ABC ANALYSIS
Analysis of an
organization according to the so-called 80/20 rule, which states that,
in any sense of lements, a small part of the series accounts for a
large part of the series' effect (the Pareto principle). 80/20 is
symbolic of a ratio which could just as well be 90/10 or 70/30.
An ABC analysis can be made of products, customers or suppliers, and
can involve a division of the studied organization into groups - often
three groups called A, B and C.
The criteria used for the division vary according to what is being
analysed, e.g. products, customers or suppliers, and to what kind
of organization is being studied. A common criterion is volume value.
Other applicable criteria are customer growth potential, strategic
value (of customer or product), etc.
ACTIVITY-BASED COST
Logistical cost calculated per activity;
for example transport from A to B.
AGENT
A person or organization authorized
to act on behalf of another.
ACTIVE STOCK
See CURRENT STOCK
AWB
Also called consignment note. Contract
between the (AIR WAYBILL) shipper and carrier(s) for carriage of goods
over the carriers' routes.
The document accompanies the shipment and contains all relevant information
needed to ensure the shipment's dispatch to and receipt by the specified
consignee. Can be MASTER AIR WAYBLL (issued by the carrier) or HOUSE
AIR WAYBILL (issued by the forwarder).
ALTERNATIVE COST
Revenue lost by using a resource
in one particular way instead of choosing the best possible way to
use that resource.
ARTICLE STRUCTURE
Parameters applying to all goods,
raw materials, intermediate and other components used by a company
in its production. These parameters can include number of articles,
number of variants of each article, and division of articles into
standard and non-standard groups.
AVERAGE STOCK
Average level of stock over a given
period of time. Can be defined for example as: Minimum stock + Maximum
stock
BACK ORDER
An order for goods from stock which
either cannot be delivered immediately or are not required immediately.
BAR CODE
Identification method bearing information
in the form of a unique series of parallel lines of varying thickness
which can be read by a computer with the help of a laser scanner (e.g.
wand).
The establishment of a frame of reference against BENCHMARKING
which one can effectively measure results. In this context, the branch
'standard' - the key figures which are normal for a certain type of
company.
BUFFER STOCK
Stocks which serve to make material
outflow independent of inflow. Can include current (active) stocks
and emergency reserve stocks, especially when the mentioned independence
is important.
CAPITAL COMMITMENT
Sum of capital committed to a company's
operations, e.g. capital tied up in stocks, work in progress, buildings,
machinery, customer receivables, etc.
CAPITAL
Measures taken to improve return
on capital, mainly by RATIONALIZATION increasing the rate of capital
turnover. Often used as a working name for programs which are designed
to release tied-up capital - without reducing the volume of operations.
CAPITAL COSTS
The costs of using capital as a production
factor.
Capital costs include depreciation and interest, and are usually expressed
on an annual basis. They are defined as the yearly cost of interest
payments and depreciation on, say, a building, a machine or a reserve
of stocks.
CENTRAL STOCK
Stock of goods held in one place
for a whole geographical region, as opposed to LOCAL STOC.
CENTRALIZATION
The logistics system contains a number
of NODES DEGREE OF where manufacture, storage or transshipment of
goods take place. The structure of the logistics system is detained
by the geographical locations of these nodes.
The degree of centralisation increases if the number of nodes is reduced
on one or more levels, or the number of process levels is increased
at one or more nodes. A logistics system can also be physically decentralised,
but centralised in terms of administration and decision-making.
Ratio of production capacity actually used to available COEFFICIENT
of production capacity.
COEFFICIENT OF OCCUPANCY
Ratio of actual volume of goods to
holding capacity of warehouse or vehicle. An economic KEYINDICATOR,
defined as MARGIN CONTRIBUTION RATIO CONTRIBUTION as a percentage
of revenue. A statement of the means by which a company strives
CORPORATE MISSION
To achieve sustained profitability.
The principal elements of a corporate mission are that market niche
which the company dominates or aims to serve, the products, systems
or services offered to that niche, and the resources and internal
measures which the company uses to achieve its goal. Also called Business
Concept.
