Glossary

Annexure A

Activity-based costing Costing method that breaks down overhead costs into specific activities (cost drivers) in order to more accurately distribute the costs in product costing.

ABC inventory classification A method used to categorize inventory into groups based on certain activity characteristics. It is the process of classification of products as per the level of importance in terms of their relative criteria such as purchase or sales volume. ABC classification are used to develop inventory planning policies, set count frequencies for cycle counting, slot inventory for optimized order picking, and other inventory management activities. It can be described as a technique that is used in a business sense for denoting a categorization of large volume of data into groups. These groups thereafter can be marked as A, B and C. This means that activities that are considered high on priority are classified as A, those with a lesser priority are grouped under B, and the group of activities that are last on the list of priority are classified C.

Advanced planning and scheduling (APS) It is a real-time tool combining material and capacity planning at the same time, as opposed to separate batch material and capacity runs. APS tools use finite scheduling and material availability data to schedule orders and demand. They can typically be used to evaluate the effect of adding single new orders into an existing schedule, and are often used as a short-term tool in conjunction with longer-term family level planning.

Aggregate planning Sales, revenue, inventory and production planning done at total organization, facility or family levels. Typically done as part of the long-term production planning and budgeting process to identify overall production, facility and personnel requirements.

Airway bill (AWB) This refers to a bill of lading that is related to air transportation which is receipt for the shipper or consigner. It indicates that the carrier company has agreed to the listed goods and under an obligation to carry the products that are delivered in the form of a consignment to the destination airport in accordance with the conditions specified to the consignee and consignor. AWB is non-negotiable document.

Assemble to order (ATO) A manufacturing environment where the final product is assembled based on the receipt of a customer order (instead of to stock). The assembly is normally performed using standard components, modules and sub-assemblies that are already stocked based on forecasts developed from past usage history. An ATO environment allows each customer order to specify a custom combination of previously defined standard options.

Assortment In a retail environment, the selection of merchandise stocked or offered at a retail outlet or distribution centre. The target customer base and physical product characteristics determine the depth and breadth of an assortment and the length of time it is carried.

Automated storage and retrieval systems A system of rows of rack, each row having a dedicated retrieval unit that moves vertically and horizontally along the rack picking and putting away loads using programmed system. These are ASRS, AS/RS, unit-load ASRS and mini-load ASRS.

Backlog Booked (accepted) but unshipped customer orders or interplant orders. The backlog represents all open orders, not necessarily a past due status.

Balanced scorecard A business performance measurement and management system developed by Robert S. Kaplan and David P. Norton that analyses organizational success by reviewing the combination of financial, customer, internal business process and employee learning and growth perspectives. A balanced system includes both leading and lagging measures, and aligns individual and department goals with overall corporate strategic objectives.

Bar code An automated identification technology that encodes information in an array of parallel, rectangular bars and spaces that varies in width.

Benchmarking The practice of establishing goals and targets for process performance levels and identifying required improvement areas based on the published or known performance of direct competitors or a relevant industry.

Bill of lading (BOL) A document created for a given shipment that indicates the contents and destination, and forms a contractual basis for claims or resolution with the carrier if required.

Bill of material (BOM) It is a document which lists materials (components or ingredients) required to produce an item. Multilevel BOMs also show sub-assemblies and their components. Other information such as scrap factors may also be included in the BOM for use in materials planning and costing.

Bonded warehouse The warehouse meant for goods under customs clearance. Imported goods before clearance for distribution to local depots or customers is kept in bonded warehouses and released after import duty is paid and customs formalities are completed. Similarly, goods meant for exports are kept in bonded warehouse, before their clearance by customs authority for loading onto the ship or aircraft. In short, it is a facility or a dedicated portion of a facility where imported goods are stored prior to customs duties and taxes being paid. Bonded warehouses are licensed by the government.

Break-even analysis An examination of changes in fixed and variable costs based on varying revenue and production levels that identify a break-even point where revenues are equal to costs. It highlights the profit results from alternative levels of operation (syn: cost–profit–volume analysis).

