Lean and Six Sigma Dictionary


If you have other items to add to the dictionary please email us at: info@profit-surge.com  
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5 Whys — The 5 why’s typically refers to the practice of asking, 5 times, why the failure has occurred in order to get to the root cause/causes of the problem. There can be more than one cause to a problem as well. In an organizational context, generally root cause analysis is carried out by a team of persons related to the problem. No special technique is required. 
6 Sigma — A scientific/data-driven approach for achieving 6 standard deviations between the mean and nearest specifications limit. Six Sigma methods can be applied to all aspects of manufacturing, transactional processes, and virtually any form of work or processing.  
7 Wastes — (a.k.a. “7 Deadly Wastes of Manufacturing”, “7 Sins of Manufacturing”, etc.) The 7 wastes are activities identified and categorized as non-value adding events or processes that limit profitability in a company.  
First identified by Taiichi Ohno of Toyota, the “7 Wastes” are as follows: (simplified)
1. Overproduction: Making more parts than you can sell.
2. Delay: Waiting for processing, parts sitting in storage, etc.
3. Transporting: Parts/Materials: Moving parts to various storage locations, from process to process, etc.
4. Over-Processing: Doing more “work” to a part than is required.
5. Inventory: Committing money and storage space to parts not sold.
6. Motion: Moving parts more than the minimum needed to complete and ship them.
7. Making Defective Parts: Creating parts that cannot be sold “as is” or that must be reworked etc.  
80-20 Rule — A rule referring to the Pareto principle. The principle suggests that most effects come from relatively few causes; that is, 80% of the effects come from 20% of the possible causes. See: ABC classification.  
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Activity Based Costing (ABC) — A costing system that identifies the various activities performed in a firm and uses multiple cost drivers (non-volume as well as the volume based cost drivers) to assign overhead costs (or indirect costs) to products. ABC Costing considers the impact and relationship of cost drivers with activities performed.  
ABC Classification — Classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria. This array is then split into three classes, called A, B, and C. The A group usually represents 10% to 20% by number of items and 50% to 70% by projected dollar volume. The next grouping, B, usually represents about 20% of the items and about 20% of the dollar volume. The C class contains 60% to 70% of the items and represents about 10% to 30% of the dollar volume. The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than will be applied to high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing, sales, etc. Syn: ABC analysis, distribution by value, Pareto analysis. See: 80-20, Pareto’s law. 
Absorption Costing — Accumulates only product costs, direct and indirect, to measure product cost. The gross margin (under absorption costing) is sales revenue minus all product costs, including applied fixed manufacturing overhead. Absorption costing averages all product costs across units produced. When there are large amounts of committed or fixed costs, making more units reduces the average cost per unit, which may be a visible number. Also, placing some units in inventory defers all the costs of those units from being recognized as expense, which could increase currently reported income. 
Activity Based Budgeting — Grew out of Activity Based Cost System / Activity Based Management Cost System. Activity Based Budgeting uses activities (as opposed to a G/L chart of accounts) as resource allocation targets. Activity Based Budgeting starts with products and services, then extrapolates activities / drivers needed to produce those products and services, and defines the resources required. 
Activity Based Cost System — A cost methodology that assigns costs to activities and cost objects based on the consumption of resources rather than the traditional costing approach in which costs are allocated to products based on some arbitrary bases such as labor. Activity Based Cost System describes various activities (e.g., unit-level, batch-level, product-level, customer-level, and facility-level) that drive a company’s costs. The integration of Activity Based Cost System into a CVP model thus recognizes the existence of multiple cost drivers, resulting in the production of better information for management. 
Analysis Of Variance (ANOVA) — Analysis of variance is a statistical technique for analyzing data that tests for a difference between two or more means by comparing the variances within groups and variances between groups. See the tool 1-Way ANOVA.  
