Inventory Management Glossary Terms

Terminology & Definitions Relating to Inventory Management

One of the first steps to facilitating performance improvement in inventory management is to ensure that you and your organization have a common language for talking about it. Below is a guide to key inventory management terminology and concepts to help get everyone on the same page.

The definitions are based on RockySoft's experience and have been developed from sources believed to be reliable. Definitions of the terms vary from the opinion of others. If you disagree with a definition or have additional information to submit, please contact us.

Glossary Terms A-B

ABC stratification (classification)—technique used to stratify or categorize inventory into groups based upon activity or business productivity characteristics. Some of the ABC classing criteria might include: number of hits, sales dollars revenue, per unit margin, profit, etc. ABC classification is also used for setting service level goals as well as other inventory management activities.

Abnormal demand—any unusually high product demand outside normal parameters that is likely due to a promotion, substitution, or other exceptional situation. Typical demand planning systems can filter abnormal demand outside specified standard deviation parameters based on past history. Additionally, systems can ignore abnormal demand for future forecasting.

Actual cost—inventory costing method (often used in manufacturing environments). This methodology utilizes actual materials costs, machine costs, and labor costs from a specific work order to calculate the cost of the finished item.

Actual demand—demand in the form of booked customer orders and intercompany requests (not actual sales). Actual demand is netted against forecasted demand for a specified time interval to help generate a material requirements plan.

Aggregate plans—overall sales, revenue, budget, inventory, or production plans rolled up at the product family, location, regional, divisional, or company level.

Allocation—a reservation of material or inventory based on a processed order or system-generated planned order. The on-hand balance of a particular item, minus the allocation, leaves the balance available for production or available-to-promise for customer orders.

Alpha smoothing factor—in exponential smoothing, Alpha determines the weight given to the most recent data points, or "observations" in the time series. An Alpha of .3, for instance, indicates that the most recent value is going to get 30% of the weight, while and Alpha of .1 would indicate that the most recent value is only going to get 10% of the weight. The higher the Alpha, the more closely the forecast will resemble recent history.

APICS (American Production and Inventory Control Society)—Association for operations management. See http://www.apics.org.

Application Service Provider (ASP)—a relatively new form of software licensing in which the software licenses are owned by the ASP and reside on their system while the client rents the rights to use the software. Lower upfront costs, quicker implementations, and the reduction of the need for internal IT personnel and server hardware are the primary benefits of this arrangement. ASPs are positioned to allow small to midsize businesses greater access to technology than was previously available. SaaS (Software as a Service), Hosted Solution, and On-demand Software are similar in nature.

ARIMA forecasting model—the auto regressive integrated moving average forecasting technique incorporates three features: 1) Auto-Regressive (AR) terms to represent business cycle behavior, 2) a Trend, or Integration(I) or differencing feature to, and 3) Moving Average(MA) terms which can capture the effect of a spike in demand. These three pieces, AR, I, and MA, together are called ARIMA. A forecasting model with p AR terms, d differencing, and q MA terms, is said to be an ARIMA(p,d, q) model. Exponential smoothing can be shown to be an ARIMA(0, 1, 1) model. Early work on this class of forecasting methods was done by Box and Jenkins, so ARIMA models are sometimes known as Box-Jenkins models. This modeling is often useful in creating short-term forecasts.

Autoregressive model—time series analysis model based on previous weighted outputs of a system

Available—status of inventory as it relates to its ability to be sold or consumed. An example of an availability calculation: Quantity Available = Quantity On Hand - Quantity On Hold - Quantity Allocated To Sales Orders - Quantity Allocated to Production Orders.

Average cost—inventory costing method that recalculates an item's cost at each receipt by averaging the actual cost of the receipt with the cost of the current inventory.

B2B—business-to-business dealings, where one business buys materials from another business?

B2C—business-to-consumer dealings, where a final customer buys from a business

Back flush—technique for issuing materials to a manufacturing order (reducing on-hand quantities). During this process, material is issued automatically when production is posted against an operation. The software application will use the quantity completed to calculate through the bill of material the quantities of the components used, and reduce on-hand balances accordingly.

Backorder—a specific quantity of an item that could not be filled on the initial requested date.

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

Batch—1) In the production environment, a quantity processed at the same time with the same process parameters. 2) In terms of data processing, a set of files or records gathered and processed all together instead of one at a time.

Beer game—role playing business game developed at MIT composed of a four level supply chain in the brewing industry. Members in the chain are only allowed to view demand from the next member in the chain and not from the downstream customer. Small fluctuations in consumer level demand can cause big fluctuations in demand seen by the manufacturer, illustrating the bull-whip effect.

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

Best fit—in forecasting, a feature in demand planning software applications that compares multiple forecast models to historical actual demand to determine the best method to use in the future.

Best of breed—systems or functionality that exhibit the highest level of performance in their particular class.

Best practices—standard, published, widely held operating methods found to produce the best performance and results in a given industry or organization.

Beta test—software version released to a limited number of users for functionality assessment, bug testing, and evaluation prior to the final release to the general user base.

Bias—a set of results that is consistently above or below an established centerline which indicates the need for corrective action (i.e. sales departments creating forecasts consistently below actual demand when sales quotas are enforced).

Bill of lading (BOL)—a document created for a particular shipment that indicates the contents and destination. Additionally, it forms a contractual basis for claims or resolution with the carrier if necessary.

Bill of material (BOM)—list of materials (component parts) required to produce an item. Often used in manufacturing and kitting.

Blanket purchase order—a type of purchase order that commits to purchase a specific quantity over a specified period of time, but it does not necessarily stipulate the dates for shipments. Blanket purchase orders are placed for the quantity of an item that you expect to purchase over extended period of time (i.e. 3 months, 6 months, a year, etc). Actual releases to ship against the blanket purchase order are triggered by separate requests from the customer to the supplier. The specific quantities and dates of these separate requests (releases) may or may not be similar to the estimated dates and quantities. Providing a blanket purchase order to a supplier can reduce lead times and increase on-time shipments from the supplier as well as provide a greater discount on purchases.

Bolt-on—a separate application that can be integrated, in varying degrees, with an ERP or other software application.

Bonded inventory—an agreement by which a supplier holds a specified amount of inventory for a downstream customer. The inventory can be segregated either physically or electronically so that the customer is guaranteed access to the inventory upon demand. The arrangement is attractive for a retailer or other who does not have storage space but wants the assurance of having sufficient inventory.

Box-Jenkins Model—a variation of ARIMA modeling that creates a forecast using regression, moving average, and incorporation of previous errors.