Brokers Brokers are firms who bring buyers and sellers together. They specialize in products that are at the end of their sales life (scrap broker). They are often willing to deal with any product, in any condition, given a low enough price.

Business process mapping Techniques that specify the steps, control points and resources involved in current state business processes, identify desired changes and risk/reward tradeoffs, and create the methods to implement cross-functional systems that support the desired new processes.

Capacity requirements planning Process for determining amount of machine and labour resources required to meet production.

Carrying cost A measure, usually expressed as a percentage, of the costs incurred to hold inventory as a result of the cost of the item itself, insurance, obsolescence, theft, damage, use of storage facilities and other causes.

Cash-to-cash cycle The average elapsed time between payment to a vendor for materials or services and the receipt of payment from a customer for shipments.

Consolidation The combination of shipments from multiple points at an intermediate facility, reducing the number of individual shipments to end locations.

Continuous replenishment A method typically used between retailers and distributors or manufacturers that uses point-of-sale inventory and sales data to trigger automatic replenishments, with the vendor assuming responsibility for initiation and fulfilment.

Contract manufacturing A third party that performs one or more production operations for a manufacturer who will market the final item under their own name. They often charge on a per-piece or per-lot basis for the labour required for their services while using components or materials supplied and owned by the final item manufacturer.

Containerization It means putting the goods in boxes or trailers that are easy to transfer between two-transportation modes. They are used in multi-modal transportation system. Containerization refers to using standardized containers for the storage and transport of materials within a manufacturing facility as well as between vendors and manufacturers. The benefits of containerization include reduced product damage, reduced waste (by using reusable containers), less handling and greater levels of inventory accuracy by simplifying counting processes.

Contract warehouse A contract warehouse handles shipping, receiving, and storage of products on a contract basis. Contract warehouses will generally require a client to commit to a specific period of time for the services. Contracts warehouses are for specific product storage. For example, in India the pharmaceutical companies store their products at various distribution centres in contract warehouses. These are temperature-controlled and FDA-approved facilities. Fees for contract warehouses may be transaction and storage-based, fixed, cost plus or any combination thereof.

Cross-docking Cross-docking is the action of unloading materials from an incoming trailer or rail car and immediately loading these materials in outbound trailers or rail cars, thus eliminating the need for warehousing (storage). Cross-docking is done in warehouse or at transportation hubs. Many ‘cross-docking’ operations require large staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to ship. As per Wal-Mart, cross-docking should be done within 48 hours.

Cycle stock The portion of inventory incrementally consumed by demand and periodically replenished when a resupply is triggered by reaching a predetermined level. The portion of total inventory is over and above safety stock.

Cycle time The total time required to complete a transformation from one status to another. Total cycle time is composed of many elements, often broken into active (running or operating) time and idle (queue or wait) time.

Distribution centre A facility that stores inventory and ships finished goods orders to customers for a specific geographic area. Its stock is replenished on a periodic basis by manufacturing plants or other distribution centres, and it may process customer returns but does not have production capabilities.

Distribution network The description of distribution facilities and organizations serving as supply and replenishment points for given product lines and specifying the lead times and transportation methods between those points.

Distribution requirements planning (DRP) It is a process for determining inventory requirements in a multiple plant/warehouse environment done with the help of computer software. DRP may be used for both distribution and manufacturing. In manufacturing, DRP will work directly with MRP. DRP may also be defined as distribution resource planning which includes determining labour, equipment and warehouse space requirements.

Distributor A third party that purchases, stocks and resells products manufactured by another organization. While classified as a customer to the manufacturer, it is normally useful to track distributor shipments to the end consumer to evaluate demand patterns and changes.

Economic value added (EVA) A financial performance measurement developed by Stern Stewart & Company that gauges the creation of shareholder wealth, and evaluates tradeoffs in opportunity costs, by determining net operating profit after tax deductions.

Economic order quantity (EOQ) It is most cost optimum (cost-effective) quantity to order (purchased items) or produce (manufactured items). The formula basically finds the point at which the combination of order cost and carrying cost is the least. The difficult part of implementing the formula is getting accurate values for order cost and carrying cost.

