the average stock level is (R/2 + S).
The order point system is also called the Min / Max System because the stock level
swings between a minimum (the order point) and a maximum (R + S). If this is the
meaning, however, the term is clearly wrong, since the minimum stock is S - the
stock level S is reached after the new replenishment has been sent for and before it
arrives. (* If the forecast is D units / month and the leadtime has been recorded in
days, D must be converted to a forecast of so-many units per day by dividing the
monthly forecast by the number of days in the month). Use of the order point system
is valid only if the fall in stock level of the product concerned is gradual and even -
as it may be, for example, for fuel or common consumables. It cannot be successfully
applied in a materials planning environment, since falls in stock levels are lumpy
due to lot sizing. It is also very difficult to see how it could be used in a practical way
if multi-period sales forecasts were to be taken account of. See The Manufacturing
Manager, Chap 9.

Order Policy: The rule governing when a replenishment stock order is to be

generated. In materials planning, the order policy will be to generate a new planned
order when the projected stock balance falls to zero. While the same policy prevails
in the course of master schedule management, the order policy during master
schedule formulation, by contrast, is to generate a new plan requirement when the
projected stock falls below the product's safety level. Under the order point system
of replenishment, the order policy is to generate a replenishment order when stock
falls to the order point.

Order Processing: see Sales Order Processing.

Order Quantity: When a replenishment order is generated by the materials

planning system, the size of the order to cover the net requirements for the material
will be determined by a planning rule applying to the particular product concerned.
The order quantity is the amount specified according to the rule (for example, lots of
1000 units, lots of 1500 units, lot-for-lot (qv)).

Ordinal Number: a number denoting order or rank, such as first, second, third ...
as opposed to a cardinal number (1, 2, 3 etc.).

Ordinary Shares: see shares - an ordinary share's issued, face value may merely
be £1, but if the company prospers, as we know, its value will be many times higher
than its face value.

Originating Site: The factory site producing Material M, as described under

Multi-Site Netting - qv. See also Consuming Site.
Orthogonol: The dictionary definition of orthogonal is perpendicular, or right
angled. However, in manufacturing or quality experiments, orthogonal entries in a
matrix are entries said to be balanced. For example, consider three factors in an
experiment, A, B and C, which can be set for experimental purposes either high (+)
or low ( - ). There are eight ways of varying A, B and C in relation to each other, and
the results of the eight experiments on having done so might be set out in a matrix as

Run ... A....B....C ..

1 .........-....-.... - ..
2.........+....-....- ..

3.........-....+....- ..

4........ +...+ ...- ..

5..........- ...- ...+ ..

6 ........+ ...- ...+ ..

7 .........- ...+ ...+ ..

8 ........+ ...+ ...+ ..

Effect .? ....? ...? ..

The matrix is an example of an orthogonal array - ie a balanced array. For example,

if we observe Column C, we see that when C is -, factors A and B contain an equal
numbr of plusses and minuses, so that the effects of A and B on C cancel. Similarly,
we see that when C is +, factors A and B also cancel each other. The value of
orthogonality in experimental design is that it eliminates bias and correlation. There
are other orthogonal schemes besides the one shown here - for example, those due to
Taguchi and to Plackett-Burman.

OSA: On Shelf Availability - a common and obvious customer service goal, which
must normally be qualified by such statements as "for 99% of all orders" or "non-
available items supplied within 3 days" etc., (There is also the question of the
consequences of non-availability.) See The Manufacturing Manager, Section 5.3 &
OS&D: Overage, shortage and damage, as they may relate to the delivery of
materials from a supplier (contrast OTIF).

OTC: (1) Over The Counter, A term applied to medicine and drugs able to be
bought without a doctor's prescription; (2) On-Time Commit, or on-time delivery to
commit date.

OTCR: On-Time delivery performance to Customer Request date ... in effect, the
same as OTIF, qv.

OTED: One Touch Exchange of Die - the goal of accomplishing a machine

changeover in 100 seconds or less (see also SMED).

OTIF: Relating to the delivery of goods from a supplier - on-time, in full. The
presumption must also be that the delivery is 100% conforming to quality
requiremements - contrast OS&D! OTIF is but one of many possible customer
service targets.

Outside In: The quality view of a system, whereby basic procedures are considered
broadly from the viewpoint of the customer.

Over Planning: In two-level master scheduling (see Master Scheduling and also
the Final Assembly Schedule), the quantities of the various option variants which
are master scheduled are determined by forecasts derived from option preferences
specified by customers in the past. In a particular month, however, the variants
specified in actual orders are likely to differ from the forecast split. For example, the
split of option variants may be forecast to be 50:50 between the red and blue types.
In a particular month, it is expected to sell 500 assemblies. Instead of selling 250
blue types, however, the company is asked for 305 blues and 195 reds. An option
overplan, therefore, is a safety stock placed on an option variant to help ensure that
these are high levels of option availability even though the split of actual customer
orders is different from forecast. In effect, option overplanning is the providing of
safety stock of option variants. The overplan amounts should be set by calculation,
not by hunch and guess. A useful quick calculation is available, however, avoiding
the complexity of normal safety stock mathematics- see The Manufacturing
Manager, Ch 8.

Over Trading: A company is said to be over trading when the volume and extent of
the business it has taken on is excessively large in relation to the capital it has to
meet it. In these circumstances, the company may place excessive reliance on loan
capital, overdrafts and supplier credit.

Overlap: In pay structures and grading, overlap is the percentage of the scale of
the bottom of a higher pay grade also covered by the scale at the top of the pay
grade immediately lower in the pay structure.
Overrun Device: in mechanical safety, a device used in conjunction with a guard
designed to prevent access to machinery parts which are moving by their own
inertia after the power has been switched off. Examples are rotation sensing devices,
timing devices and certain braking systems.

Own Account: In distribution, a company's own fleet of vehicles.

# A B C D E F G H I J K L M

3PL: Third Party Logistics.

4PL: see Fourth Party Logistics.

p chart: See attribute control chart.

PA: Personal Assistant, or Power Amplifier or Perpetual Audit.

PAB: see Projected Available Balance.

Pack from Make: See Make and Pack.

Packaging Manager: A manager connected with a consumer goods

manufacturing or distribution organisation whose roles are: (1) to ensure that the
company's packages meet the standards specified; (2) to develop new packages to
fulfil new purposes or increase the competitive edge; (3) to investigate complaints of
split or damaged packages, in order to confirm their validity and, if valid, their
cause; (4) to liaise with package manufacturers in new developments; (5) to ensure
compliance with the packaging waste regulations (qv) of the despised EU; and (6) to
contribute to projects and initiatives to change and enhance package design
throughout the supply chain.

Packaging Waste (Regulations): Regulations concocted by European Union

officials in 1997 to promote a reduction in the amount of residual wrapping and
protection material associated with the carriage and protection of goods. Packaging
is defined as primary packaging (eg a glass bottle containing Chateau D'Yquem),
secondary (or grouped) packaging (eg a smart wooden box containing the glass
bottles of the wine), and tertiary packaging(eg a crate containing the secondary
packages). Companies which are required to take action under the regulations are
referred to as obligated producers, and include (say) manufacturers of bubble
wrapping and packagers of sandwiches. An obligated producer's obligation (only an
EU official could invent this) is calculated as "the amount of packaging handled " x
"the activity obligation" x "the recovery target". Recovery targets are set by the
organisation's reichsmarshalls with the EU; in the UK, acting gauliters are the
Environment Protection Agency and the Scottish Environment Protection Agency
(SEPA). To prove compliance, the company must obtain "package recovery notes"
(PRNs) either from an authorised waste management company or through their
purchase in the open market. As with most EU activities, there is widespread
evidence that the regulations have caused an increase in the amount of packaging
waste generated. Naturally, the evidence excludes account of the waste represented
by the small army of officials needed to police the scheme. See also WEEE.

PAF: prevention, appraisal, failure. An acronym for an approach to ensuring quality

not unlike FMECA.

Pallet: A structure consisting of a top and a bottom platform, the dimensions of

which are standardised in the UK as 1000mm x 1200 mm. The platforms are
referred to as boards. They are 6" to10" apart, being joined and supported by
blocks, bearers and stringers. A load is placed on the pallet's top board, and the tines
(or forks) of a fork lift truck inserted between the two boards, enabling pallet and
load to be lifted and moved. Pallets are usually made from the wood of the
Portugese maritime pine or, in the US, oak, but also nowadays of plywood. The
footprint of the pallet is the top board's dimensions as given above. Note that in the
US, the standard platform is 48" x 40". The so-called euro pallet measures 1000 mm
x 800 mm. Non-standard pallets are used in the Far East, enabling companies to
achieve greater economy of freight movement at the expense of storage costs (until
1969, there were some 1500 pallet varieties in the UK). See also Unit Load. Also see

Parameter: In writing a program for general use, a software programmer will

usually need to specify formulae or system functions in a general way ... for
example, "calculate the total requirements over the next X weeks". X is specified in
the program, literally, as the variable "X", but is then made a parameter. In this
case, in order to use the program, the system user must first specify a value for the
parameter. (In this case, if he specifies "5", the program will calculate the total
requirements over the next 5 weeks.)

Parametric Analysis: In product design and value engineering, the analysis of

competitive products already on the market from the viewpoint of their physical
characteristics (eg their capacity, speed, power, acceleration ...). Among other things,
parametric analysis may reveal gaps in the market which the new product might fill.
Parametric analysis is almost synonymous with "analysis of features" (qv).

Parent: (1) If product A is used to manufacture product B directly, product A is

said to be product B's parent. See descendant. (2) In relation to company ownership,
if Company Big owns all or most of the share capital of Company Little, Big said to
be Little's parent (and Little is said to be a subsidiary of Big). Note that a quasi-
subsidiary is a company which does not fulfil the share capital criterion of a
subsidiary, but the strategic directions and profits of which are nevertheless
controlled by Big, perhaps because of legal reasons.

Pareto Analysis: Vilfredo Pareto was an Italian economist and sociologist at the
University of Lausanne, Switzerland. In his treatise of 1924, he postulated that the
consumer spent 80% of his income on 20% of the things he bought, and was
indifferent as to the identity and type of the vast 80% of things accounting for only
20% of his income. This notion was taken up by H. Ford Dickie in 1951 in an article
"Shoot for Dollars, not for Cents", and lead to ABC Classification.

Parkinson's Law: Put forward by C.Northcote Parkinson - Work expands to fill

the time available for its completion. (Or as he might have said Stock expands to fill
the space available for its storage!)

Part: A manufacturing item different from all others.

Part Number: A unique code, perhaps being alphanumeric, assigned to a product

or part for identification purposes. See also The Brisch Classification system.

Partial Expectation: Safety stock is provided to guard against a specified

proportion of forecast errors, the probability of which can be represented by a
certain area under the Normal, or Gaussian, curve. Thus the probability of forecast
errors not guarded against is represented by the area in the tail-end of the curve.
The partial expectation is that point on the horizontal axis of the curve which bisects
the unguarded area 50:50. See The Manufacturing Manager, Ch 5. This statistical
term is also referred to as the linear loss function, and is encountered only in
calulations involving safety stock.

Partial Requirements: The gross requirements are the sum of all quantities of
material needed to support higher level plans. Partial requirements usually means
those requirements needed to support just one particular plan of the many higher
level plans at the higher level. In the example given under the Glossary entry for
"gross requirements" (qv), of the gross the requirements for 27 motors, the partial
requirements for the electric toothbrushes are 15 and the partial requirements for
the electric pepper mills are 12 motors. See also net requirements.

PASA: The initials of the "Purchasing And Supply Agency" of the National Health

PASCAL: Programme Applique a la Selection et a la Compilation Automatique de

la Litterature, a programming language having its origins in Guess Where.

Passing Off: a legal term whereby a company adopts a name similar to the name of
another firm in the same line of business, to cash in on the other's reputation.
Passing off is a tort so that the other firm can sue in the courts for damages.

Pay: see reward management, pay posture, pay structure, variable pay.

Pay Posture: When reference is made to the external jobs market in determining
the rate of pay for a company job, it will be found, naturally enough, that the
external pay rates for the job vary from company to company. In other words, the
external market pay rate is, in reality, a scale from lowest to highest. The point on
this scale chosen by the company in setting its own internal rate is known as its "pay
posture", or pay position, and should be consistent from job to job. If the company
chooses a high point of the scale, it will be known as a "good payer", and may
receive job applications from better qualified job seekers as a consequence; if it
chooses a low pay posture, it may be thought of as a "poor payer". However, in the
UK, as in other countries, the pay posture that management often determines upon
may be what it feels it can get away with, say, having regard to the company's
geographic location. Perhaps here might be a fruitful area of research for
academics: to investigate whether the choice of a low pay posture by a company is a
false economy.

Pay Structure: A succession of interlinked, self consistent grades of pay - for

example, Grade 1 (bottom); Grade 2; Grade 3; Grade .... Grade 20 (top). It might be
supposed that the top rate of pay at Grade 1 is just below the bottom rate of pay at
Grade 2, and so on. In fact, the interlinking of the grades within the structure is
complicated by two factors: differentials and overlapping. A differential (qv)
recognises that a job holder at the very top of one grade is worth more than a job
holder at the very bottom of the next higher grade. The application of grade
differentials of 20% is not uncommon. The greater the differentials, the fewer
grades needed to cover the range of pay to be accomodated by the pay structure -
see Broadbanding. Overlap (qv) is a measure of the extent that two grades overlap -
a 20% overlap is commonly found. Despite the need for consistency throughout the
company, large companies are likely to have in place two or even three pay
structures to cover all staff.

PBT: Persistant, Bioaccumulative and Toxic - ie a poison which builds up in the

body and the levels of which in time become toxic. Two examples are arsenic and
benzene. Benzene can be absorbed into the body over time through the skin, which
is why those working in chemical laboratories are advised not to clean apparatus
using benzene as a cleaning solvent

PCM: Phase Change Material.

PCS: Personal Communication Service.

PDA: personal digital assistant, or portable data assistant.

PDCA (Plan-Do-Check-Act): PDCA is the so-called "circle of continuous

improvement", especially as the term is applied to the effecting of improvements to
the operation of a manufacturing process. Step 1 (P) of the cycle begins with stating
the specific objective of this particular cycle of the improvement process. Examples
of objectives are to conduct a survey of customers needs or to develop control charts
to study the stability of the process to be improved. Questions will be raised by the
objective chosen - such questions should be discussed with others and answers to
them predicted. Step 2 (D) begins by carrying out the Plan developed in Step 1,
carefully documenting data and findings as progress is made. Step 3 (C) is to study
and analyse the results obtained at Step 2. Current knowledge of the process may be
confirmed by the data or may be changed and enhanced. If the results differ from
what was predicted at Step 1 (P), what conclusions can be drawn - what can be
learned? Step 4 (A) is to Act! Thus, based on the results of Step 3, decide whether to
make a change to the product or process. And if a change is decided on, ensure is is
first tried out with a pilot project and that the results are beneficial. The PDCA
system of continual improvement was first named as such in 1939 in the book by
Walter Shewhart and W. Edwards Deming Statistical Method from the Viewpoint of
Quality Control, and the cycle is often referred to as the Shewhart Cycle (but also the
Deming Cycle!). It is essentially similar to DMAIC (Define, Measure, Analyse,
Improve, Control), the strict procedure fundamental to Six Sigma methodology,
perhaps confirming the view that the famous Six Sigma is simply a rigorous,
practical way for putting into effect the old gurus' ideas. See The Manufacturing
Manager, Ch 13.

PDQ: business jargon for "Pretty D-mn Quick!".

PDS: See Product Design Specification.

PDSA: Plan, Do, Study, Act - synonymous with PDCA, qv. Also, People's
Dispensary for Sick Animals, a well-known UK charity.

PDT: portable data terminal.

PE: see Probable Error.

Pearl-Reed Curve: see S-Curve.

Pegged Requirement: in an overall materials plan, a material requirement that

has been directly identified through the pegging process (qv) with the individual
material plan that gave rise to it. Thus the word pegged simply means that a peg has
been established (see pegging again). Note that a pegged allocation is a material
kitted in readiness for use in a manufacturing job, and used up during the duration
of the job.

Pegging: In connection with a materials planning system, the action of analysing

the bill of materials either (1) to determine the earlier origin of present material
requirements, by tracing down the bill to ancestor materials, or (2) to determine the
ultimate use to which present material requirements will be put, by tracing up the
bill to descendant materials. For example, in case (2), knowing the gross
requirements for a lower level component, the planner may wish to peg up the bill of
materials to determine the plans of the end products giving rise to these lower
requirements. The planner may wish to peg up the bill from products where
manufacturing capacity is short, all the way to the master scheduled products, to see
if something can be done to reduce lot sizes and so relieve demand at the lower level.
A single relationship between a higher level and a lower level is referred to as a
"peg". In the 1970s and 1980s, it was typical for a so-called pegging file to be
printed - a very voluminous piece of fan-folded computer stationery measured in
feet thick. Nowadays, pegging is provided through on-line indexing on demand at
the VDU. Finally, note the terms full pegging and one-stage pegging are encountered.
As they suggest, the first means pegging all the way up the bill to finished goods and
the second means pegging only to the next stage of manufacture. See The
Manufacturing Manager, Ch 9.

Percentage Rejected Chart: See Attribute Control Chart.

Period Order Quantity (POQ Planning Rule): A planning rule whereby a plan
quantity (ie an order quantity) is the sum of the product requirements over a
specified future period of time. For supplies of raw materials, when raw material
requirements change, use of the POQ rule has the merit of ensuring that the dates
supplier deliveries are needed remain fixed even after changes are made in material
requirements, although the actual quantities to be sent on the (unchanged) dates
may be different from the original supply plans notified.

Perpetual Inventory Checking (PI checking): See Cycle Counting.

Personnel Management: An alternative term for Human Resources management,


PERT: Program Evaluation and Review Technique. A technique for managing and
evaluating progress in relation to a major project by Critical Path Analysis. The
steps which constitute the project are drawn as a set of interlinked activities in
chronological sequence (with "Start" at the extreme left and "Finish" at the
extreme right). The durations of each activity are analysed to see when one activity
finishes and the next one can begin. For example: Action 1 is followed by Action 2;
Action 2 is followed by Actions 3 and 4 carried out in parallel; Action 4 is followed
by Action 5 ...). The critical path is the unbroken sequence of activities with the
overall longest duration. Activities not on the critical path will have "slack times",
meaning that the earliest date they can start is some time before the latest date they
must start (if the project is not to be late). Slack time durations can be readily
calculated from the diagram (the slack time of activities on the critical path is zero,
of course.) The output from PERT programs includes optional Gantt charts, and
listings of activities completed and not yet started. The Microsoft application Project
Manager is well spoken of as a PERT tool. A PERT analysis is also referred to as a
bill of events.

PEST Analysis: analysis of the Political, Economic, Social and Technological

factors affecting a company.
Pest Book: An informal writing book maintained by the stores or warehouse
manager in which "visits" by pests, such as rats, cockroaches, house moths, biscuit
beetles, wasps and starlings are recorded. A sketch of the pest will be useful for the
company called in to deal with it and, perhaps, for Health and Safety Executive

Petal: A circular transport route in which the individual destinations to be visited

are spaced at relatively even intervals. Petal routes tend to be produced by route
planning software. Contrast Stem-and-Cluster.

PFMECA: potential FMECA - see FMECA.

PGA: Pin Grid Array, or (US) Professional Golf Association.

PGP: Pretty Good Privacy.

Phantom Part: A term used in relation to assemble-to-order. Normally, in

engineering production, a part that is manufactured is booked into stock for later
issue in due course. In the Final Assembly Schedule (FAS), a part is made and then
immediately further used in the on-going assembly process. That is, it has only a
transitory life (perhaps a few minutes). Consequently, it may be invalid to estimate
the leadtime of final assembly by adding up the normal individual leadtimes of the
product variants being assembled. The term Phantom Part is often confused with
Pseudo Part (qv).

Phlogiston: see Negative Stock (Entry No. 3)

PI Checking: Perpetual inventory checking - synonymous with Cycle Counting,


Pick by Line: synonymous with batch picking (wave picking).

Pick Deck: see Issue Deck.

Pick Density: When items of stock are allocated to a storage area, it is

commonsense to take into account in doing so the ease or difficulty of picking from
the various locations. However, it is a mistake merely to allocate the fastest moving
items to the easiest locations ("the golden zone"). What must be done is to optimise
the use of the golden zone, and to do means taking account not only of each item's
popularity but also of the space it occupies. A means of doing so is via the item's pick
density, D, where D = P / V. P is the popularity of the item or the number of picks per
month, and V is the "volume-movement", defined as T x C where T is the number of
items picked per month and C is the cubic volume of one unit. Items with the
highest pick densities should be allocated to the golden zone.
Pick Face: The location in a stores or warehouse where actual (physical) picking
takes place.

Pick List: see Issue List

Picking: Finding and removing stock from a storage area - generally found to be
the most expensive activity in the operation of a stores or warehouse, due especially
to the travelling time of the picker to reach the stock to be picked. See Wave

Picking (Broken Case): piece picking - ie the picking of individual items.

Picking (Voice Directed): see Voice Picking

Picking (Zonal): The division of a stock area into a number of geographic zones,
each zone having allocated to it a distinct range of stock. (A second consideration in
allocating items to a zone should be each zone's picking load.) The picking of an
order proceeds from zone to zone, the chargehand for each zone picking and
assembling the stock on the order that is stored in his zone. Also referred to as

Picking List: A list of items, their quantities and their locations, usually generated
by computer and used by the storeman or warehouseman to direct the picking of
stock. The items will typically be for a works order or a customer order. The list will
usually be sorted in order of the locations to be visited and will also specify each
item's name and, perhaps, other information including special instructions.

Picking Performance: Picking performance is usually taken to mean the speed

with which stock is picked in a stores or warehouse, typically measured in minutes
per order line. Thus if 7 orders each of 10 lines are picked in 280 minutes, this is 280
/ 70 mins per line = 4 mins / line. A common breakeven point used as a yardstick to
assess good or bad performance is 5 mins / line. It might be observed, however, that
superior picking performance measured in this way is an attainment affecting only
the stores' or warehouse's internal productivity. The picking requirements of the
facility's customers - say, production, distribution and sales - are for accuracy,
timeliness and such allied matters as correctness of paperwork, addressing and safe

Picro- : having a bitter taste or smell; also the names of derivatives of picric acid.

PICS: The first ever MRP system, developed by IBM from 1965, and introduced to
a number of manufacturing companies at the time in Racine, Wisconsin.

Piece Part: Synonymous with Part (qv).

PIP: Partner Integration Process.

Pipeline Stock: see Stock (Pipeline).

Plan-Do-Check-Action: See PDCA.

Planned Capacity: The capacity required to manufacture the materials which are
planned to be made at a work centre.

Planned Order: A plan type in Closed-loop MRP, being any plan within the
system generated by the planning logic, or arithmetical procedures, of the system
itself. When MRP is re-run after the closed-loop transactions are fed back into the
system, all existing planned orders are deleted and a new set is generated. However,
the newly generated planned orders may be identical to the previous set in timing
and quantity, so that it will appear to the system user as if the old plans have simply
been somewhat revised. The use always of planned orders in closed-loop MRP
ensures that plans are always in synchronisation and that the planner does not need
to concern himself with rescheduling messages - contrast the use of Firm Planned

Planning Bill of Materials: Just as a "physical" bill of materials (see Bill of

Materials) is a representation of the structure and relationships among products and
components as they exist in reality, a planning bill of materials is a representation
purely to assist in materials planning. Examples of material representations that
exist only for planning purposes are: pseudo items; the super bill; and the modular
bill of materials.

Planning Board: In the past, a planning board was typically a white board on
which were inscribed (down the left hand side) work centres, and across which was
drawn a Gantt chart showing the identities of jobs scheduled to be manufactured
over time (time being on the horizontal axis). The VDU output from a discrete event
APS system emulates a planning board, but with obviously far more powerful
features such as the capability for interaction. Discrete job APS systems were at one
time referred to as electronic planning boards.

Plumley Brick: The geographical area of the UK has been divided by one Plumley
into a large number of small, square sub-areas not dissimilar to post code sub-areas,
each one categorised for sales and marketing purposes according to such
characteristics as retail spending power, industrial use etc.. This division (ie into
Plumley Bricks) allows the sales company to target areas for advertising and
promotion purposes.

POD Rule (Period Order Despatch rule): A DRP system is likely to create
despatch lot quantities not synchronised with transport schedules, and then to
compound the problem caused by frequent rescheduling. In order to mitigate the
disadvantage of the system, despatch lots may be calculated equal to total required
material requirements over a period of time, each despatch to take place on a
specified date. When, inevitably, requirements change, even though the quantity to
be despatched may be different from the original quantity, use of the POD rule
ensures the date of despatch stays the same. See also POQ Rule.

POF: Plastic Optical Fibre.

Point-Factor: A quantitative job evaluation methodology. When a rate of pay is to

be established for a company job, the employment of a "point-factor"system for
evaluating it is particularly appropriate. (Market pricing is all very well, but even
though a job within the company may have the same job title as an external job,
individual jobs within industry, and the corresponding demands they make on job
holders, even with the same job title, vary considerably from one company to the
next.) A point-factor job evaluation system is a thorough means of analysing a job
from first principles, and identifying the various factors which constitute it and
which must be dealt with in its performance. After analysis, the various factors and
the degrees to which they apply in the actual conduct of the job by a job holder are
"weighted" numerically. Note that the weights to be applied are decided by
discussion, and their magnitude will be determined in part at least by how
management views the difficulties and importance of the challenges facing the
company. Factors might include: problem solving ability; willingness to assume
responsibility; and ability to plan and coordinate. The points, or weights, assigned to
factors will be graded according to the need for the factor in actually carrying out
the job (semi-routine problem; generally defined problem; abstractly defined ... etc).
The Hay System is a very well-known point-factor job evaluation procedure - see the
Hay Guide Chart. See also The Manufacturing Manager, Ch 19.

