ERP Terms and Definitions

ERP definitions and terms decoded

Here is a growing list of terms and definitions that you may hear people use.

If you can’t find the term you’re looking for or think we forgot something please let us know and we’ll happily update this page.

A

accounts payable (AP): The value of goods and services acquired for which payment has not yet been made.

accounts receivable (AR): The value of goods shipped or services rendered to a customer on which payment has not yet been received. Usually includes an allowance for bad debts.

advanced planning and scheduling (APS): Techniques that deal with analysis and planning of logistics and manufacturing over the short, intermediate, and long-term time periods. APS describes any computer program that uses advanced mathematical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others. These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise capabilities. APS often generates and evaluates multiple scenarios. Management then selects one scenario to use as the “official plan.” The five main components of APS systems are demand planning, production planning, production scheduling, distribution planning, and transportation planning.

APICS: A nonprofit educational organization consisting of over 70,000 members in the production and operations, materials, and integrated resource management areas.

application Software: A program that performs a task or process specific to a particular end-user’s needs, or solves a particular problem. Enterprise applications are typically large-scale business systems that organizations use to manage their operations.

application programming interface (API): A set of routines, protocols, and tools for building software applications or for communicating with programs or other systems. A good API makes it easier to develop a program by providing all the building blocks that a programmer needs Although APIs are designed for programmers, they are ultimately good for users because they guarantee that all programs using a common API will have similar interfaces, which makes it easier for users to learn new programs. On the other hand, many enterprise applications vendors provide APIs for integrating other applications with their systems.

application service provider (ASP): A third-party entity that manages and distributes software-based leased services and solutions to customers across a wide area network from a central data center. In essence, ASPs are a way for companies to outsource some or almost all aspects of their information technology needs.

architecture: A structured set of protocols that implements a system’s functions.

available-to-promise (ATP): The uncommitted portion of a company’s inventory and planned production, maintained in the master schedule to support customer order promising.

B

backflush- The calculated reduction of a component inventory balance based on the reported production of a parent item and the quantity of the component used per each parent. A system transaction that may not represent physical usage based on timing and bill of material accuracy issues.

back scheduling: A technique for calculating operation start dates and due dates. The schedule is computed starting with the due date for the order and working backward to determine the required start date and/or due dates for each operation.

bill of material (BOM): A listing of all the sub assemblies, intermediates, parts, and raw materials that go into a parent assembly showing the quantity of each required to make an assembly.

business intelligence (BI): Sets of tools that provide graphical analysis of business information in multidimensional views thus enabling people to make better decisions and improve their business processes.

business-to-business e-commerce (B2B) (A): Business being conducted over the Internet between businesses. Thhe implication is that this connectivity will cause businesses to transform themselves via supply chain management to become virtual organizations, reducing costs, improving quality, reducing delivery lead time, and improving due-date performance.

business-to-consumer sales (B2C) (A): Business being conducted between businesses and final consumers largely over the Internet. It includes traditional brick and mortar businesses that also offer products online and businesses that trade exclusively electronically.

C

capacity requirements planning (CRP): The function of establishing, measuring, and adjusting limits or levels of capacity. The term CRP in this context refers to the process of determining in detail the amount of labor and machine resources required to accomplish the tasks of production.

client: In information systems, a software program that is used to contact and obtain data from a server program on another computer. Each client program is designed to work with one or more specific kinds of server programs, and each server requires a specific kind of client. A Web browser is one type of client.

Client/server systems A distributed computing system in which work is assigned to the computer best able to perform it from among a network of computers.

computerized maintenance management systems (CMMS): Automated software systems for handling maintenance work orders, as well as associated inventory, purchasing, accounting, and human resources functions. In some industries—particularly process production, in which manufacturers look to optimize use of capital-intensive equipment—maintenance management systems play a leading role as the enterprise system. Maintenance management systems have similar basic functionality, including:

1) use of work orders for preventive and predictive maintenance,
2) equipment recording and tracking,
3) inventory control,
4) scheduling labor and resources, and
5) purchasing.

contact management- Systems that track interaction between a sales force and customers or prospects, supply chain partners, or other relationships. Functions usually include call date tracking, notes files, followup reminders, birthday or anniversary date reminders, and other methods to provide systematic ways to initiate and track interaction over time.

corporate performance management (CPM): An overarching term that describes the methodologies, metrics, processes and systems used to monitor and manage the business performance of an enterprise. Applications that enable CPM translate strategically focused information to operational plans and send aggregated results.

cost of goods sold (COGS): An accounting classification useful for determining the amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.

customer relationship management (CRM): Software systems that range from simple, off-the-shelf contact management solutions to high-end interactive selling suites that combine sales, marketing, and executive information tools. These include product configuration, quote and proposal management, and marketing encyclopedias. Some systems extend functions to include complex pricing, promotions, commission plans, team selling, and campaign management. Enterprise-level solutions installed at large companies with hundreds or even thousands of users have capabilities for call center and help desks; field service; forecasting; and analysis.