Assemble-To-Order — An environment where a product or service can be assembled after receipt of a customer’s order. The key components (bulk, semifinished, intermediate, subassembly, fabricated, purchased, packaging, etc.) used in the assembly or finishing process are planned and possibly stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product. This strategy is useful where a large number of end products (based on the selection of options and accessories) can be assembled from common components. Syn: finish-to-order. See: make-to-order, make-to-stock. 
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. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which a MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue. See: order promising.  
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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. Syn: backward scheduling. Ant: forward scheduling. 
Backward scheduling — Syn: back scheduling. 
Base series — A standard succession of values of demand-over-time used in forecasting seasonal items. This series of factors is usually based on the relative level of demand during the corresponding period of previous years. The average value of the base series over a seasonal cycle will be 1.0. A figure higher than 1.0 indicates that the demand for that period is more than average; a figure less than 1.0 indicates less than the average. For forecasting purposes, the base series is superimposed upon the average demand and trend in demand for the item in question. Syn: base index. See: seasonal index, seasonality.
Bias — A consistent deviation from the mean in one direction (high or low). A normal property of a good forecast is that it is not biased. See: average forecast error. 
Bottleneck — The slowest operation (choke point) in a manufacturing process. The largest bottleneck for a company is the same as a “Constraint” taken from TOC (Theory of Constraints), which is the slowest operation in an entire manufacturing system that, if remedied, would increase overall company throughput.  
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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 planning, rough-cut capacity planning, capacity requirements planning, and input/output control. 
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 planning), at the master-scheduling level (rough-cut capacity planning), and at the detailed or work-center level (capacity requirements planning). See: capacity requirements planning, resource planning, rough-cut capacity planning. 
Capacity requirements plan — A time-phased display of present and future load (capacity required) on all resources based on the planned and released supply authorizations (i.e., orders) and the planned capacity (capacity available) of these resources over a span of time. See: load profile. 
Capacity Requirements Planning (CRP) — The function of establishing, measuring, and adjusting limits or levels 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. See: capacity planning. 
Carrying cost — Cost of carrying inventory, usually defined as a percentage of the dollar value of inventory per unit of time (generally one year). Carrying cost depends mainly on the cost of capital invested as well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage, and space occupied. Such costs vary from 10% to 35% annually, depending on the type of industry. Carrying cost is ultimately a policy variable reflecting the opportunity cost of alternative uses for funds invested in inventory. 
Critical ratio — A dispatching rule that calculates a priority index number by dividing the time to due date remaining by the expected elapsed time to finish the job. For example, 
(Time Remaining) ÷ (Work Remaining)= 30 ÷ 40 = 0.75
A ratio less than 1.0 indicates the job is behind schedule, a ratio greater than 1.0 indicates the job is ahead of schedule, and a ratio of 1.0 indicates the job is on schedule. 
Cost Of Goods Sold (COGS or CGS) — is the expense a company incurred in order to manufacture, create, or sell a product. It includes the purchase price of the raw material as well as the expenses of turning it into a product. Cost of goods sold (COGS) is also known as cost of revenue or cost of sales.  
Cp —Process Capability index. A measure of the ability of a process to produce consistent results. It is the ratio between the permissible spread and the actual spread of a process. It is calculated from the within variation and so will not include long term population variances. Cp = (USL-LSL)÷(6 x sigma). Note that Cp does not take into account how well the output is centered on the target (nominal) value.  
Cpk — Process Capability index taking account of off-centredness: effectively the Cp for a centered process producing a similar level of defects. The ratio between permissible deviation, measured from the mean value to the nearest specific limit of acceptability, and the actual one-sided 3 x sigma spread of the process. Note that it is calculated from the within variation and so will not include long term population variances.  
Cpk = either (USL-Mean) ÷(3 x sigma) or (Mean-LSL)÷(3 x sigma)
whichever is the smaller (i.e. depending on whether the shift is up or down).  
Note this ignores the vanishingly small probability of defects at the opposite end of the tolerance range. Cpk of at least 1.33 is desired.  
