Trading Systeme Theorie Und Sofort Praxis Pdf

Daniel Kahneman - Biographische frühe Jahre Ich wurde in Tel Aviv geboren, in dem, was jetzt Israel ist, im Jahr 1934, während meine Mutter besuchte ihre erweiterte Familie dort unsere regelmäßige Domizil war in Paris. Meine Eltern waren litauische Juden, die in den frühen 1920er Jahren nach Frankreich ausgewandert waren und sehr gut gehandelt hatten. Mein Vater war der Chef der Forschung in einer großen chemischen Fabrik. Aber obwohl meine Eltern liebten die meisten Dinge Französisch und hatte einige französische Freunde, ihre Wurzeln in Frankreich waren flach, und sie fühlten sich nie völlig sicher. Natürlich waren die Spuren der Sicherheit, die sie hatten, verloren gegangen, als die Deutschen im Jahre 1940 nach Frankreich flogen. Was wohl der erste Graph war, den ich jemals zog, zeigte 1941 meine Familienvermögen als eine Funktion der Zeit - und um 1940 kreuzte sich die Kurve Die negative Domäne. Ich werde nie wissen, ob meine Berufung als Psychologe ein Ergebnis meiner frühzeitigen Exposition gegenüber interessanten Klatsch war oder ob mein Interesse an Klatsch ein Hinweis auf eine angehende Berufung war. Wie viele andere Juden, so meine ich, wuchs ich in einer Welt auf, die ausschließlich aus Menschen und Worten bestand, und die meisten Worte waren von Menschen. Die Natur existiert kaum, und ich habe nie gelernt, Blumen zu identifizieren oder Tiere zu schätzen. Aber die Menschen, die meine Mutter gern mit ihren Freunden und mit meinem Vater besprach, waren in ihrer Komplexität faszinierend. Einige Leute waren besser als andere, aber die besten waren weit von perfekt und niemand war einfach schlecht. Die meisten ihrer Geschichten waren von Ironie berührt, und sie alle hatten zwei Seiten oder mehr. In einer Erfahrung erinnere ich mich lebhaft, es gab eine reiche Palette von Schattierungen. Es muß spät 1941 oder früh 1942 gewesen sein. Juden waren verpflichtet, den Davidstern zu tragen und einer Sperrstunde von 6 Uhr zu gehorchen. Ich war gegangen, um mit einem christlichen Freund zu spielen und war zu spät geblieben. Ich drehte meinen braunen Pullover nach draußen, um die paar Häuser nach Hause zu gehen. Als ich eine leere Straße entlangging, sah ich einen deutschen Soldaten herankommen. Er trug die schwarze Uniform, die man mir befohlen hatte, mehr als andere zu fürchten - diejenige, die von speziell eingestellten SS-Soldaten getragen wurde. Als ich näher zu ihm kam, um schnell zu gehen, bemerkte ich, dass er mich aufmerksam ansah. Dann winkte er mich rüber, hob mich auf und umarmte mich. Ich hatte Angst, dass er den Stern in meinem Pullover bemerken würde. Er sprach mit großem Gefühl auf deutsch. Als er mich niederlegte, öffnete er seine Brieftasche, zeigte mir ein Bild von einem Jungen und gab mir etwas Geld. Ich ging nach Hause sicherer als je zuvor, dass meine Mutter Recht hatte: die Menschen waren unendlich kompliziert und interessant. Mein Vater wurde in dem ersten groß angelegten Fegefeuer für Juden abgeholt und sechs Wochen lang in Drancy interniert, die als Wegstation zu den Vernichtungslagern eingerichtet worden war. Er wurde durch die Intervention seiner Firma freigelassen, die in den 1930er Jahren von der Finanzbasis der faschistischen antisemitischen Bewegung in Frankreich geleitet wurde (eine Tatsache, die ich nur aus einem Artikel gelernt habe, den ich vor einigen Jahren gelesen habe). Die Geschichte meiner Väterfreilassung, die ich nie ganz verstand, war auch eine