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Term: Anticipation inventories Additional inventories above basic pipeline stock to coverprojected trends of increasing sales, planned sales
promotion programs, seasonal fluctuations, plant
shutdowns, and vacations.
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Term: Backorder An unfilled customer order or commitment. An immediate(or past due) demand against an item whose inventory is
insufficient to satisfy the demand.
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Term: Balanced scorecard A list of financial and operational measurements used toevaluate organizational or supply chain performance. Thedimensions of this might include customer perspective,
business process perspective, financial perspective, and
innovation and learning perspectives. It formally connects
overall objectives, strategies, and measurements. Each
dimension has goals and measurements.
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Term: Balance sheet A financial statement showing the resources owned, thedebts owed, and the owner's share of a company at a given
point in time.
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Term: Benchmarking Comparing a company's costs, products, and services to thaof a company thought to have superior performance.
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Term: Blanket purchase order A long-term commitment to a supplier for material againstwhich short-term releases will be generated to satisfy
requirements.
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Term: Buffer 1) A quantity of materials awaiting further processing. Itcan refer to raw materials, semifinished stores or holdpoints, or a work backlog that is purposely maintained
behind a work center. 2) In the theory of constraints, these
can be time or material and support throughput and/or due
date performance. They can be maintained at the constraint
convergent points, divergent points, and shipping points.
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Definition
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Term: Business plan 1) A statement of long-range strategy and revenue, cost, anprofit objectives usually accompanied by budgets, a
projected balance sheet, and a cash flow statement. Usually
stated in terms of dollars and grouped by product family. It
is then translated into synchronized tactical functional plan
through the production planning process. 2) A document
consisting of the business details prepared by an
entrepreneur to plan for a new business.
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Definition
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Term: Carrying cost The cost of holding inventory, usually defined as apercentage of the dollar value of inventory per unit of time
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Term: Cash flow The net flow of dollars into or out of the proposed project.The algebraic sum, in any time period, of all cash receipts,
expenses, and investments.
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Term: Cash-to-cash cycle time An indicator of how efficiently a company manages itsassets to improve cash flow. (Inventory days + accountsreceivable days - accounts payable days).
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Definition
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Term: Changeover 1) The work required to change a specific machine,resource, work center, or line from making the last good
piece of item A to making the first good piece of item B. 2
The refitting of equipment to neutralize the effects of the
last lot produced.
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Definition
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Term: Collaborative planning, forecasting,
and replenishment (CPFR)
1) A collaboration process whereby supply chain trading
partners can jointly plan key supply chain activities from
production and delivery of raw materials to production and
delivery of final products to end customers. It encompasses
business planning, sales forecasting, and all operations require
to replenish raw materials and finished goods. 2) A processphilosophy for facilitating collaborative communications. It is
considered a standard, endorsed by the Voluntary Interindustry
Commerce Standards.
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Definition
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Term: Competitive analysis An analysis of a competitor that includes its strategies,capabilities, prices and costs.
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Definition
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Term: Cost of goods sold An accounting classification useful for determining theamount of direct materials, direct labor, and allocatedoverhead associated with the products sold during a given
period of time.
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Term: Cost of quality The cost associated with providing poor quality products oservices. There are four categories of costs: (1) internal
failure costs; (2) external failure costs; (3) appraisal costs;
and (4) prevention costs.
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Term: Cross-selling Occurs when customers buy additional products or serviceafter the initial purchase.
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Definition
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Term: Customer relationship management
(CRM)
A marketing philosophy based on putting the customer first
The collection and analysis of information designed for
sales and marketing decision support to understand and
support existing and potential customer needs.
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Term: Customer service 1) The ability of a company to address the needs, inquires,and requests from customers. 2) A measure of the deliveryof a product to the customer at the time the customer
specified.
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Definition
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Term: Cycle 1) The interval of time during which a system or process,such as seasonal demand or a manufacturing operation,
periodically returns to similar initial conditions. 2) The
interval of time during which an event or set of events is
completed.