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Demand — A need for a particular product or component. The demand could come from any number of sources, e.g., customer order or forecast, an interplant requirement, or a request from a branch warehouse for a service part or for manufacturing another product. At the finished goods level, demand data are usually different from sales data because demand does not necessarily result in sales; i.e., if there is no stock, there will be no sale. 
Demonstrated capacity — Proven capacity calculated from actual performance data, usually expressed as the average number of items produced multiplied by the standard hours per item. See: maximum demonstrated capacity. 
Dependent demand — Demand that is directly related to or derived from the bill of material structure for other items or end products. Such demands are therefore calculated and need not and should not be forecast. A given inventory item may have both dependent and independent demand at any given time. For example, a part may simultaneously be the component of an assembly and sold as a service part. 
Dispatching rule — The logic used to assign priorities to jobs at a work center.

Dispatch list — A listing of manufacturing orders in priority sequence. The dispatch list, which is usually communicated to the manufacturing floor via hard copy or CRT display, contains detailed information on priority, location, quantity, and the capacity requirements of the manufacturing order by operation. Dispatch lists are normally generated daily and oriented by work center. Syn: work center schedule. 
Distribution — 1) The activities associated with the movement of material, usually finished products or service parts, from the manufacturer to the customer. These activities encompass the functions of transportation, warehousing, inventory control, material handling, order administration, site and location analysis, industrial packaging, data processing, and the communications network necessary for effective management. It includes all activities related to physical distribution, as well as the return of goods to the manufacturer. In many cases, this movement is made through one or more levels of field warehouses. Syn: physical distribution. 2) The systematic division of a whole into discrete parts having distinctive characteristics.  
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Economic Order Quantity (EOQ) — A type of fixed-order-quantity model that determines the amount of an item to be purchased or manufactured at one time. The intent is to minimize the combined costs of acquiring and carrying inventory. (Syn: economic lot size, minimum cost order quantity). The basic formula is: 
Quantity = (2 x annual demand x average cost of preparation)÷(annual inventory carrying costs percentage x unit cost)
Efficiency — A measure (as a percentage) of the actual output to the standard output expected. Efficiency measures how well something is performing relative to expectations; it does not measure output relative to any input. Efficiency is the ratio of actual units produced to the standard rate of product expected in a time period, or actual hours produced to standard hours, or actual dollar volume to standard dollar volume in a time period. For example, if there is a standard of 100 pieces per hour and 780 units are produced in one eight-hour shift, the efficiency is 780/800 multiplied by 100%, or 97.5%. 
EOQ — Abbreviation for economic order quantity. 
EOQ=1 — Reducing setup time and inventory to the point where it is economically sound to produce in batches with a size of one. Often EOQ=1 is an ideal to strive for, like zero defects.  
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Finite loading — Assigning no more work to a work center than the work center can be expected to execute in a given time period. The specific term usually refers to a computer technique that involves calculating shop priority revisions in order to level load operation by operation. 
First Pass Yield (FPY)—The percent of product made right the first time. The simplified definition is that the percent that is not scrap or rework is the FPY. 
FPY = (# units leaving the process as good parts) ÷ (# parts entering the process)
Firm Planned Order (FPO) — A planned order that can be frozen in quantity and time. The computer is not allowed to change it automatically; this is the responsibility of the planner in charge of the item that is being planned. This technique can aid planners working with MRP systems to respond to material and capacity problems by firming up selected planned orders. In addition, firm planned orders are the normal method of stating the master production schedule. See: planning time fence. 
Forward flow scheduling — A procedure for building process train schedules that starts with the first stage and proceeds sequentially through the process structure until the last stage is scheduled.  
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Independent demand — Demand for an item that is unrelated to the demand for other items. Demand for finished goods, parts required for destructive testing, and service parts requirements are examples of independent demand. 
Infinite loading — Calculation of the capacity required at work centers in the time periods required regardless of the capacity available to perform this work. 
