Plant & Manufacturing Terminology

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Misc.

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There are many terms used by industry insiders but many may not be well known by those without significant manufacturing experience. The listing below covers some of the more common terms.

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A

ABC: See Activity Based Costing.

ABSENTEE POLICY:

ACCOUNTS PAYABLE: Liabilities that result from a purchase of goods or services on an open account.

ACCOUNTS RECEIVABLE: Amounts owed to a company by customers as a result of delivering goods or services and extending credit in the ordinary course of business.

ACQUISITION:

ACTIVITY BASED COSTING (ABC): ABC system identifies and then classifies the major activities of a facility's production process into one of the following four categories: unit-level, batch-level, product-level, and facility-level activities. Costs in the first three categories of activities are assigned to products using bases (i.e. cost drivers) that capture the underlying behavior of the costs that are being assigned. The costs of facility-level activities, however, are treated as period costs or allocated to products in some arbitrary manner.

AD&D:

ADD:

ALLOCATION:

AMORTIZATION: The systematic reduction of a lump-sum amount; specifically when referring to a long-lived asset, it usually means the allocation of costs of intangible assets to the periods that benefit from these assets. Also see depreciation.

ANDON: The visible light or sign that denotes the state of an operation (i.e., on, trouble or off.) The process can be stopped for quality issues and everyone in the immediate area can see that this has happened.

A/P: See Accounts Payable

A/R: See Accounts Receivable

ASSETS:

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B

BACKROOM COSTS: Indirect costs that do not add direct value to a product and may or may not be necessary to support its production. Examples are matching supplier material receipts to their invoices to make sure that they are being paid accurately, sending invoices to customers, matching inventory records on the computer to actual inventory, accounting for product costs at each station on a production routing, keeping track of hazardous materials receipt, control, and proper disposal, tracking customer warranty issues, operation of the computer systems that control the production process, etc.

BENCHMARKING: Benchmarking is defined as a process of continuous comparison of a company’s performance on determined measure against that of the best in an industry or a class, considered the standard or the reference. Benchmarking is one of the most popular business management tool for establishing competitive advantage and initiating performance improvements, being used by companies such as Xerox, Motorola, AT&T and General Motors. The Benchmarking process support the establishment and adoption of best practices with enhanced organization performance which leads to continuos improvement. When it is used toward low-cost producer, the focus are on costs improvements.

Benchmarking is closely associated with the concept of Total Quality Management (TQM) when considered as an efficient approach to enhancing the quality of an organization’s response to its customer’s needs while increasing the character of its internal culture, in both policies and procedures. Benchmarking is seen as a major component of "improvement initiatives", as it enables an organization to identify strengths and weaknesses when compared to the references, while helping to achieve the lowest costs on a determined product, process or method.

Four types of benchmarking have been identified. Internal compares a process to similar operations within the same company; it may yield 10% performance improvement. Competitive is specific competitor-to-competitor comparisons for the process; it may yield 20%. Functional runs comparisons to similar functions within the same industry or with outsiders (e.g. chemical companies are increasingly benchmarking with apparel mail-order in areas such as order entry); it may yield 35%. Generic compares procedures that are unrelated but have similar processes (e.g. airline gate turnaround maintenance and the Indianapolis 500 pit crew); it may yield 35%.

The functions or processes that need benchmarking include those that represent the highest percentage of a company’s cost, that are of strategic value to a company and those that can be sharply enhanced regarding cost performance.

An example of a successful process benchmarking is John Deere, a machinery supplier, where it has become a hallmark of manufacturing. At Deere, the benchmarking activity can be broken in four parts. The planning stage involves identifying the process that needs to be improved, choosing the benchmarking team and internal benchmarking. During the collection phase, participants develop a survey, make a list of prospective benchmarking partners and call them, conduct the actual benchmark, visit the site if necessary and share the collected information to the partners. The analysis stage involves interpreting the data, writing the analysis, sharing information, discussing results and making recommendations for improving processes. At the final stage, recommendations are implemented.

However, several risk are associated with benchmarking as a management tool. These include the selection of an unsuitable set of performance measures, failure to gain support and assistance from top management, misunderstanding of the benchmarking concept, and mismanagement of information.

