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SupplyChainandOperationsManagementGlossary26MayLINDOSystems2015http://www.
lindo.
comThisglossarywasoriginallycompiledinconjunctionwithacourseonLogisticsandSupplyChainManagementattheUniversityofChicago.
Keywords:Glossary,Dictionary,Terminology,Supplychains,OperationsManagementEntriestendtobearrangedaccordingtotheirabbreviation.
Thus,Bill-Of-MaterialisdefinedunderBOM.
Notethatitiseasiertodeducetheabbreviationfromaphrase,thandeducethephrasefromtheabbreviation.
Thisdocumentisupdatedregularly.
3PL(ThirdPartyLogistics):Theuseofanoutsidepartytoperformsomepartofthelogisticsfunction,typicallytruckingorwarehousing.
Itisappropriateifthereareeconomiesofscaleinthelogisticsfunction.
463Pallet:AstandardpalletforcarryingcargointheU.
S.
military.
Itis88inchesby108inchesandabout2inchesthick.
Ithas6tie-downringsonthelongsideand5tie-downringsontheshortside,Cargoonthepalletisheldinplacebynets.
Thepalletsareheldinplaceonacargoaircraftbyasetofsiderails.
SeealsoULD.
ABCAnalysis:Partitionofproductsintothreegroupsaccordingtotheiryearlydollarvolume.
Atypicalresultisthat30%oftheproducts(theA's)comprise70%ofthevolume.
MoresophisticatedcontrolproceduresareappropriateforclassAproducts.
Verysimple,cheapmethodssufficeformanagingclassCitems.
SimilartoParetoanalysis.
ABC(ActivityBasedCosting):Anaccountingmethodthatattemptstocloselyassociatecosts,particularlyindirectcosts,withtheactivitiesthatgeneratethecosts.
Sometimesalsocalledtransactions-basedcosting.
ThemostcrucialaspectofABCisidentifyingthe"costdrivers",e.
g.
,numberofstopsonadeliveryroute,numberofmilesonadeliveryroute,numberofpalletsdelivered,etc.
,andthendeducingthecostratetoapplytoeachactivity.
Acceptancesampling:SeeAQL.
ACH(AutomatedClearingHouse):AnationwideelectronicpaymentssystemintheU.
S.
thatispopularformakingelectronicpayments,banktobank,businesstobusiness,andbusinesstogovernment.
Seehttp://www.
nacha.
org.
A.
C.
Nielsen:AChicagobasedsupplierofindustrysalesdataforconsumerproducts,e.
g.
,supermarkets.
Thesedataareobtainedfromsourcessuchascashregisterscanners.
AnothersupplierofsuchdataisIRI.
2Acre:unitoflandmeasure=4840squareyards=0.
4049hectares.
640acres=1squaremile.
SeeSIunits.
ActofGod:Inacontract,sayforadeliveryofgoods,aneventthatisdifficulttopredict,prevent,andoflowprobability,e.
g.
,tornado,hurricane,whichifoccurs,absolvesoneofthepartiesofthecontractfromhavingtosatisfytheconditionsofthecontract,e.
g.
,deliverthegoodsontime.
SometimesalsoknownasaForceMajeure.
OthereventssometimeslistedasForceMajeurearestrikes,riots,explosions,andgovernmentalactions.
ADC(AutomaticDataCapture):Anymethod,suchasbarcodesandRFIDforautomaticallyenteringdataintoaninformationsystemwithminimalmanualeffort.
AGV(AutomaticGuidedVehicle):adriverlessvehicleusedinwarehousesandfactoriestomovematerial.
Itcanreplaceforkliftsforsometasks.
Usuallythematerialtobemovedmustbeonastandardpallet.
Initsmostautomatedform,whenapalletistobemovedtoanewlocation,theAGVsystemisinformedoftheoriginandthedestinationofthedesiredmovement.
AnAGVwillpickupthepallet,navigatethroughthefactoryfollowingeitherwiresormagnetsburiedinthefloororlaserbeams.
AnAGVmaybemanagedbyaWMS.
AICPA(AmericanInstituteofCertifiedPublicAccountants)AIDC(AutomaticIdentificationandDataCapture/Collection):Methodologies,includingbarcodes,OCR,MICR,RFID,magneticstripe,biometrics,etc.
foridentifyingpackages,documents,andpeople.
Americanoption:SeeCalloption,Putoption.
andon:AJapanesetermmeaningliterallyalantern,perhapsforsignaling.
Inmanufacturingittypicallyisalampdisplayingoneofthreecolors:Green=operatingnormally,Yellow=helpisneeded,e.
g.
,sendamaintenanceorchangeovercrew,andRed=productionhasstoppedbecauseofsomeproblem.
Seealsopokayoke,jidoka.
ANSI(AmericanNationalStandardsInsitute):seehttp://www.
ansi.
orgorhttp://www.
nssn.
orgAnagencyforpublishingU.
S.
andinternationalstandards.
AP(AccountsPayable):Listofamountsduetooursuppliers.
Softwaresystemfordecidingwhentopaywhichbillsbasedupondiscountsandpenaltiesthatdependuponwhenpaid.
APICS(AmericanProductionandInventoryControlSociety):AlsoknownastheAssociationforOperationsManagement.
Seehttp://www.
apics.
org.
From1980to2000thisorganizationpopularizedtheuseofMRP.
APICSofferstwocertificationexams:theCPIMandtheCIRM.
3Apollo:PlanogramsoftwarefromIRI.
AQL(AcceptableQualityLevel):WhenashipmentofunitsofsomeSKUarrive,youmaywishtoinspecttheshipmentandrejectitif"toomany"oftheunitsaredefective.
Howis"toomany"determinedAwelldefinedwayistochoosefourquantities:1)ahighqualitylevelknownastheAQL,e.
g.
,0.
5%defectiveorless,2)alowqualitylevel,theLotTolerancePercentDefective(LTPD),e.
g.
2%defectiveormore,3)aproducer'srisk,,e.
g.
,.
15,and4)aconsumer'srisk,,e.
g.
,0.
1.
Wethenwanttochooseaninspectionplansothattheprobabilityofrejectinga"good"lothavingAQL%defectiveis,andtheprobabilityofacceptinga"bad"lotwithLTPDdefectiveis.
Forexample,ifasinglesampleplanisused,thenusingthebinomialdistribution,andtheaboveexamplenumbers,itcanbeshownthatoneshouldtakeasampleofsize265andacceptifthenumberdefectiveis2orless.
AR(AccountsReceivable):Listofamountsduetousbycustomer.
Softwaresystemformonitoringandupdatingamountsdueandhighlightingaccountsaccordingtotheirneedforattention,e.
g.
,morethan30dayspastdue,morethan60dayspastdue,etc.
Arbitrage:Initssimplestform:buyingacommodityatonepriceinonemarketandthenimmediatelysellingthesameorequivalentcommodityatahigherpriceinanothermarket.
Moregenerally,ifthecommodityisaphysicalcommoditysuchascornoroil,thenwesayanarbitrageopportunityexistsifthepriceforthecommodityinmarketBishigherthanthepriceinmarketAplusthetransportationcostfromAtoB.
Incurrencyexchangemarketsanarbitrageopportunityexistsiftherearethreemarkets,sayeuros,dollars,andyensothatyoucanexchangeoneeurofortheequivalentindollars,exchangethosedollarsfortheequivalentinyen,andthenexchangethoseyenfortheequivalentineuros,andthenfindyourselfwithmorethanoneeuro.
ARIMAforecastingmodel:Aclassofforecastingmodelsinwhichtheremaybethreekindsoffeatures:1)Auto-Regressive(AR)termstorepresentbusinesscyclebehaviorsuchastendstooccurwhendemandisgeneratedbyequipmentthatneedstoberegularlyreplacedasitwearsout,2)aTrend,orIntegration(I)ordifferencingfeaturetorepresentdemandthatissteadilyincreasing,and3)MovingAverage(MA)termswhichcancapturetheeffectofaspikeindemand,say,afterourproductwasthesubjectofafavorablenewsstory.
Thesethreefeatures,AR,I,andMA,togetherarecalledARIMA.
AforecastingmodelwithpARterms,ddifferencings,andqMAterms,issaidtobeanARIMA(p,d,q)model.
ExponentialsmoothingcanbeshowntobeanARIMA(0,1,1)model.
EarlyworkonthisclassofforecastingmethodswasdonebyBoxandJenkins,soARIMAmodelsaresometimescalledBox-Jenkinsmodels.
ASA(AverageSpeedofAnswer):Astandardmeasureofservicequalityinin-boundcallcenters.
Atypicaltargetis20secondsorless.
IntheUS,thetimebetween"ring"tonesissixseconds,sothiscorrespondstoalittleoverthreerings.
4ASN(AdvanceShippingNotice)Anelectronicmessagefromtheshipper(orsupplierorsender)tothecustomer(orreceiver)thattheproducthasbeenshippedandisexpectedtoarriveduringaspecifiedtimeinterval.
ASP(ApplicationServiceProvider):Afirmthatprovidesbothcomputingpowerandbusinesssoftwaretobusinessesviatheweb,somewhatsimilartotimesharingfirmsinthe1970's.
AbusinessthatusesanASPcanbebilledpertransaction,sothatasmallfirmmightbeabletouseapowerfulpieceofsoftwarewithouthavingtopayahighfixedlicensefeeforit.
Anotheradvantageisthatthedetailsofsoftwaremaintenanceandupgradesareinvisibletotheuser.
AriskinusinganASPisthattheASPmayfaileitherphysicallyorfinancially,inwhichcasethebusinessthatusesitmayhavelessrecoursethanifitsinformationprocessingwasdonein-house.
AS/RS:Automatedstorageandretrievalsystem.
ThebenefitsofanAS/RSaretypically:higherpickratesperpersonandgreaterstoragedensityofproducts.
Thegreaterdensityisbecauseitemsmaybestoredhigher.
Assortmentplanning:Decidinghowmuchtocarryofwhichproducts.
Animportantconsiderationisthesubstitutionbehaviorofvariouscustomertypes,thatis,whatproductofyoursoryourcompetitorsthecustomerwillbuyifyoudonothaveherfirstchoiceinstock.
SeealsoConsumerchoice,Multinomiallogit.
ASTM:OriginallytheAmericanSocietyforTestingandMaterials,butnowofficiallyknownasASTMInternational,seehttp://www.
astm.
org.
ASTMinitiallysetstandardsforsteelproductsaroundthe1900.
IfyouwereorderingsteelrailfromamillyoumightspecifythatthesteelhaveacertainhardnessasspecifiedbyapreciselydescribedASTMtest.
ASTMthenintroducedstandardsforthecementindustry.
Itnowpublishesstandardsandstandardtestsforawiderangeofmaterials,suchastestingtheviscosityoflubricatingoil,ortestingthestrengthofplastic.
Thus,areasonablewayofcommunicatingaqualityrequirementbetweenamanufacturerandacustomerisviaanASTMstandard.
ATO(AssembletoOrder):Componentsarekeptininventory,however,afinalproductisassembledfromthesecomponentsonlywhenacustomerplacesanorderforaparticularproductconfiguration.
TheATOapproachmaybeappropriatewhenthereareamodestnumberofcomponents,butalargenumberofdifferentconfigurationsintowhichthesecomponentscouldbecombinedtoproduceaproductusefultosomecustomer.
SometimesalsocalledBuildtoOrder.
ATP(AvailableToPromise):Amountofproductthatafacilitycanpromisetodeliverquicklybecauseithasa)therequiredproductandcomponentsonhand,b)notpromisedalreadytosomeothercustomer,andc)hasproductioncapacitytoassembletheproduct,notalreadyscheduledforproductionofotherproductsforothercustomers.
SomesophisticatedERPsystemsallowtheusertoattachaprobabilitytoeachpromiseorclaimoninventorytoaccountforexpectedcancellationsoforders.
5Attributessampling:Inqualityassurance,samplinginwhichayes/noattributeismeasured,e.
g.
,defectiveornot.
Incontrast,seevariablessampling.
AVI(AutomaticVehicleIdentification):Asysteminwhichparticipatingvehicles,e.
g.
,trucks,carryatransponderthatmaybequeriedbyareader,e.
g.
,ataweightscale,atollbooth,oratportofentryatastateborder.
Thetransponder,ifitrecognizesthedeviceorsystemsendingthequery,willrespondwithitsidentificationcode.
Thiskindofsystemisalsousedinautomobiletollcollection.
Theidentificationcodecontainsinformationaboutthetypeofvehicle,e.
g.
,numberofaxles.
Theroadwaymayhaveadditionalsensorstocountthenumberofaxlesand/orestimatethelengthofthevehicleandcheckifitmatchesthevehicledescriptioninthecodesentbythetransponder.
AVL(ApprovedVendorList):ForeachSKUthatwemightbuy,alistofvendorswhohavebeenapproved,e.
g.
,onthebasisofquality,price,deliverytime,tosupplythisSKU.
Avoirdupoisweight:AsystemofweightswidelyusedintheU.
S.
andtosomeextentintheUnitedKingdom,Australia,andCanada.
Thecentralunitisthepound(lb).
Apoundis0.
45359237kilograms.
OtherunitsoftheAvoirdupoissystemare:grain=1/7000lb,dram=1/256lb,ounce=1/16lb,hundredweight(cwt)=100lband"short"ton=2000lb.
BewarethatanAvoirdupoisounceisnotthesameasaTroyounceandanAvoirdupoispoundisnotthesameasaTroypound.
SeealsoSIunits,Troyweight.
B2B:BusinessToBusiness.
Transactionbetweentwobusinesses.
B2C:BusinessToConsumer.
Transactionbetweenabusinessandaconsumer.
Backhaul:Areturntrip,carryinggoodsperhapsatalowerrate,aftermakingtheprimarydelivery.
Seealsodeadhead.
Backlog:verysimilartobackorder.
Productorderedbycustomerbutnotyetdelivered.
Backorder:unsatisfiedproductdemandforwhichcustomeriswillingtowaitforshipmentlater,ratherthancanceltheorder.
Seealso:stockout.
Abackordermaycauseaccountingcomplicationsbecauseavendortypicallycannotchargeforaproductthathasnotbeenshipped,inparticularifpaymentismadebycreditcard.
BackupAgreement:Apurchasingarrangementbetweenasupplierandaretailerthatbundlesthepurchaseofgivennumberofnonreturnableunits,withtheoptiontobuyagivennumberofadditionalunitsforquickdeliveryataspecifiedprice.
Forexample,theretailermightpurchaseoutright80unitsat$150each,bundledwith20optionsat$15peroption,topurchaseanadditional20unitsat$140each.
Comparedtoaconventionalagreement,abackupagreementspreadstheforecastingriskbetweenthe6supplierandtheretailer.
Aconventionalagreementthatallowsfullrefundofunsoldunitsputsalltheforecastingriskonthesupplier(andtheretailerwilltendtoordertoomuch).
Aconventionalagreementwithnorefundsputsalltheforecastingriskontheretailer(andtheretailerwilltendtoordertoolittle).
Bait-and-switch:Asituationwhereavendoradvertisestwotypesofproducts,acheapone,TypeY,andamoreexpensiveoneTypeA.
Therearetwoclassesofcustomers:ClassIIcustomersareonlywillingtobuyproductY,whereasclassIcustomerspreferproductYbutarewillingtobuyproductAifYisoutofstock.
AninterestinginventorymanagementproblemishowmanyunitsofproductYtostock.
IfasmallquantityofYisstocked,thenclassIcustomersmayarrivehopingtobuyYbutendupbuyingthemoreexpensive(andprofitabletothevendor)typeAproduct.
Thisisverysimilartorevenuemanagementaspracticedintheairlines.
Ethics/longtermcustomergoodwillsuggeststhatthevendorshouldbeclearintheadvertisingofYthat"limitedquantitiesavailable,norainchecks".
BalancedScorecard:Traditionalaccountingmeasuresaremainlydesignedformeasuringperformanceasseenbythestockholders.
RobertKaplanofHarvardBusinessSchoolpopularizedanextensionofaccountingmeasures,consistingessentiallyofthefollowingsteps:1)Identifythecompany'sstakeholders,e.
g.
customers,employees,communitiesinwhichthecompanyoperates,stockholders.
2)Foreachstakeholder,identifymetricsforthecompany'sperformance.
E.
g.
,orderfillrates,productreturnrates;wagerates,employeeturnover;charitablegifts,pollutionlevels;stockprice.
3)Measureandreportthecompany'sperformanceoneachofthesemeasures.
BaldrigeAward:AnawardthatrecognizesqualityachievementbyU.
S.
organizations,seehttp://www.
quality.
nist.
gov.
ItisnamedafterformerCommerceSecretary,MalcolmBaldrige,whowaskilledinarodeoaccidentin1987.
Annualawardsmaybegiveninfourcategories:manufacturing,service,smallbusiness,andeducation/healthservices.
Balking:Theactionofanarrivingcustomerinaservicesystemtonotjoinawaitingqueuebecausethequeueistoolong.
Thisresultsinalostsale.
Contrastwithreneging.
Barcode:Amachinereadablemarkingonaproductorbox.
Ittypicallycontains10to12digitsofinformationaboutthecontentsofthebox.
Amajormanufacturerofbarcodeprinters,ZebraTechnologies,takesitsnamefromtheappearanceofthesebarcodes.
Morerecenttwo-dimensionalcodesmaycontainasmuchas100characters.
SeealsoUPC,RFID.
Thegeneralpublicisfamiliarwithbarcodesfortheuseincheckoutofpurchasesatacashregister.
Barcodesarealsoveryimportantinwarehouses/DC'sinthattheyfacilitateautomatedsorting.
Barge:avesselusedmainlyininlandwatertransportation.
Ittypicallyisnotpowered.
Asetofbarges,perhapsahalfdozenormore,maybegroupedintoa"tow"whichis7propelledbyatugboat.
Theadvantageofabargeisthat,likeatrailerinatractor-trailercombination,itcanbeleftataloadingorunloadingpointtobeloadedorunloadedoveraperiodofhoursordayswhilethetugboatmovesontootheractivities.
Barrel:Standardunitbywhichcrudeoilismeasured,equals42USgallons.
Basestockpolicy:Aninventorypolicywhereby,wheneverademandoccurs,anorderisimmediatelymadetoreplacetheamountsold.
ItisaQ,rpolicywithQ=1.
SeeJIT.
Bassmodel:Amathematicalmodelofthesalesovertimeofaproductjustafteritsintroduction.
Define:S(t)=marketsizeinperiodt,M=marketsizeatsaturationormaturity,p=innovatorcoefficient,0http://www.
nhtsa.
org)requiresthattheaveragefueleconomyofallpassengervehiclessoldbyamanufacturerintheU.
S.
mustachieveaspecifiedminimumaveragefueleconomymeasuredinmilespergallon.
Formodelyear2000,theminimawere20.
7mpgforlighttrucks(e.
g.
"sportutilityvehicles"),and27.
5forcars.
TheharmonicmeanisusedincomputingCAFE.
Thepenaltyfornotachievingitis$5.
50foreachtenthofampgbywhichamanufacturerfallsshorttimesthenumbervehiclessold.
Callcenter:Acollectionofagentsstaffingtelephones.
Therearetwomajortypesofcallcenters,inboundandoutbound.
Aninboundcenterhandlescallsarrivingrandomlyfromcustomers,e.
g.
,orderingitemsfromacatalog,reportingproblemswithyourproducts,etc.
Anoutboundcenteroriginatescallstoclients,e.
g.
,solicitingnewbusiness,reportingproblemswithfulfillingtheirorder,schedulingservicevisits,politelyaskingthemtopaytheiraccount,etc.
Foraninboundcallcenteramajortaskispredictinghowmanyofeachtypeofcallwilloccurineach15minuteintervalofthedayandthenhavingenoughpeoplewithappropriateskillstomeetthiscalldemand.
Foranoutboundcallcenteramajortaskisdecidingwhenisthebesttimeofthedaytocalleachnumberthatisonthecalllist.
Seealso:predictivedialing.
Calloption:AncontractbetweentwopartiesAandBthatgivesAtheright,butnotanobligation,tobuyfromBaspecifiedquantityofsomecommodityataspecifiedpricebysomefuturedate.
ItisaEuropeanoptioniftherighttobuyisforaspecificdate.
ItisanAmericanoptioniftherighttobuyexistsforanydayuptotheexpirationdateofthecontract.
SeealsoPutoption.
12Calorie:energyinheatformneededtoraisethetemperatureofonegramofwaterbyonedegreeCelsius.
1000calories=3.
968BTU.
Anoteofcaution,theunitofenergyreferredtointhepopularpressasacalorie,isusuallyakilo-calorie.
CAM(CommonAreaMaintenance):Anadditionalfeethatretailerinshoppingcenter,orrenteringeneral,mayberequiredtopayalandlordinadditiontothebaserent.
TheCAMfeemaycoverthingssuchastaxesandinsurancethatthelandlordmustpay.
TheCAMfeeservestwopurposesforthelandlord:1)Itallowsthelandlordtoquicklypassontherisktohistenantsofunpredictablecostincreasesfacedbythelandlord,and,2)itallowsthelandlordtoquotearentthatmayappearlowtoaprospectivetenantwhodoesnotpayattentiontotheexistenceofCAMfees.
Standardresponsesforatenantinclude:a)requestaclausethatallowsthetenanttoterminatetheleaseatnopenaltyiftheincreaseintheCAMfeeperyearexceedssomespecifiedpercent,andb)requireacleardefinitionofexpensesthatmaybeincludedintheCAMfee.
E.
g.
,capitalimprovementsmaynotbeincludedintheCAMfee.
Cannibalization:Thelossofsalesofanexistingproductofourstoanewproductthatweintroduce.
Wedonotwanttointroduceanewproductifitwillcannibalize"toomuch"ofthesalesoftheexistingproduct.
LetPx=theprofitcontributionperunitoftheexistingproduct,Pn=theprofitcontributionperunitofthenewproduct,Vx=unitsalesvolumeoftheexistingproductpriortointroductionofthenewproduct,Vn=unitsalesvolumeofthenewproduct(anestimate),VK=cannibalizedsales,i.
e.
,salesoftheexistingproductlosttothenewproduct,andVM=totalsizeofthemarket.
OurincreaseinprofitfromintroducingthenewproductisPnVn-PxVK.
Thus,totalprofitswillincreaseif(Pn/Px)>(VK/Vn),i.
e.
,theratioofprofitcontributionofnewtooldisgreaterthanthefractionofthesalesofthenewproductthatareduetocannibalization.
Howmightweestimatethecannibalizationratio(VK/Vn)Asimplemodelistoassumethatallproductusers,ofoursandourcompetitor'sproducts,areequallylikelytoswitchtothenewproduct.
Inthatcase,(VK/Vn)isequaltothemarketshare,Vx/VM,oftheexistingproduct.
Ifthenewproductdoesnotincreasethemarketsize,thenitisalsoclearthattheremustbesomecannibalizationiftheunitsalesofthenewproductexceedstheunitsaleswecurrentlyarenotgetting,i.
e.
,wemusthaveVK≥Vn–(VM–Vx)=Vn+Vx–VM.
Carmackamendment:AU.
S.
Federallawthatspecifiesliabilitylimitsofacarriertoashipperforlostordamagedgoods,aswellasatimelimitwithinwhichashippermayfileaclaim.
E.
g.
,ashipperhasatleastninemonthstofileaclaimfordamagebythecarrier,andatleasttwoyearstofilealawsuitifthecarrierdisallowstheclaim.
Liabilitieslimitsmaybebasedonsuchthingsasamaximumdollarsperpound.
StatelawispreemptedbytheCarmackamendment.
SeealsoWarsawconvention.
Carousel:Astoragesysteminwhichproductisbroughttothepicker,ratherthanthepickerwalkingtothestoragebin.
Thestoragebinsaretypicallymountedonmotordrivenchains.
Averticalcarouselmayallowonetoexploithigherstorageforpickingthanonecouldwithplainmanualpicking.
Ingeneral,higherstoragedensitiesmaybeachieved,aswellashigherpickratesperperson.
13Carrier:Firmthatcarriesashipmentofgoods,asopposedtotheshipper,whoisthefirmwhosentororiginatedthegoods.
Carryingcost:Thecostofowningsomething,typicallyinventory,typicallystatedasaperyearrate.
Themajorcomponentsofinventorycarryingcostare:interestorcostofcapitaltiedupintheproduct;explicitstoragerelatedcostssuchaswarehousecosts,e.
g.
refrigerationcostsforfrozengoods,insurance,taxes,;implicitoropportunitystoragecostsbecausecarryingmoreofoneproductinafinitecapacitywarehouseforcesustocarrylessandgivepoorerserviceforsomeotherproduct;inventoryriskcostssuchasshrinkage(theft,damage,etc.
),andobsolescence.
Cartage:Localhauling,e.
g.
,withinametropolitanarea.
Case:standardshippingunittoretailers,e.
g.
,supermarketgoodsaretypicallyshippedinunitsofacase,e.
g.
,12bottlesofwinetoacase.
Multiplecasesmayinturnbebundledintoaskidonapalletforloadingontoatruckwithaforklift.
Categorymanagement:Anallocationofmanagementauthorityaccordingtoproducttype,typicallyinsupermarketretailing.
Examplecategoriesare:bakedgoods,produce,softdrinks,etc.
c.
d.
f.
(CumulativeDistributionFunction):Thelefttailprobabilityofadistribution.
ForagivenconstanttandarandomvariableX,itistheprobabilitythatXt.
Cellularmanufacturing:Afactorylayoutinwhichmachinesaregroupedbyproductproducedratherthanbythemoretraditionalgroupingbyfunction,e.
g.
,allthecuttingmachinesgroupedtogetherinonedepartment,alltheweldingmachinesgroupedinanotherdepartment,andallthepunchingmachinesgroupedtogetherinathirddepartment.
Incontrast,amanufacturingcellmighthavegroupedtogetherasinglecuttingmachine,asingleweldingmachineandasinglepunch,eachappropriateforproducingaspecificproduct.
TheadvantageofthecellulararrangementisthatWIPandhandlingmaybesubstantiallyreduced.
Intraditionalmanufacturingthetimeinsystemforanitemconsistsof:productiontime+waitforsiblingpartsofthebatchtofinishastep+waittohavebatchtransportedtonextstep.
Incellularmanufacturingthelasttwowaitsareeliminated.
Therecanbeseveraldisadvantagestothecellularstyle:onemayneedmoveableorflexiblemachinessothattheappropriatemachinescanbequicklyphysicallymovedandgroupedtogetherasneededfortheproduct.
Ifsubstantialprocessspecificskillisrequiredtooperateormaintainamachine,itmaybeeasiertomanagethingsifsimilarmachinesand/orlaborersarephysicallyclose.
Censoredobservation:Anobservationiscensoredifitisonlyaboundontheactualvaluethatonedesirestoobserve.