Input/output control — A technique for capacity control where planned and actual inputs and planned and actual outputs of a work center are monitored. Planned inputs and outputs for each work center are developed by capacity requirements planning and approved by manufacturing management. Actual input is compared to planned input to identify when work center output might vary from the plan because work is not available at the work center. Actual output is also compared to planned output to identify problems within the work center. Syn: production monitoring. See: capacity control. 
Inventory Turnover (ITO) — The number of times than an inventory cycles, or "turns over," during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. For example, an average inventory of $3 million divided into an average cost of sales of $21 million means that inventory is turned over seven times. Syn: inventory turnover.  
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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 a final product, from design engineering to delivery and including all stages of conversion from raw material onward. The primary elements of just-in-time are to have only the required inventory when needed; to improve quality to zero defects; to reduce lead times by reducing setup times, queue lengths, and lot sizes; to incrementally revise the operations themselves; and to accomplish these things at minimum cost. In the broad sense, it applies to all forms of manufacturing, job shop and process, as well as repetitive. Syn: short-cycle manufacturing, stockless production, zero inventories.  
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Kanban — A method of Just-in-Time production that uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centers signal with a card that they wish to withdraw parts from feeding operations or suppliers. The Japanese word kanban, loosely translated, means card, billboard, or sign. The term is often used synonymously for the specific scheduling system developed and used by the Toyota Corporation in Japan. See: move card, production card, synchronized production. 
Kaizen —A philosophy drawn from the Japanese words kai which means "continuous" and zen meaning "improvement" or "wisdom". A long-term approach to work that systematically seeks to achieve small, incremental changes in processes in order to improve efficiency and quality. Kaizen can be applied to any kind of work, but it is perhaps best known for being used in lean manufacturing.  
Kaizen Event — An improvement tool that brings together employees from various departments to examine a problem, propose solutions, and implement changes. Kaizen events usually take place over a few days and is rarely over one week long.  
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Lead time — 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. Syn: total lead time. See: manufacturing lead time, purchasing lead time. 
Lean — A systematic approach to identifying and eliminating waste through continuous improvement, flowing the product at the pull of the customer in pursuit of perfection. 
Level of service — A desired measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers’ requested delivery dates and quantities. In a make-to-stock environment, level of service is sometimes calculated as the percentage of orders picked complete from stock upon receipt of the customer order, the percentage of line items picked complete, or the percentage of total dollar demand picked complete. In make-to-order and design-to-order environments, level of service is the percentage of time that the customer-requested or acknowledged date was met by shipping complete product quantities. Syn: measure of service, service level. 
Load — The amount of planned work scheduled for and actual work released to a facility, work center, or operation for a specific span of time. Usually expressed in terms of standard hours of work or, when items consume similar resources at the same rate, units of production. 
Load leveling — Spreading orders out in time or rescheduling operations so that the amount of work to be done in sequential time periods tends to be distributed evenly and is achievable. Although both material and labor are ideally level loaded, specific businesses and industries may load to one or the other exclusively (e.g., service industries). Syn: capacity smoothing, level loading. See: level schedule. 
Load profile — A display of future capacity requirements based on released and/or planned orders over a given span of time. See: capacity requirements plan, load projection.  
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Make-to-order — A production environment where a product or service can be made after receipt of a customer’s order. The final product is usually a combination of standard items and items custom-designed to meet the special needs of the customer. Where options or accessories are stocked before customer orders arrive, the term assemble-to-order is frequently used. See: assemble-to-order, make-to-stock. 
Make-to-stock — A production environment where products can be and usually are finished before receipt of a customer order. Customer orders are typically filled from existing stocks, and production orders are used to replenish those stocks. See: assemble-to-order, make-to-order. 
Manufacturing order — A document, group of documents, or schedule conveying authority for the manufacture of specified parts or products in specified quantities. Syn: job order, manufacturing authorization, production order, production release, run order, shop order. See: assembly parts list, batch card, blend order, fabrication order, work order. 