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Definition
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Term: Cycle stock One of the two main conceptual components of any iteminventory, it is the most active component; it depletes
gradually as customer orders are received and is replenishe
cyclically when supplier orders are received.
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Definition
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Term: Cycle time 1) In industrial engineering, the time between completion otwo discrete units of production. 2) In materials
management, it refers to the length of time from when
material enters a production facility until it exits.
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Term: Decoupling Creating independence between supply and use of materialCommonly denotes providing inventory between operationso that fluctuations in the production rate of the supplying
operation do not constrain production or use rates of the
next operation.
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Definition
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Term: Demand A need for a particular product or component. This couldcome from any number of sources. At the finished goods
level, this is usually different from sales data because it
does not necessarily result in sales. There are generally up
to four components: cyclical component, random
component, seasonal component, and trend component.
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Term: Demand forecasting Forecasting the demand for a particular good, component,or service.
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Term: Demand management 1) The function of recognizing all demands for goods andservices to support the marketplace. It involves prioritizing
demand when supply is lacking. It facilitates the planning
and use of resources for profitable business results. 2) In
marketing, the process of planning, executing, controlling,
and monitoring the design, pricing, promotion, and
distribution of products and services to bring about
transactions that meet organizational and individual needs
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Term: Demand planning Using forecasts and experience to estimate demand forvarious items at various points in a supply chain. Severalforecasting techniques may be used during the planning
process. Often, families of items are aggregated in doing
this planning. Aggregation also may occur by geographica
region or by life cycle stage. Forecast demand is compared
to actual demand in order to measure and increase forecast
accuracy.
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Term: Demand shaping The practice of using the 4 Ps (product, pricing, placementpromotion) and other market variables to influence the
demand of a product or service so that the demand better
matches the available supply.
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Term: Dependent demand Demand that is directly related to or derived from the bill omaterial structure for other items or end products. Such
demands are therefore calculated and need not and should
not be forecast.
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Term: Distributor A business that does not manufacture its own products, bupurchases and resells these products. Such a business
usually maintains a finished goods inventory.
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Term: Enterprise resources planning (ERP) Framework for organizing, defining, and standardizing thebusiness processes necessary to effectively plan and controan organization so the organization can use its internal
knowledge to seek external advantage.
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Term: Extrinsic forecasting method A forecast method on a correlating leading indicator, suchas estimating furniture sales based on housing starts. These
forecasts tend to be more useful for large aggregations, suc
as total company sales, that for individual product sales.
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Term: Fluctuation inventory Inventory that is carried as a cushion to protect againstforecast error.
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Term: Forecast error The difference between actual demand and forecastdemand, stated as an absolute value or as a percentage.
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Term: Forecasting The business function that attempts to predict sales and useof products so they can be purchased or manufactured inappropriate quantities in advance.
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Term: Gross margin The difference between total revenue and the costs of goodsold.
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Term: Horizontal marketplace An online marketplace used by buyers and sellers frommultiple industries. This marketplace lowers prices by
lowering transaction costs.
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Term: Income statement A financial statement showing the net income for a businesover a given period of time.
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Term: Independent demand The demand for an item that is unrelated to the demand forother items. Demand for finished goods, parts required fordestructive testing, and service parts requirements are
examples of this.
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Term: Interplant demand One plant's need for a part or product that is produced byanother plant or division within the same organization.
Although it is not a customer order, it is usually handled by
the master production scheduling system in a similar
manner.
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Term: In-transit inventory Material moving between two or more locations, usuallyseparated geographically; for example, finished goods bein
shipped from a plant to a distribution center.
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Term: Intrinsic forecast method A forecast method based on internal factors, such as anaverage of past sales.
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Term: Inventory management The branch of business management concerned withplanning and controlling inventories.
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Term: Inventory optimization software A computer application having the capability of findingoptimal inventory strategies and policies related to custome
service and return on investment over several echelons of a
supply chain.
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Term: Inventory turnover The number of times that an inventory cycles, or "turnsover," during the year. A frequent method to compute this i
to divide the average inventory level into the annual cost o
sales.