D

database: A data processing file-management approach designed to establish the independence of computer programs from data files. Redundancy is minimized, and data elements can be added to, or deleted from, the file structure without necessitating changes to existing computer programs.

database management system (DBMS): The software designed for organizing data and providing the mechanism for storing, maintaining, and retrieving that data on a physical medium (i.e., a database). A DBMS separates data from the application programs and people who use the data and permits many different views of the data.

data warehouse: A repository of data that has been specially prepared to support decision-making applications.

discrete manufacturing: Production of distinct items such as automobiles, appliances, or computers.

E

e-Business: The generic name given to any type of business conducted using the Internet from online trading to self-service.

engineer-to-order (ETO): Products whose customer specifications require unique engineering design, significant customization, or new purchased materials. Each customer order results in a unique set of part numbers, bills of material, and routings.

enterprise resources planning (ERP) system:

1) An accounting-oriented information system for identifying and planning the enterprise-wide resources needed to take, make, ship, and account for customer orders. An ERP system differs from the typical MRP II system in technical requirements such as graphical user interface, relational database, use of fourth-generation language, and computer-assisted software engineering tools in development, client/server architecture, and open-system portability.

2) More generally, a method for the effective planning and control of all resources needed to take, make, ship, and account for customer orders in a manufacturing, distribution, or service company.

F

flow manufacturing: A form of manufacturing organization, in which machines and operators handle a standard, usually uninterrupted, material flow. The operators generally perform the same operations for each production run. A flow shop is often referred to as a mass production shop or is said to have a continuous manufacturing layout. Each product, though variable in material specifications, uses the same flow pattern through the shop. Production is set at a given rate, and the products are generally manufactured in bulk.

G

(GUI) graphical user interface: A connection between the computer and the user employing a mouse and icons so that the user makes selections by pointing at icons and clicking the mouse.

I

infinite loading: Calculation of the capacity required at work centers in the time periods required regardless of the capacity available to perform this work.


J

just-in-time (JIT): A philosophy of manufacturing based on planned elimination of all waste and continuous improvement of productivity. It encompasses the successful execution of all manufacturing activities required to produce final product, from design engineering to delivery and including all stages of conversion from raw material onward.

L

lead time:

1) A span of time required to perform a process (or series of operations).

2) In a logistics context, the time between recognition of the need for an order and the receipt of goods. Individual components of lead time can include order preparation time, queue time, processing time, move or transportation time, and receiving and inspection time.

lean production: A philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise. It involves identifying and eliminating non-value-adding activities in design, production, supply chain management, and dealing with the customers. Lean producers employ teams of multi-skilled workers at all levels of the organization and use highly flexible, increasingly automated machines to produce volumes of products in potentially enormous variety. It contains a set of principles and practices to reduce cost through the relentless removal of waste and through the simplification of all manufacturing and support processes.

M

mass customization: The creation of a high-volume product with large variety so that a customer may specify his or her exact model out of a large volume of possible end items while manufacturing cost is low because of the large volume. An example is a personal computer order in which the customer may specify processor speed, memory size, hard disk size and speed, removable storage device characteristics, and many other options when PCs are assembled on one line and at low cost.

mass production: High-quantity production characterized by specialization of equipment and labor.

master production schedule (MPS): The anticipated build schedule for those items assigned to the master scheduler. It is a set of planning numbers that drives material requirements planning (MRP). It represents what the company plans to produce expressed in specific configurations, quantities, and dates.

material requirements planning (MRP): A set of techniques that uses bill of material data, inventory data, and master production schedule to calculate requirements for materials. It makes recommendations to release replenishment orders for materials. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase.

manufacturing instructions- The detailed process parameters and operating data required for a specific production operation, which may include both basic production rate data and detailed engineering specifications and notes.

manufacturing resource planning (MRP II): A method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It is made up of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports such as the business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP.