schöne Frau und ein deutscher General, der sie liebte. Bald darauf flohen wir nach Vichy Frankreich und blieben an der Riviera in relativer Sicherheit, bis die Deutschen ankamen und wir entkamen wieder in die Mitte Frankreichs. Mein Vater starb an unzureichend behandeltem Diabetes, 1944, nur sechs Wochen vor dem D-Tag, den er so verzweifelt gewartet hatte. Bald waren meine Mutter, meine Schwester und ich frei und begannen, auf die Genehmigungen zu hoffen, die es uns erlaubten, dem Rest unserer Familie in Palästina beizutreten. Ich war intellektuell anfällig und körperlich unfähig geworden. Die Ungeschicklichkeit muß sehr bemerkenswert gewesen sein, denn während meiner letzten Amtszeit in einem französischen Lyceacutee im Jahre 1946 verhinderte mein achtsamischer Lehramtslehrer meine Aufnahme in das Tableau dHonneur - die Ehrenrolle -, weil er selbst seine extreme Toleranz hatte Grenzen. Ich muß auch ein pompöses Kind gewesen sein. Ich hatte ein Notizbuch von Essays, mit einem Titel, der mich immer noch erröten lässt: Was ich schreibe, was ich denke. Der erste Aufsatz, geschrieben, bevor ich elf wurde, war eine Diskussion über den Glauben. Es billigte zitiert Pascals sagen Glauben ist Gott für das Herz wahrnehmbar gemacht (wie richtig das ist), dann fuhr fort, darauf hinzuweisen, dass diese echte spirituelle Erfahrung war wahrscheinlich selten und unzuverlässig, und dass Kathedralen und Orgelmusik geschaffen wurde, um mehr zu generieren Zuverlässige, ersatz Version der Nervenkitzel des Glaubens. Das Kind, das dieses schrieb, hatte einige Eignung für Psychologie und ein großes Bedürfnis nach einem normalen Leben. Adoleszenz Der Umzug nach Palästina hat meine Lebenserfahrung völlig verändert, teils weil ich ein Jahr zurückgehalten wurde und mich zum zweiten Mal in der achten Klasse einschrieb - das bedeutete, dass ich nicht mehr der jüngste oder der schwächste Junge der Klasse war. Und ich hatte Freunde. Innerhalb weniger Monate nach meiner Ankunft hatte ich glücklichere Wege gefunden, die Zeit zu verbringen, als mir Essays zu schreiben. Ich hatte viel intellektuelle Aufregung in der High School, aber es wurde von großen Lehrern induziert und gemeinsam mit Gleichgesinnten. Es war gut für mich nicht mehr außergewöhnlich zu sein. Im Alter von siebzehn Jahren hatte ich einige Entscheidungen, um über meinen Militärdienst zu machen. Ich wandte mich an eine Einheit, die mir erlaubte, meinen Dienst zu verschieben, bis ich meinen ersten Grad beendet hatte, der damit verbunden war, die Sommer in der Offiziersausbildung-Schule und ein Teil meines Militärdienstes unter Verwendung meiner beruflichen Fähigkeiten zu verbringen. Bis dahin hatte ich mich mit Schwierigkeiten entschlossen, Psychologe zu werden. Die Fragen, die mich in meinen Jugendlichen interessierten, waren philosophisch - der Sinn des Lebens, die Existenz Gottes und die Gründe, nicht zu missbrauchen. Aber ich entdeckte, dass ich mehr daran interessiert war, was die Menschen dazu veranlasste, an Gott zu glauben, als ich daran war, ob Gott existierte, und ich war eher neugierig auf die Ursprünge von Völkern, die eigenartige Überzeugungen über Recht und Unrecht hatten, als ich über Ethik war. Als ich zur Berufsberatung ging, tauchte die Psychologie als oberste Empfehlung auf, wobei die Ökonomie nicht allzu weit zurücklief. Ich erhielt meinen ersten Grad von der Hebräischen Universität in Jerusalem, in zwei Jahren, mit einem Major in der Psychologie und einem kleinen in Mathematik. Ich