Point Solution: The use of a stand-alone Finite Scheduler for manufacturing

scheduling, rather than a more comprehensive APS system (qv).

Point to point: (1) A private dedicated leased telecommunications network for the
transfer of messages between participating company sites. Point-to-point networks
have the advantages of security and, for large volumes of traffic, low costs of usage,
but they have the disadvantages of high start-up costs, high fixed overheads and
exclusivity. (2) In England, a rural amateur horse racing meeting, the successor to
the popular steeplechasing of the 18th century (which was so called because the
routes of races were between parish steeples.)

Poiseuilles Law: A law of physics relating to viscosity and liquid flowing through a
pipe. The law relates the rate of volume of flow to the radius of the pipe (dv/dt =
Poisson Distribution: A statistical distribution developed by Simeon Poisson. The
Poisson law is also known as the law of small numbers, and may be derived from the
binomial theorem.

Poka Yoke: (Japanese = fool-proof) A formal definition of poka yoke is the

engineering of a machine, process or activity so as to make it incapable of supplying a
defective product or service. Thus poka yoke is in practice a procedure and small
canon of design rules (originally formulated by Shigeo Shingo) to make equipment
mistake-proof in operation - ie to make it difficult, if not impossible, for the operator
of a machine to make a mistake in such matters as machine control. Poka yoke is
hardly new, however. Mistake proofing was applied by Henry Ford in 1908 in the
manufacture of the Model T. Everyday consumer examples of mistake proofing are
the need to remove ones bank card from an ATM before the device will dispense
cash, and the fitting of height bars on amusement rides. Pronounced poker-yokay.

POLCA: Paired-cell Overlapping Loops of Cards with Automation, a detailed

variation of Quick Response manufacturing.

Policy Stock: see Stock (Policy).

POM: Production Operations Management.

POOGI: Process Of Ongoing Improvement (see kaizen).

POQ: See Period Order Quantity.

POS: Point Of Sale - see EPOS.

Post deduction Relief: See Backflushing.

Postponement Centre: A node within a supply and distribution network where

material in transit through the supply chain may be held for a very short time so as
to allow last minute, planned product refinements to take place. Examples of
refinements are the afixing, just prior to customer delivery, of customer-specific
labels to boxes and cans, and the inserting, just prior to export, of required foreign
language manuals into boxes containing consumer devices. See also consolidation
centre and crossdocking.

Posture: see pay posture.

POTS: Plain Old Telephone Service.

POU Stock: Point of Use Stock (qv).

PPE: Personal Protective Eqipment, used in industry when a hazard cannot be
sufficiently guarded against by other health & safety measures.

PPM: Parts per million, usually found in the context of a quality rating (ie 35 ppm
= 35 non-conforming items per million produced). Nowadays, the term often
preferred is DPMO (qv), defects per million opportunities, and the performance of a
system is likely to be expressed as "so-many sigma" - say, 6 sigma (qv).

PPPP: The four P's of change management - Purpose (reason for change); Picture
(vision of how the new state of affairs will look); Plan (key elements of the change
process); and People (what roles are to be played by employees).

PPPP + S: See Marketing Mix.

Precision: see Accuracy (also see uncertainty).

Predictive Maintenance: A component of TPM. The principal means of obtaining

warnings of possible impending machine failures is through SPC. However, the
long-term collection of breakdown data and their analysis via maintenance software
systems, as they relate to the numbers and types of adjustments made, the machine
parts replaced, and so forth, are also valuable.

Preference Share: a share issued on the foundation of a company, bearing a fixed

dividend. See shares.

Preventive Maintenance: a central and intuitive component of TPM, and

concerned with the determination of what is to be serviced and inspected, and the
periodicity of doing so.

Price Elasticity/Inelasticity: see elasticity.

Price Variance: See Variance (Price).

Primary Product: metal, crops, oil etc ... synonymous with commodity (qv).

Prime Cost: see Cost (Prime).

Priority Rule (Priority of a Job): see despatching rule, static rule and dynamic

Privity (legal): In a contract between two or more parties, the parties concerned
are said to be privy to it (for example, the supplying company and the buying
company). An outside party not privy to the contract cannot take action in law with
regard to it, even though the outside party may be directly affected by the outcome
of the contract. For example, our own company's customer cannot take legal action
against our own supplier.

PRN (Package Recovery Note): See Packaging Waste.

Pro Forma: A general Latin phrase used to mean that something has been done or
produced by way of example. It can mean the production of a "model", or standard,
document or form - for example, a model export document to be completed in a
standard way by all customers. Thus we have the term Pro Forma Invoice, an
invoice (ie a bill requiring payment) sent in advance of goods to be supplied later, or
sent with goods which are only on approval.

Probabilistic Model: In creating a simulation, mathematical or other model of a

set of procedures, such as one of a production scheduling situation, various
parameters must be defined. Examples are rates of production; job leadtimes; and
quantities of output. The model is said to be probabilistic if allowance is made in its
operation for things not going exactly as specified. For example, the production
leadtime may be input as 2:00 hours, but the model when it is run may assume the
actual time may be anywhere between 1:40 hours and 2:20 hours, according to some
probability distribution also specified in the model. See also Deterministic Model.

Probability Density Function (Continuous): When the occurrence of an event

can have a very large number of numerical outcomes, the values are said to be
continuous. Examples of an event and continuous values are the determination of a
forecast error and possible error values of (say) 5.01, 5.23, 5.32 ... The formula
needed to express the continuous values is referred to as a function. In the case of
forecasting, because of the existence of the formula, it is possible to find the
probability of an error (say) greater than 9.52. The range of probabilities
represented by the function, or formula, is termed its density. In order to make use
of the formula to find a range of probabilities, or densities, it must be "integrated"
using the calculus over the range concerned. In the case of forecast errors, this
requires the integration of the very complicated formula for the normal, or
Gaussian, distribution of errors. See Probability Density Function (Discrete).

Probability Density Function (Discrete): When the occurrence of an event can

have only a limited number of outcomes, each capable of representation by a
numeric value, the values are said to be discrete. Examples of an event and such
outcomes are the throwing of two six-sided dice and the possible scores of 2, 3, 4 ...
11, 12. If the values are expressed as a formula or in a reference table, either the
formula or the table is said to be a function ... hence the term "discrete probability
function". Because of the existence of the function, it is possible to find the
probability of any outcome of the event occurring, or the probability of any range of
outcomes occurring. For example, it is possible to find the probability of a score
from the two dice being greater than 10, or being less than 5. The outcome or range
of outcomes represented by the function is its density. In the case of the dice, the
probability of the score being over 10 is 3 / 36 (ie two possible throws of 11 and one
throw of twelve out of 36 possible outcomes (6 x 6)). If a table was used to represent
the various probabilities, it is defined as a probability density function. The sum of
the probabilities of obtaining an 11 or 12 is the origin of the term "density" in this
example. See also probability density function (continuous).

Probable Error (PE): This expression relates especially to the application of

statistics and the properties of the normal distribution to measurement, metrology
and uncertainty. It is defined as that distance for which there is a 50% probability
of a measurement between the true value and +/- PE. In metrology, in stating the
value of a measurement, one would also state the uncertainty of this measurement.
Usually, this would be quoted as 1 standard deviation (ie the true value +/- 68% of
the uncertainty). Some people however prefer to quote the 0.67 standard deviations
(ie the true value +/- 50% of the uncertainty).

Process Capability: The capability of a process to manufacture a part with given

upper and lower specification limits. Process capability measures capability over a
period of time (eg a month) so as to take into account capability with different
operators and with different external envirionments, such as temperature and
pressure. Contrast machine capabilty. See also Capability Index.

Process Control Cycle Counting: See Brooks-Wilson Cycle Counting.

Process Costing: See Costing (Process).

Process Cycle Efficiency: A metric, or measure, used in Just-in-Time / Lean

manufacture to gauge the extent to which the manufacturer has removed waste and
wasteful practice from the manufacturing cycle. Process cycle efficiency is defined
as (Time spent adding value over the production cycle) / (Total lead time of the
production cycle) x 100%. It has been asserted that that a process cannot be said to
be lean unless the process cycle efficiency is > 25%.

Process Map: a flow chart.

Process Organised Company: The management of large scale process industries

(manufacturers of chemicals, semi-conductors and so on) is usually organised round
responsibilities for one or more of the industrial processes which contribute to the
final product. These areas of responsibility are cost centres, not profit centres, and
staff are technology oriented rather than market oriented. The process organised
company is heavily dependent on central staff for coordination, communication,
marketing and maintenance of strategic direction (see hosin). Contrast the product
organised company.

Producer's Risk: The risk inherent in a sampling plan that a lot of parts that it
was intended should be accepted will, in fact, be rejected by the customer. (See also
Consumer's Risk.)
Product Availability: In engineering design and the allied study of the propensity
of a product to fail, "product availability" is a useful quantitative measure through
which this vital machine characteristic can be expressed. It is defined as (mean time
to failure)/ ((mean time to failure) + (mean time to repair)).

Product Brief: Preparation of the product brief is the very first stage in the long
and expensive process of designing, developing and introducing a new product to the
company's selling range. The product brief says what is to be developed, the market
at which it is aimed and the product's desired key features. A number of company
departments will contribute to the brief, especially marketing department, but it is
the voice of the customer that must be heard louder than them all. See also "Quality,
Function, Deployment" (QFD).

Product Design Specification (PDS): This document is a comprehensive and

unambiguous statement of the features and characteristics that a new product under
development is to have. The PDS definitely does not encompass the matter of design
solutions. Aspects covered include target performance; working environment;
expected life in service; cost; maintainability; size; weight; appearance ... Since the
Product Design Specification will be studied by personnel from many parts of the
company, it must be written in non-technical language.

Product Life Cycle: See Life Cycle.

Product Oriented Manufacture: A factory or plant which is specifically built to

accommodate the manufacture of either a single product or a very small number of
similar products. Two examples are: (1) an oil refinery, built to process crude oil;
and (2) a whisky distillery built to blend and then bottle a scotch whisky such as
"Johnnie Walker". Product oriented manufacture is characterised by being large
scale and having a high cost of construction. See also Group Oriented Manufacture
and Functionally Oriented Manufacture.

Product Organised Company: A company in which individual management

groups are assigned responsibility for specific products or group of products. The
product focussed group is usually a profit centre, and acts, in effect, as a "focussed
factory". For example, it must react quickly to shifts in market preferences and
demand. The role of central staff in a product organised company is removed from
day to day decisions, and is generally confined to such services as IT and HR. By
contrast, see process organised company.

Production Cost: See Cost (Production).

Production Forecast: (1) A term used in costing to mean the output which is
forecast to be required of a cost centre over a year. The production forecast is
calculated by exploding the annual sales forecast through the bill of materials. It is
most unlikely, of course, that actual production will be the same as the production
forecast - see Volume Variance. (2) A term used in two-level master scheduling to
denote the expected remaining customer demand for a particular option variant. In
manufacture suitable to two-level master scheduling, option variants each relating
to particular Option Types can be specified by customers, and combined to make
the final product. In order to plan the production of the alternative option variants,
estimations are made through the super bill of the popularity of the variants.
However, the actual customer orders as they turn out are likely to reveal a different
mix of variants from plan. Keeping track of actual orders for specified variants is
clearly straightforward from the orders received, but what must also be done is to
keep track of probable future orders for the various variants. Thus as actual orders
are received, the forecast for any remaining specification for a particular variant is
referred to as its production forecast.

Production Overhead: That part of a product cost attributed to indirect costs, as

opposed to the part directly attributed to manufacture.

Productivity: the degree to which a company or factory is effective and efficient in

manufacturing items for sale. It is widely agreed that high productivity is "good"
and that low productivity will lead to industrial decline. (And at the national level, if
a country's industry is in decline, the country itself might be said to be in decline.) A
major problem with productivity is expressing it quantitatively. If a measure for it
could be agreed, the elements which go to make it up might then be examined, and
action identified that would result in the decline being halted and productivity
increased. One measure that has been mooted is value added. This has its
drawbacks, however, as explained under the corresponding Glossary entry. Another
rather naive measure is "total sales per employee" (a problem with this measure is
that it may persuade staff to outsource everything!). A common measure is single
factor productivity, sfp. The sfp for Product X is defined as "Output of Product X /
Input of resources in producing X", all in £. However, for the whole company and its
complete range of products, it is necessary to speak of total factor productivity, tfp.
The tfp of a company can be calculated from averaging the individual sfp measures,
but weighting each individual sfp in the total in accordance with its individual
output in £. (For example, if the sfp of X is 1.6, and the sfp of Y is 1.2, the tfp would
not be (1.6 + 1.2) / 2 ... ie 1.4. The 1.6 and 1.2 elements in the calculation would be
weighted in accordance with the importance of X and Y in the total overall.) It is
observed that a particularly effective way to improve company productivity as
defined by total factor productivity is through the adoption of lean manufacturing
methods - not only are resources reduced, but the clearing away of stock reveals
other opportunities for improvement. Also see Benchmarking and value added.

Profit/Quantity Graph: A breakeven chart centred round Cost/Quantity/Price

Analysis (qv) illustrating the point in sales when profit equals zero (see The
Manufacturing Manager, Figure 17.34).
Profit (Gross): Turnover less the cost of sales. Gross profit is often expressed as a
percentage of turnover - for example, if gross profit = £50,000 and turnover =
£200,000, gross profit is 25%.

Profit (Net): Operating profit less other expenses.

Profit (Operating): Gross profit less distribution and administration expenses.

Profit and Loss Account: A major financial document required by law to be

completed and filed at Companies House, Cardiff, as part of a company's annual
returns. The document shows the following information for the year to which it
refers: turnover; gross profit; various categories of expense; tax payable; and
dividends distributed. See The Manufacturing Manager, Figure 17.1.

Profit Centre: An area of operating activity where the manager has responsibility
for costs and revenues.

Progress Chaser: An expeditor (qv).

Projected Available Balance: The stock of a product that it is forecast will be free
for use on successive future dates (usually consecutive future days or weeks). The
calculation of the amount is made as follows: (Free stock on the previous date) plus
(receipts into stock on the future date in question) minus (the forecast requirements
for stock on the future date).

Projected Gross Requirements: The future gross requirements for a component

or raw material, duly calculated as part of the netting logic of materials planning.

Promo: Slick talk for a promotion (qv).

Promotion: A major merchandising or selling initiative such as heavy TV

advertising, nationwide direct mailing and so on, taken by a company and its
advertising agency typically to bring to the attention of consumers a specific product
(perhaps the launch of a new car, etc.).

Prophilograph Machine: A device employing laser beams used for determining

the flatness of a floor. See Floor (Flatness of).

Pseudo Bill: synonymous with the super bill of materials.

Pseudo Part: In assemble-to-order and the modular bill of materials, it is

convenient to refer to customer options collectively as "parts" - an example is a car
"sports pack". In fact, while the "part" may make sense from the customer's point
of view, the individual parts needed to provide the option bear no physical
relationship to each other, even in combination. For example, the sports pack may
comprise body stripes, a leather covered steering wheel, a rear spoiler and fluffy

PTFE: Polytetrafluoroethylene.

PTH: Plated Through the Hole.

PTN: Post Tender Negotiation - see Tender.

Pull Manufacture: Manufacture the rate of which is strictly and directly geared to
the immediate requirements of the next stage of production, such requirements
being directly communicated by the next stage. The expression is usually used in the
context of Just-in-Time - ie manufacture is synchronised to market demand and
controlled by the kanban system of visual control.

Purchasing: a major, critical speciality within manufacturing industry. For a

complete analysis of purchasing, see the Course Notes relating to GMCS's 1-day
training course on the subject at

Purchasing Time Horizon: In formulating the master schedule, a sufficiently

distant period ahead must be specified to enable raw materials to be acquired in
time. However, the leadtime of supply of a raw material will be different depending
whether it is a repeat order (a "warm start") or whether it is a new order requiring,
say, prior price negotiation and the establishment of various procedures (a "cold
start"). Note that in addition, the purchasing manager may wish to see approximate
raw material requirements over a very long period for purposes of supplier
negotiation and strategic planning.

Push Manufacture: A faintly humorous term intended to contrast scheduled

manufacture with pull manufacture (qv). That is, in making up a schedule, the
quantities and timing of requirements are calculated according to an overall plan,
and success means sticking to the plan regardless of actual current requirements at
the various stages. In addition, in push manufacture, any excess stock resulting from
lot sizing is naturally moved on to the next stage of use regardless of the fact that
there is no immediate requirement for it there.

Put Away Rules: Rules relating to the placement of stock in a stores or warehouse
after its arrival there from goods-in or from the shop floor. The rules are especially
critical where the storage facility is a variable location one (qv), so that decisions are
made within the software. (A computer program used for this purpose is referred to
as a "put away algorithm".) Two simple rules are: goods with the highest pick
densities (qv) in easily picked locations ("the golden zone"); and put goods as near
as possible to existing goods of the same type.
PVD: Physical Vapour Definition - a method of applying a superior brass-like, high
shine protective surface to metals such as polished stainless steel. PVD is expensive
and employs vacuum treatment and annealing,

PWA: Printed Wiring Assembly.

# A B C D E F G H I J K L M

Q Chart: see Quality Score Chart.

QA: Quality Assurance.

QA Standard: see Check Standard.

QC Standard (aka QC Sample): see Check Standard.

QE: Quantum Efficiency.

QFD: See Quality, Function, Deployment.

QIP: quality improvement process.

QIT: quality improvement team.

QMS: Quality Management Systems, a term used in the ISO 9000 : 2000 set of
procedures (qv).

QR: Quick Response - a term similar to Mass Customisation, denoting the quick
final assembly of customer options in Assemble-to-Order. See Final Assembly

QRM: Quick Response Manufacturing - a term similar in meaning to Mass

Customisation, denoting the quick final assembly of customer options in Assemble-
to-Order. See Final Assembly Schedule.

QS 9000: A set of procedures, controls and required documentation issued in 1994

jointly by Chrysler, Ford and General Motors, incorporating ISO 9000 : 1994 plus
60 further provisions. The three companies insist that their "first tier" suppliers
(qv) should attain accreditation in this standard. The forerunner of ISO TS 16949.

Quadratic Sum (or Sum in Quadrature): the quadratic sum of two numbers is
obtained by squaring them, adding the two squares, and taking the square root of
this sum. Thus for x and y, it is (SQRT(x**2 + y**2)).
Quality: There are numerous definitions of this phenomenon including the
following: (1) the totality of features and characteristics of a product or service that
bear on its ability to satisfy stated or implied needs (BSI); (2) conformance to
requirements (Philip Crosby); (3) a predictable degree of uniformity and
dependability, at low cost and suited to the market (W. Edwards Deming); (4) fitness
for purpose or use (Joseph M. Juran); (5) a system of production methods which
economically produce quality goods or services meeting the requirements of
customers (Japanese Industrial Standard). For other definitions, see The
Manufacturing Manager, Chapter 13.

Quality of Conformance (to Design): an assessment as to how closely the design

of a newly developed product matches the design goals encapsulated in the "Product
Design Specification" (qv).

Quality, Function, Deployment (QFD): (Read this title as three separate, semi-
independent words.) QFD is a product development technique intended to ensure
that what is finally produced is truly wanted by the customer. Four stages are
involved, each involving a matrix drawn on a very large sheet of paper. In Stage 1, a
QFD team writes out customers' desires, or wishes, as short phrases on the vertical
(left hand) scale of Matrix 1, and on the horizontal (top) scale writes out how these
desires are to be satisfied (ie the customers' needs). At Stage 2 a second matrix is
drawn up with the needs from Matrix 1 now drawn vertically on the left scale. The
team completes the matrix by entering the design features needed to satisfy them on
the horizontal (top) axis. At Stage 3, yet a third matrix is constructed with the design
features from Matrix 2 now vertically on the left. The process requirements needed
to fulfil these features are entered horizontally at the top. A fourth matrix is finally
constructed at Stage 4, this time with process requirements vertically on the left, and
process control requirements horizontally at the top. The technique was originally
developed by Yoki Akado in 1966. For a good description, see Quality, Function,
Deployment by R.G.Day (1993).

Quality Grades: In the process industries, it is possible for the operation of the
production process to result in the production of a grade of material other than
"grade 1". In these circumstances, it is essential that the stock record of the
appropriate grade should be augmented to show stock quantities by individual
grade. See The Manufacturing Manager, Sub-Section 9.4.6.

Quality Lever: imagine a see-saw (which is a lever, of course) that is 10 feet long,
and which is rested on a fulcrum 8 feet from the end. Now imagine three points on
the long end of the see-saw which are 8 feet from the fulcrum (point A), 6 feet from
the fulcrum (point B) and 4 feet from the fulcrum (point C). The effect of a force on
the short end of the see-saw exerted at point A is very considerable; the effect at
point B is less so; and the effect on the short end exerted at point C is least. The see-
saw is the quality lever. At the short end, we have the quality attributes of a product
or service. At point A we have the effect on these quality attributes of product design.
At point B we the effect on quality of process design. And at point C we have the
effect of design for manufacture. See especially Taguchi.

Quality Score Chart: A variant of the Demerit Chart, in which an undesirable

quality attribute is given a score depending on the severity of its manifestation (eg
small hole = 5, medium hole = 10, large hole = 20 ...).

Quantity per: See Usage.

Quantity Variance: See Variance (Volume).

Quantum Meruit (legal): Latin for "as much as he has deserved" - an agreement
or court ruling that a buyer should pay proportionately for the work that has been
done or the goods that have been delivered. For example, if only 600 units of an
order for 1000 units are delivered, under a quantum meruit settlement, the buyer
will simply pay a 60% portion of the bill. Sometimes, quantum meruit is not
acceptable: for example, here, the contract may state that it is absolutely essential
that the full 1000 units are to be delivered. The 600 units are not acceptable - they
are returned, the buyer pays nothing, and sues in the courts for breach of contract.
See severable/non severable agreement.

Quarantine Area: A factory area associated with either the shop floor or goods-in
area in which stock is to be held pending its investigation with regard (usually) to

Quarantine Stock: see Stock (Quarantine).

Queue(1): (See also Queue (2) below). Work in progress physically present at a
work centre, waiting to be loaded onto the machine for processing. Hence queue
time, a major component of production leadtime in many factories (typically, queue
time constitutes 90% of total lead time). While some degree of queue is usally
welcome on the shop floor, to ensure men and equipment are kept busy, total queue
should be carefully managed to strike a balance between WIP and activity. This is
achieved in many factories through Input/Output Control (qv) - the principle that at
the gateway work centres, no more work goes in than comes out. A graph showing
the relationship between queue size and the percentage occupation of a work centre
is given in The Manufacturing Manager, Chap 11.

Queue (2): (US terminology = waiting line). Queues are a phenomenon of everyday
life and require to be considered carefully by operations managers responsible for
providing service to customers - queues for service at banks, queues for airline
passengers, queues for petrol pumps etc.. Two examples of queues in industry other
than in definition (1) in this Glossary above are (1) queues of shop floor staff for a
central tool service, and (2) queues of suppliers' vehicles waiting to unload goods at
the stores or warehouse. The general approach to managing queues is to provide a
service such that the total cost of the queue plus the cost of providing the service is
minimised. In the example of the central tool service, the cost of the queue is
represented by the idle time of shop floor operators queuing for service, while the
cost of service is the cost of providing central tools staff needed to provide that
service. Operational theory relating to queue management is extensive and Glossary
readers are referred to the many texts on Operations Research. Some of the terms
encountered in this theory are as follows. The calling population: the units or people
wanting service from the queue, such as staff wanting a tool or suppliers' drivers
waiting to be unloaded. The calling population may be considered to be infinite (eg
suppliers) or finite (shop floor employees). We also need to know the characteristics
of the calling population - ie the time between arrivals. It is generally observed in
queuing theory that the rate of arrivals for service is Poisson distributed. Finally, we
must also decide the length to which a queue could grow (it is unlikely that a queue
could in reality grow to infinite length - in the case of a petrol pump, for example,
car drivers would be reluctant to join a queue greater than one vehicle!) The next
term is the service facilty - ie the entity providing the service. Options here might be
a single-channel system (ie one provider of service) or a multi-channel system (many
stations each providing service). As well, we must also state the "queue discipline"
(are some members of the queue to receive priority, or is it strictly FIFO?). Finally,
what length of time does the actual provision of the service finally take (ie after
reaching the head of the queue)? The general assumption here is that the variation
in duration of actual service provision is exponentially distributed. The theoretical
calculations involved in describing queues and determining the least cost option to
providing service are not especially difficult if it is assumed that all the variables
such as arrival distribution and service time are exactly as in the text books.
Because, of course, they never are, the approach to queue management taken in
industry and commerce is to set up a simulation model. The simulation model allows
the user to specify any characteristics of the queue that he wants, and to "observe"
the effect of various options on queue size and queuing duration, by simulating
matters over any desired length of time. There are several proprietory simulation
models on the market, some illustrating the results of the computer processing with
coloured animation. An example of the use of simulation is in determining the
number of receiving and despatching docks to be provided in a new warehouse. Any
Glossary reader who is to embarking on a simulation to be conducted on his behalf
by a consultancy service should remember that he should first determine
beforehand precisely what data the consultancy requires to conduct the

Quick Response (QR): the ability to respond quickly to a customer order for a
highly differentiated product with many options - see FAS and Two-Level Master

qv: quod vide (Latin), meaning "which see", an instruction directing the consultant
of a term in this Glossary to a further reference elsewhere.
# A B C D E F G H I J K L M

R & D: Research & Development.

