Steelwedge Glossary

Sources:

  1. Industry Source is APICS official dictionary unless otherwise noted:
  2. WS: Wallace and Stahl – Sales Forecasting
  3. JTM: John T. Mentzer – Sales Forecasting
  4. SW: Steelwedge, Inc.
  5. VICS CPFR Standards

 

ABC classification The classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria. This array is then split into three classes, called A, B, and C. The A group usually represents 10% to 20% by number of items and 50% to 70% by projected dollar volume. The next grouping, B, usually represents about 20% of the items and about 20% of the dollar volume. The C class contains 60% to 70% of the items and represents about 10% to 30% of the dollar volume. The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than will be applied to high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing, sales, and so on. Syn: ABC analysis, distribution by value, Pareto analysis. See: Pareto’s law.

Abnormal demand Demand in any period that is outside the limits established by management policy. This demand may come from a new customer or from existing customers whose own demand is increasing or decreasing. Care must be taken in evaluating the nature of the demand: is it a volume change, is it a change in product mix, or is it related to the timing of the order? See: outlier.

Aggregate Forecasting and Replenishment (AFR) Market level forecasting of consumer demand and the supporting supply process for a defined set of products. The aggregation of data across products, markets and time produces a high level plan requiring an operating environment that is responsive to detailed fluctuations, primarily through inventory intensive supply processes.

Aggregate forecast An estimate of sales, often time phased, for a grouping of products or product families produced by a facility or firm. Stated in terms of units, dollars, or both, the aggregate forecast is used for sales and production planning (or for sales and operations planning) purposes. See: product group forecast.

ATP Abbreviation for available-to-promise. The uncommitted portion of a company’s inventory and planned production maintained in the master schedule to support customer-order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue. Three methods of calculation are used: discrete ATP, cumulative ATP with lookahead, and cumulative ATP without lookahead. See: discrete available-to-promise, cumulative available-to-promise.

Backlog All the customer orders received but not yet shipped. Sometimes referred to as open orders or the order board. Syn: order backlog. See: past due order.

Bayesian analysis Statistical analysis where uncertainty is incorporated, using all available information to choose among a number of alternative decisions.

Bias A consistent deviation from the mean in one direction (high or low). A normal property of a good forecast is that it is not biased. See: average forecast error. This is a measure of under or over forecasting

Blow-down The act of deriving detailed, mix forecasts from the aggregrate, volume forecast (ant. Roll-up) WS SW: Drill-down

Box-Jenkins model A forecasting method based on regression and moving average models. The model is based not on regression of independent variables, but on past observations of the item to be forecast at varying time lags and on previous error values from forecasting. See: forecast.

Bullwhip Effect A term coined by Hau Lee from Stanford University to describe the phenomenon that the further away from the consumer an inventory buffer is, the more demand variability that inventory buffer will have to address.

Causal forecast A type of forecasting that uses cause-and-effect associations to predict and explain relationships between the independent and dependent variables. An example of a causal model is an econometric model used to explain the demand for housing starts based on consumer base, interest rates, personal incomes, and land availability.

Closed-loop MRP A system built around material requirements planning that includes the additional planning processes of production planning (sales and operations planning), master production scheduling, and capacity requirements planning. Once this planning phase is complete and the plans have been accepted as realistic and attainable, the execution processes come into play. These processes include the manufacturing control processes of input-output (capacity) measurement, detailed scheduling and dispatching, as well as anticipated delay reports from both the plant and suppliers, supplier scheduling, and so on. The term closed loop implies not only that each of these processes is included in the overall system, but also that feedback is provided by the execution processes so that the planning can be kept valid at all times.

Consuming the forecast The process of reducing the forecast by customer orders or other types of actual demands as they are received. The adjustments yield the value of the remaining forecast for each period. Syn: forecast consumption.

Customer service level 1) A measure of delivery performance of finished goods, usually expressed as a percentage. In a make-to-stock company, this percentage usually represents the number of items or dollars (on one or more customer orders) that were shipped on schedule for a specific time period, compared with the total that were supposed to be shipped in that time period. Syn: customer service level, fill rate, order-fill ratio, percent of fill. Ant: stockout percentage. 2) In a make-to-order company, it is usually some comparison of the number of jobs or dollars shipped in a given time period (e.g., a week) compared with the number of jobs or dollars that were supposed to be shipped in that time period.

