Supply Chain Glossary: O-Z

Obsolete Stock - Stock held within an organisation where there is no longer any organisational reason for holding the stock

Obsolescent Stock - Parts which have been replaced by an alternative but which may still be used until stock is exhausted.

Off the Shelf Satisfaction - See Fill Rate

On-hand Balance - The quantity of an item shown in the inventory records as being physically in stock.

Open-Account Purchase - A purchase made by a buyer who has established credit with the seller. Payment terms are usually stated to require payment of invoice on or before a specific date or dates; also, to require payment of invoice in full, or less a certain percentage for prompt payment. Such terms are agreed upon between buyer and seller at time of placing order, or before.

Opening Stock - The stock of an item at the beginning of an inventory accounting period of time.

Open-to-Buy - A term used in retailing to designate the value or quantity of goods beyond which a buyer may not purchase; the value or quantity remaining to be purchased against a specific appropriation or requisition.

Order Lead Time - The total internal processing time necessary to transform a replenishment quantity into an order and for the transmission of that order to the recipient.

Order Picking - Collecting items from a storage location to satisfy a shop or customer order.

Order Point Inventory System - An inventory control system for independent demand items where a reorder requirement is generated and sent to a supplier when the on-hand inventory balance reaches a specified level.

Outsourcing - Service provided by a third-party and which consists in taking responsibility for the management of part or all of a functional department of a company. This enables companies to focus on their core-business by outsourcing their non-core functions.

Parent Part - Any finished goods, end item, or part that is mixed, fabricated, assembled, stirred, or blended from one or more other components.

Pareto Principle - The heuristic rule which states that where there is a large number of contributors to a result, the majority of the result is due to a minority of the contributors.. Sometimes known as the 80/20 rule) which states that, in many cases, approximately 80% of the turnover (stock etc.) can be ascribed to approximately 20% of the customers, articles or orders. The actual ratio in a particular case can be determined by ranking the customers and products etc. in order of magnitude and then calculating what percentage of the turnover (stock etc.) corresponds to 10%, 20% 30% etc. of the customer and products etc. The basis of ABC analysis.

Part Number - A unique identification number allocated to a specific part either by the manufacturer or user of the part.

Perpetual Inventory System - An inventory control system where a running record is kept of the amount of stock held for each item. Whenever an issue is made, the withdrawal is logged and the result compared with the re-order point for any necessary re-order action.

Periodic Inventory - An inventory control system classification for independent demand items where the number of items held is reviewed at a fixed time interval and the size of any resultant order depends on the stock on hand at the time of the review.

Pick Face - The primary location in a warehouse at which order picking, of less than pallet loads, is undertaken.

Picking Lis t - An output from an inventory control system designating those items, by part number, description and quantity, to be picked from stock to satisfy customer demand.

Pipeline Stocks - The products which are currently being moved from one location to another.

Price Maintenance - The price of an item established by a manufacturer or wholesaler below which he will not sell or permit his product to be sold by others.

Price Prevailing at Date of Shipment - An agreement between the purchaser and the vendor that the price of the goods ordered is subject to change at the vendor's discretion between the date the order is placed and the date the vendor makes shipment and that the then established price is the contract price.

Price Protection - An agreement by a vendor with a purchaser to grant the purchaser any reduction in price which the vendor may establish on his goods prior to shipment of the purchaser's order. Price protection is sometimes extended for an additional period beyond the date of shipment.

Price Schedule - The list of prices applying to varying quantities or kinds of goods.

Proforma Invoice - An invoice prepared by a vendor in advance of a sale to show the form and amount of the invoice which will be rendered to the purchaser if the sale is consummated. Proforma invoices are often used in export transactions to support the purchaser's request to governmental authorities for import permits and foreign exchange.

Progress Payments - Payments arranged in connection with purchase transactions requiring periodic payments in advance of delivery for certain stated amounts or for certain percentages of the purchase price. The whole of the purchase price may be due in advance of delivery or partially in advance and partially after delivery. Progress payments are usually required in contracts for building construction and often for specially designed plant machinery and equipment. Purchases calling for progress payments may be either on open account or be secured, usually by a contract between the buyer and seller.

Promissory Note - An unconditional written promise, signed by the maker, to pay a certain sum in money, on demand or at a fixed or determinable future date, either to the bearer or to the order of a designated person.