AT&T gives four tips to a successful process. The process should be quickly completed within a realistic framework as team members may move from the assignment, or a new management may not want the work done. The critical success factors, derived from a company’s survival parameters, need to be integrated. The fallacy of best-in-class companies for benchmarking should be avoided, we need to identify the low-cost producer not relying on rumors. Proper management of changes during benchmarking needs to be employed.

BENEFITS:

BEST PRACTICE: Denotes that practice that is considered the most efficient and effective for a industry, function, and time. Best practicea are continually evolving over time. Best practices are often used across industries to set new "best practice" standards.

BILL OF MATERIAL: A bill of material is an ordered listing of all the parts in a product ready for customer shipment. The list usually includes the part number, how many of each part is required, and a brief word description of the part. It is best practice to use only words that appear in a parts dictionary. Bills of material are usually organized by indenting the subsystems. Thus, a bill of material for a commercial building may have electrical, HVAC, communications, lighting, controls, glass, etc. subsystems each a bill of materials on its own. The bill of materials for the complete building would have the primary building material components and subsystems indented in this list. In best practice, parts in a bill of materials are taken from a database of parts with each part having a part file folder describing and specifying the part.

BLUESKY:

BORROWINGS:

BUILDING TO CUSTOMER ORDER versus BUILDING TO FORECAST: Building to customer order means that at least the final assembly, packaging, and shipping waits until there is a firm order for the product. Building to forecast means that the product is manufactured to a forecasted demand. Building to customer order means that the product is pulled by customer order rather than pushed by a forecast.

There is no relationship between building to customer order and whether the material flow prior to the final assembly is push or pull. A plant can build to customer order pushing the material release to suppliers by forecast or a plant can use the pull system completely in building to a forecast. Neither the processes in the plant nor the suppliers know where the demand comes from in a pull system. The final product demand could come from a forecast even by customer or actual customer firm orders.

BURDEN: Also known as overhead and sometimes as indirect costs. It is the support system cost with respect to the direct costs for manufacturing a product. Burden rates vary widely among operations depending on the equipment investment and other factors. Burden rates include all indirect costs and are usually referenced to direct labor cost excluding fringes required for the direct product manufacture.

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C

CAD: Computer aided design is a process of generating and manipulating product designs through computer software. The software allows all information of a part to be generated and stored electronically at a computer terminal and transferred to other sites or machines.

CAM: Computer aided manufacturing (often used synonymously with CAD) is a similar process of generating manufacturing processes electronically.

CAPITAL EXPENDITURES:

CIM:

CLASSIFICATION:

CNC: Computer numerical control generally refers to equipment which is operated through the use of digital information rather than human input. For instance, a CNC milling machine will automatically produce the desired net shape of a part as specified by the controlling program.

CONTROL CHARTS: Statistical charting process which is used to identify sporadic and chronic faults in a process. Mean and variance measurements of a product are charted and acceptable limits are set on these values. An out of control process can be identified and adjustments made to remedy the situation through the use of control charts.

COST OF GOODS SOLD: The original acquisition cost of the inventory that was sold to customers during the reporting period. Also, see Cost of Goods Sold.

COST OF SALES (COS): This abbreviation denotes the "cost of sales". It denotes all the costs in a plant. It is the sum of materials cost and value added. The COS can also be referred to as "cost of goods sold".

CURRENT:

CUSTOMER SATISFACTION:

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D

DAYS:

DAY SUPPLY:

DCF:

DEBT:

DEPRECIATION: the systematic allocation of the acquisition cost of long-lived or fixed assets to the expense accounts of particular periods that benefit from the use of the assets. Also see amortization.

DFM:

DIES: See tooling

DIRECT

DIRECT LABOR: Denotes that portion of the workforce directly assigned to manufacture the product. Direct labor also refers to the standard direct hours that are needed to manufacture a component or system, e.g., there are 1.25 hours DL in a Honda seat set. See also indirect labor.