Category Management The management of product categories as strategic business units. The practice can empower a category manager with full responsibility, the category manager may be with full responsibility for the assortment decisions, inventory levels, shelf space allocation, promotions, and buying. With this authority and responsibility, the category manager may be able to judge more accurately the consumer buying patterns, product sales, and market trends of that category. By emphasizing profits and sales for entire product groups rather than individual items or brands category management can encourage longer-term, joint retailer-supplier focus in marketing and merchandising. Source: Joint Industry Project on Efficient Consumer Response

Causal Information Cause and effect information collected by a trading partner to determine the impact of events (such as promotions, coupons or retail price reductions) on retail sales.

Collaborative Planning, Forecasting and Replenishment (CPFR) An industry initiative and VICS sub-committee focused on improving the partnership between manufacturers and distributors / retailers through shared information.

Continuous Replenishment (CRP) The practice of partnering between distribution channel members that changes the traditional replenishment process from distributor-generated purchase orders, based on economic order quantities, to the replenishment of products based on actual and forecasted product demand. Source: CRP Best Practices Working Group. Programs reduce inventory levels and operating costs by having products delivered on a frequent, as needed basis. With CRP, consumer demands – based on scan data, warehouse movement, and sales forecasts – drive warehouse replenishment orders and shipping. In the most common form – vendor managed continuous replenishment – the distributor’s warehouse transmits data daily to the vendor on inventory levels and store orders; the vendor is responsible for creating orders necessary to endure that the warehouse can meet the retailer’s product needs.

Decomposition Breaks the sales data into seasonal, cyclical, trend and noise components and projects each into the future. JTM

Demand filter A standard that is set to monitor sales data for individual items in forecasting models. It is usually set to be tripped when the demand for a period differs from the forecast by more than some number of mean absolute deviations.

Demand time fence (DTF) 1) That point in time inside of which the forecast is no longer included in total demand and projected available inventory calculations; inside this point, only customer orders are considered. Beyond this point, total demand is a combination of actual orders and forecasts, depending on the forecast consumption technique chosen. 2) In some contexts, the demand time fence may correspond to that point in the future inside which changes to the master schedule must be approved by an authority higher than the master scheduler. Note, however, that customer orders may still be promised inside the demand time fence without higher authority approval if there are quantities available-to-promise (ATP). Beyond the demand time fence, the master scheduler may change the MPS within the limits of established rescheduling rules, without the approval of higher authority. See: option overplanning, planning time fence, time fence.

Demand forecasting Forecasting the demand for a particular good, component, or service.

Demand management The function of recognizing all demands for goods and services to support the market place. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results. 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. Syn: marketing management.

Demand Manager A job function charged with coordinating the demand management process. Frequently, the demand manager will operate the forecasting system and work closely with other marketing and salespeople in the Demand Planning phase of S&OP. Other activities for the demand manager might include making decisions regarding abnormal demand, working closely with the master scheduler on product availability issues, and being a key player in other aspects of the monthly S&OP process. (WS)

Demand Plan The forecast, cosutomer orders, and other anticipated demand such as interplant, export, and samples.

Dependent demand Demand that is directly related to or derived from the bill of material structure for other items or end products. Such demands are therefore calculated and need not and should not be forecast. A given inventory item may have both dependent and independent demand at any given time. For example, a part may simultaneously be the component of an assembly and sold as a service part. See: independent demand.

Discontinuous demand A demand pattern that is characterized by large demands interrupted by periods with no demand, as opposed to a continuous or steady (e.g., daily) demand. Syn: intermittent demand.

Distribution requirements planning (DRP) 1) The function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse level are “exploded” via MRP logic to become gross requirements on the supplying source. In the case of multilevel distribution networks, this explosion process can continue down through the various levels of regional warehouses (master warehouse, factory warehouse, etc.) and become input to the master production schedule. Demand on the supplying sources is recognized as dependent, and standard MRP logic applies. 2) More generally, replenishment inventory calculations, which may be based on other planning approaches such as period order quantities or “replace exactly what was used,” rather than being limited to the time-phased order point approach.

Distribution resource planning (DRP II) The extension of distribution requirements planning into the planning of the key resources contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc.

