Supply Chain Glossary: F-N

Factor - A factor is an agent for the sale of merchandise. He may hold possession of the goods in his own name or in the name of his principal. He is authorized to sell and to receive payment for the goods.

Fair Market Value - The value of an item as determined by negotiation between buyers and sellers and which value would be acceptable as a basis of a purchase and sale.

Family Group - A group of related products for which demand can be aggregated in order to assess overall demand for the material or parts which make up the family group products

First Expired, First Out (FEFO ) - The method whereby the goods which have the shortest expiry date are delivered (sold) to the customer first

Fill Rate - An item-based measurement that shows the percentage of demands that were met at the time they were placed. Fill rate only measures what happens when demands occur.

Finished Goods - Inventory to which the final increments of value have been added through manufacturing

Finished Goods Stock - Stock that is available for supply to an external consumer, including items that have been supplied but not invoiced to an external consumer

First-in, First-out (FIFO) - (1) Stock Valuation - The method of valuing stocks which assumes that the oldest stock is consumed first and thus issues are valued at the oldest price. (2) Stock Rotation - The method whereby the goods which have been longest in stock are delivered (sold) and/or consumed first.

First Pick Ratio - During order picking, the percentage of orders or lines for which 100% completion was achieved from the primary location or picking face.

Fixed Order Interval - An inventory control system for which a maximum stock level has been calculated based on usage during the lead-time and order interval. Stock is reviewed at specified time periods and subsequent order size equates to the difference between the maximum stock level and the current inventory position. Thus, the order size will vary according to usage between reviews.

Fixed Order Quantity (Fixed Order Size) - An inventory control system where stock is reviewed continuously and, whenever the inventory falls to a predetermined point, an order for a fixed quantity of stock is generated

Forecast Demand - The prediction, projection or estimation of expected demand over a specified future time period

Free Stock - See Available Stock

GUS Classification - A classification of products into three categories for the benefit of goods flow control and stock control, based on a products area of application within a product division.

• G = General products that may be required in several main article groups or operations centres and are administered centrally in the division
• U = Unique products that are used uniquely in one main article group or operations centre but in several of its products, and administered locally in the division
• S = Specific products that are used exclusively in one higher level product, and whose procurement is effected per individual order
  

Hedge - Any purchase or sales transaction having as its purpose the elimination of profit or loss arising from price fluctuations; specifically, a purchase or sale entered into for the purpose of balancing, a sale or purchase already made, or under contract, in order to offset the effect of price fluctuation.

Holder in Due Course - A person who takes a negotiable instrument under the following conditions: (1) that it is complete and regular on its face; (2) that he becomes the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact; (3) that he took it in good faith and for value; (4) that at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Holding Cost - The cost associated with holding one unit of an item in stock for one period of time incorporating elements to cover: Capital costs for stock; Taxes; Insurance; Storage; Handling; Administration; Shrinkage; Obsolescence; Deterioration.

In Process Goods - Partially completed final products that are still in the production process either as an accumulation of partially completed work or the queue of material awaiting further processing

Inactive Inventory - Stock of items that have not been used for a defined period

Independent Demand - A classification used in inventory control systems where the demand for any one item has no relationship with the demand for any other item and variations in demand occur because of random influences from the market place

Intermediate Product - A product for which independent demand can exist and for which there is also demand as part of another higher level product eg a single can and a multi-can pack or a sub-assembly spare and the major assembly of which it forms part

Intermediate Stock - See Decoupling Stock

Inventory - A term used to describe: All the goods and materials held by an organisation for future sale or use. An itemized listing of amounts of property indicated as on hand at a particular time. A physical inventory is one determined by actual physical count of the items. A book inventory is one determined from records maintained in connection with day-to-day business activities.

Inventory Control - Consists of all the activities and procedures used to control and maintain the right amount of each item in stock or to provide the required level of service at minimum cost

Inventory Modelling - The evaluation of alternative inventory design characteristics or inventory parameters using analytical or simulation processes to assist management decisions

Inventory Policy - A statement of a company's goals and approach to inventory management

Inventory Process - Any business process that involves inventory. Includes the receiving of parts, putting them away, and their storage, withdrawal, issue, and movement through work-in process, while simultaneously tracking their movement and maintaining records of those events and their effects.

Inventory Records - Records that reflect how much and what kind of inventories a company has on hand, committed (allocated) to work in process, and on order

Inventory Shrinkage - Losses resulting from scrap, deterioration, pilferage, etc

Inventory Usage - The value of the number of units, or quantity, of an inventory item (stock usage) consumed over a period of time

Inventory Value - The value of inventory at either cost or market value. The value of the inventory is usually computed on a First In First Out (FIFO), Last In First Out (LIFO) or average cost basis.

Issue List - A document that states all the parts to be issued

Issue Tickets - An authorisation to withdraw allocated stock items from the stockroom. When presented to the stockroom, they can be exchanged for the parts designated.