COSTING INTEREST
A rate of interest, determined by
corporate management, to be used within the company for the purpose
of calculating return on investment and the costs of work in progress,
inventory, stocks, etc. Costing interest expresses the desired return
on invested capital, i.e. the alternative value of capital. Different
rates of costing interest can be applied to different ways of using
capital.
CURRENT STOCK
Stocks accumulated when inflow to
stock exceeds outflow from stock. Either a certain minimum quantity
of material must be taken in and successively used, or else a certain
quantity is taken out and the stock must be successively replenished.
The quantity actually in stock at any given time is called the current
stock, or active stock.
CUSTOMER SERVICE
The element in a company's mix of
competitive tools which comprises service factors before, during and
after sales. Product availability is one of the most important elements
of customer service.
DELIVERY AVAILABILITY
Measure of a company's ability to
deliver a product. Also called delivery capability. The aggregate
of
PRODUCTION
AVAILABILITY& STOCK AVAILABILITY
Probability that the correct goods
will be sent and will
DELIVERY ASSURANCE
arrive intact. Can be expressed as
a percentage of the total number of orders shipped.
DELIVERY PRECISION
The number of complete orders delivered
punctually.
DELIVERY PUNCTUALITY
A measure of how well promised delivery
times are kept. Can be expressed as the number of deliveries made
on time as a percentage of the total number of deliveries.
DELIVERY SERVICE
Activities during a sale performed
with a view to creating utility in time and space. Delivery service
is composed of a large number of elements, the most important of which
are delivery time, delivery assurance, stock availability and flexibility.
Part of CUSTOMER SERVICE. The component elements of delivery service.
The mix DELIVERY is determined entirely by the unique circumstances
SERVICE MIX which prevail in a given case, and may therefore vary
between companies and industries or even between different deliveries
to the same customer.
DELIVERY TIME
Promised delivery time is the time
within which the seller is required by the sales agreement or by custom
to deliver the goods to the buyer. Actual delivery time is the time
elapsed from order to delivery. See also LEAD TlME and ORDER CYCLE
TIME. Mismatch between planned and actual events, e.g.
DISCREPANCY
missing cargo or a difference between
manifested and actual weight of an ULD.
DISTRIBUTION
All activities, both physical and
administrative, performed for the purpose of making a company's products
available to the market. The term covers marketing and choice of distribution
channels as well as physical distribution. See PHYSICAL DISTRIBUTION.
DISTRIBUTION SYSTEM
Collective name for all activities
concerned with making a company's products available to the market,
including various activities and the relations between hem, resources,
management and objectives. One important goal of the distribution
system is to achieve high availability of the company's products on
the market at the lowest possible cost. High availability is achieved,
for example, by choice of the right distribution channels, the right
mix of marketing activities and efficient physical distribution.
DU PONT FORMULA
A model for calculating the return
on a company's capital over a given period of time. i.e.: Return on
capital = Degree of surplus X Rate of capital turnover Degree of surplus
= Surplus . Turnover Rate of turnover = Turnover . Invested capital
DU PONT DIAGRAM
A graphic diagram showing the interrelations
of various cost and revenue terms, derived from a budgeting and costing
system constructed by the international Du Pont corporation. Can be
expressed simply as a graphic representation of the Du Pont formula.
EDI
Electronic Data Interchange
EOQ
The quantity of goods ordered which
results in (Economical Order minimisation of the sum of purchase,
stockkeeping and Quantity) specific shortfall costs. See also SQUARE
ROOT FORMULA .
EMERGENCY RESERVE
Extra stock in addition to CURRENT
STOCK, held as a STOCK precaution against interruptions in inflow
or outflow.
EXPRESS ORDER
An order which for one reason or
another is processed and shipped faster than usual. Also called rush
order.
EXTERNAL TRANSPORTATION
Transportation between different
companies, factories, etc. Often used to designate all movement of
goods outside a company's gates. See also INTERNAL TRANSPORTATlON.
EXTERNAL WAREHOUSING
Purchase of warehousing service comprising
space entail and intake/outtake of goods.
FIFO
Abbreviation of First In, First Out.
It means that articles of the same kind leave the warehouse in chronological
order, i.e. those that were placed in stock first are issued first.