DIRECT MATERIALS PURCHASING is purchasing from suppliers on a contractual basis for a fixed period of time or amount of product. For job shops, the purchasing contract can be for only one job. For repetitive manufacturing, the materials are usually purchased on contracts that last for a model run or at least a year. The contract specifies the price, the delivery requirements, the tooling agreements, the quality standards, the release communications and data receipt requirements, and a host of other terms and conditions. The purchase contract does not specify the releases. That is done by the receiving plant as their forecasts or orders require. There can be confusion between purchasing and releasing. Purchasing usually does not release nor do the operations purchase. These are two separate functions that tie together only in that the total demand released to the suppliers by the plants should approximate the volumes specified in the purchase orders.

DISABILITY

DISCOUNTED CASH FLOW (DCF):

DISPUTE RESOLUTION:

DISTRIBUTION: This term denotes the process and/or entities that take manufactured products and make them available to the ultimate customer. In the automotive and appliance industries, it is the automobile and appliance dealers. Distribution can be quite complicated. In the beverage industry, there may be bottlers who have their own distribution so that there are two levels of distribution. There may be several parallel distribution paths to consumers. Original equipment manufacturers (OEMs) may distribute to other OEMs.

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E

EBITDA:

ECONOMIC ORDER QUANTITY: The optimal batch size for an order that minimizes the total annual cost, including cost of ordering (setup cost), inventory holding cost, and cost of materials procured.

EEOC--Equal Employment Opportunity Commission is the administrative agency which administers Title VII of the Civil Rights Act. It is headed by five commissioners appointed by the President. Title VII prohibits discrimination in employment based on race, color, religion, sex, or national origin.

EOC:

EPS:

EQUIPMENT:

EQUITY:

ER&D:

ERROR PROOFING (POKA YOKA): Error proofing seems to be a simple concept, but there are many variations on the primary theme. The basic concept is that a product is prohibited from being taken out of its fixture if it has a quality defect as a result of the machine or operator action. The defect must be corrected prior to release of the product from the fixture. An industry example is the case where four nuts are spot welded to the bottom frame of a metal seat cushion for bolting the seat into the vehicle. The machine that welds the nuts onto the frame was configured so that the fixture would release only if there were a nut on each of the four locations.

Another example is a seat frame where the back is attached to the recliner and the recliner to the bottom frame with five bolts. In producing over 3,000 seats per day, occasionally a bolt was left out. To solve the problem, the attachments were redesigned to use five different diameter bolts, the five different bolts were brought to the line in a small pallet that held only those five bolts, and a different electric nut driver used for each bolt. If each nut driver were did not pull its proper power in the proper sequence, the seat frame could not be released from the fixture. There was also a visual check from the bolt holders of bolts needed and used.

EVA:

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F

FASB: The Financial Accounting Standards Board is a private-sector body that determines generally accepted accounting standards in the United States.

FILE FOLDER (PARTS): There are many names for a parts file folder. The concept is simple, however. A parts file folder contains all the required information about a part including cost, lead times for production, approved suppliers, tooling requirements and cost, drawings of the part, its tooling, and fixturing, computer data if it has been programmed for production on a computer-controlled machine, quality specifications, key characteristics, etc.

FINISHED GOODS: Inventory consists of the goods that have been completed and are awaiting sale. Finished goods are valued at the cost of the material plus the cost of manufacturing.

FIXTURES: Fixtures are what secure tools and the product raw material to general-purpose machines. The location and fixture type make a significant difference in the speed with which tools can be changed and in the quality or the part produced. It is best practice to fix a tool at just the right point so that the key characteristics are produced with the most accuracy given the machine and tools being used to make the part.

FMEA:

FORECAST:

FORKLIFT:

FRINGES:

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G

GEMBA:

GOODWILL: The excess of the cost of an acquired company over the sum of the fair market value of its identifiable individual assets less the liabilities.

GRIEVANCE:

GROSS MARGIN: Denotes the ratio in percent of the difference between sales and COS to Sales for the total company. Gross margin for a plant would be the plant's revenues minus COS divided by revenue expressed in percent.

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H

HAZMAT:

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I

INDIRECT COSTS:

INDIRECT LABOR: Denotes the production workers that support the direct labor function. Indirect labor functions can include maintenance, material handling, setup, product testing, and inspection. Best practice limits indirect functions and indirect people by, for example, assigning direct responsibility for all functions at routing stations to teams that would include direct operations, maintenance, material movement, and scheduling.