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Term: Inventory valuation The value of the inventory at either its cost or its marketvalue. Because inventory value can change with time, some
recognition is taken of the age distribution of inventory.
Therefore, this is usually computed on a FIFO basis, LIFO
basis, or a standard cost basis to establish the cost of goods
sold.
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Term: Inventory velocity The speed with which inventory passes through anorganization or supply chain at a given point in time asmeasured by inventory turnover.
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Term: Inventory visibility The extent to which inventory information is shared withina firm and with supply chain partners.
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Term: Keiretsu A form of cooperative relationship among companies inJapan where the companies largely remain legally and
economically independent, even though they work closely
in various ways such as sole sourcing and financial backing
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Definition
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Term: Key performance indicator (KPI) A financial or nonfinancial measure, either tactical orstrategic, that is linked to specific strategic goals and
objectives.
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Term: Landed cost This cost includes the product cost plus the costs oflogistics, such as warehousing, transportation, and handlingfees.
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Term: Logistics 1) In an industrial context, the art and science of obtainingproducing, and distributing material and product in the
proper place and in proper quantities. 2) In a military sense
(where it has greater usage), its meaning can also include
the movement of personnel.
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Term: Market demand In marketing, the total demand that would exist within adefined customer group in a given geographical area during
a particular time period given a known marketing program
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Term: Market driven Responding to customers' needs.
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Term: Market research The systematic gathering, recording, and analyzing of dataabout problems relating to the marketing of goods and servicesSuch research may be undertaken by impartial agencies or by
business firms or their agents. It includes several types: (1)
market analysis is the study of the size, location, nature, and
characteristics of markets, (2) sales analysis is the systematic
study and comparison of sales (or consumption) data, (3)
consumer research is concerned with the discovery and analysi
of consumer attitudes, reactions, and preferences.
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Term: Metrics A system for collecting, measuring, and comparing ameasure to a standard for a specific criterion for an
operation, item, good, service, business, etc. A performanc
measurement system consists of a criterion, a standard, and
a measure.
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Term: Multisourcing Procurement of a good or service from more than oneindependent supplier.
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Term: Obsolescence 1) The condition of being out of date. A loss of valueoccasioned by new developments that place the olderproperty at a competitive disadvantage. A factor in
depreciation. 2) A decrease in the value of an asset broughtabout by the development of new and more economical
methods, processes, or machinery. 3) The loss of usefulnessor worth of a product or facility as a result of the appearanceof better or more economical products, methods, or facilities
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Term: Optimization Achieving the best possible solution to a problem in termsof a specified objective function.
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Term: Ordering cost Used in calculating order quantities, the costs that increaseas the number of orders placed increases. It includes costs
related to the clerical work of preparing, releasing,
monitoring, and receiving orders, the physical handling of
goods, inspections, and setup costs, as applicable.
2013
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Term: Outsourcing The process of having suppliers provide goods and servicethat were previously provided internally. It involves
substitutionthe replacement of internal capacity and
production by that of the supplier.
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Term: Partnership 1) A form of business ownership that is not organized as aseparate legal entity, but entailing ownership by two or
more persons. 2) In a supply chain, a relationship based on
trust, shared risk, and rewards aimed toward achieving a
competitive advantage.
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Term: Pipeline inventory Inventory in the transportation network and the distributionsystem, including the flow through intermediate stockingpoints.
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Definition
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Term: Planning horizon The amount of time a plan extends into the future. For amaster schedule, this is normally set to cover a minimum o
cumulative lead time plus time for lot sizing low-level
components and for capacity changes of primary work
centers or of key suppliers. For longer term plans the
planning horizon must be long enough to permit any neede
additions to capacity.
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Term: Process chart A chart that represents the sequence of work or the nature oevents in process. It serves as a basis for examining and
possibly improving the way the work is carried out.
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Term: Procurement The business functions of procurement planning,purchasing, inventory control, traffic, receiving, incoming
inspection, and salvage operations.
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Term: Profit 1) Earnings from an ongoing business after direct costs ofgoods sold have been deducted from sales revenue for agiven period. 2) Earnings or income after all expenses
(selling, administrative, depreciation) have been deducted
from gross profit. 3) Earnings or income after adjusting for
miscellaneous income and expenses (patent royalties,
interest, capital gains) and tax from operating profit.