N

negative inventory- An error condition resulting from a transaction that drives the perpetual inventory below zero. Systems that allow negative inventory usually provide exception reports for cycle counting and analysis, and specify how the negative is handled in modules such as MPS and MRP.

nested- A process or activity self-contained within a larger entity, that retains its identity and characteristics for reporting and analysis.

net assets- Total assets less total liabilities.

net cash flow- Cash inflow (sales revenue) less cash outflow (payments).

net change- An MRPor other planning system generation that only recalculates requirements for items that have changed since the last generation, due to the addition or changes in order quantities and dates, inventory levels, bill of material or routings, lead times or other parameters. A flag is usually set by programs that initiate changes for those items, which is used by MRP as the basis to regenerate them. It typically reduces generation time and is most useful for companies that have many part numbers, a small percentage of which are active in a given week.

net requirements- The requirements for an item based on its gross requirements (from forecasts, customer orders or upper level demand), minus stock already on-hand and scheduled receipts. If the total is below the specified safety stock, a planned order is generated based on the lot size. The generation of a new planned order for a given net requirement is normally done only after calculating the effect of rescheduling all incoming receipts to the dates required.

net sales- Gross sales less allowances for returns and discounts.

netting- Deducting requirements (orders, allocations, planned run hours, etc.) from an available resource (inventory, work center capacity, etc.).

network diagram- The depiction of a system in terms of individual points (which may represent a location, resource, status or task) and the links between them used to pass goods, services, data or other communications. It helps model the relationships of the links and the timing and direction of the flows between them.

node- 1) 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. 2) A decision point in a decision tree.

nominal data- Data described by a value that assigns it to a category, but does not provide for a ranking or ordering of the values.

nonconformance- The status of a process or product that does not meet specification and requires attention or corrective action.

non-inventoried item- Normally, a supply item purchased and received but whose on-hand quantity is not calculated.

nonlinear- A product or process that exhibits an uneven distribution, or wide variations in terms of quantity and timing.

nonrecurring- An event or cost not considered to be part of normal, ongoing business operations that is separated or filtered out when forecasting future events or reporting financial information.

non-significant part number- A part number composed of characters that do not imply anything about the characteristics of the part or the family it belongs to. Separate code and description fields are used to convey associated information instead of building it into the part number itself.

non-stationary demand- A pattern in which demand is not constant for each time frame but varies due to seasonality, trend or other factors.

non value-added- Activities and costs that can be eliminated without reducing performance, function or value as perceived by the customer.

normalized data- Data that has been adjusted or reduced to eliminate redundancies and anomalies.

numerical control (NC)- A machine tool that uses machine-readable sets of numeric codes that control the activities used in its operation.

O

online analytical processing (OLAP): A category of software tools that provides analysis of data stored in a database. OLAP tools enable users to analyze different dimensions of multidimensional data. For example, it provides time series and trend analysis views. The chief component of OLAP is the OLAP server, which sits between a client and a database management systems (DBMS), and which understands how data is organized in the database and has special functions for analyzing the data. There are OLAP servers available for nearly all the major database systems.

order entry: The process of accepting and translating what a customer wants into terms used by the manufacturer or distributor. The commitment should be based on the available-to-promise line (ATP) in the master schedule. This can be as simple as creating shipping documents for finished goods in a make-to-stock environment, or it might be a more complicated series of activities, including design efforts for make-to-order (MTO) products.

P

product data management (PDM): A system, which controls all product-related data and associated workflow processes within an enterprise. Product data management systems replace paper-based processes and information storage with a single, centralized data repository that enables authorized users throughout a company to access and update current product information, while ensuring they follow specific procedures. PDM vendors recently have emphasized the similarities between PDM and groupware technology appropriate to a range of business environments. Besides ensuring data integrity using relational database technology, both include workflow and web-based applications that ease collaboration efforts.

product configurator: A system, generally rule-based, to be used in design-to-order, engineer-to-order, or make-to-order environments where numerous product variations exist. Product configurators perform intelligent modeling of the part or product attributes and often create solid models, drawings, bills of material, and cost estimates that can be integrated into CAD/CAM and MRP II systems as well as sales order entry systems.

product life cycle:

1) The stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline.

2) The time from initial research and development to the time at which sales and support of the product to customers are withdrawn.