Forexample,salesdataareusuallycensoredobservationsofwhatwewouldreallyliketoobserve:demanddata.
Thisisbecauseifaprospectivecustomerseesthatweareout-of-stockoftheitemshewouldliketopurchase,e.
g.
,ifweshowourstocklevelonourwebsite,thenthecustomertypically14willnotbothertotelluswhatshewantedifthestockleveliszero.
Traditionalcatalogmerchantsontheotherhand,forceacustomertorevealwhattheywouldliketobuybeforethemerchantrevealswhethertheproductisinstock.
Inthesameway,thecatalogmerchantgainsmoreinformationaboutcustomers'willingnesstosubstituteotherproductsforout-of-stockproducts.
Centrallimittheorem:TheresultthatasumofrandomvariableshastheNormaldistributioninthelimitasthenumberofrandomvariablesinthesumgetslarge,aslongastherandomvariablesareindependentandhaveboundedvariance.
CFAR(CollaborativeForecastingandReplenishment):SeeCPFR.
CFO(ChiefFinancialOfficer):Managerresponsibleforfinancialplanningoftheorganization.
Typicallyalsoresponsibleforrecord-keepingandcomputerinformationsystems.
Channel:Inmarketing,thecollectionoffirmsfromoriginalmanufacturertofinalretailerwhoareinvolvedwithprovidingaspecificgoodorservice.
Channelconflict:Asituationinwhichthereisdisagreementamongmembersofasupplychainorchannelonhowitshouldbemanaged.
Acommonexampleiswhenamanufacturersellsitsproductboththroughdistributorsaswellasdirectlytothefinalretailcustomers.
Thedistributorsfindthemselvescompetingwiththeirsupplierforretailsales.
AtonetimeCompaqcomputerfounditselfinsuchachannelconflictsituationwhenittriedtoswitchtoadirectretailsalesystemfromadistributorbasedsystem,soastoprovidethefastresponseofitsdirect-sale-basedcompetitor,DellComputer.
Chimneystackedpallet:Askid/palletstackedsothatallitemshaveatleastonefaceontheoutside.
Thismayleaveanemptyverticalcoresothattheskidlookslikeachimney.
Thecustomer,e.
g.
,aretailer,oftheskidmayrequestthisformofstackingsothatthepalletcanbequicklycheckedforcontentswhenitarrivesatthecustomer.
Therearenoitemshiddenontheinsidethatcanbeseenonlyaftertheskidhasbeenbrokendown.
CIO(ChiefInformationOfficer):Managertypicallyresponsibleforcomputersandinformationsystems.
MayreporttoaCFO.
CIRM(CertificateinIntegratedResourceManagement):OfferedbyAPICS.
ClarkeWrightsavingsheuristic:InLTLrouting,amethodforassigningcustomerstoloads.
Itstartsby(conceptually)makingaseparatetriptoeachcustomer.
ThenateachiterationitcombinesthosetwotripsAandBforwhichnetsavingsisgreatest.
ForexampleifwecombinetripsAandB,wesavethedistancebacktothedepotfromthelaststoponAplusthedistancefromthedepottothefirststoponB,butincurtheadditionaldistancefromthelaststoponAtothefirststoponB.
TripsAandBare15notcombinedifthetotalloadwouldexceedtruckcapacity.
Iterationscontinueaslongasnetsavingsarepositiveortotalnumberoftripsstillexceedstrucksavailable.
Classificationyard:Alsoknownasamarshallingyard,orperhapsahumpyard.
Afacilityatarailhubfordisassemblingincomingtrainsandreassemblingthemformovementoutofthehub.
Looselyspeaking,aclassificationyardistherailroadanalogofawhataDCisfortrucks.
Inthesimplestdesignthereisasingleincomingtrackwhichbranchesintotypicallyfrom20to80paralleltracks.
Eachofthesetracksislongenoughtoassembleanentireoutgoingtrain.
Attheoutgoingendtheseassemblytracksmergeintoasingleoutgoingtrackwherecompletedtrainsdepart.
Acommondesignistohaveahillor"hump"attheentrancetotheyard.
Onceanindividualrailcarispushedoverthishump,gravitywillpropelthecarforward.
Atowermanwilldirectacartoitsappropriatetracktojoinitsoutgoingtrain.
Thetowermancanuseretardersortrackbrakestoslowdownarailcarbeforeitconnectstoitsoutgoingtrain.
Seealsoblocking.
CLM(CouncilofLogisticsManagement):Not-for-profitorganizationforprofessionalsinterestedinlogisticsmanagement.
Seehttp://www.
clm1.
org.
In2005itchangeditsnametoCouncilofSupplyChainManagementProfessionals(CSCMP).
See:www.
cscmp.
org.
CMYKcolor:Acolorsystembasedonthethreecolors,Cyan,Magenta,Yellow,andthe"Key"color,black.
Thissystemistypicallyusedincolorprinters.
ThesystemissubtractiveinthatifyouprintallthreeofC,M,Y,yougetblack.
Seealso,Pantone,RGB,HTML,andNCScolor.
Coase'slaw:DuetoRonCoase,statesthatafirmwillgetlargeinaverticallyintegratedsense,ordomoreactivitiesinternallyratherthanoutsourcingthemtotheextentthatitischeapertodotheactivitiesin-house.
CoasewasoriginallyimpressedbytheextremeverticalintegrationoffirmssuchasFordintheearly1900's.
Coasepaidparticularattentiontothreekindsoftransactioncostsassociatedwithoutsourcinganactivity:1)Searchcosts,findinganacceptablesupplier,2)Contractingcosts,thecostofmanagingthecontract,and3)Coordinationcost,e.
g.
,howtoefficientlysharetherightinformation.
CoasewasaprofessorattheUniversityofChicagoLawSchoolandwonaNobelPrizeforthiswork.
COD(CashOnDelivery):Anarrangementwherebythebuyerpaysforthegoodsupondelivery,incontrasttoFOB.
Codesharing:Anairlinepracticeinwhichtwoairlines,e.
g.
,UnitedandLufthansa,sellticketsforthesameflight(productcode),usuallyanintercontinentalflight.
UnitedwillmarkettheflightintheU.
S.
LufthansawillmarketitinEurope.
Coefficientofvariation:SometimesabbreviatedasCV,anddefinedasthestandarddeviationdividedbythemean.
FortwolocationsortwoSKUswithdramaticallydifferentmeansales,theCVisonewayofmeasuringrelativevariabilityinsales.
16TheCVmakessenseonlyforpositiverandomvariables,otherwisethemeancouldbe0.
TheexponentialdistributionhasaCV=1,soaCVof1isanaturalborderlineforclassifyingarandomvariableashighlyrandomornotsorandom.
COGS(CostOfGoodsSold):Anestimateofthecostofthegoodssoldinaperiod.
ThisestimatemayvarydependinguponsuchthingsaswhetherLIFOratherthanFIFOisusedinaccountingforinventory.
COGSisunderstoodtoincludeonlyvariablecostsbutnotfixedcosts.
Combinatorialauction:Anauctioninwhichbiddersmaybidoncombinationsofobjectsaswellasindividualobjects.
Forexample,ifabuyerneeds500squaremetersofcontiguousspaceandthesellerissellinganumberofproperties,eachwith250squaremetersofspace,thebuyerwouldbidonapairofadjacentproperties.
Inatransportationauction,acarriermightwantseverallanesthatshareacommonendpoint,sothecarriermightsubmitabidsayinghewantslaneXonlyifhealsogetslaneY.
CompoundPoissonDistribution:AgeneralizationofthePoissondistribution.
ItisrepresentativeofademandprocessinwhichthenumberofordersinaspecifiedperiodhasaPoissondistribution,butadditionally,thenumberofunitsrequestedineachorderisalsoarandomvariablehavingsomespecifieddistribution.
If=meannumberofordersreceivedinaperiodandthenumberofunitsrequestedineachorderhasmeanandstandarddeviation,thenthenumberofunitsrequestedperperiodhasmeanandvariance(2+2).
Iffjisthefractionoftheordersthatareofsizej,forj=1,2,…,andPnistheprobabilityoftotaldemandinunitsbeingequaltoninaperiod,then:P0=e-,P1=*f1*P0,P2=*[f1*P1+2*f2*P0]/2,…Pj=*[f1*Pj-1+2*f2*Pj-2+3*f3*Pj-3+…+j*fj*P0]/j.
Themostcommonchoiceforthebatchsizedistributionisthelogarithmicdistribution,inwhichcasethedistributionoftotalamountorderedinaperiodhasthenegativebinomialdistribution.
Condo:Alongdistancetrailertractorthathasabunkforsleeping.
Conjointanalysis:Amethodforapproximatingtheutilityfunctionofatypicalcustomerforaclassofproducts.
Productsintheclassareassumedtobecompletelydescribedbyasetoffactorsorattributessuchaslengthofwarranty,wheelbase,fuelefficiency,etc.
Thetotalattractivenessorutilityofaproductisthenassumedtobeaweightedsumofthesefactorlevels.
Thepurposeofconjointanalysisistofindanappropriatesetofweights.
Theusualmethodistoshoweachofalargenumberofconsumerstwoormoredifferentproductsandaskeachconsumertoranktheproductsbyattractiveness.
Linearprogrammingcanthenbeusedtofindasetofweightsthatare17asconsistentaspossiblewiththeserankings.
Consignment:Asellingmethodinwhichcontrol,butnotownership,ofaproductisturnedovertoaretailer.
Thesupplierormanufacturerdoesnotgetpaiduntiltheretailersellstheproduct,atwhichpointtheretailerreceivesacommission.
Thisarrangementmaybeusefulwhenitiseasytoverifythesellingpriceandtheretailerhasmodestfinancialresourcesrelativetothesupplier.
Seealso:rackjobber.
Consist:InU.
S.
andU.
K.
railsystems,thesetofvehicles,enginesincluded,thatmakeupasingletrain.
Consolidate:Combinemanyshipmentstoacommondestinationintoasingleshipment.
Constantsumgame:SeeZerosumgame.
Consumerchoicemodel:Amodelforpredictinghowmuchwewillsellofvariousproductsbasedoncustomerpreferencesandwhichproductsareavailable.
Asimpleversionistopartitionthemarketintosegments,estimatethesizeofeachsegment,andforeachsegmentandproduct,estimateareservationprice.
Themodelthenassumesthateachsegmentwillbuythatoneproductwhicha)isinstock,andb)hasthegreatestconsumersurplusforthatsegment,thatis,(reservationprice–marketprice)isgreatest.
AnothermodelforhowconsumerschooseamongproductsistheMultinomiallogitmodel.
Athirdmodelusedbysomeautomanufacturersandsomeairlinesisthesubstitutionmatrixapproach,wherebyoneestimatesamatrixofparameterstij=fractionofcustomerswhowerereadytobuyproducti,thenswitchtotryingtobuyproductjwhentheyfindthatiisnotavailable.
Seealsoassortmentplanning,logitmodel,multinomiallogit.
Consumerrisk:Probabilityalowqualitylotisaccepted.
SeeAQL.
Continuousmove:Intrucking,thesituationwhereavehicledropsoffaloadatasiteandthenisabletopickupaloadofsomethingelseatthesamesitetobehauledelsewhere,thusavoidingadeadhead.
Controlchart:Asimplegraphicalandstatisticalprocedureforhelpingtodiscovercontrollableaspectsofaproductionprocesssoastohelpproducealessvariableproduct.
Atypicalapplicationofacontrolchartistomeasurethequality(e.
g.
,weight,diameter,etc.
)ofindividualproductsastheyexittheproductionprocess.
Theunitsaregroupedintobatchesofsize4or5.
Themeanandstandarddeviationarecomputedoversaythefirst20batches.
Achartisthenconstructedwithacenterlineatthemeanandupperandlowerlimitsatplusandminusthreestandarddeviations.
Thequalitiesofsubsequentbatchesarethenplottedonthisgraph.
Onelooksforpatternsinthisgraph,inparticulartrends.
Ifsuchapatternisdiscovered,itisprobablyanindicationthatthereissomethingsystematicgoingintheprocess,e.
g.
,atoolisbecomingloose,etc.
Thus,thereisanopportunityandmotivationtoidentifythiscause,eliminateit,andthusproduceamorepredictablequalitylevel.
Variations18andgeneralizationsofthismethodologyaresometimescalledstatisticalprocesscontrol.
CONWIP(ConstantWorkinProcess):astyleofoperatingaproductionlinesothattheWIPremainsconstant.
Initiallyafixednumberofunitsarereleasedintotheline.
Subsequently,anadditionalunitisreleasedtothelineonlywhenaunitfinishes.
ThisterminologyandmethodwaspopularizedbyW.
J.
HoppandM.
L.
Spearman.
Noteitssimilaritytoabasestockpolicyandkanban.
Container:Abox,typicallyofsteel,butsometimesaluminum,thatispackedwithgoodsandcanbecarriedonacontainershipforshipmentovertheocean,orcarriedonarailcarformovementoverlongdistancesoverland,orcarriedonatrucktrailerforpickupofgoodsfromtheoriginalmanufacturerorfordeliverytothefinalcustomer.
Theattractionisthatthereneedbenomanualhandlingofthegoodsoncethegoodsareplacedinthecontainerattheoriginatoruntilthegoodsarereceivedbythecustomer.
Forinternationalshipping,somecommonISOstandardsizesarea)20feetlong,about8feetwide,andabout8.
5feethigh(aso-called1TEU),b)40feetlong,about8feetwide,andabout8.
5feethigh,c)40feetlong,about8feetwide,andabout9.
5feethigh,d)45feetlong,about8feetwide,andabout9.
5feethigh,e)48feetlong,about8feetwide,andabout9.
5feethigh.
IntheU.
S.
,anotherpopularsizeis53feetlong,about8.
5feetwide,andabout9.
5feethighCookie:afilestoredonyourcomputer,typicallystoredinasubdirectorycalledcookiesand/orcalledcookies.
txt,inwhichinformationmaybestoredbywebsitesthatyouvisit.
ItisanefficientmeansbywhichavendorwithawebsitecandoasimpleformofCRM.
Varioustidbitsofinformationaboutyourinterestscanbestoredinthisfile.
Forexample,ifyouaregreetedbynamewhenyouaccessawebsitesuchasAmazon.
com,itisbecauseyournameisstoredinacookiesfileonyourcomputer.
Co-opadvertising:Advertisinginwhicharetailerandasuppliersharethecostofretailadvertising.
Thereasonforthesharingisthatboththeretailerandthesupplierbenefitfromtheadvertising.
Withoutthecostsharing,theretailerwilltypicallyadvertisetoolittlewithregardtomaximizingthetotalprofitsofsupplierplusretailer.
Define:pr=retailpriceperunitreceivedbyretailer,pw=wholesalepriceperunitpaidbyretailertosupplier,cr=processingcostperunitincurredbyretailer,cw=processingcostperunitincurredbysupplier,ca=advertisingcostrequiredtogenerateonemoreunitofsales,andf=fractionofadvertisingcostpaidbyretailer.
Wewouldexpectcatoincreaseasweadvertisemore.
Attheadvertisinglevelthatmaximizestotalprofitsweshouldhavethathavethatthemarginalcostofgeneratingtheadditionalunitofsales=themarginalprofit,i.
e.
,ca=pr-pw-cr+pw-cw.
Iftheretailerischoosingtheadvertisinglevel,wewouldlikehismarginaladvertisingcostatthislevelofadvertisingtoequalhismarginalprofit,i.
e.
,f*ca=pr-pw-cr.
Solving,f=(pr-pw-cr)/(pr-cr-cw),i.
e.
,theretailershouldpayafractionoftheadvertisingequaltoherfractionofthetotalprofitperunitatthemargin.
Inpractice,thesupplierdoesnotknowcr(andperhapsnotevencw).
Also,thesuppliermustworryaboutthepossibilitythattheretailerisgettingasecretrebatefromtheadvertisingagency,so19thesupplierwillprobablywanttousetheffromtheformulaaboveasalowerboundonthefractionofadvertisingcostpaidbytheretailer.
Becauseofsuchissues,inpractice,thesupplierwilltypicallyalsosetanupperboundonhowmuchco-opadvertisingthesupplierwillpayasafractionoftotalsalesbytheretailer.
Seealsoincentivecompatibility.
Cord:Standardunitofmeasurementforbuyingandsellingrawwood,equalto128cubicfeetwhenthewoodpiecesare"rankedandwellstowed".
Typically,thewoodispackedintoa4'by4'by8'stack.
"Ranked"meansthelongdimensionsofthepiecesareparallel,"Wellstowed"meanspackedastightlyaspossible.
Coreofagame:Givenasetofcooperatingplayers,e.
g.
,amanufacturer,awholesaler,andaretailer,anallocationofprofitsorcostsissaidtobeinthecoreifnoindividualorsubsetofindividualscandobetterbythemselves.
Forexample,supposecustomersA,B,andCneedtohavematerialdelivered.
Theycansavemoneyiftheyhireasingletriptomakethedeliverytoallthree.
HowshouldthecostsbesharedExample:thecostofdeliveringtoanycombinationofthethreeisasfollows:{A}:$88,{B}:$91,{C}:$90,{A,B}:$150,{A,C}:$148,{B,C}:$151,{A,B,C}:$180.
E.
g.
,makingasingletriptojustBandCcosts$148.
Makingonetripthatservesallthreecosts$180.
IfCA,CB,andCCaretheamountsthethreeplayersdecidetoassesseachother,thenthecoreofthegameisdefinedbytheconstraints:CA88;CB91;CC90;(Elsetheplayerisbetteroffbyhimself);CA+CB150;CA+CC148;CB+CC151;(Elseagivenpairisbetterofftoexcludethethirdfromtheircoalition.
CA+CB+CC=180;(Totalcostmustbeallocated).
Forexample,eventhoughtheShapleyvaluesuggeststhatBshouldpay61.
5,Bmightbeabletosuccessfullyarguethateveryonepay60eachbecause(60,60,60)satisfiestheaboveconstraintsandisthusinthecore.
Thecoremaybeempty.
Forexample,supposethatthecostofacoveringallof{A,B,C}is$231ratherthan$180.
Thus,theaveragecostpercustomerofthetotaltripis$77.
Now,eventhoughtotalcostsareminimizedbyusingasingletrip,anypair,AandCinparticular,maybetemptedtodropoutofthecoalitionandreducetheirper-customercostto$74from$77.
SeealsoNashequilibrium,Nucleolus,Shapleyvalue.
Correlation:Astatistic,between–1and+1,thatmeasurestheextenttowhichtorandomvariablesmovetogether.
E.
g.
ifXlargerthanthemeanimpliesthatYislargerthanthemean,thenXandYwilltendtobepositivelycorrelated,whereasifXlargerthanthemeanimpliesthatYissmallerthanitsmean,thenXandYwilltendtobenegativelycorrelated.
Mathematically,thecorrelationisdefinedbyCovariance(X,Y)/[Variance(X)*Variance(Y)]0.
5.
20Costofcapital:Aninterestrateusedinselectingprojectstoundertake,usuallybymeansofanetpresentvalueanalysis.
Thecostofcapitalisusuallyatleastequaltotheinterestratethatmustbepaidforborrowingmoney.
Itmaybechosentobesomewhathighertotakeintoaccounttheriskinessofprojects.
Seealso,ROI.
Countertrade:Aformofinternationalbarterwhereinthetwopartiesexchangegoodsratherthangoodsandmoney.
Usefulwheneitherorbothofthepartiesisinalesswelldevelopedcountrywhichdoesnothavealotofhardcurrencyreservesormarketingabilityintheothercountry.
Cournotgame:Asituationwheretherearetwosuppliers,eachproducingthesamecommodityproduct,eachchoosingaquantitytoproducewithoutsharinginformation,andthesinglemarketpriceisafunctionofonlytheamountproducedintotalbythetwofirms.
Agoodexampleisthesituationfacedbycrudeoilproducingnations.
Ifallsuppliersoptimizeindividually,theytypicallymakelessprofitthaniftheycooperate,eitherimplicitlyorexplicitly,andrestrictproductiontolessthantheirindividualoptimum.
Seealsoprisoner'sdilemmaandnon-constant-sumgame.
Covariance:Astatisticthatmeasurestheextenttowhichtwovariablesmovetogether.
Givenasetofnpairedobservations:{xi,yi},withrespectivemeansxbarandybar,thenthecovarianceofthissampleisdefinedas:i(xi-xbar)*(yi-ybar)/n.
Thisisabiasedestimateofthepopulationcovariance.
Tocorrectforthisbias,changethedenominatorton-1ratherthann.
Observethatthecovarianceofavariablewithitselfisitsvariance.
Seealso,correlation.
CPFR(CollaborativePlanning,Forecasting,&Replenishment):Asetofguidelinesforhowparticipantsinasupplychainshareinformation,mainlyforecastsandplansforpromotions.
SeealsoVMI,andhttp://www.
cpfr.
org.
CPG(ConsumerProductGood):Essentiallyanyproductsoldinagroceryordrugstore.
CPI(ConsumerPriceIndex):Anindexofpricespaidbyconsumers.
ItiscompiledbytheU.
S.
BureauofLaborstatistics,http://stats.
bls.
gov.
Itisthepricepaid,includingsalestax,fora"basket"ofgoodsandservicesboughtbyatypicalconsumer.
Itisavailableatthenational,regional,andmetropolitanarealevel.
OneofthemajorpurposesoftheCPIistomeasureinflation.
Seealso:PPI.
CPIM(CertificateinProductionandInventoryManagement):OfferedbyAPICS.
CPM(CriticalPathMethod):Projectmanagementtechniqueinwhichaprojectisrepresentedasasetofactivities,eachhavinganactivitytimeandasetofpredecessors.
Aprincipalconcernistheminimumlengthoftimerequiredtocompletetheproject.
Crucialoutputisacriticalpath,thatis,asetofactivitiessuchthatifanyactivityonacriticalpathisdelayed,theprojectwillbedelayed.
SimilartoPERT.
CRM(CustomerRelationshipManagement):Theprocessofmanagingtheinteraction21withexistingorpotentialcustomers,especiallybytelephone.
Partoftheprocessmayinvolvehavinganextensiveon-linedatabaseonindividualpreferencesofeachcustomer.
Thisdatabasemaybeaccessedduringtheinteractionwiththecustomer.
AlsoseeRFM,TAPI.
Crossdocking:AsystemforoperatingaDCinwhichproductfrominboundvehiclesmovesalmostimmediatelytooutboundvehicleswithoutbeingputintostorage.
Thesupplieroftheinboundproductmaybeacompletelydifferentfirmfromthereceiveroftheoutboundproduct.
ThemajorpurposeofacrossdockingDCmaybeto"breakbulk"atsomelevel,e.
g.
,downtotheskidleveland"consolidate".
SeealsoDC.
Croston'sforecastingmethod:Amethodforforecastinglumpydemand,i.
e.
,whenasignificantnumberoftheperiodshavezerodemand.
Standardforecastingmethods,suchassimpleexponentialsmoothing,performerraticallyonlumpydemand.
Whennodemandoccurs,noupdateisperformed.
Whenapositivedemandoccurs,threeexponentialsmoothingupdatesareperformedofthethreeestimatesof:a)Tbar=thetimebetweenpositivedemands,b)Dbar=theamountofdemandwhenitispositive,andc)theabsolutedeviationinpositivedemand.
TheforecastofexpecteddemandperperiodisDbar/Tbar.
SeeCroston,J.
(1972),"ForecastingandStockControlforIntermittentDemands",OperationalResearchQuarterly,vol.
23,no.
3,pp.
289-303.
CSCMP(CouncilofSupplyChainManagementProfessionals(CSCMP).
KnownastheCouncilofLogisticsManagementpriorto2005.
See:www.
cscmp.
org.
Cube:typicallyreferstothevolumeofacommodity,e.
g.
,asincubicmeters.
Cubing:theprocessofmeasuringtheheight,width,depthandweightofeachpackage,andthenbasedonthisinformation,decidingeitherwheretostorethepackageinawarehouseorhowtopackthepackageonapalletorvehicleforshipping.
Automatedmachinesareavailableformuchofthisprocess.
cwt.
:hundredweight,onehundredpounds.
Formanyproducts,e.
g.
,rawmilk,somesteelproducts,thestandardunitofmeasureintheU.
S.
isthecwt.
CycleCounting:Aformofcheckingphysicalinventorybywhicheachday,thephysicalinventoryofjustafewSKU'sischecked.
Onsucceedingdays,onecyclesthroughtheremainingSKU'ssothatinafiniteperiodoftime,sayayear,onehascycledthroughtheentireproductline.
Thisisincontrasttotheonce-a-yearcompletephysicalinventorycheckthatisdonebysomefirms.
Themainadvantagesofcyclecountingisthattheworkloadissmootherthroughouttheyear,andmoreimportantSKU'smaybecheckedmorefrequentlythanlessimportantones.
Thereasonfordoinganykindofinventorycheckingisthatwithhighprobability,"unofficialtransactions",e.
g.
,pettytheft,willoccursothe"perpetual"inventoryrecordsinthecomputerwillnotagreewiththephysicalinventoryoutonthefloor.
Forfinancialreportingreasons,onemaypreferasinglecomprehensivephysicalinventory22performedoveraweekend.
Thus,afinancialdocumentcanmakeapreciseclaimregardinginventoryonaparticularday.
DataMatrixcode:Atwo-dimensional,laserscanablecodeusedforsupplychainpurposesbythepharmaceuticalandconsumerelectronicsindustries.
Thecodeismadeupofverysmallblackandwhitesquares.
OthertwodimensionalcodesincludePDF417,QRcode,andMaxiCode.
Formoredetailsseewww.
aimglobal.
org.
DC(DistributionCenter):Afacilitythatacceptsinboundshipments,breaksthemupandrecombinesthemdifferentlyintooutboundshipments.
E.
g.
,itmayacceptashipmentofbabyfoodfromGerberandashipmentdiapersfromKimberly-ClarkandrecombinethemintooneshipmentofbabyfoodplusdiapersforaJewelsupermarketandanothershipmentofbabyfoodplusdiaperstoaSafewaysupermarket.
ADCmayalsoserveasawarehouse,i.
e.
,storeproductforanontrivialperioduntilitisneededbyretailersorcustomers.
Itmaycontainproducthandlingequipmentsuchasasortationsystemandstorageracks.
Aclearheightof24feetforstorageistypical.
Amodest-sizedDCmayhaveabout10,000squaremetersoffloorspace.
AlargeDCmayhaveover100,000squaremetersoffloorspace.
Itmayhavefromahalfdozento100dockdoorsforreceivingandsendingmaterial.
Summarizing,themajoractivitiesinaDCarereceivingfrominboundvehicles,putawayintostorage,pickinginpreparationforshipping,sortationaccordingtooutgoingload,andloadingtheoutboundvehicle.