Race, The: A follow up book to The Goal, qv.

Racking (Cantilever): Warehouse or stores racking in which the shelving on

which the goods rest is supported at the rear of the rack. Since there are no front
supports, the shelving is suitable for long objects such as pipes and planks.

Racking (High Bay): Racks which are, say, 70' to 200' high. Automatic stacker
cranes are used to store and retrieve material, usually along narrow aisles. Narrow
aisle high bay racking is costly to install and maintain, but provides high density of
storage and good security.

Racking (Mobile): Racks which can be moved, allowing very dense storage when
closed up, and access to stock when the racking is moved. Perhaps used for very
long-term low use storage, such as military field spares.

Racking Safety: Racking safety is a vital on-going topic for the stores or
warehouse manager. There are a number of courses in the UK on the subjecty - see
SEMA and also the Storage Equipment Safety Service website.

Racking System: A honeycomb of pallet spaces, perhaps one space deep and (say)
35' high.

Radio Bar Codes: loose talk for Radio Frequency Identification codes (see RFID).
The term is often used by Tesco,

Radio Data Terminal: see RDT.

Radio Frequency Identification: see RFID.

Rainmaker: slang for a talented, go-getting employee.

RAMP: Rapid Acquisition of Manufactured Parts, a procedure associated with

EDI for notifying to a supplier that parts are to be despatched immediately.
Random Location Storage - see Variable Location Storage.

Range: Usually, the difference between the smallest and largest measurement in a
sample. The range is used in Statistical Process Control (SPC) and is plotted on a
variable control chart - see The Manufacturing Manager, chap 14.

Ranking (of Jobs): A qualitative job evaluation technique whereby the jobs to be
ranked in order, from those that are to have the highest rates of pay to those to be
awarded the lowest, are simply ranked against each other in order (1st, 2nd, 3rd ... ).
Clearly, in order to carry out the ranking, job criteria must be decided.

Raw Material: the products constituting the starting step in manufacture, and
from which all subsequent manufactured items stem. Raw materials are obtained by
buyers as part of the purchasing process, and occupy Level 99 in the levelled bill of
materials - see Low Level Coding.

RBD: Reliability Block Diagram, in design quality, a failure avoidance


RCA: Radio Corporation of America.

RCCP: See Rough Cut Capacity Planning.

RDT: Radio Data Terminal - a small device, often hand-held, used in process
monitoring and stores/warehouse control by which data may be transmitted to a
computer, or received therefrom, by means of a radio link rather than by means of a
co-axial cable. An RDT may weigh 15 oz, and have, say, a 128 character VDU
display, a limited key pad, a 12 hour rechargeable battery, a bar code wand and a
range (to the computer) of 5 miles.

Real property: land and buildings.

Receipt (of Goods): When goods are delivered from the physical possession of a
supplier or haulier to the physical possession of a customer, they are said to have
been received by the customer. There is no legal significance in such receipt of goods
beyond the duty of the recipient in common law to take reasonable care of them (ie
not to damage them or store them in unpropitious circumstances). Contrast
Acceptance and Title.

Recipe: A term used in the process industries to mean the immediate components
(ie ingredients) of a manufactured product, including the usages of each of them.
Not surprisingly, there are a number of terms relating to the bill of materials which
differ as between engineering and process industries - for example: yield v. scrap;
usage v. quantity per; recoveries; by products; etc... see The Manufacturing
Manager, Chapter 9.
Recoveries (in Materials Planning): A product may take part in a
manufacturing process, but may then be either wholly or partly recovered at the end
of it. Examples are solvents (perhaps 97% recovered) and catalysts (100%
recovered). See The Manufacturing Manager, Figure 9.9.

Recruitment: In human resource management, the act of identifying groups of

personnel, either elsewhere in the company or, more usually, in the external labour
market, and presenting them with the opportunity to apply for vacant jobs within
the company. Recruitment requires knowledge of advertising effectiveness and costs,
and, after due consultation with local management, the need to prepare advertising
"copy" (the wording in advertisements). Recruitment is undertaken exclusively by
HR staff, in contrast to "selection".

Recursion: Recursion occurs when a computer program calls itself - that is, there
is an instruction in Program X which states "Call Program X". Recursive
programming is widely used in analysis of the bill of materials - for example, the
programming action to be taken at one level of the bill is precisely the same as the
action needed to be taken at the next level down, and so on all the way down to the
raw materials. Not all programming languages support the technique of recursion -
for example, Pascal, C and PL/1 do, COBOL, FORTRAN and BASIC do not.

Redundant Stock: see Stock (Redundant).

Reed-Solomon erasure and error correction: A specification employed with 2-

D bar codes which allows part of the bar code to be destroyed while still preserving
the original information.

Re-engineering (of a company): A concept developed by Michael Hammer and

James Champee in the 1990s predicated on the ideas that the company (1) should
widen the span of control of its managers, and (2) should seek to reduce the extent of
its bureaucracy (for example, by reducing the number of tiers of its hierarchical
structure). In short, re-engineering the company, according to its advocates, is to
make it leaner and flatter.

Regenerative MRP: After the input of transactions in the closed-loop MRP

system, perhaps at the end of each day, a regenerative MRP system will
automatically recalculate the entire materials plan. Planned orders will be
rescheduled, and open and firm orders may generate rescheduling instructions.
Contrast Net Change.

Release: The action of authorising a works order to proceed to the shop floor to
commence manufacture. In closed-loop MRP, the release of either a planned order
or a firm planned order will change the order's status to that of "open" (ie to that of
a scheduled receipt). Other activities will also be initiated, such as the generation of
shop paperwork such as an ID card and the issue of component kitting instructions.
Reliability: The tendency of a product to continue to work and perform
satisfactorily despite chance events and changes in its operating environment. The
achievement of reliabilty in the product is a prime objective in product design, and
is investigated formally through FMECA (qv). See also Failure Rate, Failure Mode
and Product Availability.

Remnant Stock: see Stock (Remnant).

Re-Order Point: See Order Point.

Repairable Item: A tool, fixture or other item used in manufacture, and which is
repaired or refurbished prior to its reuse. Repairable items have associated with
them repair leadtimes.

Replenish to Demand: See Make to Order.

Reporting Logic: The messages output by closed-loop MRP advising the planner
as to the need to reschedule open and firm planned orders, in order to restore the
equilibrium of demand and supply within the materials plan.

Representation (legal): A statement made by one party regarding some aspect of

a bargain or sale, although the matter that is represented is not itself directly
incorporated in the contractual terms - see Misrepresentation.

Res Ipsa Loquitur (legal): (Latin: the thing speaks for itself) An assertion in court
in, perhaps, a case involving personal injury, that it is self evident that the only
possible explanation for an employee's injury was the defendant's negligence. An
example might be an employee injured by a tool shattering in use, the defendant
being the tool manufacturer.

Rescission (legal): Rescission means the rescinding of a contract - ie the anulling

and abrogation, or termination, of a contract. Such action is often taken by one
party following the discovery that the other party has misrepresented the facts. If
possible, the innocent party - ie the party rescinding - should be returned to the
same financial position it had before the bad contract was agreed. If that is not
possible, the court may rule that the contract cannot be rescinded and must, in fact,
continue. Rescissory (adj.) = having the effect of rescinding.

Resource Requirements Planning: The initial stage in the formulation of a

master production schedule is termed "sales and operations planning" (qv). Since
there is no direct check of the viability of the sales and operations plan at the point it
is created, in terms of capacity or other resources such as manpower, an after-the-
event estimation is made of the plan's do-ability through resource requirements
planning. Like rough cut capacity planning, RRP is not a specific technique - it is
merely the action taken by a particular company to test the validity of its proposed
Sales and Operations Plan. It is called what it is because the personnel involved in
sales and operations planning are senior managers who are therefore able to acquire
new "resources", such as additional machinery, money and labour.

Response: The reaction of a system to a stimulus. The reaction is manifest in the

form of a response variable, defined as an observed, quantifiable outcome of an
experiment or test. Such an outcome is usually a quality characteristic or other
performance measure of a process or system. A response plot or response diagram is
a simple graphical plot illustrating the relationship between a response (denoted on
the vertical axis) and a factor A (set between various limits as enumerated on the
horizontal axis). The value of a response plot is in showing, on the same plot, how
response varies with factor A (1) in the presence of a second factor B, and (2) in the
absence of the second factor B. See Design of Experiments.

Restrictive Trade Practices Act (1956): An Act of Parliament making price

fixing agreements illegal.

Retail: The practice and sale of goods through shops and markets frequented by
everyday consumers.

Retail Audit: the conduct of market research in the retail market. Researchers
typically take inventories of the shelves and stock rooms of shops and supermarkets
(with permission - and usually paying a small premium to do so). Well known
market research companies conducting retail audits are A.C.Nielson and Dun &

Retention Clause: A provision in a contract, typically involving large scale

construction or the purchase of a major piece of equipment made to order, which
permits the buyer to hold back part of the payment until the project is deemed to
have been satisfactorily completed or the equipment is deemed to be operating as it
should. The amount retained is typically 5% or 10% of the price, and the retention
duration perhaps 6 months. See Stage Payments.

Retrofitting: the fitting of a part to a sub-assembly after the logical sequence in

which the part should have been fitted, usually because of the part's unavailability
at the correct time.

Returns Management: To varying degrees of generosity, retailers and others have

long operated "open returns policies", whereby dissatisfied, or sometimes dishonest,
customers may return goods for refund or exchange. Reasons for returns may be
that goods are faulty, or that they do not comply with the customer's home
environment (colour, size ...) or that the expense of the purchase is later seen to have
been unwisely incurred. The problem is large and ever more complex as out-of-town
stores increasingly diversify into areas each outside its core competence. The
management of returns follows four steps: 1. collection, often using the same
network employed for the original distribution of the goods (*); 2. assessment of
damage - missing pieces, torn packaging etc; 3. categorisation, a team activity calling
for a high degree of consistency and experience; 4. re-distribution, back to the
original suppliers, or to stock, or for discount sale, or for scrap. Note that consumers
who wish to check their rights in these matters should visit and follow the links to "making a complaint".
(*Warehouse managers are aware that returns represent a considerable theft risk
that must be countered by ensuring that they are attended to quickly and always in
accordance with procedure.) Note that from 1/10/2005, new "General Product
Safety Regulations" came into force in the UK covering the safety of products used
by consumers, including second hand products. (Visit ... this web sites gives access to current
recall notices issued by a variety of companies ... follow the site link entitled
"product safety notices/recalls") The principal two burdens placed on industry
under these regulations are as follows: (1) Safety Notices - government authorities
themselves can issue various safety notices, suspension notices, withdrawal notices
etc, forcing the recall of products from the market, and (2) Producer and
Distributor Notification Obligations - there is a requirement to notify the authorities
when it is found that products do not comply with general safety requirements and
to state what actions have been taken to protect consumers from harm. Such
notification must be immediate and, in emergencies, by the fastest possible means.
As a final point, in a warehouse management system, it is important that any
transaction dealing with a return does not automatically add it to the positive stock
balance. While it may be necessary to issue a customer a financial credit, the
returned stock is not immediately available - as stated above, it will need to be
assessed and dealt with first. One solution may be to invent a "logical" location
entitled awaiting assessment and credit the stock to that location. See also Reverse
Logistics and WEEE.

Reverse Logistics: (1) After manufacture, especially specialist made-to-order

manufacture, it may be necessary to return tools and jigs on loan from the customer
to his place of work. It may also be necessary to return unused free issue
components. The arrangement to return such items has been half humorously
termed reverse logistics. (2) The term is also used with a humour that is quite
unintentional to mean the "logistics" associated with certain environmental and
marketing requirements. These are to make provision for the return of stock to its
source after its initial distribution. There are six reasons why reverse logistics in
these two categories might be necessary: (i) the need to recall products that are
found after sale to be inherently faulty and dangerous; (ii) the perceived need to
reprocess the basic material from which the product is made (for example, as in the
disastrous Packaging Waste regulations and the WEEE regulations, both spawned
by the bureaucrats of the European Union); (iii) to reuse the product (eg in the reuse
of bottles and containers); (iv) to replace or repair items having defective quality;
(v) to permit the return of excess stock, especially from retailers; and (vi) to allow
the return of discontinued product lines. (3) The term has also been (wrongly)
applied to Returns Management and the return of goods by consumers for their own

Reverse Sampling: In dispensing items from a store by weigh counting, suppose a

storeman needs to pick 500 units of an item which he calculates will have a weight of
w1. Suppose that a case of 1200 of these items is available and has a weight of w2,
including the tare weight. To pick 500 units from the case, units are picked from it
until its weight falls from w2 to (w2 - w1).

Reward Management: The control and administration of the systems and

procedures devised by the company for determining the pay of all those who work
for it. Reward management is a major topic within the manufacturing company and
within human resources generally. Essential requirements of the systems and
procedures developed are as follows: (1) they must cover all jobs, from the least paid
to the highest paid, spanning a diversity of skills and learning; (2) they must be
internally consistent and lead to the assignment of consistent rates of pay; (3) they
must not be excessively difficult to develop and administer; (4) they must lead to
rates of pay which appear to employees to be "fair", and which are comparable with
the rates prevailing in the external jobs market. See especially pay structure. Also see
The Manufacturing Manager, Section 19.2.

Rework: Works orders or components which are having to be corrected by further

machining and manufacture. A Rework Department is (hopefully) a small work
centre responsible for carrying out and managing rework. Not only is re-work a
glaring example of manufacturing waste and bad quality (*), it is also observed that
typically the most talented shop floor operatives are often assigned to its conduct,
this representing yet further waste. (Note also that a cause of yet further quality
trouble may be the failure of management to institute and enforce standard quality
management procedures in the rework unit itself.) A survey in the December 2000
issue of Industry Week(US) revealed that in US manufacturing, rework and scrap
costs exceeded 1% of sales revenue in 77% of companies. See also Spoilage, Yield
and Scrap. (* Note that if a process is not capable of producing 100% conforming
parts - ie its capability index is less than 1.0 and simply cannot be improved - a
certain fraction of non-conformances may be accepted, with output then subject to
100% inspection and rework. There are instances in the food and process industries
where 100% good quality cannot be obtained.)

RF: Radio Frequency.

RFDC: Radio Frequency Data Communications.

RFID: Radio Frequency Identification. The attachment to a product of a

transponder bearing the product's code and other data, to enable the product's
identity to be recorded on an electronic scanner positioned some way from it. RFID
tags and labels are being increasingly used for the identification of stocked items in
industry the way that bar codes are used in retail. They were originally developed
for use with live animals, and have the advantage that they can be afixed to objects
of irregular size or shape. Equally importantly, they can be read without the
establishment of a line of sight. RFID tags are categorised as active or passive. Active
tags contain their own power source (ie a battery) to help boost power and range,
while passive tags rely entirely on the electric field created by by the tag
interrogator (ie reader). RFID tags are capable of holding far more data than a 1D
bar code, and the data so held is capable in some cases of being updated. The cost of
tags and their technical range and performance are currently matters of intense
research and development. See also ePC, Gen 2, ALE, AEN and (particularly)
Smart Label. Glossary readers interested in following up this subject are reminded
that the DTI holds 1-day courses on the subject in Bracknell, Berkshire - visit the
DTI's RFID website at

RFQ: Request For a Quotation - an approach by a buyer to a supplier for

information as to price and conditions for a specified good or service. Also RFI =
request for information.

RFP: Request for Proposal - a proposal may be solicited from, say, a contractor or
capital goods supplier, the proposal then forming the basis of a subsequent contract.
Pitfalls in preparing an RFP are: (1) making it too simplistic, omitting the detail that
would enable the vendor to prepare an accurate reply; (2) basing the RFP on wildly
inadequate forecasts of future needs; and (3) omitting consideration of set-up issues.

RGB: Red, Green and Blue.

RIBA: Royal Institute of British Architects.

Rights Issue: a company may wish to raise money other than at its foundation in
order to expand its business. It may do so by issuing new shares, offering them in
the first instance to existing shareholders, usually at a preferential rate. See shares
and see The Manufacturing Manager, Chapter 1.

RISC: Reduced Instruction Set Computer.

RISE: A problem solving methodology comprising four steps. R = Recognition

(what is the problem?); I = investigation (find the root cause of the problem); S =
Solution (fix the root cause - permanently!); E = Evaluation (what has been learned
that can be transferred elsewhere?)

RIU: Regulatory Impact Unit (formerly the Better Regulation Unit) ... a
government organisation connected with the HSC/HSE (who else?) with a name to
make you weep.

RMS: root mean square, the root mean square of a group of numbers being
identical to their standard deviation.
Robot: A machine controlled through a computer program, inputs to the program
usually emanating from sensory devices attached to the robot itself (video, audio and
tactile). The robot typically comprises devices and attachments capable of
performing the functions particular to its own design - say, gripping; picking and
placing; moving; and so forth. There are some 350 different types of robot employed
in industry, varying in cost from £100 to £100,000.

Robotics: The technology of applying robots in the performance of tasks previously

undertaken directly by human beings. The usual aim of robotics application in
manufacturing industry is to eliminate manual tasks which are dangerous,
monotonous or especially arduous.

ROC: Return On Capital, usually defined for an individual company as (net

profit)/(value of assets), where assets are the sum of fixed assets and current assets.
Thus with a profit of £1m and net assets of £10m, the ROC as a percentage is 10%.

Rodger's Seven Point Plan: A procedure put forward in 1970 by Alec Rodger for
assessing a job candidate at an interview. See also Fraser's Five Point Plan.

RoHS: Restriction of the Use of Certain Hazardous Substances in Electrical and

Electronic Equipment. Hurrah! - another EU directive from Europe and the Health
& Safety Commission which becomes law in July 2006, to make us all a little safer
and to make Britain a little less competitive. The RoHS regulations ban the sale in
the EU of new electrical and electronic equipment containing more than decreed
levels of such potentially harmful substances as lead, cadmium and mercury. The
onus on British industry clearly falls on designers and manufacturers of such
equipment rather than users. See also WEEE.

ROI: Return On Investment.

ROIC: Return On Invested Capital.

RON: Research Octane Number.

RONA: Return On Net Assets.

Root Mean Square: the RMS of a group of numbers is identical to their standard

ROP: Re-Order Point - see Order Point.

Rotational Tool: A tool or or device that can be repeatedly restored to its original
condition after use in a production job. The elapsed time for restoration must be
taken into account in scheduling, and, as far as equipment maintenance is
concerned, the fact must be accepted that the tool does in fact gradually deteriorate.
Rough Cut Capacity Planning: The schedule itself which constitutes the Master
Production Schedule is generated by an arithmetical procedure which takes no
account direct or otherwise of the resources and capacity either to make the planned
material or to make the components needed to support final manufacture.
Consequently, before the final release of the Master Schedule as a company
plan/commitment, some after-the-event check must be made to ensure that there is
sufficient capacity and that it is capable of being made. Any such checking is termed
rough cut capacity checking. Note that rough cut capacity checking is not a specific
technique, although software vendors may claim that their own versions are
standard methods. RCCP is anything the company or software house devises in
order to do the job of investigating and ensuring that the Master Schedule is feasible
from the capacity viewpoint. There are, legitimately, wide differences from company
to company in the thoroughness of their rough cut methods. See also Resouce
Requirements Planning. Also see The Manufacturing Manager, Chapter 6.

Route: A sequence of operations - and the locations where they are to be performed
- which is followed in the course of manufacture of a specific shop floor job. A route
will be given an identification number and will specify the work centre / machine /
operation of each step along the way, and also the identity of any special tools
needed. Routes are recorded on the Routings File (qv).

Route Planning: Route planning as it is meant here is not the finding of a

particular map route from A to B, as might be required by an everyday motorist.
Here, it is the application of a computer algorithm for planning the routes of a
number of vehicles to many destinations in such a way as to minimise the total
distance travelled or to minimise the total travelling time. Note that route planning
software optimises the totality of all the routes planned, taken together, not the
individual routes of the individual vehicles. The algorithm relies on the Savings
Criterion principle (qv).

Router: in communications technology, a device which connects a computer to the

Internet and which permits such things as the sharing of broadband connection with
other computers throughout a building.

Routing, Blanket: a routing that lists a group of operations etc which are needed
to produce a family of manufactured parts. The parts may have small differences in
size, times and tool requirements, but each uses the same sequence of operations.
See Routings File.

Routing, Composite: a routing that lists a group of operations etc needed to

produce a family of manufactured parts, but all of which operations are not used for
all of the parts. (The operations used by a specific part will depend on its particular
characteristics.) See Routings File.
Routing, Rework: a routing that shows further work needed to be done over and
above the normal operational steps in order to correct a quality fault. Usually, a
rework route is raised on an ad hoc basis as circumstances arise. However, where
there is a permanently high reject rate in manufacturing, the rework route may be
made permanent. See Routings File.

Routings File: A file, each record of which holds the details relating to a particular
route (qv). The accuracy of the routings file was not a critical matter under MRP;
with an APS, however, the routings file must be 100% accurate, since an APS
specifies the details of the hour to hour work to be performed. Obtaining and
maintaining 100% accuracy can be a problem: it is usually best if the file is made
the responsibility of a named manager, perhaps someone skilled in work study.

ROV: return on value (= return on capital).

RP: Repairable Period - the elapsed period from the point in time when an item of
equipment breaks down to the point when it is returned and reinstalled after repair.

RPM: Revolutions Per Minute.

RPN: Risk Priority Number, a term encountered in FMECA. The RPN is obtained
by multiplying the Risk Severity score (1 - 10), by the Probability of Occurrence
score (1 - 10), by the Risk Detectability score (1 - 10). Problems which are more
serious incur a higher RPN. The sum of all RPNs gives the total risk figure for the
process or service under consideration/design.

RRM: Rapid Response Manufacturing.

RRP: See Resource Requirements Planning.

RSC: Retail Service Centre.

RTD: Research and Technical Development.

RTLS: Real Time Locator System. A system in which the location of an object is
revealed by the attachment to it of an RFID tag.

RTRT: Repair Turn Round Time - see Turn Round Time.

RTY: Rolled Throughput Yield, a measure used in Six Sigma. See also DPMO.

Ruhr: A major coal, iron and steel area of Germany.

Run Time: The duration of a manufacturing job's leadtime is comprised of a
number of distinct activities. One such activity is actual, literal manufacture on the
machine - ie running the job. Thus run time is the time needed for actual, physical
manufacture, from start to finish.

Runners: Shop floor jargon for products made on a frequent basis.

Rush Order: A job usually accepted to be done in far less than the normal
leadtime, often as a favour to a valuable customer. The job is assigned constant high
priority and is given maximum attention by the supervisor.

Rx: receive
# A B C D E F G H I J K L M

5S: see SSSSS.

S&OP: see Sales and Operations Planning.

S Curve: see below.

SAB: Starting available balance, a term sometimes used in materials planning to

mean what it says - ie stock on-hand which is available for immediate use (as
opposed, say, to stock on-hand which has been allocated to a specific job).

Safety Stock: see Stock (Safety).

Safety Time: (1) one meaning is the duration of time that materials are planned to
arrive before their need date - for example, a safety time of 5 days might be placed
on a raw material required date, hopefully to make sure the material really will be
available when it is needed. The concept of safety time is rightly looked down on by
companies that pride themselves on OTIF deliveries. (2) the length of time it is
estimated that safety stock will last.

Sale of Goods Act 1893:

Sales and Operations Planning (S&OP): "Organised common sense!" Towards

the end of the month, the old master schedule must be replaced by a new one taking
account of the passage of time, new sales forecasts and other revised facts and
figures. Formulation of the new master schedule takes place in two stages. Stage I is
referred to as Sales & Operations Planning. Its purpose is to begin the reformulation
at a high strategic level - ie at a level considering overall, long-term stocking levels;
general economic prospects; and resources such as manpower and, especially,
money. It is vitally important for the credibility of the process that senior
management should direct the S&OP. However, since senior managers have neither
the time nor knowledge of the detail to work at the level of individual products and
work centres, S&OP must usually be conducted at a broader level, typically that of
market product groups. Different companies will have different ways of conducting
Sales & Operations Planning, but to be performed acceptably, all must have one
common factor - namely that senior managers take responsibility for the process
and its outcome . See also Resouce Requirements Planning. Also, you may purchase
the Course Notes relating to GMCS' course on Master Scheduling - visit

Sales Demand: See Demand (Sales)

Sales Forecasting: Companies do not usually forecast sales, they forecast demand.
What they sell will depend on demand, stocks and the master production schedule.
This is not a pedantic point - see the Glossary definitions of Demand (Latent) and
Demand (Patent). Also, see especially Demand Forecasting which gives a short list of
prominent forecasting software packages.

Sales Order Processing (SOP): The activities which are put in train on receipt by
the company of a customer's order are quite critical. How well procedures are
carried out directly determines the perception of the company in the customer's eyes
- their smoothness and efficiency, and the correctness of the clerical work, for
example. They also lead to the (hopefully) efficient actual fulfilment of the order
itself by the numerous staff involved. Thus participating departments and sections
include: the sales office; stores and despatch; stock replenishment; invoicing and
accounts; and transport/distribution. See The Manufacturing Manager, Figure 2.5.

Sales Replenishment System: synonymous with Fixed (Re-)Order Point System,


Sample Mean: Suppose some characteristic is measured in relation to an item - eg

the item's diameter. Then, if a sample of, say, 5 such items is withdrawn from the
"population" of them, and the chosen characteristic measured for each of the 5
members of the sample, the sample mean is the mean or average of the 5
measurements taken.

Sampling: the taking of a small number of units (the sample) from a large
population of units, the sample being as representative of the population as possible
(ie by avoiding bias in selecting the members of the sample). The relationship of the
characteristics of the sample to the characteristics of the population as a whole can
be computed by statistics, enabling inferences to be drawn about the population -
this being the purpose of the whole procedure. See the seven Glossary entries under
"Sampling" immediately below.