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Term: Profit margin 1) The difference between the sales and cost of goods soldfor an organization, sometimes expressed as a percentage o
sales. 2) In traditional accounting, this is the product selling
price minus the direct material, direct labor, and allocated
overhead for the product, sometimes expressed as a
percentage of selling price.
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Term: Pull system 1) In production, the production of items only as demandedfor use or to replace those taken for use. 2) In material
control, the withdrawal of inventory as demanded by the
using operations. Material is not issued until a signal come
from the user. 3) In distribution, a system for replenishing
field warehouse inventories where replenishment decisionsare made at the field warehouse itself, not at the central
warehouse or plant.
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Term: Purchasing The term used in industry and management to denote thefunction of and the responsibility for procuring materials,
supplies, and services.
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Term: Push system 1) In production, the production of items at times requiredby a given schedule planned in advance. 2) In materialcontrol, the issuing of material according to a given
schedule or issuing material to a job order at its start time.
3) In distribution, a system for replenishing field warehouse
inventories where replenishment decision making is
centralized, usually at the manufacturing site or central
supply facility.
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Term: Return on assets (ROA) Net income for the previous 12 months divided by totalassets.
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Term: Return on investment (ROI) A relative measure of financial performance that provides ameans for comparing various investments by calculating th
profits returned during a specified time period. In the theor
of constraints, it is calculated as throughput minus operatin
expense divided by investment.
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Term: Reverse logistics A complete supply chain dedicated to the reverse flow ofproducts and materials for the purpose of returns, repair,
remanufacture, and/or recycling.
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Term: Reverse supply chain Moving items from the consumer back to the producer forrepair or disposal.
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Term: Risk pooling A method often associated with the management ofinventory risk. Manufacturers and retailers that experience
high variability in demand for their products can pool
together common inventory components associated with a
broad family of products to buffer the overall burden of
having to deploy inventory for each discrete product.
2013
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Term: Safety stock 1) In general, a quantity of stock planned to be in inventoryto protect against fluctuations in demand or supply. 2) In th
context of master production scheduling, the additional
inventory and capacity planned as protection against
forecast errors and short-term changes in the backlog.
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Term: Sales and operations planning
(S&OP)
A process to develop tactical plans that provide
management the ability to strategically direct its business to
achieve competitive advantage on a continuous basis by
integrating customer-focused marketing plans for new and
existing products with the management of the supply chain
The process brings together all the plans for the business
into one integrated set of plans.
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Term: Seasonality A repetitive pattern of demand from year to year (or otherrepeating time interval) with some periods considerablyhigher than others.
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Term: Service industry 1) In its narrowest sense, an organization that provides anintangible product. 2) In its broadest sense, all organization
except farming, mining, and manufacturing.
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Definition
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Term: Single-source supplier A company that is selected to have 100 percent of thebusiness for a part although alternate suppliers are available
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Term: Sole-source supplier The only supplier capable of meeting (usually technical)requirements for an item.
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Term: Sourcing The process of identifying a company that provides aneeded good or service.
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Term: Spend management Managing purchases of goods and services in a supply chaiincluding outsourcing and procurement activities.
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Definition
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Term: Standard costs The target costs of an operation, process, or productincluding direct material, direct labor, and overhead
charges.
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Term: Stockkeeping unit (SKU) 1) An inventory item. 2) In a distribution system, an item aa particular geographic location.
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Term: Stockout costs The costs associated with a stockout. Those costs mayinclude lost sales, backorder costs, expediting, andadditional manufacturing and purchasing costs.
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Term: Strategic planning The process of developing a strategic plan.
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Definition
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Term: Strategic sourcing A comprehensive approach for locating and sourcing key materiasuppliers, which often includes the business process of analyzing
total-spend-for-material spend categories. There is a focus on thedevelopment of long-term relationships with trading partners whcan help the purchaser meet profitability and customer satisfactio
goals. From an information technology applications perspectivestrategic sourcing includes automation of request for quote
(RFQ), request for proposal (RFP), electronic auctioning (e-auction or reverse auction), and contract management processes
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Term: Subcontracting Sending production work outside to another manufacturer.