Issuing Documents - The physical documents that communicate specifically how much of what needs to be issued to where. Issue lists, issue tickets, and issue decks are all forms of issuing documents.

Item - See Stock Keeping Unit (SKU)

Item Number - See Part Number

Just-in-Time JIT - A dependent demand inventory control philosophy which views production as a system in which all operations, including the delivery of materials needed for production, occur just at the time they are needed. Thus, stocks of material are virtually eliminated.

Kanban - A simple control system for coordinating the movement of material to feed the production line. The method uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centres signal with a card that they wish to withdraw parts from feeding operations or vendors. Loosely translated from Japanese, the word Kanban' means literally means billboard' or sign. The term is often used synonymously for the specific scheduling system developed and used by Toyota Corporation in Japan.

Kit - A number of separate Stock Keeping Units that are supplied or used as one item under its own Part Number

Last-in, First Out (LIFO ) - 1. Stock Valuation. The method of valuing stocks which assumes that all issues or sales are charged at the most current cost but stocks are valued at the oldest cost available. 2. Stock Rotation. The method whereby the goods which the newest goods in stock are delivered (sold) and/or consumed first.

Landed Price - A price which includes the cost of the goods, transportation, and other costs incident to ultimate delivery to the location specified by the purchaser.

Lead Time -The period of time from date of ordering to the date of delivery which the buyer must reasonably allow the vendor to prepare goods for shipment.

Leakage - See Shrinkage

Letter of Credit - A letter containing a request that the party to whom it is addressed pay the bearer or person named therein money, sell him commodities on credit, or give him something of value, with the intention that the addressee later seek payment from the writer of the letter. It is used by a buyer to secure goods without the necessity of having cash on hand.

Letter of Intent - A preliminary contractual arrangement customarily used in situations where the items, quantities, price, and delivery dates are known, but where the principal contract provisions required additional time-consuming negotiations. It is used to enter into interim agreement, pending a definitive contract, so as to permit the start of construction, production, or delivery of the supplies or materials.

Lifed Item - A consumable or repairable product for which the manufacturer has specified a finite life in either some form of time period or in a number of cycles or activities.

Lineside Warehouse - A supplier warehouse positioned as close as possible to the production location to facilitate Just In Time manufacture.

Linear Bar Code - A method of automatic identification using a series of light spaces and dark bars differing densities, in standard formats, to enable a computer to read data and letters accurately without keyboard entry.

Liquidated Damages - The parties to a contract may provide in advance that a specific sum be recoverable if the contract is breached. If the amount specified is reasonable and if the nature of the contract is such that actual damages would be difficult to determine, liquidated damage provisions are enforced. If the amount specified is unreasonably great in relation to the loss or injury suffered, or if the amount of damages could be determined easily in the event of breach, the courts declare the provision to be a penalty and refuse to enforce it.

Location Checking - The systematic physical checking of warehouse stock against location records to ensure location accuracy.

Logistics - The time-related positioning of resources to meet user requirements.

Lot Number - The allocation of a unique number, to one or more of a product during manufacture or assembly, to provide traceability.

Lost Sales - A customer demand for which no stock is available and where the customer is not prepared to wait for the item to arrive in stock but goes to another supplier.

Material Requirements Planning (MRP I) - A system to support manufacturing and fabrication organisations by the timely release of production and purchase orders using the production plan for finished goods to determine the materials required to make the product. Orders for dependent demand items are phased over time to ensure that the flow of raw materials and in-process inventories matches the production schedules for finished products. The 3 key inputs are: The master production schedule.Inventory status records.Product structure records.

Manufacturing Resource Planning (MRP II) - A method for the effective planning of all the resources of a manufacturing company. Ideally it addresses operational planning in units, financial planning in money, and has a simulation capability to answer what if questions. It is made up of a variety of functions, each linked together: business planning, master (or production) planning, master production scheduling, material requirements planning, capacity requirements planning and the execution systems for capacity and priority. Outputs from these systems would be integrated with financial reports such as the business plan, purchase commitment report, shipping budget, stock projections in money etc. Manufacturing resource planning is a direct out-growth and extension of material requirements planning (MRP-1).

Make to Order - A manufacturing or assembly process established to satisfy customer demand only after an order has been placed.

Materials Management - The planning, organisation and control of all aspects of inventory embracing procurement, warehousing, work-in-progress, shipping, and distribution of finished goods.

Matrix Bar Code - See Two Dimensional Bar Code

Maximum Stock - The upper limit, expressed in quantitative, financial or time-based terms, to which the stock of an item should normally be allowed to rise.

Maximum Order Quantity - An order quantity which, in principle, must not be exceeded.

Minimum Order - The smallest order quantity which, in principle, is allowed.

Minimum Stock - A control limit within a stock control system which could indicate the point at which an order should be placed, or indicate if stocks are too low, for a specific item.