Sampling (Double): Randomly selecting a specified (*) quantity of n1 units (the

first sample) from an incoming lot of materials of size N, and 100% inspecting it. If
the number of non-conforming parts in the sample is less than or equal to
acceptance criterion c1, the incoming lot is accepted at once (ie a second sample is
not taken). If the total number is greater than acceptance criterion c2, the incoming
lot is rejected at once. If the number of non-conforming parts is between c1 and c2,
a second sample is taken of specified size n2 and 100% inspected to find the number
of non-conforming units. If the total number of non-conforming units from the two
samples is equal to, or less than, c1 + c2, the incoming lot is accepted. If it is greater,
it is rejected. Note that double sampling is cheaper to perform than single sampling,
since the first sample n1 taken is about half the size of a sample taken in single
sampling, and it is not usually necessary to take the second sample n2. (In addition,
double sampling is preferred since it appears to be giving the incoming batch
another chance!) (* The sizes n1 and n2, and the acceptance criteria c1 and c2, are
read directly from sampling tables.)

Sampling (Single): Taking a randomly chosen quantity n units (the sample) from
an incoming lot of materials of size N, and 100% inspecting the sample so taken. If
the number of non-conforming items in the sample is less than or equal to the
"acceptance criterion" c, the incoming lot is accepted. If not, it is rejected. The
values of N, n and c are obtained from Sampling Tables (qv).

Sampling by Attributes: The normal method of sampling, whereby a sample is

taken and the number of items with one or more non-conforming attributes is
counted. Contrast Sampling by Variables.

Sampling by Variables: A major variation of sampling involving the assessment

of the distribution of a quality characteristic in the incoming parts, in a similar way
to the assessment of such a characteristic over a period of time which is the subject
of a variable control chart. Sampling by variables requires close co-operation
between supplier and consumer regarding the origin of the parts (eg assurance that
they are all from a single production run).

Sampling Table: The data that constitute sampling tables are calculated through
probability theory and, in particular, through the use of the binomial theorem. In
broad terms, a sampling table requires the user to specify (1) a desired or expected
quality level of incoming parts, p, and (2) the size of the incoming lot, N. If single
sampling is to be employed, the user then reads the following from the table: (a) the
size of the sample n to be taken from the incoming lot and subsequently 100%
inspected, and (b) the acceptance criterion c, or the number of non-conforming units
allowed in the sample in order for the incoming lot to be accepted.

Sampling Tables (AQL, or Military): These are sampling tables devised in the
1940s and 1950s, and are intended to give a high probability of acceptance of
incoming lots which are at a designated level of quality. Since 1959,the tables have
been modified so as to give a 95% probability that a lot at a declared quality level
will be accepted.

Sampling Tables (Dodge-Romig): These sampling tables were devised by Harold

Dodge and Harry Romig of AT&T in 1959, and are geared to the LQL - ie they are
geared to providing a high probability to the consumer that an incoming lot that he
accepts will be equal to or better than the quality level he aims for. See "Acceptable
Quality Level". Also see The Manufacturing Manager, Ch 14.
Savings Criterion: A principle used in route planning software by which it can be
shown that the greatest savings in total journey distance will be made by taking
elongated routes of a "petal" shape (see Petal), rather than a "stem-and-cluster"
routes (qv).

Scheduled Customer Order: see customer order.

Scheduled Receipt: See Open Planned Order.

Scientific Management: see Taylorism.

SCM: Supply Chain Management, or Single Chip Module.

SCOR: Supply Chain Operations Reference model.

SCP: Single Chip Package.

SCR: Synchronised Customer Response.

Scrap Factor: The percentage of ruined components created during the operation
of a process. Note the adjective "ruined" - the implication of the term is that the
process failed, either due to machine malfunction or operator error, rather than that
the process is inherently incapable of producing 100% conforming output. It is said
that a 10% scrap rate will increase factory cycle time by 40% and create a 50%
increase in work-in-progress (in the second case, partly due to excessive production
and safety stocks, caused by uncertainty). Things are rarely as bad as 10%, however,
although a survey in the December 2000 issue of Industry Week (US) revealed, at
least in US manufacturing, that scrap and rework costs exceeded 1% of sales
revenue in 77% of companies. See also Spoilage, Yield and Rework.

S-Curve: S curves are often associated with the variation observed in product
demand (or sales) over time. That is, plotting demand on the vertical axis of a graph
and time on the horizontal axis, after the launch of a new product, demand begins at
a low level with a small upwards trend month by month. After many months, the
level and growth rate of demand begin to sweep upwards in a steep climb. Some
time afterwards, level and rate flatten out and, later still, begin to decline.
Pictorially, the illustration of the curve on the graph somewhat resembles the letter
'S', lying flat on its side. Mathematically, two types of S-curve are the Gompertz
curve and the Pearl-Reed curve.

SDH: Synchronous Digital Hierarchy.

Season: In sales forecasting, a fixed known period such as the 12 months of the year
or the 7 days of the week. Seasonality is important because, as we all know, the sales
of certain goods are more pronounced at certain points in the season due to the cycle
of weather, social holidays etc. Contrast a "cycle"and also remember Easter.

Seasonal Factors: When applied to a season of one calendar year, ie a twelve

month "season", the 12 seasonal factors are a set of twelve dimensionless numbers
totalling 12.0, and each therefore averaging 1.0. Each number is assigned to each of
the months depending on the degree to which the phenomenon of seasonality affects
it (eg weather). Thus suppose after analysis that a factor of 2.0 has been assigned to
November with regard to sales demand for warm clothing. This means sales demand
in November will be 2.0 times higher than average simply because it is November.
So, before analysis of the actual demand data for November is carried out, in order
to discern and analyse the underlying product sales trend, the purely seasonal
element of the demand must be removed. This is done by dividing the actual
demand by 2.0 (ie the sales demand is deseasonalised). Analysis and forecasting are
then carried out on the deseasonalised data. When the forecast has been duly made,
the forecast amount must be seasonalised for the month(s) to which it applies by
multiplying it by the corresponding seasonal factor. Thus if sales in Novenber were
800 units, we first deseasonalise this figure using the seasonal factor of 2.0 quoted
above, to give deseasonalised "sales" of 400 units. Suppose then that the forecast turns
out to be 500 units for the forthcoming month (December), and that the seasonal
factor for December happens to be is 2.5. Then the 500 units must be seasonalised, to
give a final forecast of 1250 units (500 x 2.5).

Seasonality: The phenomenon whereby the period by period sales demand over a
season assumes a pattern of rises and falls (highs and lows) depending only on the
period in question. For example in a twelve month season, the demand for warm
clothing is likely to be highest in the winter months of the year and lowest in the
summer months. Seasonality is represented in demand forecasting either by a set of
seasonal factors or by a set of sine equations (ie harmonics - see Fourier analysis). A
particular problem in dealing with seasonality can be the effect of Easter, a period
of time which can fall in one particular month one year, and in another month the
other year.

Sectional Picking: See Picking (Zonal).

Security Guards in the UK: see SIA

Seiketso: ... means participating - see SSSSS.

Seiri: .... clearing and removing clutter - see SSSSS.

Seiso: .... means cleaning - see SSSSS.

Seiton: .... means standardising locations - see SSSSS.

Selection: In human resource management, the selection of a preferred applicant
from those applying for a job vacancy within the company. Selection will involve the
scrutiny of candidates' application forms, the conduct of interviews and, perhaps,
the administration of tests of aptitude. Contrast recruitment (qv).

SEMA: Storage Equipment Manufacturers' Association, a UK body (visit SEMA have 26 publications and "codes of practice" on racking
safety and similar topics, and also hold courses on such subjects - contact via their
web site, or phone 0121- 200-2100 (UK).

SEMI: Semiconductor Equipment Materials International.

Semi Frozen Zone: Also referred to as the trading zone - see Time Fence (2nd).

Sensei: A Japanese word meaning an outside "master", or teacher, perhaps

entering the factory to instruct in JIT/lean manufacturing techniques. Literally, a
sensei is one who has gone before.

Service Facility: See Queue (2)

Service Part: Peferred, and often US, terminology for a spare ("If they were spare,
we wouldn't have them").

Set Up Time: The sum of internal set-up time (qv) and external set-up time (qv).

Severable/Non Severable Agreements: A severable agreement is one that can be

severed into a number of separate sub-contracts, or sub agreements. For
convenience, the overall (severable) agreement may have been expressed in a single
document, but, because it is severable, it is held to consist of a number of separate
parts. For the buyer, the consequence of this arises if one of the individual sub-
contracts goes wrong - for example, if the supplier on a particular occasion sends
bad quality. In these circumstances, the buyer cannot terminate the overall contract.
All that is affected is the sub-contract concerned. The overall severable agreement
continues. A non-severable agreement is one that consists of an indivisible, single
contract that cannot be sub-divided. If there is a failure by the supplier in fulfilling
any part of his obligations in the non-severable contract, the whole contract is put in
jeopardy - but see quantum meruit. Alse see Stage Deliveries.

SFA: Sales Force Automation.

SFO: Serious Fraud Office - in the UK, a division of Scotland Yard law
enforcement. (Scotland Yard is the location of the Metropolitan (ie London) police
SFC: Shop Floor Control - the day to day management of that area in a factory
where production itself takes place. Management (ie Control) activities include short
term work scheduling; the deployment and general management of work operators;
and seeing to the good order of equipment.

SFP: single factor productivity - see productivity.

SGA: Selling, General and Administrative expenses (a US acronym).

Shares (in a company): on its foundation, a company issues and sells shares of
ownership, the revenue from the sale yielding the capital it needs to to start the
business and the share ownership of those purchasing them representing their
investment in the company. There are two main types of share. (1) An ordinary share
carries a vote at a shareholders' meeting and the shareholder is entitled to a
dividend decided by the directors of the company. (2) A preference share does not
carry a vote, and the shareholder receives a fixed percentage dividend. As well as the
issue of shares on the company's foundation, shares can be created by rights issues
and by capitalisation issues. See The Manufacturing Manager, Chapter 1. Note that
in stock exchange jargon, a share option is a right to buy (or right to call) shares at a
future date or a right to sell (or right to put) at a future date.

Shelf Life: The maximum time an item can be stored until it becomes unfit for use.
The implication of unfit for use is that the item has physically deteriorated. In fact,
many items which reside too long in the stores because of poor inventory control
become scrap because the bill of materials has changed and they are no longer

Sherman Antitrust Act (1890): An American Act of Congress prohibiting the

operation of cartels and other arrangements in restriction of free trade.

Shewhart Control-Chart: See control chart, variable control chart, attribute

control chart, number percentage chart and u chart.

Shewhart, Walter (1891 - 1967): The originator of statistical process control in

1924 at Bell Telephone Laboratories, NJ..

Shift: "A relay or change of workers organised to take over from others in the
performance of certain duties - " (OED) In manufacturing, a shift is the particular
assembly of employees directed to work certain proscribed hours of the 24-hour day,
such that the shift may be superseded by a following shift, of different workers,
required to work other hours of the day. For example, in a factory there may be a
"day shift" of employees working during the day (say, 8am to 5pm), followed by a
"night shift" of other employees taking over and working 5pm to 1am. The
advantages of shift working are that capital machinery is kept in use for a longer
overall period and that the flow of production is not disrupted. Problems with shift
working are communication of working decisions between consecutive shifts, the
provision of effective management in other than the "prime" shift (*) and the
provision of general, non-production factory services in other than the prime shift.
(* The prime shift is usually normal office hours, say 8am to 5pm, which managers
would prefer to work. Employees working in non-prime shift times are usually paid
a shift allowance - a premium per hour on the normal rate of pay.) The well-known
US logistics consultant Roy Harmon has contended that if cleverly and
imaginatively organised, shift working can be of great benefit to employees, such as
in avoiding traffic rush hours to work etc. His suggestion is to have 3-shift working
comprising overlapping "management shifts" and "worker shifts" as follows:
Management/Supervision Shift 1: 6.30am - 2.30pm; M/S Shift 2: 2.30pm - 10.30pm;
M/S Shift 3: 10.30pm - 6.30am; Worker Shift 1: 11am - 7.00pm; W Shift 2: 7pm -
3am, W Shift 3: 3am - 11am. Different companies devise different shift hours, and
invest a great deal of care and time in arriving at them.

Shipping Conference: A group of shipping companies acting together and

controlling the shipment of goods between two specified ports (eg Sydney and
Vancouver, New York and Southampton). The conference operators act in collusion
to fix prices (ie they constitute a cartel), basing charges on the value of the cargo.
Conference operators take aggressive commercial action against non-conference
shippers attempting to intrude on their routes. In their own defence, they state,
correctly, that they provide regular sailings and an efficient and effective service. By
regular sailings is meant that the operators publish a schedule of sailings and stick
by it, regardless of whether or not their vessels are full.

Shitsuke: .... means standardising work habits - see SSSSS.

Shockley, William: The inventor of the transistor (1947), at Bell Laboratories.

shojinka: (Japanese) a lean term denoting variation of the production process so as

to fit into changed demand patterns. Shojinka is encountered with nagara. Also see
The Manufacturing Manager, Chapter 15.

Shop Calendar: Literally, a calendar in which the work days of the year are
consecutively numbered without regard to month and ignoring/skipping weekends
and public holidays. The shop calendar is useful in scheduling and tracking
consecutive jobs over time. For example, on what date will a job be finished if it
starts on February 22nd and has a leadtime of 33 days? If February 22nd is Shop
Calendar Day 37, the answer is Shop Calendar Day 70. Now we can look up the real
date of Shop Calendar Day 70 on the shop calendar!

Shop Order: A Works Order (qv).

Shop Packet: the bundle of documents typically accompanying a shop floor

manufacturing order, used for planning, authorisation and control. The packet may
variously include: an official manufacturing order; an operations sheet; engineering
blueprints; picking lists; move and inspection tickets; and so on.

Short Hedge: A company that sells a commodity future is said to "go short" on the
material concerned. If the company takes this action so as to protect the income it
will eventually receive when the futures date is reached, the action is said to be a
"hedge". See commodity and see future. Also, visit the "Investor Words" Internet

Shortage: The unavailability of a quantity of component needed to manufacture a

works order. It is rightly regarded as bad practice in manufacturing to release jobs
onto the shop floor with shortages, since the incomplete kits disrupt current
operations (ie the components, waiting for the missing parts, get in the way) and are
often forgotten if the missing parts fail to turn up at all.

Shortest Processing Time Rule: See SPT.

Shrinkage Factor: In manufacture, the percentage by which the actual output

falls short of what it should theoretically be - see Scrap Factor and Yield. In retail,
the shrinkage factor is stock written off due to its physical deterioration (ie
becoming shop soiled), or lost due to its misplacement or due to its theft by shoppers
and staff.

SIA: (1) Semiconductor Industry Association (a US body); (2) Security Industry

Authority - a UK body authorised since March 2006 to manage a licencing scheme
for security guards. Licensing is mandatory. A licence may be either "Frontline"
(for actual guards) or "Non-Front Line" (for managers etc). To qualify for a licence,
a guard must submit an application, photograph, other supporting documentation
and a fee of £190. There are various criteria, including evidence of training and a
clean record.

SIG: Special Interest Group.

Sigma: The Greek letter for "s", customarily used in statistics to denote the
standard deviation of a distribution, qv.

Sigma, Six: Six sigma is a formal set of procedures that enables a company to put
into effect the quality lessons taught at the shop floor level by Walter Shewhart and
W. Edwards Deming. Six sigma is highly focussed on maximum financial return and
the satisfaction of external customers. It is currently being widely applied to very
great effect in the USA by large and small companies alike. Using the DMAIC
methodology,the successful application of six sigma typically results in the delivery
to the customer of near perfect products and near perfect service (in fact, with non-
conformities down to 3.7 per million, and minimum variation of output). Six sigma
was so named in the 1980s by Bob Galvin, CEO of Motorola Inc., and led to the
institution by that company at that time of a number of very highly profitable
initiatives. The technique was boosted further in 1993 by its adoption as a required
means of process improvement and management procedure by Allied Signal Inc.. In
1998, Jack Welch, then CEO of General Electric, described six sigma as the most
challenging and potentially rewarding initiative we have ever undertaken. As implied
above, six sigma is not reserved for the giants of international manufacturing,
however. It is a simple technique centred on financial return and sound data that
requires no software to install; instead, six sigma is the application of long-
established, well proven methods to both manufacturing and commercial processes.

A highly structured performance-improvement methodology that utilizes a variety

of statistical and problem- solving tools. Developed by Motorola during the 1980s,
Six Sigma focuses problem-solving and data-analysis techniques on issues that
directly affect a company's bottom line.

Simultaneous Engineering: The design of a new product in parallel with the

design of the process by which it is to be manufactured. Two advantages of
designing the product and process in tandem are (1) the considerable shortening
which results in the leadtime elapsing to the final product launch, and (2) the early
detection made of any difficult production problems likely which stem from some
peculiarity of design.

Single Exponential Smoothing: A naive method of forecasting (qv) in which

greater weight is given to the most recent sales demand, and proportionally less
weight to increasingly old demand. The exponential decline in the weighting applied
may be, say, 0.2, so that the forecast is derived by (Latest Demand) x 0.2 + (Next
Oldest Demand) x 0.2 x 0.2 + (Third Oldest Demand) x 0.2 x 0.2 x 0.2 + ......

Single Factor Productivity: see productivity.

Single Moving Average: A naive method of forecasting (qv) in which a forecast is

prepared by taking a simple average of a number of past data points - for example,
if the past three demand quantities were 6, 7 and 5, the single moving average
forecast is (6 + 7 + 5) / 3 = 6.0.

SIOP: Sales. inventory and operations planning. synonymous with S&OP.

SIPOC Model: SIPOC is an acronym for Suppliers; Inputs; Process; Outputs;

Customer, as these phenomena relate to the overall business of a company.
Sometimes the letter R is inserted, meaning Requirements (as they relate to Input
and Output), to make the fuller term SIRPORC. The SIPOC or SIPORC model is
intended to be a fairly high level map of the major processes and interactions which
constitute the business and its principal operations, perhaps to be used in overall
strategic planning. It is widely used in the initiation of Six Sigma work, especially at
the Project Selection stage.
SIV: Signal Integrity Verification.

Six Sigma: See Sigma, Six.

SKU ( Stock keeping unit): A product qualified by the location at which it is

stored. The term is widely used in distribution to enable the logistician to distinguish
between identical items stored at different depots. Thus Electric Kettle Model A1 at
Birmingham is a different SKU from Electric Kettle Model A1 at Manchester. The
accepted pronunciation of SKU is as three separate syllables - ess - kay - you.

Slack: In the context of jobs on the shop floor, the extent to which the progress of a
job is ahead of schedule.That is, the number of hours (or days) early it will be
completed. In project management, slack is the difference between an activity's
earliest start date and its latest possible (critical) start date; if the slack on an
activity is zero, that activity is on the critical path. The critical path is the succession
of tasks such that if any one of them is completed X days late, the project itself will
be X days late, and if any one of them is completed earlier than scheduled, the whole
project will similarly be correspondingly early.

Slack Time Despatching Rule: A shop floor prioritisation rule in which jobs are
prioritised in accordance with: (the time due minus the time now) minus (the
processing time still remaining). The greater the amount of slack time, the lower the
relative priority.

Slack Time per Operation: A shop floor prioritisation rule in which jobs are
prioritised in accordance with their slack time (qv), but the slack time being divided
by the number of operations remaining. (Each operation is an opportunity for
delay.) The lower the Slack Time per Operation, the higher the job's priority. See
The Manufacturing Manager, Ch 11.

SLICE: Simple Low Cost Innovative Engine.

Sliced Bread: Invented in 1927 by Otto Frederick Rohwedder of Iowa, US, and
marketed from 1928 by the Chillicothe Baking Company Inc of Missouri, US.
Within five years, sliced bread accounted for 80% of the US market.

SLOB: Slow Moving and Obsolete Stock. See Stock (Slow Moving) and Stock

Slotting: the determination of the locations to be assigned to specific items in a

fixed location storage facility.

SLS: Selective Laser Sintering, or Sears Logistics Services.

SMART: (1) Self Monitoring Analysis And Reporting Technology, and (2) Simple,
Measurable, Achievable, Reasonable, Trackable

Smart Label: A term often used to describe an RFID tag. The tag comprises two,
and possibly three, components: a silicon microprocessor, a lithium battery
(optional) and an antenna. The antenna is able to pick up electric fields when the tag
comes within range of an RFID interrogator (ie a tag reader). Smart labels are
paper thin and able to survive very harsh environments (*). If a battery is present
(to boost range and power), it is an active smart label; if there is no battery (to save
cost), it is a passive label. Note that RFID tags themselves do not have to be labels.
For example, tags for animals are encased in glass beads. Of vital importance in
choosing a tag is its ability to be read by the RFID reader ... a particular tag design
may be poor at picking up the electronic signal from a tag reader, and in addition,
specific individual tags from a given manufacturer may vary considerably from one
to another in terms of reliability and quality. It is necessary therefore in designing
an RFID system physically to test the (electronic) suitability of the tags that are to be
attached and the environment in which the RFID network is to operate (see
particularly AEN.) (* Nevertheless, a chip embedded in a label can be damaged and
rendered inoperable by a direct blow, and the connection between a chip and its
antenna can be damaged by twisting - the likely physical environment in which
smart labels are to be employed must be properly tested in setting up the RFID

SME: Small to Medium Enterprise - a company having fewer than 250 (?)

SMED: Single Minute Exchange of Die - the three stage methodology devised by
the late Shigeo Shingo to effect a machine changeover in a very short time. It was
Shigeo's claim that any changeover could be reduced to 9 minutes or fewer (hence
"single minute"). The two purposes of achieving very short machine changeovers
are: (1) to reduce the minimum size of an "economic" manufacturing lot - if
changeover times are lengthy, it may be necessary for financial/costing reasons to
make a large lot of material (see EOQ ... although this entry relates to the size of lots
ordered from suppliers). A large lot of material creates stock keeping problems and
results in unnecessary investment costs; And (2) to fulfil Shigeo Shingo's original
purpose of manufacturing in small, even quantities so that manufactured material
flow matched the demand for product in the market, as explained under the
Glossary entries for Just-in-Time and Lean Manufacture. See also OTED. Also see
Internal Set Up and External Set Up.

Smith, Adam: Author of the influential book in 1776 Inquiry into the Nature and
Causes of the Wealth of Nations. This book is still in print and is used as an economic

SMME: Small to Medium Manufacturing Enterprise (see SME).

SMT: Surface Mount Technology.

SO: Syllabus Order, an old term for a cost centre.

SOA: Semiconductor Optical Amplifier.

SOC: Silicon On Chip.

SOI: Silicon On Insulator.

Sole Trader: The appellation given to a person in business merely on his own
account - for example: a plumber; a person who has set up as a printer; a person
running a taxi or fleet of taxis. The implication is that the sole trader has not formed
a limited company and that he is therefore personally responsible for the debts of his
enterprise - for example, unpaid creditors will enforce their bankrupcy. It is a
fundamental right of a citizen in the West that he can freely set up as a sole trader
without let or hindrance by government (although there are grievious regulatory
obstacles placed in his way in Europe by the much despised European Union.)

SONET: Synchronous Optical Network.

SOP: (1) Sales Order Processing, or (2) Standard Operating Procedure. See also

S&OP: see above.

Soroptomy: A single customer (and no prospect of new ones) served by many

suppliers. That is, if the suppliers wish to sell, they must accept the customer's
terms. The small number of supermarkets bullying and squeezing their suppliers
are virtual soroptomists. As far as the poor consumer is concerned, the
supermarkets are also virtual monopolists of the areas they serve.

Sources and Sinks: Terms used in the operation of the transportation algorithm.

Sourcing: The process of finding companies capable of supplying goods or services

required by the buyer. Sources of information include: directories (for example
Kompass and Kelly's); magazines; sales representatives; exhibitions; and the
ubiquitous Internet.

SOW: Statement of Work.

Spare: A manufactured component needed to replace a worn or broken component

in a machine assembly. Spares for wearing parts, such as exhaust pipes and tyres,
can readily be forecast. Spares for non-wearing parts (say, steering wheels and
axles) often assume intermittent demand. A spare in US terminology is often a
service part ("If they were spare, we wouldn't have them!")

Spares for Discontinued Machines: See All Time Supply.

SPC: See Statistical Process Control, qv.

Special Causes of Variation: A cause of variation in output from a

manufacturing process or system of procedures may not be due to the inherent
operation of the process or system itself (see Common Causes). Instead, it may be
due to the intrusion into the system of a one-off external cause of variation. One-off
causes do not spring from the system, and so are preventable - ie their future
occurrence can be blocked. Consequently, the reason for each special cause must be
investigated and steps then taken to see that it does not occur again. The presence of
a special cause of variation must be determined statistically. This is done by
knowing that variation in output due to common causes follows a regular pattern
corresponding to the Normal curve - ie with an average and a deviation on either
side of the average within three standard deviations. Variation due to a special cause
results in a performance outside these statistically determined limits. The term
"special cause" variation was introduced by W Edwards Deming - the alternative
term originally used by Walter Shewhart was "assignable variation".

Specific Goods: Goods individually and specifically identified and agreed to be

bought or sold, at the time a contract is made. Thus a machine tool identified by its
serial number is a specific good. A good being made to order but not yet complete is
a specific future good. See also unascertained goods.

Speculator: A trader in the futures market hoping to outperform the market by

buying cheap and selling dear. Speculators have no direct interest whatsoever in the
commodities, bonds and so on that they buy and sell. They are, however, absolutely
essential to the market's operation since they keep it "liquid" and efficient. That is,
someone wanting 10 tonnes of raspberries on December 19th can immediately buy
futures for this amount, and does not have to wait several days until he finds a
raspberry grower with that amount of the fruit to sell. See also hedging.