Break bulk—typically done in a warehouse, where large quantities of an item are broken into smaller amounts for delivery to customers

Browser—an application program that searches the Internet or intranet, interprets language, and presents a Web page. Popular browsers include Mozilla's Firefox, Apple's Safari, and Microsoft's Internet Explorer.

Browser-based applications—software designed to run within a web browser (i.e. Internet Explorer or mozilla's Firefox). The advantage of type of software is the flexibility to access the application from any location that has internet access and a web browser.

Bucketed—a reporting or forecasting system that aggregates multiple daily records into a larger, user-specified time intervals (i.e. weeks, months, quarters, years). Bucketing allows for more flexible reporting and analysis.

Buffer Stock—see safety stock

Business Intelligence—business intelligence (BI) is the broad term for software reporting tools that use the same databases as ERP applications to generate customizable reports for administrators and other decision makers. Essentially, an ERP brings data into the system, while BI applications gets it out.

Business process mapping—techniques that identify the steps, management points, and resources involved in the current business processes; the desired changes and risk/reward tradeoffs are analyzed, and finally the methods to implement the new systems which support the desired new processes are documented and put in place.

Buyer—individual authorized to determine sourcing, negotiate agreements, and place purchase orders with vendors.

Glossary Terms C-E

Capacity Planning—specifies the level of resources (i.e. systems, facilities, equipment, raw materials, and labor) that supports an organizations production strategy.

Capacity requirements planning—process for determining the amount of machine hours and labor resources required to meet production schedule.

Carrying cost—also known as holding cost, carrying cost is the cost associated with keeping inventory on hand. It takes into account the costs associated with the inventory investment, storage cost, stock keeping cost, and the current cost of money. Carrying cost is typically represented as the annual cost per average on-hand inventory unit.

Catch weight—used primarily in the food/beverage industry for products such as seafood, meats, and cheeses. It refers to the actual weight of a variable-weight item that uses weight as the sales unit of measure. Applications tracking catch weights need to correctly process sales order line items based on the catch weights within specified tolerances of the order quantity.

Causal forecast—a forecasting method that uses a known (possibly cause and effect) relationship

Change management— process of developing and executing a designed approach to change in an organization (dealing primarily with the human aspect of change).

Chargeback—a financial penalty levied against a supplier by a customer when a shipment to the customer does not meet the agreed upon terms and conditions. This might include: late shipments, lack of proper packaging and labeling, incorrect shipping terms, or stocking out of product in a VMI arrangement.

Child—dependent part of the relationship (parent/child in a bill of materials).

Coefficient of correlation—shows how closely two variables are related

Coefficient of determination—shows the proportion of the sum of squared error that is explained by a regression

Collaborative Forecasting and Replenishment—a program that enables companies along a supply chain to work together to develop a single, more accurate demand forecast and plan to fulfill that demand.

Collaborative Forecasting—forecasting process that utilizes a perpetual line of communication between distributors and those customers with the ability to forecast the future needs of the products they buy from the distributors. This might include the customers themselves or sales representatives calling on them. Ultimately, collaborative forecasting involves the sharing of real-time demand forecast data amongst the members of the supply chain.

Collaborative Planning Forecasting and Replenishment (CPFR)— is a concept that aims to enhance supply chain integration by supporting and assisting joint practices. CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information. This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply chain process more efficient. Efficiency is created through the decrease expenditures for merchandising, inventory, logistics, and transportation across all trading partners. See also: Voluntary Inter-Industry Commerce Standards (VICS) committee: http://www.cpfr.com/

Configuration—refers to the process of setting up a software application to best utilize its own built-in features - to best meet the needs of company.

Consignment inventory—inventory that is in the possession of the customer, but is still owned by the supplier.

Consolidate—combine many shipments to a common destination into a single shipment (i.e. combining shipments to fill up a container)

Consumer goods—products sold to non-business end users, i.e. retail goods-food, clothing, toys, etc.

Consumer Packaged Goods (CPG)—inventory that is in a form ready to sell to consumers (end-users).

Container—anything designed to carry or hold materials. In logistics, most often refers to the types of containers used for intermodal transportation (ship, rail, and truck) often referred to as ocean containers. The standard external dimensions for containers are 8 wide, approximately 9 tall, and lengths of 20', 40', 45'.

Containerization—refers to using standardized containers for the storage and transport of materials within a manufacturing facility as well as between vendors and manufacturers. Materials are ordered in multiples of the container quantity. Benefits of containerization may include reduced product damage, reduced waste (reusable containers), less handling, and greater levels of inventory accuracy by standardizing reconciliation.

Control limit—A process specification that is designed to serve as a warning signal before an out-of-bounds condition occurs.

Cost of goods sold (COGS)—accounting term used to describe the total value (cost) of products sold during a specific time period. It is an expense account used to reflect the cost of goods sold, it appears on the profit-and-loss statement, and is used for calculating inventory turns.

Cost of Money—amount of interest that would be earned if the dollar value of inventory were invested at the current investments earning rate instead of in inventory.

Costing method—refers to the calculations used to determine inventory cost (i.e. average cost, current cost, etc.).

Certificate in Production and Inventory Management (CPIM)—Offered by APICS.

Critical path—refers to the consecutive sequence of activities in a project whose cumulative time requirements determine the minimum total project time. A delay in any critical path activity delays the entire project if other steps are not taken.

Cross-docking—the action of unloading materials from an incoming truck trailer or rail car and immediately loading these materials in outbound trailers or rail cars, thus eliminating the need for warehousing (storage). In reality however, many cross-docking operations require large staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to be shipped. This staging can take hours, days, or weeks in which case the staging area is acts as a warehouse.

Croston's Intermittent Forecasting Model—a forecasting model, especially adept at dealing with lumpy demand (i.e., when a significant number of the periods have zero demand). Standard forecasting methods, like exponential smoothing, do not perform with the same degree of accuracy on a lumpy demand time series. When no demand occurs, no update is performed. When a positive demand occurs, three exponential smoothing updates are performed-a) Tbar = the time between positive demands, b) Dbar = the amount of demand when it is positive, and c) the absolute deviation in positive demand. The forecast of expected demand per period is Dbar/Tbar. See also, Croston JD. Forecasting and stock control for intermittent demands. Operational Research Quarterly 1972;23(3): 289-303.

Cube utilization—refers to the use of space within a storage container (trailer or container). It is generally calculated as a percentage of total space or of total usable space.