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Term: Supplier 1) Provider of goods or services. 2) Seller with whom thebuyer does business, as opposed to vendor, which is ageneric term referring to all sellers in the marketplace.
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Term: Supplier-input-process-output-
customer (SIPOC) diagram
A high-level process map that shows substantial subproces
in an organization's process together with the structure of
the process represented by the suppliers, inputs, outputs,
and customers. It defines the critical aspects of a process
without losing the overall perspective.
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Definition
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Term: Supplier relationship management
(SRM)
A comprehensive approach to managing an enterprises
interactions with the organizations that supply the goods
and services the enterprise uses. The goal of this is to
streamline and make more effective the processes between
an enterprise and its suppliers.
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Term: Supply chain The global network used to deliver products and servicesfrom raw materials to end customers through an engineered
flow of information, physical distribution, and cash.
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Term: Supply chain management (SCM) The design, planning, execution, control, and monitoring osupply chain activities with the objective of creating netvalue, building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with demand,
and measuring performance globally.
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Term: Supply Chain Operations Reference-
model (SCOR)
A process reference model developed and endorsed by the
Supply Chain Council as the cross-industry, standard
diagnostic tool for supply chain management. It describes
the business activities associated with satisfying a
customers demand. Use of the model includes analyzing
the current state of a companys processes and goals,
quantifying operational performance, and comparing
company performance to benchmark data.
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Definition
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Term: Supply chain visibility The ability of supply chain partners to access demand andproduction information from trading partners.
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Term: Sustainability Activities that provide present benefit withoutcompromising the needs of future generations.
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Term: Tactical buying The purchasing process focused on transactions andnonstrategic material buying. It is closely aligned with theordering portion of executing the purchasing
transaction process. The characteristics for this include
stable, limited fluctuations, defined standard specifications
noncritical to production, no delivery issues, and high
reliability concerning quality-standard material with very
little concern for rejects.
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Term: Tactical planning The process of developing a set of tactical plans (e.g.,production plan, sales plan, marketing plan).
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Definition
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Term: Target costing The process of designing a product to meet a specific costobjective. This involves setting the planned selling price,
subtracting the desired profit as well as marketing and
distribution costs, thus leaving the required manufacturing
or target cost.
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Term: Third-party logistics (3PL) A buyer and supplier team with a third party that providesproduct delivery services. This third party may provide
added supply chain expertise.
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Term: Total cost of ownership (TCO) In supply chain management, it is the sum of all the costsassociated with every activity of the supply stream. Themain insight that this offers to the supply chain manager is
the understanding that the acquisition cost is often a very
small portion of this.
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Term: Trend General upward or downward movement of a variable overtime.
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Definition
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Term: Triple bottom line (TBL) Measuring the economic, social, and environmentalconsequences of a firm's activities.
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Term: Value-added 1) In accounting, the addition of direct labor, directmaterial, and allocated overhead assigned at an operation.
2) In current manufacturing terms, the actual increase of
utility from the viewpoint of the customer as a part is
transformed from raw material to finished inventory. It is
the contribution made by an operation or a plant to the fina
usefulness and value of a product, as seen by the customer
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Term: Value chain The functions within a company that add value to the goodor services that the organization sells to customers and forwhich it receives payment.
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Term: Value stream The processes of creating, producing, and delivering a goodor service to the market. For a good, this encompasses the
raw material supplier, the manufacturing and assembly of
the good, and the distribution network. For a service, this
consists of suppliers, support personnel and technology, the
service producer, and the distribution channel.
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Definition
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Term: Value stream mapping Drawing the current production process/flow and thenattempting to draw the most effective production process/
flow.
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Term: Vendor Any seller of an item in the marketplace.
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Term: Warehouse management system(WMS)
A system that manages all processes that a warehousecarries out. These processes include receiving, picking, and
shipping.
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