Electronic data interchange (EDI) It is a system for business-to-business electronic communication. It is inter-company computer-to-computer exchange of business documents in standard formats.

Eighty/twenty (80/20) rule Rule based on Pareto's law stating that 80 per cent of an end result (quality problems, inventory valuation, distribution of wealth) comes from a source of 20 per cent (items, number of people, etc.).

Enterprise resource planning (ERP) It is a software system designed to manage most or all aspects of a manufacturing or distribution enterprise. ERP systems are usually broken down into modules such as financials, sales, purchasing, inventory management, manufacturing, MRP, DRP, etc. The modules are designed to work seamlessly with the rest of the system and should provide a consistent user interface between them. ERP systems usually have extensive set-up options that allow you to customize the functionality to the specific business needs of the enterprise.

Expert system/artificial intelligence The system based on technologies aimed at making computers imitate human beings.

First-in-first-out (FIFO) In warehousing, it is a method of rotating inventory to use the oldest product first.

Fill rate Sales order processing measurement that quantifies the ability to fill orders. There are various ways of measuring fill rate. Line fill compares the number of line items shipped complete to the total number of lines ordered (95 line items shipped complete, out of 100 orders received would result in a 95 per cent line fill rate). Order fill compares the number of orders shipped complete to the total number of orders shipped.

Flexible manufacturing system (FMS) A group of computer-controlled independent workstations or machines linked by material handling systems that are able to accommodate wide variations in types and quantities of products.

Free on board (FOB) Trade contract terms that specify when title passes to the buyer, typically either when the shipment is initiated or when it is received.

Full truckload (FTL) Shipments rated on the use of a truck's entire capacity based on weight or volume.

Free trade zone (FTZ) It is similar to a bonded warehouse in that it has a special status that allows products to be imported into it without taxes or duties being paid. However, FTZ actually has fewer restrictions placed upon it than a standard bonded warehouse and activities such as manufacturing can occur within an FTZ.

Fulfilment It is an activity of processing customer shipments. Though most manufacturing and warehouse operations will process customer shipments, this term usually refers to the operations that ship many small orders (usually parcels) to end users as opposed to operations that process larger shipments to other manufacturers, wholesalers or resellers.

Green dot A marking on the package of the product sold in the Germany, showing that product waste is recyclable through Duales System Deuschaland.

Hedge inventory Inventory created to protect against a possible future event or disruption in supply, such as a strike, major vendor shutdown, prospective trade or government programme change, or similar situation.

Inbound logistics The systems and tracking methods used for incoming materials in the process of being shipped from customers or vendors to a manufacturing facility or distribution centre.

INCOTERMS Trade contract terms established by the International Chamber of Commerce, for example, FOB (free on board) and DDP (delivered duty paid) etc. There are thirteen INCOTERMS.

Incremental cost The cost added to an existing product or project status by processing the next operation or performing an additional activity.

Integrated logistics management The logistics concept that emphasis team work, both inside the company and along marketing channel of organization to maximize the performance of the entire distribution system.

Integrator The logistics service provider offering complete range of logistic services and solution to customer's problem.

Intermodal transportation It describes the use of multiple modes of transportation for a shipment. Ocean containers that are picked up by a truck, delivered to port, transported by ship, and then picked up by another truck are common examples of intermodal transportation. In the trucking industry, intermodal usually refers to the combination of trucking, rail and sea transportation.

Inventory Any quantifiable item that one can handle, buy, sell, store, consume, produce or track can be considered inventory. This covers everything from office and maintenance supplies, to raw material used for manufacturing, to semi-finished and finished goods, to consumables to power equipment used in the business.

Inventory turn It refers to a number of times inventory is consumed or sold during a 1 year period. It is calculated by dividing the average inventory level (or current inventory level) into the annual inventory usage (annual cost of goods sold). Inventory turn over ratio indicates the rotation of the given value of inventory with respect to the value of sales effected in a set time frame. Normally, the time frame is 1 year. The higher turnover ratio indicates the faster cash rotation in the business cycle and higher asset utilization of the assets. This ratio has both financial and non-financial perspective.