Drill-down The act of deriving detailed, mix forecasts from the aggregate, volume forecast (ant. Roll-up) SW (Blow-down)

DAMA Project The Demand Activated manufacturing Architecture (DAMA) project is the most ambitious project under the American Textile Partnership(AMTEX™). This government industry consortium links U.S. Department of Energy national laboratories with leading U.S. fiber, textile, apparel, and retail companies, as well as textile universities, in an effort to identify and demonstrated means for the U.S. Integrated Textile Complex (ITC) to improve responsiveness to the consumer that can result in a 50% reduction in time for the ITC pipeline. DAMA’s mission is to define and demonstrate new business structures and processes, and establish the key elements of an electronic marketplace for the U.S. ITC to carry out major improvements leading to a 50% reduction in time for the pipeline. Source: DAMA

Decision Support Data The predetermined data required by multiple decision makers across a supply chain in making complementary decisions by providing quick and/or effective analysis and synthesis of data and/or information. In the CPFR process, pre-determined decision support data is retrieved to facilitate the process.

Distributor A business that does not manufacturer its own products, but purchases and resells these products. Such a business usually maintains a finished goods inventory. Source: APICS Dictionary For the purpose of CPFR, the term distributor is intended to include retailers.

Economic order quantity (EQO) A type of fixed order quantity model that determines the amount of an item to be purchased or manufactured at one time. The intent is to minimize the combined costs of acquiring and carrying inventory. The basic formula is
Quantity = Sqrt (2dc/iu)
where d = annual demand, c = average cost of order preparation, i = annual inventory carrying cost percentage, and u = unit cost. Syn: economic lot size, minimum cost order quantity. See: total cost curve.

Efficient consumer response (ECR) 1) A grocery industry-based, demand-driven replenishment system that links suppliers to develop a large flow-through distribution network. Information technology is designed to enable suppliers to anticipate demand. Manufacture is initiated based on point-of-sale information. Accurate, instantaneous data are essential to this concept. 2) A management approach that streamlines the supply chain by improving its effectiveness in providing customer service and reducing costs through innovation and technology.

Economic Order Quantity (EOQ) A type of fixed-order-quantity model that determines the amount of an item to be purchased or manufactured at one time. The intent is to minimize the combined costs of acquiring and carrying inventory. The basic formula is : QNTY – sqrt [(2x annual demand x avg cost of order preparation)/(annual inv carrying cost percentage x unit cost)]. Source: APICS Dictionary

Efficient Consumer Response (ECR) A strategy in which the retailer and supplier trading partners study methods to work closely together to eliminate excess costs from the supply chain and better serve the consumer. Source: Joint Industry Project on Efficient Consumer Response

Electronic Data Interchange (EDI) The computer-to-computer transmission of business information between trading partners. The information should be organized in standard file formats or transaction sets following guidelines administered by the Uniform Code Council (UCC). Standards have been developed for all regular business-to-business communication including purchase orders, invoices, shipping notices, and funds transfer. By eliminating the clerical, mailing and other costs associated with paper-based information, EDI reduces costs, time delays and errors. Source: ECR Best Practices Report

Exception Criteria Determined jointly by the distributor / retailer and manufacturer, the factors used to identify items on which to collaborate, based on their being key to controlling the forecasting process. For example, trading partners may decide that retail in-stock percentage and sales forecast accuracy are factors that control the sales forecasting process.

Exception Resolution Data Changes to a sales or order forecast based on the resolution of an exception through collaboration.

Exceptions (to Sales or Order Forecast) Items that fall outside of the constraints set by the Exception Criteria. These items are targeted for collaboration. (see Exception Criteria)

Excess Inventory Any inventory in the system that exceeds the minimum amount necessary to achieve the desired throughput rate at the constraint or that exceeds the minimum amount necessary to achieve the desired due date performance. Source: APICS Dictionary

Events Any occurrence that is expected to impact the sales or order forecast, e.g. promotion, price reduction, inventory control tactics, plant closings, etc.

Forecasting The business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance.

Forecast bias Tendency of a forecast to systematically miss the actual demand (consistently either high or low).

Forecast interval The time unit for which forecasts are prepared, such as week, month, or quarter. Syn: forecast period.

Forecast period Syn: forecast interval.

Forecast management The process of making, checking, correcting, and using forecasts. It also includes determination of the forecast horizon.

Forecast consumption Syn: consuming the forecast.

Forecast An estimate of future demand. A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and it can be based on extrinsic (external) or intrinsic (internal) factors. Various forecasting techniques attempt to predict one or more of the four components of demand: cyclical, random, seasonal, and trend. See: Box-Jenkins model, exponential smoothing forecast, extrinsic forecasting method, intrinsic forecasting method, moving average forecast, qualitative forecasting method, quantitative forecasting method.

