Supply Chain Management Basic Terms and Glossary

Since it is not possible to explain each and every supply chain management term in this blog, I have picked some most frequently used terms to explain here. Some of these terms can be very well understood just in few lines of explanation and I have explained them on this page but few terms I would like to explain in more details in my next few postings. You can easily find various supply chain management glossaries on Google. Here is a web link to Council of Supply Chain Management's glossary of terms. Some of the terms you will come across when I will start Supply Chain Management in SAP environment.

Here are some of the most frequently used basic terms:

Assortment Planning:

Deciding how much to carry of which products. An important consideration is the substitution behavior of various customer types, that is, what product of yours or your competitors the customer will buy if you do not have her first choice in stock.

Store Clustering:

Enables retailers to group stores based on combinations of plan, performance and store attributes so that they can more effectively align their plans and assortments with customer preferences. With Store Clustering, retailers can group similar locations using various criteria such as:

• Performance

• Size

• Climate

• Customer demographics

• Store format

When used with Store Planning,  Assortment Planning and Promotion Planning, retailers can optimize inventory more effectively across each store by targeting clusters that, based on customer profiles, are the most likely to sell specific products and categories.

Cross Dock / Cross Docking (XDK):

A distribution system in which merchandise received at the warehouse or distribution center is not put away, but instead is readied for shipment to retail stores. Cross docking requires close synchronization of all inbound and outbound shipment movements. By eliminating the put-away, storage and selection operations, it can significantly reduce distribution costs.

Push/ Pull Strategy:

Supply-chain action initiated by the customer. Traditionally, the supply chain was pushed; manufacturers produced goods and "pushed" them through the supply chain, and the customer had no control. In a pull environment, a customer's purchase sends replenishment information back through the supply chain from retailer to distributor to manufacturer, so goods are "pulled" through the supply chain.

Continuous Work in Process (CONWIP):

A production methodology in which a production line is operated in such a way so that the WIP remains constant. Initially a fixed number of units are released into the line. Subsequently, an additional unit is released to the line only when a unit finishes.

Min - Max Strategy:

A type of order point replenishment strategy where the “min” (minimum) is the order point, and the “max” (maximum) is the “order up to” inventory level. The order quantity is variable and is the result of the max minus the available and on-order inventory. An order is recommended when the sum of the available and on-order inventory is at or below the min. This replenishment and inventory management strategy sets a minimum inventory level, used to trigger a reorder when the available plus incoming receipt total is less than the minimum (Min). The amount of the order is the difference between the calculated (less than min) inventory and a predefined maximum stock (Max). Min-max systems are typically not time-phased.

Drum-Buffer-Rope (DBR):

In the theory of constraints, the generalized process used to manage resources to maximize throughput. The drum is the rate or pace of production set by the system’s constraint. The buffers establish the protection against uncertainty so that the system can maximize throughput. The rope is a communication process from the constraint to the gating operation that checks or limits material released into the system to support the constraint.

 Economic Order Quantity (EOQ):

An inventory model that determines how much to order by determining the amount that will meet customer service levels while minimizing total ordering and holding costs.

Where: 

Q*       = Economic order quantity

D         = Annual demand quantity

K         = Ordering cost (or setup cost)

h          = Annual holding cost per unit, also known as storage cost (capital cost, warehouse space, refrigeration, insurance, etc.)

Safety Stock:

Inventory carried to protect against running out during a lead time due to the uncertainty in either: the length of the lead time, the amount delivered, amount demanded, or time of occurrence of demand during a lead time.

Takt Time:

It can be defined as the maximum time per unit to produce a product in order to meet demand. It is derived from the German word “Taktzeit” (cycle time). Takt time sets the pace for industrial manufacturing lines. For example, in automobile manufacturing, cars are assembled on a line and are moved on to the next station after a certain time—the takt time. Therefore, the time needed to complete work on each station has to be less than the takt time in order for the product to be completed within the allotted time. 

e.g. if you have a total of 8 hours (or 480 minutes) in a shift (gross time) less 30 minutes lunch, 30 minutes for breaks (2 x 15 mins), 10 minutes for a team briefing and 10 minutes for basic maintenance checks, then the net Available Time to Work = 480 - 30 - 30 - 10 - 10 = 400 minutes. If customer demand was, say, 400 units a day and you were running one shift, then your line would be required to spend a maximum of one minute to make a part in order to be able to keep up with Customer Demand.