3) The period of time during which a product can be produced and marketed profitably.

product lifecycle management (PLM): A process for guiding products from idea through retirement to deliver the most business value to an enterprise and its trading partners. The applications that support the business activities enabled through PLM includes product ideation, design, engineering, manufacturing process management, product data management, and product portfolio management.

packing department- The area that prepares picked material for shipment by performing the consolidation, packing, marking and documentation tasks required. The packing department may also be responsible for locating and picking materials for outgoing shipments.

packing slip- The paperwork thata shipment, pallet or smaller unit and describes its contents and quantities, and normally references the order number or numbers involved.

paradigm shift- A complete change in thinking or belief systems that allows the creation of a new condition previously thought impossible or unacceptable.  (ex.- the change in thinking created by Just-in-Time that views inventory as a liability, not an asset).

parallel- The simultaneous performance of related activities or tasks, normally using different resources, that enables completing those activities faster than if they were done in a serial manner.

parallel conversion- A project implementation technique in which an existing system is run in parallel with the new system, with the comparison of operations and results to verify that the new system will properly replace the functions of the old. Parallel conversions are often difficult due to the time, expense and viability of operating two systems and problems in comparison and verification when functions have changed significantly. A parallel is often not necessary when the conference room pilot and issue identification and resolution phases are done well, and adequate resources are made available at cutover time.

parent- An upper level item that uses a component or material (child).

part number- The set of characters, normally alphanumeric, that identifies a specific manufactured or purchased item and is used in all database, order, inventory and other functions.

part period balancing (PPB)- A lot size technique that uses look ahead and look back functions to consider additional periods in modifying an initial calculation based on least total cost.

parts list- A listing of all components used in the production of a parent item that does not reflect its structure or intermediate levels, and is not useful in time- phasing requirements based on lead time offsets.

parts per million (PPM)- A quality measure of the number of defective items observed or projected out of a population of one million.

past due- Line items and orders expected or promised for dates prior to the current date. Past due orders are an integral part of evaluating delivery performance and normally are prioritized when reviewing exception messages.

path- A series of connected events, nodes or resources that indicates the links, direction of data flow, timing dependencies and positions of those items. .

pegging- Tracing the source of requirements in a materials plan, caused by dependent demand from an upper-level item, independent demand from a customer or interplant order, or to replenish a desired inventory stock level.

percent complete- The estimated or measured completion status of a process or project used to analyze the probability of meeting a projected date, or in initiating a contracted progress payment.

period cost- A cost related to the passage of time rather than product volumes, which may include depreciation, rent, property taxes or insurance.

period order quantity (POQ)- A lot size technique that orders to cover requirements for a variable number of periods based on order and holding costs, as opposed to a fixed period quantity that uses a standard number of periods.

perpetual inventory- The book inventory calculated as a result of all issue, receipt and adjustment transactions, as opposed to verification by physical count.

phantom- An item with an identifying product number that is not normally built and then stocked, but is immediately used in the next stage of production. MRP processing logic will blow through a phantom down to the next level (and not generate planned orders for the phantom) but will net against its on-hand inventory if it does occasionally exist. A phantom bill of material is sometimes used to ease maintenance when a set of parts consumed in production has identical usage across many bills of material.

physical inventory- The verification of on-hand inventory quantities by taking an actual count. Often refers to the annual or quarterly process of counting all items, rather than the physical verification of selected groups of parts on a continuing basis (a cycle count).

pick list- A list of all components and materials required to fill a specific production, sales or interplant order. It often specifies the warehouse locations to pick from, and sometimes consolidates requirements from more than one order.

pick list release- The process of authorizing the pick of material for a given order, generating the paperwork and releasing to the picking department. Many variations exist in which the pick slip may be manually selected for a given order, is automatically generated a set number of days before the requirement, or is held until the calculated available inventory equals the requirement. Order processing systems often have controls that flag or stop changes to orders when the pick slip has already been released.

piece part- A discrete component item such as nuts, bolts or screws used in an upper-level assembly.

piece rate- Payment for production based on the number of units processed, rather than the number of hours used.

pilot- A small test run of a system or production process to verify its acceptance and capabilities before going full-scale.

pipeline- The backlog of unfilled orders, or of material ready to be or already being processed.