Manufacturing strategy — A collective pattern of decisions that act upon the formulation and deployment of manufacturing resources. To be most effective, the manufacturing strategy should act in support of the overall strategic direction of the business and provide for competitive advantages (edges). 
Master production schedule — 1) The anticipated build schedule for those items assigned to the master schedule. The master scheduler maintains this schedule, and in turn, it becomes a set of planning numbers that drives material requirements planning. It represents what the company plans to produce expressed in specific configurations, quantities, and dates. The master production schedule is not a sales forecast that represents a statement of demand. The master production schedule must take into account the forecast, the production plan, and other important considerations such as backlog, availability of material, availability of capacity, and management policies and goals. 2) The result of the master scheduling process. The master schedule is a presentation of demand, forecast, backlog, the MPS, the projected-on-hand inventory, and the available-to-promise quantity. See: master scheduler, master scheduling.  
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None Value Added (NVA) — Activities or work that are not essential to ensure a product or service meets the needs of the customer. A typical example is when material waits between process steps.  
Normal distribution — A particular statistical distribution where most of the observations fall fairly close to one mean, and a deviation from the mean is as likely to be plus as it is to be minus. When graphed, the normal distribution takes the form of a bell-shaped curve.  
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On hand balance — The quantity shown in the inventory records as being physically in stock. 
Open order — 1) A released manufacturing order or purchase order. Syn: released order. 2) An unfilled customer order. 
Ordering cost — Used in calculating order quantities, the costs that increase as the number of orders placed increases. It includes costs related to the clerical work or preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable. Syn: acquisition cost. 
Order point — A set inventory level where, if the total stock on hand plus on order falls to or below that point, action is taken to replenish the stock. The order point is normally calculated as forecasted usage during the replenishment lead time plus safety stock. Syn: reorder point, statistical order point, trigger level. See: fixed reorder quantity inventory model. 
Order qualifiers — Those competitive characteristics that a firm must exhibit to be a viable competitor in the marketplace. For example, a firm may seek to compete on characteristics other than price, but in order to "qualify" to compete, its costs and the related price must be within a certain range to be considered by its customers. 
Order winners — Those competitive characteristics that cause a firm’s customers to choose that firm’s products and services over those of its competitors. Order winners can be considered to be competitive advantages for the firm. Order winners usually focus on one (rarely more than two) of the following strategic initiatives: price/cost, quality, delivery speed, delivery reliability, product design, flexibility, after-market service, and image. 
Overall Equipment Effectiveness (OEE) — A hierarchy of metrics created by Seiichi Nakajima in 1960's which are used to monitor and improve the efficiency of a process. OEE is made up of three metrics; Availability, Performance, and Quality.  
The formula for OEE is:
OEE = Availability x Performance x Quality  
Availability = Run Time  ÷ Total Time
Performance = Total Count  ÷  Target Counter
Quality = Good Count  ÷  Total Count  
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Pegging — In MRP and MPS, the capability to identify for a given item the sources of its gross requirements and/or allocations. Pegging can be thought of as active where-used information. See: requirements traceability.  
Perpetual inventory — An inventory recordkeeping system where each transaction in and out is recorded and a new balance is computed. 
Perpetual inventory record — A computer record or manual document on which each inventory transaction is posted so that a current record of the inventory is maintained. 
Physical distribution — Syn: distribution. 
Planned order — A suggested order quantity, release date, and due date created by the planning system’s logic when it encounters net requirements in processing MRP. In some cases, it can also be created by a master scheduling module. Planned orders are created by the computer, exist only within the computer, and may be changed or deleted by the computer during subsequent processing if conditions change. Planned orders at one level will be exploded into gross requirements for components at the next level. Planned orders, along with released orders, serve as input to capacity requirements planning to show the total capacity requirements by work center in future time periods. See: planning time fence. 
