Inventory Management Glossary
Activity Based Costing - usually refers to costing method that breaks down overhead costs into specific activities (cost drivers) in order to more accurately distribute the costs in product costing. Has also been applied to customer and vendor management. Back to Top Advanced Planning and Scheduling - software system designed to integrate with ERP and MRP systems to enhance the short term production planning and scheduling systems that are notoriously inadequate in MRP systems. APS systems have extensive programming logic that allows them to be more effective in dealing with rapidly changing customer demands. Back to Top Advanced Shipment Notifications (ASNs) - are used to notify a customer of a shipment. ASNs will often include PO numbers, SKU numbers, lot numbers, quantity, pallet or container number, carton number. ASNs may be paper-based, however, electronic notification is preferred. Advanced shipment notification systems are usually combined with bar-coded compliance labeling which allows the customer to receive the shipment into inventory through the use of bar-code scanners and automated data collection systems. Back to Top Allocations - in inventory management refer to actual demand created by sales orders or work orders against a specific item. The terminology and the actual processing that controls allocations will vary from one software system to another. A standard allocation is an aggregate quantity of demand against a specific item in a specific facility, some times standard allocations are referred to as normal allocations, soft allocations, soft commitments, regular allocations. Standard allocations do not specify that specific units will go to specific orders. A firm allocation is an allocation against specific units within a facility, such as an allocation against a specific location, lot, or serial number. Firm allocations are also referred to as specific allocations, frozen allocations, hard allocations, hard commitments, holds, reserved inventory. Standard allocations simply show that there is demand while firm allocations reserve or hold the inventory for the specific order designated. Back to Top Autodiscrimination - the functionality of a bar-code reader to recognize the bar-code symbology being scanned, thus allowing a reader to read several different symbologies consecutively. Back to Top Automated Data Collection - systems of hardware and software used to process transactions in warehouses and manufacturing operations. Data collection systems may consist of fixed terminals, portable terminals and computers, Radio frequency (RF) terminals, and various types of bar code scanners. a.k.a. Automated data capture, AIDC, Automatic identification & data collection. Back to Top Barcode Label Printing - is typically achieved by utilizing a thermal transfer or direct thermal printer that is specifically designed to produce barcode labels. Thermal transfer printers use ink ribbons to apply the barcode directly into the label, while direct thermal printers use heat to blacken the barcode onto the label. While both are effective, barcodes produced from direct thermal printers are more likely to become unreadable if exposed to elements such as heat, sunlight, and chemicals, and therefore don’t have the longevity of barcodes made with thermal transfer. Back to Top Batch Picking - order picking method where orders are grouped into small batches, an order picker will pick all orders within the batch in one pass. Batch picking is usually associated with pickers with multi-tiered picking carts moving up and down aisles picking batches of usually 4 to 12 orders, however, batch picking is also very common when working with automated material handling equipment such as carousels. See also Zone picking, Wave picking. Back to Top Bill of Material - lists materials (components or ingredients) required to produce an item. Multilevel BOMs also show subassemblies and their components. Other information such as scrap factors may also be included in the BOM for use in materials planning and costing. Back to Top Blind Counts - describes method used in cycle counting and physical inventories where you provide your counters with item number and location but no quantity information. Back to Top Bulk Picking - the classic use of the term bulk in inventory management and distribution refers to raw materials such as coal, iron ore, grains, etc. that are stored or transported in large quantities. This would include rail cars, tanker trucks, or silos full of a single material. However, this term can also have a variety of other definitions based upon the specific industry or facility. For example, a small-parts picking operation may refer to a case storage area as "bulk", while a case-picking operation may refer to the full-pallet area as the "bulk area." Back to Top Carrying Cost - also called holding cost, carrying cost is the cost associated with having inventory on hand. It is primarily made up of the costs associated with the inventory investment and storage cost. For the purpose of EOQ (Economic Order Quantity) calculations, if the cost does not change based upon the quantity of inventory on hand it should not be included in carrying cost. Carrying cost is represented as the annual cost per average on-hand inventory unit. Back to Top Chargeback - chargebacks are becoming more common these days as customers become