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Terms & Definitions
C
  
Capacity – Information Flows Capacity is the capability of a worker, machine, work center, plant, or organization to produce output per time period. Information aids us in addressing capacity availability, unused capacity and performance issues that impact a business’s revenue and productivity as well as its image and reputation.
Source: http://www.apics.org/ (10th ed.)
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Capacity – Physical Flows 1) The capability of a system to perform its expected function.
2) The capability of a worker, machine, work center, plant, or organization to produce output per time period.
Capacity required represents the system capability needed to make a given product mix (assuming technology, product specification, etc.). As a planning function, both capacity available and capacity required can be measured in the short term (capacity requirements plan), intermediate term (rough-cut capacity plan), and long term (resource requirements plan).
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Capacity Management The function of establishing, measuring, monitoring, and adjusting limits or levels of capacity in order to execute all manufacturing schedules; i.e., the production plan, master production schedule, material requirements plan, and dispatch list. Capacity management is executed at four levels: resource requirements planning, rough-cut capacity planning, capacity requirements planning, and input/output control.
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Capacity Planning The process of determining the amount of capacity required to produce in the future. This process may be performed at an aggregate or product-line level (resource requirements planning), at the master-scheduling level (rough-cut capacity planning), and at the material requirements planning level (capacity requirements planning).
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Capacity Requirements Planning The function of establishing, measuring, and adjusting limits or evels of capacity. The term capacity requirements planning 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. Open shop orders and planned orders in the MRP system are input to CRP, which through the use of parts routings and time standards translates these orders into hours of work by work center by time period. Even though rough-cut capacity planning may indicate that sufficient capacity exists to execute the MPS, CRP may show that capacity is insufficient during specific time periods.
Source: http://www.apics.org/ (10th ed.)
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Capacity Strategy One of the strategic choices that a firm must make as part of its manufacturing strategy. There are three commonly recognized capacity strategies: lead, lag, and tracking. A lead capacity strategy adds capacity in anticipation of increasing demand. A lag strategy does not add capacity until the firm is operating at or beyond full capacity. A tracking strategy adds capacity in small amounts to attempt to respond to changing demand in the marketplace.
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Capacity Utilization A measure (usually expressed as a percentage) of how intensively a resource is being used to produce a good or service. Utilization compares actual time used to available time. Traditionally, utilization is the ratio of direct time charged (run time plus setup time) to the clock time available. Utilization is a percentage between 0% and 100% that is equal to 100% minus the percentage of time lost due to machine, tool, worker, etc., unavailability.
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Channel management The management of firms or individuals that participate in the flow of goods and services from the raw material supplier and producer to the final user or customer.
Source: http://www.apics.org/ (10th ed.)
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Collaboration Collaboration is defined as the process by which partners adopt a high level of purposeful cooperation to maintain a trading relationship over time. The relationship is bilateral; both parties have the power to shape its nature and future direction over time. Mutual commitment to the future and a balanced power relationship are essential to the process. While collaborative relationships are not devoid of conflict, they include mechanisms for managing conflict built into the relationship.
Sources: Monczka, R., Trent, R., & Handfield, R. (1998). Purchasing and Supply Chain Management. Cincinnati, OH: South Western College Publishing.
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Commodity Strategy Development The purchasing plan for a family of items. This would include the plan to manage the supplier base and solve problems.
Source: http://www.apics.org/
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Continuous Improvement A never-ending effort to expose and eliminate root causes of problems; small step improvement as opposed to big step improvement.
Source: http://www.apics.org/
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Contract An agreement between two or more competent persons or companies to perform or not to perform specific acts or services or to deliver merchandise. A contract may be oral or written. A purchase agreement when accepted by a supplier, becomes a contract. Acceptance may be in writing or by performance, unless the purchase order requires acceptance in writing.
Source: http://www.apics.org/
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Contract Management Contract management is a strategic management discipline employed by both buyers and sellers whose objectives are to manage customer and supplier expectations and relationships, control risk and cost, and contribute to organizational profitability/success. For successful service contract administration, the buyer needs to have a realistic degree of control over the supplier's performance. Crucial to success in this area is the timely availability of accurate data including the contractor's plan of performance and the contractor's actual progress.
Sources: http://www.ncmahq.org/cmi/research.html
Dobler, D.W., & Burt, D.N. (1996). Purchasing and Supply Management. (6th ed.). New York: McGraw Hill.
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Cost See: Activity-based Cost Accounting, Activity-based Management, Cost System Design, Target Costing, Total Costs, Total Cost of Ownership
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Cost Management In terms of activity-based cost accounting, cost management involves control of activities to eliminate waste, improve cost drivers, and plan operations. This process should influence the organization's strategy setting process. Factors such as product pricing, introduction of new products, and distribution of existing products are examples of strategic decisions that are affected by cost management.
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Cost System Design An intelligent cost system design is one that is simple while still providing managers with information they need to make decisions. As most manufacturing processes were labor intensive at the turn of the century, a majority of cost management systems relied on direct labor to assign indirect costs to products and services. Indirect or overhead costs are costs that are associated with or caused by two or more operating activities jointly but are not traceable to each of them individually. Direct costs, on the other hand, are specifically traceable to or caused by a specific project or production operation.