Probabilistic (or Stochastic) Inventory Control Models - An inventory control system where all the variables and parameters used are treated as random variables. It is assumed that the average demand for items is approximately constant over time and that it is possible to state the probability distribution of the demand, particularly during the lead time for replenishment.

Product Group - See Family Group

Production Lead Time - The time taken to manufacture or produce an item after an external order has been received until the item is available for packing.

Pull System - A system where orders for an end item are pulled through the facility to satisfy demand for the end item. An examples of pull system is the JIT Kanban process.

Purchasing:

e-Procurement - Allows for the optimisation of administrative costs especially for the placement of order stage. E-procurement is defined as the whole solution that gives a group of users access to information sources and tools in order to simplify procurement, invoicing and payment actions. E-procurement relies on software that enables you to:

- manage catalogues negotiated by buyers

- give each user access to these catalogues

- send the necessary information for the execution of the order via the Internet

- possibly issue electronic invoices

- possibly pay on-line (Purchasing Card)

MRO (Material , Repair and Operating supplies) - All the items, parts and consumable materials used in production in general, as well as for the repair or maintenance of industrial equipment. These are general purchases but which are linked to production equipment. For instance the tools for repairing production machines, oil or filters for their maintenance, etc., are classified as MRO. These kinds of purchases are usually easy to outsource. In fact there are marketplaces dedicated to MRO purchases (MROnly.com, onlinemro.com, findmro.com, etc.).

Non-Production (non-core) purchases - All the purchases that do not enter into the manufacturing of a product or the strategic (core) purchases of a company. They are re-grouped into 4 sub-families: transport, computing, maintenance and office supplies. MRO also form part of this family since these purchases do not enter into the manufacturing of the product but allow for the maintenance and repair of the production tool. It is an area of purchasing which is not usually optimised since in the majority of cases it is the end-user who places the order. These types of purchases are often considered as secondary since they only account for a small part of a company's budget. However they represent an important number of orders and suppliers. Therefore marketplaces today represent an interesting tool to optimise these kinds of purchases, notably allowing for the reduction of administrative costs.

Strategic (core) purchases - The strategic purchases of a company are linked to their core-business. They are therefore purchases that greatly influence the product or service created. The company considers these purchases as confidential. This type of purchase is part of the A-Class according to the ABC classification and therefore accounts for an important part of the spend.

Purchasing Price - See Unit Cost

Purchasing Lead Time (PLT) - The length of time between the decision to purchase an item and its actual addition to stock.

Purchase Price - See Unit Cost

Purchasing Lead Time (PLT) - The total length of time between the decision to purchase an item and its availability for dispatch from the supplier concerned (that is, the sum of the order lead-time, the production lead time and any time necessary for packing or preparation for dispatch of a specific order).

Push System - A system where orders are issued for completion by specified due dates, based on estimated lead-times, or where the flow of material in a product structure is controlled and determined by the lower levels.

Put Away Rules - The internal rules and procedures for positioning stock in a warehouse or store after goods inward processing.

Quarantine Stock - On-hand stock which has been segregated and is not available to meet customer requirements.

Quotation - A statement of price, terms of sale, and description of goods or services offered by a vendor to a prospective purchaser; a bid. When given in response to an inquired is usually considered an offer to sell. Also, the stating of the current price of a commodity; the price so stated.

Radio Frequency Identification (RFID) - The attachment of transponders (which may be read only or read/write) to products, as an alternative to linear bar codes, to enable product identification some distance from the scanner or when out of line of sight.

Random Sample Cycle Counting - A method in which the particular parts to be counted are selected from the population of part numbers in a manner that has no inherent bias. In this selection process, each part number has an equal chance of being selected.

Rapid Acquisition of Manufactured Parts (RAMP) - A make to order process to reduce the purchasing lead time for long lead time manufactured parts whereby Product Data is held in STEP (the international standard for exchange of manufacturing product data) by the customer and exchanged, in electronic format, when an order is placed.

Raw Material - Stock or items purchased from suppliers, to be input to a production process, and which will subsequently modified or transformed into finished goods.

Redundant Stock - Parts used in manufacture which have been removed from a bill of material by technical change or modification action. Redundant parts may also be obsolete if they are no longer used for any other application in the inventory concerned.