FIXED ASSETS
Resources intended for long-term
ownership and use, e.g. machinery, land and buildings, or subsidiary
companies.
FIXED COST
A cost whose total amount remains
unchanged regardless of changes in the volume of operations.
FIXED STOCK
A system in which every article number
has a LOCATION permanent space assigned to it in the warehouse. This
space must be large enough to hold the maximum quantity of a given
article held in stock at any one time. The system is characterised
by minimum administration and large volume; it is not compatible with
FIFO. See also FLOATlNG STOCK LOCATION.
FLOATING STOCK LOCATION
A system in which incoming goods are placed in any convenient
vacant space in the warehouse. The location is recorded together with
the article number in the administrative system. The floating stock
location system requires sophisticated administration, but has the
advantages that it makes better use of available space, requires a
minimum of stock maintenance, provides an automatic inventory update
and permits more reliable replenishment frequency and batch FIFO.
See also FIXED STOCK LOCATION.
FORECAST
An estimate or prediction of future developments. May refer for
example to future demand, changes in prices of various products, etc.
FREIGHT FORWARDER
A company which handles receipt and
dispatch of goods on behalf of third parties. It may also, as required,
assume responsibility for consolidation, transshipment, customs clearance,
insurance, warehousing, etc.
GENERAL AGREEMENT
The agreement between buyer and seller
includes, in addition to the text of the agreement, a delivery schedule
specifying the buyer's requirements for each of the articles concerned
per unit of time (e.g. per week) over an extended period, usually
for one or two years ahead. It also includes specification of all
articles covered by the agreement, with prices per unit and the annual
quantity on which the price is calculated. Lastly, it includes a 'firm
time' in weeks, which means that all suborders in the delivery schedule
within that time are regarded as firm orders. The agreement may in
principle remain in force until the article concerned is dropped from
the buyer's production.
IATA
International Air Transport Association.
Founded in 1945 by scheduled airlines, in order to promote safe, regular
and economic air transport.
INFORMATION SYSTEM
Collective name for all those activities
in a company that are concerned with acquisition, co-ordination and
spreading of information, including relations between activities,
resources, management and objectives. Examples of comprehensive information
systems are forecasting, resource co-ordination, operative and follow-up
systems.
INTERMEDIATE STOCKS
Stocks held pending further processing,
transportation, etc.
INTERNAL INTEREST
The rate of interest at which the
present value of all incoming and outgoing payments arising out of
an investment becomes zero. Internal interest is a measure of the
profitability of an investment.
INTERNAL TRANSPORTATION
Transportation within a company,
factory, etc. Often used to designate all handling and movement of
goods within a company's gates. See also EXTERNAL TRANSPORTATION .
INVENTORY
The total amount of raw materials,
other materials, equipment, intermediate stocks and goods kept on
hand for internal use. The term is often used as a synonym for STOCK.
JOINT COSTS
Costs which are incurred regardless
of whether a given activity begins or ceases. A joint cost is thus
common to many operations.
JUST-IN-TIME (JIT)
A system developed in Japan, aiming
to eliminate all non-essentials in the flow of production and distribution,
and treating the two as parts of an integrated process.
JIT essentially means No Stockkeeping, as stocks tie up capital without
paying interest, and stock- keeping automatically implies additional
overheads for warehousing and personnel.
The ideal JIT process involves producing only the number of units
to be shipped out the same day, and delivering those goods to the
carrier just in time to make the acceptance deadline.
From the forwarder's and carrier's standpoints, acceptance of shipments
just in time keeps a smooth flow through a terminal, thereby minimising
the costs of handling and storage.
JIT applies to time, but also necessitates the elimination of wastage,
rejects and substandard quality. The goal is reached not by any single
activity but by a series of concurrent and well-coordinated measures,
including the adjustment and stringent quality control of manufacturing
output, manufacturing the necessary quantity only as needed, and automatically
stopping production.
KEY INDICATORS
Key economic indicators are comparative
figures which provide a measure of the economic situation in a company.
They may include measures of efficiency, financing, liquidity, solidity
and return on capital.
LIFO
Abbreviation for Last In, First Out.
Means that the most recent additions to stock are the first to be
released from stock.