Deadhead:Apositioningtrip,inwhichthevehicleisempty,e.
g.
,anemptyreturntrip.
Abackhaulispreferredtoadeadhead.
Delphimethod:ForecastingmethoddevelopedatRandCorporationin1969,mainlyfortechnologyforecasting.
Apanelofexpertsareidentifiedandthenaforecastisdevelopedviaaseriesoftwotofourrounds.
Ineachroundeachexpertisaskedtoprovideforecastsregardingsomespecifiedproductortechnology.
Theresultsarethensummarizedanddistributedbacktotheexpertsinpreparationofthenextround.
Anotablefeatureistheanonymity.
Theparticipantsarenotidentified.
Relativetoafocusgrouptheapparentadvantagesare:a)thereisnoneedtohavetheexpertstogethersimultaneously,b)theanonymityhelpsalleviateundesirable"bandwagon"effectsandtheilleffectsofanopinionatedignoramuswithastrongpersonality.
Demandplanning:Demandforecastinginwhichtheeffectofproposedpricechanges,advertisingandotherpromotionsaretakenintoaccount.
Oneofthegoalsofdemandplanningistobettercoordinatedemandwithproductioncapacities.
Demographics:Thefeaturesofpeopleinamarketsegmentthatplayabigroleindeterminingtheirinterestinyourproduct.
Thesefeaturestypicallyinclude:age,incomelevel,educationallevel,gender,location,ethnicity,maritalstatus,occupation,homeownership,religion,etc.
Demurrage:Paymentbyauserofshippingtothecarrierfornotloadingorunloadingavehicleorreturningacontainerinreasonabletime,forcingthecarriertowait.
For23railcars,ashipperorreceivertypicallyhas48hourstoloadorunloadacar.
Densestorage:Seemovableaislestorage.
Depot:Adistributioncenter(DC).
InindustryitusuallymeansaDCthatdoesnotcarryinventory.
InthemilitarythetermmaymeanaDCthatcarriesinventory.
DFR(DecreasingFailureRate):Afailureratecurvesuchthattheprobabilityoffailinginthenextinstant,giventhatthemachinehasnotyetfailed,isdecreasingwithtime.
Thus,preventivereplacementisnotagoodthingtodo.
EquipmentthathasaDFRislikegoodredwine,Itimproveswithage.
Somesemi-conductorequipmenthasDFRreliability.
SeealsoDFR,MTBF.
DFM(DesignforManufacturing):Themostimportantconsiderationindesigningaproductistomakeitsatisfythecustomer'sneeds.
Theremay,however,bealternatedesignsthatallsatisfythecustomerneedsbutsomeofwhichmaybesubstantiallyeasiertomanufacture.
Thus,inDFM,theproductdesignertakesintoaccountnotonlycustomerneeds,butalsotheproblemsfacedbythemanufacturingengineerwhomustdesignaproductionprocessforproducingtheproductinthevolumedemanded.
DFMisjustoneofDFXdesignphilosophies,whereXmightbemanufacturing,serviceability,reliability,recyclability,etc.
Amoreserviceabledesign,forexample,mightmakeiteasiertoremoveandreplaceafailedcomponent,ormightsharecomponentswitharelatedproductsothatsparepartsinventoriesareeasiertomanage.
DIME(DualIndependentMapEncoding):AdigitalmappingsystemfromtheU.
S.
CensusBureau,nowsupersededbyTIGERdata.
DIN(DeutschesInstitutfurNormung):AnongovernmentalGermanstandardssystem.
Itincludesstandardsforelectronics,telecommunications,vehicleengineering,packaging,fasteners,photography,andmore.
SimilartoANSIandISO.
Seewww.
din.
deDISA(DataInterchangeStandardsAssociation):Anassociationdevotedtothemaintenanceanddisseminationofstandardsfore-commercedocuments,suchastheX12andXML.
See:www.
disa.
org.
Discriminantanalysis:Amethodologyforcomputingascoringfunctionthatcanbeusedforclassifyingobjectsintotwoormorecategories.
Forexample:shouldaprospectivecustomerbegivencreditornot;shouldacurrentcustomerreceiveornotacertainkindofadvertisingbrochure;shouldanx-raybeclassifiedasindicativeofcancerornot.
Itissomewhatanalogoustoregressionbutwithayes/noorcategoricaldependentvariable.
Seealsologitanalysis,probitanalysis,andneuralnets.
Ref:Gochet,Stam,Srinivasan,andChen(1997),OperationsResearch,vol.
45,no.
2.
Discriminatorypricing:chargingdifferentpricestodifferentcustomersforthesameproduct.
Thesegmentationmightbebasedoncustomerid(e.
g.
,educationalvs.
24commercial),timeofpurchase,quantity,location,bymeteringofuse,etc.
See:revenuemanagement,graymarket,andvaluebasedpricing.
Dock:doorinaplantorwarehouseforloadingandunloadingtrucks.
Typicaladditionalfeaturesarea)somekindoffloorlevelerramptocompensatefordifferenceinheightofthetruckfloorandthewarehousefloorsothatforkliftscandriveontothetruck;Curtainsthatsurroundthetruckdoortoprovideprotectionfromtheweatherforpersonnelloadingorunloadingthetruck.
Adockdoorthatisusedmainlyforunloadingissometimescalledastripdoor.
SomewarehousemanagersintheU.
S.
trytoarrangetrucktraffictobecounterclockwisearoundawarehouse.
Thus,whenadriverisbackingintoadockdoorthedriverisnotbackinginfromtheblindside.
Dogtrack:InaDCsortationsystem,arecirculatingconveyeronwhichitemstobesortedaccordingtodestinationareplaced.
Seealsosortation,wave.
DOT(DepartmentOfTransportationintheU.
S.
):ThemainfederalagencyconcernedwithtransportationintheU.
S.
SubagenciesundertheDOTinclude:BureauofTransportationStatistics,USCoastGuard,FAA,FederalHighwayAdministration,NHTSA,andSTB.
Seehttp://www.
dot.
gov.
Doublemarginalization:Theactoftwodecisionmakers,e.
g.
,asupplierandaretailer,eachindependentlyoptimizingtheirownobjectivefunction(e.
g.
bychoosingavolumesothatmarginalcost=marginalrevenue),butwiththeunhappyresultthattheirtotalprofitsarenotasgreatastheycouldbeiftheycoordinatedtheirdecisions.
Morespecifically,thesupplier,inordertomakeaprofit,willchargetheretaileralittlemorethanthesupplier'scost.
Thus,theretailerwillchargethecustomerslightlymorethanhewouldiftheretailerhadtopaythesupplieronlythesupplier'scostwithoutamarkup.
Thus,theretailpricewillbehigherthanitwouldbeifthesupplierandretailercoordinatedtheirdecisions,anddemandwilltendtobelower.
Drayage:localtrucking,e.
g.
,alocaltruckingfirmmaypickupmaterialanddeliverittoanintercitydepot.
Atthedestinationcity,anotherlocaltruckingfirmmaypickupthematerialatthedestinationintercitydepotanddelivertothefinaldestination.
Originally,inthe1800's,adraywasacart,wagon,orsledwithoutsidesfordoinglocalhauling.
Dropship:Ashipmentinwhichtheordertaker,e.
g.
,acatalogorinternetmerchant,asksamanufacturertoshipproductdirectlytotheordertaker'scustomer.
DRP(DistributionRequirementsPlanning):AformofschedulingshipmentsandproductionanalogoustoMRP.
Giventherequirementsovertimeofvariouscustomersofasupplier,theseneedsareaggregatedintoasingleshipping,andperhapsproductionplanforthesupplier.
Dualprice:Inlinearprogrammingterminology,themarginalvalueofonemoreunitofascarceresource.
Sometimesalsocalledashadowprice.
25DueDiligence:WhenpartiesAandBarecontemplatingthemakingofanagreement,duediligencebyAistheprocessofverifyingasfactthevariousclaims,bothexplicitandimplied,madebyB.
"Diligence"heremeanstodothehardwork.
"Due"heremeanswhatisnormallyexpectedaspartofproperlyconcludinganagreement.
Dumping:thesellingofaproductfromstateXinastateYatapricethatislowerthansomepartiesinstateYwouldlike.
Thetypicalargumentisthattheproductisbeingsoldatapricelowerthanitsaveragecost,althoughnotnecessarilybelowitsmarginalcost.
Dunnage:Fillerorpackingmaterialplacedbetweencargoonavehicletopreventthecargofromshifting.
Dutchauction:IntheDutchflowermarket,thisisanopen,pricedescendingauction.
Asthepricedescendsonalargedialinthefrontofbiddingaudience,thefirstbiddertoindicateawillingnesstopaybypressingabutton,wins.
Itgivesapproximatelythesameresultasasealedbidauctioninwhichthehighestbidwinsandpaystheamountbid.
Itmayleadtoinefficientoutcomesinthatifgiventheopportunityaftertheauction,unsuccessfulbiddersmightbewillingtopaymorethanthewinningpriceifallowedtochangetheirbid.
Ithastheadvantageofbeingfast.
Forcontrast,see:Vickreyauction.
InsomefinanceliteraturethetermDutchauctionis(mis)usedtomeanamulti-unitauctioninwhichsinglecommonpriceappliestoallwinners.
Duty:atariffortaxonimports.
Itisimposedtypicallytoeitherprotectdomesticindustryorasapunishmentonapoliticalenemy.
Dutyavoidance:therightofafirmtoavoidpayingaportionofthedutyonanimportedproductbecausethefirmhaspreviouslyexportedacomponentequivalenttoonecontainedintheimportedproduct.
Dutydrawback:arefundbythegovernmenttoafirmwhenthefirmexportsaproduct,intheamountequaltothedutythefirmpreviouslypaidwhenimportingcomponentsusedintheexportedproduct.
Itachieves,byaccounting,thesameeffectasadutyfreezone.
Dutyfreezone:azoneinwhichafirmdoesnothavetopaydutyonimports,aslongastheproductsimported,aftersomeprocessingorhandling,areexported.
SeealsoFTZ.
e:Themathematicalconstant2.
71828182846usefulincomputingcontinuouscompoundingofinterest.
e=limitasngoestoinfinityof(1+1/n)n.
Forexample,ifcontinuouscompoundingisusedatinterestrater(statedasafraction)peryear,thenafternyears,onedollarwillhavegrowntoern.
eaches:Inwarehousepicking,asingleunittobepicked,asopposedtoacase.
Afinalendcustomertypicallyordersasingleunit.
Aretailstoremayordermaterialfroma26warehouseincases,whereacasetypicallycontainsfromahalfdozentotwodozensingleunits.
Alsoseepiece-pick.
EBITDA(EarningsBeforeInterest,Taxes,Depreciation,andAmortization):Ameasureoftheprofitduetooperations,excludingcostitemsrelatedtohowfinancing,taxdeferral,andothernon-operationsactivitiesareperformed.
Echeloninventory:assumingproductismeasuredinthesameunitsthroughoutthesupplychain,theecheloninventoryatagivenlevelinamulti-echelonsystemistheinventoryatthatlevelplusalldownstream,i.
e.
,towardstheconsumer,levels.
Forcontrast,see:pipelineinventory.
Thefollowingillustratesthedifferencesforamanufacturertodistributortoretailersystem:ManufacturerDistributorRetailerPhysicalinventory:5118Echeloninventory:24198Pipelineinventory:51624ECR(EfficientConsumerResponse)TerminologyusedinthegroceryindustryforJIT,shortleadtimedistribution.
EDI(ElectronicDataInterchange)Amethodofelectronicinterchangeforbusiness-to-businesstransactionsdevelopedbeforetheinternet.
Itspecifieselectronicformatstandardsforabout150differentdatafieldsforcommonbusinessdocumentssuchasPO's,invoices,etc.
ThestandardissometimescalledEDIFACTorX12.
Informationaboutawidevarietyofinternationalstandardsisavailableathttp://www.
nssn.
org.
SeealsoX12.
EDLP(EveryDayLowPrices):Theseller,e.
g.
,agrocer,maintainsaconstantlowprice,asopposedtousuallyhighpriceswithanoccasionalshortpromotionperiodofverylowprice.
Seealso:forwardbuying.
Efficientfrontier:Givenamulti-dimensionalmeasureofgoodness,e.
g.
,productprice,deliverytime,andproductquality,apointissaidtobeontheefficientfrontier,ifthereisnootherpointwhichisatleastasgoodoneverymeasure,andstrictlybetteronatleastonemeasureofgoodness.
Seealso,tradeoffcurve.
Elasticity:Withregardtoasupplyordemandcurve:(%changeinquantitydemanded)/(%changeinprice).
Iftheelasticity=1forasupplycurve,itmeansthata1%increaseinpricewillcausea1%increaseinquantitysupplied.
Iftheelasticityofademandcurveis-1(sometimescalledunitelasticity)thena1%increaseinpricewillcausea1%decreaseindemand.
AsupplycurvehasunitelasticityifitisoftheformQ=b*P,forsomepositiveparameterb.
AdemandcurvehasunitelasticityifQ=k/P,forsomepositiveparameterk.
Asupplyordemandcurveissaidtobeinelasticifquantityisnotverysensitivetoprice,e.
g.
,anincreaseinpricecausesverylittleincreaseinsupplyorverylittledecreaseindemand.
27EOQ(EconomicOrderQuantity):Anordersizethatminimizesthesumoffixedcostoforderingplusinventorycosts.
IfK=fixedcostofplacinganorder,h=holdingcost,andD=demandrate,thentheorderquantityisgivenbyQ=(2*K*D/h)^.
5.
EPC(ElectronicProductCode):Aproposed96bit(about28decimaldigits)codetobeusedtoidentifyindividualproductitems(notjustSKU"s)inthesamemannerasaserialnumber.
ThecodeisstoredinRFIDtagsontheproduct.
Thiswouldallowafirmtoeasilytrackitemsthroughthesupplychain.
Seehttp://www.
autoidcenter.
org,UPC.
ErlangBformula:SeeErlangLoss.
ErlangCformula:Aformulafortheexpectedfractionofcallsthatmustwait,inasystemwithSlinesorservers,wheredemandhasaPoissondistributionwithrateD,callprocessingtimeshaveanexponentialdistributionwithmeanL,andcallsthatfindalllinesbusywillwait.
TheformulawasoriginallydevelopedbyA.
K.
ErlangfortheCopenhagentelephonesystem.
Ifwedefinethearrivingloadasr=D*L,thenintheLINGOmodelinglanguage,theexpectedfractionofcallsthatfindallSlinesbusy(andthuswait)isgivenby@PEB(r,S).
IfwedenotethisprobabilitybyC(r,S),thenitcanalsobecomputedfromtheErlangLossformula,B(r,S),bytherelation:C(r,S)=r*B(r,S)/(S-r+r*B(r,S));ErlangLossFormula:Aformulafortheexpectedfractionofsaleslost,whenabasestockpolicyisfollowed,demandhasaPoissondistribution,andanydemandthatfindsthesystemoutofstockislost.
TheformulawasoriginallydevelopedbyA.
K.
Erlanginthetelephoneindustrytopredicttheexpectedfractionofcallslost,givenafixednumberoflines.
IfDisthedemandrate,Listheexpectedleadtime(orcallprocessingtime),Sisthestocklevel(ornumberofphonelines)andr=D*L,thentheexpectedfractiondemandlost,B(r,S),canbecalculatedrecursivelyasfollows:B(r,0)=1;B(r,S)=r*B(r,S-1)/(S+r*B(r,S-1)).
ItisavailableintheLINGOmodelinglanguageas@PEL(r,S).
AlsoknownasErlangBformula.
ERP(EnterpriseResourcePlanning,seealsoMRPandDRP):Comprehensivesoftwaresystemforthefirmthat,atleastintheory,hascoordinatedmodulestoperformallthestandardbusinessdataprocessingfunctionssuchas:Generalledger(GL),Accountsreceivable(AR),Accountspayable(AP),Assetmanagement,e.
g.
,depreciation,Humanresources/payroll(HR),Forecasting,Purchasing,Inventory,MaterialsRequirementsPlanning(MRP),ProductionPlanning,WarehouseManagement(WMS),CustomerRelationshipManagement(CRM),Sales,Ordermanagement,andDistribution.
Escrow:GiventhatpartiesAandBwanttodobusinesstogether,anescrowistheplacementordepositoffundsorsomeobjectbypartyBwithareputablethirdparty,e.
g.
abanktrustedbybothAandB,withtheagreementthatthefundsorobjectondepositwillbemadeavailabletoAwhencertainconditionsaresatisfied,e.
g.
,presentationofofficialdocumentsthatgoodshavebeenshipped,orasalesclosing28agreementhasbeensigned,orthatBhasgonebankrupt,orBhasdefaultedonsomeagreement.
SeealsoLetterofcredit.
Estoppelprinciple:GivenanagreementbetweenpartyAandpartyB,estoppelisalegalprinciplethatincertainsituationsallowspartyAtoviolatepartXofanagreementifanactionofpartyBreasonablymightleadpartyAtobelievethatpartXdidnotapply.
Forexample,ifacarrierBrepeatedlyassurestheshipperAthathisshipmentwassafelydelivered,butonlymuchlatershipperAlearnsthathisshipmentwaslostordamaged,thenAmightberelievedoftheninemonthlimitationoftheCarmackamendmentforfilingadamageclaim.
Experiencecurve:termusedbyBostonConsultingGroupforlearningcurve.
Exponentialdistribution:Ifisthearrivalrateofretaildemands,andthenumberofdemandsperunittimehasthePoissondistribution,thenthetimebetweensuccessivedemandshastheexponentialdistribution.
Specifically,iftisthetimebetweensuccessivedemands,thenthep.
d.
f.
is*e-t,andthec.
d.
f.
is1-e-t.
Aninterestingfeatureoftheexponentialdistributionisthememorylessproperty,i.
e.
,ifthetimebetweendemandsisexponential,thenatanyinstant,thedistributionofthetimetothenexteventhastheexponentialdistribution,regardlessofthetimesincethepreviousevent.
Exponentialsmoothing:aweightedmovingaverageforecastingmethodinwhichtheweightappliedtoolddatadecreasesexponentiallywithage.
Initssimplestform,ifDtisthedemandobservedinperiodt,BtistheforecastcomputedafterobservingDtandalphaisthesmoothingconstant,e.
g.
,0.
2,thenBt=alpha*Dt+(1-alpha)*Bt-1.
ItisaspecialcaseoftheARIMAclassofforecastingmodels,specifically,itisanARIMA(0,1,1)model.
Thereareextensionstoincludetrend,seasonality,andestimationofdemandvariability.
SeealsoCroston'smethodandWinter'smethod.
Exposures:Inmarketing,thenumberoftimesthatprospectivecustomershearorseeanadvertisementormessage.
E.
g.
,ifamagazineAhasareadershipof1000andmagazineBhasareadershipof1500andacertainadisruntwiceineachmagazine,thenthenumberofexposuresis2*(1000+1500)=5000.
Contrastthiswith"Reach",whichisthenumberofpeoplewhoseethemessageatleastonce.
Ifthereare500readerswhoreadbothAandB,thentheexposureofthisadcampaignis1000+1500–500=2000.
Exposuresarealsosometimescalledimpressions.
Extranet:acommunicationnetworksetupamongasetoffirmsthatdobusinesstogether.
ItistypicallybaseduponIP,butrestrictedinsomewaytoonlyalimitedsetoffirms.
Facings:ThenumberofcopiesofanSKUthatarevisibletoapickerinawarehouseortoapotentialcustomerinastore.
IfaparticularSKUcanbestoredatmost5deeponashelfandyouwanttocarry6units,thenatleast2facingswillneedtobeallocatedtothisSKU.
Inastore,anadditionalconsiderationisthatincreasingthenumberof29facingsmayincreasethesales.
Seeslotting,Planogram.
Factoring:Sellingyouraccountsreceivableatadiscount.
Itisalmostthesameasborrowingwithyouraccountsreceivableasthecollateral.
Failureratecurve:Acurvethatplotsamachine'sprobabilityoffailureinthenextsmallintervaloftime,giventhatthemachinehasnotyetfailed.
Ifthetime-to-failurehasanexponentialdistribution,thenthefailureratecurveisconstant.
Seealso:MTBF,IFR,DFR,andbathtubcurve.
FASB(FinancialAccountingStandardsBoard):Anindependentboardforsettingstandardsforreportingfinancialinformationbyfirms.
Thesestandardsspecifysuchthingsaswhatandwhenitemscanbeclaimedasincomeorexpense.
Tel:203-847-700.
ThesestandardsareofficiallyrecognizedbytheSECandtheAICPA.
FavoredNation:AclauseinacontractbetweenaVendorVandabuyerBthatsaysthatifVeversuppliesessentiallythesameproducttosomethirdpartyatapricelowerthanthatchargedB,thenVwillprovideittoBatthissamelowerprice.
FBO(FixedBaseOperator):Aservicestationforaircraftatanairport.
Ifyourcorporateaircraftlandsatadistantairport,theFBOatthatairportcanprovidefuel,parking,hangarspace,maintenance,andvariousothergroundservices.
FEA(FiniteElementAnalysis):Amethodforanalyzingormodelingawidevarietyofphysicalsystems,suchasstructures,weather,etc.
Akeyfeatureisthatthesystemisviewedasalargecollectionofdiscretepoints.
Thestate,e.
g.
,temperature,pressure,tension,ofeachpointisrelatedtothestateofitsneighborpointsbyasetofequationsappropriatefortheapplication.
Acomputerprogram(oneoftheearliestwascalledNASTRAN)isthenusedtosolvethislargesetofequations.
FEAisusuallyacrucialcomponentofCAD.
FEM(FiniteElementMethod/Modeling):SeeFEA.
FICA(FederalInsuranceContributionsAct):LawdescribingSocialSecuritytax/payouts.
FICOscore:AscoringformuladevelopedbyFairIsaacCorporationtoestimatethecreditworthinessofaprospectivecustomer.
Thescorecanrangefrom300to850,withascoreabove720considergoodandlessthan610poor.
Themaincomponentoftheformulaishowquicklythecustomerhaspaidbillshistorically.
Theformulacannottakeintoaccountethnicity,religion,sex,andmaritalstatus.
Historically,ascoreforaprospectivecustomer,basedonthisformulahasbeenavailabletoabusinessforanominalfee,ofsay$15,fromanyofthethreemajorcreditreportingcompanies,Equifax,Experian,andTransUnion.
FIFO(FirstInFirstOUT):Inventorypolicyinwhichproductisusedintheorderinwhichreceived.
SeealsoLIFO.
Intimesofrisingprices,afirmcanmanipulateits30apparentCOGSbyswitchingbetweenLIFOandFIFO.
Fillrate:thefractionofdemandthatissatisfiedimmediatelyfrominventory.
Seealsolineitemfillrate,orderfillrate,andlinearlossfunction.
Flatcar:Arailcarwithouttoporsides.
Typicallyusedforhaulingheavymachineryorpiggybacktrailers.
Incontrast,seebox,hopper,ortankcar.
Flowrack:Awarehousestoragerackinclinedtothefrontwithalipatthefront,sothatwhenapickerremovesaboxfromthefront,boxesfromtherearslideforward.
Flowthroughwarehouse:Crossdockingwiththeadditionalfeaturethattheproductismodifiedinsomeway,e.
g.
,abrandnamelabelisadded.
FMS(FlexibleManufacturingSystem):Aproductionsystemwithmachinesthatcanbequicklychangedtoproduceadifferentproduct.
Themachinesaretypicallysoftwarecontrolledandcanchangetoolsautomatically,e.
g.
,replacea10mmdrillbitbya12mmdrillbit.
Seealsocellularmanufacturing.
FOA(FinalOfferArbitration):Amethodforreachingagreementbetweentwopartieswherebyeachpartymakesafinalofferandthenanarbitrator(usuallymutuallyagreedupon)choosesasbindingtheoneofferofthetwothatthearbitratorjudgestobemostequitable.
Thismethodhasbeenusedinsettlingtransportationdisputeswhentransportationratesweremoreregulated.
Ashippermightthinkthathisgoodfallsinacertaincategoryandshouldqualifyforacertainlowratewhilethecarrierfeelsthatthegoodshouldbeclassifiedasagoodwithahighercharge.
Eachpartyismotivatedtoproposeasomewhatreasonableprice,otherwise,heincreasestheprobabilitythathisofferwillberejectedandtheotherofferwillbeaccepted.
FOAissometimesalsoknownasPendulumarbitration.
FOB(FreeOnBoard/FreightOnBoard/FromOurBase):AnFOBpriceisthepriceforaproductpickedupattheseller'ssite.
Thebuyermustsupply,oratleastpayfor,transportation.
Seeincontrast,COD.
Focusgroup:Amethodforassessingattractivenessofaproduct,oraproposednewproduct,oradvertisingforaproduct.
Agroupofsixtotenpeopleisassembledinafocusgrouproom,alongwithamoderatororfacilitator.
Amajorpurposeofthegroupdiscussionistoidentifyissuesnotthoughtofbytheproductoradvertisingdesigners.
Thesessionmaylastforoneormorehoursandisusuallyvideo-tapedforlaterstudy.
Theroommayalsohaveaone-waymirrorsothatproductdesignersinanadjoiningroommayunobtrusivelyobservethediscussion.
Themoderatorwillintroducetheproductandprovidesomeguidanceforthediscussion.
Anotherpurposeofthemoderatoristomakesurethatanuninformeddominantparticipantdoesnotsuppresstheobservationsofwellinformedshyparticipants.
Whenassemblingafocusgroup,participantsareselectedbasedontheirdemographicssoastorepresentacrosssectionofthetargetmarket.
31Forcemajeure:Frenchformajorforce,oreventbeyondcontrol.
SeeActofGod.
Forklift:apowered(e.
g.
,bybatteryorbyalowexhaustemissionpropanefueledengine)vehicle,typicallywithafork-likepairoftinesinfrontforliftingproduct,typicallyonapallet,andmovingit,e.
g.
onoroffatruck,outoforintorackstorage.
Twogeneraltypesarehighlift,e.
g.
,upto12meters,forplacingorpickingpalletsinawarehousestorage,andlowprofilelifttrucksformovingpalletsoffandonatruck.
Forkliftsforputtingorpickinginawarehouse,asopposedtoloadingorunloadingatruck,mayalsobenarrowsoastofitinnarrowaisles,andtheymayhaveaswingmastforkthatisabletorotate90degreesaboutaverticalaxissoastopickwithoutrequiringthevehicletoturnwithintheaisle.
Anotherfeatureavailableisa"reachfork".
Itisabletoextendandplaceorpickpalletsthatarestackedtwoormoredeepinarack.
Otherclassificationsforforkliftsiswhetherornottheyareexplosionresistantornot.
Aforkliftissometimescalledalifttruck.
Someforkliftshavejustthreewheels.