Repair Turn Round Time (RTRT ) - See Turn Around Time

Repairable Period (RP ) - The total out of service time, including transit time, from when a repairable component becomes unfit for use until the time it is returned to stock and is available for further use.

Repairable Item - An inventory item that is not normally consumed in use but one which will be repaired and re-used as part of the normal stock policy for that item. Such items have a repair lead-time as well as a procurement lead-time.

Repair Turn Round Time (RTRT) - See Turn Around Time

Repair Period (RP) - The total out of service time, including transit time, from when a repairable component becomes unfit for use until the time it is returned to stock and is available for further use.

Re-Order Level (ROL) (or Re-Order Point - ROP) - The calculated level of stock within an inventory control system to which the quantity of a specific item is allowed to fall before replenishment order action is generated.

Re-Order Quantity, Replenishment Order Quantity - The calculated order quantity necessary to replenish stocks at a given point in time. The method of calculation, and the timing of the order, will vary depending on the type of inventory control system in use. Quantity based systems are checked continually to determine if an order should be placed; time based systems only have a count of stock at predetermined intervals and orders placed as required; a distribution system plans orders to meet distribution needs; and production based systems only order stock to meet manufacturing requirements.

Reorder Costs - The total cost of placing a repeat order for an item either externally on a supplier or for internal manufacture. The costs may include elements to cover: order preparation, administration, IT overheads, correspondence, telephone, transportation, goods inward processing, inspection and for manufacture, batch et up costs and other production overheads.

Replenish to Demand - See Make to Order

Replenishment Lead-time - See Total Lead-time

Reverse Logistics - The requirement to plan the flow of surplus or unwanted material or equipment back through the supply chain after meeting customer demand.

Review Interval - The time between assessing order requirements in a fixed order interval system.

Rotable - An repairable inventory item that can be repeatedly restored to a fully serviceable condition and re-used over the normal life cycle of the parent equipment to which it is related. Such items have a repair lead time as well as a procurement lead time and normally have a serial number that is retained throughout the rotable life regardless of the extent of replacement of its component parts.

Rounding Order Quantity - That element of an order that has been added to the basic order quantity to meet a constraint imposed by the manufacturer or to optimise overall supply chain costs.

Safety Stock - The stock held to protect against the differences between forecast and actual consumption, and between expected and actual delivery times of procurement orders, to protect against stockouts during the replenishment cycle. In calculating safety stock, account is taken of such factors as service level, expected fluctuations of demand and likely variations in lead time.

Sales Forecast - The prediction, projection or estimation of expected sales over a specified future time period.

Sample Stability - if a sample produces a particular result, and by increasing the sample size it continues to produce the same result, the sample has stability and can be assumed to be representative of the population. This is an important characteristic when the population size is unknown or extremely large.

Seasonal Stock - See Anticipation Stock.

Selective inventory Control - The application of varying levels of control to the total inventory to enable managers to concentrate on significant matters (see ABC analysis and ABC classification).

Seller's Market - A seller's market is considered to exist when goods cannot easily be secured and when the economic forces of business tend to cause goods to be priced at the vendor's estimate of value.

Seller's Option - The right of a seller to require the buyer to purchase merchandise, or other property at an agreed price and within a given period of time.

Service Level - The desired probability that a demand can be met from stock (for an individual item, group of items or a system) which can be expressed in a number of ways: Percentage of orders completely satisfied from stock.Percentage of units demanded which are met from stock.Percentage of units demanded which are delivered on time.Percentage of time there is stock available.Percentage of stock cycles without shortages.Percentage of item-months there is stock available.

Shelf Life - The maximum time an item may be stored before use.

Shrinkage - The decrease in inventory quantities over time from loss or theft.

Short Sale - The sale of a commodity for future delivery which the seller does not possess but intends to purchase prior to the required delivery date, expecting that the market price will be no higher or will decline during the intervening period.

Shortage (or Stockout) Costs - The economic consequences of an external or internal inability to meet a demand from stock. External impacts can include backorder costs, present profit loss from lost sales and future profit loss from loss of goodwill and reputation. Internal impacts can include lost production, production rescheduling and delays in completion dates.

Sourcing - The act of searching for the suppliers that can best answer the needs of the buyer in terms of cost, quality and delivery.