Forecast horizon The period of time into the future for which a forecast is prepared.

Forecast interval The time unit for which forecasts are prepared, such as week, month, or quarter. Syn: forecast period.

Forecast error The difference between actual demand and forecast demand, stated as an absolute value or as a percentage. See: average forecast error, forecast accuracy, mean absolute deviation, tracking signal.

Forecast accuracy A measurement of forecast usefulness, often defined as the average difference between the forecast value to the actual value. Syn: sales forecast. See forecast error.

Fill Rate Percent of product shipped (or received) out of the total order quantity.

Forecast Error The difference between actual and forecast demand, stated as an absolute value or a percentage. Source: APICS Dictionary

Forecast Interval / Forecast Period The time unit for which forecasts are prepared, such as a week, month or quarter. Syn: forecast period. Source: APICS Dictionary

Front End Agreement The process in which a manufacturer and distributor or retailer form a collaborative partnership. The Front End Agreement establishes each party’s expectations, and what actions and resources are necessary for success.

Frozen Forecast Based on an agreement between trading partners, the portion of the order forecast which is no longer open to change. In the CPFR model, the frozen forecast is used to generate an order.

IDEF methods Integrated Computer-Aided manufacturing (ICAM) DEFinition methods are used to perform modeling activities in support of enterprise integration. The original IDEF methods were developed for the purpose of enhancing communication among people who needed to decide how their existing systems were to be integrated. IDEF0 (function Modeling Method) was designed to allow a graceful expansion of the description of a system’s functions through the process of function decomposition and categorization of the relations between functions (i.e., in terms of Input, Output, Control, and Mechanism classification. Source: Overview of the U.S. Air Force IDEF Modeling at www.idef.com

Inventory Buffers See Excess Inventory.

Inventory Turnover / Inventory Turns The number of times that an inventory cycles or “turns over” during a year. A frequently used method to compute inventory turnover is to divide the average total inventory level into the annual cost of sales. For example, an average inventory of $3 million divided into an average cost of sales of $21 million means that inventory turned over seven times. Syn: inventory turns, turnover. Source: APICS Dictionary

Item Management Profile Developed during the joint business planning process, the item management profile contains detailed item information about tactical actions necessary to support the joint business plan. Examples include order minimums and multiples, lead times, order intervals, frozen time fence, and safety stock rules.

Independent demand The demand for an item that is unrelated to the demand for other items. for finished goods, parts required for destructive testing, and service parts requirements are examples of independent demand. See: dependent demand.

Independent demand item management models Models for the management of items whose demand is not strongly influenced by other items managed by the same company. These models can be characterized as follows: (1) stochastic or deterministic, depending on the variability of demand and other factors; (2) fixed quantity, fixed cycle, or hybrid -(optional replenishment). See: fixed reorder cycle inventory model, fixed reorder quantity inventory model, optional replenishment model.

Intrinsic forecast method A forecast based on internal factors, such as an average of past sales. Ant: extrinsic forecast.

Inventory Those stocks or items used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts). Demand for inventory may be dependent or independent. Inventory functions are anticipation, hedge, cycle (lot size), fluctuation (safety, buffer, or reserve), transportation (pipeline), and service parts. 2) In the theory of constraints, inventory is defined as those items purchased for resale and includes finished goods, work in process, and raw materials. Inventory is always valued at purchase price and includes no value-added costs, as opposed to the traditional cost accounting practice of adding direct labor and allocating overhead as work in process progresses through the production process.

Inventory turnover (turns) The number of times that an inventory cycles, or “turns over,” during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. For example, an average inventory of $3 million divided into an annual cost of sales of $21 million means that inventory turned over seven times. Syn: inventory turns, inventory velocity, turnover.

Inventory velocity The speed with which inventory passes through an organization or supply chain at a given point in time as measured by inventory turnover. Syn: inventory turnover.

Jury of Executive Opinion Consists of top executives views concerning future sales.JTM.

Joint Business Plan The process in which manufacturers and distributors or retailers exchange information about their corporate strategies to develop a partnership strategy, after which category roles, objectives and goals are detailed to generate a jointly agreed to business plan.

Jointly-Managed Inventory A trading partner relationship program that openly shares information through a joint business plan and a detailed review of demand and supply processes. Jointly managed inventory contains many of the fundamentals of CPFR but is generally not supported with inter-enterprise decision support computing or automated exception management.