The emergence of highly automated machines, which replaced direct labor with support labor, reduced the accuracy of direct labor as an estimator of indirect costs. This reduction first led to the emergence of machine hour-based cost systems. But both, labor based and machine hour based cost systems, rely on unit-level cost drivers and can provide adequate insights to managers about the costs of their products only in very simple manufacturing systems. As competition faced by firms increased, profit levels began to fall, and it became more important for the firm's cost system to report accurate product costs. More accurate products costs enable firms to fine tune its product mix so it is inherently more profitable. Activity based costing or management is a tool that more accurately identifies and allocates indirect costs to the products they support because it identifies the drivers of the indirect costs. This identification allows management to identify and implement cost savings opportunities.
Sources: Cooper, R., & Slagmulder, R. (1999). Intelligent cost system design. Strategic Finance, 80(12), 18-20.
Dobler, D.W., & Burt, D.N. (1996). Purchasing and Supply Management. (6th ed.). New York: McGraw Hill.
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Currency Conversions Issues with currency conversion add complexity to the global sourcing process. The absence of fixed exchange rates can be a problem. Fluctuations in exchange rates can have a significant impact on the costs and profits made by the buyer and the seller. U.S. purchasing departments are particularly at a disadvantage. Their unfamiliarity in dealing with foreign currencies leads to higher costs in two ways: 1) the buyers attempt to put all currency risk on the supplier which causes the supplier to include charges for hedging; 2) In an attempt to avoid dealing with foreign currency, buyers’ use U.S. subsidiaries who accept U.S. dollars but charge higher markups. The unfamiliarity of vendors and suppliers with currency conversion issues can cause supply chain slowdowns and force businesses to revert to using paper invoices, bound ledgers and filing cabinets leading to delays and increased costs in the supply chain.
Source: Dobler, D.W., & Burt, D.N. (1996). Purchasing and Supply Management. (6th ed.). New York: McGraw Hill.
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Customer/Order Fulfillment Process A series of customers’ interactions with an organization through the order filling process, including product/service design, production and delivery, and order status reporting.
Source: http://www.apics.org/
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Customer Relationship Management (CRM) A marketing philosophy based on putting the customer first. It involves the collection and analysis of information designed for sales and marketing decision support to understand and support existing and potential customer needs. It includes account management, catalog and order entry, payment processing, credits and adjustments, and other functions.
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Customer Value The customer value approach focuses on how people choose among competing suppliers, customer attraction and retention, and market-share gains.

Answering three customer value questions is important in order to determine a company's customer value proposition:
• What are the key buying factors that customers' value when they choose among a business and its toughest competitors?
• How do customers rate a company's performance versus its competitors' performance on each key buying factor?
•What is the percentage importance of each of these components of customer value?

By highlighting the best performer on each key buying factor, marketers obtain a market derived, empirical aggregate of each supplier's customer value proposition. Often the view from the marketplace differs from the organization's internally developed customer value proposition.
Source: http://www.cval.com/Intro.html
 

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