Inventory velocity The speed with which inventory moves through a defined cycle (i.e. from receiving to shipping).

Just-in-time (JIT) Term usually thought of as describing inventory arriving or being produced just in time for the shipment or next process. JIT is a process for optimizing manufacturing processes by eliminating all process waste including wasted steps, wasted material, excess inventory, etc.

Kaizen The Japanese process of continuous improvement using problem-solving and analysis techniques that may include the use of fishbone diagrams, control charts, affinity diagrams and other tools.

Kanban It is used as part of a just-in-time production operation, where components and sub-assemblies are produced based upon notification of demand from a subsequent operation. Historically, Kanban has been a physical notification such as a card (kanban cards) or even an empty hopper sent up the assembly line to the previous operation. Kanban is actually a simplistic means of both signalling the need for inventory as well as controlling the inventory levels.

Key performance indicator (KPI) Indicators used to provide measurements of the defined priority and key success factors of a project or system.

Last-in-first-out (LIFO) A usage rule and accounting and other systems that assumes the last item brought into inventory (or into a queue) will be the first one used. During periods of rising prices, it has the effect of increasing charges to the current period instead of subsequent periods.

Lead time Amount of time required for an item to be available for use from the time it is ordered. Lead time should include purchase order processing time, vendor processing time, in transit time, receiving, inspection and packing time.

Lean manufacturing An alternate term used to describe the philosophies and techniques associated with just-in-time (JIT) manufacturing. This means the total inventory across supply chain needs to be near to zero level.

Lean supply chain When movement of the inventory across the supply chain is so fast that firm holds very little or near to zero inventory on hand.

Letter of credit A letter generated by a bank to a seller that authorizes a draft payment for a specific amount based on meeting a predefined set of terms (an exact description of the goods, services and quantities).

Life cycle cost The analysis of cost issues over the entire life cycle of a given product, rather than a specific fiscal period. It includes factors based on product life cycle stage (introduction, growth, maturity and decline) and all research and development, design, marketing, production and logistics costs. A cross-functional approach used in investment and facility decisions.

Load unitization The process of grouping the large number of products in the convenient pack for ease in storage, handling and movement is called as unitization.

Logistics The process of planning, implementing, and controlling efficiently cost-effective flow of raw materials, in-process inventory, finished goods, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements.

Logistics mix It is a set of functions encompassed by the logistics. These are order processing, warehousing, transportation, inventory control, packaging and information flow, etc.

Logistics network The linked set of resources used in moving and storing material at the required location and time, which can be classified as external (vendors, customers, distribution centres and transportation providers) and internal (production, material movement and storage).

Maintenance, repair, operating (MRO) items Items such as maintenance supplies, equipment repair parts, etc. that support the operating process and are not issued to production orders or included in product standard cost.

Make-to-order (MTO) A manufacturing method in which commonly-used raw materials and components may be stocked based on previous demand history, but further processing into higher-level items is not done until receipt of a customer order. Variability in customer demand will not allow stocking upper-level assemblies and major subsystems or modules prior to receipt of an order, as done in assemble-to-order (ATO) environments.

Make-to-stock (MTS) A manufacturing method in which finished goods are produced and stocked prior to receipt of a customer order. It uses a forecast based on past demand history to initiate production of end items when inventory has fallen below desired levels, instead of waiting until a final quantity and configuration is described on a customer order.

Manufacturing lead time The total length of time used to process raw materials and components through all upper levels in the bill of material into an end item. It specifies the total of all individual elements of lead time such as order preparation, queue, setup, run, inspection, etc. used and indicates a projected availability date for an end item if all lowest level raw material is on-hand.

Material The raw materials and purchased components used in the production of other items. The classification of any lower level item, whether purchased or manufactured. A sub-assembly that has material, labour and overhead content may be considered strictly as material in the context of being used in an upper level item.