Lead Time 1. A span of time required to perform a process (or series of operations). 2. In a logistics context, the time between recognition of the need for an order and the receipt of goods. Source: APICS Dictionary

Life cycle Analysis Bases the forecast upon whether the product is judged to be in the introduction, growth, maturity or declining stage of its cycle.

Market demand In marketing, the total demand that would exist within a defined customer group in a given geographical area during a particular time period given a known marketing program.

Master production schedule (MPS) The master production schedule is a line on the master schedule grid that reflects the anticipated build schedule for those items assigned to the master scheduler. The master scheduler maintains this schedule, and in turn, it becomes a set of planning numbers that drives material requirements planning. It represents what the company plans to produce expressed in specific configurations, quantities, and dates. The master production schedule is not a sales item forecast that represents a statement of demand. The master production schedule must take into account the forecast, the production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals. Syn: master schedule.

Manufacturing resource planning (MRP II) A method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It is made up of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports such as the business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP.

Mean absolute deviation (MAD) The average of the absolute values of the deviations of observed values from some expected value. MAD can be calculated based on observations and the arithmetic mean of those observations. An alternative is to calculate absolute deviations of actual sales data minus forecast data. These data can be averaged in the usual arithmetic way or with exponential smoothing. See: forecast error, tracking signal.

Mix Forecast A forecast by individual products. Sometimes called the detailed forecast. It is used for short-term scheduling for plants and suppliers and for items with long lead times.

Outlier A data point that differs significantly from other data for a similar phenomenon. For example, if the average sales for a product were 10 units per month, and one month the product had sales of 500 units, this sales point might be considered an outlier. See: abnormal demand.

Operational plan(s) The set of short-range plans and schedules detailing specific actions. Operational plans are more detailed than strategic and tactical plans and cover a shorter time horizon. See: operational planning, strategic plan, tactical plan. WS: The agreed-upon rates and volumes of production or procurement to support he Sales Plan (Demand Plan, Sales forecast) and to reach the inventory or order backlog targets. The Operations Plan, upon authorization at the Executive S&OP meeting, becomes the “marching orders” for the master scheduler, who must set the Master Production Schedule in congruence with the Operations Plan.

Operational planning The process of setting goals and targets and establishing measures constrained by and targeted for achieving the strategic and tactical plans. See: operational plan, strategic planning, tactical planning.

Order Forecast Forecast of anticipated orders created by combining point of sale (POS) data, causal information and inventory strategies to generate specific ordering requirements to support the sales forecast and Joint Business Plan. Actual numbers are time phased and reflect inventory objectives by product and receiving location. The short term portion of the forecast is used for order generation, while the longer term portion is used for material, production and financial planning.

Parent item The item produced from one or more components. Syn: parent.

Phantom Bill of Material A bill-of-material coding and structuring technique used primarily for transient (nonstocked) subassemblies. For the transient item, lead time is set to zero and the order quantity to lot-for-lot. A phantom bill of material represents an item that is physically built, but rarely stocked, before being used in the next step or level of manufacturing. This permits MRP logic to drive requirements straight through the phantom item to its components, but the MRP system usually retains its ability to net against any occasional inventories of the item. This technique also facilitates the use of common bills of material for engineering and manufacturing. Syn: blowthrough, transient bill of material.

Planning Bill of Material An artificial grouping of items or events in bill-of-material format used to facilitate master scheduling and material planning. It may include the historical average of demand expressed as a percentage of total demand for all options within a feature or for a specific end item within a product family and is used as the quantity per in the planning bill of material. Syn: planning bill. See: hedge, production forecast, pseudo bill of material.

Pseudo Bill of Material An artificial grouping of items that facilitates planning. See: modular bill of material, phantom bill of material, planning bill of material, super bill of material.

Pipeline Refers to the manufacturing pipeline which represents the combined production processes required to fabricated, transport, and deliver a single product to retail.

Point of Sale (POS) 1. Place where the purchase is made at the checkstand or scanning terminals in a retail store. The acronym POS frequently is used to describe the sales data generated at the check-out scanners. Source: ECR Best Practices Report 2. The relief of inventory and computation of sales data at a time and place of sale, generally through the use of bar coding or magnetic media equipment. Source: APICS Dictionary

Planning horizon The amount of time a plan extends into the future. For a master schedule, this is normally set to cover a minimum of 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 needed additions to capacity. See: cumulative lead time, planning time fence.