Spares (Spare Parts) - Components or parts, either consumable or repairable, from the associated bill of material used to maintain or repair machinery or equipment.

Specification - A clear, complete, and accurate statement of the technical requirements descriptive of a material, an item, or a service, and of the procedure to be followed to determine if the requirements are met.

Stock - Stock can be defined as: All the goods and materials stored by an organisation and retained for future use.The quantity of goods between measuring points in a particular path, expressed in quantitative and/or financial terms. For example, the goods can be in a pipeline, in a warehouse or technical store, in reception, in production.Additional terms for stock are:All-time stockAnticipation stockAvailable stockBuffer stockCapacity loading stockCalculated stockClosing stockConsignment stockCyclical stockEconomic stockEffective stockFree stockLot-size stock Decoupling stock Maximum stockNorm stockObsolete stockOpening stockPhysical stockPipeline stock Reserved stockSafety stockSeasonal stockShortage stock Speculation stockStrategic stockSurplus stockWork-in-progress stock

Stock Analysis - The process of analysing the stock position and the stock pattern as well as signaling differences with regard to the stock norms.

Stock Carrying Costs (or Stock Holding Costs) - The total costs associated with holding stock. These costs consist of: The unit purchase cost.The reorder cost.The holding cost.The stockout or shortage cost.

Stock Control - See Inventory Control.

Stock Cover - The current stock divided by the average weekly demand (weekly demand can be based on either past history or forward forecast).

Stock Difference (or Stock Discrepancy) - The difference between the actual stock held and the calculated stock or registered stock.

Stock in Transit/ Clearing - All materials, components or finished products in transit from one point in a supply chain to another supply chain destination, expressed in quantitative or financial terms.

Stock Investment - The amount of money that invested in all levels of stock at any given point in time.

Stock Keeping Unit (SKU) - A single type of product which is kept in stock; it is one entry in the inventory.

Stock Location System - A system where all places within a warehouse are identified in some way to facilitate storage and retrieval of stock.

Stock Management - The planning and control of the quantities, qualities and location of stocks.

Stock Norm - A ratio of stock to e.g. sales, set as a standard and expressed as a percentage, or as a factor or as a number' of days, weeks or months. The stock norm is determined by taking into account the:Safety stock.Production batch stock or shipment batch stock.Production batch stock or shipment batch stock.Normal seasonal stock.Normative pipeline stock.Stock on OrderThe quantity represented by the total of all out-standing orders for a particular item. The on order balance increases when a new order is released and decreases when an order is received or cancelled.

Stock-Out - The situation when demand for a stock item is received but there is insufficient stock to satisfy the demand.

Stock-Out Costs - The economic consequences of an internal or external stockout such as missed sales, delayed deliveries, anticipated lower sales in the future because of loss of goodwill, costs resulting from production stoppages and all kinds of associated costs.

Stock Out Percentage - A measure of the effectiveness with which a company responds to actual demand. The stock-out percentage can be a measurement of total stock-outs to total orders, or of line items incurring stock-outs during a period of total line items ordered.

Stock-Out Risk - The accepted risk of having a shortage of stock of an item which is used in calculating the required level of safety stock.

Stock Point - A point in the supply chain meant to keep goods available.

Stock Policy - The policy with regard to the level and location of stock to be held and where and how this should be done.

Stock Position - The situation of a particular product, at a particular time, with regard to the relationship between the expected demand and/or requirement, the physical stock and the outstanding procurement orders.

Stock Site - A location at which stock is held.

Stock Turn - The number of times that an inventory turns over during the year and normally obtained by dividing the average inventory value into the annual cost of sales.

Stocktaking - A physical count of products actually held in stock as a basis for verification of the stock records and accounts.

Stock Turnover (or Stock Turn) - A widely used measure of inventory performance expressed as the ratio of the cost of units sold to the average value of stock

Stock Types - The products which are determined for delivery from stock.

Strategic Stock - The stock of goods of essential importance for the continuation of the production process and which is built up in order to compensate for long hold-ups of incoming goods (caused by strikes and political difficulties etc. in a particular country or region).

Supply-Chain - (1) The total sequence of business processes, within a single or multiple enterprise environment, that enable customer demand for a product or service to be satisfied. (2) Includes all information flows, physical flows and interfaces between the different participants, producers and suppliers which are involved in the manufacturing and distribution of a product or the offer of a service. This information includes everything from when the buyer first defines their needs right through to the acknowledgement of receipt.