Planning horizon — The amount of time the master schedule extends into the future. This is normally set to cover a minimum of cumulative lead time plus time for lot sizing low-level components and for capacity changes of primary work centers or of key suppliers. See: cumulative lead time, planning time fence. 
Pp —Process Capability index. A measure of the ability of a process to produce consistent results. It is the ratio between the permissible spread and the actual spread of a process. It is calculated from the overall variation and so will include long term population variances. Cp = (USL-LSL)÷(6 x sigma). Note that Cp does not take into account how well the output is centered on the target (nominal) value.  
Ppk — Process Capability index taking account of off-centredness: effectively the Cp for a centered process producing a similar level of defects. The ratio between permissible deviation, measured from the mean value to the nearest specific limit of acceptability, and the actual one-sided 3 x sigma spread of the process. Note that it is calculated from the overall variation and so will include long term population variances.  
Cpk = either (USL-Mean) ÷(3 x sigma) or (Mean-LSL)÷(3 x sigma) whichever is the smaller (i.e. depending on whether the shift is up or down).  
Note this ignores the vanishingly small probability of defects at the opposite end of the tolerance range. Cpk of at least 1.33 is desired.  
Predictive Maintenance (PM) — Regularly scheduled maintenance activities and practices that seek to prevent unscheduled machinery downtime by collecting and analyzing data on equipment conditions. The analysis is then used to predict time-to-failure, plan maintenance, and restore machinery to good operating condition. Predictive maintenance systems typically measure parameters on machine operations, such as vibration, heat, pressure, noise, and lubricant condition. In conjunction with computerized maintenance management systems (CMMS), predictive maintenance enables repair-work orders to be released automatically, repair-parts inventories checked, or routine maintenance scheduled.  
Production Activity Control (PAC) — The function of routing and dispatching the work to be accomplished through the production facility and performing supplier control. PAC encompasses the principles, approaches, and techniques needed to schedule, control, measure, and evaluate the effectiveness of production operations. See: shop floor control. 
Production plan — The agreed-upon plan that comes from the aggregate (production) planning functions, specifically the overall level of manufacturing output planned to be produced, usually stated as a monthly rate for each product family (group of products, items, options, features, etc.). Various units of measure can be used to express the plan: units, tonnage, standard hours, number of workers, etc. The production plan is management’s authorization for the master scheduler to convert it into a more detailed plan, that is, the master production schedule. See: sales and operations planning, sales plan. 
Pull (system) — 1) In production, the production of items only as demanded for use or to replace those taken for use. 2) In material control, the withdrawal of inventory as demanded by the using operations. Material is not issued until a signal comes from the user. 3) In distribution, a system for replenishing field warehouse inventories where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant. 
Push (system) — 1) In production, the production of items at times required by a given schedule planned in advance. 2) In material control, the issuing of material according to a given schedule or issuing material to a job order at its start time. 3) In distribution, a system for replenishing field warehouse inventories where replenishment decision making is centralized, usually at the manufacturing site or central supply facility.  
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Quality — Conformance to requirements or fitness for use. Quality can be defined through five principal approaches: (1) Transcendent quality is an ideal, a condition of excellence. (2) Product-based quality is based on a product attribute. (3) User-based quality is fitness for use. (4) Manufacturing-based quality is conformance to requirements. (5) Value-based quality is the degree of excellence at an acceptable price. Also, quality has two major components: (1) quality of conformance—quality is defined by the absence of defects, and (2) quality of design—quality is measured by the degree of customer satisfaction with a product’s characteristics and features.  
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Random variation — A fluctuation in data that is caused by uncertain or random occurrences. 
Rated capacity — 1) The expected output capability of a resource from such data as planned hours, efficiency, and utilization. The rated capacity is equal to hours available x efficiency x utilization. Syn: calculated capacity, nominal capacity. 2) In the theory of constraints, rated capacity = hours available x efficiency x activation, where activation is a function of scheduled production and availability is a function of uptime. Syn: standing capacity. 
Released order — Syn: open order. 