Cube—a measure of the volume of rectangular shaped three-dimensional object. It is calculated by multiplying the length times the width times the height.

Cubed out—a condition where all space in a trailer or container has been completely filled. The term is often used when a container or trailer is completely filled volumetrically, but is still below the weight capacity.

Current cost—inventory costing method that applies the cost of the most recent receipt to all inventory of a specific item.

Customer—anyone or anything that creates demand for items

Customer Relationship Management (CRM)—process of managing the interaction with existing or potential customers. This process often involves having an extensive on-line database on previous communication and the individual preferences of each customer. The database may be accessed during the interaction with the customer.

Customization—altering a system's software code to include functionality specifically desired by an organization, although not originally included in the package itself.

Dashboard—a small, defined set of key metrics used to provide a quick evaluation of a project or process status. A dashboard is often displayed in one summary screen in a software package.

Data cleansing— analysis and review of existing data that checks for incomplete records, invalid entries and duplicates.

Data collection—the manual or automatic acquisition of individual data elements that does not include control or analysis functions.

Data scrubbing—the analysis and review of existing data that checks for incomplete records, invalid entries and duplicates. An activity often done prior to converting or merging systems.

Data warehouse—a repository of an organization's electronically stored data. Data warehouses are designed to facilitate reporting and analysis-to retrieve and analyze data, to extract, transform and load data, for business intelligence purposes.

Days of supply—calculation that projects how long the current on-hand inventory will last, given a predetermined rate of usage (forecast) and assuming no replenishment.

Demand over lead time (DOLT)—projected usage of a component or other material over the replenishment lead time. A predictable usage rate or forecast is assumed when calculating lot sizes and reorder levels based on lead time demand.

Demand pattern—characterization of product demand over a specified period in terms of its regularity, volume, and timing that help determine company policies regarding a forecast, inventory reorder point, and lot size parameters.

Demand Planning—uses a statistically driven demand forecast as the foundation for its plan and provides the framework for how forecasts will be utilized throughout. It also provides the opportunity to accurately predict customer demand, make use of historical demand, and manage inventory replenishment with forecasting.

Demand—the need for a specific item in a specific quantity, i.e. customer orders.

Dependent demand—demand generated from scheduled production of other items, i.e. Item A, B, and C are sold together as ABC as well as sold separately. The dependent demand for A, B, and C is generated by the number of ABCs that are sold. The independent demand is generated by the number of A, B, and Cs sold separately.

Discrete manufacturing—the manufacturing of distinct or discrete items (i.e., a computer, a water pump, a projector, etc.). This is in contrast to process manufacturing (see below).

Distribution Center (DC)—see warehouse

Distribution network—a group of facilities and organizations serving as supply and replenishment points for particular product lines utilizing various lead times and transportation methods between those points.

Distribution requirements planning (DRP)—process of planning inventory requirements in a multiple plant/distribution center environment. A DRP system may be utilized for both distribution and manufacturing. In manufacturing, DRP will work directly with Manufacturing Resource Planning (MRP).

Distribution—process of storing, shipping, handling, and transporting goods. In a statistical analysis sense, it describes the measurement of a group of events or occurrences (i.e. normal distribution).

Distributor—a third party that purchases, stocks, handles, and resells products manufactured by another organization (sometimes they distribute their own products as well). While a distributor is classified as a customer to the manufacturer, it is normally useful to track distributor shipments to the end consumer to evaluate demand patterns and changes (i.e. via Point of Sale data).

Drill down—an application feature that allows progression from a summarized, general level to the detailed transactions and data that comprise the totals.

Drop ship—a process whereby three parties interact in a sales transaction (a buyer, a seller, a supplier). The buyer purchases something from the seller. The seller then arranges with the supplier to ship the product directly to the buyer. The seller does not actually carry inventory of the product, and the supplier never directly communicates with the buyer. The buyer pays the seller and the seller pays the supplier. This strategy can work well in some situations as it allows a seller to offer a wider variety of product without having to carry the extra inventory.

Dynamic lot size—a lot size quantity that changes for successive orders of the same item based on cost, number of days supplied, or optimization parameters.

Echelon inventory—assuming that product unit of measure is pervasive throughout the supply chain, the echelon inventory at a given level in a multi-echelon system is the inventory at that level plus all inventory downstream (i.e., towards the consumer levels).

Economic Order Quantity (EOQ)—is the calculated quantity of an item that is most cost-effective to buy, based on usage, ordering costs, and several other factors. EOQ is used to prevent ordering an item too often, or too infrequently. In a perfect scenario, Safety Stock + Economic Order Quantity represents the peak of your Cycle Stock. EOQ is based on the following factors: Daily Usage, Cost, Incremental Cost of Ordering, Percent Holding Costs, Days In a Year.

Effective lead time—effective lead time is the period of time that includes the lead time, plus additional time factors that may occur between the time the need for an order is known, and the inventory is in stock and available.

Electronic data interchange (EDI)—a method of transferring data directly between

End user—individuals who directly use and depend on information contained in a particular system or application.

Enterprise Resource Planning (ERP)— a collection of software applications that use a common database to integrate an organization's business processes. Generally includes modules such as financial's, sales, purchasing, etc. The modules are designed to work seamlessly with the rest of the system and should provide a consistent user interface between them. These systems usually have extensive set-up options that allow you to customize their functionality to your specific business needs. Often times, ERP systems are not sufficient to meet all business needs and a myriad of other software packages such as Customer Relationship Management (CRM), Warehouse Management Systems (WMS), etc. are sold by third parties to make up for any shortcoming.

Error—in a forecast is defined as the difference between the actual value and the forecast value

Event management—normalizing a demand time series by accounting for extraordinary non-recurring demand that would otherwise affect future forecast periods (i.e., promotional demand, demand as the result of a natural disaster, etc.).

Exception message—a system-generated notification of an order, inventory, or other condition that violates user-defined parameters and requires a response. Messages include indications for past due purchase orders, higher/lower month-to-date sales, inventory below safety stock level, and many other conditions. Exception based management allows for efficient use of time, particularly when a company has many thousands of SKUs to track.

Excess inventory—any inventory above the minimum manually-specified or system-calculated level required to support production or operations. Excess inventory definitions vary from organization to organization, but may include any inventory above zero, above a defined safety stock level, or over a defined number of days supply.

Expedite—to raise the priority level on a production or purchase order because of a delay or a change in the requirement date that necessitates compressing the normal lead time.

Expiration date—the calendar date that a lot or specific batch is no longer considered utilizable due to safety or other processing considerations.