more specific with their agreements with suppliers. A chargeback is basically a financial penalty placed against a supplier by a customer when a shipment to the customer does not meet the agreed upon terms and conditions. Examples of where suppliers may be charged back would include late shipments, lack of proper packaging and labeling (compliance labels), incorrect shipping terms (shipping collect instead of prepaid or not using the correct carrier or account). Back to Top Compliance Labels - standardized label formats used by trading partners. Compliance labels are used as shipping labels, container/pallet labels, carton labels, or piece labels, and usually contain bar codes. Many bar-code labeling software products now have the more common compliance label standards set up as templates. Back to Top Configuration Processing - software functionality that allows a product to be defined by selecting various pre-defined options, rather than having every possible combination of options pre-defined as specific SKUs. Placing an order for a computer and specifying hard drive, processor, memory, graphics card, sound card, etc. would be an example of configuration processing. Back to Top Cross Docking - in its purest form cross-docking is the action of unloading materials from an incoming trailer or rail car and immediately loading these materials in outbound trailers or rail cars, thus eliminating the need for warehousing (storage). In reality, pure cross-docking is rare outside of transportation hubs and hub-and-spoke type distribution networks. Many "cross-docking" operations require large staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to ship. This staging may take hours, days, or even weeks in which case the "staging area" is essentially a "warehouse." Back to Top Cycle Count - refers to process of regularly scheduled inventory counts (usually daily) that "cycles" through your inventory. User determines how often certain items/locations are counted. Back to Top Distribution Requirements Planning - process for determining inventory requirements in a multiple plant/warehouse environment. DRP may be used for both distribution and manufacturing. In manufacturing, DRP will work directly with MRP. DRP may also be defined as Distribution Resource Planning which also includes determining labor, equipment, and warehouse space requirements. Back to Top Dynamic Slotting - this is a term sometimes used to describe a higher level of slotting functionality. Unfortunately, there is not a standard definition for this, but it usually refers to the ability to change slotting recommendations as item profiles, order profiles, or other operational characteristics change. In some cases it involves temporary slotting to support known orders (items with many picks will be moved into a temporary slot by the order picker). Back to Top Electronic Data Interchange (EDI) - is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e. from one trading partner to another trading partner without human intervention. Back to Top Electronic Product Code - EPC is the RFID version of the UPC barcode. EPC is intended to be used for specific product identification. However, EPC goes beyond UPC by not only identifying the product as a SKU, but also providing access to additional data about the origin and history of the specific units. The EPC tag itself identifies the manufacturer, product, version, and serial number. It's the serial number that takes EPC to the next level. This is the key to data related to specific lots/batches as well as potentially tracking the specific unit's history as it moves through the supply chain. This data is stored somewhere else (the internet or other network) but a standardized architecture allows you to access the data much like you would access a web page (though this would be happening automatically behind the scenes). Back to Top Enterprise Resource Planning - describes software systems designed to manage most or all aspects of a manufacturing or distribution enterprise (an expanded version of MRP systems). ERP systems are usually broken down into modules such as Financials, Sales, Purchasing, Inventory Management, Manufacturing, MRP, DRP. The modules are designed to work seamlessly with the rest of the system and should provide a consistent user interface between them. These systems usually have extensive set-up options that allow you to customize their functionality to your specific business needs. Unfortunately, in the real world, ERP systems rarely are sufficient to meet all business needs and a myriad of other software packages such as Customer Relationship Management (CRM), Manufacturing Execution Systems (MES), Advanced Planning and Scheduling (APS), Warehouse Management Systems (WMS) and Transportation Management Systems (TMS) make up for these deficiencies. Back to Top Event Management - software functionality that triggers specific actions based upon the occurrence of a specific event or combination of events. For example, if inventory drops below a predetermined level (reorder point) this triggers a message to a planner (or even a listing on a reorder report). Back to Top Fast Pick - refers to fast moving items, or the locations designated for fast moving items. Back to Top Floor Stock - inventory that is consumed in production but is not tracked in the perpetual inventory system. Floor stock is different from non-stock