Split Batch: When a shop floor job is behind schedule and some, but not all, of the
components involved are very urgently needed in a next stage of production, the
batch of components involved may be "split" - ie the urgently needed ones sent
ahead and the remaining ones left behind to be processed at a later date.
Unfortunately, the units left behind are all too often forgotten and lost: as a
consequence the practice of batch splitting may be banned on some factory floors.
Also see Operation Splitting.

Spoilage: The degree to which units manufactured are rendered unfit due to the
maloperation of the process. (Rarely, spoilage might mean the percentage of non-
conforming items produced by a process not inherently capable of manufacturing
100% conforming parts.) See Scrap Factor.

Spoiled Work Order: A manufacturing job which is having to be reworked to

correct errors made in the original machining - see Rework.

Sporadic Demand - see Intermittent Demand.

SPS: Standard Procurement System.

SPT (Shortest Processing Time): A job despatching rule in which the highest
priority is given to jobs with the shortest expected processing time (*). Thus of two
jobs A and B with respectively 5 hours of processing time and 12 hours, Job A would
be prioritised over Job B. SPT is a static despatching rule (qv) and has only two
merits: (1) it wins computer simulation competitions involving other rules, and (2) it
ensures the greatest number of jobs are despatched. Its disadvantages are that the
despatch order bears no relation to the jobs' real urgency, and that jobs with long
processing times become increasingly late. Nevertheless, it is a useful rule when
things are not going smoothly. (* Note that processing time = run time + set-up time,
and excludes queue, waiting and moving time.)

SQC: See Statistical Quality Control.

SQL: Sequential Query Language - a computer programming language written by

IBM in the 1970s and based on Ted Codd's "third normal form", itself derived from
set theory.

Squeaky Wheel, The: If one is riding in a vehicle and one of the wheels is
squeaky, he stops and fixes the wheel with a drop or two of oil. The analogy is used
in manufacturing to mean that when a problem becomes readily and obviously
apparent, the manager gives it his attention. In other words, the manager is reactive.
But he should be positive and methodical. The squeaky wheel may need attention,
but fixing it distracts from the need to set up a regular maintenance programme for
the company's vehicles.

SRAM: Static Random Access Memory.

SRM: Supplier Relationship Management, qv.

SSAP: Statement on Standard Account Practice, these being issued from time to
time by the Accounting Standards Committee. An example is SSAP9, issued in 1975
relating to stock valuation.

SSP: Statutory Sick Pay.

SSSSS(The 5 Ss): The Japanese and lean manufacturing philosophies are insistent
on the need for order and cleanliness in the workplace. The 5 Ss are transliterations
of Japanese words as follows: (1) Seiri (clearing out unwanted material and
simplifying); (2) Seiton (locate material in its place correctly - a place for everything
and everything in its place); (3) Seiso (ensuring the workplace is scrupulously
clean); (4) Seiketso (involving everyone - that is, ensuring that managers and staff
not on the shop floor, but whose actions impact it, also participate in the 5S's); and
(5) Shitsuke (proceduralise the first four S's to ensure all actions are on-going). A
translation of SSSSS more memorable to the English speaker however, is (1) sort; (2)
set in order; (3) shine; (4) standardise; and (5) sustain. For a witty book on this
subject, see Clutter's Last Stand by Don Aslett (1984). See also Cando.

Staff Department: a company department providing ancilliary or support

services, but which does not generate revenue or handle materials. See Line

Stag: see under bear.

Stage Deliveries: A buyer is not obliged to accept the delivery of material in stages
unless he has agreed beforehand. If stage deliveries are made, a question then is, as
to whether the contract is severable or non-severable. Stage deliveries made under a
severable contract are usually those where the buyer must pay for each delivery
separately; if so, and if a specific delivery is refused (eg because of quality), the
contract nevertheless continues. When stage deliveries are made under a non-
severable contract, one single payment is usually made as a lump sum (at a time
specified in the contract). If any delivery is then refused, the whole contract can be
terminated (but see Quantum Meruit).

Stage Payments: Where large structures are to be purchased, such as major items
of plant or substantial buildings, both contractor and purchaser may wish to
arrange stage payments. The contractor may require the staging of payments for
cash flow reasons and the purchaser may prefer the arrangement so that he is able
to withhold payment until the undertaking has proved satisfactory in use. In the
contract beforehand, therefore, the two parties may specify a schedule of stage
payments to be made by purchaser to supplier. It is important that each payment is
linked to a specific date or event, and that, before payment is authorised, a separate
invoice relating to that particular payment is submitted. For both parties, but for the
purchaser especially, in compiling the schedule of payments, it is wise to involve
finance department so that taxation and government grant matters can be taken
into account. A contractual agreement that a final payment (of, say, 5%) is not to be
made until many months after completion of the work is referred to as a retention
clause (see retention). See also Stage Deliveries and Severable/non-severable.

Staging: Either assembing materials on the despatch dock to check its readiness,
prior to its distribution to an external customer, or accumulating material in a
temporary holding area to ensure that sufficient of it physically exists to begin a
manufacturing job (and that it is thereby kept safe from allocation to other jobs
which might need similar items). In this second context, staging is synonymous with
kitting - see Kitting Area. "Staging Time" is synonomous with Queue Time (see

Standard Cost: See Cost (Standard).

Standard Deviation: a mathematical measure of the dispersion (ie degree of

spread) of a group of numbers. The standard deviation of a frquency distribution is
customarily denoted by the symbol sigma (small Greek s). It is the square root of the

Standard Hours: The number of standard hours is any standard that can be used
as a yardstick when assessing the actual circumstances of the moment. Example 1: it
is presumed by the shop supervisor that under normal conditions, an operator will
complete a job in 50 hours. 50 hours is now regarded as the number of "standard
hours", so that if the operator actually completes the job in 40 clock hours, he may
obtain a bonus if a bonus scheme is in operation. Example 2: if standard hours are
the same as the demonstrated capacity, then with a load factor of 1.33 and with
standard hours available at a work centre of 100, the actual available (clock) hours
are 100/1.33 = 75 hours. Finally, remember if you always have enough people for the
days tasks, you're probably overstaffed!

Standing Capacity: Jargon for the maximum capacity of a machine or work


Start Date: See Date (Start).

Static Despatching Rule: A rule whereby the priority of a job is calculated based
purely on the factors inherent in the job itself, rather than on its current timeliness
of progress through the shop. A prime example of a static despatching rule, or static
priority rule, is Johnson's Rule. Johnson's Rule dictates that jobs in a queue should
be released for manufacture in the order of the shortest jobs first. Note, however, if
this is done in practice, it may result in a few lengthy jobs becoming "stuck". To
prevent this happening, some failsafe mechanism needs to be applied to rescue
them! It is said that Black & Decker in the US once had a scheme whereby the
shortest jobs were released in order from Monday to Thursday, and FIFO was
applied on Friday. In contrast to a Static Despatching Rule, see dynamic
despatching rule Also see despatching rules.

Stationarity: The pattern of sales demand in which the level of demand is constant
from period to period. (The consultant of this Glossary may protest that demand is
never constant from month to month! If however the only deviations from level
demand are random fluctuations, the pattern of demand is stationary and that
should be the basis of the forecast. The fact that in reality the forecast will be in
error due to the random fluctuations is a matter for safety stocks.)

Statistical Process Control: When a manufacturing process is stable and under

control, the units of output produced show tiny variations one from another due to
the "common causes" of variation inherent in the process' operation. The central
limit theorem now states that, so long as the process remains stable and under
control, so that the statistical distribution of these variations also remains stable,
then, regardless of what their actual statistical distribution is (*), if samples of 4 or 5
parts are taken of them from time to time, the statistical distribution of the means,
or averages, of the samples will follow the familiar pattern of the Normal
distribution. By plotting the extent of the variation of the sample averages on a
chart over time, the process operator can track whether the population of the parts
from which the samples are drawn remains stable - ie whether the process giving
rise to them continues to operate in a stable, unchanging way. If it does so remain
stable, only common causes are at work in the process. If the control chart limits are
broken, something has happened to disrupt the process: it must be stopped and the
problem fixed. (* Note that the actual statistical distribution of the individual parts
themselves does not have to be Normal - in fact, it doesn't even have to known. The
truly remarkable central limit theorem applies to the averages of samples of 4 or 5
parts, not to the individual parts themselves. Glossary readers are esecially urged to
read the entry under The Central Limit Theorem. For an easily absorbed
description of SPC, see The Manufacturing Manager, Ch 14.

Statistical Quality Control: The assurance by statistical means that

manufactured parts will conform to requirements . When the parts are actually
under manufacture, statistical process control (SPC) is used. When parts have
already been made and are being sent out to a customer, statistical methods include
breakeven point analysis (qv) and sampling (qv).

Statistics: Statistics has been defined as applied probability theory, but it is also the
art of obtaining a quart of information from a pint of numbers!

Steering Committee: A group of middle or higher managers, perhaps even

including one or more company directors, responsible for monitoring in a broad
way the activities of a project team and giving general strategic guidance where
necessary. The steering committee is likely to meet only infrequently.

Stem and Cluster: A transport route made up of a single long haul to a particular
point, followed by a number of short journeys from the point to various local
delivery/collection destinations. Often preferred by drivers in contrast to a petal

STEP: Standard for The Exchange of Product model data, an international

standard for the communication of product data by EDI.
Step Change: In sales demand, the sudden rise or fall in the level of demand to a
new level, such a change being permanent. Strictly, if the change takes place over
one or two periods, the phenomenon should be referred to as slope change. See The
Manufacturing Manager, Ch 4.

Stepping Stone: A term used in the transportation algorithm - see The

Manufacturing Manager, Ch 20.

Stillage: a metal cage, usually tall, used for the temporary storage and movement of
materials within a factory and between manufacturing sites. Originally, stillages
were used in brewing as stands for casks and to keep materials off the ground.
Stillages are used in their hundreds of thousands within motor car manufacturing -
there may be 300 stillages in the loop per component between component suppliers
and the main plant. It is reported that over seven years, a manufacturer can "lose"
20% of his stillages, and at a cost of several hundred pound each, great expense is
clearly thereby incurred (including particularly expense in production hold-ups due
to non-availability of materials). To put an end to the problem of loss, Ford UK in
conjunction with the Warwick Manufacturing Group have begun the RFID tagging
of individual stillages.

Stochastic Model: Synonymous with Probabilistic Model, qv.

Stock: Material usually held in readiness for some future use. Also, material
undergoing transformation of its physical form (ie being processed). The
circumstances in which the material has been made or the reasons for its retention
give rise to very many alternative stock categorisations - see many entries below.

Stock, Cost of Holding: (Cost of carrying stock etc): The cost imputed to the
holding in storage of one unit of inventory. The individual costs making up the total
fall into two categories. (1) Operating and administrative costs including insurance,
housing, general stock management and obsolescence, and (2) capital costs, relating
to the fact that the stock which has been made has cost money to manufacture or
buy, and that this investment should have ascribed to it a rate of return on the
capital so represented. Note that the value of the stock must be considered to be its
standard cost, not its selling price or disposal value. Note also that the the company
and the MD will have set a target for the % return on any corporate financial
investment - say, 20% pa - and that it is this figure which should be used to arrive at
the capital cost of stockholding, not the everyday bank interest rate. As a guideline,
inventory holding costs are considered to be some 25% per annum of the value of
the stock.

Stock (Active): Any product or component which is currently in regular use (used,
say, at least once in the past six months).
Stock (Allocated): That part of stocked material which has been set aside
(whether physically or merely by categorisation on the stock record) on behalf of
specified, identified works orders. Stock so allocated may be either (i) a standard
allocation (or soft/normal allocation), or it may be (ii) a firm (or specific/hard/frozen
allocation). Standard allocated stock is general stock from the quantity on hand,
whereas firm allocated stock is material physically identified by lot number or other
id for the specific works order or customer order concerned. Contrast Stock (Free).

Stock (Anticipation): Stock manufactured or acquired well before it is actually

needed, in order to overcome otherwise likely later problems of insufficient
manufacturing capacity. For example, stock may be made in Autumn ahead of the
Christmas selling rush.

Stock (Average): In an order point system, or Min/Max, system, the average stock
holding. This level is encountered half way between the arrival of each
replenishment, and is calculated as (R/2 + S), where R = replenishment lot size and S
is the safety stock amount.

Stock (Buffer): Usually synonymous with Stock (Safety), but sometimes used to
mean Stock (Policy) .

Stock (Build): Synonymous with Stock (Anticipation).

Stock (Co-Managed): A variation of a consignment stock arrangement, but where

stock replenishments from the supplier must be specifically agreed or placed by the

Stock (Consignment): A large quantity of stock agreed to be consigned by a

supplier into the custody of a purchasing company, to enable the purchaser to make
small individual withdrawals from it from his own premises as it is needed. That is,
consignment stock is paid for and owned by the supplier, with the buyer financially
responsible only for housing and insurance. Payments for stock withdrawals by the
buyer are made only when the withdrawals actually take place. The waste inherent
in this practice includes the holding of excess stock for a long period and the
possibility of loss of control of quality. There is also waste in the form of stock
housing, stock management, insurance and so on, which would not be incurred if the
material were made available by individual deliveries and manufactured just before
the time it was actually needed. The buyer perhaps believes he does not bear the
actual stock holding cost (which necessarily must be incurred in a consignment
stock arrangement), presumably believing that these are nobly borne by the
supplying company's shareholders. Consignment stock is not quite the same as VMI
(Vendor Managed Inventory), since VMI arrangements usually require the buyer to
pay for the stock at the supplier's premises, the supplier merely being the manager
Stock (Cycle): Stock resulting from the lot sizes of manufacture of end products -
ie the stock resulting from lot sizes in excess of immediate requirements.

Stock (De-Coupling): When the output from one manufacturing process is

dependent on the demand of a second process, production planning and control can
be very complex if both processes must be planned as if they were operating
simultaneously- see Make-and-Pack and Co-Products. However, if output from the
first product can be planned in isolation and can be assumed to be held in stock
before its further use at the next stage, both planning and actual plant operation is
clearly far easier. If this is done, the stock from the first process is said to have "de-
coupled" the two processes.

Stock (Economic): Within the company, the sum of the stock actually present plus
raw materials ordered but not yet delivered, less the stock of goods sold but not yet

Stock (Effective): Synonymous with Stock (On-Hand).

Stock (Fluctuation): An old term meaning working stock to provide against

uneven rates of demand.

Stock (Free): That part of stocked material which is able to be allocated as the
occasion arises for any purpose including future works orders. Stock which has not
been reserved. See also Stock (Allocated).

Stock (Inactive): Stocked items which have not been sold or used in production
for so-many months (or weeks).

Stock (Maximum): In an order point system, or Min/Max system, the maximum

stock level is theoretically reached just after the arrival into stock of a new
replenishment. The quantity is then R + S (where R is the replenishment lot size and
S is safety stock).

Stock (Minimum): In an order point system, or Min/Max system, the minimum

stock level occurs theoretically just before the arrival of a new replenishment. The
quantity is then S (ie the safety level).

Stock (MRO): Maintenance, Repair and Operating stock - inventory carried to

maintain equipment, including spare parts. Other items of stock connected with
housekeeping operations may also be included in this category. MRO stock may be
entered on the balance sheet as current assets, rather than fixed assets. It is likely to
be disregarded in considering such matters as the elimination of waste and the
calculation of stock turns.

Stock (Negative): see Negative Stock.

Stock (Obsolescent): Stocked items which are shortly destined to become obsolete,
unless they can be used up or sold beforehand, or items which will become obsolete
after a certain date in the future. Reasons for obsolescence include an impending bill
of materials change (for example, the introduction by the company of a new model);
the expiry of a "best before" date; or imminent legislation.

Stock (Obsolete): Stocked items which are no longer used in the company, and
which will have to be disposed of. Stock may have become obsolete because the bill
of materials was changed without proper inventory planning, or because of poor
record keeping (ie not knowing it was there). See SLOB.

Stock (On-Hand): Stock of a given product recorded as being present in the stores
or complete and available on the shop floor. In planning, the stock of the product
currently being manufactured on the shop floor and expected to be completed in the
next so-many days will be considered to be "on hand".

Stock (Pipeline): Pipeline stock is stock in a distribution chain, and is usually

taken to mean stock actually in transit or waiting to be loaded for despatch, or
unloaded. For a distribution operation covering a particular area (say, the UK), the
quantity of pipeline stock is virtually independent of the number of depots in the
area (see The Manufacturing Manager, Chapter 20). It should be noted it takes one
barrel of oil about one year to make the journey through the Baku-Ceyhan oil
pipeline. The Baku-Ceyhan pipeline was opened in 2006 between Azerbaijan and
southern Turkey, on the Mediterranean, and is 1100 miles long.

Stock (Policy): Material provided for to protect its availability, and safeguard the
company's position, in the event of a defined disaster. For example, policy stock may
be held by a pharmaceutical company manufacturing a unique, life-saving drug in
order to guard against the destruction of its factory by fire or earthquake. As the
name says, policy stock is not related to ordinary sales demand or logistics ...
whether it to be held at all, and, if it is, the amount so to be held, are matters of
business judgment that can be decided only by senior management. See also Stock

Stock, POU: Point-of-Use Stock. Stock which is held at the place it will be
consumed (eg in the plant, on the shop floor, or, perhaps, in the assembly shop),
rather than in stores. POU stock can create a problem in cycle counting and general
control. For example, on the stock record, its manufacturing location must be
correctly held. It is important to distinguish POU stock from Work-in-Progress.

Stock (Quarantine): Usually, on-hand stock from a supplier, or the shop floor,
which has been set to one side until it can be inspected with regard to quality. (An
example of waste.)

Stock (Redundant): Stock made obsolete by a change in the bill of materials.

Stock (Remnant): An expression sometimes used to mean the stock remaining
from a stock delivery or a manufactured lot after the quantity needed for immediate
purposes has been removed.

Stock (Safety): Safety Stock is material planned for over and above what is
forecast to be required, so as to provide stock availability (and hence customer
service) despite forecast requirements being less than actual customer demand. The
need for a safety stock arises self-evidently because the forecast of product demand
is in error - ie the forecast on which the stock replenishment needs are calculated is
too small. The key to determining the amount of safety stock to be provided,
therefore, is the analysis of forecast errors occurring over the period of time needed
to obtain a re-supply of the product. In most circumstances in industry, the
statistical distribution of forecast errors is Normal, or bell shaped. Note, however,
that in operations involving warehouses and distribution, the distribution of forecast
errors is not likely to be Normal - it is likely to be Poisson or exponential. This fact
must be specifically taken into account in any calculations performed by the user's
software. The principal element in arriving at a formula, therefore, for calculating a
safety stock is the statistical probability of a forecast error over the product's
replenishment leadtime. A second vital factor that must also be taken into account is
the protection of stock availability by working stock - ie the protection of customer
service provided by the size of the manufacturing lot or replenishment lot. For
example, a given product replenished 12 times per year will have 12 times more
opportunities of stocking out than if it were to have been replenished once per year
(with 12 times more stock, of course). Yet a further factor that might be considered
is the cost of rescheduling production or resupply. The definition of customer
service, or stock availability, used in most safety stock software packages, is p =
(Quantity of sales demand for a product filled from stock over the year) / (Total
sales demand for the product per year) x 100%. The formula is E = (1 - p)/s x A/N
where E is the partial expectation of the forecast errors, p is the stock availability, s
is the standard deviation of the forecast errors, A is annual demand and N is the
number of replenishments per year. The calculations clearly are too complex to be
attempted manually - the use of a proprietory safety stock software module usually
associated with forecasting software will typically not only improve a company's
level of service but at the same time reduce its safety stock holdings by some 30%.
Incidentally, having calculated the (new) safety stocks through the system, it is
essential that they should first be applied in simulation - it is imposible for the sales
& marketing manager to tell by examining them himself whether they are
"correct", because of the complexity of the calculations, and the IT expert may have
made a mistake in applying the software. So better sure than sorry by the use of
simulation, to see what would have happened if the new values had been applied! As
a final footnote to this lengthy Glossary entry, note that safety stock cannot be set by
the means described here for retail operations - the pattern of demand is too erratic.
In some retail outlets selling big-ticket items such as washing machines, stock
provision can be calculated using queuing theory, assuming the provision of
"service" to a Poisson distributed queue. Otherwise, in retail, service is based on
forecasting and rapid replenishment. Note finally that the full text, illustrated
course. Also see Negative Stock (entry (2)).

Stock (Slow Moving): Stock which has not been the subject of a withdrawal or
deposit for more than a specified number of days. The time period must be decided
on by the inventory controller. Slow moving stock is singled out since it may be
liable to physical deterioration or may be in the process of becoming obsolete. If its
circumstances are considered in good time, it may be possible to sell it before
matters get any worse. See SLOB.

Stock (Strategic): Stock from a vital but vulnerable source, held in a large
quantity in case supply is disasterously curtailed or terminated - eg raw material
produce from a sub-Saharan country. See also Stock (Policy).

Stock (Transit): In distribution, stock in transit on vehicles or waiting to be loaded

on / off vehicles.

Stock (Vendor Managed): Usually simply termed "vendor managed inventory".

Stock held by a supplier (vendor) on behalf of a buyer in which the schedule of
replenishment is directly determined by the supplier himself. Usually, the stock so
held is paid for by the buyer, even though it has not yet been delivered. In this
respect, it contrasts with consignment stock - qv.

Stock (Work in Process): Preferred US terminology for the British Work in


Stock (Work in Progress): There are two definitions of WIP - financial and
operational. Neither of them are straightforward - see importantly WIP.

Stock (Working): Stock arising from a manufacturing lot size, the lot size being in
excess of immediate needs and having been made for reasons of production

Stock Cover: Either (1) the current stock divided by the average weekly demand
or (2) the number of days the stock on hand will last, based on past average weekly
demand. (This last is clearly days cover.)

Stock Exchange: The City of London market dealing in company stocks and

Stock Out: Having no stock. During a stock out, demand for a product must either
be turned away or, if the customer will agree, put on backorder. Alternatively, with
an available-to-promise capability, the customer's order can be accepted for future
delivery in accordance with the ATP rules. (It is true that available-to-promise is
normally associated with make-to-order, but it can be appliied to make-to-stock just
as readily, giving the company a completely new level of service.)

Stock Out Percentage: The total number of orders which were either lost or
placed on backorder, due to stock-outs, divided by the total number of orders
actually received, as a percentage. Stock out percentage might be used as a measure
of achieved customer service in a make-to-stock company.

Stock Record (see also Stock Records Accuracy below): A data record, usually
held on a computer disk, relating to a particular product or SKU and holding
certain basic information (name, cost etc). In particular, the data also include the
quantity of stock being held. (The quantity may be subdivided into such categories
as free stock (ie available for use); allocated stock; stock awaiting disposal; sub-
standard stock ... Maintenance of the correct figure for the quantity of stock is a
vital matter in planning, but difficult to achieve to the levels of accuracy needed -
-see below.

Stock Records Accuracy: The accuracy of a single record relates to the quantity
of stock recorded as being present apropos the quantity of stock which is actually
physically present in store or in the warehouse. Thus the accuracy of a group of
records is usually defined as a percentage, as follows: (number of records correct) /
(number of records in the group) x 100% (this is referred to as the good count/bad
count method). The accuracy goal in manufacture has been variously put as: 95%
(the late Oliver Wight), 97.0% (most authorities nowadays) and 97.0% ± 1%
(GMCS). The GMCS notion of a variance about a mean figure is suggested since the
system through which accuracy is maintained is a human centred one subject to
common causes of error. A second definition of accuracy preferred by auditors and
accountants is the net piece variance method. Here, the sum of the piece variances (ie
the sum of the differences between the counts of the physical stock and the stock
records) is compared to the sum of the stock on the stock records. Yet a further
definition is the absolute financial net piece variance - here, the plusses and minuses
from the previous method are not allowed to cancel each other out (hence
"absolute"), and the differences between the physical stock and the stock record are
expressed in terms of the financial value of the stocked items concerned. Also see
Negative Stock (entry (1)).

Stock Rotation (FIFO): The practice of "first in, first out" (FIFO) - ie of
ensuring that stock which has been in a stores or warehouse for the longest time is
despatched first, in preference to newer stock. LIFO (last in, first out) is sometimes
the practice when goods are non-perishable and it is convenient to stack recently
arrived units on top of those already present (bricks, concrete slabs etc).

Stock Turns: There are a number of definitions, so that it is important to discover

which is meant when a figure is produced. Four such definitions are as follows, of
which the last is probably the most common: (1) (the number of working days in the
year) / (the number of days of forward stock cover); (2) (annual sales valued at cost
price) / (the cost value of WIP, raw materials and finished goods, all at cost price);
(3) speed of stock throughput/ average stock holding (this can be calculated by
(units received + units despatched)/( starting stock + ending stock); and (4) (sales
revenue in a particular period)/(average inventory held during that period). Stock
turns is a good, quick indicator of the "velocity" of stock through the company, and
hence, usually, of the efficiency of materials planning and the tightness of control of
manufacturing operations. Self evidently also, stock with high inventory turns is less
costly to store than slow moving stock. See also slow moving stock and SLOB.

Stockyard: (1) An outdoor storage area, usually used for storing building
materials, but sometimes for storing dangerous chemicals in drums or large metal
structures (such as pumps). Issues in the management of a stockyard include the
requirement for a one-way traffic system, because of the size of vehicles; a good
surface (concrete, with drainage, rather than asphalt); and for a conscientious
programme of maintenance. The latter must include prompt repair to fencing and
boundaries, since, apart from the matter of theft, the company is responsible for
harm befalling children who trespass. To avoid complaints from neighbours,
stockyards are best located well away from private housing. (2) In Chicago and
other cities of the American MidWest, stockyard is likely to mean a large area for
keeping cattle which have arrived by train from prairie farms prior to their sale and
despatch to local abatoirs.