Exponential smoothing—a technique used in forecasting models that assigns different weights to past demand periods, instead of considering each one equally. For instance, a simple moving average method takes the total demand for the last 'X' number of demand periods and divides by 'X' to get the average period demand-each period is weighted the same. In contrast, exponential smoothing utilizes a smoothing (alpha) factor (i.e. 0.3) multiplied by the demand from the last period, and 0.7 is multiplied by the calculated average period demand for periods prior to the last. This assigns a different weight to the last period. Raising the alpha factor provides more weight (emphasis) and reducing it provides less weight to the demand from the most recent period.

Glossary Terms F-I

Family—a group of individual items considered to have the same or similar characteristics for purposes of creating an aggregate production, capacity, financial, inventory, or sales plans.

Fill rate—is a sales order processing measure of what percentage of customer order quantity was able to be filled. It is related to, but not the same as, Customer Service Level. It is calculated with the following formula: (Quantity of items in orders filled) / (Quantity of items that were ordered). This differs from Customer Service Level in that you are given credit for partially filled orders. If an order for 100 units came in, and you had only 90, your Customer Service level would be zero, but your fill rate would be 90%, since you filled 90 / 100 units.

Finished goods inventory (FGI)—items that are in their final state ready to be moved to a customer

First-in First-Out (FIFO)—an accounting term used to describe the method of rotating inventory so that oldest product first. Also describes an accounting inventory costing methodology.

Fixed order quantity method—approach to inventory replenishment that places orders in the same quantity regardless of demand.

Forecast accuracy—the proximity of a forecast to the actual value (i.e. demand).

Forecast consumption—describes the method by which an inventory management application reconciles actual demand to with forecasted demand occurring during a forecast period. If the method or parameters do not line up well with an organizations actual consumption, serious problems can arise.

Forecast error—the difference between the forecast quantity for a period and the actual demand experienced in that period. Forecast error is calculated after the period has passed and is used to evaluate the forecast. There are a variety of forecast calculations in use today.

Forecast horizon—the future period of time for which a demand forecast is generated. This period varies with organization and can be as long as the longest single-item cumulative lead time or for 2-5 year periods for strategic planning.

Forecast period—the time interval for which a forecast is developed. The interval is most often monthly. However, depending on the business requirements, it may be weekly or daily.

Forecast—an estimation of future demand. Most forecasts use historical demand as the basis to calculate future demand. Adjustments are made for promotions, events, economic insight, etc.

Forecasting Process—a process that provides a means for getting participation from individuals who have knowledge of future events and formatting that information into a forecast. The process defines how information will be gathered, whether internally or externally. When statistical forecast is employed, the process also defines how much they will be weighted, which algorithm to use, and how much input from participants will be allowed to determine the final consensus forecast. ?

Forward buying—the process of buying several periods worth of supply when a supplier has a price promotion (temporarily lowers the price). If all buyers forward buy, then the supplier might as well use everyday low pricing (EDLP). The seller would have the same total revenue but in a steadier stream and the buyers would have lower average inventory.

Fulfillment—the activity of processing customer shipments.

Gantt chart—a time-phased bar chart display that lists tasks or activities along the left side and a corresponding bar for each task. The length of the bar represents the duration of the activity, and may include both scheduled and actual duration information. This type of chart can be seen in a number of software applications including Microsoft Project.?

General ledger (GL)—the set of financial accounts used to accumulate the results of transaction processing, create budgets, generate financial statements and provide source financial data for reporting purposes. This is often a core module in an enterprise resource planning (ERP) suite.

Go Live—the final phase of the implementation process. This is when the new system is into actual production and became fully functional.

Gross Margin Return on Investment (GMROI)—a calculation that shows your margin relative to your average inventory investment. It is calculated by dividing your annual gross margin (in dollars) by your average inventory (in dollars). This can be particularly useful in determining which items provide the greatest profit potential relative to your investment in inventory. As with all calculations that use a gross margin input, the output can be inconsistent if other costs not included in the gross calculation vary significantly from one item to another.

Histogram—a graph that uses vertical bars of varying heights to represent the proportion or relative frequency of a given class of data within a population.

Hockey stick effect—the situation where the volume of shipments rises sharply at the end of the month as represented by the size of the bottom of the hockey stick as compared to the handle.

Holding cost—cost of holding a unit of an item in stock for a unit time

Holts Exponential—a forecasting model that uses exponential smoothing as a way of estimating the next value of a sequence of observations. This forecasting technique, in its basic form is called "simple exponential smoothing" and should only be used for non-seasonal time series which show no systematic trend. Parameters include: alpha (determines the weight given to the most recent data points, or "observations" in the time series) and beta (Holt extended the simple exponential method to allow a trend in the data, which involves exponentially weighting the trend line in a similar fashion as the main series. This trend weighting is determined by Beta.). The optimum Alpha and Beta is chosen by minimizing the mean squared error (MSE) of the results.

Implementation methodology—the variety of methods used to install a new system. Methods include: a full cutover (simultaneous implementation of all system functionality), phased approach (implementing a series of modules over different periods of time), parallel (simultaneously running both the old and new systems to compare performance and output), or other variations. The method of choice depends on the overall project goals, scope, resources and timeframe available, similarity between old and new systems, number of sites to be implemented, degree of functional integration, background of end users, and many other factors.

Implementation plan—a system installation plan that defines scope and goals, resources required, scheduled activities, activity durations, and actual project status. A high-level plan generally describes only major phases and milestones, while detail plans include specific descriptions of the individual tasks involved, and the critical path.

Implementation team—internal or external personnel who are responsible for the installation of a system. Team members may include a project leader, functional members, and technical support.

Incremental cost—the cost added to an existing product or product order by processing the next operation or performing an additional activity.

Independent Demand—demand generated from forecasts, customer orders, or service parts.

Institute of Business Forecasting and Planning (IBF)—the primary mission of IBF is to help businesses and individuals in their forecasting efforts worldwide. To this end, IBF disseminates the latest developments in the art and science of business forecasting and planning; arranges venues where forecasting professionals can share their experience and concerns; provides training at every level of forecasting; offers certification that guarantees extensive forecasting knowledge; and provides advisory services.

Intermittent demand—sporadic or slow moving demand for stock items (especially spare parts or MRO items) that involve low volumes and/or multiple periods with zero demand between orders. Often requires a specialized forecast model and particular safety stock or lead time techniques to manage efficiently. Also known as slow moving or sporadic demand.