plan-do-check-action (PDCA)- A four step quality improvement cycle, based on a process described by Walter Shewhart, that involves continuous improvement based on analysis, design, execution and evaluation. Sometimes referred to as plan/do/study/act, it emphasizes the constant attention and reaction to factors that affect quality.

planned capacity- The capacity used in evaluating requirements for a given material planning period, which may differ from demonstrated capacity due to temporary additions or downtime for scheduled maintenance, etc.

planned order- A suggested production, purchase or replenishment order generated by an MRP or other planning system to meet a projected shortage against desired safety stock levels. The shortage date becomes the due date, the release date is backward scheduled based on lead time, and the quantity is based on the specified lot size. Planned orders for upper level items create requirements for lower level components, and MRP generations delete existing planned orders and regenerate new ones based on changes in requirements. Planned orders must be firmed or accepted before releasing to production or to a vendor.

planned order receipt- A future projected receipt based on the generation of a planned order that has not yet been firmed into a scheduled receipt.

planned order release- The date required to firm, or release, a planned order based on the specified lead time until the planned receipt date. Many systems allow the selection and review of planned orders based on specifying a release date time frame.

planning horizon- The length of time into the future planning systems generate requirements and messages. The horizon should be at least as far out as the single longest cumulative lead time for any item in the system.

planning system- The functions and processes that review requirements and defined parameters to suggest new operating, material and capacity plans and changes to existing plans, but are not used for the activities that carry out (execute) those plans.

point of sale (POS)- The simultaneous recording of a customer sale and its effect on inventory levels, typically done in a retail environment using automatic data collection systems. Real-time point of sales data is sometimes used to automatically trigger replenishment orders as required, and can be used in sales analysis to review end-customer rather than distributor sales patterns.

portal: A personalized web site or service that offers a broad array of resources and services, such as e-mail, forums, search engines, and on-line shopping malls. The first web portals were online services that provided access to the Web, but by now most of the traditional search engines have transformed themselves into web portals to attract and keep a larger audience.

post- (v) To update a file or database through acceptance of entered data.

post deduct- syn: backflush

post-implementation audit- A review process that takes place after the installation of a new system to determine status, level of user satisfaction, accomplishment of stated goals and further action items required. It is usually timed to allow the new system to operate for a given period, such as a quarter, to concentrate on ongoing issues rather than those generated and resolved at cutover time.

predefined query- A report writer or other query constructed at a previous time on an ad hoc basis and saved for later use.

predecessor- A routing operation or project task that must be partially or completely finished before a later task can begin.

premium freight- Additional charges paid to a transportation provider to expedite shipments in order to meet a required date. Often used as a partial measure of on-time shipment performance.

prerequisite tree- A logic tree used in the theory of constraints that identifies and time phases obstacles associated with the intermediate objectives that must be accomplished to achieve an overall goal.

present value- The estimated current value of a future receipt or payment, as calculated by the assumed interest rate between the current date and the date the future transaction will occur.

preventive maintenance- Activities done to insure the operating availability of a production resource and its ability to meet process specifications. They are done on a pre-scheduled basis, or based on the identification by a monitoring system of conditions that may cause future breakdowns.

pricing- The manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.

primary location- The default stock location used for receipts and picks of a given item, which may be supplemented by other locations if full or overstocked.

primary operation- A routing operation used unless an alternate is selected when opening production orders, and the normal basis for MRP processing, capacity planning and standard cost estimation.

prioritization- The rules used to arrange jobs or orders in queue, such as FIFO, LIFO, critical ratio, value, customer, combination with similar jobs, etc. .

problem solving tools- Charts, diagrams and graphical displays that help define a problem and identify and categorize alternative solutions.

process- 1) v. To transform an input or set of inputs into a form with different characteristics, such as value, physical attributes, etc. 2)  n. The environment, methods and resources used for a specific task or activity

process costing- A system that accumulates all costs for the production of similar items in a given batch, lot or time frame and creates an average unit cost based on the volume or units produced. Costs are tracked only for the entire batch, and not pegged to individual units.

process manufacturing- A manufacturing environment often characterized by a batch or continuous transformation of a gas, liquid or powder, low product complexity and manufacturing variations, fixed or dedicated facilities, a flat bill of material and relatively few transactions.

process sheet- A set of manufacturing instructions for a specific batch, lot or run that describe the operating parameters and settings for the equipment and facilities used, and any associated tooling or supplies.

process time- The elements of lead time, such as setup and run, in which a product is undergoing transformation, and not waiting or being moved.