Material requirements planning (MRP) The process that uses the MPS as demand, explodes the bill of material for specified MPS items, nets those requirements against on-hand inventory and existing open orders, and recommends placing new production and purchase orders and changes to existing orders based on parameters that consider safety stock levels, lot sizes and lead times. It is based on the idea of dependent demand (demand for an item is due to its usage in other items) and starts at the highest level in the bill of material, stopping at the first level where the quantity of inventory plus incoming receipts is adequate to meet demand and it is not necessary to send a requirement to the next lower level.

Master production schedule (MPS) Production schedule specifying specific items, quantities, and dates at which production is expected to take place. The primary purpose of an MPS is to manage capacity when at some time periods demand is expected to exceed capacity.

Milk run A milk run consists of a pickup and/or delivery route where several stops are made. Usually it refers to a regularly run route, but it may also refer to a one-time run where several stops are made. Some consider a milk run to mean a route where outbound shipments are delivered and inbound materials picked up in the same run.

Monte Carlo simulation A method that estimates possible outcomes from a set of random variables by simulating a process a large number of times and observing the outcomes.

Order cycle It is also called replenishment cycle. Order cycle refers to the time between orders of a specific item. It is calculated by dividing the order quantity by the annual demand and multiplying by the number of days in the year.

Outbound logistics The processes and network used to pick, ship, track and store if necessary items ordered by customers, distribution centres and other supply chain partners.

Outsourcing The ongoing use of an external third party instead of an internal resource which may include production of a single operation, a product or an entire line, shipping and order fulfilment, product design, network infrastructure support and many other functions. Outsourced functions are normally outside an organization's core competencies and are done to reduce cost, reduce lead time, improve quality or achieve some other stated goal.

Performance cycle A time period required for executing the order from the date it is received and confirmed by the supplier or manufacturer.

Pipeline inventory Inventory in transit after it is dispatched from the factory and before it reaches the destination for changing ownership.

Point of sale (POS) It is the point where ownership of the product transfers to the customer.

Postponement It is a manufacturing/distribution strategy where specific operations associated with a product are delayed until just prior to shipping. Storing product in a generic state and then applying custom labels or packaging before shipping is an example of postponement.

Product life cycle It is a marketing concept, which is depicted graphically showing the product sales history across the four stages of the cycle such as introduction, growth, maturity and decline.

Proforma invoice It is a draft invoice created to show a buyer what the details of the actual invoice will look like. Proforma invoices are commonly used with international transactions to provide the buyer with the information how much they will need to pay for the goods.

Public warehouse A business that provides short-or long-term storage to a variety of products, usually on a month-to-month basis. A public warehouse will generally use their own equipment and staff, however, agreements may be made where the client either buys or subsidizes equipment. Public warehouse fees are usually a combination of storage fees (per pallet or actual sq. footage) and transaction fees (inbound and outbound). Public warehouses are most often used to supplement space requirements of a private warehouse.

Pull system A system where the production or movement of inventory items is initiated as required by the using department or location, or to replace items removed from an authorization queue. Production and inventory moves are not done based on a predetermined schedule, but only when consumed or signalled by the point of usage.

Purchase-to-order (PTO) The method used to respond to demand in which an item is purchased only when required by a customer order that specifies that item, and not for processing or assembling into a different item number.

Purchase-to-stock (PTS) The demand response method where an end item or service part required as is for an expected customer order is purchased and stocked against a forecast. The forecast represents independent customer or interplant demand, and not usage in an upper level item.

Push system A system where the production and movement of inventory items is determined by a pre-existing schedule that authorizes a material issue or transfer, or the start of a production operation. The using department or location receives material when determined by the feeder location and not based on their own generation of a replenishment signal.

Quick response Systems that attempt to provide quick turnaround and reduced lead time based on the location and level of inventory, and linked communications systems that quickly translate and evaluate changes in customer requirements based on usage and POS data.

Radio frequency identification device (RFID) It refers to devices attached to an object that transmit data to an RFID receiver. These devices can be large pieces of hardware the size of a small book, like those attached to ocean containers, or very small devices inserted into a label on a package. RFID has advantages over barcodes, such as the ability to hold more data, the ability to change the stored data as processing occurs, does not require line-of-site to transfer data and is very effective in harsh environments where bar code labels will not work.