Intermodal—transportation term used to describe multiple modes of transportation for a shipment. For example, an ocean container picked up by a truck, delivered to port, transported by ship, and put on rail to its final destination.

In transit—goods that have been shipped by an originating source but not yet received.

Inventory—a list of the items held in stock (often taken as being the stock itself)

Inventory Control—the activity concerned with minimizing the total cost of inventory during and after it has been received (i.e. efficiently handling and holding inventory).

Inventory management—the planning activities involved in getting the right inventory in the right place at the right time in the right quantity in the right form at the right cost.

Inventory Optimization—involves carefully monitoring five key aspects of inventory management that are interrelated and use information gathered from each other: lead-time forecasting, service level analysis, demand forecasting, order frequency analysis, and replenishment.

Inventory position—a measure of the current inventory level. It can be calculated by taking the sum of on-hand inventory and inventory on order and subtracting any backorders.

Inventory Pull System—an arrangement whereby an organization waits to produce product until customers demand it.

Inventory Push System—arrangement whereby an organization produces then pushes product through the channel without orders in hand. In this scenario, production and inventory levels are guided by forecasted or anticipated demand.

Inventory Turn—sometimes called "turnover" or "annual turns," it is a measurement of how often you are turning over your inventory investment. It is related to how many dollars you have sold over the past 12 months, divided by your average inventory cost. Turns for an item are calculated as follows: Turns = (COGS over past 12 months) / Avg. Inventory Dollars over past 12 months.

Inventory Velocity—speed of inventory moving through a facility during a given time, as measured by turnover (annual dollar sales volume at cost /average dollar inventory investment).

Inventory—any quantifiable item that you can handle, buy, sell, store, consume, produce, or track can be considered inventory. This includes raw material, work-in-process, and finished goods.

Item master—a part master record that lists its description, unit of measure, dimensions, family and group classification, production or purchasing ordering data, and other pertinent information.

Item number—part number.

Item—product or SKU

Glossary Terms J-L

Job order—a manufacturing or production order.

Judgmental forecast—a forecasting technique that uses peoples skills, knowledge

Just-in-Time (JIT)—term describing inventory arriving or being produced just in time for the shipment or next process. JIT is a process used to reduce waste and optimize manufacturing processes.

Kanban—used as an integral part of a Just-In-Time production operation where components and sub-assemblies are produced based upon notification of demand from a subsequent operation. Kanban is means of both signaling the need for inventory as well as controlling the inventory levels.

Key performance indicator (KPI)—indicators used to provide measurements of key success factors of a project or system.

Kitting—the process of pulling a set of component items from stock to group them for production, for movement to another area, or sale as a group.

Knowledge base—the accumulation of an organization's internal set of best practices, past issues, bugs, or problems, and their resolution; product and process data, and other any other information that can be used as a basis for analysis and training. Generally organized into meaningful categories and provides access methods to query and report the elements either internally, externally, or both.

Landed Cost—an accounting inventory costing method that includes the purchased cost plus transportation costs, import fees, duties, taxes, and other costs incurred while obtaining the inventory.

Last-in-first-out (LIFO)—describes the method for using the newest inventory first. In terms of accounting, it's a term used to describe a sometimes advantageous inventory costing method.

Lead time—amount of time required for an item to be available on the shelf for use (from the time it is ordered). Lead time can be divided into multiple discrete segments: administrative lead time, manufacturing (or vendor) lead time, shipping lead time, and put away time.

Lead-time demand—forecasted demand during the lead-time period.

Lean manufacturing—generic term used to describe the philosophies and techniques associated with Just-in-time (JIT) manufacturing.

Legacy applications—term describing numerous and dated computer programs/systems that have been or will eventually be replaced by newer systems.

Legacy system—term describing a business computer or information system that is old or outdated. Sometimes used to characterize home-grown (custom built) ERP or mainframe systems.

Less-than-truckload (LTL)—transportation term describing shipments that are less than a trailer load in size.

Line Item Fill Rate (LIFR)—the fraction of line items that are filled (i.e., if a line item in an order requests ten units, then the line item is defined as filled only if all ten units are shipped).

Line item—one line in a purchase order requesting a certain amount of one SKU.

Linear regression—a method of finding the line of best fit through a set of data

Logistics—the function responsible for the flow of materials into organizations, through operations, and then on to customers

Lot size—the quantity of a planned or actual order for purchased or production items

Lot tracking—the process of tracking a given material lot in order to provide the true source and destination of a given lot in a product recall or other situation.

Lot—a production run or batch that can be isolated from other runs and identified (numerically or otherwise) with a specific set of material, production facility, and process characteristics.

Lumpy demand—demand that is uneven in terms of timing, quantity variations, and may require more safety stock (investment in inventory) or a longer response time than more stable, predictable demand.

Glossary Terms M-O

Maintenance, repair, and operating inventory (MRO)—inventory used to maintain equipment as well as miscellaneous supplies such as office cleaning supplies.

Make to order (MTO)—a manufacturing method in which commonly-used raw materials and components may be stocked based on previous demand history. Final processing into finished goods is not done until receipt of a customer order.

Make to stock (MTS)—manufacturing method in which finished goods are produced and stocked prior to receipt of a customer order. The production schedule is typically based on previous demand history.

Margin—financial ratio calculation: [(Selling price/unit) - (Cost/unit)] / (Selling price/unit), most often stated as a percentage.

Master production schedule (MPS)—a production schedule specifying specific items, quantities, and dates at which production is expected to take place. MPS is generally used to manage capacity when there are periods where demand is expected to exceed capacity.

Material Requirements Planning (MRP)—-a complex computational procedure or system for converting a multi-period forecast of finished good demand for all products into a production plan for every sub-assembly and component that goes into our finished products. This is accomplished by, a) exploding a Bill of Material for each product and sub assembly into requirements for lower level sub-assemblies and components, b) spreading these derived demands backwards in time using estimated lead times, and c) netting out existing inventories to get the net amount needed to be put into production each period of each sub-assembly.

Mean absolute deviation (MAD)—a measure of the average error in a forecast

Mean Absolute Percentage Error (MAPE)—forecast error calculation in which mean absolute forecast error divided by the average demand multiplied by 100. It is always non-negative and may be greater than 100.

Mean error—a measure of bias in a forecast

Mean Squared Error (MSE)—is a measure of how close a fitted line is to a set of data points. For each data point, measure the distance vertically from the point to the corresponding y value on the fit curve (the error) and square it. Then all of those squared values are summed and the total is divided by the number of points in the data set. The squaring is done so negative values do not cancel positive values. The smaller the MSE, the closer the fit is to the data. The MSE has the units squared of whatever is plotted on the vertical axis. See also Root Mean Square Error.?