inventory since it does actually have a SKU number and item master record, but rather than tracking quantities in the inventory system, the materials are expensed as they are received. Back to Top Forecast Consumption - describes the method(s) your inventory management software uses to reduce forecasted demand by the actual demand that occurs during the forecast period. Incorrectly set up forecast consumption parameters or lack of functionality related to forecast consumption can often create serious problems with planning systems. Back to Top Forward Pick Location - these are locations in a warehouse used specifically for order picking. When you use forward pick locations it is assumed that you also have reserve storage locations. Back to Top Inventory - any quantifiable item that you can handle, buy, sell, store, consume, produce, or track can be considered inventory. This covers everything from office and maintenance supplies, to raw material used for manufacturing, to semi-finished and finished goods, to fuel used to power equipment used in the business. Back to Top Inventory Management - the direction and control of activities with the purpose of getting the right inventory in the right place at the right time in the right quantity in the right form at the right cost. Back to Top Just-in-Time (JIT) - Term usually thought of as describing inventory arriving or being produced just in time for the shipment or next process. Actually, JIT is a process for optimizing manufacturing processes by eliminating all process waste including wasted steps, wasted material, excess inventory, etc. Back to Top Just-in-Sequence - A combination of just-in-time delivery with production line sequencing of delivered items. A customer will notify a supplier of the items needed and the sequence based on the customer's manufacturing schedule, the supplier will then put together the shipment with the items in the appropriate sequence and deliver them to the customer (sometimes directly to the assembly line). This is most common in the automotive and similar assembly line industries where each unit on the assembly line can be configured differently (component options). Back to Top Kanban - used as part of a Just-In-Time production operation where components and sub-assemblies are produced based upon notification of demand from a subsequent operation. Historically, Kanban has been a physical notification such as a card (kanban cards) or even an empty hopper or tote sent up the line to the previous operation. Kanban is actually a simplistic means of both signaling the need for inventory as well as controlling the inventory levels (by limiting kanban cards or containers). Back to Top Laser Scanner - device that uses a moving laser to read bar codes. Devices can be portable hand-held units, or fixed units. Back to Top Legacy System - implies a business computer/information system that is old or outdated. Often used to describe home-grown (custom built) mainframe systems, however, the term legacy system is also used to define any system that is not based on the current version of a business software package. Back to Top License Plate Number (LPN) - License plates are often used with warehouse management systems. They are basically an ID number placed on a pallet, tote, carton or other container, and are used to track the contents of that container as it moves through the warehouse. The license plate will almost always have a bar code that contains this ID number. So by scanning a single bar code on the pallet you can initiate or complete movement transactions for all items and quantities on that pallet. Back to Top Lights-out Warehouse - a.k.a. Lights-out facility. Describes fully-automated facilities. The idea being that if the facility requires no human operators, you can run it with no lights. Use of AS/RS units, AGVs, automated conveyors, robots, etc makes this possible. Back to Top Locator System - locator systems are inventory-tracking systems that allow you to assign locations to your inventory to facilitate greater tracking and the ability to store product randomly. Prior to locator systems, warehouses needed to store product in some logical manner in order to be able to find it (stored in item number sequence, by vendor, by product description, etc.) By using locator systems you can increase space utilization by slotting your product by matching the physical characteristics of the product to a location whose physical characteristics match that of the product. You can also increase productivity by locating fast moving product to closer, more accessible locations, and increase accuracy by separating similar items. Location functionality in software can range from a simple text field attached to an item that notes a single location, to systems that allow multiple locations per item and track inventory quantities by location. Warehouse management systems (WMS) take locator systems to the next level by adding functionality to direct the movement between locations. Back to Top Manufacturing Execution System - software systems designed to integrate with enterprise systems to enhance the shop-floor-control functionality that is usually inadequate in ERP systems. MES provides for shop floor scheduling, production and labor reporting, integration with computerized manufacturing systems such as automatic data collection and computerized machinery. Back to Top Min-Max - a simplistic inventory system in which a minimum quantity and maximum quantity are set for an item. When the quantity drops below Min you order up to the Max. Back to Top Manufacturing Resource Planning - process for determining material, labor and machine requirements in a manufacturing environment. MRPII is the consolidation of Material Requirements Planning (MRP), Capacity Requirements Planning (CRP), and Master Production Scheduling (MPS). MRP was originally designed for materials planning only. When labor and machine (resources) planning were incorporated it became known as MRPII. Today the definition of MRPII is generally associated with MRP systems. Back to Top Non-stock Inventory - also called non-inventory, this is inventory that is not tracked within your perpetual inventory system. Non-stock inventory will not have an item-master record or internal SKU number. Back to Top Optional Replenishment - the action of ordering or producing up to the Max in a Min-Max system even though inventory has not reached the Min. May be used to avoid down time on machines etc. Back to Top Order Profile - data describing the characteristics of inbound, outbound, or internal orders (outbound is most common). Examples of characteristics incorporated into an order profile could include: line items per order, pieces per order, weight per order, cube per order, time of day, destination, shipment method, order type, etc. Characteristics are often broken into logical groups such as breaking line items per order into groups of 1 line item, 2-4 line items, 5-10 line items etc. Back to Top Paperless - when referring to processing in the warehouse (paperless picking, paperless receiving) or on the shop floor, paperless generally suggests that the direction of tasks and execution of transactions are conducted electronically without the use of paper documents. This is usually accomplished through the use of fixed or portable computers, bar code scanners, RFID readers, light-signaling technology (pick-to-light), or voice technology. Or maybe it just means you ran out of paper. Back to Top PAR Level - a simplistic inventory system in which a minimum quantity and maximum quantity are set for an item. When the quantity drops below Min you order up to the Max. Also see Optional replenishment. Back to Top Physical Inventory - refers to the process of counting all inventory in a warehouse or plant. Operations are usually shut down during a physical inventory. Back to Top Pick-to-Clear - method often used in warehouse management systems that directs picking to the locations with the smallest quantities on hand. Back to Top Pick-to-Carton - for parcel shippers, pick-to-carton logic uses item dimensions/weights to select the shipping carton prior to the order picking process. Items are then picked directly into the shipping carton. When picking is complete, dunnage is added and the carton sealed eliminating a formal packing operation. This logic works best when picking/packing products with similar size/weight characteristics. In operations with a very diverse product mix it's much more difficult to get this type of logic to work effectively. Back to Top Radio Frequency - in warehousing, refers to the portable data collection devices that use radio frequency (RF) to transmit data to host system. Back to Top Real-Time Loacator System - (RTLS) uses RFID technology that provides the objects they are attached to the ability to transmit their current location. System requires some type of RFID tag to be attached to each object that needs to be tracked, and RF transmitters/receivers located throughout the facility to determine the location and send information to computerized tracking system. While RTLS is a great way to eliminate "lost" inventory, the systems are too costly for most inventory tracking operations and are more likely to be used to track high-value assets. Back to Top Reorder Point - The inventory level set to trigger reorder of a specific item. Reorder point is generally calculated as the expected usage (demand) during the lead time plus safety stock. Fixed reorder point implies the reorder point is a static number plugged into the system. Dynamic reorder point implies there is some system logic calculating the order point. Generally this would be comparing current inventory to the forecasted demand during the lead time plus safety stock. RFID - Radio frequency identification. Refers to devices attached to an object that transmit data to an RFID receiver. These devices can be large pieces of hardware the size of a small book, like those attached to ocean containers, or very small devices inserted into a label on a package. RFID has advantages over barcodes, such as the ability to hold more data, the ability to change the stored data as processing occurs, does not require line-of-site to transfer data and is very effective in harsh environments where bar code labels won't work. Back to Top Safety Stock - quantity of inventory used in inventory management systems to allow for deviations in demand or supply. Safety stock calculations will take into account historic deviations and use a required service level multiplier to determine the optimal safety stock level. Back to Top Screen Mapping - software that provides the functionality to change the arrangement of data fields on a computer screen that accesses a server-based computer program. Screen Mapping is