Thisgivesgreatermaneuverabilitybutattheexpenseofstability.
Batterypoweredforkliftsmaybealternatingcurrent(AC)basedordirectcurrent(DC)based.
ThedrawbackofACishigherinitialexpense,butthebenefitsofACare:a)lowermaintenance,e.
g.
,becausethemotoriscompletelyenclosed,b)greaterefficiency,e.
g.
,becausetheACmotorcanrecaptureenergywithregenerativebraking,andc)betterperformanceintermsofacceleration.
Forwardbuying:Theprocessofbuyingseveralperiodsworthofsupplywhenasupplierdoesa"pricepromotion",thatis,temporarilylowerstheprice.
Ifallbuyersforwardbuy,thenthesuppliermightaswelluseEDLP.
Thesellerwouldhavethesametotalrevenuebutinasteadierstreamandthebuyerswouldhaveloweraverageinventory.
Franchise:therighttosellaproductatagivenlocation.
Forexample,therightmightbegivenbyanautomobilemanufacturertoanautomobiledealer,orbyafastfoodbrandownertoarestaurantowner.
Freeriderproblem:Whentwoormoreplayers(peopleinafirm,firmsinasupplychain)sharerevenuefromanenterprisethatdependsuponbothoftheirinputs,thefreeriderproblemarisesifadditionaleffortbyoneplayerresultsinincreasedrevenuethatissharedbyallplayers.
Thus,aplayerthatisselfishanddoesnotexpendanyadditionaleffortmayneverthelessgeta"freeride",i.
e.
,increasedreward,becauseoftheincreasedeffortofotherplayersintheenterprise.
Theobviouswayofavoidingtheproblemistosetupincentivessothattheindividualplayer'sincreasedrewardisequaltothecostofhisincreasedeffort.
Thismayimplythatonemusthaveamonitoringsystemtomeasuretheeffortofeachplayer.
FTL(FullTruckLoad):AnFTLshipmentisoneinwhichanemptyvehiclepicksupmaterialatasupplierandthendropsofftheentirecontentsatasingledestination.
Thecarriertypicallychargesanamountbasedonthedistancetraveledratherthanontheweightorvolumeofthecontents.
ThecostperunitshippedisusuallylessthanthatunderLTLshipping.
32FTP(FileTransferProtocol):Astandardmethodforelectronicallymovingfilesbetweenbusinesspartners.
FTZ(Freetradezone):Typicallyasmallregioninalessdevelopedcountrywhereacompanymayimportmaterialsandexportproductwithminimaltaxation,anduselocallabor.
Furlong:1/8mile.
GAAP(GenerallyAcceptedAccountingPrinciples):AsetofrulesforpreparingaccountingstatementsintheU.
S.
Seealso:IFRS.
Galileo:AEuropeanGPSsystem.
Gambler'sRuin:Acharacterizationofthefactthateveniftheoddsareinourfavor,wemaystillgobrokewithhighprobabilityinrepeatedencounterswithabiggercompetitorinasituationwherechanceplaysarole.
Specifically,ifateachencounterweeitherwinadollarfromourcompetitorwithprobabilityp,orloseadollarwithprobabilityq=1-p;ourstartingwealthis$wandourcompetitor'swealthis$u,thentheprobabilitythatourcompetitorwillgobrokebeforewegobroke,is:[1-(q/p)w]/[1-(q/p)w+u].
Verifythatevenifp>0.
5,ifuislargerelativetow,theprobabilityislowthatourcompetitorwillgobrokefirst.
Inthespecialcasewhenp=0.
5,theprobabilitythatourcompetitorgoesbrokefirstsimplifiestow/(w+u).
SeealsoLanchesterequations.
Gammadistribution:Aprobabilitydistributionwithtwoparameters,kand.
Themeanisk/andthevarianceisk/2.
Ifkisaninteger,thenaGammarandomvariablehasthedistributionofthesumofkindependentexponentialrandomvariables,eachwithmean1/.
Forexample,ifdemandoccursinaPoissonstreamatrate,andwereorderinbatchesofsizek,thatis,placeanotherorderaftereverykdemands,thenthetimebetweenordershasaGammadistribution.
Theprobabilitydensityfunctionisf(x)=e-x(x)k-1/(k),for0x.
Note,forkinteger,(k)=1*2*3…*(k-1).
Ganttchart:Agraphicaldevicefordisplayingaschedule.
Timeislistedhorizontallyandthevariousresourcesormachinesbeingscheduledarelistedverticallyontheleft.
Foreachresource,theactivitiesthatareassignedtoitarelistedhorizontallyinitsline.
ThegraphisattributedtoHenryLaurenceGantt(1861-1919).
GanttwasacolleagueofFrederickTayloratMidvaleSteelCompany.
GATT(GeneralAgreementonTradeandTariffs).
Seealso,WTO.
Geometricdistribution:Aprobabilitydistributionthatissometimesusedtomodelordersizeinademandprocess.
Ithasasingleparameter0http://www.
w3.
org/HTML/.
SeealsoXML.
HTMLcolor:Asystem,basedontheRGBsystem,forrepresentingcolorindisplaysontheWorldWideWeb.
Seealso,Pantone,CMYK,andNCScolorsystem.
Hub:Acentralfacilitythroughwhichallshipmentspassinatransportationsystem,orallcommunicationsareroutedinacommunicationsnetwork.
Givennsiteswitheachsiterequiringshipmentstoupton-1othersites,therearethreebasicmethodsofhandlingtheserequirements:1)hubsystem,2)directshiporlink,3)travelingsalesperson(TSP)/ringnetwork.
Ifcapacityislumpy,e.
g.
,itonlycomesin20tontruckincrements,andtheamounttobeshippedfromanyorigintoanydestinationistypicallylessthanhalfofoneoftheselumps,thenahubsystemmaybethecheapestmethod.
Thus,avehiclewillpickupalloutgoingmaterialfromgivensite,deliverittothehubwhereitissortedontooutgoingvehicles,andthenforagivensite,asinglevehiclewilldeliverallincomingdemand.
Iftheamounttobeshippedfromanyorigintoanotherdestinationislargerelativetoacapacitylump,thendirectshipmaybethecheapestmethod.
Iftheamounttobeshippedfromanyorigintoanydestinationissubstantiallylessthanthecapacitylumpsize,thentheTSPstructuremaybecheapest.
Thatis,asinglevehiclemakesatourofallsites,pickingupanddroppingoffproductasappropriate.
Foratelecommuncationnetworkthiscorrespondstoaso-calledringnetwork.
SeealsoDC.
Humpyard:SeeClassificationyard.
36HVAC(Heating,Ventilating,AirConditioning)IATA(InternationalAirTransportAssociation):Anassociation/cartelofmostoftheworld'spassengerairlinesforcoordinatingsuchthingsasfaresoninternationalflights.
Seehttp://www.
iata.
org.
Icelandairwasanearlynonmember.
IBC(IntermediateBulkContainer):Acontainerfortransportingliquids.
Atypicalcapacityis330gallons,ascomparedtothecommon,traditional55gallonsteeldrum.
TheIBCcanbemadefromavarietyofmaterials,mosttypicallyplastic.
Itistypicallyconfiguredwithslotsinitsbasesoitiseasilyhandledbyaforklift.
ICC(InterstateCommerceCommission):AU.
S.
federaltransportationregulatoryagencythatwaslegislatedoutofexistenceaspartoftransportationderegulation.
SeeSTB.
IFR(IncreasingFailureRate):Afailureratecurvesuchthattheprobabilityoffailinginthenextinstant,giventhatthemachinehasnotyetfailed,isincreasingwithtime.
Thus,preventivemaintenancetendstobeagoodthingtodo.
Incandescentlightbulbs,forexample,tendtobeIFR,-oncetheyhaveaccumulated1000hourstheprobabilityoffailureincreases.
SeealsoDFR,MTBF.
IFRS(InternationalFinancialReportingStandard):Asetofprinciplesforpreparingfinancialstatements,mainlythebalancesheetandtheincomestatementofafirm.
IFRSisusedbytheEuropeanUnionandanumberofothercountries.
SeetheInternationalAccountingStandardsBoard,http://www.
iasb.
org/Incontrast,fortheU.
S.
,seeGAAP.
OnedifferencebetweenGAAPandIFRSisthatIFRSdoesnotallowtheLIFOmethodofinventoryevaluation.
i.
i.
d.
(Independent,IdenticallyDistributed):randomvariableswhichhavethesamedistributionandareindependentinthesensethatknowledgeofonevariable'svalueprovidesnoinformationaboutthevalueofanother.
IMDG(InternationalMaritimeDangerousGoodscode):Asetofstandardsforthehandlingofhazardousmaterialsinmaritimeshipping.
Seehttp://www.
imo.
org/ImpossibilityTheorem:GivenavendorV,whohasaproductthatprospectivebuyerB,isconsideringbuying,theImpossibilityTheoremsaysthereisnowell-definedprocedureforgettingVandBtoagreeuponapricesuchthattheprocedure:1)motivatesbothVandBtobefullyhonest,e.
g.
,haveBrevealhonestlyhowmuchheiswillingtopayandhaveVrevealhonestlyhowlittleheiswillingtoaccept,2)isefficient,e.
g.
,willalwayscauseadealtobereachediftheamountthatBistrulywillingtopayexceedshowlittleVistrulywillingtoaccept,3)involvesnooutsideencouragementorcoercion,e.
g.
,byagovernment,tocauseanagreementtobereached.
Therearevariousversionsofthistheoremforvariousmarketsituations.
OneoftheearliestisduetoArrow,K.
(1950),"ADifficultyintheConceptofSocialWelfare",TheJournalofPoliticalEconomy,vol.
58,no.
4,pp.
328-346.
Seealso37Vickreyauctionandincentivecompatible.
Impressions:SeeExposures.
Inbound:AshipmentintoaDC.
Tendstobeonlargervehicles,e.
g.
,rail.
Incentivecompatible:Afeatureofabusinessagreementsuchthatwhentheindividualpartnermaximizeshisownprofits,hewillalsomaximizethetotalprofitsofallpartnerstotheagreement.
Suchanagreementtypicallyinvolvessomeformofrevenuesharing.
Inanauction,thetermmeansthattheauctionstructuremotivatesbidderstobidtheirtruevaluationfortheobjectbeingsold.
Seealso:co-opadvertising,transferprice.
Incoterms:Asetofdefinitionsusefulinspecifyinginternationalshippingagreements,forspecifyingwhobearswhatriskandresponsibilitiesfromwhenthegoodsleavetheseller'sdockuntilthegoodsaredeliveredtothebuyer'sdock.
Seehttp://www.
iccwbo.
org/index_incoterms.
aspINFORMS(INstituteForOperationsResearchandManagementSciences)http://www.
informs.
org.
InternalRateofReturn:SeeIRR.
Itemfillrate:fractionofitemsorderedthatwereinfactshipped.
Seeorderfillrateandlineitemfillrate.
Inter-modal:seemulti-modal.
Internet:alargesetofcomputersconnectedbyaphysicalnetworkthatusestheIP(internetprotocol)formofpacketswitchedcommunication.
Intranet:acommunicationnetworkwithininafirm,typicallybaseduponIP,butphysicallyrestrictedtoonlyuserswithinthefirm.
Inventoryturns:avariationoftheLittleFlowequation.
Itstates:(turnsperperiod)=(salesortransactionperperiod)/(inventorylevel)=1/(averagetimeinsystem).
IP(Integerprogramming):ageneralizationoflinearprogrammingthatallowssomevariablestoberestrictedtointegervalues,0,1,2,….
Itisveryusefulforplanningmodelswithgo/no-godecisionvariables,e.
g.
,buildawarehouseornot.
IP(internetprotocol):awidelyusedstandardformatformovingdataoveranetworkbasedinpartuponbreakingamessageintopacketsofstandardsize,withthefirstfewbytesprovidingthedestinationaddress.
IRI(InformationResources,Inc.
):AChicagobasedsupplierofindustrysalesdatafor38consumerproducts,e.
g.
,supermarkets.
Thesedataareobtainedfromsourcessuchascashregisterscanners.
AnothersupplierofsuchdataisA.
C.
Nielsen.
IRR(Internalrateofreturn):Aninterestratesuchthatthecashflowstreamsofaprojecthaveanetpresentvalueofzero.
TheIRRshouldbeusedwithcarebecauseithastwoflaws:1)astreamofcashflowswithtwoormorechangesinsignofthecashflowsmayhavetwoormoredistinctIRR's,soitisnotclearwhichIRRtouse,and2)EventhoughprojectAmayhaveahigherIRRthanalternativeprojectB,itmayneverthelessbemoreprofitabletoundertakeprojectB.
Asanillustrationof(1)consideraprojectthatrequiresaninitialinvestmentof$1M,afteroneyearitpaysback$2.
5M,butrequiresashutdownpaymentof$1.
55Mattheendoftwoyears.
TherearetwointernalratesofreturnthatmaketheNPVoftheabovecashstreamzero:13.
82%peryearand36.
18%.
Ifourcostofcapitalis24%peryear,isthisprojectattractiveNPVanalysiswithacostofcapitalof24%willshowthatthisprojectshouldbeaccepted.
Asanillustrationof(2),supposethatprojectArequiresaninitialinvestmentof$2Mandthenpaysof$1.
3Mafteroneyearand$1.
3Maftertwoyearsandthentheprojectends.
AnalternativeisprojectB.
Itrequiresaninitialinvestmentof$4Mandthenpaysoff$2.
5Mafteroneyearand$2.
5Maftertwoyearsandthentheprojectends.
Whichalternative,ifany,shouldbeacceptedifourcostofcapitalis12%IRRanalysiswouldsayprojectAbecauseitsIRRisabout19.
4%,whereastheIRRofBisabout16.
3%.
NPVanalysiswouldchooseprojectBbecauseB'sNPVisabout$338,843,whereastheNPVofAisabout$255,198.
ProjectAisbetterbecause,eventhoughitsIRRisonly16.
3%,itallowsmoremoneytobeinvestedatthisrate,moneythatwouldotherwisebeinvestedatonly12%,orequivalently,borrowedat12%.
ISBN(InternationalStandardBookNumber):Atendigitproductcodeusedforbookproducts.
Thefirstdigitrepresentsthecountry,thenextseveraldigitsthepublisher,thenextseveraldigitstheproduct,andthefinaldigitisacheckdigit=(1*d1+2*d2+…+9*d9)mod11.
Acheckdigitof10isrepresentedbyX.
Thecheckdigitwillcatchanysingledigiterrororanysingletranspositionerror.
SeealsoUPC.
ISO(InternationalStandardsOrganization):Aninternationalorganizationtocoordinatethesettingofstandardstofacilitateinternationalcommerce.
Seehttp://www.
iso.
ch/welcome.
html.
ISO9000:asetofstandards,originatedbyISO,forbusinessprocesses.
AfirmthatisISO9000certifiedhasitsmajorbusinessprocesseswelldocumentedandissupposedlyamorereliablebusinesspartner.
ISO9000hasvariouscomponents.
ForexampleISO9000-3isconcernedwithsoftwaredesignanddevelopment.
ISO9003isconcernedwithfinalinspection.
ISO14000:asetofstandards,originatedbyISO,forenvironmentalmanagement.
Jakebrake:Afeature,developedbyJacobsVehicleSystems,ofsometruckenginessothattheengine,ratherthantheconventionalbrakes,canbeusedtoslowdownthe39truck,thussavingwearonthebrakes.
TheenginetendstobeverynoisywhenusedasaJakebrake,thussomecommunitiesprohibittheuseofJakebrakes.
AJakebrakeisattractiveforvehiclesthataredriveninmountainousregionsbecauseitmaysavewearontheregularbrakes.
jidoka:AJapanesetermassociatedwiththeToyotaProductionSystemdevelopedbyTaiichiOhno.
Effectively,jidokameanstheuseofamechanismforstoppingaproductionlineimmediatelywhenthemechanismdetectsthatthereisaproblem,suchasthelineisproducingpoorqualityproduct.
Thejidokaphilosophyisthatthelinewillnotberestarteduntilthecauseofthepoorqualityisidentifiedandfixed.
AsimpleliteraltranslationofjidokafromtheJapaneseisautomation.
SeealsoAndonandPokayoke.
JIT(JustInTime):Aformofinventorymanagementinwhichproductistransportedinsmallbatches,sothatverylittleinventoryiscarriedbecausecomponentsaredeliveredjustastheyareneeded.
Seebasestock.
JIT-II:Astyleofbusinesscoordination,initiatedatBose,wherebyafirm'ssuppliersandcarriershaveafulltimerepresentativeatthefirmtocoordinatethesupplyprocess.
joint-product:oneoftwoormoreproducts,e.
g.
,skimmilkandcream,producedbyasingleproductionprocess.
Seealsoby-product.
kaizen:AJapanesetermmeaningimprovement,moregenerally,continuousimprovement.
Aclientonceaskedanimprovementconsultant:"Whenwillwecompletethisimprovementproject"Theconsultantreplied:"Never,ifyoudoitright.
"SeealsoJidoka.
kanban:WIPinventorycontrolsystemdevelopedatToyota.
Akanban(literally"actionplate"inJapanese)isanalogoustoarecirculatinginternalPO.
Thatis,whenaunitistakenfrominventoryarequestisautomaticallygeneratedtothesuppliertoprovideanotherunit.
Itisa"pull"system,roughlyequivalenttoabasestockinventorysystem.
Thenumberofkanbansinsertedintothesystemisessentiallyequivalenttothereorderpointr.
kerf:widthofmaterialremovedbyasawcut.
Incuttingstockproblems,saywhenpreciselycuttingalongpieceofwoodintoasetofsmallertargetlengthsfordoorandwindowframes,onemusttakeintoaccountthekerfofthesawbladewhendecidingwheretomakethecutssoastogetthetargetlengths.
kilogram:1000grams.
2.
2046pounds.
SeeSIunits.
kit:acollectionofcomponentsplacedtogether,perhapsinacontainer,thattendtobeusedtogether.
E.
g.
,onemayhaveastandardrepairkitforarepairmanthatcontainsthecomponentsthatstrikethebestcompromiseofbeingmostlikelytobeneeded,cheap,complementary,andsmall.
40knot:6076.
11549feet/hour.
kPa(kilo-Pascals):Measureofpressureinthemetricsystem.
E.
g.
,trucktirepressuresoutsidetheU.
S.
tendtobemeasuredinkPa.
Theconversiontopsi(poundspersquareinch)ispsi=.
14504*kPa.
OnekPaisapproximatelyequivalentto10.
2grams/squarecentimeter.
SeealsoSIunits.
KPI:KeyPerformanceIndicator.
SeealsoBalancedscorecard.
Ladderlogic:NotationwidelyusedforprogrammingofProgrammableLogicControllers(PLC).
Manypiecesofindustrialequipment,suchasconveyors,elevators,doors,lights,switches,etc.
,arecontrolledbyPLC's.
ThenotationoriginatedfromelectricaldiagramsthatpredatePLC's.
Thenotationiscalledladderlogicbecausesuchaprogramresemblesaladderwithrungs.
Eachrungoftheladdercorrespondstoastatementthatischeckedfortruthness.
Belowisaladderlogicdiagramthatdescribeshowasinglelight,L,canbeturnedonoroffbyeitheroftwoswitches,SW1orSW2.
|SW1SW2L||||||SW1SW2L||||||SW1SW2L||||||SW1SW2L|APLCwillcontinuouslyloopthroughorexecutetheladderdiagramprogramthatcontrolsthePLC.
Theprocessingisdownfromtoptobottomovertherungsandfromlefttorightwithinarung.
Soforexample,thefirstrungabovesaysthatifbothswitchesareTRUE,i.
e.
,"On",thentheLightshouldbeOn.
ThesecondrungsaysthatifSW1isoffandSW2ison,thentheLightshouldbeoff.
ThethirdrungsaysthatifSW1isonandSW2isoff,thentheLightshouldbeoff.
ThefourthrungsaysthatifSW1isoffandSW2isoff,thentheLightshouldbeon.
Lanchesterequations:apairofdifferentialequationsthatdescribethelossesincurredbytwocompetitorsorcombatforcesasafunctionoftheamountofresourcesorsizetheybringtobeartoacompetitionorbattle.
Indiscretetime,ifthesizeofthetwoforcesinperiodtareAtandDtandK,r,andsareparameters,then:At+1=At-KAtrDts,andDt+1=Dt-KDtrAts.
Typicalcasesarea)r=s=1,and41b)r=0,s=1.
ParameterKcorrespondsapproximatelytoaprobabilityofsuccess.
Eithercaseillustratestheimportanceofconcentratingone'sefforts.
TheessenceoftheseequationswasgivenbyF.
W.
Lanchesterin1916,andbyM.
Osipovin1915.
Lane:shippingalongaspecificorigin-destinationpair.
Typicallytheorigin-destinationsarecitytocity,buttheymightalsobestatetostate,citytostate,etc.
LASH(LighterAboardSHip):Amulti-modalformofshippinginwhichsmallbargesarecarriedonoceangoingships.
Astandardsizeofsuchbargesis44feetby26feetwithacapacityof385metrictons.
ALASHshipmaycarryabout80LASHbarges.
LDPE(LowDensityPolyEthylene):Asoftplasticoftenusedasawrappingmaterial.
Tendstobeopaque.
ObjectsmadefromLDPEaretypicallymarkedwitha"4"recylingcode.
BecausepureLDPEiscomposedofonlytheelementscarbonandhydrogen,itcanbeburnedwithoutproducingtoxicproducts.
Seealso:PET,HDPE,andPVC.
League:Anancientmeasureofdistanceequaltoapproximatelythreemiles.
Leanproduction:Justasaleanpersonhasasmallwaist,leanproductionhasminimalwaste(seeMuda).
Acarefullydesigned(seevalueengineering)productionprocesswhichinvolveslowinventory(seeJIT),quickchangesetups(seeSMED),andshortproductionlines(seecellularmanufacturing),wherethecapacitiesofthevariouscomponentsofthelinearewellmatchedfortheproductstobeproduced.
Learningcurve:Amodelofthetimeorcosttoperformsometaskthatquantifiestheobservationthattimetoperformthetaskdecreasesthemoretimesthetaskisperformed.
ThiswasfirstobservedbyT.
P.
Wrightinthe1930'swithregardtothenumberoflaborhoursrequiredtoassembleaircraft.
Atypicalobservationwasthateachtimethecumulativeproductiondoubled,thetimeperunitdecreasedto,say,80%ofitspreviousvalue.
Thisleadstoamathematicalform:T(v)=T(1)*v-b,wherev=cumulativeunitsproduced,andT(v)=timeorcosttoproduceunitnumberv.
An80%learningcurvecorrespondstob=0.
322.
Ifafirmknowsthatalearningcurveappliestoitsproduction,andthefirmfacescompetition,thenthefirmshouldpricelowatthebeginningofthelifeofaproductsoastogaintheexperiencesothatitscostofproductionwillbereducedquickly.
Leftonthetable:Thegapbetweenthewinningbidandthesecondbestbidinasealedbidauctionwherethepricepaidisthewinningbid.
Itistheamountofmoneythewinnerwastedbecausethewinnerdidnothaveperfectinformationaboutthecompetition.
LetterofCredit:AdocumentfromareputablebanktopartyA,sayingthatpartyBhasaspecifiedamountofmoneyondeposit,andthatthebankwillpaythismoneytoAuponthepresentationofappropriatedocuments.
AletterofcreditmaybeusefulininternationalpurchaseswherepartyBwantstopurchasesomethingfrompartyAina42differentcountry.
AletterofcreditmaybeusefulwhenpartiesAandBdonothaveenoughinformationabouteachother'sfinancialconditiontotrusteachother,however,bothpartiestrustthebank.
SeealsoEscrow.
LIFO(LastInFirstOut):Inventorypolicyinwhichthelastitemaddedtoinventoryisthefirstoneused.
Itisofinterestfortaxpurposesinthatinatimeofrisingrawmaterialprices,taxableprofitsarepostponed.
LIFOisthusverypopularintheU.
S.
,however,intherestoftheworld,e.
g.
,seeIFRS,LIFOisnotwidelyused.
SeealsoFIFO.
LIFR(LineItemFillRate):Thefractionoflineitemsthatarefilled.
Forexample,ifalineiteminanorderrequeststenunits,thenthelineitemisdefinedasfilledonlyifalltenunitsareshipped.
Ifalllineitemsrequestjustoneunit,thenthelineitemfillrateisthesameastheitemfillrate.
Seealsoorderfillrateanditemfillrate.
Lifttable:Aplatformwhichcanberaisedorlowered,onwhichapalletisplacedasthepalletisfilledoremptied.
Theraisingoftheplatformallowsaworkertoplacecasesorotheritemsonthepalletwithoutstooping.
Theplatformmayalsoberotatabletoallowforeasieraccess.
SeealsoPalletize.
Lifttruck:Seeforklift.
Linearprogramming:amathematicalprocedureformaximizingalinearfunctionsubjecttolinearinequalityconstraints.
GeorgeDantziggaveageneralstatementoftheproblemandinventedtheSimplexmethodforsolvinglinearprograms.
LPisthefundamentaloptimizationmethodunderlyingmostoptimizationmethodsinsupplychainmanagement.
Lineitem:OnelineinapurchaseorderrequestingacertainamountofoneSKU.
ThetransactionvolumeofawarehouseorDCisfrequentlymeasuredbythenumberoflinesperdaythatarepicked.
Linearlossfunction:=expectedvalueofMax{0,X-S)},whereXisarandomvariable,e.
g.
,demand,andSisathreshold,e.
g.
,thestocklevel.
Soinaninventorysettingitistheexpectedamountofunsatisfieddemand.
IntheLINGOmodelinglanguage,thelinearlossfunctionforthestandardNormaldistributionisgivenbythefunction@PSL(z).
ForaPoissondistributionwithmeanD,itisgivenby@PPL(D,S).
IfF(z)andf(z)arethec.
d.
fandp.
d.
f.
ofthestandardNormal,then@PSL(z)=z*F(z)+f(z)–z.
Liter:StandardmeasureofvolumeoutsideofU.
S.
Equalto.
26gallon.
Little'sFlowEquation:statesthat(averageinventorylevel)=(averagethroughputrate)*(averagetimeinsystem).
Loadplanning:Theprocessofdecidingwhichitemsgetloadedwhereinatruck,airplane,containerorship.
ForaLTLtruck,youprefertoloaditemsinthereverse43orderofwhichtheywillberemoved(assumingunloadingfromtherear).
Forshipsandairplanesyouwantthecenterofgravityoftheloadtobeclosetothecenterofliftorsupport.
Youwanttheheaviestitemtobeclosesttothecenterofsupportsoastoreducethestress.
Foratruck,youwanttheloadevenlydistributedovertheaxlessoastonotviolateaxleweightlimits.