INVENTORY: Goods held by a company for the purpose of sale to customers.

IRR:

ISO 9000:

ISO CERTIFICATION:

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J

JIT: Just-in-time manufacturing system.In a full JIT system, the only parts that enter a plant or move from process to process in a plant are those identified uniquely with a final product, no more or no less. Thus, every part being supplied and every part in the plant can be related directly to a bill of material of a product that is either in production or shortly to be in production.

JIT is independent of distance and supplier location. NUMMI (GM/Toyota joint venture that builds Corollas, Prizms, and Toyota trucks) insists that its Fremont, California plant operate JIT even though most of its suppliers are in the Midwest. It does this by having each supplier produce just that day's material. It is picked up daily, consolidated on a unit train in Chicago, and shipped to Fremont every day. Even though the train takes twenty-four hours, the plant receives material the same as if all supplier plants were only one or two hours away. The receiving plant does not perceive that the train was made up thirty-six hours earlier.

A plant that uses JIT exclusively is very rare. Forecasted demand is common for many supplied parts. Further, parts get lost, stolen, and damaged. Parts that do not meet quality standards must be reworked or resupplied. For all these reasons and more, an MRP system is required. MRP systems are quite complex and computer-based. The software incorporating MRP systems can be expensive and difficult to install because it requires and evaluation and possible change of all business practices.

JOB SHOPS: Job shops refer to those operations where each order is more or less unique and where the volumes are small or only one order. The clearest example of a job shop is a construction firm that constructs unique buildings. The book manufacturing industry is another example of a job shop if the production runs are small as is the case for a textbook. The automotive, appliance, towel, petroleum refining, and computer industries are examples of repetitive manufacturing. See also repetitive manufacturing.

Several industries have characteristics of both repetitive manufacturing and job shops in their operations. Even in job shops, standardized materials, machines, and tooling and fixtures are desirable. Standard sizes, capacities, and performance are characteristic of the construction industry. Also, either industry may incur high tooling costs. Even in the construction industry, repetitive manufacturing is gaining as modular assemblies are replacing craftwork in many of the subassemblies.

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K

KAIZAN:

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L

LAYOFF:

LEVELED PRODUCTION: The distribution of production of different kinds of items evenly through the day and week to allocate work evenly and thereby use resources optimally

LIABILITIES: Economic obligations of the organization to outsiders or claims against the assets by outsiders.

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M

MAINTENANCE:

MANUFACTURING ENGINEERING:

MASTER PRODUCTION SCHEDULE:

MATERIAL CONTROL:

MATERIAL FLOW:

MATERIAL RELEASE: Release means the process and data by which a supplier is notified that material is to be shipped. The supplier may choose either to manufacture the product in anticipation of the release (forecasting) or wait until receiving the release and manufacture the product between the time that the release is received and the time that the supplier must ship the product to reach the customer plant on time. Release information usually specifies the part number and quantity required and the time it is to be received at the customer plant dock.

MATERIALS:

MRO:

MRP: Material resource planning. MRP systems are used in almost all plants. They keep order among the bill of materials, forecasted demand, long lead-time parts, and the inventory in the plant. The reason MRP systems are generally required relate to the fact that all parts cannot be supplied JIT. There are still suppliers that give price discounts for larger orders. Further, material receipt, inventory tracking, and engineering changes introduce complexity in plants unless the bills of material are few and simple.

A plant that uses JIT exclusively is very rare. Forecasted demand is common for many supplied parts. Further, parts get lost, stolen, and damaged. Parts that do not meet quality standards must be reworked or resupplied. For all these reasons and more, an MRP system is required. MRP systems are quite complex and computer-based. The software incorporating MRP systems can be expensive and difficult to install because it requires and evaluation and possible change of all business practices.

MRP II:

MULTIPLE SOURCING:

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N

NET INCOME: The remainder after all expenses have been deducted from revenues.

NLRB: National Labor Relations Board is an independent administrative agency responsible directly to the President which administers most of the provisions of the National Labor Relations Act.