Mean—the average of a set of numeric values, as calculated by summing the individual values and dividing by the number of values in the set (same as average).

Median—the middle value in a group of ranked values that has an equal number of values both above and below it. It indicates the centerline of a distribution, while the mean, or average, can be skewed by a single high or low value.

Metric (or measure)—term used in organizations to describe a standard used to communicate progress on a particular aspect of the business. Measures typically are quantitative in nature, conveyed in numbers, dollars, percentages, etc. (i.e., dollars of revenue, inventory turns, etc.). They also may describe either quantitative or qualitative information.

Min-max (also known as order-up-to)—a relatively simplistic inventory system in which a minimum quantity and maximum quantity are set for an item. When the quantity drops below the specified minimum an order is placed up to the maximum.

Multiple currency—financial systems that allow orders and transactions to use more than one currency, utilize exchange rate tables to perform conversions, and perform revaluations into a base currency when specified.

Model—a system that describes or predicts a process based on the definition of variables, rules and equations. An appropriate model enables the analysis and/or simulation of the possible effects of changes in the underlying process based on changes in the model.

Mode—the number occurring most often in a given set of numbers.

Moving average—is one of a family of similar techniques used to analyze time series data. A simple moving average (SMA) is the unweighted mean of the previous n data points.

multi-echelon—multi-level echelon, typically manufacturer, distributor, retailer.

Multi-level bill of material—a bill of material that contains multiple successive levels. Each level adds component parts or processes until the finished good level is reached. Multilevel BOMs also show subassemblies and their components.

Multiple regression—an equation or analysis where two or more independent (predictor) variables affect the dependent variable. Often used in causal forecasting.

Multiple units of measure—the use of more than one unit of measure for a given item in orders and transactions. For instance, a given item may be internally stocked in units but entered on customer orders in cases, packs or some other measure. Conversion tables translate all requirements into a base measure for planning, scheduling and inventory valuation.

Negative inventory—a condition whereby the on-hand inventory balance is listed as a quantity less than zero. Generally seen in a backorder situation.

Netting—deducting requirements from an available resource (inventory, etc.).

Node—an individual point within a network that represents a separate entity and is linked to other nodes within the overall system. In a supply chain, individual companies and locations can be considered nodes.

Noise—the difference between the predicted and actual values of a model due to random error (including missing and incomplete data).

Normal distribution—term used in statistical analysis to describe a distribution of numbers in which the probability of an occurrence, if graphed, would follow the form of a bell shaped curve. This is the most common distribution model in use today for determining probability. It has been found to work well in predicting demand variability based upon historical data.

Normalized data—data that has been adjusted or reduced to eliminate redundancies and anomalies.

Obsolescence—the decay in the value and usefulness of a resource based on its age, replacement by newer technology, lack of demand, or other factor that may require a partial or total write-off of its currently-stated value.

Obsolete Inventory—inventory that has had no sales or usage activity for a specific period of time. This is also known as dead stock.

Off the shelf—software term describing an application that can be used as is, without further development or modification.

On order—the total quantity of material on open purchase, production, or replenishment orders (total scheduled receipts).

On-time delivery—receipt of scheduled shipments on the expected date, or defined as being within an allowable early/late tolerance.

On-hand inventory—the physical or perpetual quantity of current inventory.

Online analytic processing (OLAP)—tools that extract and perform multi-dimensional data analysis and enable a variety of views (i.e., rotation, summarization and trend analysis).

Open order—a released order not yet shipped or been received into inventory.

Open Source—software that has the source code freely available for modification.

Opportunity cost—the amount of income or resources lost as a result of not choosing the best alternative from a group of investment or other choices.

Order—a message from an organization to a supplier requesting a delivery of materials (inventory)

Order cost—is the sum of the fixed costs that are incurred each time an item is ordered. These costs are not associated with the quantity ordered but primarily with physical activities required to process the order. Often used in the calculation of EOQ.

Order cycle—refers to the time between orders of a specific item. It is typically calculated by dividing the order quantity by the annual demand then multiplying by the number of days in the year.

Order point—order policy methodology that compares current inventory to the forecasted demand during the lead time plus safety stock.

Outlier—An observed value so far removed from the normal distribution that it may be considered an abnormality or one-time event. It is usually not included in future calculations based on that set of data.

Outsourcing—use of other, third party organizations to perform non-core activities

Glossary Terms P-R

Pallet —a portable platform designed to allow a forklift to lift, to move, and to store various loads. Most pallets are made from wood, but can be made from plastic, steel, and even paper-based materials.

Parent—an upper level item that uses a component or material (child).

Pareto principle—80/20 rule - states that, for many events, 80% of the effects come from 20% of the causes (i.e., 80% of your sales comes from 20% of your clients).

Partnership—a tailored long-term business relationship based on mutual trust, openness, shared risk and shared rewards. It often yields a competitive advantage, resulting in business performance greater than would be achieved by the firms individually.

Period order quantity—an order method that uses a fixed period of time to determine order quantities. It is generally stated in days and will be compared to the forecast at the time of reorder to calculate the appropriate order quantity.

Perpetual inventory—the book inventory calculated and maintained, electronically, as a result of all issue, receipt and adjustment transactions, as opposed to verification by physical count.

Phantom bill of material—a fictitious bill of material created for common subassemblies or kits that a company does not want to produce as separate items. Phantom items never actually exist; they are just a means for simplifying the management of the BOMs.

Physical inventory—refers to the process of counting all inventories in a warehouse or plant.

Pilot—small test run of a system to verify its acceptance and capabilities before going full-scale.

Planned order—term used within MRP and DRP systems for system-generated planned order quantities.

Planning bill of material—a fictitious bill of material used to group options of a family of products.

Point of sale (POS)—the simultaneous recording of a customer sale and its effect on inventory levels, typically done in a retail environment with the use of automatic data collection systems. POS data can be used in sales analysis to review end-customer rather than distributor sales patterns.

Poisson distribution—is a discrete probability distribution that expresses the probability of a number of events occurring in a fixed period of time-if these events occur with a known average rate and independently of the time since the last event. It can also be used for the number of events in other specified intervals.

Postponement—a strategy where specific operations associated with a product are delayed until just prior to shipping. For instance, storing product in a generic state and then applying custom labels or packaging before shipping is an example of postponement.