ForLTLdeliverywithmultipletrucksyouwanttoassigntothesameload,customerswhoareclosetogether,seeforexampletheClarkeWrightsavingsheuristic.
Logarithmicdistribution:Agoodprobabilitydistributionformodelingthenumberofunitsinanorder.
Ithasasingleparameterp.
Prob{anorderisforxunits}=(1-p)x/[-x*ln(p)],forx=1,2,…Ifwedefinew=(p-1)/ln(p),thenthemeanisw/pandthevarianceisw*(1-w)/p2.
SeealsoCompoundPoissondistribution.
Logisticscurve:A"lazy"Scurvethatisconvenientforrepresentingavarietyofthingssuchassalesasafunctionoftimeforanewproductasitfirststrugglestogetattentioninthemarketplace,thencatchesonandrapidlybecomespopular,andthenlaterlevelsoff.
Themathematicalformis:y=(a+becx)/(1+decx),wheree=2.
71828182846.
Ifc>0,thenforx>0,yapproachesb/d.
SeealsoBassmodel.
TheLogisticscurveisalsosometimesusedtoestimatetheprobabilitythatacustomerwillpayhisbillasafunctionofhisnormalizedcreditscorex.
Inthiscasea=0andb=c=d=1.
SeeLogitmodel.
Logitmodel:Astatisticaltechniquefrequentlyusedindecidingwhethertograntordenycredittoaprospectivecustomer,ortoestimatetheprobabilitythatagiventypeofcustomerwillbuyourproduct.
Givenndifferentfeaturesofcustomeri,xi1,xi2,.
.
xin,thelogitmodeldeterminesweightsw0,w1,…wn,tocomputeascores(i)=w0+w1*xi1+…+wn*xin.
Prospectswithahighscorearegrantedcredit;prospectswithalowscorearedeniedcredit.
Probabilityofbeingbad(0),(orprobabilitycustomeriwillnotbuyourproduct,isbasedonthelogisticsdistributionandisgivenby:Prob{iisbad|s(i)}=1/(1+es(i)).
Givenempiricaldata,maximumlikelihoodmethodscanbeusedforestimatingtheweights,w0,w1,…wn.
SeealsoProbitmodel,multinomiallogitmodel.
Lot-splitting:Amanufacturingconventionofsplittingafinalordersizeintosmallerlotsatsomepointintheproductionprocess.
Forexample,supposeacustomerorders100anglerings,andproducingangleringsrequirestwosteps,rollingandwelding.
Welotsplitifafterrollingthefirsttenrings,weshipthissub-lotoftenonaheadtobegintheweldingoperation.
Theadvantageisthatforourlittleexample,thelotsplittingmayallowtheordertogetthroughthefactoryinalmosthalfthetime.
Thedisadvantageisthatadministrativecostsmayincreaseifwedonothaveagoodwayofkeepingtrackofthestatusofallthesublotsofafinallot.
JITisbasedinlargepartonlot-splitting.
LP:seelinearprogramming.
44LTL(LessThanTruckload):Ashipmentthatsharesspaceonthevehiclewithshipmentsdestinedforotherrecipients.
Avehiclethatmakesmultiplestops,droppingofforpickinguponlyportionofitsloadateachstop.
LTPD(LotTolerancePercentDefective):Alowqualitythreshold.
SeeAQL.
MAD(MinimumAbsoluteDeviation):Ameasureofstatisticalerrordefinedastheaverageabsolutedeviationbetweentheforecastandtheactual,orperhapsalternativelybetweenthemeanandtheactual.
Contrastthiswithstandarddeviation,whichmeasurestheaveragesquareddifference.
Ifourcosts,e.
g.
,shortageorinventoryaresimplyproportionaltoouroverageorunderage,thenMADmaybeamoreusefulmeasureoferror.
OneoftheearlymotivationsforusingtheMADinforecastingsystemswasthattheMADtakesabouthalfasmuchworktocomputeasthestandarddeviations.
ForrandomvariableswithaNormaldistribution,thestandarddeviationisapproximatelyequalto1.
25*MAD.
Makespan:Thetimeuntilthelastjobisfinishedwhenschedulingafinitesetofpossiblyprecedencerelatedsetofjobs.
Manifest:Alistofthecontentsofashipment,e.
g.
,passengersonaflight,contentsofashippingcontainer,etc.
MAPE(MeanAbsolutePercentageError):Themeanabsoluteforecasterrordividedbytheaveragedemandtimes100.
Itisalwaysnon-negativeandmaybegreaterthan100.
Usedinmeasuringforecasterror.
Margin:Theratio[(Selling_price/unit)–(Cost/unit)]/(Selling_price/unit),usuallystatedasapercentage.
Incontrast,alsoseeMarkup.
Markup:Theratio[(Selling_price/unit)–(Cost/unit)]/(Cost/unit),usuallystatedasapercentage.
Incontrast,alsoseeMargin.
InsettingMarkup,theessentialruletorememberisthat$sales–Cost_of_goods=Other_expenses+Profit.
IfMarkupiswrittenasafraction,e.
g.
.
25,thenwemusthavelooselyspeaking:(1+Markup)*(Cost_of_goods)–Cost_of_goods=Other_expenses+Profit.
AmajorcomponentofOther_expensesmaybeinterestexpense.
Inawarehousingsituationonecomponentofinterestexpenseisinterestoncapitaltiedupininventory.
Aproductthatsitsininventorylongershouldtendtohaveahighermarkup.
Thus,forsettingthemarkupforaspecificproduct,youmaywanttousearulesomethinglikeMarkup=Minimum_markup+(interest_rate/year)/(Turns/year).
E.
g.
,ifsomeproductaveragesoneturn/year,thenMarkupshouldatleastincludetheinterestexpenseforoneyear.
Maquiladora:MexicanmanufacturingplantneartheU.
S.
border.
Marshallingyard:SeeClassificationyard.
45Martingale:Iftheexpectedvalueofdemandtomorrowequalstheobserveddemandtoday,thenthedemandprocessissaidtobeaMartingale.
Iftheexpectedvalueofdemand(orpriceofsomething)tomorrowisgreaterthanorequaltotheobserveddemand(orobservedprice)today,thentheprocessissaidtobeasubmartingale.
AnotherexampleofaprocesswellrepresentedbyaMartingaleisforecastingtomorrow'stemperature.
MaxiCode:Atwo-dimensionalbarcodeusedbyUPSandotherfirmsinthetransportationindustry.
Thecodeisaboutoneinchsquarehasadistinctivebullseyeinthecenter.
Itcanstoreabout93charactersofdata,includingacountrycode,apostal/ZIPcode,plusoptionalinformationsuchasatrackingnumber.
Otherpopular2-DcodesarePDF417andDataMatrix.
Formoredetailsseewww.
aimglobal.
org.
MaximumLikelihoodEstimation(MLE):Averygeneralstatisticalmethodforfittingamodeltodata.
Givenasetofobservations,x1,x1,…,xm,e.
g.
,ofsales,andanassumedgeneralformofstatisticalmodel,e.
g.
,Normalwithmeanμandstandarddeviationσ,MLEchoosesvaluesfortheparameterssoastomaximizetheprobability,or"likelihood",thattheobserveddatawouldhavebeendrawnfromthedistributionwiththoseparameters.
Forexample,iftheassumeddistributionisNormal,thenMLEwillchooseμandσasthemeanandstandarddeviationintheobservedsample.
Metcalfe'sLaw:Theobservationthattheusefulness,andthusprobablythedemand,ofcertainproductsincreaseswiththesquareofthenumberofusersoftheproduct,becauseofanetworkingeffect.
Suchaproductisusefulmainlybecauseotherpeoplealsohavetheproduct.
Examplesaretelephones,theinternet,anddataformatstandards.
NamedafterRobertN.
Metcalfe,anearlydesigneroftheinternet,Ethernet,andfounderof3ComCorporation.
HismostoriginalworkwasdoneatXeroxPARC(PaloAltoResearchCenter).
METRIC(Multi-EchelonTechniqueforRecoverableItemControl):AmodelfordeterminingstocklevelsatasingleDCservingmultipleoutlets.
BoththeDCandtheoutletsfollowabasestockpolicy.
ItwasdevelopedinitiallyforsettingsparepartsinventorylevelsfortheU.
S.
militaryandNATO.
SeeSherbrooke,C.
C.
(1992),OptimalInventoryModelingofSystems:Multi-EchelonTechniques,JohnWiley&Sons.
Metricton:1000kilograms,2,204.
6pounds.
Mezzanine:Asecondlevelorfloor,usuallyaddedlater,inawarehousewithahighceiling.
Themezzaninelevelexploitsspacethatmightotherwisegounused.
MHz(MegaHertz):Millioncyclespersecond.
MICR(MagneticInkCharacterRecognition):Aformofcharacterrecognitionanddocumentidentificationbasedondetectingcharactersprintedwithmagneticink.
46Usedmainlyforidentificationofchecks.
SeealsoAIDC.
Milkrun:Atripwitheitherseveralpickupsorseveraldeliverystops.
SeealsoLTL.
Milling-in-transit:Aformofquantitydiscountsometimesofferedbyrailroads.
IfafoodprocessorshipswheatfromKansastoSt.
Louis,wherethewheatisconvertedintoflour,andthenshipstheflourtoNewYorkonthesamerailroad,therailroadmightgiveareducedrateasifitwereasingleshipmentfromKansastoNewYork.
Mixingcenter:ADCwhosemainpurposeistorecombineinboundshipmentsintooutboundshipmentscontainingthepropermixofproducts.
Forexample,babyfoodthatarrivedbytruckfromababyfoodmanufactureranddiapersfromadiapermanufacturermaybecombinedontoasingletruckgoingtoasupermarket.
Moneyleftontable:Forabuyer,theamounthepaidminustheseller'sreservationprice.
Foraseller,thebuyer'sreservationpriceminuswhatwasactuallypaid.
Ina"paywhatyoubid"sealedbidauction,thewinningbidminusthesecondhighestbid.
MonteCarlo:Theuseofrandomnumberstoanalyzethebehaviorofaprobabilisticsystem.
ThetermwascoinedbyStanUlam,whileworkingontheManhattanProject,inhonoroftheMediterraneancityfamousforitsgamesofchance.
Moralhazard:SupposefirmorindividualXmustmakeadecisionthatinpartdetermineshowmuchrisktoincur.
NowsupposeXandfirmorindividualYreachanagreementwherebyYbearssomeoftheriskassociatedwithX'sdecision.
AnexampleofsuchanagreementisifmanufacturerXbuysfireinsuranceforitsmanufacturingplantfrominsurancecompanyY.
Thefactthatasaresultoftheagreement,XmaynotbeasdiligentinpreventingfireasitwouldbeifXhadtobearalltherisk,isanexampleofmoralhazard.
Anotherexampleisifamanagerreceivessubstantialrewardifanewproductissuccessfulinanewmarket,butisnotpenalizedproportionatelyforthecostoffailureiftheproductfailsinamarket,thenthemanagerisnotasmotivatedtodoagoodanalysisbeforehandofwhichmarketsarelikelytobeunsuccessful.
MostFavoredNation:SeeFavoredNation.
Moveableaislestorage:Astoragesysteminwhichthestoragemodulesareontrackssothatadjacentmodules,banks,orrackscanbemovedtogetherwithnogap,eliminatingtheaisle.
Asystemwithnbankscould,atmaximumdensity,besetuptouseonlyoneaisle,ratherthann-1.
Thus,ifaislesareaswideasbanks,onecouldgetupton-2additionalbanksbyswitchingtoamoveableaislesystem,therebyalmostdoublingthestoragedensity.
Thedisadvantagesaretheadditionalcostandthefactthatonecannotpicksimultaneouslyfromallbanks.
Thus,ittendstobeusefulmainlyforlowdemandrateitems,suchasinlibraries.
MRO(Maintenance,Repairs,&Operations)Usuallyusedasanadjective,asinMRO47inventory,toindicatematerialsthatneedtobepurchasedandstockedtosupportmaintenanceandrepairs.
Thisisincontrasttomaterialthatispurchasedtobeassembledintoaproductandshippedtoacustomer.
MRP(MaterialRequirementsPlanning)Acomputationalprocedureforconvertingamultiperiodforecastoffinishedgooddemandforallourproductsintoaproductionplanforeverysub-assemblyandcomponentthatgoesintoourfinishedproductsby,a)"exploding"aBOMforeachproductandsubassemblyintorequirementsforlowerlevelsub-assembliesandcomponents,b)spreadingthesederiveddemandsbackwardsintimeusingestimatedleadtimes,andc)nettingoutexistinginventoriestogetthenetamountneededtobeputintoproductioneachperiodofeachsub-assembly.
MRPII(MaterialsResourcePlanning-II)AgeneralizationofMRPtoincludefinancialaspectsoftheproductionprocess,aswellassomeattemptsattakingintoaccountcapacity.
SeealsoERP.
MTBF:MeanTimeBetweenFailures.
Thismeasuredoesnotincluderepairtimes.
E.
g.
,supposeamachineworksproperlyforsixweeks,thenfailsandneedsoneweektorepair,thenworksproperlyforsixweeks,thenfailsandneedsoneweektorepair,etc.
ItsMTBFissixweeks,notseven.
SeealsoIFR,DFR,andbathtubcurve.
muda:AJapanesetermforwaste.
Moregenerallyamanagementphilosophyofcontinuallytryingtoeliminatewastefulactivities.
Seealsokaizen;Multi-blocktariff:acoststructureinwhichthecostperunitdependsuponthequantityordered.
Specifically,thepossibleorderquantitiesarepartitionedintoanumberofblocks,withagivencostperunitineachblock.
Seealsoquantitydiscount.
multi-echelon:multi-level,asinmanufacturer,distributor,retailer.
Multinomiallogitmodel:Amodelfrequentlyusedinmarketingtopredictwhichoneofseveralproductsacustomerwillbuy,basedonthecustomer'scharacteristics.
Eachcustomeri,ormarketsegmenti,ispresumedtobedescribedbykdifferentfeatures,xi1,xi2,.
.
xik.
Thex'smaymeasureattributessuchasage,incomelevel,educationlevel,etc.
GivenPdifferentproducts,themultinomiallogitmodelcomputesascore,s(i,j)forcustomeriandproductj.
Bysomemechanism,e.
g.
,basedonempiricaldata,weestimateweightsw0j,w1j,…wkj,forj=1,2,.
.
,P.
tocomputethescores(i,j)=w0j+w1j*xi1+…+wkj*xik.
ThemultinomiallogitmodelthenclaimsthattheprobabilitythatcustomeriwillchooseproductjoutofallPproductsises(i,j)/(1+Σt=1.
.
Pes(i,t)).
Itfollowsthattheprobabilitythecustomerwillbuynoneoftheproductsis1/(1+Σt=1.
.
Pes(i,t)).
Givenempiricaldata,maximumlikelihoodmethodscanbeusedforestimatingtheweights,w0j,w1j,…wkj.
Youcanthinkofrp(i,j)=es(i,j)astherelativepreferenceforproductjbycustomersegmenti,withtherelativepreferenceofbuyingnothingas1.
Acommonassumptionisthatifyouofferasubsetofallpossibleproducts,theprobabilityaspecificconsumerwillpurchaseaparticularproductamongtheavailableproductsisproportionaltoher48relativepreferencefortheproduct.
Denotingthe"purchasenothing"productasproduct0,supposeconsumerihasthefollow(product,preference)pairs(j,rp(i,j))=(0,1),(1,5),(2,8),(3,4),(4,7).
Ifweofferonlyproducts1and3,thentheprobabilityconsumeribuysproduct1is5/(1+5+4)=.
5,theprobabilityshebuysproduct3is4/(1+5+4)=.
4,andtheprobabilityshebuysnothingis1/(1+5+4)=.
1.
Thismodelhasthefeaturethatifwe:a)introduceanewproductitmay"steal"demandfromexistingproducts,and,b)dropanexistingproduct,someofitslostdemandmaybe"recaptured"byremainingproducts.
SeealsoProbitmodel,logitmodel,consumerchoice,assortmentplanning.
Multi-modal:Usingmorethanonemodeoftransportation,mostcommonlypickedupfromtheshipperinatrailertruck,thetraileristhencarriedpiggy-backonatrainandthenagainthefinalstep,thetrailerispulledbehindatractor.
Mysteryshopper:aparttimeagenthiredbyafirmtotesteitheritsownproductorserviceorthatofacompetitor.
Themysteryshopperisgivenachecklistofproductstobuyortransactionstomakeataparticularretailoutlet.
Themysteryshopperrecordsvariouspriceandqualityrelatedaspectsofthetransaction,suchastimetoperformthetransaction,whetherthesalesclerkwasfamiliarwithaparticularfeatureoftheproduct,oraskediftheshopperwantedtobuytheextendedwarranty,etc.
NAFTA(NorthAmericanFreeTradeAgreement):AnagreementamongCanada,theU.
S.
,andMexico,takingeffect1January1994,tograduallyeliminatealltariffsamongthethreecountriesovera15yearperiod.
Itisexpectedthattruckcarriersfromanyoneofthenationswillbeabletotransportgoodsbetweenanyorigin-destinationinthethreecountries.
Italsosetsstandardsforeachcountryonrelatedissuessuchaspollution,andtariffswithnonmembercountries.
See:http://www.
nafta-sec-alena.
org.
NAPM(NationalAssociationofPurchasingManagement):Anassociationdedicatedtotheeducationandadvancementofpurchasingandsupplymanagementprofessionals,seehttp://www.
napm.
org.
Effective1January2002,itsnamewaschangedtotheInstituteforSupplyManagement.
Nashequibrium:asituationinwhichnoplayer,e.
g.
,supplychainpartner,canimprovehisutilityunilaterally,e.
g.
bychanginghispricesorhisproductionquantitities.
ItneednotbeParetooptimum.
AspecialcaseisaStackelbergequilibrium.
nauticalmile:6076.
11549feet=1852meters,asopposedto5280feetinaregularmile.
NCS:Naturalcolorsystem.
Asystem,basedinSweden,forrepresentingcolorsinsuchthingsasdisplaysandlogos.
SeealsoCMYK,HTML,Pantone,andRGBcolor.
Negativebinomialdistribution:aprobabilitydistributionthatiscommonlyusedininventorymanagementsystemsformodelingthenumberofunitsofaproductdemandedperday.
Ithastwoparameterspandk.
Ifxisapossiblenumberofunitsdemandedperday,forx=0,1,2,…,thentheprobabilitythatdemandisxis49pk(1-p)x(k+x-1)!
/[x!
(k-1)!
].
IfwedefineP(x)=Prob{demand=x},thenobservethatP(0)=pk,P(1)=P(0)k(1-p),…,P(x)=P(x-1)(k+x-1)(1-p)/x.
Themeanisk(1-p)/p,andthevarianceisk(1-p)/p2.
Ifactualdemandhasmeanandvariance2,notethatthiscorrespondstop=/2andk=p/(1-p).
Notethatkisnotrequiredtobeaninteger.
Ifkisinteger,thenthenegativebinomialdistributionissometimescalledthePascaldistribution.
ThenegativebinomialisaspecialcaseoftheCompoundPoissondistributionforwhichtheordersorbatchesarriveatrate–k*ln(p)andthemeannumberofunitsinanorderis(1-p)/[-p*ln(p)],andProb{anorderisforxunits}=(1-p)x/[-x*ln(p)],forx=1,2,….
Thisdistributionofordersizeisknownasthelogarithmicdistribution.
Anotherinterpretationofthenegativebinomialis:1)demandondaytisdrawnfromaPoissondistributionwithmeant,wheretisarandomvariable;2)tischosenfromaGammadistributionwithmeanandvariance=2-.
Demandthenisnegativebinomialdistributed.
Nesting:intwo-dimensionalcuttingstockproblems,theprocessofdecidinghowtofitrequiredfinishedgoodshapesinto(typicallyrectangular)sheetsofrawmaterialsoastomakemostefficientuseoftherawmaterial.
Itoccursintextileswhencuttingthingslikepantlegsandpocketsfromrawfabric;inwoodworking,andinthemanufactureofproductsfromsheetmetal.
Networkeffect:SeeMetcalfe'sLaw.
NewsvendorProblem:Historicallyalsoknownasthenewsboyproblem,itisthesimplestinventoryplanningproblemunderuncertainty.
Nevertheless,theessenceofthesolutiontothisproblemiswidelyusedinsuchareasasyieldmanagementintheairlines,andinventorysettingbycatalogmerchants.
Thesettingisaoneperiodprobleminwhichonemustchoosehowmuchinventorytostockofasingleproductinthefaceofuncertaindemand.
Ifc=purchasecost/unit,v=revenueperunitsold,h=holdingcharge/unitleftover,andp=explicitpenalty/unitofunsatisfieddemand,thenthenewsvendorratioisR=(p+v–c)/[(p+v–c)+(h+c)].
Thestocklevel,S,shouldbechosensothattheprobabilityofnotstockingisR.
nexus:Essentially,afirmissaidtohavenexusinastateifthefirmhasanofficeorphysicalpresenceinthestate.
Statesthathaveasalestaxrequirethatafirmthathasnexusinthestate,collectsalestax(andremittothestate)onallsalestocustomersinthestate.
Seealso:usetax.
NHTSA(NationalHighwayTrafficSafetyAdministration):AdivisionoftheDOTintheUSA.
Oneofitsdutiesistoadministerfueleconomy(CAFE)standards.
NIST(NationalInstituteofStandardsandTechnology):Anagency,http://www.
nist.
gov,oftheU.
S.
DepartmentofCommerce.
Itadministersfourmajorprograms:1)MeasurementandStandards,2)AdvancedTechnology,3)ManufacturingExtensionPartnership,and4)BaldrigeNationalQualityAward.
Non-constant-sumgame:Asituationinvolvingtwoormoreplayers(orfirms)inwhich50theycanincreasetheirtotalprofitsiftheycooperate.
Thisisincontrasttoazeroorconstantsumgame.
Ineithercase,thereisstillthesometimesvexingproblemofhowtosplittheprofits.
SeealsoPrisoner'sdilemma,zero-sumgame.
Normaldistribution:adistributionthattendstobeagoodrepresentationofthesumofalargenumberofindependentrandomvariables.
Ithastwoparameters,ameanM,andastandarddeviation,s.
Ifyoudefinez=(x-M)/s,thenitsp.
d.
f.
is:exp(-z*z/2)/2.
506628275.
IntheLINGOmodelinglanguage,thec.
d.
f.
isgivenby@PSN(z).
NP-hard:AclassofproblemsisNP-hardifthereisnoknownmethodforsolvingaproblemfromthisclasssuchthatsolutiontimeincreasesatworstasapolynomialintheproblemsize.
Typically,solutiontimemaygrowexponentiallywithproblemsizeforanNP-hardproblem.
AnexampleofanNP-hardproblemistheTSP,thatis,howtohaveatruckvisitNstopssoittravelstheleastdistance.
NPV(Netpresentvalue):Givenaninterestrate,e.
g.
,costofcapital,ofiperyear,thenetpresentvalueofapayment$Xoccurringnyearsfromnowis$X/(1+i)n.
AstandardwayofacceptingorrejectingaproposedprojectistocomputetheNPVofallcashpaymentsassociatedwiththeprojectandthenacceptorrejectdependinguponwhethertheNPVispositiveornegative.
Nucleolus:Amethodofcostallocationthatisusefulwhenthetotalcostofprovidingsomeservicetoagroupofplayersorfirmsisless(ortheprofitismore)iftheplayerscooperate.
SupposecustomersA,B,andC,areeachtoreceiveadelivery.
Onetruckiscapableofmakingonetriptocoverallthree,however,differenttruckerscoulddelivertojustonecustomerareanytwo.
Supposethecostofdeliveringtoanycombinationofthethreecustomersis:{A}:$81,{B}:$82,{C}:$83,{A,B}:$123,{A,C}:$122,{B,C}:$121,{A,B,C}:$189.
E.
g.
,makingasingletriptoserveAandCbutnotBcosts$122.
Makingonetripthatservesallthreecosts$189.
Clearly,totalcostisminimizedifasingletripisusedtomakeallthreedeliveries.
Suppose,eachcustomerischarged189/3=$63.
CustomersBandCmightbeunhappywiththisandtryto"breakranks"becausetheyarebeingchargedtogether$126,whereastheycouldhireatruckforthetwoofthemforjust$121.
Thiswould,however,leavecustomerA"stranded"andforcedtopay$81togethisshipment.
TheNucleolussolutionistoallocatecostssothatthemaximumtemptationtobreakranksisminimized.
Theallocationthatdoesthisistocharge$64toA,$63toB,and$62toC.
Noticethatthe"temptationto"breakranks"forthecoalition{A,B}is64+63–123=$4.
Likewise,for{A,C}theoverchargeis64+62–122=$4,andfor{B,C}theoverchargeis63+62–121=$4.
Incontrast,theShapleyallocationforthisproblemis$63toeachofA,B,andC.
UndertheShapleyallocation,BandCaretemptedtobreakranksbythetemptationofsaving63+63–121=$5.
Theaboveexamplewasinterestingbecausethecorewasempty.
TheNucleolusallocationisofinterestinsuchsituationswhenthecoreisempty,butthesolutionwhereineveryonecooperatesisneverthelesstheleasttotalcostsolution.
51NVOCC(Non-Vessel-OwningCommonCarrier):Inoceantransportation,anNVOCCisanintermediarywhoarrangesshippingforsmallorinlandshippers.
TheNVOCCbuystransportationfromcarriersatbulkratesandthenresellsittosmallshippers.
TheNVOCCgetsastandardBillofLadingfromthecarrier.
TheNVOCCgivesa"HouseBillofLading"totheshipper.
Atthedestination,theNVOCCreclaimsthebulkshipmentwiththeregularBillofLading.
Afterdeconsolidation,theshipperorhiscustomerclaimshisportionoftheshipmentwiththeHouseBillofLading.
NWPCA(NationalWoodenPallet&ContainerAssociation:seewww.
nwpca.
com.
OCR(OpticalCharacterRecognition):Aformofcharacterrecognitionanddocumentidentification.
SeealsoAIDC.
OEM(OriginalEquipmentManufacturer):AmanufacturerisanOEMifitsproductisusedacomponentintheproductofsomeothermanufacturer.
OLAP(OnLineAnalyticalProcessing):Ageneraltermfordatabasequeriesweresomeanalyticalcalculationsareperformedinadditiontothedataretrieval.
Forexample,computingtotalsalesbytimeperiod,orbygeographicregion,orbyproductclassmightbeconsideredasimpleformofOLAP.
OLTP(OnLineTransactionProcessing):Theprocessingofsimplequeriesorlookupsagainstatypicallylargedatabase.
TheOn-linepartmeansthereisanemphasisonshortresponsetime,suchaswhenacustomerislookingupthestatusofanorder.