The concept of supply chain means that all the participants are integrated within the procurement process, the company's limits are not the same: every participant is linked to the other participants, upstream and downstream.

Supply-Chain Management (SCM) - (1) Organisation of the overall business processes to enable the profitable transformation of raw materials or products into finished goods and their timely distribution to meet customer demand. (2) Global organisation that allows for the management of all the exchanges involved within the supply chain and that relies on computing means. The supply chain software usually integrates with the other software that a company uses (ERP - Efficient Resources Planning, CAPM - Computer Aided Production Management).

More and more the computerisation of the supply chain and the supply chain management (SCM) represents a key element, from a competitive point of view, of a company's strategy. It comes with the Just-In-Time practice and guarantees delivery of the right product at the right time. From this computerisation derives the concept of integrated logistics, closely linked to the new perspective of Integrated Supply Chain Management (ISCM), including the client, the suppliers and the subcontractors.

Terms of Payment - All purchase transactions require a payment for the goods or services received and, excepting an unusual exchange or barter deal, payment is made in negotiable funds in accordance with the terms agreed between buyer and seller. There are three basic payment terms: cash, open account, and secured account.

Trade Acceptance - A noninterest bearing bill of exchange or draft covering the sale of goods, drawn by the seller on, and accepted by, the buyer. Its purpose is to put into negotiable form an open account having a short maturity. To be eligible for discount it must contain the statement that the acceptor's obligation arises out of the purchase of goods from the drawer and it may be accompanied by a record of purchase.

Trade Terms - The broad classification applicable to purchase transactions with reference to understandings between buyer and seller, either as to the meanings or certain abbreviations, words, or phrases, or to customs applicable to transactions as established by agreement between the parties or as established by general usage. Trade terms includes agreed or arbitrary classifications of buyers and sellers, or their agents; types and methods of discounts, delivery terms, allowances; practices peculiar to an industry, etc.

Total Acquisition Cost (TAQ) - The sum of all the costs to an organisation of carrying an item in stock including reorder, carrying and shortage costs.

Total Lead-time - The total time between the decision to place a replenishment order until its availability for use. That is, the sum of Order Lead-time, Purchasing Lead-time, Transit Time and any Goods Inward Lead-time for that replenishment order.

Traceability - The identification of goods or material used in manufacturing or processing to enable the relevant production batch and material source to be traced in case of subsequent defects.

Transaction - Recording of a material movement or an adjustment event that impacts on a stock position.

Transit Time - The time taken to move goods physically between different locations in a supply chain or laterally to another facility.

Turn Around Time (TAT) - The total time taken to repair a component at the repair location, including waiting time but excluding transit time.

Twenty-Eighty Rule - See Pareto Principle.

Two Dimensional Bar Code (2D Bar Code) - Codes in which information is placed in two dimensions and read from side to side, and up and down, by special scanning equipment and which can be read, even if partially damaged.

Unit - The standard size or quantity of a stock item.

Unit Cost - The cost to an organisation of acquiring one unit, including any freight costs, if obtained from an external source or the total unit production cost, including direct labour, direct material and factory overheads, if manufactured in-house.

Unit of Measure - The standard unit of an item used in the stock account and to construct order quantities.

Vendor Hub - Third party operation of a warehouse, funded by suppliers, containing Vendor-Owned stock for delivery to a customer (See Lineside Warehouse).

Vendor Managed Inventory (VMI) - An element of inventory stocked by one organisation but where the forecast demand, and required stock levels to meet that demand, are calculated by the manufacturer or distributor of the stock items concerned.

Work in Progress WIP - The total amount of work in processing, between production stages or subject to a waiting time.

Work in Progress Stock - The stock of products and/or materials and components which are still in the production department and are not, or are no longer, included in the stock in the store.

Working Stock - The stock of materials, components and sub-assemblies (excluding safety stock) held in advance of demand so that ordering can done on a lot size rather than on an as needed basis. In other words, the normal stocks formed by products arriving in large regular orders to meet smaller, more frequent customer demand. Also known as cycle stock or lot size stock.

Zero Inventories - Part of the principles of just-in-time which relates the elimination of waste by having only required materials when needed.