war mittelmäßig in Mathematik, vor allem im Vergleich mit einigen der Leute, mit denen ich studierte, von denen mehrere Weltklasse-Mathematiker geworden sind. Aber die Psychologie war wunderbar. Als Schüler des ersten Lebensjahres stieß ich auf die Schriften des Sozialpsychologen Kurt Lewin und wurde von seinen Landkarten des Lebensraums, in denen Motivation als ein von außen wirkendes Kraftfeld von außen, drückend und hineingezogen, tief beeinflusst Verschiedene Richtungen. Fünfzig Jahre später ziehe ich immer noch die Lewins-Analyse auf, wie ich Verhaltensänderungen für meine Einführungsvorlesung zu Studenten der Woodrow Wilson School of Public Affairs in Princeton veranlasse. Ich war auch fasziniert von meinen frühen Expositionen in der Neuropsychologie. Es gab die wöchentlichen Vorträge unseres verehrten Lehrers Yeshayahu Leibowitz - ich ging einmal zu einem seiner Vorträge mit einem Fieber von 41 Grad Celsius, die man einfach nicht verpassen sollte. Und es war ein Besuch des deutschen Neurochirurgen Kurt Goldstein, der behauptete, dass große Hirnverletzungen die Fähigkeit zur Abstraktion beseitigten und die Menschen zu konkreten Denkern machten. Darüber hinaus und aufregend, wie Goldstein sie beschrieb, waren die Grenzen, die abstrakt vom Beton getrennt waren, nicht die, die die Philosophen gesetzt hätten. Wir wissen jetzt, dass es wenig Substanz zu Goldsteins Behauptungen gab, aber damals war die Idee, konzeptionelle Unterscheidungen auf neurologische Beobachtungen aufzubauen, so spannend, dass ich ernsthaft überlegte, in die Medizin umzuziehen, um Neurologie zu studieren. Der Chef der Neurochirurgie im Hadassah Krankenhaus, der ein Nachbar war, sprach mir klug aus diesem Plan, indem er darauf hinwies, dass das Studium der Medizin zu anspruchsvoll sei, um als Mittel zu einem anderen Ziel als der Praxis unternommen zu werden. Die militärische Erfahrung 1954 wurde ich als zweiter Leutnant verfasst und nach einem ereignisreichen Jahr als Zugführer wurde ich in den Psychologie-Zweig der israelischen Streitkräfte überführt. Dort war eine meiner gelegentlichen Aufgaben, an der Einschätzung der Kandidaten für Offizierausbildung teilzunehmen. Wir verwendeten Methoden, die von der britischen Armee im Zweiten Weltkrieg entwickelt worden waren. Ein Test umfasste eine Führerlose Gruppe Herausforderung, in der acht Kandidaten, mit allen Insignien der Rang entfernt und nur Zahlen, um sie zu identifizieren, wurden gebeten, eine Telefonmast aus dem Boden zu heben und wurden dann zu einem Hindernis, wie ein 2,5-Meter geführt Wo man sagte, sie solle auf die andere Seite der Mauer gelangen, ohne daß die Stange entweder den Boden oder die Wand berührte, ohne daß die eine die Wand berührte. Wenn eines dieser Dinge geschah, mussten sie es erklären und von neuem beginnen. Zwei von uns würden die Übung, die oft dauerte eine halbe Stunde oder mehr. Wir suchten nach Manifestationen der Charaktere der Kandidaten, und wir sahen viel: wahre Führer, loyale Anhänger, leere Boasters, Wimps - es gab alle Arten. Unter dem Stress der Veranstaltung fühlten wir uns, dass die Soldaten wahre Natur sich offenbaren würden, und wir würden sagen, wer ein guter Führer sein würde und wer nicht. Aber das Problem war, dass wir in der Tat nicht sagen konnten. Jeden Monat oder so hatten wir einen Statistiktag, bei dem wir Feedback von der Offiziersschule erhielten, was die Genauigkeit unserer Kandidatenpotenziale anzeigt. Die Geschichte war immer die gleiche: unsere