Planning time fence A point in time denoted in the planning horizon of the master scheduling process that marks a boundary inside of which changes to the schedule may adversely affect component schedules, capacity plans, customer deliveries, and cost. Outside the planning time fence, customer orders may be booked and changes to the master schedule can be made within the constraints of the production plan. Changes inside the planning time fence must be made manually by the master scheduler. Syn: planning fence. See: cumulative lead time, demand time fence, firm planned order, planned order, planning horizon, time fence.

Primary demand The demand for a category of products rather than for a specific brand.

Product family A group of products with similar characteristics, often used in production planning (or sales and operations planning). WS: The basic planning element for S&OP. S&OP meetings focus on families and sub-families (volume) not individual items (mix).

Production plan The agreed-upon plan that comes from the production planning (sales and operations planning) process, specifically the overall level of manufacturing output planned to be produced, usually stated as a monthly rate for each product family (group of products, items, options, features, and so on). Various units of measurement can be used to express the plan: units, tonnage, standard hours, number of workers, and so on. The production plan is management’s authorization for the master scheduler to convert it into a more detailed plan, that is, the master production schedule. See: sales and operations planning, sales plan.

Production forecast A projected level of customer demand for a feature (option, accessory, etc.) of a make-to-order or an assemble-to-order product. Used in two-level master scheduling, it is calculated by netting customer backlog against an overall family or product line master production schedule and then factoring this product’s available-to-promise by the option percentage in a planning bill of material. See: assemble-to-order, planning bill of material, two-level master production schedule.

Production planning A process to develop tactical plans based on setting the overall level of manufacturing output (production plan) and other activities to best satisfy the current planned levels of sales (sales plan or forecasts), while meeting general business objectives of profitability, productivity, competitive customer lead times, and so on, as expressed in the overall business plan. The sales and production capabilities are compared, and a business strategy that includes a sales plan, a production plan, budgets, pro forma financial statements, and supporting plans for materials and workforce requirements, and so on, is developed. One of its primary purposes is to establish production rates that will achieve management’s objective of satisfying customer demand by maintaining, raising, or lowering inventories or backlogs, while usually attempting to keep the workforce relatively stable. Because this plan affects many company functions, it is normally prepared with information from marketing and coordinated with the functions of manufacturing, sales, engineering, finance, materials, and so on. See: aggregate planning, production plan, sales and operations planning, sales plan.

Product mix The proportion of individual products that make up the total production or sales volume. Changes in the product mix can mean drastic changes in the manufacturing requirements for certain types of labor and material.

Planning bill of material An artificial grouping of items or events in bill-of-material format used to facilitate master scheduling and material planning. It may include the historical average of demand expressed as a percentage of total demand for all options within a feature or for a specific end item within a product family and is used as the quantity per in the planning bill of material. Syn: planning bill. See: hedge, production forecast, pseudo bill of material.

Phantom bill of material A bill-of-material coding and structuring technique used primarily for transient (nonstocked) subassemblies. For the transient item, lead time is set to zero and the order quantity to lot-for-lot. A phantom bill of material represents an item that is physically built, but rarely stocked, before being used in the next step or level of manufacturing. This permits MRP logic to drive requirements straight through the phantom item to its components, but the MRP system usually retains its ability to net against any occasional inventories of the item. This technique also facilitates the use of common bills of material for engineering and manufacturing. Syn: blowthrough, transient bill of material. See: pseudo bill of material.

Plan predetermined course of action over a specified period of time that represents a projected response to an anticipated environment to accomplish a specific set of adaptive objectives.

Planning time fence A point in time denoted in the planning horizon of the master scheduling process that marks a boundary inside of which changes to the schedule may adversely affect component schedules, capacity plans, customer deliveries, and cost. Outside the planning time fence, customer orders may be booked and changes to the master schedule can be made within the constraints of the production plan. Changes inside the planning time fence must be made manually by the master scheduler. Syn: planning fence. See: cumulative lead time, demand time fence, firm planned order, planned order, planning horizon, time fence.

Quantitative forecasting techniques An approach to forecasting where historical demand data is used to project future demand. Extrinsic and intrinsic techniques are typically used. See: extrinsic forecasting method, intrinsic forecasting method.