Process manufacturing—a type of manufacturing where a product is produced or transformed through mixing of materials, chemical reactions, etc. (i.e., making ice cream, mixing liquid fertilizer, combining materials to make paint). Process manufacturing is in contrast to discrete manufacturing.

Procurement—the function responsible for acquiring all the materials needed by an organization (often an extension to purchasing)

Product life cycle—the elapsed time of a product from its initial creation to its abandonment, and often categorized by the stages of introduction, growth, maturity and decline. The identification of each stage can be important in determining promotional activity, demand forecasting, etc.

Production database—the live set of records and files that provide the data necessary to schedule and report production, i.e., bill of material, routing, production calendar, and other associated files. This is in contrast to a test database that can be used to test other applications without harming actual production.

Production plan—generally used to describe a long-term plan of what will be produced at a family or other group level.

Promotion—a temporary price reduction, typically publicized with advertising or other promotion.

Pseudo bill of material—see planning bill of material

Purchase order—the contractual agreement with a supplier of goods or services that specifies payment terms, delivery dates, item identification, quantities, freight terms and all other obligations and conditions. The order may specify multiple items and delivery dates, but is generated for a single vendor.

Quantity allocated—is the quantity that is on current open sales orders or production orders (as components), and may be relative to a specific time period.

Quantity available—is equal to quantity on hand minus allocations (for sales orders, manufacturing orders, etc).

Quantity in transit—reflects the quantity that has been shipped from one facility to another facility, but has not yet been received by that branch/facility.

Quantity on hand—is the quantity in stock-actual physical inventory in the possession of the business.

Quantity on order—includes quantity on open purchase orders or manufacturing orders (in some cases it may include quantity on transfer from another branch/warehouse).

R2 (R squared)—a measure, between zero and one, of how well a forecast or regression line fits a set of data. An R2 of one means a perfect fit. Numerically, it is 1-(sum of squared errors about the forecast line) / (sum of squared errors about the mean). Said another way, R2 is the fraction of the original variability or error in some nave forecast statistic that is removed or explained by a more detailed forecast model.

Radio frequency automatic identification (RFID)—a location and identification system using radio frequency signals that utilizes a transceiver, antenna, and tag associated with a product and location to transmit data. RFID systems are often used for inventory tracking in large warehouse and distribution center facilities.

Random sample—the selection of items or data for verification or measurement that is not predetermined on a value, location, or any other basis.

Raw materials—materials that have arrived from suppliers and are kept in stock. They are used to create finished goods or sub-assemblies.

Real-time—the processing and visibility of transactions and information as they occur, and not on a periodic or batch basis.

Reorder cost—cost associated with each order for materials placed with suppliers

Reorder level—the stock level at which it is time to place another order for

Reorder point—the inventory level set to trigger reorder of a specific item-generally calculated as the expected demand during the lead time plus safety stock.

Replenishment cycle—see Order Cycle

Replenishment—putting materials into stock to replace units that have been used

Root cause analysis—analysis that examines the individual processes within a system, identifies the control or decision points, and uses a series of questions (why?) to determine the reasons for variations in expected results.

Root Mean Square Error (RMSE)—it is the square root of the mean square error. The RMSE is the distance, on average, of a data point from the fitted line, measured along a vertical line. The RMSE is directly interpretable in terms of measurement units, so is a better measure of goodness of fit than a correlation coefficient. One can compare the RMSE to observed variation in measurements of a typical point. The two should be similar for a reasonable fit. See also Mean Square Error.

Rough cut capacity planning (RCCP)—A high-level capacity planning system often developed to provide an overall check of critical resources and verifies the feasibility of the production plan. Resource requirements are compared to availability, on an overall monthly basis, and indicate projected over and under capacity situations that could impact the successful completion of the plan.

Rule of 80/20 (also called Pareto principle)—states that, for many events, 80% of the effects come from 20% of the causes (i.e., 80% of your sales comes from 20% of your clients).

Glossary Terms S-U

Safety lead time (safety time)—a technique used to hedge or pad your supplier variability. By adding an extra period of time to lead time for safety stock calculations, additional safety stock can be carried to guard against late supplier deliveries or other delays. Some advanced replenishment systems will track your actual supplier lead time variance and automatically compensate with safety lead time.

Safety stock—quantity of inventory used in inventory management applications to cover deviations in forecast demand or supply. Safety stock calculations take into account historic deviations and use a required service level multiplier to determine the optimal safety stock level.

Sales and operations plan (S&OP)—the company-wide demand and supply plan that provides the next level of detail in fulfilling business plan objectives by describing family-level sales, production and inventory targets and incorporates the planned effects of new product or promotion introductions. It usually undergoes a monthly joint review by all departments that analyze current status against the previous plan to provide corrective action.

Sales cycle—the length of time needed to identify and qualify prospects, define the goods or services, and accept and acknowledge the order. The length of the sales cycle often depends on product complexity and degree of customization.

Sales history—actual sales shipment data that records product, quantity, customer, and other information and can be used in future demand calculations. It typically nets gross sales against customer returns.

Scheduled receipt—a firmed production, purchase, or interplant replenishment order that is treated as an incoming supply by inventory management systems and nets against requirements based on the quantity and due date.

Scientific inventory management—the use of mathematical models to find optimal stock levels and ordering policies

Scope—a measurable definition of goals, resources, timing and desired outcomes.

Seasonality index—involves a number generated for each specific forecast period that describes the relationship of each periods demand to the average demand over the complete seasonal cycle. A seasonality index is used to adjust the forecast to account for these cyclical changes in demand. The average demand is represented by the number 1. If seasonality for a period results in demand greater than the average demand, it will be represented by a number greater than 1 and vice versa.

Seasonality—fluctuations in demand that repeat with the same pattern over equivalent time periods.

Sensitivity—the rate at which a forecast responds to changes in demand

Service level—the fraction of the demand instances in which sufficient product was available to satisfy demand. There are at least three interpretations, see: a) item fill rate, b) line item fill rate, and c) order fill rate - most often, (a) > (b) > (c).

Shortage—occurs when customer demand cannot be met from stock inventory (resulting in back orders or lost sales)

Simple moving average (SMA)—a moving average calculation in which all past periods considered have equal weight and are not factored or smoothed.

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

Single level back flush—deduction from inventory of only the immediate components when production of the parent is reported, as opposed to also back flushing successively-lower levels of components.

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

Slow moving inventory—items kept in stock that have had no usage activity for a specified number of days, or whose usage rate is significantly below the expected average. See also intermittent or sporadic demand.