Fähigkeit, Leistung an der Schule vorherzusagen war vernachlässigbar. Aber am nächsten Tag, würde es eine weitere Charge von Kandidaten auf dem Hindernis Feld genommen werden, wo wir sie mit der Wand Gesicht und sehen ihre wahre Natur enthüllt. Ich war so beeindruckt von dem völligen Mangel an Verbindung zwischen den statistischen Informationen und der zwingenden Erfahrung der Einsicht, dass ich einen Begriff dafür formulierte: die Illusion der Gültigkeit. Fast zwanzig Jahre später, diese Bezeichnung machte es in die technische Literatur (Kahneman und Tversky, 1973). Es war die erste kognitive Illusion, die ich entdeckte. Eng verwandt mit der Illusion der Gültigkeit war ein weiteres Merkmal unserer Diskussionen über die Kandidaten, die wir beobachteten: unsere Bereitschaft, extreme Vorhersagen über ihre zukünftige Leistung auf der Basis einer kleinen Verhaltensstufe zu machen. Tatsächlich ist die Frage der Bereitschaft nicht entstanden, weil wir die Prognosen nicht wirklich von den Beobachtungen unterscheiden. Der Soldat, der übernahm, als die Gruppe in Schwierigkeiten war und das Team über die Mauer führte, war in diesem Augenblick ein Führer, und wenn wir uns fragten, wie er in Offiziersausbildung oder auf dem Schlachtfeld auftreten würde, war die beste Wette das einfach Er würde so gut ein Führer sein, wie er jetzt war. Jede andere Vorhersage schien unvereinbar mit den Beweisen. Wie ich nur verstanden habe, als ich einige Jahre später Statistiken lehrte, ist die Vorstellung, dass Prognosen weniger extrem sind als die Informationen, auf denen sie basieren, zutiefst kontraintuitiv. Das Thema der intuitiven Vorhersage kam wieder auf, als ich die Hauptaufgabe für meinen Dienst in der Einheit erhielt: eine Methode für die Befragung aller Kampfeinheiten-Rekruten zu entwickeln, um die Unfähigkeit zu screenen und zu helfen, Soldaten bestimmten Aufgaben zuzuordnen. Ein interviewendes System war bereits vorhanden, das von einem kleinen Kader von Interviewern, meist jungen Frauen, selbst von jüngsten Absolventen guter Schulen verwaltet wurde, die für ihre herausragenden Leistungen in psychometrischen Tests und für ihr Interesse an Psychologie ausgewählt worden waren. Die Interviewer wurden angewiesen, einen allgemeinen Eindruck von einem Rekruten zu bilden und dann einige globale Bewertungen zu geben, wie gut der Rekrut erwartet wurde, in einer Kampfeinheit durchzuführen. Auch hier waren die Gültigkeitsstatistiken düster. Die Interviewer Bewertungen nicht mit einer erheblichen Genauigkeit eines der Kriterien, in denen wir interessiert waren vorhersagen. Meine Aufgabe bestand aus zwei Aufgaben: Erstens, um herauszufinden, ob es Persönlichkeit Dimensionen, die mehr in einigen Kampfhandlungen als in anderen, und dann zu interviewenden Leitlinien, die diese Dimensionen zu identifizieren. Um die erste Aufgabe zu erfüllen, besuchte ich Einheiten von Infanterie, Artillerie, Rüstung und anderen, und sammelte globale Bewertungen der Leistung der Soldaten in jeder Einheit sowie Bewertungen auf mehrere Persönlichkeit Dimensionen. Es war eine hoffnungslose Aufgabe, aber ich wusste nicht, dass dann. Stattdessen verbringen Wochen und Monate auf komplexe Analysen mit Hilfe eines manuellen Monroe-Rechners mit einem eher iffy-Handle, erfand ich eine statistische Technik für die Analyse von multi-attribute heteroscedastic Daten, die ich verwendet, um eine komplexe Beschreibung der psychologischen Anforderungen der verschiedenen produzieren Einheiten. Ich hatte