Retail In-Stock Percentage As defined by trading partners, the percent of retail locations (stores or SKU’s) with a positive on-hand balance of a particular item, or the percent of retail locations (stores or SKU’s) with an on-hand balance greater than a set minimum quantity. The measurement of SKU’s being in-stock and available for purchase; expressed as a percentage, at the door/item/SKU level (e.g. if a retailer has 100 doors and carried 10 SKU’s per door, a measure of 95% in-stock would mean that 950 out of a 1000 door/SKU combinations have at least 1 unit in stock at that point in time?.

Regression Analysis Statistically relates sales to one or more explanatory (independent) variables. Explanatory variables may be marketing decisions (price changes), competitive information, economic data, or any other variable that can be related to sales. JTM

Roll-up The at of creating an aggregate volume forecast by summing up the detailed mix forecasts. WS

Safety Stock A quantity of stock planned to be in inventory to protect against demand fluctuations or out-of-stocks.

Scenarios In the context of CPFR, the business cases applied to the generic process model as to whether the manufacturer or distributor / retailer is ultimately responsible for the sales forecast, the order forecast and order generation. Who is ultimately responsible is determined by the parties based on competencies, resources and systems capabilities. CPFR includes four scenarios to allow users to “walk through” the case that suits their trading partner situation.

Seasonality A repetitive pattern from year to year (or other repeating time interval) with some periods considerably higher than others. Source: APICS Dictionary

Shared Metrics The measures jointly determined by two trading partners to determine the success of collaborative planning, forecasting and replenishment.

Supply Chain Supply chain management (SCM) is the delivery of customer and economic value through the integrated management of the flow of physical goods and associated information, from raw materials sourcing to delivery of finished products to consumers.

Sales forecast A projection into the future of expected demand given a stated set of environmental conditions JTM. A projection of future retail sales for a given time period and location, created by combining point of sale (POS) data, seasonality, causal information and planned events to support the Joint Business Plan.

Sales Plan Set of specified managerial actions to be undertaken to meet or exceed the sales forecast. JTM

Sales and operations planning A process to develop tactical plans that provide management the ability to strategically direct its businesses 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 (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level. The process must reconcile all supply, demand, and new-product plans at both the detail and aggregate levels and tie to the business plan. It is the definitive statement of the company’s plans for the near to intermediate term, covering a horizon sufficient to plan for resources and to support the annual business planning process. Executed properly, the sales and operation planning process links the strategic plans for the business with its execution and reviews performance measurements for continuous improvement. See: aggregate planning, production plan, production planning, sales plan, tactical planning.

Sales plan A time-phased statement of expected customer orders anticipated to be received (incoming sales, not outgoing shipments) for each major product family or item. It represents sales and marketing management’s commitment to take all reasonable steps necessary to achieve this level of actual customer orders. The sales plan is a necessary input to the production planning process (or sales and operations planning process). It is expressed in units identical to those used for the production plan (as well as in sales dollars). See: aggregate planning, production plan, production planning, sales and operations planning.

Simulation 1) The technique of using representative or artificial data to reproduce in a model various conditions that are likely to occur in the actual performance of a system. It is frequently used to test the behavior of a system under different operating policies. 2) Within MRP II, using the operational data to perform what-if evaluations of alternative plans to answer the question, Can we do it? If yes, the simulation can then be run in the financial mode to help answer the question, Do we really want to? See: what-if analysis. JTM: Simulation uses the computer to model the forces that affect sales: customers, marketing plans, competitors, flow-of-goods, etc.

Standard Interchange Language (SIL) SIL is a systems standard designed to exchange data between computers using different applications. SIL was designed to provide an efficient method for remotely manipulating a database without the need for multiple, proprietary interfaces. SIL is non-proprietary and utilizes a public domain standard administered by the Uniform Code Council. Source: UCC General Overview, Standard Interchange Language

Stochastic models Models where uncertainty is explicitly considered in the analysis.

Stockkeeping unit (SKU) 1)An inventory item. For example, a shirt in six colors and five sizes would represent 30 different SKUs. 2) In a distribution system, an item at a particular geographic location. For example, one product stocked at the plant and at six different distribution centers would represent seven SKUs. WS: An individual finished product. In the more rigourous use of the term, it refers to a specific, individual product in a given location.

Strategic plan The plan for how to marshal and determine actions to support the mission, goals, and objectives of an organization. Generally includes an organization’s explicit mission, goals, and objectives and the specific actions needed to achieve those goals and objectives. Syn: strategy. See: business plan, operational plan, strategic planning, tactical plan.