frequently used in combination with terminal emulation software to "Remap" data fields from a standard program to be used on the smaller screen of a portable handheld device. a.k.a. Screen scraping Back to Top SKU - Stock Keeping Unit—referring to a specific item in a specific unit of measure. For example, if you distributed thirty-weight motor oil in both quarts and gallons you would maintain the inventory as two SKUs even though they are both thirty-weight motor oil. Also refers to the identification# assigned to each SKU. Back to Top Slap-and-Ship - term used to describe an approach to complying with customer requirements for physical identification of shipped goods. Most recently, slap-an-ship has been used to describe complying with RFID requirements (such as those from Wal-Mart), however, it is also applicable to any compliance labeling requirement (such as compliance bar code labels). Slap-and-ship implies you are meeting the customer's requirement by applying the bar code labels or RFID tags, but are not utilizing the technology internally. Back to Top Slotting - the activities associated with optimizing product placement in pick locations in a warehouse. There are software packages designed just for slotting, and many WMS packages will also have slotting functionality. Slotting decisions will generally use item velocity (times picked), cube usage (cubic velocity), and minimum pick face dimensions to determine best location, but there are numerous other factors that may need to be considered in a given environment. Back to Top Terminal Emulation - software used on desktop and portable computers that allows the computer to act like a terminal connected to a mainframe system. If you have a networked desktop PC and are accessing mainframe programs ( a.k.a. green screen programs) you are using terminal emulation. Terminal emulation is also a common method used to connect portable computers (as in warehouse bar code data collection systems) to mainframe software. Back to Top Third-party Logistics - (3PL) describes businesses that provide one or many of a variety of logistics-related services. Types of services would include public warehousing, contract warehousing, transportation management, distribution management, freight consolidation. A 3PL provider may take over all receiving, storage, value added, shipping, and transportation responsibilities for a client and conduct them in the 3PL's warehouse using the 3PL's equipment and employees, or may manage one or all of these functions in the client's facility using the client's equipment, or any combination of the above. Another term, 4PL is sometimes used to describe businesses that manage a variety of logistics related services for clients by using 3PLs. Also called Public Warehouse and Contract Warehouse. Back to Top Unit-of-Measure Conversions - a unit-of-measure conversion is needed whenever you work with multiple units of measure. For example, if you purchased an item in cases (meaning that your purchase order stated a number of cases rather than a number of pieces) and then stocked the item in eaches, you would require a conversion to allow your system to calculate how many eaches are represented by a quantity of cases. This way, when you receive the cases, your system would automatically convert the case quantity into an each quantity. Back to Top Wave Picking - variation on zone picking where rather than orders moving from one zone to the next for picking, all zones are picked at the same time and the items are later sorted and consolidated into individual orders/shipments. Wave picking is the quickest method for picking multi item orders however the sorting and consolidation process can be tricky. Picking waves are often designed to isolate shipments to specific carriers, routes, etc. See also batch picking, zone picking A more general definition of wave picking would simply be a method where a group of orders is released to the warehouse for picking and the next group (wave) is not released until the first wave has processed through the pick area. Back to Top Warehouse Management System - computer software designed specifically for managing the movement and storage of materials throughout the warehouse. The key to WMS functionality is the logic to direct warehouse operations to specific locations based on user defined criteria. WMSs are often set up to integrate with data-collection systems. Back to Top Work-in-Process (WIP) - generally describes inventory that is currently being processed in an operation, or inventory that has been processed through one operation and are awaiting another operation. WIP is actually an inventory account that represents the value of materials, labor, and overhead that has been issued to manufacturing but has not yet produced a stockable item. Depending on how your accounting and inventory systems are set up, it may also include components picked for production usage or finished products awaiting final inspection. Back to Top Zone Picking - order picking method where a warehouse is divided into several pick zones, order pickers are assigned to a specific zone and only pick the items in that zone, orders are moved from one zone to the next (usually on conveyor systems) as they are picked (also known as "pick-and-pass"). See also batch picking, wave picking. Back to Top Many of the definitions on this page were found at www.inventoryops.com |