Reorder point The inventory level set to trigger reorder of a specific item. Reorder point is generally calculated as the expected usage (demand) during the lead time plus safety stock. Fixed reorder point implies that the reorder point is a static number plugged into the system. Dynamic reorder point implies that there is some system logic calculating the order point.

Return on investment (ROI) It is an important financial ratio of profits to the investment in the assets. It indicates whether the investment made in logistical assets such as warehouse, equipment, storage system, and transport vehicles is paying you the dividends by way of the profit enhancement through cost reductions.

Reverse logistics Reverse Logistics covers activities related to returned product, returned pallets and containers, returned materials for disposal or recycling.

Routing The detailed description of the requirements to produce a given item, which includes the operations performed, the order in which they are done, the labour or machine resources required at each operation, and the rate those resources process the item at each operation. It may also include tooling and process or other specifications, and serves as the basis for manufacturing lead time calculations, detailed capacity planning and the cost standards associated with production. Released production orders normally include the standard routing and bill of material, unless modified for a specific order.

Safety stock Quantity of inventory used in inventory management systems to allow for deviations in demand or supply. Safety stock calculations will take into account historic deviations and use a required service level multiplier to determine the optimal safety stock level. See article on safety stock.

SCOR model The supply chain operations reference model was developed by the Supply-Chain Council to measure total supply chain performance. It includes delivery and order fulfilment performance, supply chain response time, production flexibility, warranty and returns processing costs, cash-to-cash cycle time, inventory and asset turns, and other factors in evaluating the overall effective performance of a supply chain.

Seasonality Large variations in product demand that reoccur during the same approximate time-frame on a yearly basis and are not due to a trend or promotion. Products that exhibit a high degree of seasonality normally require an inventory build based on forecast prior to the high demand period, or the flexibility to greatly vary production and supply.

Simplification The philosophy and methodologies that seek to reduce product and process variation, quality problems and cost by identifying and eliminating non-value added tasks, and standardizing component and resource usage.

Simulation The use of models and logic tools to test the outcomes of a proposed group of inputs and processes, prior to or in place of their implementation in a live system.

Six sigma A quality measure and improvement programme developed by Motorola that focuses on the control of a process to the point of ± six sigma (standard deviations) from a centreline, or 3.4 defects per million items. It includes identifying factors critical to quality as determined by the customer, reducing process variation and improving capabilities, increasing stability and designing systems to support the six sigma goal.

Skew A data distribution that is not symmetric, or that shows distortion in a positive or negative direction.

Stock keeping unit (SKU) It refers to a specific item in a specific unit of measure. For example, if you distributed shirts in two colours, you would maintain the inventory as two SKUs even.

Standardization The methods used to reduce or eliminate custom, one-time and seldom-used components and processes that introduce variability and potential added costs and quality problems. Standardization techniques include rationalizing product line offerings and performing cost studies to determine the true costs associated with designing, documenting, performing, etc. a custom or variable process.

Standard operating procedures (SOP) Instructions and methods used for a specific process or situation. They document the normal or accepted methodology and help form the basis for conformance evaluation.

Supply chain It is a cross-functional approach to controlling the physical flow of products and services from the suppliers to the end users by coordination of the activities of the suppliers, manufacturers and the end customers. It aligns the capabilities of the suppliers, manufacturers, channel partners, service providers and the customers to develop a sustainable competitive advantage.

Supply chain mapping The breakup of supply chain operation into smaller elements to know the value-added and non-value-added activities, the time frame for performing that activity and its cost implications.

Supply chain optimization The coordination of linked resources across all or part of a supply chain in eliminating or reducing manufacturing and logistics bottlenecks and creating optimized schedules based on shared inventory and order information.

Supply chain planning The set of supply chain activities that focus on evaluating demand for material and capacity and formulate plans and schedules based on meeting that demand and the company goals. System functions often involved in the planning cycle include MPS, MRP, ERP, DRP and advanced planning and scheduling (APS).