LEAD TIME
Time elapsed from the placement of
an order until delivery has been made in full. See also DELIVERY TIME
and ORDER CYCLE TIME.
LETTER OF CREDIT (L/C)
Letter authorizing a bank to pay
money to the bearer. The L/C usually states the conditions of sale
(and transport) of goods which have been agreed between buyer and
seller. When these conditions are fulfilled, payment to the seller
is authorized.
LOCAL STOCK
Stock held at one location for a
small geographical area, as opposed to central stock.
LOGISTICS COSTS
All costs which can be attributed
to the flow of materials in a company. This category is generally
reckoned to include transportation, storage, packing, administration,
order processing, stock management, transport administration, specific
purchasing, setting up and shortfall costs.
LOGISTIC EFFICIENCY
Can be divided into inward and outward
efficiency. Inward efficiency is the efficiency of handling operations
and control compared to alternative ways of performing those operations.
LOGISTICS
A strategic, tactical and operative
theory and method for increasing a company's return on investment,
by improving cost-effectiveness and capital turnover in the flow of
materials and delivery service to customers. Development, planning,
co-ordination and control of material flows from raw material supplier
to end user are based on the principles of logistics.
LOGISTICS, GOALS OF
Corporate goals formulated on the
basis of logistics theory. They can be divided into four groups:
1. Reducing logistics costs;
2. Securing the supply of materials for production;
3. Adapting delivery service to customers' needs;
4. Increasing the rate of material turnover.
Each group of logistics goals comprises a number of sub-goals such
as low transportation costs, low stock costs, short delivery times,
high delivery assurance, low shortfall costs and low capital commitment.
LOGISTICS PHILOSOPHY OF
A frame of reference for coordination
of the following objectives in a company:
- reduction of transportation, storage and packing costs;
- improved delivery availability to the market;
- assurance of material supplies to production;
- increased rate of material turnover.
LOGISTICS SYSTEM
Collective name for all of a company's activities concerned with
the flow of materials from suppliers to the company and thence to
the customer, including relations between those activities, resources,
management and objectives. A company's logistics system can, for example,
be divided into three subsystems - material supply, production control
and distribution - acting in support of the logistics function. A
logistics system is always situation-specific. The user determines
the way it is defined, with reference to the purpose of the system
and the nature of the reality which the system seeks to reflect.
MARGIN CONTRIBUTION
The difference between SPEClFlC REVENUE
and SPECIFIC COST. This term may refer to a single product, a group
of products, a customer or a group of customers.
MATERIAL & PRODUCTION
CONTROL
Overall term for management of operations
which in various ways affect the flow of production in a company,
all the way from making of design drawings through purchasing, production,
tooling, etc. to outward delivery of finished products.
MATERIAL HANDLING
Collective term for physical handling,
movement, storage and packing of material.
MATERIAL SUPPLY
Collective name for all those activities
in a company which are performed with a view to securing inward deliveries
of materials from suppliers, e.g. purchasing, transportation, storage,
inventory assets management and material handling.
MATERIAL SUPPLY SYSTEM
Collective name for all activities
in a company concerned with inward deliveries of materials from suppliers,
including relations between those activities, resources, management
and objectives. An important goal of a company's material supply system
is to secure supplies of raw materials, components, etc. at lowest
possible cost.
MATERIAL TURNOVER RATE OF
A measure of how quickly material
passes through stock expressed as outflow per unit of time divided
by average stock. The term total material turnover usually means the
company's annual turnover divided by the balance of goods in inventory,
production and stock. This can be measured in either physical quantities
or money.
NEGATIVE STOCK
Order backlog, i.e. uncompleted orders.
In some cases negative stocks are undesirable, while in others they
are deliberately used to control the logistics system for the purpose
of minimizing stock costs.
NODES
Key points in the flow of materials
at which manufacturing, storage or transshipment take place.
NORMAL STOCK
That part of the stock which is needed
to cover normal demand from customers.
ORDER CYCLE TIME
Elapsed time from identification
of the need for an order until delivery has been made in full. Consists
of time for identification of need, order accumulation, order placement
and transmission, order reception and processing, forwarding (in the
case of back orders), load out, transportation to the customer and
receipt of delivery.