NPD:

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O

Occupational Safety and Health Administration: The Occupational Safety and Health Act was first enacted by Congress in 1970. Ever since, OSHA’s mission has been clear and unwavering: "to assure so far as possible every working man and women in the nation safe and healthy working conditions." Coverage of the Act extends to all employers and their employees in the 50 states, the District of Columbia, Puerto Rico, and all other territories under Federal Government jurisdiction. Today federal OSHA maintains a staff of 2,209 employees (of which 1,113 are inspectors). OSHA operates under a $336.5 million budget and covers more than 100 million Americans at more than 6 million workplaces.

Every year in the United States, over 6,000 Americans die from workplace injuries, an estimated 50,000 people die from illnesses caused by workplace chemical exposures, and 6 million people suffer non-fatal workplace injuries. This equates to about 17 Americans who die every day on the job and nearly 50 American workers who are injured every minute. These injuries cost the economy more than $110 billion a year.

Since 1970, the overall workplace death rate has been cut in half. According to a recent study, in the three years following an OSHA inspection that results in penalties, injuries and illnesses have dropped on average by 22%. OSHA’s top priorities for inspections are life threatening situations or accidents involving deaths or three or more workers injured seriously enough to require hospitalization.

OSHA and its state partners have approximately 2,100 inspectors, investigators, engineers, physicians, educators, standards writers, and other technical and support personnel. Combined there are more than 200 offices throughout the country. Nearly every working man and woman in the nation falls under OSHA’s jurisdiction (with some exceptions such as miners, transportation workers, many public employees, and the self-employeed).

Specifically, employers of 11 or more employees must maintain records of occupational injuries and illnesses as they occur. Under OSHA, all occupational injuries must be recorded if they result in:

• Death
• One or more lost workdays
• Restriction of work or motion
• Loss of consciousness
• Transfer to another job
• Medical treatment (other than first aid)

 OSHA recognizes that the key to success is encouraging employers to work with their employees in hazard identification and safety awareness, rather than have those workers depend solely on OSHA inspectors. Today, OSHA is committed to a common sense strategy of forming partnerships with employers and employees; conducting fair but firm inspections; developing sensible, easy-to-understand regulations and eliminating unnecessary rules; and assisting employers in developing high quality safety and health programs. In fiscal year 1997, state consultants, authorized and funded largely by OSHA, conducted 21,596 free consultation visits with employers who asked for help in establishing safety and health programs or dealing with specific hazards at their workplace.

For information on OSHA publications and other informational materials contact the U.S. Department of Labor OSHA Publications, P.O. Box 37535, Washington, DC 20013-7535, (202)219-4667 or (202)219-9266 (Fax). Since states adopt and enforce their own standards under state laws, copies of state standards under state laws may be obtained from the individual states.

OEM: Original Equipment Manufacturer. The term OEM denotes a company or sector that manufacturers equipment ready for purchase by the end-use customer. The large automotive companies are referred to as OEMs. Suppliers to such companies supply to the OEMs, they are not OEMs themselves. There is an implication of a distribution entity between an OEM and the ultimate customer.

OSHA: See Occupational Safety and Health Administration

OPERATING INCOME: Gross profit less all operating expenses.

ORDER:

OVERHEAD: Includes all manufacturing costs, other than direct material and direct labor. In addition to indirect material and indirect labor, overhead includes such costs as utilities, maintenance, depreciation and taxes.

OVERTIME:

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P

PARTS FILE FOLDER: There are many names for a parts file folder. The concept is simple, however. A parts file folder contains all the required information about a part including cost, lead times for production, approved suppliers, tooling requirements and cost, drawings of the part, its tooling, and fixturing, computer data if it has been programmed for production on a computer-controlled machine, quality specifications, key characteristics, etc.

PAYROLL:

PICK AND PLACE:

PLANT RATE: Plant rate is the total value added by a plant divided by the total direct labor hours in a yearly budget. It is the shop rate plus the over costs divided by the direct labor hours in a yearly budget.

POKA YOKA: See Error Proofing.

PP&E: The property, plant and equipment or fixed assets of a company.