OPIS(OilPriceInformationService):Apriceindexsystemwidelyusedinthepetroleumindustryforsettingpricesinsupplycontractsforproductssuchasgasoline,diesel,LP-gas,jetfuel,crude,propane,kerosene,ethanol,andbiodiesel.
Seewww.
opisnet.
com.
Orderfillrate:thefractionofordersforwhicheverylineisfilled.
Thismeasureisimportant,forexample,ifallSKU'sintheorderareneededbythecustomertocompletetherepairofapieceofmachinery.
Seealso,servicelevel.
ORM-D(OtherRegulatedMaterials-Domestic):Goodsthatotherwisemightbeclassifiedashazardous,thathavebeenrepackagedinsmaller,lessdangeroussizes,readyfordirectusebytheconsumer.
Examplesincludepressurizedaerosolcans,paint,aftershavelotion,fingernailpolishremover,andmore.
OSHA(OccupationalSafety&HealthAdministration):AnagencyundertheU.
S.
DepartmentofLaborthatsetsandenforcesstandardsforworkplacesafety.
Seehttp://www.
osha.
gov.
OTI(OceanTransportationIntermediary):SeeNVOCC.
52Outbound:ShipmentoutofaDC.
Tendstobeonsmallervehicles.
Seealso,inbound.
Outsourcing:ThehiringbyfirmX,ofanoutsidefirmYtoperformsomeactivityZthatmightotherwisebeperformedbyX.
Examplesofsuchactivitiesareshipping/transportation,computingservices,payrollaccounting,maintenance,customercontact,etc.
Justificationsforoutsourcingare:a)thereareeconomiesofscalethatcanbeenjoyedbyYbecauseitservesmanyfirmsinadditiontoX,andb)thereislittlelikelihoodofXgettingacompetitiveadvantagebydoingactivityZextremelywell,c)firmXisexpandingquicklyanditcangetthecapabilityfordoingactivityZfromfirmYmuchmorequicklyandcheaplythanitcandevelopitsowncapability.
Forexample,payrollaccountingrequiresonetobefamiliarwithallthedetailsofmunicipal,state,andfederaltaxwithholding.
Apayrollaccountingfirmcanspreadthecostofmaintainingthisfamiliarityoverallitsclients.
Itwouldbeinefficientforeachclienttoinvestinstayingcurrentontaxlaw.
Theeconomiesofscalecanalsobestatistical.
E.
g.
,ifX'sneedfortheactivityvariessignificantlyovertime,firmYcanhandlethesefluctuationsmoreefficientlyifitisprovidingtheactivityforanumberoffirms.
SeealsoCoase'sLaw.
Overbooking:Theprocessofsellingmorecapacitythanonehasavailable,intheexpectationthatsomeofthecustomerstowhomcapacityhasbeencommitted,willcancelornotshowup.
Overbookingiswidelyusedinairlineandhotelreservations.
No-showratesashighas20%arenotunusual,soifoverbookingwerenotused,capacitycouldbesignificantlyunderused.
Thebasicmarginalanalysisthatisdoneindecidinguponthelevelofoverbookingisthatoneshouldsellanadditionalunitofcapacityiftheexpectednetrevenueispositive,thatis,oneshouldsellareservationtocustomerX,if(immediaterevenuefromX)>Prob{Xinfactshowsup}*Prob{capacitywillbeoversold}*(penaltyfornotbeingabletoservethecustomerX).
Pallet:Platform,usuallyofwood,about6incheshighonwhichgoodsareplacedsotheycanbepickedupbyaforklifttobeplacedinstorageoronatruck.
ThemostcommonsizeintheU.
S.
hasstandardhorizontaldimensionsof40in.
by48in.
(1016mmby1219mm).
ThisisstandardintheU.
S.
groceryindustryandelsewhere.
ThesedimensionsallowtwopalletstobeplacedsidebysideinastandardU.
S.
trucktrailer.
Asizeof42in.
by48in.
iscommonintheU.
S.
chemicalindustry.
Half-sizepalletsof20in.
by48in.
arealsosometimesused.
ISOrecognizessixpallethorizontaldimensions:1)40in.
by48in.
,2)1000mmby1200mm(commoninEuropeandAsia),3)1165mmby1165mm(commoninAustralia),4)1067mmby1067mm(42in.
by42in.
,commonforpaintintheU.
S.
),5)1100mmby1100mm(commoninAsia)6)800mmby1200mm(commoninEurope).
Seealso,the463pallet.
Mostpalletshaveallowfourwayentryofthetinesofaforklift.
Morerecently,plasticbasedpalletshavebeenintroduced.
Althoughmoreexpensive,plasticpalletslastlongerandhavelessdangerofcarryingdangerousinsectsfromonepartoftheworldtoanother.
Topreventthespreadofpests,somecountriesrequirewoodpalletstobetreatedat56degreescentigradeandorfumigatedwithmethylbromide.
Woodpalletsreceivingthisheat53treatmentarestampedHT.
PalletstreatedwithmethylbromidearestampedMB.
Plasticpalletscanbeformedinshapesthatallownestingofemptypallets,i.
e.
,nestingpalletscanbestoredoneontopoftheothersothattheverticalheightofthestackof,sayten,nestingpalletsisconsiderablylessthantentimestheheightofasinglepallet.
Anotherfactorindecidingbetweenwoodvs.
longerlastingpalletsiswhetherthepalletsareinaclosedloopwithinyourcompanyorifyoushiponewayandnevergetthepalletsback.
Inthelattercase,thecheaperpalletsmakesense.
SomepalletdesignsincludeanRFIDdeviceimbeddedinthepalletsothatthepalletcanbeeasilytrackedthroughasupplychain.
Inflexiblemanufacturingtheterm"pallet"issometimesusedtodenoteametalplateforcarryingvariousproductsalongaproductionline.
Eachproductmanufacturedontheline,e.
g.
motorcycleenginesandsmallcarengines,hasitsownpallettype.
Allpalletshavethesameinterfaceonthebottomsothatallproductscanbecarrieddownthelineandmountedonthesamestandardfixtures.
Palletize:processofplacinggoodsonapalletandfasteningtheminsomefashion,e.
g.
,withplasticshrinkwrap,sothattheassemblyisstableduringshipment.
Seealso:Lifttable.
Apalletwithgoodsplacedonitissometimescalledaskid.
Palm'sTheorem:Ifabasestockinventorypolicyisused,anddemandsperunittimehaveaPoissondistributionwithmeanD,andleadtimesarei.
i.
d.
withmeanL,thenthedistributionofitemsonorderatanyrandomlychoseninstantisPoissonwithmeanD*L.
Panamaxship:ThelargestshipthatcanpassthroughtheoriginalPanamacanal.
Themaximumdimensionsare:Width:106feet(32.
3meters);Length:965feet(294meters);Height:190feet(57.
9meters),Draft:39.
5feet(12meters).
Pantonesystem:Astandardsetof1114preciselydefinedcolors,seehttp://www.
pantone.
com.
Forexample,inthelabelingofhazardousmaterial,U.
S.
federalstandardssuggestthatRedlabelsshouldbePantone186,OrangeshouldbePantone151,Yellow(corrosiveorradioactive)isPantone109,andGreenisPantone335.
Ingeneral,ifyouneedtospecifytoasupplier,printer,ormanufacturerthecoloryouwantusedforalabel,logo,etc.
,youcansimplygivethePantonenumber.
Seealso:RGB,CMYK,NCS,andHTMLcolor.
ParetoAnalysis:Asortingofobjectsaccordingtotheirvolume,size,rate,etc.
Atypicalresultisthatasmallfractionoftheobjects,e.
g.
15%,constituteamajority,e.
g.
,85%,ofthetotalvolume.
SeealsoABCanalysis.
ParetoOptimum:anallocationofsomething,e.
g.
,totalprofitinasupplychain,suchthatthereisnootherallocationinwhicheachplayerdoesatleastaswell,andatleastoneplayerdoesstrictlybetter.
Pascaldistribution:seenegativebinomialdistribution.
54p.
d.
f.
:probabilitydensityfunction.
Amathematicalfunctionorcurvesuchthattheprobabilitythatarandomvariablefallsbetweentwovaluesxandyisequaltotheareaunderthecurvebetweenxandy.
PDF417code:A2dimensional,laserscannablecodeusedtostoreupto1100charactersofinformation.
ThecodeisusedforsupplychainpurposesintheautomobileindustryandbytheU.
S.
departmentofdefense.
Somestatesuseittostoreinformationondriverlicensecards.
Other2-DcodesareDataMatrixcode,QRcodeandMaxiCode.
Formoredetailsseewww.
aimglobal.
org.
Peakloadpricing:Thepracticeofsettingahigherpricefordemandthatoccurswhenaproductionfacilityisrunningatcapacity.
Intheelectricalindustry,acustomermayhavetopayanadditionalchargebasedonthepeakamountofelectricityusedduringadayormonth.
Thepurposesofpeakloadpricingare:a)tohelppayforthecapacitythatthesuppliermustaddtohandlethepeakload,andb)tomotivatetheuserstosmooththeirdemandormovetheirdemandtonon-peakperiods.
Pendulumarbitration:SeeFOA.
Percentdonerule:Aforecastingruleforpredictingthesalesofaseasonalproductduringthesecondperiodofaseason,basedonthesalesobservedduringthefirstperiodoftheseason.
E.
g.
,basedontheobservedsalesduringtheperiodNovember20toDecember10,wemaywanttoforecastthesalesduringtheperiodDecember11toDecember25.
Initssimplestform,weestimate,e.
g.
,fromdata,thefractionkofthefullseasondemandthathistoricallyoccurredinthefirstperiod.
Supposek=.
4,correspondingtobeing40%donewithsalesafterthefirstperiod.
Then,ifweseeademandof80unitsinthefirstperiod,wewouldpredictsecondperioddemandof80*(1-.
4)/.
4=120unitsofsalesinthesecondperiod.
AvariationofthisrulewasdevelopedbyFisheret.
al.
fortheSportObermeyerapparelcompany.
Todescribethisvariation,wefirstestimate,e.
g.
,fromhistoricaldata,thefournumbers:=expectedtotaldemandoverbothperiods,k=expectedfractionofthedemandoccurringinthefirstperiod,=correlationinperiod1andperiod2demand,=correlationinperiod1andtotaldemand.
Thenwecompute:1=k=expectedfirstperioddemand,2=(1-k),=initialexpectedfirstperioddemand,2=[(1-2)/(1-2)]0.
5=initialestimatedsecondperiodstandarddeviation,1=-2=firstperiodstandarddeviation.
Onceweseeperiod1demand,D1,weupdateourforecastofperiod2demandwith:E(D2|D1)=2+2(D1-1)/1,Updateds.
d.
forperiod2=2(1-2)0.
5Noticethatifthecorrelationbetweenperiod1andperiod2demand,,is0thentheformuladoesnotchangeouraprioriestimateofperiod2demandafterobserving55period2demand.
Noticethatifissmall,itmeansmostofthevariabilityisinperiod2,whereasifislarge,itmeansmostofthevariabilityisinperiod1.
Also,ifthestandarddeviationinperiod1demand,1,islarge,thenweplacelessweightonobservedperiod1demandwhenupdatingourestimateofperiod2demand.
SeealsoBassmodelandexponentialsmoothing.
Perpetualinventory:Theinventorythatthecomputerinformationsystemthinksisonhandbasedontheupdateformula:inventory(t+1)=inventory(t)+official_receipts(t)–official_withdrawals(t).
Duetounrecordedtransactions,suchasshrinkage,theperpetualinventorywilltendtogetoutofstepwithactualphysicalinventory,sofromtimetotimesomesortof"physicalinventory"mustbeperformed.
Seealso:cyclecounting.
PERT(ProgramEvaluationandReviewTechnique):AprojectmanagementtechniquesimilartoCPMbutwithadditionalfeaturestorepresentrandomactivitytimes.
FirstusedtomanagethePolarisFleetBallisticMissiledevelopmentprogramdirectedbyAdmiralWilliam(Red)Raborn.
ThefactthatAdmiralRaborn'swifehadthenicknamePert,mayberelevant.
PET(PolyEthyleneTerephthalate):Typeofplasticusedtomakebeveragecontainers.
Ifyourplasticbottleismadefromclearplastic,itisprobablymadefromPET.
PETisresistanttoacidsbutnotbases.
AbottlemadefromPETismarkedwitha"1"recyclingcodeatthebottom.
RecycledPETcanbemadeintofibersforcarpetingforexample.
Toamodestextent,PETmayalsoberecycledbackintomakingcontainers.
SeealsoHDPE,PVC,andLDPE.
PGP(PrettyGoodPrivacy):Awidelyused,"open"publickeyencryptionsystem.
See:Garfinkel,S.
(1995),PGP:PrettyGoodPrivacy,O'Reilly&Associates,ISBN1-565920988.
ThetechnologyissimilartoRSA.
Phillipscurve:Therelationship,conjecturedandobservedbyA.
W.
Phillips,thattheretendstobeatradeoffbetweenunemploymentandinflation,thatis,lowunemploymenttendstobeassociatedwithinflation.
Picking:theprocessofpickingitemsfromstoragetosatisfytoday'sorders.
Itmayoccuratseverallevels,suchaspickingafullpallet,pickingacase(forsatisfyinganorderfromaretailer)fromapallet,orpickinganindividualitem(forsatisfyingretaildemand)fromacase.
Twoextremepickingstrategiesarepick-to-orderandzonepicking.
Inpick-to-order,onepickerisassignedtoeachorderandthatpersonwandersaroundtowarehousetopickallitemsintheorder,thusthepickeralsodoesthesorting.
Inzonepicking,onepickerisassignedtoeachzoneofawarehouseandthatpickerpicksallitemsfromthatzoneneededduringaparticularshippingperiod,e.
g.
,adayora"wave",andfeedstheitemsintoacollectionsystem,afterwhichtheitemsaresorted,perhapsautomatically,byorder.
Seealsopick-to-light,bucketbrigade,eaches,piece-pick,andwave.
56Pick-to-light:Awarehousethatusesapick-to-lightsystemhasasmallelectronicdisplay,typicallyincludingalight,nexttoeachstorageslot.
Acentralcomputerwilldisplaywhichitemsaretobepicked(viathelight)andhowmany(onthedisplay).
Thereistypicallyabuttonthatthepickercanpushtoturnoffthelighttoindicatetothecomputerthatthepropernumberhavebeenpicked.
Piece-pick:Inawarehouse,thepickingofasingleitem,ratherthanacase.
Sometimesalsoknownassplit-caseorbrokencasepicking.
Seealsoeaches.
Piggyback:Multi-modaltransportationinwhichproductisloadedontoahighwaytrailer;atractorhaulsthetrailertoarailyard.
Thetrailerisloadedontoaspecialflatcar.
Theflatcarishauledinatraintoneartheproductdestinationandtheprocessisreversed.
Goodforhighvolumeproductwherespeedisnotsoimportant.
Pipelineinventory:productonorder.
Sometimesalsodefinedtobeon-hand+on-order.
Incontrast,seealso:Echeloninventory.
Planogram:Aplanforlocatingproductsonretailshelves,grocerystoresinparticular.
Itisbasedonsuchideasas:highdemanditemsshouldbeplacedateye-level.
Itemsforchildrenareplacedatalowerlevel.
Similarproductsshouldbetogether.
Complementaryproducts,e.
g.
,pancakemixandpancakesyrup,shouldbetogether.
Higherdemandandhigherprofitproductsshouldgetmoreshelfspace,etc.
SeealsoApollofromIRIandSpacemanfromA.
C.
Nielsen.
PLC(ProgrammableLogicController):SeeLadderlogic.
PMPA(PetroleumMarketingPracticesAct):AU.
S.
federallawthatessentiallypreventsonepartyinapetroleumsupplycontractfromarbitrarilycancelingornotrenewingasupplycontract.
SeealsoOPIS.
PO(PurchaseOrder):ArequestbyabuyertoasellertoshipacertainnumberofeachofalistofSKU's.
EachSKUonthePOistypicallycalledalineitem.
Poissondistribution:adistributionwhichtendstobeagoodsimpleapproximationofretaildemandinaspecifiedtimeinterval,e.
g.
,thenumberofcallsintoacallcenterinaspecifichour.
IfthemeandemandisD,thentheprobabilityofkdemands,fork=0,1,2,…is:(e-DDk)/k!
.
ThestandarddeviationisthesquarerootofD.
AsDbecomeslarge,thePoissondistributionconvergestotheNormaldistribution.
Theapproximationisgoodfor,say,D>15.
Thebinomialdistributionwithparametersnandp,convergestothePoissonasngetslargeandn*pconvergestoD.
SeealsoCompoundPoisson,NegativeBinomial.
Pokayoke:Japanesetermmeaningliterallyerroravoidance,ormistakeproofing.
AcollectionofideaspopularizedbyShigeoShingofordesigningaproductorproductionprocesssothatitisimpossibletouseitincorrectly.
Anexampleisthetwoprongedelectricalplug.
Theoneprongislargerthantheothersothatitisimpossible57toinserttheplugintotheelectricaloutletinthewrongorientation.
Seealsojidoka.
POS(PointOfSaledata):datatypicallyaccumulatedbyretailscanners.
Usersofthesedatahaveuptotheminuteinformationonhowmuchofwhatproductwassoldwhenandatwhichoutlet.
POSdataisusuallyobtainedbyscanningtheUPCoftheproductasitissold.
Postponement:Arearrangementofaproductionanddistributionprocesssothatsomeoperationontheproductisdonelaterintimeandclosertothefinalcustomer.
Typicallytherearetwomotivations:a)lessinventoryneedstobecarriedearlierintheprocessbecauseofriskpooling,andb)transportationcostsmaybereducedbecausethenot-quite-completeproduct("someassemblyrequired")iseasiertotransport.
Anexampleisthemixingofpaintinahardwarestoretoobtainaparticularcolordesiredbyacustomer.
Ifnomixingweredoneinthestore,butratheratthepaintmanufacturer,theneachstorewouldhavetocarryalargenumberofdifferentpremixedpaints.
Forsomeproductsyoucanthinkoftheproductasconsistingofacommonbasemoduleneededbyallcustomersplusoneormorepersonalitymodules.
Postponementisworthwhileifthebasemoduleisexpensivebutthepersonalitymodulesarecheapandeasytoaddasweobservecustomerpreferences.
Theultimatepostponementisthe"onesizefitsall"approach.
Ifthepowersupplyinanappliancecanautomaticallydetectthetypeofelectricalsupply,e.
g.
,120vs.
240volts,50cyclevs.
60cyclewhentheapplianceisconnectedtotheelectricalsupply,thenonlyonetypeofproductneedbecarried.
PPI(ProducerPriceIndex):Acollectionofover10,000indicesofsellingpricesreceivedbydomesticproducersofgoodsandservices.
LongtermcontractsmaysometimeshaveanpriceescalationclausebasedonaparticularPPI.
ItiscompiledbytheU.
S.
BureauofLaborstatistics,http://stats.
bls.
govandusuallypublishedattheendofthesecondfullweekofthemonth.
Bothseasonallyadjustedandunadjustedversionsareavailable.
SeealsoCPI.
Predictivedialing:Atechniqueusedinoutboundtelephonecallcenterstoincreasetheutilizationoftheoperatorpersonnelstaffingthephones.
Thepredictivedialingsystemkeepstrackofa)howlongeachcurrentcallhasbeeninprocess,andpredictswhenthenextagentwillbefree,andb)whatistheprobabilitythatthenextdialingattemptwillgeta"live"answerratherthanabusysignal,ornoanswer.
Takingallthisintoaccount,itautomaticallystartsdialingthenextnumbertobecalledsuchthatjustasanagentbecomesfreea"live"personbeingcalledwillpickupthephone.
Thestatisticaltheoryismuchliketheoverbookingprocessinairlinereservations.
Seealso:TAPIPrisoner'sdilemma:Asituationinwhichtwoplayers,e.
g.
,retailers,bothmakesubstantialprofitifthey"cooperate",e.
g.
,spendmoderateamountsonadvertisingandkeepthepricehigh.
Thisisanunstableequilibrium,however,ifthereisastrongtemptationto"cheat",e.
g.
,obtainmoreprofitforoneselfbyunilaterallydroppingthepriceoradvertisingheavily.
Thesituationwhenbothplayers"cheat",isastable58equilibrium,i.
e.
,neitherplayeriswillingtochangehisdecisionbyhimself,however,eachplayermakeslessprofitthanhewouldifbothplayerscooperated.
Thetermcomesfromthesettingwheretwoaccomplicesincrimeareheldprisonerinseparatecells.
Eachisofferedtobesetfreeifhesuppliesincriminatingevidenceagainsttheother.
Bothwillreceivealightpunishmentifneithersuppliesevidence.
Ifonerefusestocooperatebuttheothersuppliesevidence,thentheuncooperativereceivesaseveresentence.
Thisisanexampleofanonconstantsumgame.
Anotherexampleistwosuppliers,e.
g.
,crudeoilproducers.
Ifbothrestrictoutput,thepricewillbehighandtheybothmakeslotsofmoney.
Ifoneproducer,however,cheatsbyquietlyincreasinghisoutput,hewillmakeevenmoremoney.
Seebi-matrixgame.
Privatefleet:Anoperationalstyleinwhichafirmthatshipsgoods,ownsitsownfleetofvehicles,typicallytrucks,tocarryitsgoods.
Theadvantagesofowningone'sownfleetareseveral:Theshipperhasmorecontrolofshippingdecisionsandtherebycangivebetterservice.
Errorsinshippingareeasiertomonitor.
Iftheshipper'sproductissomewhatunusual,e.
g.
,lowdensity,theshippercanacquirespecialvehiclesappropriateforthisproductthatmightbedifficulttofindinthecommercialcarriermarketplace.
Finally,vehicles,especiallytrucks,providefreebillboardsforadvertisingtheshipper'sproducts.
Themajordisadvantageofhavingone'sownfleetisthefixedownershipcoststhatmustbeincurred.
Ifthefleetissmall,itisdifficulttoovercomethesefixedcosts.
Examplesofcapabilitiesthatthefleetownerneedsare:vehiclemaintenancecapabilities,driverhiringandtraining,schedulingandroutingcapability.
Withregardtorouting,theshippermayneedtheabilitytosolicitbackhaulstofillotherwiseemptyreturningvehicles.
PROnumber:(ProgressiveRotatingOrder).
Anidentifyingnumberassignedtoeachorderthatatruckcarriercarries.
AshippercantrackanorderwiththecarrierbyspecifyingitsPROnumber.
Probitmodel:Astatisticaltechniquefrequentlyusedindecidingwhethertograntordenycredittoaprospectivecustomer.
IdenticaltotheLogitmodelexceptthattheNormaldistribution,ratherthantheLogisticsdistributionisusedtoestimatetheprobabilitytheprospectisbad.
Producerrisk:Probabilityahighqualitylotisrejected.
SeeAQL.
Profitsharing:Anagreementforsharingprofitamongparticipants,e.
g.
,employerandemployees,manufacturerandretailer,etc.
Thegeneralgoaloftheagreementistoincreasethetotalprofitsoftheentiregroupofparticipants.
Anagreementisincentivecompatibleifforeachactionthataparticipantisconsideringtaking,ifthatactionincreasestotalprofits,thenitalsoincreasestheprofitallocatedtothatparticipantundertheagreement.
Majorproblemsindesigningaprofitsharingplanare:a)measuringtheprivatecostsincurredbyparticipantswhentakinganaction,e.
g.
howmuchpainandinconvenienceisincurredbyanemployeetoworkalittleextraonoccasion,bemorecareful,etc.
,b)measuringthebenefitstothegroupofanaction,e.
g.
,advertisingbyaretailer,and59c)keepingtheagreementsimpleenoughtobeunderstandable.
Promotion::atemporarypricereduction,typicallypublicizedor"promoted"withadvertisingThereseemtobetworeasonsforpromotions:a)selleristryingtoreachasalesquota,e.
g.
,forthecurrentquarter,orb)itisawayofdoingvaluebasedpricing.
E.
g.
,ifoneweekoutoffourthepriceislowered,customerswhoareonlywillingtopaythelowpricewillwaitthreeweekstobuytheirneedsforallfourweeks,whereas,customerswhoarepriceinsensitivewillpaythehighpricethreetimesoutoffour.
Amanufacturermaydoapromotiontoitsretailercustomers,oraretailermaydoapromotiontoitsretailcustomers.
See:EDLP,Publickeyencryption:Atwokeyencryptionsystemwherebythesenderuseshisprivatekeytoencrypthismessage,e.
g.
,aPO.
Hispublickey,knownbyallhisbusinesspartners,isneededtodecipherthemessage.
Thusarecipientofamessageisabletoverifythesourceofamessage.
Italsoallowsthesendertopreventamessagefrombeingreadbyanyonebuttheintendedrecipientbyencryptingitwiththerecipient'spublickey.
Therecipientcanthendecipherthemessagewithhisprivatekey.
Thisprovidesonewayofimplementingoneformofanextranet.
Pullsystem:Amulti-echelonsysteminwhichtheindividuallevelsuseaQ,rinventorypolicytorequestproductfromtheirsupplier.
Qshouldbesmall.
Pullsystems,asopposedtoPushsystems,areconsidered"good"orpoliticallycorrect.
Pushsystem:Amulti-echelonsysteminwhichacentralplannerforecastsneedsatindividuallevelsand"pushes"producttotheselevelsinadvanceofthedemand.
Seealso:pullsystem.
Ifforecastsareperfectapushsystemisverygood.
Ifforecastsarebad,itmaybereallybad.
PutOption:AncontractbetweentwopartiesAandBthatgivesAtheright,butnotanobligation,toselltoBaspecifiedquantityofsomecommodityataspecifiedprice.
ItisaEuropeanoptioniftherighttosellisforaspecificdate.
ItisanAmericanoptioniftherighttosellexistsforanydayuptotheexpirationdateofthecontract.
SeealsoCalloption.
PVC(PolyVinylChloride):Astiffplastic,highlyresistanttoacidsandbases;oftenusedforpipingandsimilarapplications.
Becauseofitschlorinecontent,itmayproducetoxicfumeswhenburned.
Also,becauseofitschlorinecontent,itshouldnotbeusedinapplicationswhereitcomesincontactwithfood.
ItemsmadefromPVCaretypicallymarkedwitha"3"recyclingcode.
Seealso:PET,HDPE,andLDPE.
QA(QualityAssurance):Theprocessandproceduresforensuringthequalityofaproduct.
QFD(QualityFunctionDeployment):Atableorientedprocedureforconvertingcustomerrequirementsforaproductintothefeaturesorfunctionsthatshouldbeincludedintheproductdesign.
60QOS:Qualityofservice.
Ameasureofhowwellsomeone'sserviceachievesaqualitytarget.
QRcode:AprintedtwodimensionalcodeoriginallyfromJapan.