Stores (see also Warehouse): An area or room furnished with racks, shelves, bins
and so on, for holding stock needed to support the operations of a factory. The stores
is a service function, and the services provided include : the acceptance of deliveries
from suppliers (ie the receipt of bought-in parts); the receipt and timely issue of
material for the factory floor (ie kits of components); the preparation of loads for
despatch to customers (finished goods); and the timely issue of tools and fixtures for
engineering and maintenance staff. A dominant task also performed is the
maintenance of high levels of stock records accuracy - qv. Company departments
dependent on the stores for accuracy include planning, finance and sales. See also
General Stores.

Strangers: Parts which are found in the production schedule only rarely - contrast

Strategic Management: The operation and control of a company with regard to

its resources, capabilities and energy so as to attain a sustainable advantage over its
competitors in one or more areas of business.

Strategic Stock: see Stock (Strategic).

Streaming: the broadcast of audio and video data over the Internet, in real-time
and on demand by a customer.
Stretch Goal: a target beyond what is generally agreed as being realistic. Stretch
goals are set by management perhaps to encourage staff to put in extra effort but
also to gain an edge in achievement. They appear, however, to be in conflict with
planning and the acceptance that one should "work to the numbers". The conflict is
resolved by pointing out that the difference in outcome between the stretch goal and
the realistic target makes clear to the company what additional resources must be
provided and how the plans should be modified. An example of stretch goals are the
corporate sales plans/forecasts issued in Autumn and their modification each month
of the following year in sales & operations planning.

Structured Walkthrough: Following the tentative design of a computer system by

IT staff, it is prudent and necessary that the design should be explained to potential
users and others having operational expertise in the area concerned and who will be
impacted by its installation, so that they can examine and criticise it. One method of
explaining the design being mooted is to describe it by way of a data flow diagram
(see DFD) - that is, describe it first through a top level overview, and then in
increasingly fine levels of detail.

Student's t test: a statistical test performed to determine whether or not one set of
continuous data is statistically independent of or dependent on another set of
continuous data. The workings out hinge on whether the distributions of the
populations of the two sets of data from which samples are drawn are normal or not.
The test is one of many that might be used at the Analyse stage of DMAIC in Six
Sigma. Of some interest also is the origin of the the name Student's t test. The
statistics were developed by one William S.Gosset in 1908 in Ireland. Gosset was
employed by Guinness Breweries in Dublin, and throughout his life published all his
valuable statistical articles under the pseudonym "Student". It has been
romantically suggested, however, that the reason for this cloak of secrecy was the
prohibition by his employer of the publication of scientific research by its
employees, and that Gosset used the pseudonym to get round this ban. It is certainly
true that a number of valuable contributions to science were made by Guinness
scientists, including very famously the discovery of indigo by Perkin at the Park
Royal (Guinness) Brewery in north London. What a pity that young Guinness
marketing staff today have not discovered how vastly superior is their brew when
served at ambient temperature, instead of cold with half the life expunged from it.

Sub-Assembly: See Assembly.

Suggestion Scheme, Employee: see Kaizen Teian.

Sunk Costs: costs which have been incurred and are utterly unable to be

Super Bill of Materials: A planning bill of materials having (1) an entry at the top
(ie at level 0) which is a single representative of a very large number of alternative
configurations of the final product able to be specified by customers, and (2) lower
level option variants with usages, or "quantities per", given as decimal fractions.
Such usages are based on the split of customer preferences between the different
option variants. An example is a super bill for a Ford Focus having a single entry at
the top called simply "Focus", even though this car can be made in many hundreds
of thousands of combinations of engine sizes, colours, gear boxes etc. Then, at lower
levels in the super bill, the various alternative options are entered as usages with
decimal fractions. Thus, since a Focus is available in any one of 10 colours, at a
lower level in the super bill, under the option variant "colour", there may be, say,
"Blue 0.07", "Red 0.20) ... meaning some 7% of customers for Focusses choose the
colour blue and 20% choose the colour red. See also Super Super Bill.

Super Item: The product at the top of the super bill of materials is merely a
representation, present for planning and conceptualisation purposes, of all the
combinations of option variants which can be assembled at the final assembly stage.
For example, a Ford Focus is a single representation of all possible Focuses, each
with its particular engine specification, body colour, radio specification, gear
specification etc..

Super Super Bill of Materials: It may be convenient where there are many "not
relevant" entries in a super bill of materials to restructure the bill so as to create
families within the total structure. An example is the restructuring of a previous
super bill for "lawnmowers", to create a lawnmower super super bill containing
three 3 super bill families: (1) electric lawn mowers, (2) small petrol lawn mowers,
and (3) ride-on lawn mowers. The three super items at the top of the three super
bills are now all subservient to a single "super super item" called simply "lawn

Super Super Item: The entry at the top of a super super bill. See Super Item.

Supplier: See Vendor for a discussion of the terms vendor and supplier.

Supplier Accrediation Scheme: In the management of a supplier relationship

(qv), the buyer expects the supplier to send in 100% conforming product. In order
to do so, the supplier must practice SPC (statistical process control) and operate a
process for any given product with process technical limits narrower than the
allowed product specification limits. Proof of the capability of his process in this
respect may be submitted by the supplier to the buyer on a periodic basis in order to
gain and maintain formal, documented "accreditation" as a quality supplier.
Following initial inspection and approval, the on-going conduct of any such scheme
will typically involve the submission of hard evidence (for filing on the buyer's
database). The scheme will also typically include surprise visits by the buyer from
time to time to the supplier's premises.

Supplier Base Reduction: see VBR.

Supplier, First Tier: A first tier supplier is responsible for the actual physical
delivery of material to a Just-in-Time customer. The 1st Tier supplier must ensure
that deliveries are made on the specified dates and at the specified times of day to
the nominated factory entry points, and that the goods delivered are physically
arranged for use on the customer's production line in the order specified. A second
tier supplier to a Just-in-Time customer does not deliver the goods directly. Instead,
the second tier supplier is so called because he delivers to a nominated 1st Tier
supplier, the 1st Tier supplier then making the material ready in the prescribed
manner and effecting actual delivery. There is no such thing as a third tier supplier.

Supplier Relationship Management (SRM): Any purchase by a buyer from a

supplier naturally gives rise to a relationship between the two parties (for example, a
contractual one). Since the advent of Just-in-Time, however, "supplier relationship"
has come to mean especially close involvement in the following areas: (1) Quality -
the buyer seeks 100% conforming products through the supplier's use of SPC, and
may institute "supplier accreditation certificates" (qv) to certify compliance. (2)
Communications - the buyer seeks instant communication with, and response from,
the supplier as his own manufacturing plans change in accordance with market
demand (*). (3) Product Improvement - the buyer will wish to see evidence of
constant technical endeavour by the supplier through value analysis to improve the
materials supplied, and if possible reduce their cost. SRM is the ongoing
management by the buyer of these three activities, and others. One instrument used
in management is sure to be a formal supplier evaluation scheme, to record delivery
and quality performance. (* The reason for perhaps reducing the number of
suppliers is simply to reduce the costs and time involved in establishing
relationships, especially in regard to communications, There is, of course, a great
danger that in doing so, valuable refinements of choice built up over the years will
be destroyed - see VBR.) See also Customer Relationship Mananagement (CRM).

Supplier, Second Tier: See Supplier, First Tier.

Supply Chain: To give an example, one link in a chain may be the commercial
procedures and agreement between a supplying company, Company C and a buying
company, Company D, including the means provided for the exchange of goods and
money. Now, first, suppose that another company, Company B, supplies goods to
Company C. Next, suppose that Company D supplies goods to a further company,
Company E. In this situation, the supply chain is extended to three links B - C - D -
E. And so on. Because of the interdependency of members of the supply chain, and
especially recognising (in the foregoing example) the interdependency of supplier B
and the final customer, Company E, the logistician looks for improvements that
might be made in data and physical communications between all participants in the
chain. An example of the interdependency of B and E is seen in the matter of quality
- if B has made a defective part, this part may go undetected and be eventually
incorporated in the final product used or made by E.
Supply Chain Simulator: A tentative name for computer software capable of
exploding a bill of materials extremely quickly (in seconds) to enable fast analyses to
be obtained, such as load reports, RCCP etc, making the use of these techniques
practical and easier than hitherto. The best known of the Simulators is webPLAN -
visit See The Manufacturing Manager, Ch 6.

Survival Rate: Because of what they are and their operating environment,
manufactured components are liable to fail after some time in actual use. (Failure
might mean burning up, wearing away, cracking open ...) The survival rate is defined
as the number of surviving units after a certain time, as a fraction of the original
number. If the survival rate is R(t), it is related to the failure rate F(t) as follows:
R(t) = 1 - F(t). See also Product Availability.

SVF: Simple Vector Format.

SVGA: Super Video Graphics Adaptor.

Swap Bodies: Trailers on vehicles that can be demounted onto small wheels,
enabling (say) the loaded trailer to be left at a customer's premises one week, while
the driver returns to base with the now-empty trailer he left last week.

SWAT (team): The acronym SWAT (Special Weapons And Tactics) originated in
the Los Angeles Police Department in the 1960s, and is occasionally used in industry
to mean a one-off problem solving group similar to a Six Sigma project team.

SWIFT: Simulated Work Input and Flow Time.

Switch Trading: A type of countertrading in which goods destined for one

country are diverted on the high seas to another country, in order to balance trade.

Switching Rules (Sampling): Important defined rules whereby incoming lots

may be sampled either by a normal sampling plan or by a more stringent, or
"tightened", sampling plan, depending on the experience of acceptances or
rejections up to a given point. (That is, if there have been so-many lot rejections, the
quality manager switches to a tightened plan.)

SWOT Analysis: Strengths, Weaknesses, Opportunities and Threats analysis.

Syllabus Order (SO): an old term for a cost centre.

Symbology: The pattern of black and white stripes which form the basis of a
particular bar coding system.
Syndicated Research: the conduct of market research surveys by a group of
companies selling a particular type of consumer item (for example, shoes, light

Synthetic Product: synonymous with super item, qv.

# A B C D E F G H I J K L M

t test : see Student's t test.

T / A: "Trading As" . A company that is legally incorporated as Company A carries

out its business under the name of Company B (usually for historical or trademark

T&N: Turner and Newall.

Tableau: (French: "table") A term used in the transportation algorithm for setting
out the basic data relating to the transportation network.

TACT: Total Average Cycle Time (net available time/weekly requirements, when
established under Heijunka). Also see Takt Time.

Tactic (in Negotiation): In a negotiation, one party is clearly acquainted fully only
with the facts about his own position - eagerness to buy, admiration of the product,
shortage of money ... A tactic is a ruse or subterfuge practised by one party in these
circumstances either to deceive the other party or narrow his options by misleading
him as to the true facts, in either case gaining an advantage over him. For example,
"The Engineering Department would like to pay your price of £15,000, but has only
£10,000 remaining in its budget". This budget limit is a gross lie, of course, but the
tactic may achieve its aim of obtaining the machine at the lower price. The more
expert the negotiator, the more natural and truthful seems the deceit he practises. It
is not a question of recognising what tactic is being used against you, but that a
tactic is being used. The best protection is outright cynicism, churlish though it
might appear to others. .

Taguchi, Genichi: A Japanese engineer and statistician noted especially for

describing the relationship between manufacturing quality and product design. In
product design, given upper and lower limits of target performance, it is recognised
that actual manufacture of many units will in fact show that there are differences in
product performance from one unit to the next (even though each is within the
target limits). In choosing between alternative product designs all meeting target,
Taguchi advocated the adoption of that design which would result in the minimum
range of performance among the individual units actually manufactured. The
advantages of doing so are twofold, said Taguchi. First, quality and process control
will be easier to maintain in manufacture (ie the production of parts conforming to
performance targets will be easier). Secondly, given that inherent variation in
manufacture is inevitable, at least with such a design the consumer will experience
greater consistency in performance from one manufactured unit to the next. See also
"Loss to Society".

Take-Back: See WEEE (End of Life Legislation).

Takt Time: the total time specifically spent in manufacture in producing one
object. Takt time as defined by Toyota, however, is the planned time allowable
between the completion of each vehicle model. Also see TACT. The word Takt is
German for metronome, this being strictly an instrument used in music for marking
the time by means of a graduated, inverted pendulum with a sliding weight..

TAPE: Task, Assess, Plan, Execute.

TAQ: Total Acquisition Cost. The sum of all costs incurred by a company in
ordering and holding stock from a supplier - ie Order Costs + Stock Holding Costs.
The "economic order quantity" (EOQ) is that quantity of stock to order which will
minimises the TAQ.

Tare: the weight of the wrapping, receptacle or conveyance containing goods which is
deducted from the gross in order to ascertain the net weight (OED). Thus if the
package including goods weighs 100 lbs (ie gross = 100 lbs) and the tare is 20 lbs, the
goods themselves weigh 80 lbs (100 lbs - 20 lbs). See also weigh counting.

Target Setting: The putting up of a measure of performance by management as a

desirable mark of customer satisfaction, in the hope that actual performance
achieved will reach or exceed the target set. Three erroneous suppositions are made
by management in setting a target: (1) that the achievement of a target is
independent of the system giving rise to the performance; (2) that failure to reach a
target is due to underperformance by staff ; and (3) that the theory of stable systems
and common causes is wrong. One must first state that the achievement of a
measure of performance is entirely dependent on the inherent nature of a system
giving rise to it, and if the performance is unsatisfactory, it is up to management to
change the system . Second, it is noted that 50% of staff will always be performing
below average* - what needs to be measured is the standard deviation of
performance. If the system is stable, it will then be found that all achievement lies
between the mean measure minus 3 standard deviations, and the mean plus three
standard deviations. Third, if arbitrary action to reach a target is taken on a stable
system, the system will be de-stabilised and made worse. It is surprisingly difficult to
get over to people the notion that mistakes can be made but things are still OK - that
the system remains in control. See Key Performance Indicator and see
Benchmarking. (*see Lake Wobegon!). Also see productivity and value added.
TAT: Turn Around Time. The total time to repair an item of equipment while at the
location of the repair facility (ie excluding transit time to reach the site of the repair
or the time to collect tools).

Taylorism: application of "scientific management" to the study of work and job

performance, as advocated by F.W.Taylor (1856 - 1915). According to Taylor, the
scientific management of work comprises two steps: (1) the planning and
organisation of work, including the analysis of job content and the setting of
performance standards, and (2) the carrying out of job tasks by the worker to the
standards laid down. Workers must be carefully selected and trained for the tasks
they will be required to perform, and, for maximum mutual benefit, there must be
close cooperation between management and workers.

Tb: Terabyte (1000 gigabytes).

TBPM: Time Based Process Mapping - a means of illustrating and examining the
durations of time involved in the steps of manufacture from supply to delivery, with
a view to eliminating unnecessary delays.

TCM: Time Critical Manufacturing.

TCP/IP: Transmission Control Protocol/Internet Protocol.

TCR: Temperature Coefficient of Resistance.

TDC: Total Delivered Cost.

TDM: Time Division Multiplexing.

TDMA: Time Division Multiple Access.

Tender: A tender (noun) is a document submitted by a vendor offering to supply

goods or services, being so submitted in response to a request to do so by a company
wishing to buy. The tender document constitutes a legal offer, so that, if it is
accepted by the buyer without any amendment, a contract is immediately formed.
(Note importantly that the original invitation to tender issued by the potential buyer
is not a contractual offer). Forms of tendering are (1) competitive tendering - the
potential buyer invites tenders from as many suppliers as possible, (2) selective
tendering - the buyer invites tenders only from a few favoured suppliers and (3)
negotiated tendering (also refered to as post tender negotiation, PTN) - the buyer
separately and independently negotiates with a particular supplier, the negotiation
centred on the supplier's response to a previous tender issued by the buyer at an earlier
point. Purchase through tendering is associated with government and local
government, and the procedure is claimed by politicians and civil servants to show
openness and honesty in the process of procurement.(For example, on receipt,
tenders are locked away, and opened in the presence of witnesses.) However, there
has been evidence that companies submitting tenders have colluded in the prices
they quote, for the simple reason, in a particular city, that they wish to pass the
work around . Tendering is looked down on in industry as being a reactive and lazy
way of buying, although clearly industrial sales departments must respond to
invitations to tender issued by government agencies.

Terotechnology: A word derived from the Greek and meaning the study and
management of an asset's life from its very start (acquisition) to its very end (final
disposal, perhaps involving dismantling and specialised treatment prior to scrap).
One of the most dramatic examples of the full consideration of terotechnology is the
construction, use and final decommissioning of an oil platform at sea.

TEWE: Technology for Enterprise-Wide Engineering.

TFP: total factor productivity - see productivity.

TFT: Thin Film Transistor.

TGW: Things Gone Wrong - a measure of system quality.

TGWU: Transport and General Workers Union (UK).

Theory of Constraints: A number of rules, procedures, algorithms and

recommendations connected with the management of a production bottleneck and
other matters, devised by Eliyahu Goldratt. Where several products can be made at
the bottleneck, the main issue is which products that require use of the bottleneck
output are to have their requirements satisfied in full and which products are to go
short. The principal that Goldratt applies is to allocate output in such a way as to
maximise the total financial contribution emanating from the plan as a whole. (The
mathematical optimisation technique of mathematical programming is required to
reach a solution.) Other issues in the theory of constraints are the sensitivity of the
optimised product mix finally arrived at to change, and the need to concentrate
entirely on the proficient operation of the bottleneck, if necessary to the exclusion of
all else. The theory of constraints covers wider issues than production bottlenecks,
however. For example, it addresses management questions relating to change. See
also OPT.

Theory of Runs: On a variable control chart used in SPC, probability will suggest
that the sample means will be distributed more-or-less evenly about the centre line.
If two successive sample means are on the same side as the centre line, the possibility
of this occuring is simply 1 / 2. If three successive sample means are on the same
side, the probability is (1 / 2) x ( 1 / 2) x (1 / 2) x 2. If nine or ten successive sample
means are on the same side, the probability is about 1 / 370, and this may indicate a
loss of process control.
Theory X and Theory Y: Theory X states that employees are antipathetic to work
and can only be cajoled into doing their best by money and perquisites. Theory Y
states the opposite - that employees enjoy work and its challenges, and can be
motivated by their employers' encouragement and recognition. These two theories
are no longer fashionable.

Threats: (1) In negotiation tactics, a landlord informs a commercial tenant whose

lease is about to expire, that the premises are required by another tenant and the
existing tenant's lease will not therefore be renewed. After this news has sunk in, the
landlord now says he might allow the existing tenant to renew his lease provided he
agrees to pay double the existing rent. The landlord had no intention of carrying out
the threat of terminating the lease, and the existence of another potential occupant is
untrue. What he is after is, of course, his "compromise" of double rent on renewal.
If the existing tenant can keep his nerve, in fact this is a straightforward negotiation
about the new rent. (2) In law, if Party A threatens to break a contract with Party B
unless B agrees to new or revised contractual conditions (eg an increased price),
Party A is exercising "economic duress" and threatening to commit a legal wrong.
Even if Party B signs the new agreement, the agreement will be vitiated (ie voided)
by the courts. (Among other things, there is no consideration present in the new
agreement, so that it does not constitute a contract!)

Three Bin System: In a two-bin system, if the size of a standard container is

relatively small and either the rate of use of the material is high or the time to obtain
a replenishment is lengthy, it may be justified to convert to a three-bin system
instead. In a three-bin system, if the second standby bin is never broken into before
the arrival of the replenishment, one should revert to two-bin.

TIFF: Tag Image File Format:

TIG: Technology Implementation Group.

Time & Motion Study: US terminology for Work Study. See Taylorism.

Time Fence (1st): In master scheduling, the duration of time from the present
moment to some designated time in the future (ie the first time fence) is termed the
frozen zone. Master scheduled plans in the frozen zone cannot be rescheduled by the
mechanism of the projected stock balance - ie if the arithmetic indicates that plans
within this zone are needed at different times, the system will merely issue
rescheduling messages. In some campanies, there may be rules restricting even the
master scheduler's freedom to reschedule plans in the frozen zone. The freeze zone
might be one week. In master plan management relating to stocked items, if the
projected stock balance falls below the safety stock level in the frozen zone, but not
below zero, no rescheduling message will be produced (safety stock "is there to
use"). Time fences have also been referred to as decision points and the frozen zone
the firm zone.
Time Fence (2nd): In master scheduling, the duration of time from the first time
fence to some designated time further in the future is referred to as the semi-frozen
zone. As with the frozen zone, the MPS system cannot reschedule plans within the
semi-frozen zone. If the arithmetic indicates material plans are needed at different
times, rescheduling messages are produced. In all companies, the master scheduler
is allowed to reschedule plans in the semi-frozen zone, but perhaps no one else.
There is some merit in setting the duration of the semi-freeze zone from the end of
the freeze zone up to the longest supply leadtime of manufactured and purchased
products. This will ensure that the raw material schedule remains stable when there
are small changes in the master plan. In master plan management relating to
stocked items, if the projected stock balance falls below the safety stock level in the
semi-frozen zone, but not below zero, no rescheduling message will be produced
(safety stock "is there to use"). The semi-frozen zone has also been referred to as the
trading zone.

Time Fence (3rd): In master scheduling, the third time fence (in so far as it exists)
is from the 2nd time fence to the planning horizon of the product. There are no
rescheduling restrictions, and if the projected stock arithmetic shows that plans
must be rescheduled, they are duly rescheduled by the system. It is very likely that
frequent changes will be made by the system to raw material plans and the plans of
components low in the bill of materials. Since such changes may be due merely to
the uneven arrival of sales demand, it seems desirable that the start of the third time
fence should be sufficiently far out that raw material plans which have actually been
communicated to suppliers should not be rescheduled. The third time zone has been
humorously called the liquid zone, but more elegantly as the free change zone.

Time Phased Order Point (TPOP): When an order is calculated to be required

under the order point system, then if the replenishment quantity received is R units
and the forecast of demand is d units per day, the replenishment R will last for R / d
days - ie a second order will be needed in R / d days after the arrival of the first one,
and so on. Time phased order point ignores the fact that at each months end, the
forecast of d units / day is liable to change. It is consequently extremely difficult to
see how it might be used other than in the context of the straightforward projected
available balance calculations, set out as a table.

Time-Series: In sales forecasting, a time-series is the arrangement of data to be

analysed in distinct, separate periods, such as the months of the year. The age of the
data is usually held as being significant - for example, older data is typically given
less "weight" or importance than more recent data in conducting the analysis and
arriving at a forecast.

Tim Wood: an amusing and useful mnemonic relating to waste and lean
manufacture as follows: T = the waste of Transport, I = Inventory, M = Movement,
W = Waiting O = Overprocessing, O = Overproduction and D = the waste of Defects.
See also Waste.
Tine: a prong of a fork, as in the expression the tines of a fork lift truck.

TIR: Transport International Routier (French for International Transport

Company). When displayed on a vehicle, it means that the vehicle is capable of being
sealed for customs purposes (but not necessarily that it is so sealed at the time the
TIR plates are displayed).

Title: Legal ownership. The title in goods, or legal ownership of them, passes to the
buyer either when the contract says so or when the goods are processed in such a
way as to change their physical form. Nowadays, contracts will normally specify
that title passes to the buyer only when payment has been received by the supplier.
(If title passed to the buyer, and the buyer subsequently became bankrupt, the goods
would be sold by the receiver in bankruptcy. If title still remained with the supplier,
the supplier would be able to re-possess them.)

TLA: Three Letter Acronym (an acronym being a word formed from the initial
letters of other words - eg FAS = Final Assembly Schedule).

TNE: Tolerable Negative Error. Under the average weight system (ie the "e" on
packages), the TNE is a maximum of 2.5% shortfall on the average weight. For
example, 1000gms of sugar sold as 1000gms "e", can legally have an actual range of
weight from 975gms to 1025gms. In this case, the TNE is 25gms.

TNF: Third Normal Form - see SQL.

TOC: See Theory of Constraints.

Tolerance: (1) In stock records accuracy, In determining whether a stock record is

or is not accurate vis a vis the actual amount of physical stock present, it is common
to apply a "tolerance" to the stock record figure. The tolerance is the amount,
usually expressed as a percentage, by which the actual physical count may differ
from the stock record such that the record is indeed still deemed to be correct. For
example, if a stock record was 500 units and there was a tolerance allowed of 5%,
then if the actual amount of stock was anywhere between 475 units and 525 units,
the record would be considered correct. One reason for setting tolerances relates to
the measurement of continuous material - ie measurements made in length, area,
weight, volume etc.. Because of the method used, there is certain to be a difference
between the measurement actually recorded and the underlying "true"
measurement (only known if there was an infinite degree of precision in measuring).
The second reason is more mundane: high record accuracy may be unimportant
with regard to the material concerned - small, cheap objects, for example. Note that
the existence of a tolerance only affects the decision on reporting correctness. For
one thing, it is the actual amount recorded that is used in, say, planning or sales
order processing, and the fact that it is or is not within tolerance is irrelevant. For
another thing, if the stock and the record do not agree, a correction is made and a
reason sought for the variance, regardless of whether it was or was not within
tolerance. See The Manufacturing Manager, Ch 18. (2) In engineering and
manufacture, the upper and lower limits of some dimension relating to a component
part, specified by the engineer, which an actual part must comply with in order for
it to be acceptable in manufacturing. The difference between the upper and lower
tolerance is referred to as the tolerance spread.