process view- A diagram or flow chart that graphically represents the activities, resources and timing of a given process.

product acceptance- The verification that a given purchased or manufactured item meets specifications and is usable for its intended purpose. .

product code- Synonymous with part number, although sometimes used to represent only finished items.

product costs- Costs associated with the volume or number of units produced as opposed to the passage of time.

product definition- The description of the materials, processes and resources used in the production of an item, as contained in the bill of material, routing and work center records.

product family- A set of items considered as a related group in forecasting, capacity planning or other functions.

production activity control (PAC)- The activities related to scheduling, releasing and tracking production orders and schedules, and reporting the materials and resources used and the results of the production process.

production database- The set of records and files that provide the data necessary to schedule and report production, such as the bill of material, routing, work center, production calendar and other associatedfiles.

production line- A linked set of manufacturing equipment or work stations that sequentially process a standard group of products or product families; most often used in a high-volume, repetitive manufacturing environment.

production material- Components and material directly used in the manufacturing process, and not for support or supply purposes.

production order- An order that authorizes manufacture of a specific quantity of an item or group of items, contains release and due dates, and documents requirements for the materials and resources used. It is assigned a separate number or identifier used in reporting material and labor transactions. 

production planning- The cross-functional process of devising an aggregate, family-level plan for a month or quarter based on management targets for production, sales and inventory levels. It meets operating requirements for fulfilling basic business profitability and market goals, and provides the overall desired framework in developing the master production schedule and in evaluating capacity and resource requirements.

production schedule- A prioritized report of released production orders for a manufacturing facility or specific department.

productivity- An overall measure based on a quantity of output generated by a given quantity of input. Increased output as a result of the same amount of input such as labor hours) indicates more efficient use of a given set of resources due to process improvements or other achievements. 

product life cycle- The processes, costs and revenues associated with a product from its initial creation to its abandonment, and often categorized by the stages of introduction, growth, maturity and decline. Identifying the product life cycle stage is a key factor in the determination of facility and support investment, marketing efforts, and required reporting measurements and controls.   

product mix- The number of individual products produced or sold by an organization. The mix is defined by the industry and manufacturing environment, and management strategies that position the company as a specialty, niche or broad-based supplier of goods and services. Instances where the product mix varies widely from period to period often requires more investment in facilities and inventory, and may result in lower levels of customer service.

product rationalization- The process of justifying continued production or sales of a given item, based on a variety of factors such as its usage in single or multiple parents, use of dedicated production facilities, margin, number of customers, complement to other products, life cycle stage and others. It requires the capability to prioritize intangibles and to identify true cost drivers.

product structure- syn: bill of material.

professional services automation (PSA)- Systems and software that support organizations or departments that engage in consulting, legal or other skill-based services by providing timesheet, billing, project status, knowledge base and other associated functions.

profit- The amount earned from an investment or operation after expenses are deducted. Gross profit, or gross income, refers to pre-tax net sales less cost of sales. Net profit, also includes the deduction of interest, taxes, depreciation and other expenses not associated with the cost of sales.

profit center- A organizational unit or department designated as a separate entity for purposes of revenue generation and cost collection, with decision- making capabilities to affect both processes.

program- An ongoing, long term effort that often includes multiple projects and significant budgeted expenditures.

program evaluation and review technique (PERT)- A project management system that determines the project finish date by estimating best (shortest), worst (longest) and most likely duration times for activities on the critical path.

progress payment- The payment of a portion of a total invoice or estimated cost based on the accomplishment of milestones, cost recovery agreement, or other contractual method.

project- A related set of activities and milestones with a preset goal and timeframe that is designed as a specific event and not an ongoing process.

project calendar- The definition of working and non-working days available for project tasks and activities.

project costing- The identification and reporting of all costs generated by a single project. All production orders, purchase orders and inventoried items are separated and pegged to the project in order to provide a total actual cost. A method often used in capital equipment manufacturing and systems integration or professional services projects.

projected balance- A future estimated inventory balance calculated by taking the current on-hand inventory, adding scheduled receipts and subtracting requirements or allocations. In planning systems a projected balance is compared to the order point or safety stock level to determine the need to reorder.

projected life- The estimated useful period of a resource or system, based on time, number of cycles, units processed, or other factors.

project management- The methods and disciplines used to define goals, plan and monitor tasks and resources, identify and resolve issues, and control costs and budgets for a specific project.