QRstandsforQuickResponse.
SeealsoUPC,AIDC,Barcode,DataMatrixcode,MaxiCodeandPDF417.
QRM(QuickResponseManufacturing):Aproductioncontrolsystem,intendedtoreduceleadtimes,thatcombinesusefulfeaturesofKanbanandMRP.
ItwasdevelopedattheUniversityofWisconsin,see:http://www.
engr.
wisc.
edu/centers/cqrm/about.
html.
Quantitydiscount:Pricingpolicybywhichthecostperunitpurchaseddecreaseswiththequantitypurchased.
Twomaintypesofdiscountare:a)"allunits",inwhichcasethelowerpriceappliestoallunitspurchasedifthequantitypurchasedexceedsthethreshold,and:b)"incrementalunits",inwhichcasethelowerpriceappliesonlytounitspurchasedinexcessofthethreshold.
Anothervariationthatisusefulifavarietyofproductsarebeingpurchasedfromasinglevendor,istobasethediscountuponthe$amountpurchased,ratherthanthenumberofunits.
Seealsobundlepricing.
Q,r:Aninventorypolicyunderwhich,whentheinventoryleveldropstor,anamountQisorderedfromthesupplier.
ItisanextensionoftheEOQinventorypolicy.
Quote:Apromisebyasuppliertoaprospectivecustomerofapriceatwhichitwillsupplyaspecifiedgoodorservice.
Thepromiseusuallyhasaquantity,anexpirationdate,andalocationatwhichtheproductwillbemadeavailable.
Seealso:RFQ.
R2(Rsquared):Ameasure,between0and1,ofhowwellaforecastorregressionlinefitsasetofdata.
AnR2of1meansaperfectfit.
Numerically,itis1–(sumofsquarederrorsabouttheforecastline)/(sumofsquarederrorsaboutthemean).
Inwords,R2isthefractionoftheoriginalvariabilityorerrorinsomenaveforecaststatisticthatisremovedorexplainedbyamoredetailedforecastmodel.
AnR2of0meansthefancyforecastingmodeldoesnotbetterjobofforecastingthanthesimple"predictthemean"forecast,whereasanR2of1meansthefancyforecastisperfect.
Rack:Theshelf-likestoragestructureusuallyusedinawarehouseorDC.
Rackjobber:Someoneoutsideastoreorganizationwhomanagesasetofshelvesorrackofproductsinthestore.
Typicalproductssoldareitemswithashelflifeofatleastaweek,e.
g.
magazines,healthandbeautyaids,candy,andothersnacks.
Thestoresuppliestwofunctions:a)shelfspace,andb)processingofthesalestransactionsforitemssold.
Therackjobberprovidesallaspectsofinventorymanagement,includingfindingasupplysource,warehousestorage,deliveryfromwarehousetothestore,andremovalofunsolditems.
Byuseofrackjobbers,astoreisabletosellawidevarietyofproductswithlittleinvestmentotherthanthatforthestorestructureandfixturesandthecash/salesregistersystem.
Therackjobbertypicallyoperates61fromatruck,visitingeachstoreregularly,e.
g.
,weekly,andrestockingtherack.
Thefinancialarrangementshaveseveralpossiblecomponents:a)aslottingfeepaidbytherackjobbertothestore,-essentiallyarentalfeeforthespaceusedbytherackjobber,b)aperunitcostpaidbythestoreforeachitemdeliveredtothestore,c)aperunitpaymentbythestoretotherackjobberuponsaleofanitem,d)arefundonunsolditemsremovedfromtherack.
Seealso:consignment.
Ragtrade:Slangtermforclothingindustry.
Rain-check:Aformofbackloginwhichtheseller,intheeventofastock-out,givesatickettoacustomerwishingtopurchasetheproduct,guaranteeingthatthesellerwillordermoreoftheproductandsellittothecustomerattheoriginalprice.
Arain-checkisnotonlygoodforcustomergoodwillbutitalsoprovidestwokindsofinformationtotheretailer:a)itgivestheretaileramoreaccuratemeasureoftruedemandthansimplesalesdatawouldotherwisegive,andb)itmaymaketheretailerbeawareofwhentheretailerisphysicallyoutofstock,eventhoughtheretailer'sinventoryrecordsmayincorrectlysuggestthattheretailerhasstock.
Ramseyprices:Aformofcostallocationthatmaybeofinterestwhenthereisahighfixedcostofproducing,butalowmarginalcostperunitproduced.
Ifyouwantuserstomakeoptimaluseofgoods,youwanttochargethemthemarginalcost.
Ifthisweredone,however,thentheproducerwouldshowalossbecausetheproducer'srevenuewouldnotcoverhisfixed(aswellasvariable)costs.
Ifaproducercanchargedifferentpricestodifferentmarketsordepartments,andwehavethedemandcurveforeachmarket,aswellastheproductioncostfunction,thenRamseypricesarethesolutiontotheproblem:Maximizethevalueofthegoodsdeliveredminusthecostofproducingthem,Subjectto:Revenuefromthegoodssold≥fixed+variablecostofproducingthem.
RAS(RussianAccountingStandard):AccountingrulesusedinRussia.
Ittendstobemorecashbased,e.
g.
,incomeisrecognizedwhencashisreceivedandexpensesarerecognizedwhencashispaid.
RBRC:RechargeableBatteryRecyclingCorporation.
Areverselogisticoperationforrecyclingoldrechargeablebatteries.
Seewww.
rbrc.
org.
ManufacturerswhoparticipateinthisprogramplaceanRBRCsealontheirbatteries.
Whensuchabatterylosesitsabilitytoholdacharge,thebatterymaybedroppedoffatanyretailoutlet,e.
g.
,anelectronics,hardware,orofficesupplystorethatparticipatesintheprogram.
Batterytypessupportedare:Nickel-Cadmium,Nickel-Metal-Hydride,LithiumIon,andSmall-Sealed-Lead.
Reach:SeeExposures.
Reefer:Refrigeratedcontainer,trailer,ortruck.
62Reneging:Theactionofacustomerinawaitingqueuetodepartprematurely,thusresultinginalostsale.
Contrastwithbalking.
Reservationprice:Forabuyer,themaximumthebuyeriswillingtopayforanobject.
Foraseller,theminimumtheselleriswillingtoacceptforhisproduct.
Revenuemanagement:acollectionoftechniquesforincreasingtherevenuefromthesaleofaproductoragroupofrelatedproducts.
Themostnotabletechniqueistochargemoretocustomerswhoarewillingtopaymore.
Forproductsthat"expire"suchasairlineticketsforaparticularflightorhotelreservationsforaparticularnight,atypicalmethodistosellarestrictednumberofunitsatalowpriceandtheremainingunitsatahighprice.
Customerswhoarewillingtopaymorearetypicallytheoneswhorealizeonlyatthelastminute,whenallthecheapunitsaresoldout,thattheyhaveaneedfortheproduct.
Foraproductthatdoesnotexpirebuthasawelldefined"birth",pricemightbechangedinreversefashion.
Startwithahighprice,whichwillbepaidbycustomerswhourgentlyneedtheproduct,andthengraduallylowerthepriceforlessurgentcustomers.
Seealso:yieldmanagement,valuebasedpricing,discriminatorypricing,bundlepricing.
Reverseauction:AnRFQprocessinwhichprospectivesupplierssubmittheirquotes,typicallyviatheinternet,tothebuyer.
Theprocessmaybeopensothatallsupplierscanseewhatisthecurrentwinning(lowest)quote.
Reverselogistics:themanagementofproductandpackingmaterialswhenthecustomernolongerneedsthem.
Foraretailer,itmaymeanhowtohandlereturnswhenthecustomerfairlyquicklydiscoversheboughtthewrongproduct.
Foramanufacturer,itmaymeanfiguringouthowtoreuseaproduct,orelsehowbesttodisposeoftheproductifitisnotreusable.
RF(RadioFrequency):Inwarehouseoperationsasystemthatusesaportable,typicallyhandheld,devicethatisinradiocommunicationwithacentralcomputer.
Theportabledevicehasascanner,amulti-linedisplayandsomememory.
Forexample,thecomputercantransmitpickinstructionstothedisplay.
Thescannercantransmitdatabacktothecomputerregardingtheitempicked.
IntheU.
S.
,thetransmissionistypicallyateither900MHzor2.
4GHz.
RFID(RadioFrequencyIDentification):Atypeoflabelorbadgethatisreadelectronicallyratherthanoptically.
Thisisthetechnologythatisusedinautomatictollcollectionfromcarsonahighwayandbadgesusedtocontrolentrytoabuilding.
Thereaderneednottouchthelabelinordertoreadit.
Typicalstoragecontentisfrom126to992bitsofinformation.
SomeRFIDlabelsarere-writeable,thatis,newinformationcanbeinserted.
Thecost/labelishigherthanthatofaprintedbarcodelabel.
Sometagscontaintheirownbatterypower,whereasmorecommonlythetagsaresimplytransponders,thatis,theyreturnasignalafterbeingenergizedbyareader.
IntheU.
S.
thecommunicationwiththetagtendstobeinthe915MHzband.
OutsidetheU.
S.
itistypicallyinthe13.
56MHzband.
The125KHzfrequencyis63usedinsomesystems.
Inmanyusesthetagcancontaintheserialnumberoftheindividualitem.
Thisisabigstepupascomparedtoabarcode,whereallsimilaritemshavethesamebarcode.
TheuseofRFIDintroducesallsortsofprivacyissuesinthatindividualitemscanbetrackedbyanyonewithanRFIDreader.
RFM(Recency,Frequency,andMonetaryvalue)model:Ascoringsystemforcustomersthatgivesahighscoretoacustomerwhoboughtsomethingrecently,orwhoboughtalargenumberoftimesoverasampleperiod(e.
g.
,thelasttwoyears),orwhoseaveragepurchaseamountwashigh.
AsimpleassumptionisthatacustomerwithahighRFMscoreisagoodcandidatetoreceivefurthersolicitations.
Seealso,CRM.
RFP(RequestForProposal):AvariationofanRFQinwhichtheauthorissomewhatlesscertainofthespecifications.
Theresponseisexpectedtobemoreinwrittenratherthanquantitativeform.
Thatis,theresponseismoreoftheform:"Hereishowweproposetosatisfyyourneed.
"RFQ(RequestForQuote):Adocumentthataprospectivebuyersendstoprospectivesuppliersaskingthemtosubmitaquoteforhowmuchtheywillchargethebuyerforaspecifiedgoodorservice.
TheRFQmayspecifyseveraldifferentquantitiesthatmightbepurchased,andaduedatebywhichthequotesorbidsmustarriveatthebuyer.
Asupplierisexpectedtosubmitaprice/unitforeachquantity.
Seealso:Reverseauction.
RGBcolor:AcolorrepresentationsystembasedonusingcombinationsofRed,Green,andBlueprimarycolors.
Itisusedforexampleincolordisplays.
EachpixelconsistsofthreesubpixelsoftheRGBcolors.
Itisanadditivecolorsysteminthatifallthreecolorsareturnedon,thehumaneyeseesitaswhite.
Seealso:Pantone,CMYK,NCS,andHTMLcolor.
Right-to-worklaw:Lawinsomestatesallowingaworkerataunionizedplanttoworkpermanentlyattheplantwithoutbelongingtotheunion.
Rockwellhardness:Whenpurchasingamaterialsuchassteelthatmustbeabrasionresistantoristobeusedforcuttingorforming,thehardnessofthematerialmaybespecifiedinthecontractintermsofRockwellhardness.
ThereareseveraldifferentRockwellscales.
Allscalesmeasuretheamountofplastic(permanent)deformationthatoccurswhenadiamondconeorahardsteelballispressedagainstthematerial.
Forhardmaterialssuchastoolsteel,theCscaleiscommon.
Cscalehardnessismeasuredbypressingadiamondconeintothematerialundera150kgload.
Thedepthoftheindentationisthenmeasured.
TheRockwellhardnessisthen100-.
002*d,wheredisthedepthoftheindentationmeasuredinmillimeters.
AtypicalknifeblademighthaveahardnessofRC55.
AtoolsteelusedformetalcuttingmighthaveahardnessofRC62.
ROI:ReturnOnInvestment.
Anotalwayswell-definedmeasureoftheattractivenessof64aninvestment.
Themoststraightforwarddefinitionisthatitistheinterestrateofabondsuchthatyouwouldbefinanciallyindifferentbetweeninvestingyourmoneyintheinvestmentinquestionvs.
investingthesameamountofmoneyinthebond.
RO-RO(RollOnRollOff):Shiponwhichcargovehiclescanbedrivenonoroff.
Routing:theprocessofdecidingthesequenceofstopstobemadebyavehicle.
RSA:apublickeyencryptionsystemdevelopedbyRivest,Shamir,andAdlemanandmarketedbyRSA,Inc.
Itisbasedonthefactthatthereisnoknownfastwayoffindingthefactorsofalargeinteger,e.
g.
,onewithseveralhundreddigits.
Publickeyencryptionsimplifiestheprocessofdoingsecureelectroniccommerce.
RTLS(RealTimeLocationSystem):AnextensionofRFIDforlocatingitemsinclosetorealtime.
AnRTLStagonanitembroadcastsasignal,includingtheIDoftheitemperiodically,e.
g.
,onceperminute,orwhenqueried.
Ifthreeormorereceiversreceivethesignal,thenthelocationoftheitemcanbeaccuratelyidentifiedbytriangulation,usingsomecombinationofobservingsignalstrengthoronpreciselymeasuringtimedelays.
RTLSisusefulforlocatingitemsthatmaymoveregularly,suchascontainersandforklifts.
Safetystock:Inventorycarriedtoprotectagainstrunningoutduringaleadtimeduetotheuncertaintyineither:thelengthoftheleadtime,theamountdelivered,amountdemanded,ortimeofoccurrenceofdemandduringaleadtime.
Samestoresales:salesthisyearinstoresthatwereopenlastyear.
Say'sLaw:Insimplestform,the"builditandtheywillcome"philosophy;thebeliefthatsupplycreatesdemand,e.
g.
,ifweproduceaproduct,peoplewillrealizethattheywouldliketobuyit.
Ifwebuildasportsstadium,sportsteamsandspectatorswillcome.
AttributedtoJeanBaptisteSay,circa1800.
SBAR(Situation-Background-Assessment-Recommendation):Aformatforcommunicatingincertainoperations,typicallyinthehealthindustryorinairlines,whereimportantinformationistobetransmitted,typicallyverbally,asinacockpitorbetweenanurseandadoctor.
Looselyspeakingthepresentationis:hereisthesituation,hereisthebackground,hereismyassessment,hereismyrecommendation.
SCADA(SupervisoryControlandDataAcquisition):Asystem,andtosomeextentstandards,formonitoringandcontrollingremoteequipment,suchasamanufacturingplant,apipelinenetwork,oranelectricpowerdistributionsystem.
Remotemeterscanbereadelectronically,andthencommandscanbesenttovariousmachines,e.
g.
,switches,valves,etc.
,totellthemachinestodosomeaction.
Scanner:adeviceforreadingaproductlabelsuchasabarcode.
65SEC(SecuritiesandExchangeCommission).
AU.
S.
agencythathasfiveCommissionersappointedbythePresident,withtheadviceandconsentoftheSenate.
TheofficialmissionoftheSECistoprotectinvestorsandmaintaintheintegrityandhonestyofthesecuritiesmarkets.
Seehttp://www.
sec.
gov.
Servicelevel:Inaninventorysetting,thefractionofthedemandinstancesinwhichwehadsufficientproducttosatisfydemand.
Thereareatleastthreeinterpretations,see:a)itemfillrate,b)lineitemfillrate,andc)orderfillrate.
Foragiveninventorypolicy,typically(a)>(b)>(c).
Toputsomenumbersonthings,supposewehavetwoproductseachwithindependentNormaldemandwithmean60andsd20(saydemandbetweenrestockings).
Supposewestock80unitsforeachproduct,i.
e.
,z=1sdabovethemean.
Then,usingaNormaltableandNormallinearlossfunction,wecancompute:itemfillrate=.
97(1-(expectedlostsales)/meandemand),estimatinglostsalesusinglinearlossfunction,sd*PSL(z))linefillrate=.
84(lefttailofNormaltableatz=1)orderfillrate=.
71(linefillrate1*linefillrate2)Shadowprice:seedualprice.
Shapleyvalue:Amethodofcostallocationthatisusefulwhenthetotalcostofprovidingsomeservicetoagroupofplayersorfirmsislessiftheplayerscooperate.
SupposecustomersA,B,andC,areeachtoreceiveadeliveryfromasingletruckthatmakesonetriptoservethethree.
HowshouldthecostofthetripbeallocatedTheShapleyvalueallocatescosttoagivencustomerbasedupontheaveragemarginalcostofaddingthatcustomertothetrip/coalition,wheretheaverageistakenoverallpossiblepermutationsofhowcustomers/playerscouldbeaddedtothetrip/coalition.
Supposethecostofdeliveringtoanycombinationofthethreeisasfollows:{A}:$88,{B}:$91,{C}:$90,{A,B}:$150,{A,C}:$148,{B,C}:$151,{A,B,C}:$180.
E.
g.
,makingasingletriptojustAandCcosts$148.
Makingonetripthatservesallthreecosts$180.
Thesixpossiblepermutationsandthemarginalcostofeachcustomerare:PermutationABCA,B,C$88150-88=$62180-150=$30A,C,B$88180-148=$32148-88=$60B,A,C150-91=$59$91180-150=$30B,C,A180-151=$29$91151-91=$60C,A,B148-90=$58180-148=$32$90C,B,A180-151=$29151-90=$61$90Shapleyvalue(average)$58.
5$61.
5$60AuniquefeatureoftheShapleyvalueallocationisthatiftherearemultiplecosttypestobeallocated,thentheShapleyallocationaddsoverthesecosttypes.
Forexample,supposethatcustomersA,B,andCabovehavetobuynotonlytransportationbutalsohavetobuytherawmaterialsfromaseparatesupplier.
Further,thisrawmaterialsuppliergivesquantitydiscounts.
Thus,itisworthwhileforA,B,andCtocooperateonrawmaterialpurchase.
Giventhequantitydiscount,thereisthesecondquestion66ofhowtoallocatethecostoftherawmaterialsamongA,B,andC.
AuniquefeatureoftheShapleyallocationisthatifyouusetheShapleyallocationtodeterminetheallocationofrawmaterialcost,yougetthesametotalallocationforeachofA,B,andCasifyouhadlumpedtransportationcostsandrawmaterialscoststogetherandthencomputedtheShapleyallocationonthecombinedcost.
Seealso:coreofagame.
Shipper:Thefirmorpersonwhoneedstohavematerialshipped,e.
g.
,amanufacturer.
Incontrast,seecarrier.
ShortIntervalScheduling:Aworkassignmentsysteminwhichasupervisorassignsworktoworkersinrelativelyshortintervalsofaboutahalfhour.
Thisrequiressomewayofestimatingtheworkcontentofeachtask.
Itallowsmanagementtocloselymonitorprogressandbecomeawareofproblemsquickly.
Shrinkwrap:Aplasticwrapthattendstoshrinkafterstretching,andadherestoitself,thatiswrappedaroundaskidtokeepitintactduringshipment.
Seepalletize.
Shrinkage:catch-alltermforthecommonsituationwherebythephysicalinventoryislessthanwhatinventoryrecordsclaim.
Mostcommoncausesaretheft,loss,storageinthewronglocation,deliverytothewrongstore,breakage,etc.
SIunits:Aninternationallyagreeduponsystem(SystemeInternationald'Unites)formeasuringphysicalquantities.
Therearesevenbaseunits:meter(m)forlength,kilogram(kg)formass,second(s)fortime,ampere(A)forelectriccurrent,kelvin(K)fortemperature,mole(mol)foramountofsubstance,andcandela(cd)forluminousintensity.
Thereare21derivedunits,suchasnewton(N)forforce(kg*m/s2),joule(J)forwork(kg*m2/s2),andwatt(W)forpower(m2*kg/s3).
Standardprefixesforsuccessivelylarger/smallerunitsare:deka(10),hecto(102),kilo(103),mega(106),giga(109),tera(1012),peta(1015),exa(1018),deci(10-1),centi(10-2),milli(10-3),micro(10-6),nano(10-9),pico(10-12),femto(10-15),andatto(10-18).
Formoreinformationseehttp://physics.
nist.
gov/cuu/Units/units.
html.
SICcode:StandardIndustrialClassification.
AsixdigitcodeusedforclassifyingindustriesintheU.
S.
SICisbeingreplacedbyacommonNorthAmericanIndustryCode,NAICS,whichwillbeapplicabletoCanada,theU.
S.
,andMexico.
Seehttp://www.
census.
gov/epcd/naics02/naicod02.
htm.
Air,rail,water,truck,andpipelineindustrycodesareoftheformrespectively:481xxx,482xxx,483xxx,484xxx,and486xxx.
Forexample,484xxxistruckingingeneral;484121islongdistanceFTL;and484122islongdistanceLTL.
SIS:SeeShortIntervalScheduling.
SixSigma:Aqualitymanagementapproachthatconcentratesonkeepingthepercentageofdefectiveslow.
Numerically,thesixsigmastandardisfrequentlystatedasafractiondefectiveofabout3.
4defectspermillion.
Thissoundslow,butnotethatfor67someindustries,suchasairlinetravel,thislevelofqualitywouldstillbeunacceptable,e.
g.
,contemplateanairlinethathasalmostfourcrashespermillionflights.
W.
r.
t.
theNormaldistribution,3.
4defectspermillioninfactcorrespondstoonly4.
5sigmaorstandarddeviations.
Thatis,qualitycontroloftheprocessshouldbesoprecisesothattheupperandlowerlimitsforacceptablevaluesfallat4.
5sigmaoftheproductionprocess.
Thus,thereisa1.
5sigmashiftinthemeanallowed.
Skid:Apalletwithproductstackedonit,foraspecificcustomerorfromaspecificsupplier.
Slipsheet:asheetofheavyplasticorfiberboardplacedunderabundleofmaterialsuchascasesofgroceryitems.
Aslipsheetmaybeusedtoseparatelayersonapallet,ormaybeusedasanalternativetoapallet.
Asanalternative,itsmajoradvantageisthatitsavesspace,approximately15cm(6in.
)ofverticalspace.
Itsdisadvantageisthatitisnotaseasytohandlebyastandardforkliftasastandardpalletload.
SKU(StockKeepingUnit):Adistinguishableproduct.
E.
g.
,mushroomsoup/10oz.
,mushroomsoup/20oz.
,andtomatosoup/20oz.
,constitutethreedifferentSKU's.
Slipstreaming:Thepracticeofmakingunannouncedproductchanges,especiallyinsoftware.
Thetypicalsettingisthatasmallbugordesignflawisdiscoveredandthencorrectedwhileproductioncontinues.
Thisintroducespossiblemaintenanceproblems,inthatifrepairsarerequired,therepairpersonmustbeabletoidentifywhichversionoftheproductisinvolved,e.
g.
,byserialnumber.
Theremayalsobecustomerdiscontentifearlycustomersfeelthatthedifferencesbetweenthedifferentversionsarenoticeable.
Theadvantageofslipstreamingisthatnewcustomersimmediatelybenefitfromtheimprovement.
Slotting:Theprocessofdecidingwhereeachproductgetsstoredinawarehouse.
Forexample,highvolumeSKU'sshouldbeclosetotheshippingdoor.
SKU'sthattendtogetdemandedtogethermightbestoredneareachother.
Toavoidcongestion,twohighvolumeSKU'sthattendnottobeorderedtogethershouldbestoredindifferentaisles.
Theslottingdecisioninteractswiththeinventorydecisionbywayofthefacingdecision,thatis,howmanyfacingstoallottoaSKU.
IfaparticularSKUcanbestored5deepinaslot,andyoudecidetocarry7unitsoftheSKU,thenyoumustallocate2facingstotheSKU.
Seealso,Planogram.
Slottingfee/allowance:Afeechargedbysomeretailerstosupplierswhowishtohavetheirproductcarriedontheretailer'sshelves.
Thisistypicallyusedwhentheretailerfeelsthattheprobabilityoflowdemandfortheproduct(typicallyanewone)mightcausetheproducttobelessprofitablethanotherproductstheretailercarries.
Apowerfulretailermightalsouseitasameansfortryingtogetadiscountfromasupplierwhodoesnotwantto,atleastofficially,giveselectivediscounts.
Slurry:asuspensionofasolid,suchaspulverizedcoal,inaliquidsuchaswatersothatthesolidmaybeshippedbypipeline.
68SMED(SingleMinuteExchangeofDie):AphilosophyandmethodologydevelopedbyShigeoShingoforToyotaforthefastchangeoverofamachinefromproductionofoneproducttotheproductionofanother.
Thephrase"singleminute"isslightlymisleadingbecauseShingoreallymeant"singledigit",i.
e.
,heinterpretedanychangeoverof9minutesorlessasasingleminuteexchange.
Changeovertimesthatoncewereseveralhourswerereducedtominutes.
Thebenefitsofshortchangeoversarenumerous.
Themostimmediatebenefitsarethatshortproductionrunsbecomemoreeconomic,andthusinventoriesarelower,andonecanrespondmorerapidlytochangingcustomerdemands.
SMEDmethodsinclude:a)offlining:convertingstepsofthechange-overofflinesothattheproductionprocesscancontinuerunningwhilepreparationsforthechangeoveraremade,b)quickconnectors:ratherthanlaboriouslyunscrewingandtighteningbolts,quickfastenerssuchcamsand"sliponandtighten"key-holeconnectorsareused.
Solesourcing:Thearrangementbywhichacustomergetsallofitsproductfromasinglesupplier.
Solesourcingisadministrativelysimpler.
E.
g.
,ifthereisaproblemwithproduct,thereislessambiguityastowhosuppliedtheproduct.
Adisadvantageofsolesourcingisthatifyoursinglesupplierhasasupplyproblem,e.
g.
,astrike,thenthereislessflexibilitytoquicklyturnelsewhereforalternatesupply.
Sortationsystem:animportantdeviceinanautomateddistributionorbaggagesystem.
Ittypicallyconsistsofalongconveyorbeltwithascanneratthefrontend.
Aspackagesenterthefrontend,ascannerreadsadestinationlabel(typicallyinbarcodeform)onthepackage.
Thesystemthenpushesthepackageofftheconveyoratanofframpappropriateforthepackage'sdestination.
Ifthemainconveyerrecirculates,thenitmaybereferredtoasa"dogtrack".
Sorting:AmajorfunctionprovidedbyaDC,specifically,collectalltheitemsdestinedforaparticularcustomerandgroupthemtogetherforshipment.
Soundex:Asystemforencodingaperson'slastnameintoafourcharactercode.
Itisuseful,forexample,indealingwithcustomersbyphone.