Tolerance Stacking: Theoretically, if four stacking components are to be

assembled with tolerance spreads of T1, T2, T3 and T4, the maximum spread for
engineering design purposes is (T1 + T2 + T3 + T4). However, if certain conditions
hold good, the maximum spread may be half this value.

Toll Manufacture: In the process industries, because of the size, specialisation and
capital cost of plant, it is common for Company A to send material to Company B
for processing and return, Company B being in possession of the special equipment
needed by Company A at the next stage of manufacture its product. The
manufacture performed by Company B is termed toll manufacture. (This
arrangement is also found occassionally in engineering industry, but is given no
special name.)

TOPS: Team Oriented Problem Solving.

Tort: The breach of a duty imposed by common law other than one where there is a
contractual obligation. Thus the tort of negligence; the tort of breach of statutory
duty, the tort of passing off, etc.. See duty of care.

Total Factor Productivity: see productivity.

Total Preventive Maintenance: A term sometimes mistaken for Total Productive


Total Productive Maintenance (TPM): TPM requires that its principles and
practices should be accepted as valid and central throughout the company - ie that
they should be accepted and supported by the most senior manager and the most
junior shop floor operator alike. The subject of TPM itself is usually thought of in
five divisions: (1) maintenance prevention (selection of equipment); (2) predictive
maintenance (historical analysis and the use of SPC); (3) corrective maintenance, or
improvement maintenance (upgrading equipment to prevent the recurrence of
breakdowns); (4) preventive maintenance (routine, regular work and inspection to
keep equipment in top shape); (5) autonomous maintenance (the training and
involvement of operators, and the transference to them of independent
responsibility - often regarded as the central plank of a TPM initiative).

Total Quality Control (TQC): The application of precepts and procedures

intended to promote continuous improvement within the company and the
production of goods and services conforming to customer requirements. Total
quality control applies not merely to activities relating to physical manufacture
(important though conforming product units may be). As well, it applies to such
non-technical activities as (say) the issuance of printed instructions to enable the
customer to use the units easily and the conduct of consumer surveys to ensure that
the requirements of the customer are anticipated in design and product development
in the first place.

Total Quality Management (TQM): The smooth operation of the activities

connected with total quality control will inevitably from time to time meet problems
or will be seen to be deficient in some way. TQM is the guidance, control, review and
adjustment of the operation of the procedures included in TQC. A formal definition
of TQM put out by the ISO is "Management approach of an organisation, centred
on quality, based on the participation of all members and aiming at long-term
success through customer satisfaction and benefits to all members of the
organisation and to society." (ISO 9000:2000).

Total Quality System: A means of focussing on customers' needs and thereby

enhancing customer satisfaction. (What a total quality system is most definitely not
is a manual of procedures, controls and targets).

Total Value: The cost to a buyer or consumer of a good that includes all
expenditure liable to be incurred, not just the purchase price itself. Examples of
costs other purchase price are the costs of breakdowns, maintenance, consumables,
energy consumed and - eventually - the cost of disposal.

Toyota Equation, The : An equation given by the Toyota Motor Car Company for
calculating the initial number of kanban cards to be provided in a Just-in-Time
manufacturing system. In words, the number of kanban equals the number of
production units to be made during the transportation lead time (to the next stage).
The equation is n = (d L (1 + b))/c, where n is the number of cards, d = the number
of units made per hour, L = the transportation leadtime in hours, b = a safety factor,
usually initially set at 0.1, and c = the number of units in a parts container, if one is
used. Toyota make the point, however, that the number of kanban calculated is
merely the start and that every effort must be made to reduce the number required
(and so reduce the stockholding).

TPI: Total Profit Improvement.

TPM: Total Productive Maintenance.

TPOP: Time Phased Order Point.

TPS: Toyota Production System - ie Just-in-Time.

TQC: See Total Quality Control.

TQM: See Total Quality Management.

T/R: Transmit/Receive.

Traceability: The ability to determine the origin of manufacture or destination of

supply of any given item and the detailed facts relating to such origin or destination.
For manufactured items, the traceable facts will include the production batch
identification number (eg leading elsewhere to dates, production details and quality
test documents etc) and other allied matters. For sold items, it will include the
address of each customer, the date of purchase and, if relevant, the id of the item
purchased. Maintaining manufacturing traceability is a legal requirement in the
pharmaceuticals and aeronautical industries.

Trade Bill: see Bill of Exchange.

Trade Creditors and Trade Debtors: companies which are currently credit
suppliers/credit customers.

Trade Descriptions Act, 1968: An act dealing with the application of false or
misleading trade descriptions to goods and services.

Trade Fair: A major gathering usually lasting 4 or 5 days in a national conference

and hotel centre at which manufacturers exhibit their latest goods to buyers
(wholesalers and merchants). An example is the giftware fair held at the NEC each
January, to the great inconvenience of non-attendees wanting accommodation in the
south Birmingham area at that time.

Trade Off Curve: See Exchange Curve.

Trading Day: A day on which the company is open for business with regard to
sales - see forecast period.

Trading Zone: the "semi frozen" part of the master schedule horizon - see 2nd
Time Fence.

Transaction: (1) Data. A single record of data, often describing an event such as
the receipt of a raw material or the completion of a machine operation. The data
may be recorded on a paper form or electronically. The data transaction may also
refer to the data processing system as it is actually transmitted through the data
processing system it is intended to support. Because there can be many different
types of event, there can be many different types of data transaction. (2) Computer
Software. In writing software to handle data transactions, it is customary for IT
personnel to write a distinct, separate program to process each different type of data
transaction. These programs are often referred to by them simply as transactions.

Transaction (Duplicate): In the maintenance of stock records or the recording of

shop floor data, a data transaction may be submitted twice by mistake. (Except for
the time of arrival in the system, the data in each instance would therefore be
identical.) In an on-line system, it is an easy matter for IT people to detect a possible
duplicate and warn the data inputter, giving him the opportunity to cancel it.

Transaction (Late): In reconciling a cycle count, difficulties are inevitable if an

unprocessed transaction remains within the system relating to an event which took
place before the stock was counted. For example, the stock count made at 10.00am
may be 140 units, the stock record at 10.00am may say 160 units, and there may be a
late unprocessed transaction in the system for 20 units relating to an issue made at
9.00am. If the stock record is changed to 140 in accordance with the count, and
afterwards the late transaction is received and processed, the stock record would
then take the value 120 units (140 less 20). How can the record be corrected by the
cycle count in these circumstances? Late transactions are usually prevented when a
count is about to take place by the drastic action of closing off the stock beforehand
so that transactions simply do not take place.

Transaction (Premature): In reconciling a cycle count, if the stock is released too

soon after the count, transactions relating to activity immediately after the count
may be processed, preventing correct count / record reconciliation. This problem
has been successfully overcome through software.

Transaction Trail: A VDU display of a computer stock record or shop floor

production job in association with the past recent data transactions that have been
raised relating to the stock or job. By following the transaction trail in reverse
chronological sequence, the user obtains a picture of the events which affected the
stock. The transaction trail is very useful in stock count reconciliation or in
reconciling the activities which took place during a production job. Issues in the
management of transaction trails include the eventual purging of old data

Transportation Algorithm, The: An optimisation procedure used to determine

which stock at depots with excess material are to be transferred, or "transshipped",
to which depots with shortages of material. The operation of the algorithm requires
the extents of the excesses and shortages of material at the various depots to be
known, and the costs to be known of moving material from any one specific depot to
any other. The transshipments determined are those whereby excesses are
transferred to shortage locations at least total cost.

Transshipment: In distribution, the customary flow of goods is from the centre of

the distribution network through the network via regional warehouses and
ultimately to the depots at the periphery (ie at the highest echelon). However, when
excess stocks come about for some reason at depots, or when emergency
replenishments become necessary, the logistician may decide to send goods from one
depot to another depot at the same echelon by non-standard network links.
Typically, these so called transshipments are from one depot to another depot, or
perhaps from a depot back to a regional warehouse. See The Transportation

Trend (in sales demand): A pattern of sales demand in which the level of demand
is growing (or declining) at a certain rate from period to period. The growth (or
decline) may be by constant amounts (ie having linear trend) or by accelerating
amounts (ie having exponential trend).

TRI: Toxic Release Inventory.

Trial Balance: In accounting, a trial balance is a check to see that total debits (eg
purchases, wages) equals total credits (sales receipts etc.). If debits do not match
credits, the accounts are wrong. (If they do equal, this does not mean that they are
necessarily correct, however.)

Trigg's Error Tracking Signal: Devised by Derek Trigg, one time of ICI in the
UK, the signal is a dimensionless number calculated from the past n forecast errors,
and is equal to: (the sum of the errors where signs cancel ... ie negative errors help
cancel out positive errors) / (the sum of the absolute errors ... ie where pluses and
minuses do not cancel). The worse the forecasts, the greater the signal value, up to a
maximum possible value of unity. In a forecasting system, Trigg's tracking signal
might be set, say, at 0.5, with any forecast series for which the signal equals or
exceeds 0.5 being brought to the attention of management. (But it is most unlikely
with moderen forecasting software that forecast errors will be large and persistant.)

TRIZ: Theory of Inventive Problem Solving, or theory of axiomatic design (the

initials are from the Russian acronym teoriya rescheniya isobretatelskikh zadatch).
Axiomatic design is a process for creating new designs and for analysing/improving
existing designs. (In English, an axiom is a "fundamental truth".) TRIZ was
originated by Genrich S. Althuller, an employee of the Soviet Navy, and is based on
40 axioms identified by him as being used over and over again to resolve technical

TRT: Transition Tree.

True Value: (of a measurement) See Error (True).

Trunking: The conveyance of large full loads along major transport routes, usually
as a first stage in the dispersion of product throughout the distribution network.
Trunking is carried out for cost saving reasons, before the later more expensive
distribution activity of local deliveries of many small lots - see Local Delivery.
Tue: a unit of measurement equal to the space occupied by a standard 20 foot
container. 'Tue' is used in stating the capacity of a container vessel or storage area,
and is an acronym of Twenty foot Equivalent Unit. A container vessel is considered
large if it has a tue of 7,000 or more. The Cosco Ningbo is currently the world's
largest container ship, with a tue of 9,449, a gross tonnage of 109,149, a length of
351m and a width of 42.8m.

Tukeys Test: One-factor ANOVA.

TUPE (pronounced chew-pee) - Transfer of Undertakings (Employment

Protection ) Act 1981: This Act relates to the protection of employees under
certain circumstances where the "undertaking" (see below) for which they are
currently working, and with which they have a contract of employment, is
transferred to another party. In very many instances, no special legal protection is
necessary. For example, if the undertaking is transferred to a new company as a
going concern, or if any such new company becomes the owner of the original
undertaking through the purchase of its share capital, the original contract of
employment simply continues as it was before, since the original undertaking
continues in existence (legally, at least). However, if as a result of the transfer, there
is a change in the employee's employer, the employee's original contract would
clearly be terminated under common law (ie under the law of contract). Under
TUPE however, the contract of employment is deemed not to be terminated. Instead,
TUPE provides for the contract to transfer unchanged to the new company. Perhaps
the most important consequence of this from the employee's point of view is that
when there is indeed a transfer, there is deemed to be continuity of the contract from
its very first existence under the original undertaking through to its rejuvenation
under the new one. Among other things, this affects such matters as the employee's
long-service and other seniority prequisites, his redundancy entitlement and such
other benefits associated with length of employment. Note that the question of what
constitutes as "undertaking" can be fraught. An undertaking may indeed be a
"company" but it is also held to be any economic unit performing some function
and possessing tangible assets.

Turn Round Time: This everyday expression is often used to mean the total
elapsed time to repair or refurbish a machine from the time the repair or
refurbishment is initiated to the time the machine is ready again for use.

Turnover: The total sales invoiced by a company during its financial year
(regardless of whether all such invoices have in fact been paid by the customers

TVA: Throughput Value Added

Two Bin System: A simple materials replenishment system in which a spare full
container of parts stands close to the container of parts being used. When the
container in use is used up, the full container is then brought into operation. As this
happens, an order is issued for a new replenishment bin from the source of supply.
Note with a two-bin system that the quantities of stock are not recorded and are not
known (except that the total quantity is approximately between one bin minimum
and two bins maximum). The system is entirely concerned with replenishment. It is
safer with a two-bin system to organise matters so that someone has literally to take
and return a physical container - because two-bin is essentially a simple, paperless
system, relying on people to process forms or tickets frequently leads to failures to
effect the necessary replenishment.

Two Level Master Scheduling: The master scheduling of alternative product

options in synchronisation with the creation and management of a schedule of work
to assemble such options to create final products as specified by customers. In fact,
"two level" master scheduling is a misnomer - only the alternative different options
are master scheduled: the final product is "final assembled" - see FAS. The
importance of two-level master scheduling is that it potentially provides for the
customer an enormous range of option combinations in a very quick time (*), since
the individual options have already been manufactured - all that is required is the
short final activity to combine the options in the final product. (*) If there are 6
option variants of Option Type A, 6 option variants of Option Type B and 10 option
variants of Option Type C, there are 360 possible final cominations. See also Master
Scheduling. Note that two-level master scheduling is not the same as multi-level
master scheduling, since with two-level there is a logical link between the two levels
provided by thesuper bill.

Tx: transmit.
# A B C D E F G H I J K L M

u-Chart: When a manufacturing operation is performed that affects a physical
area of product of sizeable dimensions, but the extent of the area of product varies
from one manufacturing operation to the next, it is not possible to track statistically
the number of undesirable quality attributes from area to area because of the
variation in their sizes. It is, however, possible to compare the number of attributes
per unit area. For example, if there are 510 paint flecks on an object of 1250 square
feet, this may be recorded as 4.0 flecks per ten square feet. The results are recorded
on a u-chart, time being on the horizontal axis and the number of attributes per unit
area on the vertical.

UC: Unit cost.

UCL: Upper Control Limit - see Control Limit.

UDDI: Universal Description, Discovery Interface.

Ultimate Consumer: The person who finally uses a good (eg the person who eats
manufactured food).

Ultra Vires: Latin - beyond legal authority or legal powers.

UMASS: A checklist methodology devised jointly by the University of

Massachusetts and the University of Salford to assist in the process of product
design from the viewpoint of ease of assembly.

Unascertained Goods: Unascertained goods are a seller's stockholding of

particular goods from which the buyer's order will be picked when the time comes.
When the buyer's goods are so picked from the stock, they become Ascertained
Goods - ie they have been identified and selected for sale.

Uncertainty (or absolute uncertainty): suppose that a physical property is

measured and that the value of the measurement is x. In the everyday use of the
word, there is clearly uncertainty as to whether x is the "true" dimension measured,
or whether the true value is different because of deficiencies in the means used to
make the measurement (eg due to the lack of precision of the measuring instrument
used or variations in the temperature at which the readings were taken). However, if
many measurements are taken of what is being measured, it is reasonable to say that
there is a "best" value (x best) equal to the average of all the measurements taken.
In considering the differences between the various values of x taken and the average
(x best), we may conclude that there is an uncertainty, known as dx, between any
individual measurement of x and (x best). Note that the fractional uncertainty (or
relative uncertainty, or precision) equals dx / (x best). Note also that the percentage
uncertainty = the fractional uncertainty x 100%. For an alternative explanation of
the foregoing, see Accuracy.

Unfair Contract Terms Act, 1977: Exclusion clauses puporting to limit a

consumer's rights under contract law are, in general, invalid under the Act. This
includes "manufacturers' guarantees" which attempt to limit liability. As between a
manufacturer and supplier, the Act may also limit an attempt by a big company to
exclude its liability to a small one. Exclusions in the buyer's standard printed
Purchase Order terms which are held to be unreasonable are also liable to be void.
No clause is valid which attempts to exclude liability for injury or death.

Uniformity: low variation among repeated outcomes of a process.

Unit Chart: See u-Chart.

Unit Load: Either a load comprising a full standard pallet (see pallet) and the
goods placed on its platform or the goods comprising a full standard ISO container.
The building up and carriage of unit loads enable great economy and convenience to
be realised in the provision of material handling equipment from one industrial user
to the next.

Unit of Measure: The system by which the quantity of a specified material is

accounted for and expressed. Examples are feet, kilograms, each, milligrams and
gallons. Clearly, as we are all aware, the same substance or phenomenon can be
recorded in alternative units of measure. Consequently, one might refer to stocking
units of measure, as opposed to production units of measure. Lack of clarity in
expressing units of measure can lead to mistakes in stock records accuracy.

Unitisation: The design of packages and containers in such a way as to enable

them readily to be formed into unit loads (qv).

Unliquidated Damages (legal): Damages sought by a party to a contract, the

amount of money to be decided by the court after hearing evidence of the injured
party's loss. See Liquidated Damages.

Unpacking Note: A document accompanying a supplier's delivery which contains

full details of the items sent - eg the identity and quantity of each type of good. The
unpacking note is used by the Good Inwards supervisor to verify the delivery and
update the stock records. See Delivery of Goods.
Unreasonableness Check: A computer software check which highlights any
quantity of a product which is unusually larger or unusually smaller than quantities
recorded for this particular product in the past. For example, a raw material receipt
may be recorded as 2, but the product concerned is usually received in boxes of 100.
Is the receipt really of 2 units, or should it have been recorded as 200 (ie 2 x 100)?
The unreasonableness check does not invalidate the transaction - the software
simply prompts the person inputting the data to double check his entry.

UNTD12 : a technical standard for the transmission of EDI messages over

telecommunications links, being part of the TRADACOMS message set. Frequently
used in the UK.

UOM: Unit of Measure.

UPC: (Universal Product System) - a bar coding system devised in 1973 by IBM,
and used in bar coding groceries in supermarkets. Its advantage is that the code or
label does not have to lie flat when scanned by the bar code reader.

UPS: United Parcel Service (a US carrier service).

UPT: Ultrafine Pitch Technology.

Upper Control Limit: See Control Limit.

URL: Uniform Resource Locator, used as shorthand jargon for the address of an
Internet site..

Usage: Within a bill of materials structure, products are seen to be made from
other products. For example, a bicycle is made from 2 wheels. The amount of a
component product used in the manufacture is its usage, or quantity per. In the
bicycle, the usage or quantity per of wheels in the final assembly is 2.0.

Usage (Annual): The amount used each year of a product or (often) the amount
per year purchased. The amount may be expressed in units or in financial value.

UV: Ultra Violet.

# A B C D E F G H I J K L M

VAD: Value Added Distribution.

Value added: in the eyes of a customer, the value of something might be defined as
its inherent worth to him - what he is prepared pay for it. One might become very
philosophical at this point, and say that many things we find "valuable" can have no
monetary value attached to them (eg good health). However, in the hard headed
world of manufacturing, added value is often used as a measure of a company's
productivity and may be defined as "sales revenue from a product, less the cost of its
purchased materials & services". Two problems with this definition are (1) it does
not isolate a change in added value due merely to price changes (affecting revenue),
and (2) it does not distinguish a change in added value due merely to changes in
costs, as opposed to changes in efficiency. A further definition of value is: Value =
function of (satisfaction of needs)/(use of resources).

Value added time: in lean manufacture, that time over the production cycle
during which actual, physical operation is taking place. See process cycle efficiency.

Value Analysis: engineering and technical investigation of an existing

manufactured product and its constituent components to seek alternative designs or
alternative materials which would improve its function or lower its cost of
manufacture. In a supplier relationship, the purchasing company should expect the
supplier to undertake value analysis on the items supplied, thereby enhancing their
quality. A question to ask, however, is how can the buyer know whether a competent
effort has been made by the supplier.

Value Engineering is as value analysis, but carried out on a potential product still at
the design stage.

Value Discipline: A notion put forward by Prof. Michael Porter in his book
Competitor Strategy, a value discipline being a dominant area of management
interest and expertise, usually being either product leadership, or operational
excellence or customer intimacy. Porter contended that that a company will/can
focus on only one of these three value disciplines, but that a balance should be
struck - that is, competence must be achieved in the other two.

VALPAK: A collective waste compliance scheme associated with Packaging Waste.

Value-stream mapping: A lean manufacturing technique that maps the flow of
material and data--and associated time requirements--from initial supplier to end
customer for a given business process.

VAR: Value Added Reseller.

Variable Control Chart: In SPC, a small sample of manufactured parts is

inspected at appropriate intervals of time, and some particular quality
characteristic measured relating to each part. The mean (ie average) of the sample is
calculated and also the sample range (this being the difference between the largest
value in the sample and the smallest). The sample mean and sample range are
plotted on a graph, in which the horizontal axis denotes the time of day and the
vertical axis denotes the two measurements just described. This graph is a variable
control chart. (The "variable", of course, is the measured quality characteristic.)
See also Attribute Control Chart.

Variable Cost: See Cost (Variable).

Variable Costing: See Costing (Variable).

Variable Location Storage: A storage area in which products or SKUs are

assigned to storage locations by a software program (often referred to as a putaway
algorithm) at the moment the goods enter the facility requiring to be physically
stored. The software will choose a free, or empty, location and direct the storeman to
put the stock away in that location. The program may choose a location for an
incoming product nearest to existing stock of that product and will also typically
distinguish between easy-to-pick locations ("the golden zone") and less easy ones.
Products having the highest pick densities will be allocated for storage in the golden
zone. The system must be consulted in order to find the whereabouts of stock in the
facility so that it can be picked. If the stock of a particular product is stored in
several locations, the software will typically direct such picking on a FIFO basis - ie
direct the picker to pick the oldest stock first. See honeycombing and see The
Manufacturing Manager, Ch 18. For an effective way of maintaining the accuracy of
stock records of stock held in in variable location storage, see Batch Progress

Variable Pay: "Pay at risk" - pay awarded to an employee for measurable,

achieved results. Examples are the commission paid to salesmen based on achieved
sales, and bonuses awarded to shop floor staff based on achieved production. The
strict criterion for variable pay is that, in order for it to be obtained a second time, it
must be earned a second time. (Note that performance related pay is based on the
acquired skills of the employee, and is not therefore variable pay.)

Variance (In costing): as actual production is achieved over the year, it is

inevitable that the quantities manufactured will vary from the forecasts for them
made when the standard costs were originally calculated. (The forecasts for the sales
products are exploded through the bill of materials to give production forecasts. It is
on the basis of these that the costs of manufacture are worked out.) . A further
variation of reality from what was assumed in the past in the original calculations is
likely to be in the prices actually paid for materials, expenses and labour versus
what it was assumed would be paid. The difference between standard, or forecast,
expenditure and actual expenditure is termed a variance. The two variance types are
volume variance and price variance (See Variance (Volume) and Variance (Price).)

Variance (Price): In costing, a difference (ie variance) between standard

(budgeted) expenditure and actual expenditure due solely to a difference in price
between the price assumed in standard costing and what transpired in practice.
Price variance is defined as (Actual Quantity) x (Standard Price minus Actual Price
per unit). See The Manufacturing Manager, Ch 17.

Variance (statistical): One way of obtaining an appreciation of the composition of

a set of numbers is to calculate their average value, or mean, denoted by "xbar" (ie
an x written with a short line over it). For example, the mean xbar of the group of
numbers 8, 3, 5, 5, 6, 9, 2, 3, 1, and 8 is 5.0. A second way of appreciating the
numbers might be to state their range ... ie the difference between the smallest and
the largest (in this case a range of 8 ... ie 9 - 1). The most widely accepted method of
gaining an appreciation, however, is to calculate the variance of the numbers,
denoted by s SQUARED. The variance of n numbers is defined as s SQUARED =
SUM from i = 1 to i = n of ((x subscript i - x bar) SQUARED) / (n - 1). In the
example of the ten numbers above, the variance is 68 / 9 = 7.55. Note that in the
example, if the values all related to some metric such as inches, the variance in such
a case would be inches squared; a handy expression which avoids square
measurements is therefore to take the square root of the variance, s. The square root
of the variance is better known as the standard deviation, s. In the ten number
example, s = 2.75 inches. (Note that the term (n - 1) denotes the degrees of freedom,
qv.) Variance is synonymous with mean square (ie mean squared deviation from the
mean) - the term mean square is more usually used in ANOVA.

Variance (Volume): In costing, the difference (ie variance) between the standard
(budgeted) expenditure and actual expenditure, due solely to a difference in volume
between the amount it was assumed would be made or purchased (in calculating the
standard originally) and what was, in practice, actually made or bought. Volume
variance is defined as (Standard Price) x (Standard Volume minus Actual Volume
Made). See The Manufacturing Manager, Ch 17.

VAT (Value Added Tax): A flat-rate tax levied on all services and on almost all
goods (*) by government, acting through HM Revenue & Customs. The tax is added
to all invoices as they are raised from one stage to the next, starting with the original
supplier and paid by the various buyers along the supply chain, to the ultimate
purchaser at the final stage. The VAT paid, however, is claimed back from the
government each quarter by each participant in the chain except for the consumer
or company constituting the final link. VAT was introduced in the UK in the 1970s,
and replaced a previous multi-rate sales tax, levied only at the final stage, termed
"purchase tax". To claim back VAT, a participant in the supply chain must be
registered with HMR&C (to obtain a VAT number), and be in possesion of a "VAT
invoice" relating to the payment being claimed back. A VAT invoice is merely an
invoice showing the amount paid and the VAT registration number of the company
raising the invoice. (* In the UK, the current rate of VAT is 17.5%, but the tax is not
levied on foodstuffs, children's clothes, retaurant meals, books or newspapers.)