PRODUCT LIABILITY:

PRODUCTIVITY:

PULL SYSTEM FOR MATERIAL CONTROL: The pull system means that the "release" for moving material within the plant or from suppliers is signaled by the next process in line that needs the material. The material is moved by the demand from the succeeding process in the production chain or routings not by a central schedule or general release. See also push system. This system is also what is referred as the Just In Time System (JIT). The idea behind it is only to produce what is required by the customer. In this system, the goods are produced after the order for the goods have been placed by the customer. The main challenge in implementing this system comes in when looking at the supply side of raw materials as well as the efficiency of the plants. A company that produces JIT, need to have suppliers that can supply raw materials in a short notice and are therefore located close by in order to receive raw materials in a timely fashion for production. At the same time, manufacturing JIT requires more than just good plants. They require what is referred as the seven zeros that are essential for the success of this system. They are

• Zero Defects: To avoid delays due to defects (Quality at the source)
• Zero (Excess) Lot Size: To avoid "waiting inventory" delays
• Zero Setups: To minimize setup delay and facilitate small lot sizes
• Zero Breakdowns: To avoid stopping tightly coupled line
• Zero (Excess) handling: To promote flaw of parts
• Zero Lead Time: To ensure rapid replenishment of parts
• Zero Surging: Necessary in system without work in progress buffers

The implementation of this system took Toyota over 30 years to be perfected. However the trend seems to be going towards this system in the United States. The biggest advantage of this system is the reduction in cost of the goods as well as the flexibility in production that help companies be more dynamic and competitive in the industry.

PURCHASING:

PUSH SYSTEM FOR MATERIAL CONTROL: The push system denotes a system whereby material is released for production and movement by a central or local scheduling algorithm and based on forecasted or anticipated needs for that material. See also pull system. Traditionally, the Push system had been used in plants for production scheduling. The push system is simply when the demand for a product is forecasted and a production schedule is made up according to the forecast of demand through a centralized system. However, the main problem with this system is the variations between the forecasted and the actual demand that may cause excess inventory of finished goods or a backorder in production. In order to avoid problems that are caused due to forecasting errors, companies that use a push system may either

1. Keep finished goods on inventory (safety stock)
2. Have an excess lead time on delivery to give enough time to produce enough

The main disadvantage of the system comes in when the plants have to keep excess inventory or have long lead times for the customers. Inventory costs money and long lead times cause dissatisfied customers. At the same time, companies have spent millions of dollars in the past just to get good a MRP software that would be able to help planners plan the production effectively.

With the push system, the demand for goods have to be monitored very closely as the production schedule is subject to change depending on the orders that come in. If most of the products are being manufactured on batch production basis, changing the setup for a different product may cause a long delay. Due to this reason alone, a last minute incoming order would be very hard to be facilitated into the production system.

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Q

QFD:

QS 9000:

QUALITY:

QUALITY COST:

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R

RELEASE (MATERIAL): Release means the process and data by which a supplier is notified that material is to be shipped. The supplier may choose either to manufacture the product in anticipation of the release (forecasting) or wait until receiving the release and manufacture the product between the time that the release is received and the time that the supplier must ship the product to reach the customer plant on time. Release information usually specifies the part number and quantity required and the time it is to be received at the customer plant dock.

RELEASING OFF BILL OF MATERIAL: Releasing off a bill of material means that the only information a supplier receives is a time sequence of finished product part or model numbers. The suppliers must then know which parts in the bill of materials are theirs. This sequence of final products can be the only information shipped out to all suppliers that do not use the "vending machine" approach. This greatly simplifies material control and release. Instead of each part number for each supplier part being separately communicated to the right supplier, all suppliers receive only the sequence of final product or model numbers. In the case of a vehicle or a refrigerator, the suppliers would only receive the model number of the product being produced in the production sequence along with the options code. It would then be the suppliers' responsibility to ship the right parts for that model in sequence to the customer plant JIT.

REPETITIVE MANUFACTURING: Repetitive manufacturing refers to those operations where each product is produced more or less continuously at significant volumes usually on an assembly line. It is assumed that the products are completely engineering so that minimal design or craftwork is done on the manufacturing line. See also job shops.