project team- The dedicated or part-time resources assigned to a project, which include the project leader, functional team leaders, functional team members, technical and consulting support. Ad hoc team members are brought in on a temporary basis to solve specific issues.

promise date- The shipment date committed to by a vendor. In some industries and contracts, the promise date is the date of delivery at the customer site.

prospect- An identified potential consumer of a company’s goods or services,  often tracked in CRM, SFA or contact management systems.

pseudo item: syn: phantom. 

pull system- A system where the production or movement of inventory items is initiated as required by the using department or location, or to replace items removed from an authorization queue. Production and inventory moves are not done based on a predetermined schedule, but only when consumed or signaled by the point of usage.

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 always generated for a single vendor.

purchase price variance (PPV)- The variance created by the actual price paid to a vendor for material as compared to the standard cost, sometimes separated into the variance created by the specified purchase order price vs. the standard, and the actual vendor invoice cost vs. the specified purchase order price.

purchase to order (PTO)- The method used to respond to demand in which an item is purchased only when required by a customer order that specifies that item, and not for processing or assembling into a different item number.

purchase-to-pay cycle- The total elapsed time between the creation and acceptance of a purchase order, and payment for the items or services.

purchase to stock (PTS)- The demand response method where an end item or service part  required as is for an expected customer order is purchased and stocked against a forecast. The forecast represents independent customer or interplant demand, and not usage in an upper level item.

purchasing- The functions, processes and department that source material and services, negotiates terms and availability agreements, responds to requests for material by user departments and communicates order status and actual or potential supply disruptions.

purchasing lead time- The total time required to place and receive purchased items, which includes internal review and placement time (order release), vendor transportation time, and the dock to stock activities to receive and store.

push system- A system where the production and movement of inventory items is determined by a preexisting schedule that authorizes a material issue or transfer, or the start of a production operation. The using department or location receives material when determined by the feeder location and not based on their own generation of a replenishment signal.

putaway- The activities related to the receipt of material, determination of its storage or other destination, movement to that location and the stocking and physical arrangement as required.

R

real time: The technique of coordinating data processing with external related physical events as they occur, thereby permitting prompt reporting of conditions. The immediate availability of data to an information system as a transaction or event occurs.

relational database: A software program that allows users to obtain information drawn from two or more databases that are made up of two-dimensional arrays of data.

reorder point (ROP) system: Inventory method that places an order for a lot whenever the quantity on hand is reduced to a predetermined level known as the reorder point.

return on investment (ROI): A financial measure of the relative return from an investment, usually expressed as a percentage of earnings produced by an asset to the amount invested in the asset.

routing: Information detailing the method of manufacture of a particular item. It includes the operations to be performed, their sequence, the various work centers involved, and the standards for setup and run time.

S

sales force automation (SFA): Technology used to improve the efficiency and effectiveness of the sales force by streamlining and speeding up processes and eliminating errors. It allows the sales force to access up to date information of customer accounts and pricing. It also eradicates errors involved with placing orders.

server: A computer, or softtware package, that provides a specific kind of service to client software running on other computers. The term can refer to a particular piece of software, for example a Web server, or to the machine on which the software is running. A single server machine could have several different server software packages running on it, thus providing many different servers to clients on the network.

supplier relationship management (SRM): Evolving set of applications enabling enterprises to create a more comprehensive lifecycle view of suppliers’ operational contribution to the top and bottom lines. Strategic sourcing and spend management would be some of SRM parts.

supply chain management (SCM): The design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally.

supply chain planning (SCP): The determination of a set of policies and procedures that govern the operation of a supply chain. Planning includes the determination of marketing channels, promotions, respective quantities and timing, inventory and replenishment policies, and production policies. Planning establishes the parameters within which the supply chain will operate.

supply chain execution (SCE): Execution-oriented software applications for effective procurement and supply of goods and services across a supply chain. It includes manufacturing, warehouse, and transportation execution systems, and systems providing visibility across the supply chain.

supply chain inventory visibility (SCIV): Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level and notify the user of significant deviations from plans. Companies are provided with realistic estimates of when material will arrive.

strategic sourcing: The development and management of supplier relationships to acquire goods and services in a way that aids in achieving the immediate needs of a business. It is entirely aligned with the sourcing portion of managing the procurement process.