VBR (Vendor Base Reduction): In the 1980s and the coming to prominence of
Japanese manufacturing techniques, Just-in-Time companies such as Toyota were
seen to operate with far fewer suppliers (or "cooperating companies" as Taiichi
Ohno called them). In the JIT company, because of the amount of work needed to
arrange for daily material deliveries from very many suppliers and to put in place
quality accreditation schemes based on SPC and process capability indexes, the
retention of a very large supplier base would not have been practical. Thus two
reasons for initiating a Vendor Base Reduction programme are: to keep in check
communications costs and to keep in check the staff time needed to administer
quality schemes. Others reasons include the need to limit the staff time necessary to
manage cooperative ventures on technical matters (continuous improvement and
value analysis), to ensure contract security (with fewer vendors to track) and
(because of larger volumes springing from sole supply) to obtain significant price
reductions. In initiating a VBR drive, the purchasing manager should be aware that
if buyers in the past have been competent and industrious, the VBR scheme will
inevitably destroy the refinements of choice they have made over the years. A target
aimed for by the manager such as to cut the number of suppliers by 50%, which is
set outside the context of other major company initiatives in lean manufacturing,
logistics, kaizen and quality, suggests a shallow understanding of the principles on
which VBR is based. Thus VBR is not of itself "good". Instead, it may merely be
necessary in order to support and make practical the other programmes. A
particular problem spoken of by many buyers in companies which have set up
formal vendor schemes is the sheer bother and difficulty which usually results in
later getting rid of suppliers who are not performing well and replacing them with
alternatives - in other words, with VBR, lean may not turn out to be "agile". See
The Manufacturing Manager, Ch 16.

VDSL: Very High Speed Digital Subscriber Line.

VDU: Visual Display Unit, UK English for the American "CRT".

VE: Value Engineering.

Velocity Ratio: a measure of the speed at which material moves through a supply
chain, and defined by (total duration of all stages in the supply chain during which
value is added) / (total elapsed time).
Vendor: A word best reserved for an organisation offering items for sale, but not
necessarily selling to a particular company. The word supplier, by contrast, might
best be taken to means a vendor that is actually selling to the customer. For
example, one must merely speculate as to the probable delivery performance of a
vendor; the delivery performance of a supplier, however, is directly measurable.

Vendor Base Reduction: see VBR.

Vendor Hub: A warehouse holding stock supplied and owned by many supplying
companies, the stock being for delivery on request to a small number (or one)
customer. The warehouse is operated by an independent third party
storage/distribution company, these services being paid for jointly by the companies
whose stock is being stored. By giving the arrangement a smart, modern name
("vendor hub"), the participants are able to close their minds to the waste inherent
in the practice.

Vendor Managed Inventory: see VMI and Stock (Consignment).

VESEL: Vertical Cavity Surface Emitting Laser.

VFD: Video Fluorescent Display.

VHIIP: Virtual Factory Information Interchange Project.

Vicarious Liability: Liability assumed (ie taken on) by one person on behalf of
another - in the context of manufacturing industry, this can be taken to mean the
liability of the company for the tort, or wrong doing, of its employee. (It will be
recalled that the company is a legal entity consisting of the body of its directors and
staff acting according to its own rules and going about its everyday business.) The
vicarious liability of the company for the action of its employee can only arise when
(1) the tort, or wrongfull act, was authorised by the employer, (2) the tort is
committed by the employee doing something which was authorised, but in an
unauthorised way, and (3) when ther tort was committed by the employee, the action
was then ratified by the employer. A defence in court by the company is often that
the tort, or crime, was not committed in the course of the employee's job, or

Vineyard Economics: a somewhat off-beat term that recognises that for some
investments, the capital cost incurred in the start-up of an enterprise is insignificant
compared to the operating and materials costs that will later be incurred and the
sales revenue that will later be generated. (The cost of the land on the hillside in
Burgundy and the purchase and planting of the vines v. the time and care to nurture
the vines over a couple of hundred years, and, each year, the necessity to harvest,
press and ferment the grapes ... thus in regard to the original capital to buy the hill,
what is important is not the payback relating to its cost, but the economics of the
consequent activities.)

Viscious Circle: In the context of shop floor control,a viscious circle is the
unending sequence of activities which lead to a very lengthy, permanent queue of
work waiting at a work centre. The viscious circle starts with the release to the work
centre of more work than it can handle. The consequence is that the leadtimes of
jobs there rise and complaints are heard from customers. The company now
increases its official leadtime to quell the complaints. As a result of the increased
leadtime, the work that customers were intending to submit in the future is now seen
by them to be past due. This new work is all released to the company. The company
responds to the surge of this new work by again releasing it to the work centre,
which becomes even further overloaded, and begins missing its new, longer leadime.
More complaints are heard, and in response the company again increases its official
leadtime. Once more, customers replace the old leadtime with the revised values,
and once more then discover that work they were going to release in the future has
become past due. This new work is once more released to the company, overloading
it even further. The viscious circle stabilises only when the leadtime become so great
that it is out of the horizon of customers' planning systems, or customers find
alternative suppliers. The viscious circle can be reversed by the virtuous circle.
Here, the company reduces its official leadtimes and informs its customers. Work
which customers were to have released in the future is now seen by them to be no
longer due, and is held back. As orders temporarily dry up, the company takes
advantage of the lull and clears up some of its outstanding queue. When this has
been achieved, it announces yet a further reduction in its official leadtime, and again
customers find that work that was to have been released is no longer due and need
not be submitted. The viscious circle can be avoided in the first place through
Input/Output control - the strict management of queues at gateway work centres.

Vitiating Factor (legal): A contractual term which is void - ie legally

unenforceable. There are many instances where signed agreements are either partly
or wholly void. Thus in the UK, all contracts involving betting, or wagering, are
void, as are all contracts which involve violation of criminal law. See also Unfair
Contract Terms, and Exclusion Clauses.

VMI: Vendor Managed Inventory, being (1) a means of fooling customers that
stockholding and associated costs are bourne by the vendor, and are not
surreptitiously passed on to the custmers in numerous ways, and (2) an inducement
to customer complacency in such matters as quality and inventory management.
More seriously, a definition of VMI is merely inventory at the customer's premises,
but controlled by the supplier. Importantly, VMI is paid for and financed by the
buyer and is "off the supplier's books". A further common feature of VMI is that
the schedule of the stock replenishment is directly determined by the supplier
himself, not by the buyer. In these two important respects, VMI is different from
Consignment Stock (qv).
VNA: Very Narrow Aisle - a close-packed warehouse storage arrangement. Among
other things, a VNA arrangement must be supported by "super flat" flooring.

Vocabulary (of Stores): Not the cheerful, ever polite discourse of storemen
discussing technical and philosophical matters, but the means of coding stored
items. Like all codes, those of stored items must be (1) unique for each item stored,
(2) meaningful (if possible) and (3) succinct. There is clearly a clash between
succinctness and meaning. To support the case for meaningful codes, we note that
storemen cannot always be closely familiar with the vast range of goods and package
types that they are required to store, and wish to avoid mistakes in picking and
putting away. To support succinctness, it is noted that the human brain cannot easily
memorise and recall codes greater than 7 digits in length at a single glance. If codes
of 8 or more digits are used, stock recording mistakes are inevitable.

Voice Directed Picking: The picker of goods (in a stores or warehouse) wears
apparatus on his head that enables him to hear picking instructions transmitted by
the system and to respond to the system after a successful pick by voice. Unlike
picking instructions transmitted in other ways, voice directed picking leaves both
the warehouseman's hand free and considerably reduces the cost of the most
expensive operation in the warehouse. A popular commercial system in Vocollect.

Voice of the Customer: This phrase refers to the precept that during the design
and development of a new product, those responsible should never forget that the
product must be wanted by the customer and must be attractive to him. See
especially "Quality, function, deployment".

VOIP: voice over Internet protocol - ie the technical procedure which permits the
use of the Internet for free (or cheap) voice telephony.

Volenti Non Fit Injuria (legal): (Latin: no harm can be done to a willing person)
The principal that if someone is fully aware of the risks of an action, but
nevertheless willingly undertakes it, he alone is liable for any injury he subsequently
sustains. A duty of care is not owed to such a person.

Volume Movement: a metric used in stores and warehouse planning, being "the
volume of an item stored and picked per month". In storage planning, volume
movement is of greater importance than pick popularity - see pick density. Two
typical statistics relating to volume movement in the store/warehouse are that 15%
of all items account for 80% of total volume movement, and 50% of items account
for less than 0.5% of volume movement.

Volume Variance: See Variance (Volume).

VOR: vehicle off (the) road, implying the need for immediate spares availability
and fast attention by those making repairs.
VPM: (1) Virtual Product Model; (2) Value Per Million opportuniities.

VRML: Virtual Reality Modelling Language.

VRP: Variability Reduction Process. Procedures and techniques aimed at

increasing the reliability of a process and reducing the variability of manufactured
units. Kaizen and Six Sigma on the shop floor!
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3 way match: a company's internal validation of a supplier's invoice, a physical
receipt and the company's purchase order. (If all details match, payment can be

5W2H: "What, Why, Where, When, Who" + "How, How Much" ... A checklist for
proceeding with an investigation, especially one assessing whether a process adds
value or contributes to customer satisfaction. For example: (1) What - what is being
done, and could it be eliminated as an activity?; (2) Why - why is the task necessary,
and can we clarify its purpose?; (3) Where ...

W3: www (ie the world wide web). Also W3C, world wide web consortium.

WACC: weighted average cost of capital.

Wages: money paid by the company to an employee in accordance with his contract
of service - see pay.

Waiting Line: See Queue (2)

WAN: Wide Area Network (also see LAN).

WAP: Wireless Application Protocol, the technical rules and procedures which
allow mobile phones or hand-held computers to access the Internet.

Warehouse (see also Stores): Usually a building furnished with racking for
holding finished goods stock to enable customers' orders to be picked, packed and
despatched. See also Bonded Warehouse.

Warehouse Management System: see WMS.

Warranty: (1) In legal parlance, an express or implied term in a contract which is

not central to the contract's main purpose. For example, in a contract to supply a
machine tool, the supplier may undertake to provide 10 copies of the machine
operating manual. The undertaking with regards the 10 copies is likely to constitute
a warranty. Note that a warranty may be express (written down) or implied (not
written down, but presumed to be part of the contract by custom and practice). See
also Condition (legal). (2) In the consumer market, a warranty is a statement
guaranteeing the performance of what has been sold, and offering - up to a specified
time limit - to make good any deficiency thereof.

WASP: (1) A schedule of procedures for dealing with job applicants at interviews
.... thus: W = welcome; A = acquiring (knowledge); S = supplying (information); and
P = parting. See Rodgers Seven Point Plan and Fraser's Five Point Plan. (2) White
Anglo-Saxon Protestant, a term occasionally used in the US, not always respectfully,
to denote citizens having a racial and religious affinity with the Nation's founding

Waste: A goal of lean manufacture and Just-in-Time is said to be the

accomplishment of manufacture in which waste and wasteful practices have been
eliminated. A prime example of waste put forward by exponents of lean and JIT is
famously "inventory". Examples of wasteful inventory include WIP created due to
the manufacture of production lots in excess of net requirements; and the
production of non-conforming items. Wasteful activities are said to be those adding
"no value" to the customer's enjoyment of the product, and include waiting time
incurred by operators; the inefficient movement and transport of materials, perhaps
due to poor plant layout; and process and machining activities originating in poor
process and product design. See the useful "waste mnemonic" Tim Wood! See the
allied topic of plant housekeeping under SSSSS.

WastePak: A collective waste compliance scheme associated with Packaging Waste


Wave Picking: Also known as batch order picking, wave picking is the
simultaneous picking of multiple customer orders, done to improve the efficiency of
the overall picking operation ( for example, by reducing travelling time). As might
be supposed, there are numerous schemes for carrying out wave picking. For
example, a batch of picking requirements constituting all the orders for a morning a
can be "exploded" into different picking lists for each storeroom or zone, and each
zone's pick list then sorted into stock location sequence. Each of these lists might
then be split into "sub-lists", each sub-list estimated to require approximately the
same product picking time. The storemen or warehousemen must deliver the picked
items from his sub-list to a designated order sorting area.

Waybill: A document recording the destination, route and sender of a load, and,
where applicable, the consignee. Waybills are often used for tracking the progress of
a load (or tracing its whereabouts if it becomes lost).

WBS: Work Breakdown Schedule.

WCDMA: Wideband Code Division Multiple Access.

WCM: World Class Manufacturing, a term used particularly by Richard
Schonberger for Just-in-Time (qv). See The Manufacturing Manager, Chapter 15.

WDA; WDV: (1) Writing Down Allowance; (2) Written Down Value - (1) the
permitted amount a fixed asset is to be allowed to depreciate in the company's book
of accounts. (2) the cost of an asset less its accumulated depreciation - ie the asset's
current "book value".

WebPLAN: A supply chain simulator (qv) for exploding bills of material very

Wedge: (aka decoder) a hardware device that allows a user to connect a bar code
scanner or other device (such as a weighing machine) to a computer terminal. To do
so, a keyboard wedge interface is usually employed, allowing any data scanned to be
output as ASCII characters directly onto a computer screen.

WEEE (Waste in Electrical and Electronic Equipment directive): This

immensely disruptive and onerous legislation was expected to become law in August
2005, but has been deferred (again) to sometime in 2007. Its purpose is to force
manufacturers and retailers to "take back" and recycle products at the "end of
life". Products include all household appliances, IT and consumer equipment,
certain toys, sports equiment and medical devices, and include not only the basic
products themselves but all peripheral apparatus including electrical cabling. As
well as "take back", obligated companies must provide suitable networks whereby
products can be returned by consumers for recycling, at no direct cost to themselves
(ie the consumers), although it expected that actual collection will be through civic
recycling centres. It is estimated that the cost of transporting WEEE from civic
community or consolidation sites to the recycling points will constitute 60% of the
total disposal cost (casting doubt on the value of the whole scheme). As a measure of
the problem which WEEE claims to solve, 200 million electrical items per year are
committed to landfill sites. The regulations cover historical waste - ie items put on
the market before the legislation - as well as future waste. A company's liability for
historical waste is based on its current market share, regardless of the fact that
market share is likely to have changed, perhaps considerably, since the original
products reached their end of life. As a consequence, companies' liability in this
regard is unknown and unknowable. Liability for future waste will be calculated
based on tonnage sold, and requires that records be kept and that all products sold
should be marked and later identifiable. To achieve compliance, it is expected that
most companies will join a compliance scheme. One example is REPIC, a not-for-
profit scheme set up by Dyson, Electrolux, Hitachi and others, A second scheme is
ERP (European Recycling Platform), an alliance of Braun, HP, Sony and others. In
addition, companies engaged in WEEE schemes have developed integrated recycling
plants capable of adaptation to any type of product requiring recycling. WEEE
officials encourage end of life disposal to be taken into account at the product design
stage. Needless to say, this outrageous legislation has its origin in the hated
European Union; the EU gauleiter in charge is one Roberto Ferrigno, director of its
Environmental Bureau. For assistance on WEEE, see Midex Reverse Technologies,
who are offering a scheme in conjunction with Christian Salvesen. Also visit
Wincanton (Wincanton operate a £4.5m WEEE recycling plant in Billingham, Co.
Durham, capable of processing 75,000 tonnes per year). See also flytipping. Also,
especially, see Returns and Reverse Logistics.

Weigh Counting: this method of counting items dispensed from a stores or

warehouse is used when items are small or light. It is normally done on purpose
made weigh counting scales. (The first thing to note is that a scale should be selected
that has a sensitivity appropriate to the weight of the items being counted - ie if the
items are light, the scales should be more sensitive). The procedure follows three
steps: (1) First, the "tare", or base weight, of the container in which the parts are
held should be determined most carefully by separate weighing - say, weight T,
which is entered into the memory of the weighing scale; (2) Next, a sample of the
items to be counted should be taken and counted out most carefully, and the total
weight, including the container, determined. Say there were 12 items in the sample,
and the total weight was was W. This data is again entered into the memory of the
scale, which is then able to calculate the unit weight of one item. In our example, this
is (W - T)/12, or X. Finally, (3) we weigh all the items which are to be counted. Say,
the weight is B, including the container. The number counted is given directly by the
counting scale, and here is (B - T)/X. Note that ideally in order to be sure of the
accuracy of the unit weight, 4 or 5 weighings should be taken and averaged. This is
because the differences in weight between the units being weighed is random and
the statistical distribution of these differences is Normal. The most important factor
is to obtain an accurate reading of the tare weight of the container. Substantial
errors can arise if the same unit weight X is applied in weighings involving
apparently identical, but different, containers, each container therefore having a
different tare weight. Note that a variation of this method of weigh counting is
reverse sampling.

Weights & Marks: Like controlled convergence, the weights & marks procedure
is a means of evaluating and deciding between several contending options, where a
true evaluation cannot be made on strictly quantitative terms. Examples of the use
of weights & marks might be in deciding on a software package (from several
alternatives), choosing a supplier (from among several vendors) or choosing an
engineering design from several alternative contenders. Weights & marks proceeds
in three stages. First, all the desirable attributes, or characteristics, that the finally
chosen selection should possess are written down in a list, and each one is weighted
as to its degree of importance or desirability (10 = vitally important, 1=
inconsequential). The weighting process cannot be scientific, but it is informed.
Secondly, each contending choice is considered in turn in relation to each weighted
attribute and the contender duly marked as to how well it is judged it fulfils the
attribute required. Finally, for each alternative contender, each attribute mark is
multiplied by its corresponding weight to give a partial score; all partial scores are
then added to give an overall score. What is useful about weight & marks is the
controlled procedure itself and the requirement of those participating in it to "make
a statement" by assigning numerical values to the weights and the marks. The final
scores themselves are not especially valuable, and it is not unknown for the person
charged with presenting the final selection destroy them. Members of the selection
team must beware of pre-empting their final choice because of excessive enthusiasm
for one contender.

White Goods: Such consumer items as fridges, freezers, washing machines and
other relatively large domestic items. Contrast "brown goods".

White Noise: In sales demand and forecasting, the presence in the demand data of
random order placements not in accordance with the general pattern or level of
demand. Contrast black noise, a humorous term meaning data processing and data
file mistakes in demand data.

Window Scheduling: Synonymous with operation compression (qv) in leadtime

management (see The Manufacturing Manager, Ch 11).

Winter's Linear and Exponential Smoothing: Devised by P. R. Winter, a

combination of the use of seasonal factors and exponential smoothing (one of the
two techniques used in parallel within IBM's MAAPICS DB forecasting system - the
other being Bayesian.)

WIP (Work in Progress) (US - Work in Process): WIP is material on the shop
floor or on the plant, in the process of transformation and therefore currently being
worked on. An important distinction must be made in considering WIP between the
financial view and the view of inventory control. The financial view is that material
at every stage of its progress, at which value is added, from after the point of raw
material, up to but not including the point of finished goods, constitutes WIP. As
such a value must be ascribed to it. This would include, say, a component which
required four operations according to its bill of materials, and which at a moment in
time had had only two of those operations performed on it so far. The inventory
view of WIP is that it is material in transition, and is definable (if at all) not by its
stage of manufacture but by its location and the degree to which it has been
committed to the manufacturing process. That is, WIP is not based on the physical
state of the material. Instead, it is based on the Bill of Materials and the
transactional state of materials. For example, suppose one picks material M and
issues it to a production order. Material M is now WIP. However, suppose instead
one delivers material M to the work centre but does not issue it to production.
Material M remains as stock and is not WIP. In summary, in inventory control,
stock is transformed by the manufacturing process into WIP and so ceases to be
"stock". It becomes stock again only when each manufacturing step, or operation, is
complete and reported. (That is, in a multi-operation manufacturing route, material
will become successively stock and WIP several times as each step is completed and
reported.) Note that for planners employing a conventional manufacturing planning
system, material which constitutes WIP will always have started as "stock" and will
always end as "stock". For them, this is an important principle to remember - thus
physically, it is possible to purchase a component and move it directly into WIP. This
is not possible, however, if, say, MRP is being used. Under MRP, a formal planning
record must first be created for it ... ie planning insists that as far as the system is
concerned, it must first be formally received, or set up and recorded, as stock and
only then issued to WIP. Under lean manufacturing, however, all material is held as
on-hand stock until final manufacture is achieved. When this occurs and is reported,
the on-hand final stock balance is increased and the inventory balances of the stock
records of the component materials are decreased by backflushing. For good
explanations of WIP, you are referred to Inventory Record Accuracy, by Roger
Brooks & Larry Wilson (pp 36 - 48 and pp 143 - 145) and Inventory Accuracy, by
David Piasecki (pp 299 - 301). These books are obtainable from the APICS book
service and from Amazon (either US or UK).

WKPI: Warehouse Key Performance Indicator. Seven WKPIs are: productivity;

despatch accuracy; stock records accuracy; dock-to-stock time; order cycle time;
storage density; and degree of automation.

WLL: Wireless Local Loop.

WMS: Warehouse Management System - a comprehensive computer-based system

which controls the movement and storage of stock within a warehouse and directs
the warehouse's day to day operations. The functions of a proprietory WMS vary
very considerably from package to package, but would be expected to include: (1) a
variable location facility for the control of locations and for directing stock put-
aways and picking (including wave picking); (2) an order processing system; (3) lot
tracking; (4) support for cross docking; (5) a system for material replenishment; (6)
a comprehensive range of transactions relating to the carrying out of warehouse
tasks; and (7) easy integration with standard data collection devices including RDTs
and RFIDs. The WMS should above all also be capable of easy adaptation to the
particula needs of the user (eg by including parameter driven programs). Choice of
a WMS by a user should be in the hands of warehouse staff, not external consultants
- one method of making such a choice is through the "weights and marks" method.

WO: Work Order, qv

Work Centre (WC): a specific production facility, consisting of one or several men
and one or several machines. Work centres may be organised within the factory by
type (eg drilling machines) - functional organisation, or by families of parts made -
group organisation.

Work Centre, alternate: a work centre that can be used in case of an overload or
breakdown at the primary work centre.

Work Centre, critical: there are many definitions of this term. They include: (1) a
WC working close to its maximum capacity; (2) a bottleneck WC; (3) a WC
processing the work of an important part of the factory, where a breakdown would
be especially serious; and (4) a WC comprising a unique machine for which no
alternative is available.

Work Centre Efficiency: for a given work centre, the ratio of standard hours to
actual hours used, based on historical usage. Efficiencies are scrutinised by the shop
supervisor as indicating which WC capacities should be adjusted.

Work Centre, Gateway: a gateway work centre is one through which work
arrives on the shop floor for the first time (ie the work is not already on the shop
floor and so is not arriving from another work centre - ie it is not arriving from an
intermediate work centre). The significance of a gateway WC is that the release of the
work must be controlled to prevent queues and hence excessive leadtimes - see
importantly input/output control.

Work in Process (US usage): see WIP

Work in Progress (UK usage): - see WIP

Work Study: see Taylorism.

Working Stock - see Stock (Working).

Works Order: A manufacturing plan directed to be made on the factory floor by

the authority of factory management, to help fulfil the master production schedule.
In some circumstances, in a make-to-order environment, a works order may be
individually raised to fulfil a specific customer order (note, however, that "works
order" is not otherwise synonymous with "customer order"). In other
circumstances, a works order may be to make a manufacturing lot for stock in
accordance with the materials plan.

World Class Manufacturing (WCM): a term used particularly by Richard

Schonberger for Just-in-Time (qv). See The Manufacturing Manager, Chapter 15.

WORM: Write Once, Read Many. Spoken of in the context of the GEN2 protocol,
used nowadays in conjunction with RFID tags. WORM software allows users first to
encode the tags (= write once), which then become "locked", and after which can be
read any number of times.

Written Down Value: See WDV.

WWW: World Wide Web, the Internet.

WYSIWYG: pronounced wizzy-wig - "What You See Is What You Get", a
computer development application which displays to the user the precise visual form
of the output that will be produced when the development is complete.
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X.12 : a technical standard for the transmission of EDI messages over
telecommunications links, more properly known as ANSI ASC X.

Xbarbar: (X with two minus signs on top of it) see Grand Average.

XGA: Extended Graphics Adaptor.

XML: Extensible Mark-up Language.

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Yellow Belt: A not entirely serious term for someone with a reasonable knowledge
of Six Sigma, but who has not undergone the lengthier training associated with
Green Belt or Black Belt status. GMCS has a one-day UK training course that
unofficially entitles attendees to term themselves yellow belts.

Yield: The percentage of satisfactory output obtained in the manufacture of a batch

of material in process industry manufacture (food, chemicals etc.). Thus if a batch of
1000lbs is processed and there is a 90% yield, 900lbs of good quality output is
obtained. In engineering terminology, this might be expressed as 10% scrap (see
scrap factor), although it is noted that scrap is associated with the maloperation of a
process, whereas yield may be a consequence of the technological nature of the
process (eg in cooking or in the carrying out of a chemical reaction).

Yokoten: (Japanese) Information sharing across a plant; the sharing of common

issues and responses.
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Z Score: A measure of company stability derived from various financial indices,
used to gauge the possibility of a company's future success or failure.

Zero Defects: A standard of performance or standard of manufacture which the

American quality guru Philip B. Crosby says should be the goal of endeavour when
speaking of "quality". Crosby's view is directly at odds with Deming's view: Deming
states that the goal of quality is to achieve stability of the system giving rise to it, and
that this system will contain a number of inherent, or "common causes" of error
(qv). Crosby's view is put in his well-known book Quality is Free. In it, he contends
that if people worked harder, and with greater conscientiousness and with greater
enthusiasm, no mistakes would be made ("right first time"). In his book, Crosby
describes the launch of an in-company zero defects campaign with a weekend family
zero defects day.

Zero Redundancy: The expectation that the services and manufactured goods
employed by a user or consumer will all be trouble free at all points of use - from
acquisition to disposal - with regard to quality.

Zornig H. H. (Colonel): A person whose name begins with Z, and at one time
director of the Ballistic Research Laboratories, Aberdeen, Maryland. Credited with
having formulated the term Operating Characteristic, an important term used in