Several industries have characteristics of both repetitive manufacturing and job shops in their operations. Even in job shops, standardized materials, machines, and tooling and fixtures are desirable. Standard sizes, capacities, and performance are characteristic of the construction industry. Also, either industry may incur high tooling costs. Even in the construction industry, repetitive manufacturing is gaining as modular assemblies are replacing craftwork in many of the subassemblies.

RESEARCH AND ENGINEERING:

REWORK:

ROBOT:

ROE: Net income divided by average equity.

ROI:

RONA:

ROS:

ROUTINGS: Routings are the steps that a product follows through a manufacturing plant as it moves from machine to machine. There may be several subsystems in a product that follow different routes finally converging at one or more machines or assembly lines that complete the final product.

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S

SALARIED STAFF:

SCHEDULE:

SCRAP:

SELLING AND ADMINISTRATIVE:

SERVICES

SETUP: Denotes the process of changing or fitting tools on general purpose equipment for a particular product. Best practice reduces setup times and effort by designing the tools and their clamping and fixing devices for rapid attachment and detachment, by having all the required hand and special tools located conveniently near the equipment, and by training the operational teams to make quick, safe tool changes.

SG&A:

SHOP COMMITTEE:

SHOP RATE: Shop rate is the direct labor cost plus the manufacturing overhead divided by the total direct labor hours in the yearly budget for the plant. It can range from $20-100 per hour. It is used to estimate the cost for bidding for new business.

SHRINKAGE:

SINGLE SOURCING: Sourcing all the requirements for a particular part to one supplier is called single sourcing. It has been a purchasing truism forever that sourcing to more than one supplier is required to obtain competitive pricing, quality, and delivery. The Japanese automotive industry developed a system, however, that made a form of single sourcing work more effectively than the multiple sourcing practiced by the U.S. automotive industry. This modified single sourcing system has begun to be adopted by all automotive companies and by other industries as well.

The system sources to a single supplier all the requirements for a product line early enough in the design cycle so that the supplier has significant design responsibilities. The volumes can be quite attractive. In the seating industry, the average contract in the early 1980s before this system was adopted was in the range of one to three million dollars per year for one year. After the new system was adopted the contracts were for fifty to one hundred million dollars per year for five years or more.

The supplier works to a target cost for the product that is set independently and prior to the design process. The responsibility of the supplier is then to design the product to the cost specified by the customer and make a profit, to deliver the product to the customer on time, and to meet the customer quality specifications. The supplier must develop significant expertise in such subsystems to win and keep business in this sourcing strategy.

In this system, a mutual dependency develops whereby the supplier has the business for a model run of four to six years. Since the supplier wants the business for the next model as well as the current model, the supplier is motivated to keep costs down, quality up, and delivery on time. At the next model design, more than one supplier has the opportunity to bid for the yet to be designed product. In this way, the full history of the current supplier is known during the bidding for the next design. However, new ideas and concepts can be brought to the customer by competitors. The system works well when there are at least two capable suppliers that can bid on such large contracts. The seating industry has evolved to this status from more than two dozen small firms in the early 1980s to a very few, very large firms in the late 1990s. In 1981, Hoover Universal seating (which JCI acquired) had less than one hundred fifty million-dollar sales per year and Lear had less. In 1998, both Lear and JCI are above nine billion dollars in sales.

SOURCING:

SPARE PARTS:

SPC: Statistical process control involves the implementation of statistical tools (including control charts) that monitor processes in order to identify improvement opportunities. Process faults are identified, a root cause of the fault is isolated, and corrective actions are taken to improve the process.

STANDARD COST:A measure of how much one unit of product or services should cost to produce or deliver. Standard cost may be established using careful analysis of the product or service and the materials and processes used to create it. If established in this manner, standard costs may be thought of as ideal costs, and actual costs may differ from these costs because of actual price differences, errors or mistakes, or changed conditions from the ideal.

SUPPLY CHAIN: The supply chain denotes the route of products from raw material to the ultimate consumer as well as the details of that route such as cost, time, transportation, packaging, etc. It may involve two or three levels of suppliers, one or more OEM plants, a distribution system, spare and replacement parts flow, and disposal and recycling process.