Namesthatsoundsimilar,suchasSmytheandSchmittencodetothesameSoundexcode.
Iftwodifferentsalespersonsdealtwiththecustomer,theymayhavespelledthecustomer'snameslightlydifferently.
IfthecustomerislookedupbytheSoundexcode,youwillprobablybeabletoidentifythecustomersinthedatabasewhomightcorrespondtothecurrentcustomer.
TheSoundexcodeconsistsofthefirstcharacteroftheperson'snamefollowedbythreedigitsfrom0to6.
Therulesare,afterthefirstcharacter:a)disregardthelettersa,e,i,o,u,h,w,andy.
b)digitsaredeterminedbytherule:1:b,f,p,v2:c,g,j,k,q,s,x,z3:d,t4:l5:m,n6:r69c)disregardconsecutivelettersthathavethesamecode,d)ifnecessary,fillwithzeroestogetafourcharactercode.
Someexampleencodingsare:Gutierrez:G362Goutteres:G362Smythe:S530Schmidt:S530OneoftheearliestsuggestionsofaSoundexlikesystemwasthe1918U.
S.
patent,number1261167,byRobertRussell.
SOW(StatementOfWork):Typicallypartofanagreementbetweenacustomerandavendor,specifyingwhatwillbedeliveredwhen.
Usuallythedeliverablehasasignificantamountofintellectualcontent,suchasaconsultingreportorapieceofsoftware.
DetailsintheSOWmaycovertheformatofthedeliverable,e.
g.
,papervs.
electronicform,whatistobeprovidedbyeachparty,e.
g.
,whoprovidestheofficespace,thecomputingpower,thedatacollectioneffort.
Spaceman:PlanogramsoftwarefromA.
C.
Nielsen.
SPC(StatisticalProcessControl):SeeControlchart.
Splitsourcing:Servingacustomerorneedfromtwoormoresources,usuallybecauseoflimitedcapacityatoneofthesources.
Mightalsobeusedforreliabilityreasonsincaseonesourceisunreliable.
Administrativecoststendtobehigherwithsplitsourcing.
Withsingle-sourcing,acustomercancontacthissupplierdirectlyforreplenishments.
Undersplitsourcingtheremustbeahighercoordinatingauthoritytodecidewhichordersaresatisfiedfromwhichsource.
SQL(StructuredQueryLanguage):Thestandardformatforrequestingdatafromadatabase,e.
g.
,fromOracle,SQLServer,MSAccess,etc.
Anexamplerequestis:SELECTname,phone_numberFROMcustomer_fileWHEREarea_code=847.
Stackelbergequilibrium:iftherearemultipleNashequilibria,oneinwhichtheutilityofoneoftheplayers,the"mostpowerful"orleader,ismaximized.
Standarddeviation:Squarerootofvariance.
SeeVariance.
STB(SurfaceTransportationBoard):U.
S.
federalagencythathasreplacedsomeoftheregulatoryfunctionsoftheformerICC.
Itisresponsiblefortheeconomicregulationofinterstatesurfacetransportation,primarilyrailroadsSeehttp://www.
stb.
dot.
gov.
Stockout:Whenademandoccursandthereisnoinventorytosatisfyit.
Seealsobackorder.
StutteringPoissondistribution:AcompoundPoissondistributionforwhichthebatchorordersizehasaGeometricdistribution.
70sunkcost:acostwhichisnolongeravoidable.
SupplyChain:seechannel.
Swag:Freeitemsgiventopromoteavendors'sproduct,typicallyateventsintheentertainmentindustry.
Thus,purchasingagentsmightbegivenabagofswagforattendingorlisteningtoavendor'spresentation.
Ifthevalueofthecontentsarenontrivial,thenitsvaluemustbereportedasincomefortherecipient.
SWIFT(SocietyforWorldwideInterbankFinancialTelecommunication:Aworldwidecooperativeoffinancialinstitutionsforprovidingstandardizedcommunications,e.
g.
,fordoingwiretransferoffundsaspartofapurchase.
EachmemberbankhasitsownSWIFTcode.
Tosendawiretransfer,themostimportantpieceofinformationistoprovidetheSWIFTcodeoftherecipient.
See:www.
swift.
com.
T1line(Trunklevel1):Adatatransmissioncapacityof1,544,000bitspersecond.
AstandardmeasureoftelephonelinecapacityinNorthAmerica.
Historically,enoughtocarry24voicechannels.
Higherlevelsare:T2:96voicechannels.
T3:672voicechannels.
T4:4032voicechannels.
Tachograph:Atruckmountedrecorderoftime,speed,rpm,milestraveled,andperhapsotherinformationsuchasbrakeactivation,dooropeningandclosing,etc.
TherecordeddatamaybyusefulincheckingadherencetoHOSrules,etc.
Takttime:Thetimeavailabledividedbythenumberofunitstobeproduced.
Presumingonewantstohavesteadyproductioninamanufacturingfacility,theTakttimeisthetimebetweensuccessiveunitscomingofftheproductionline.
TaktisaGermanwordmeaningtokeeptime,asinmusic.
Tankcar:Railcarforcarryingfluids.
Incontrast,seebox,flat,andhoppercar.
TAPI(TelephonyApplicationProgrammingInterface):Asoftwarelibraryenablingacomputertointeractwiththetelephonesystem,e.
g.
,tosendandreceivefaxeswithbusinesspartners,allowausertosimplyclickonacustomer'snameonthecomputerscreentoinitiateacalltothatcustomer,etc.
Seealso:CRM,Predictivedialing,VOIP,Callcenter.
Tardiness:Theamountoftimebywhichadeliveryorjobcompletionislaterthanitsduedate.
Formally:tardiness=max{0,Completion_time–due_date}.
Tareweight:weightofemptyvehicle,perhapswithdriver,usedforcomputingweightofdeliveredproduct.
Taylor,FrederickWinslow:(1856-1915)Thefatherof"ScientificManagement".
Theessenceofhisphilosophywasfindingtheonebestwayofexecutingaparticulartask,71beitshovelingcoalbyalaborerormachiningmetalbyalathe.
Forexample,withregardtoshoveling,heestimatedthattheidealamounttobemovedinashovelfulwas21.
5pounds.
Soinsteadofsupplyinghisworkerswithasingleshoveltypeusedforallmaterials,hesupplieddifferentsizesofshovelsdependinguponthedensityofmaterialtobeshoveled.
Withregardtomachiningmetal,atMidvaleSteelCompanyheexperimentedwithaboutahalfdozendifferentparameters,suchasspeed,toolfeedrate,toolhardnessandderivedaclosetooptimalsettingoftheparametersforthetypeofmaterialbeingmachined.
Hisimprovementsinmetalmachiningweredramatic.
His"onebestway"withregardtomanuallaborwasapredecessorofTimeandMotionStudy.
Hewasoneoftheearlyproponentsofpiece-rateorpiece-workcompensationsystemsforlabor.
OneofhiscolleaguesatMidvalewasHenryGantt.
TCO:TotalCostofOwnership.
Amethodologyforcomparingtwoalternativesystemsforperformingthesametask.
TCOisusuallysuggestedandperformedbyavendorwhoissellingasystemthatisostensiblymoreexpensive,butwhichmaybeinfactlessexpensivewhenoneproperlyaccountsforlessobviouscosts,suchasthehighermaintenancecoststhataresometimesassociatedwithasystemthatischeaperupfront.
Terminal:Adistributioncenter(DC),usuallyonethatdoesnotcarryinventory.
TEU(TwentyfootEquivalentUnit):Aunitofmeasureformaritimefreightcontainers.
Themajorityofmaritimecontainersareeither20feetor40feetlong,about8.
5feethigh,andabout8feetwide.
A40ftcontaineris2TEU.
Seealso:container.
TIGER(TopologicallyIntegratedGeographicEncodingandReferencing):asetoffilesavailablefromtheU.
S.
BureauoftheCensus(http://www.
census.
gov)thatgivethelatitudeandlongitudeofmajorphysicalobjectsintheU.
S.
Theseincludea)lineobjectssuchasroads,railroads,rivers,andutilitylines;b)boundariesofobjectssuchascounties,school,andcongressionaldistricts;andc)landmarkssuchaschurches,schools,parks,cemeteries,buildingsandfactories.
Addressrangesformoststreetsarealsoavailable.
TLA:ThreeLetterAcronym.
Thescourgeofthemilitaryandthefederalgovernment.
TMS(TransportationManagementSystem):Softwareforhelpingmanagetransportation,typicallyoutboundfromadistributionsystem.
If,forexample,outboundshipmentsareLTL,theTMSmightprovidetheroute,thatis,thesequenceofstops,andtheorderinwhichmaterialistobeloadedontoatruck.
TNOF(TitleNotOnFloor):Inthebookindustry,anindicatorthatanskuisnotinstock.
TOC(TheoryofConstraints):Amanagerialphilosophythatstressestheimportanceofidentifyingthecapacitybottlenecksofaproductionprocessandtheneithereliminatingthesebottlenecksand/orfindingwaystobetterutilizethesebottleneckfacilities.
Althoughitisnotcomputational,inspirititissomewhatsimilartoLP.
72TOFC(Traileronflatcar):Seepiggyback.
Tolling:Contractmanufacturing.
Hiringsomeothermanufacturingfirmtodopartorallofthemanufacturingofyourproduct.
Thecontractmanufacturerneverownstheproduct.
Tornadodiagram:Amethodfordisplayingtheeffectsofvariousuncertainparametersonanoutputmeasuresuchasprofit.
Ifwearecontemplatingthedevelopmentofanewproduct,uncertainparametersmightbemarketsize,productioncostperunit,sellingprice,anddevelopmentcost.
Foreachparameteryouestimatethreevalues:amostlikelyvalue,alowestplausiblevalue,andahighestplausiblevalue.
Iftherearenparameters,youthenevaluate2n+1cases,namely,thebasecaseinwhichallparametersaresettotheirbasevalue,andthenforeachparameteri,whileholdingallotherparametersattheirbasevalue,evaluatetotalprofitwhenparameteriisatitlowvalueandwhenitisatitshighvalue.
Finally,youdisplaytheresultsasahorizontalbargraphinwhichprofitisplottedhorizontallyandtheparametersarelistedvertically.
Foreachparameterabarisdisplayedshowingtherangeintotalprofit.
Iftheparametersaresortedfromtoptobottombygreatestrangeinoutputtosmallestrange,thenthediagramlookslikeatornadoorfunnelcloud.
Alimitationofatornadodiagramisthatitdoesnotrevealinteractionsbetweenparameters.
Tote:acontainerorbox,smallenoughtobecarriedbyaperson,intowhichapickerplacesitemsastheyarepickedinthewarehouse,typicallyoneorderpertote.
Atotemayalsobeusedformovingsmallproductsbetweenworkstations.
Sometotesmaybecollapsiblesothattheytakelessspacewhenreturnedtothestartingpoint.
Alternatively,totesmaybedesignedwithtaperedsidessothattheynestwhenempty.
TQM(TotalQualityManagement):Aphilosophyofmanagementofqualitythattakesacomprehensive,high-levelviewofqualityimprovement.
Tradeoffcurve:Acurveshowingthetradeoffbetweentwomeasuresofgoodness,e.
g.
,lowinventoryvs.
numberofstockouts.
Seealsoefficientfrontier.
Trampship:Acargoshipthatdoesnotfollowaregulartraderoutebutmakestripsasdemandarises.
Tranche:Frenchfor"slice".
Termtypicallyusedinfinancialtransactions,e.
g.
,anauction,toindicateoneofseveralbids,differingonlyalongonedimensionsuchasbidprice(foragivenquantity),oramountofrisk,orrateofreturn,ormaturityassociatedwiththeobject.
Transactionsbasedcosting:SeeABC(activitybasedcosting).
Transferprice:aninternalpriceusedwhenoneprofitcenterofafirmprovidesgoodsorservicestoanotherprofitcenterofthefirm.
Thepurposeoftransferpricesisto73motivatetheindividualprofitcenterstobehaveoptimallywithrespecttothewholefirm.
Seealso:incentivecompatible.
Roughlyspeaking,whenaproductionfacilityisrunningatcapacity,thetransferpriceofitsoutputshouldbethecostofbuyingtheequivalentoutputintheoutsidemarket.
Whenaproductionfacilityisrunningundercapacity,itstransferpriceshouldbethemarginalcostofproduction.
Taxconsiderationsmayalsoplayarolewhenthetwopartiesinvolvedinatransferareindifferenttaxingjurisdictions.
VerysimilartodualorshadowpricesinanLP.
Transhipment:movementofproductbetweentwofacilitiesatthesamelevelinasupplychain,aswhenoneautomobiledealersuppliesanotherdealerwithacar.
TSP(TravelingSalespersonProblem):Theproblemoffindingtheshortesttourofasetcitiessuchthateachcityisvisitedexactlyonce.
ItisNP-hard.
Thesamekindofproblemarisesinproductionchangeoversamongvariousproducts,e.
g.
,inapaintbooth.
Tunnelscanner:Atunnelscannerhasindividualscannersontop,bothsides,andperhapseventhebottomofaconveyorsothatapackagelabelcanbereadregardlessofitsorientation.
Thisreducestheamountoflaborrequiredtomakesureapackageisproperlyorientedasitentersasortationsystem.
Turnover:outsidetheU.
S.
,itisthesales,typicallymeasuredinmonetaryunits.
IntheU.
S.
itisusuallyshortforturnoverrateofinventory,thenumberoftimesperyearthatoldinventoryisreplacedbynewinventory=(salesperyear)/(averageinventory).
Twodimensionalcode:Acodeformarkingproductinwhichdotsoveranarea,ratherthanbarsinarow,areusedtocodeinformation.
Itcanholdmuchmoreinformation,e.
g.
200+digitsor100+characters,vs.
typically12digitsforabarcode.
UCC(UniformCommercialCode):astandardsetoflawsgoverningcommercialtransactions(billsoflading,lettersofcredit,bankdeposits,collections,etc.
)adoptedbyallstatesintheU.
S.
exceptLouisiana(itusesavariantoftheNapoleoniccode).
UCC(UniformCodeCouncil):Anindustrygrouptopromotemulti-industrystandardsforproductidentificationorbarcodes.
Ifyouneedabarcodeforyourproductseethisgroup.
Seehttp://www.
uc-council.
orgULD(UnitLoadDevice):Acargocarryingcontainerofstandardsize,usuallyintheairfreightindustry.
Thesecanbecarriedbymostlargeaircraft,butnotbysmalleraircraftsuchastheB737ortheMD80.
Seealso:463Pallet.
Ullage:Unfilledspaceatthetopofastoragetank,perhapsfilledwithinertgas.
Unittrain:train,typicallyforhaulingcoal,usedforrepeatedhaulssothatcarsinitareneverdisconnected.
74Unitization:theprocessofbundlingacollectionitems,e.
g.
,cases,together,asonapallet,mainlytosimplifytransportation.
Similartocontainerizationorpalletization.
UPC(UniversalProductCode)A10to12digitmachinereadablenumericproductcodeoriginatedinthefoodindustry.
Thefirstseveraldigitsrepresentthemanufacturer,theremainingdigitstheproduct.
Seealsobarcode,GTIN.
Usetax:Ataxbyastateonpurchasesbyafirminthestateonpurchasesfromanout-of-statesupplier.
Theusetaxrateisgenerallyidenticaltothestatesalestaxrateontheitem.
Generally,individualsdisregardastate'srequesttopaysalestaxonout-of-statepurchases.
Statelegislatorsintroducedtheusetaxtoenforcethisrequestonfirms(whodonotvote).
Seealsonexus.
Valuebasedpricing:chargingeachcustomeranamountclosetothecustomer'svaluefortheproduct.
Thispresumesthatresaleamongcustomersdoesnotoccurandthatonecandetermineeachcustomer'svaluefortheproduct.
OneformoriginallyusedbyBrownShoeCompany,thenIBM,andthenXerox,wasmetering.
BrownandIBMchargedbyhoursused.
Xeroxchargedbycopiesmade.
Seerevenuemanagement,discriminatorypricing,promotion.
ValueEngineering:acostreductionphilosophybasedoncarefullyidentifyingthetruepurposeofanycomponentinasystemandthenfindingthecheapestyetacceptablewayoffulfillingthatpurpose.
VAN(ValueAddedNetwork):Athirdpartyproviderofnetworkservices,suchasEDIcapability,tobuyersandsellers.
VAR(ValueAddedReseller):Afirmthatsellsaproduct,bundledwithsomeadditionalfeatures,e.
g.
,installation,thattendtobecustomerspecific.
E.
g.
,auseroftheOracledatabasemaybuytheOraclesoftwarefromaVARwhoprovidesnotonlythenewcomputertorunthesoftwarebutalsoinstallsitonthecomputer.
Variablessampling:Inqualityassurance,samplinginwhichqualityismeasuredalongacontinuousinterval,e.
g.
diameter,weight,strength,etc.
Incontrast,seeattributessampling.
Variance:(statistics)Ameasureofthevariabilityofasetofdata,e.
g.
,salesperweek.
Ifwehaveasampleofnobservations,xi,fori=1,2,…n,andxbaristhemeanofthesample,thenthesamplevarianceisi(xi-xbar)2/n.
Sometimesanalgebraicallyequivalent,butnumericallylessaccurateformulaissuggested:ixi2/n–xbar2.
Whenthevarianceissmallrelativetothemeanthelatterformulacanbeveryinaccurate,thusitshouldbeavoided.
Nevertheless,somepopularspreadsheetprogramsusethelessaccurateversion.
Thesamplevarianceisabiasedestimateofthepopulationvariance,thatis,thevarianceasnapproachespopulationssize.
Thesamplevarianceunderestimatesthepopulationvariancebecausethesquareddifferencesaretakenwithrespecttothesamplemean,xbar,ratherthanthe(generallyunknown)population75mean.
Ifthepopulationsizeisinfinite,thenanunbiasedestimateofthepopulationvarianceisi(xi-xbar)2/(n–1).
Ausefulresultwhendealingwiththesumoftworandomvariables,e.
g.
,thepooleddemandoftwosimilarproducts,isthatVariance(D1+D2)=Variance(D1)+Variance(D2)+2*Covariance(D1,D2).
Variance:(accounting)Inaccounting,avarianceisthedifferencebetweenactualandthatpredictedbystandard.
Usuallythereareseveralsub-classifications.
E.
g.
,avolumevariancemightbethevarianceintotalcostduetoadifferencebetweenthequantitypredictedandtheactualquantity.
Alaborvariancemightthevarianceintotalcostduetotheactuallaborperpiecebeingdifferentfromthepredictedorstandardlaborperpiece.
VAT(ValueAddedTax):Atax,commoninEurope,appliedatalllevelsofthesupplychainonthedifferencebetweenwhataproducerchargesforhisproductandthecostofalltheinputstotheproduct.
Incontrast,asalestaxisappliedonlyattheretailpointtothefullpricetheseller/retailerchargesforproduct.
Verticalintegration:theownershipbyasinglecompanyofseverallevelsinthesupplychain.
Forexample,inthe1920'sFordownedbothsteelmillsandcarfactories.
SeealsoCoase'sLaw.
Vickreyauction:Asealedbidauctioninwhichthehigherbid(s)winsbutthewinner(s)paythepriceofthehighestunsuccessfulbid.
Thisproducesapproximatelythesameresultasanopen,risingpriceauction.
ThedesirablefeatureofaVickreyauctionisthatbiddershavetheincentivetobidtheirtruevaluefortheproduct.
SeeVickrey,W.
(1961),"Counterspeculation,Auctions,andCompetitiveSealedTenders",JournalofFinance,vol.
16,no.
1(March),pp.
8-37.
Incontrast,seealso:Dutchauction.
VICS(VoluntaryInterindustryCommerceStandardsAssociation):Agroupdevotedtothedevelopmentofefficientstandardsforsupplychainmanagement,seehttp://www.
vics.
org/.
VMI(VendorManagedInventory):Aninventorymanagementpolicywherebythesupplierdecideswhentorestockproductathiscustomer'ssitebasedonup-to-theminuteusageinformationfromthecustomer.
Thisallowsthesuppliertotakeintoaccounthisowncostsofrestocking,e.
g.
fixedcostsofrestocking,sharedcostswhenrestockingseveralnearbycustomers,etc.
Theseagreementstypicallyincludeapenaltytobepaidbythesupplierifthereisastockout,andanupperlimitonhowmuchinventorycanbecarriedatthecustomer.
Thepaymentarrangementmayallowthecustomertopayforproductonlywhenthecustomerusesit.
Thecustomermustprovidethesupplierwithup-to-date(e.
g.
,daily)informationonstocklevel,andperhapsevenforecastsoffutureusage.
SeealsoCPFR,andcontinuousreplenishment.
VOIP(VoiceOverInternetProtocol):Technologyforroutingvoicecallsoverthe76internet.
Thismakesmuchmoreefficientuseofacommunicationnetworkbecausea)itusesnonetworkresourceswhennosoundisbeingsent,andb)therouteusedmayvaryfromsecondtosecondsoastobetterexploitlessutilizedportionsofthenetwork.
Seealso:TAPI.
VPN(VirtualPrivateNetwork):Anarrangementamongtwoormoreorganizationswherebyapublicnetwork,suchastheinternet,ismadetoappearasaprivate,securecommunicationsnetworktotheparticipatingparties.
Wagner-Whitinalgorithm:Amethodforchoosingtheperiodsinwhichtoproduceaproductsoastominimizethesumofsetupcostsplusholdingcosts.
Itassumesthatweknowwithcertainty:1)Thenumberofperiods,N,intothefutureoverwhichweareplanning,2)thedemandeachperiod,1,…,N,fortheproduct,3)thecostofholdingaunitofproductforoneperiod,and4)thefixedcosteachperiodofsettinguptoproducetheproductifanyproductisproduced.
Themethodusesadynamicprogramming/bootstrapapproach,firstfindingtheoptimalsolutionforaoneperiodproblem,thenfora2periodproblem,etc.
Thekeyideaisthatifweknowthatthelastsetupoccursinperiodt,thttp://www.
werc.
org.
78Winner'scurse:Inauctions,theobservationthatthewinnerofanauctionhasahigherthanaverageprobabilityofhavingmadean(optimistic)errorinpreparinghisbid.
Winter'smethod:Aforecastingmethodthatextendsexponentialsmoothingtotakeintoaccountalineartrendandmultiplicativeseasonality.
SometimesalsoknownasHolt-Winter'smethod.
ThenumberofperiodsinaseasoncycleisL.
Theessentialformulaeare:Baselevelestimateusingdemand,Dt,uptoperiodt:Bt=*Dt/St-L+(1-)*(Bt-1+Tt-1),Trendestimate:Tt=*(Bt-Bt-1)+(1-)*Tt-1,Seasonalityestimate:St=*Dt/Bt+(1-)*St-L,Forecastaheadkperiods:Ft+k=(Bt+k*Tt)*St+k-L.
Thesmoothingconstants,,,andaretypicallyabout0.
1.
WIP(WorkInProcess):Inventoryofpartiallycompletedproduct.
WMS(WarehouseManagementSystem)Amainlysoftwaresystemfordecidingwhereinboundproductshouldbestoredinthewarehouse,keepingtrackwhereandhowmuchproductisstoredinawarehouse,generatingpicklists,andingeneralcausingtheproperoutboundshipmentstobeconstructedandrouted.
WTO:WorldTradeOrganization.
X12:Astandardforelectroniccommunicationofbusinessforms.
Forexample,form810isaninvoice,and856isashippingnotice.
Seealso:DISA.
NamedaftertheAmericanStandardsCommitteeX12whichisresponsibleforEDIstandards.
XBRL(ExtensibleBusinessReportingLanguage):Adatalanguage,similartoXML,forsubmittingfinancialreports.
79XML(eXtensibleMarkupLanguage):An"open",ISOstandarddatalanguage,similartobutmorepowerfulthanHTML,fornotonlystoringandtransmittingdata,butalsodescribingwhatthedatamean.
Itisbecomingapopularformatforbusiness-to-businesstransactionsontheWeb.
TwofeaturesofXMLarethat,likeHTML,itusestags,andistreestructured,asillustratedbythefollowingexample:b40104kg2.
12euro5.
50Seehttp://www.
w3.
org/XML/.
Yieldmanagement:termusedintheairlineindustryforrevenuemanagement.
Zerosumgame:Asituationinwhichthetotalamountofprofit(or"pie")isfixed.
Individualplayersbytheiractionscanonlyaffecthowtheprofitisallocated(orpieiscut).
Alsocalledaconstantsumgame.
IncontrastseePrisoner'sdilemmaandbi-matrixgame.
Zerobalancewalk:Aformofselectiveinventoryauditingpopularinretailstores.
Periodically,e.
g.
,onceperweek,amanagerwillmakeatourofthestoreshelves,notingwhichSKU'sareoutofstock,i.
e.
,havezerobalance.
FortheseSKU'stheinventoryrecordswillbecheckedtoverifythattheinformationsystemalsoshowstheseSKU'stobeoutofstock(andonorderunlesstheproductisbeingdiscontinued.
)Azero-balance-walkauditoftherecordstakesalotlessworkthanafullaudit,yetitdoesresultinanauditofthesmallfractionofSKU'smostlikelytobenefitfromanaudit.
Theregularuseofazerobalancewalkwilltendtoincreaseaverageinventory.
IfforsomeSKUstheactualinventorylevelisgreaterthantheofficialrecordshows,whiletheactualinventoryforothersislessthantheofficialrecord,thenthezerobalancewalkwillcatchmanyoftheSKU'sforwhichtheactualinventoryislowerthantheofficialrecord,andincreasetheirinventory,however,SKUsforwhichtheactualinventoryishigherthantheofficialrecordwillremainundetected.
Seealso,shrinkage.
Zerodefects:Aqualityassurancephilosophywiththegoalofzerodefects.
Akeypartofthisphilosophyisthatwheneveradefectisfound,thecauseofthedefectisidentifiedandthentheprocessischangedsothatadefectwillnotoccuragainasaresultofthiscause.
80Zoneskipping:AshippingmethodbywhichtheshipperusesapublicdeliveryservicesuchasUPSorUSPStodeliveritsproductthelastfewkilometerstothefinalcustomer,buttheshipperusesitsowntruckstoshipitsproductfortheinitiallongdistance,skippingzonesasperhapsdefinedbythepubliccarrier'srateschedule.
TheshipperdeliverstheproducttoaUPSorUSPSofficeinthedistantcityforthefinaldelivery.
Zoneskippingmaybeefficientbecauseitavoidstheinitialsortingstepincurrediftheshipmentisdeliveredtothepubliccarrierattheorigincity.
Eventhoughtheshipperknowsthatthisbigcollectionofpackagesgoestoonedistantcity,thepubliccarrierrediscoversthisasitprocessedthroughitssortingsystem.