Synchronize To bring to the same level, rate or status, as in the synchronization of linked production resources to the same timing and volume, or in distributing the same set of data to remote databases.

Third-party logistics (3PL) An independent logistics service provider who performs any or all the functions of logistics to get his clients products to the market. It describes businesses that provide one or many of a variety of logistics-related services. Types of services would include public warehousing, contract warehousing, transportation management, distribution management, freight consolidation. A 3PL service provider may take over all receiving, storage, value added, shipping, and transportation responsibilities for a client and conduct them in the 3PL's warehouse using the 3PL's equipment and employees, or may manage one or all of these functions in the client's facility using the client's equipment, or any combination of the above.

Tier 1, 2 supplier A tier 1 supplier is the immediate or primary set of vendors directly used by a company, and tier 2 is a vendor to tier 1. In some industries, the final customers or dominant chain partners are consolidating (reducing) their number of tier 1 suppliers, and requiring proof of the communications and fulfilment capabilities between tier 1 and tier 2.

Total quality management (TQM) The comprehensive set of principles that focus company-wide attention on the aspects of design, production and logistics that lead to quality conformance and customer acceptance. It maintains a cross-functional view of the processes involved, and stresses that quality is not the responsibility of a separate quality control department.

Transfer pricing Prices used in the transfer of materials between units of the same company, often at standard cost or standard plus transportation costs. Used when transfers are not considered sales and purchases that generates receivables and payables.

Unit load It is a material handling term that describes any configuration of materials that allow it to be moved by material handling equipment as a single unit. While smaller manually handled configurations could be considered unit loads. The term generally defines larger configurations that would be moved by a lift truck such as palletized loads, crates, bales, etc.

Value-added services These are the unique or specific activities the supplier is performing to deliver superior value to the customer.

Value-added tax (VAT) A general consumption tax for the production and distribution of goods and services, added as a percentage charge based on price that reflects the incremental value added by a given activity.

Value chain The linked set of activities within a supply chain that actively add value to the end product, as opposed to support or reporting activities.

Value stream mapping A technique used in lean manufacturing that maps the flow of material and data, and associated time requirements from initial supplier to end customer for a given business process. Used to define improvement areas and sources of waste.

Variability The characteristic of a product or process in which parameters fluctuate to a significant degree but do not typically trend in a specific direction. Reduction of variability is a priority in systems that attempt to ensure consistent quality and reduce lead times.

Vendor-managed inventory (VMI) This is the process of a supplier managing the inventory levels and purchases of the materials he supplies. Vendor-managed inventory reduces internal costs associated with planning and procuring materials and enables the vendor to better manage his inventory through higher visibility in the supply chain. Vendor-managed inventory may be owned by the vendor (consignment inventory) or the customer. The ownership of the inventory is with the vendor. The customer pays immediately after the inventory is used.

Visibility The degree of insight into future requirements, or the key factors that will impact system performance.

Warehouse management system (WMS) Software package designed for managing the movement and storage of materials throughout the warehouse. WMS covers allocation, putaway, replenishment and picking. WMSs are often set up to integrate with data-collection systems.

Waste Any activity or process that does not add value to the goods or services required by the customer. Examples of waste include move time, counting inventory, inspection, the production of defective material, rework, etc. Waste is considered to cause increased cost, lead time and quality problems while not adding value, and may be created by vendors, personnel, equipment, incorrect process parameters and many other factors.

Wholesaler A stand-alone type of logistics service provider who offers only one type of service such as warehousing, transportation, inventory management or packaging.

Work-in-process (WIP) Inventory that is currently being processed in an operation, or inventory that has been processed through one operation and are awaiting another operation. WIP is actually an inventory account that represents the value of materials, labour and overhead that has been issued to manufacturing but has not yet produced a stockable item.

Zero defects A quality philosophy based on the idea that a level of perfect quality, as in zero defects, is achievable and should be a company-wide goal. It emphasizes the examination of all factors that lead to quality problems versus a system that builds in an average or acceptable quality level.

Zero inventory A term initially used to represent the optimum stock level in a just-in-time system and the idea that inventory is a liability instead of an asset.