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T

T&E:

TERMINAL VALUE:

TOOLING: Tooling and dies refer to hardware that is developed specifically for a part so that a when that tool or die is inserted into a general-purpose machine, that machine will produce or shape that part uniquely. Tool and die makers design and make tooling and dies. The two terms are almost synonyms. Engineers or tool designers design tools and dies. Examples of tools and dies are:

• Molds that are used in plastic injection molding machines to make everything from plastic cups to complex plastic parts for industrial or commercial use
• Tool steel dies designed for hydraulic and mechanical presses so that a flat piece of steel or other metal can be formed into such products as fenders, CRT enclosures, or cooking ware
• Templates used for printing, painting, and lithography
• A set of patterns for cutting cloth or leather
• Digital data that guide a general purpose machine in its cutting of materials
• Cookie and bread molds for cooking
• A metal stamp that embosses the figures on a coin blank
• Camera-ready copy of a manuscript to be published

TQC:

TQM:

TURNS: Commonly thought of as inventory turns or turnover ratio, turns are defined as the ratio of throughput to average inventory. A high number of turns imply that little inventory is kept on hand and/or materials are received in small lots.

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U

UNION CONTRACT

UNION FREE

UNION SHOP: A facility in which hourly employees are unionized, or more formally a clause in a collective bargaining agreement under which membership in the union is required as a condition of employment.

UTILITIES

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V

VALUE ADDED: Denotes the "value" added to the materials received by a plant in the plants operations. Usually a percentage of COS. Value added can be a combination of true value and the non-value added work done in manufacturing a product. Best practice requires a plant to continually assess which of its activities is true value added and eliminate or reduce the non-value added activities. This assessment can be complex, however. There is a gray area in determining what are the direct materials. There is no confusion on direct materials that are part of the bill of materials. The uncertainty is in the indirect materials some of which could be included in the bill of material. For example, adhesives and lubricants are generally bought in bulk and used as needed with the amounts not accurately specified in the bills. For most plants, these items are small compared with other costs.

VARIANCE:

VENDING MACHINE MATERIAL CONTROL: Soft drink and snack suppliers to a plant replenish the previous day's employee purchases each day. They do not forecast demand in any formal way; they stock their delivery trucks with products that have been selling plus maybe some new, more inticing snacks. Plants can use this philosophy to have many types of production material stocked. Suppliers come to the plant daily and replenish bins from which material has been used the previous day. They do not forecast nor know except from recent historical data what the usage will be. Such parts are usually standard ones such as fasteners.

VISUAL MANAGEMENT:

VOLUNTARY LAYOFF:

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W

WARRANTY:

WELDING:

WELLNESS

WORKFORCE:

WORK TEAMS

WORK IN PROCESS: Inventory consisting of products that are in a semifinished state. Work in process inventory is valued at the cost of the purchased material plus the cost of manufacturing up to the stage of completion at the time that the inventory is valued.

WORKING CAPITAL: In a manufacturing operation, working capital generally refers to inventory plus accounts receivable minus accounts payable. These are the dominant requirements for cash in a plant in addition to payroll and property, plant, and equipment.

For a company, the accounting definition of working capital is current assets minus the current liability. This definition refers to the working capital that the company has. From a manufacturing perspective, the working capital requirement to run the operations is what is important. This allows a forecast of the cash required to produce a new order, to negotiate with suppliers and customer on payment terms, and to communicate with corporate treasury functions on the cash needed so that it can be lined up from banks or investors. For this purpose, working capital is current assets minus cash minus current liabilities plus the current portion of debt.

The difference is analogous to the difference between price and cost. The price is the monies you get from the customer. The cost is what monies are needed to produce the product. The difference is margin. Price can vary greatly depending on market conditions. Production cost is a less volatile measure that should be know with some accuracy in order to price. Operational reviews are always about operating costs and working capital as defined above.

Another analogy is the cash you may take on a trip. The operational working capital is that amount needed to complete the trip without running out of money. The monies that you take are usually significantly larger than this amount either by credit cards or cash. Thus, the accounting working capital that you have is the limit on your credit cards plus your cash. The operational working capital is the amount you actually need for the trip.

WORKMAN'S COMP

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X

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Y

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Z

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Misc.