Supply chain The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash.

Supply chain inventory visibility Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level and notify the user of significant deviations from plans. Companies are provided with realistic estimates of when material will arrive.

Supply chain planning The determination of a set of policies and procedures that govern the operation of a supply chain. Planning includes the determination of marketing channels, promotions, respective quantities and timing, inventory and replenishment policies, and production policies. Planning establishes the parameters within which the supply chain will operate.

Tactical plan(s) The set of functional plans (e.g., production plan, sales plan, marketing plan) synchronizing activities across functions that specify production levels, capacity levels, staffing levels, funding levels, and so on, for achieving the intermediate goals and objectives to support the organization’s strategic plan. See: aggregate planning, operational plan, production planning, sales and operations planning, strategic plan, tactical planning.

Theory of constraints (TOC) A management philosophy developed by Dr. Eliyahu M. Goldratt that can be viewed as three separate but interrelated areas-logistics, performance measurement, and logical thinking. Logistics include drum-buffer-rope scheduling, buffer management, and VAT analysis. Performance measurement includes throughput, inventory and operating expense, and the five focusing steps. Thinking process tools are important in identifying the root problem (current reality tree), identifying and expanding win-win solutions (evaporating cloud and future reality tree), and developing implementation plans (prerequisite tree and transition tree). Syn: constraint theory. See: constraint management.

Trend analysis An analysis to determine whether trend (general upward or downward change) exists in data. See: trend forecasting models.

Trend forecasting models Methods for forecasting sales data when a definite upward or downward pattern exists. Models include double exponential smoothing, regression, and triple smoothing. See: trend analysis.

Unit of measure The unit in which the quantity of an item is managed, e.g., pounds, each, box of 12, package of 20, or case of 144.

Uniform Code Council (UCC) The Uniform Code Council, Inc. (UCC), a not-for-profit standards organization, administers the Universal Product Code (U.P.C..) and other global commerce standards for 200,000 members worldwide. The mission of the Uniform Code Council, Inc. is to take a global leadership role in establishing and promoting multi-industry standards for product identification, including the Universal Product Code, and related electronic communications. The goal is to enhance efficient supply chain management, contributing added value to the customer. Source: UCC In this publication, the letters “U.P.C..” are used solely as an abbreviation for the “Universal Product Code” which is a product identification system. They do not refer to the U.P.C.?, which is a federally registered certification mark of the International Association of Plumbing and Mechanical Officials (“IAPMO”) to certify compliance with the Uniform Plumbing Code as authorized by IAPMO.” This is a legal settlement that the UCC must abide by.

Universal Product Code (U.P.C.) A 12 digit code used by companies in North America to uniquely identify themselves and their products worldwide. The code also identifies special applications such as random weight marking, coupon code marking, or in-store identification. The last of the 12 digits is always a check character. Source: UCC

Value Added Network (VAN) A company the acts as a clearinghouse for electronic transactions between partners. Source: ECR Best Practices Report

Value Chain A series of value added process activities that incorporates demand creation and management linked with the associated supply management.

Value Chain Nodes Groupings of activities in the Value Chain process that are structured either organizationally or geographically. Typically a node may be physical entity like a store, distribution center or manufacturing plant. It may also be an organization like demand planning or customer service.

Vendor Managed Inventory (VMI) See Continuous Replenishment

Voluntary Inter-Industry Commerce Standards (VICS) A non-profit organization focusing on the improvement of product and information flow throughout the supply chain.

VMI Abbreviation for vendor-managed inventory. A means of optimizing supply chain performance in which the supplier has access to the customer’s inventory data and is responsible for maintaining the inventory level required by the customer. This activity is accomplished by a process in which resupply is done by the vendor through regularly scheduled reviews of the on-site inventory. The on-site inventory is counted, damaged or outdated goods are removed, and the inventory is restocked to predefined levels. The vendor obtains a receipt for the restocked inventory and accordingly invoices the customer. See: continuous replenishment.

Volume Forecast A forecast by product grouping such as families, classes, and so forth. Also called the aggregate forecast or the product group forecast ikt is used for sales planning, capacity planning at the plants and suppliers, and for financial analysis.

Work in process (WIP) A good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory. Many accounting systems also include the value of semifinished stock and components in this category. Syn: in-process inventory.

What-if analysis The process of evaluating alternate strategies by answering the consequences of changes to forecasts, manufacturing plans, inventory levels, etc. See: simulation.