U

UOM (Unit of measure):A unit of measurement is a standardized quantity of a physical property, used as a factor to express occurring quantities of that property.  Examples of this are ft., lbs, grams,

V

value-added- Activities and costs that can not be eliminated without reducing performance, function or value as perceived by the customer.

W

wage rate- The actual or standard pay rate for a labor hour.

wait time- syn: idle time

wall-to-wall inventory- A physical inventory of all items within a given warehouse or facility.

wand- A handheld movable device passed over an item to read its bar code.

warehouse management system (WMS)- An integrated set of system functions designed to manage the locating, putaway, movement, picking and cycle count/inventory verification activities of a warehouse or distribution center. It normally receives purchase, sales and interplant order data from a base ERP system that serve as the authorization to initiate activities. Warehouse locations are described in terms of their weight and volume capacities to enable proper direction when moving or stocking material. Inventory and order status data, collected in real time often through the use of data collection devices, is normally uploaded to the base ERP system on a batch basis.

warehouse zone- A physically or logically segregated area within a warehouse defined by the type of material it contains (bulk or rack storage, hazardous material, etc.) or the division of equipment and personnel used to putaway, move and pick.

warranty return- An item returned by a customer for credit or repair under the terms specified at time of sale. Warranty tracking requires the use of individual order and/or serial numbers to properly recreate the conditions that existed when the item was originally shipped.

waste- Any activity or process that does not add value to the goods or services required by the customer. Examples of waste include move time, counting inventory, inspection, the production of defective material, rework, etc. Waste is considered to cause increased cost, lead time and quality problems while not adding value, and may be created by vendors, personnel, equipment, incorrect process parameters and many other factors.

wave picking- A warehouse order picking scheme in which all zones are picked at the same time as required to fill multiple item requirements for a given order or destination.

wedge reader- A data collection device where a magnetic card is swiped, or pulled, through a slot in the middle.

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. More weight is often given to the most recent period or periods.

what-if analysis- The simulation of the outcome of various scenarios and alternatives when changes to the inputs and parameters is done.

where-used- A list of the all upper-level items that use a given component or material on their bill of material. Often used in tracing requirements and evaluating the impact of standards changes and material substitutions.

workaround- A response that solves a project or system issue by the use of alternate methods or a change in procedures in place of a program modification.

work breakdown structure- A hierarchical definition of the tasks and activities of a project that normally begins with the highest-level activities and works downward into the individual tasks and components.

work center- A physical or logical production area used as a unit for scheduling and routing operations. It is usually defined as being either labor or machine constrained, and while it may contain multiple machines or personnel they are considered identical in terms of the capability to process products assigned to that center. A work center may perform multiple operations, but capacity requirements are usually tracked only at the total work center level. Work center definitions can be flexible based on the process and reporting capabilities and requirements of the organization.

workflow- The path and systems used in the linked flow of activities with a specific start and finish that describe a process. The flow defines where inputs are initiated, the location of decision points and the alternatives in output paths, and is used in systems that perform automatic routing.

workgroup- Personnel that collaborate on a specific project or function, make use of a common database, schedule and method of communication, and update tasks and activities specifically related to that project or function.s.

work in process (WIP)- Material that has been partially processed but not yet transformed into its final state and not normally usable as is. The status of WIP material is usually described by its current routing operation location.

work instructions: syn: manufacturing instructions.

work order- syn: production order.

workstation- The assigned location used by labor personnel to perform an operation, which may be composed of multiple tasks. Production lines are often a continuous stream of linked workstations.

world class- A general term for a high level of competitive performance as defined by benchmarking and use of best practices.

X

XML (extensible markup language): This language facilitates direct communication among computers on the Internet. Unlike the older hypertext markup language (HTML), which provides HTML tags giving instructions to a Web browser about how to display information, XML tags give instructions to a Web browser about the category of information.

Y

yield- The measurement, also known as return, of the output (such as production units or a dividend) as a percentage of the input (raw material or price paid for a stock or bond).

Zero defects- A quality philosophy based on the idea that a level of perfect quality, as in zero defects, is achievable and should be a company-wide goal. It emphasizes the examination of all factors that lead to quality problems versus a system that builds in an average or acceptable quality level.

zero float- A project activity condition of no excess or slack time, where delay in the activity delays the next activity or possibly the entire project.

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.

zone picking- A warehouse order picking scheme utilizing zones in which pickers select materials within their own area only and the total material required for the order is later grouped together.