Rough-cut capacity planning (RCCP) — The process of converting the master production schedule into requirements for key resources, often including labor, machinery, warehouse space, suppliers; capabilities, and, in some cases, money. Comparison to available or demonstrated capacity is usually done for each key resource. This comparison assists the master scheduler in establishing a feasible master production schedule. Three approaches to performing RCCP are the bill of labor (resources, capacity) approach, the capacity planning using overall factors approach, and the resource profile approach. See: bill of resources, capacity planning, capacity planning using overall factors, product load profile. 
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. In some companies, the routing also includes information on tooling, operator skill levels, inspection operations, and testing requirements, etc. Syn: bill of operations, instruction sheet, operation chart, operation list, operation sheet, route sheet, routing sheet. See: bill of labor, bill of resources.  
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Safety lead time — An element of time added to normal lead time to protect against fluctuations in lead time so than an order can be completed before its real need date. When used, the MRP system, in offsetting for lead time, will plan both order release and order completion for earlier dates than it would otherwise. Syn: protection time, safety time. 
Safety stock — 1) In general, a quantity of stock planned to be in inventory to protect against fluctuations in demand or supply. 2) In the context of master production scheduling, the additional inventory and capacity planned as protection against forecast errors and short-term changes in the backlog. Overplanning can be used to create safety stock. Syn: buffer stock, reserve stock. See: hedge, inventory buffer. 
Safety time — Syn: safety lead time. 
Seasonal index — A number used to adjust data to seasonal demand. See: base series. 
Seasonality — A repetitive pattern of demand from year to year (or other repeating time interval) with some periods considerably higher than others. See: base series. 
Service Level — The percent of orders that are completed on the expected time. The expected time could be either the customer requested time or the time quoted to the customer. 
Service Level = (Number units completed on time) ÷ (Total Number of units completed)
Shop order — Syn: manufacturing order. 
Single-level where-used — Single-level where-used for a component lists each parent in which that component is directly used and in what quantity. This information is usually made available through the technique known as implosion. 
Single Minute Exchange of Dies (SMED) — A procedure which provides for a rapid and efficient way of converting a process from running the current product to running the next product. The ideal vision is to do this conversion in one minute.  
Six Sigma — A scientific/data-driven approach for achieving 6 standard deviations between the mean and nearest specifications limit. Six Sigma methods can be applied to all aspects of manufacturing, transactional processes, and virtually any form of work or processing.  
Stock Keeping Unit (SKU) — A store's or catalog's product and service identification code, often portrayed as a machine-readable bar code that helps the item to be tracked for inventory. A stock keeping unit (SKU) does not need to be assigned to physical products in inventory. Often, SKUs are applied to intangible, but billable products, such as units of repair time or warranties. For this reason, a SKU can be thought of as a code assigned to a supplier's billable entities.  
Standard hours — Syn: standard time. 
Standard time — The length of time that should be required to (1) set up a given machine or operation and (2) run one part, assembly, batch, or end product through that operation. This time is used in determining machine requirements and labor requirements. Standard time assumes an average worker following prescribed methods and allows time for rest to overcome fatigue. It is also frequently used as a basis for incentive pay systems and as a basis for allocating overhead in cost accounting systems. Syn: standard hours. 
Stockout — A lack of material, components, or finished goods that are needed. See: backorder. 
Stockout costs — The costs associated with a stockout. Those costs may include lost sales, backorder costs, expediting, and additional manufacturing and purchasing costs. 
Supply Chain —A system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable.  
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Takt Time —the pace at which the customer is buying a particular product or service. Takt time is the total net daily operating time divided by the total daily customer demand. Takt time is not how long it takes to perform a task. Takt time cannot be reduced or increased except by changes in production demand or available time to work. Takt time is one of the 3 Elements of JIT. Takt is a German word for ”beat” or ”rhythm&rdquo. 