ORDER POINT
A critical level of inventory or
stock. When this point has been reached, it is time to reorder.
ORDER POINT SYSTEM
A type of stock control system in
which an order for a predetermined quantity is placed whenever stocks
fall to a specified level (See ORDER POINT).
ORDER-SPECIFIC COSTS
Specific costs arising when an order
is given for inflow o stock, i.e. costs which would not have been
incurred if the order had not been given. Also called traceable costs.
In the case of a purchase from an outside source, order-specific costs
may comprise request for quotation, order writing, telephone calls,
postage and a fixed part of the cost of transportation. In the case
of an order for stock replenishment from in-house production, the
order-specific costs comprise the cost of starting manufacture, setting-up
costs for production equipment, and 'running-in' costs (in the form
of a lower rate of production and a higher rate of rejects at the
beginning of a run).
ORDER STATUS
The point in the order processing
chain - receipt, preparation, production, shipment, delivery - which
a specific order has reached at a specific point in time.
PHYSICAL DISTRIBUTION
All activities, both physical and
administrative, concerned with movement of products from producer
to end user. The term includes order processing, transportation, crating,
handling and associated administrative activities.
PHYSICAL DISTRIBUTION SYSTEM
Collective name for all a company's
activities which are concerned with movement of products from producer
to end user, including relations between those activities, resources,
management and objectives. One important goal of the physical distribution
system is to assure the company's customers of an adequate level of
delivery service.
PRODUCTION CONTROL
Tactical and operative management
activities aimed at maximising the efficiency of production resources
(machinery, personnel, work in progress, etc.).
PRODUCTION PLANNING
The corporate function which controls
production and, at the same time, supplies input for assessment of
long- term production potential.
PRODUCTION TO ORDER
Production based on customer orders
received, as distinguished from production for stock.
PRODUCTIVITY
Ratio of volume of production to
resources (labour, materials, capital) consumed by production.
RATE OF TURNOVER
See MATERIAL TURNOVER, RATE OF.
RETURN ON CAPITAL A KEY
INDICATOR
showing return (surplus, profit)
as a percentage of equity or total capital. See also RETURN ON INVESTMENT.
RETURN ON INVESTMENT (ROI)
A measure of a company's profitability.
The calculation formula is profit divided by invested capital.
REVENUE
Income; money earned.
SEASONAL STOCK
A type of CURRENT STOCK. The term
usually refers to a situation in which the level of production IS
constant and stocks are built up during the slack season for use during
the busy season.
SEMI-FIXED COST
A cost which is not affected by volume
changes within certain limits.
SERVICE DIFFERENTIATION
Different levels of service for different
customers products, markets, etc., based on deliberate allocation
of priorities.
SERVICE COST
osts incurred as a result of faulty
delivery service. See SHORTFALL COST.
SERVICE, DEGREE OF
The customer s overall perception
of the service that a company offers.
SERVICE, ELEMENTS OF
The components of delivery service,
e.g. delivery time, order status information and stock availability.
SETTING-UP
COST
The cost involved in retooling a
machine for a new production run. It is composed of the cost of labour
for retooling and the loss of production while retooling is in progress.
SETTING UP TIME
The time required to retool a machine
or group of machines for a new production run.
SHIPMENT STRUCTURE
Conditions applying to shipment of
various goods, raw materials, intermediates or end products between
stations in a company's material flow. In the structure of shipment
to customers, for example, these conditions may refer to the number
of shipments, variation of size of shipments in terms of volume or
weight, type of goods, etc.
SHORTFALL COST
Cost arising from inability to deliver
an asked-for product or service. The cost may be notional, for example
where it is feared that customers' unsatisfied demands in a shortfall
situation could lead to loss of the customer and thus to loss of future
revenues. The cost may also be actual, e.g. for production stoppages,
contract penalties for late delivery to a customer, dispatch, back
order recording, etc. The term also includes additional costs for
remedying shortfalls, such as administrative costs for back-order
processing and increased transportation costs.
SPECIFIC COST
Cost of a resource, used (or procured)
for a given operation, which would not have been incurred if that
operation had not been performed.
SPECIFIC REVENUE
Revenue earned from a given operation
which would not have been earned if that operation had not been performed.