Smoothing—the adjustment or manipulation of a data set to fit a model or curve (i.e., the use of the alpha factor in exponential smoothing).

Sole sourcing—arrangement in which a customer gets all of its product from a single supplier. Sole sourcing is administratively much simpler than multi-sourcing (i.e. problems with product generates less ambiguity as to who supplied the product). One disadvantage of sole sourcing is that if the single supplier has a supply problem then there is less flexibility to quickly find an alternate supplier.

Sporadic Demand—slow moving or intermittent demand for stock items (especially spare parts or MRO items) that involve low volumes and/or multiple periods with zero demand between orders. Often requires a specialized forecast model and particular safety stock or lead time techniques to manage efficiently. Also known as slow moving or intermittent demand.

SQL (Structured Query Language)—the standard format for requesting data from a database, i.e., SQL Server, MS Access, etc.

Standard cost—inventory costing method that uses the materials costs in the bill of materials combined with the labor costs and machine costs in the routing to calculate the cost of the finished or semi-finished item.

Standard deviation— is a measure of the dispersion of a set of values. The standard deviation is usually denoted with the letter ? (lower case sigma). It is defined as the root-mean-square deviation of the values from their mean, or as the square root of the variance.

Standard Industrial Classification (SIC Code)—a six digit code used for classifying industries in the U.S. SIC is being replaced by a common North American Industry Code, NAICS, which will be applicable to Canada, the U.S., and Mexico. See http://www.census.gov/epcd/naics02/naicod02.htm.

Standard operating procedures (SOP)—instructions and methods used for a specific process or situation that document the normal or accepted methodology, and help form the basis for standardization.

Statement of work (SOW)—a document that sets forth services to be performed.

Statistical Forecasting—involves techniques that use past history in order to predict the future by identifying trends, patterns, and business cycles within the data to develop a forecast. Forecasts developed in this manner are referred to as statistical forecasts or statistical models. This is because mathematical formulas are used to identify the patterns and trends while testing the results for mathematical reasonableness and confidence. Many companies use the statistical model as a baseline to which additional insight is injected to improve the forecast accuracy. ?

Stock keeping unit (SKU)—referring to a specific item in a specific unit of measure.

Stock out—the condition when required material is not available for a production or sales order.

Strategic plan—long range, highest-level company plan that describes its overall goals and objectives in determining what businesses to participate in, which strategic resources are required, and serves as the basis or target for the next detail level from the business plan.

Subassembly—an intermediate level assembly used in the production of an upper level.

Suggested order—a planned purchase order or transfer generated by a planning system in response to a projected shortage against the specified safety stock level or order point. A suggested order generates lower level component requirements, but is not released and treated as an incoming receipt until accepted and executed.

Supplier—anyone or anything that replenishes or adds to stock

Third-party logistics (3PL)—describes businesses that provide one or many of a variety of logistics-related services. Types of services may include, but are not limited to: public warehousing, contract warehousing, transportation management, distribution management, freight consolidation.

Time series—a series of observations taken at regular intervals of time (i.e., monthly sales orders, etc.)

Top level (item)—an end item not used as a component or child of other items.

Top-down planning—the process of beginning with an aggregate volume, budget, or forecast and dividing the total by assigning values to individual units within the group based on estimates or historical averages.

Trend analysis—the analysis of data that exhibits an ongoing upward or downward pattern that is not due to seasonality or random noise. Analyzing trends is useful in detecting patterns that could lead to future quality problems, and in forecasting future demand periods.

Glossary Terms V-Z

Uncertainty—occurs when a value is not known exactly, but follows a known.

Unit—the standard size or quantity of a stock item.

Unit of measure (UoM)—describes how the quantity of an item is tracked in an inventory system. Typically, the lowest common denominator of unit of measure is "eaches" (EA), which simply means that each individual item is considered one unit. Items can be sold in a variety of units of measure including: case, pallet, container, etc.

Unit-of-measure conversions—a unit-of-measure conversion is needed whenever you work with multiple units of measure. Typically this conversion is done automatically in inventory management software.

Valuation—the assignment of dollars to units (i.e., multiplying on-hand inventory quantities by the standard cost or list price).

VAR (Value Added Reseller)—a firm that sells a product (often software), bundled with some additional features or services, i.e., installation, consulting, etc.

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

Variance— is a measure of statistical dispersion, averaging the squared distance of its possible values from the expected value (mean). Whereas the mean is a way to describe the location of a distribution, the variance is a way to capture its scale or degree of being spread out. The unit of variance is the square of the unit of the original variable. The positive square root of the variance, called the standard deviation, has the same units as the original variable and can be easier to interpret for this reason. ?

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

Visibility—the degree of insight one has into future requirements or key factors that will impact overall success in the system or project.

VPN (Virtual Private Network)—an arrangement among two or more organizations whereby a public network, such as the internet, is made to appear as a private, secure communications network to the participating parties.

Warehouse management system (WMS)—software designed specifically for inventory control or managing the movement and storage of materials throughout the warehouse. WMS functionality is broken down into the following three operations: put away, replenishment, and picking.

Warehouse—a distribution center (DC) in which product may be carried for an extended period of time, such as product that either has seasonal production or seasonal demand. Some warehouses, or sections of a warehouse, may be specifically designed to handle refrigerated goods, frozen goods, high value/security goods, fruits and vegetables, flammable goods, or other hazardous materials. The primary operations in a warehouse are 1) Receiving and inspection, 2) Slotting/put-away of received goods, 3) Inventory control and ordering, 4) Picking and packing of orders to be shipped, 5) Replenishment.

Weighted moving average—a moving average that assigns different weights to values or periods within the total population, as opposed to an equal weighting as with a simple moving average. Most often, more weight is given to the most recent period or periods.

Weighted out—describes a condition where the weight capacity of a trailer or container has been met. The term is generally used when you have met the weight capacity of the trailer or container but still have physical space left in the trailer or container.

What-if analysis—the simulation of the outcome of various scenarios and alternatives when changes to the inputs and parameters is made.

Workaround—a response that solves a system issue by the use of alternate methods or a change in procedures in place of a program modification.

Work-in-process (WIP)—describes inventory that is currently being processed or inventory that has been processed through one operation and are awaiting another one. WIP is actually an inventory account that represents the value of materials, labor, and overhead issued to manufacturing but has not yet produced a finished good ready for stocking.

World class—a term describing a high level of competitive performance as defined by benchmarking and use of best practices.

XML (eXtensible Markup Language)—an open, ISO standard data language.

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