Time fence — A policy or guideline established to note where various restrictions or changes in operating procedures take place. For example, changes to the master production schedule can be accomplished easily beyond the cumulative lead time, while changes inside the cumulative lead time become increasingly more difficult to a point where changes should be resisted. Time fences can be used to define these points. See: demand time fence, hedge, planning time fence. 
Total productive maintenance (TPM) — 1) Preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows. It is operator-oriented maintenance with the involvement of all qualified employees in all maintenance activities. 2) A systematic customer focused approach to continuous performance improvement. A philosophy and set of guiding principles which represent the foundation for continuously improving the organization through employee involvement. The application of quantitative methods and human resources to improve the materials and services supplied to and by an organization and all the processes within the organization and the degree to which the needs of the customer are met. The integration of fundamental management techniques, existing improvement efforts, and technical tools, under a disciplined approach to focus on continuous improvement. 
Total quality management (TQM) — 1) A term coined to describe Japanese-style management approaches to quality improvement. Since then, total quality management (TQM) has taken on many meanings. Simply put, TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, products, services, and the culture they work in. The methods for implementing this approach are found in teachings of such quality leaders as Philip B. Crosby, W. Edwards Deming, Armand V. Feigenbaum, Kaoru Ishikawa, and J. M. Juran.  2) A systematic customer focused approach to continuous performance improvement. A philosophy and set of guiding principles which represent the foundation for continuously improving the organization through employee involvement. The application of quantitative methods and human resources to improve the materials and services supplied to and by an organization and all the processes within the organization and the degree to which the needs of the customer are met. The integration of fundamental management techniques, existing improvement efforts, and technical tools, under a disciplined approach to focus on continuous improvement. 
Trend — General upward or downward movement of a variable over time, e.g., demand, process attribute. 
Two-bin system — A type of fixed-order system in which inventory is carried in two bins. A replenishment quantity is ordered when the first bin is empty. During the replenishment lead time, material is used from the second bin. When the material is received, the second bin (which contains a quantity to cover demand during lead time plus some safety stock) is refilled and the excess is put into the working bin. At this time, stock is drawn from the first bin until it is again exhausted. This term is also used loosely to describe any fixed-order system even when physical "bins" do not exist. Syn: bin reserve system. See: visual review system.  
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Utilization — 1) A measure of how intensively a resource is being used to produce a good or a service. Utilization compares actual times used to available time. Traditionally, utilization is the ratio of direct time charged (run time plus setup time) to the clock time scheduled for the resource. This measure led to distortions in some cases. 2) In the theory of constraints, utilization is the ratio of actual time the resource is producing (run time only) to the clock time the resource is scheduled to produce. 
Value Added (VA) —Activities or work essential to ensure a product or service meets the needs of the customer.  
Value stream mapping (VSM) —A lean manufacturing technique used to analyze and design the flow of materials and information required to bring a product or service to a consumer. At Toyota, where the technique originated, it is known as a Material and Information Flow Mapping. A VSM is made up of the key elements of VA, NVA and the supporting information for these two elements. A VSM that shows what exists today is called a Current State VSM. A map that shows what would like to be achieved is called a Future State Map. The differences between a Current and Future State VSM define the projects or Kaizens needed to achieve the vision.  
Work In Process (WIP) — A product or products in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished product. Many accounting systems also include the value of semifinished stock and components in this category. Syn: in-process inventory. 
Work order — 1) An order to the machine shop for tool manufacture or equipment maintenance; not to be confused with a manufacturing order. 2) An authorization to start work on an activity (e.g., maintenance) or product. See: manufacturing order.  
X-Bar and R Charts—A set of two charts is the most commonly used statistical process control procedure. Used to monitor process behavior and outcome overtime. X-Bar and R charts draw a control chart for subgroup means and a control chart for subgroup ranges in one graphic. Interpreting both charts together allows you to track both process center and process variation and detect the presence of special causes. Generally, a user focuses on the range portion of the chart first, confirming that the process is in control. Finally, the user focuses on the average chart, looking for special cause there.  
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