SQUARE ROOT FORMULA
A formula used to calculate the optimum
volume of purchase orders by weighing specific purchase costs against
stockkeeping costs. It can also be used to calculate the optimum length
of a production run. In its simplest form, the formula can be expressed
as the square root of twice the annual consumption times specific
purchasing costs, divided by the stockkeeping cost per unit per year.
The square root formula is also called the EOQ formula or Wilson formula.
STOCK
Materials, intermediates or goods
held by a company pending further processing, delivery or sale.
STOCK AVAILABILITY
A measure of the probability that
an asked-for product is in stock. Defined as the number of orders,
or articles, that can be delivered from stock as a percentage of the
total number of orders, or articles ordered. Also definable as the
time taken to deliver from stock as a percentage of the total time.
STOCK CONTROL
Tactical and operative decision-making,
ordering and control activities performed with a view to making stockkeeping
more efficient.
STOCK COST
Total cost of keeping goods in stock;
the sum of STOCKKEEPING COSTS and WAREHOUSlNG COSTS.
STOCK IN HAND
Materials, intermediates or goods
held in reserve by a company, e.g. to compensate for fluctuations
in rate of consumption and possible interruptions of supply, or to
save costs by purchasing in larger lots. See also STOCKS and INVENTORY.
STOCK IN TRANSIT
Stock in process of being transported
between two points. Transit stocks are necessary on account of the
time required to move the goods.
STOCK INTEREST
Annual cost of keeping goods in stock
as a percentage of their average value.
STOCKKEEPING COSTS
Investment and risk costs associated
with items held in stock, e.g. capital costs and costs for losses,
unsalability, damage, insurance premiums, etc.
SUBCONTRACTED PRODUCTION
Work farmed out to a subcontractor
and performed to he ordering company's product specifications. May
refer to both interrnediate processing and manufacture of end products.
SUBORDER
A condition of delivery by which
the buyer is entitled to demand delivery of goods at any time he chooses
after the purchase agreement has been made. A suborder may be for
shipment of the complete order or part of it.
SUPPLIER RATING
Assessment of different possible
suppliers with a view to choosing the most suitable one. Factors to
be taken into account in supplier rating include price, product quality,
delivery service, and the company's age, size, location, organization,
financial standing, operations, production facilities, equipment,
inventory and stocks. There may also be special requirements such
as willingness and ability to expand with the customer, as well as
general observations.
THROUGHPUT TIME
The time taken to manufacture a part
or product from the first to the last operation in the studied process.
The throughput time of an order is the period of time consumed for
manufacturing the products specified in the order, i.e. the elapsed
time from receipt of the order to delivery of the goods.
TIED UP CAPITAL
Sum of capital committed to a company's
operations, e.g. fixed assets, stocks and customer receivables.
TIME-BASED MANAGEMENT
Management philosophy whose primary
aim is to shorten overall lead time in a company, employing one or
several methods, so as to improve competitiveness and profitability.
TOTAL COST ANALYSIS
The process of balancing cost components
against each other, with a view to minimizing the total cost. This
analysis is based on the proposition that an action which increases
a given cost component is justified if it helps to reduce the total
cost.
TRANSIT TIME
The total time elapsed from the moment
when the supplier makes goods available for delivery until the moment
when the same material reaches the consignee.
TRANSPORTATION SYSTEM
Collective name for all activities,
relations between activities, resources, management and objectives
in a company concerned with internal and external transportation.
UNSALABLE STOCK
Products which for one reason or
another cannot be sold or used for their intended purpose. The reason
may be that they are obsolete, damaged, etc.
VARIABLE COST
A cost which constantly changes with
the volume of production over a given period of time.
VOLUME VALUE
See ABC ANALYSIS ANALYSIS
WAREHOUSING COSTS
Costs associated with physical storage
(warehousing), i.e costs of warehouse personnel, stock handling equipment,
warehouse buildings, etc.
WILSON FORMULA
See SQUARE ROOT FORMULA .
WORK IN PROGRESS
Products in the production pipeline,
i.e either undergoing a manufacturing operation or in an intermediate
stock awaiting the next manufacturing operation.