große Chancen, aber die Technik hatte genug Charme für einen meiner Graduiertenschullehrer, den hervorragenden Personalpsychologen Edwin Ghiselli, um es in meinem ersten Artikel zu schreiben. Dies war der Beginn eines lebenslangen Interesses in der Statistik der Vorhersage und Beschreibung. Ich hatte Persönlichkeitsprofile für ein Kriterium Maßnahme entwickelt, und jetzt musste ich vorschlagen, ein prädiktives Interview. Das Jahr 1955, kurz nach der Veröffentlichung der klinischen versus statistischen Vorhersage (Meehl, 1954), Paul Meehls klassisches Buch, in dem er zeigte, dass die klinische Vorhersage war konsequent unterlegen versicherungsmathematischen Vorhersage. Jemand muss mir das Buch zum Lesen gegeben haben, und es hatte sicherlich einen großen Einfluss auf mich. Ich entwickelte einen strukturierten Interviewplan mit einer Reihe von Fragen zu verschiedenen Aspekten des zivilen Lebens, die die Interviewer verwenden sollten, um Bewertungen zu sechs verschiedenen Aspekten der Persönlichkeit (einschließlich, ich erinnere mich, wie Dinge wie männlichen Stolz und Sinn für Verpflichtung) zu generieren. Bald hatte ich eine nahe Meuterei auf meinen Händen. Die Kader der Interviewer, die stolz auf die Ausübung ihrer klinischen Fähigkeiten waren, fühlten, dass sie zu unvorsichtigen Robotern reduziert wurden, und meine zuversichtlich Erklärungen - Nur stellen Sie sicher, dass Sie zuverlässig sind, und lassen Sie mir Gültigkeit - nicht erfüllen . So gab ich nach. Ich sagte ihnen, dass nach Beendigung meiner sechs Bewertungen wie angewiesen, waren sie frei, ihre klinische Beurteilung durch die Schaffung einer globalen Bewertung der Rekrutierung Potenzial in irgendeiner Weise erfreuen. Einige Monate später erhielten wir unsere ersten Gültigkeitsdaten unter Verwendung von Bewertungen der Rekrutierungsleistung als Kriterium. Die Gültigkeit war viel höher als sie war. Meine Erinnerung ist, dass wir Korrelationen in der Nähe von 0,30, im Gegensatz zu etwa 0,10 mit den bisherigen Methoden erreicht. Der lehrreichste Befund war, dass die globale Evaluierung der Interviewer, die am Ende eines strukturierten Interviews erstellt wurde, bei weitem die vorhergesagte aller Bewertungen war. Der Versuch, zuverlässig zu sein, hatte sie gültig gemacht. Die Rätsel, mit denen ich damals kämpfte, waren die Samen der Zeitung über die Psychologie der intuitiven Vorhersage, die Amos Tversky und ich viel später veröffentlicht haben. Das Interview-System ist seit vielen Jahrzehnten mit wenigen Modifikationen im Einsatz. Und wenn es merkwürdig erscheint, dass ein einundzwanzigjähriger Leutnant aufgefordert wird, ein Interviewsystem für eine Armee einzurichten, dann sollte man bedenken, dass der Staat Israel und seine Institutionen damals nur sieben Jahre alt waren, nämlich die Improvisation War die Norm, und die Professionalität existierte nicht. Meine unmittelbare Vorgesetzte war ein Mann mit brillanten analytischen Fähigkeiten, die in der Chemie ausgebildet hatte, aber war völlig autodidaktisch in Statistik und Psychologie. Und mit einem B. A. In dem entsprechenden Feld, war ich der am besten ausgebildete Berufspsychologe im Militär. Graduate School Jahre Ich kam aus der Armee im Jahr 1956. Die akademischen Planer an der Hebräischen Universität hatten beschlossen, mir ein Stipendium zu erhalten, ein PhD im Ausland zu erhalten, so dass ich in der Lage, zurückzukehren und lehren in der Psychologie-Abteilung. Aber sie wollten, dass ich einige zusätzliche Politur zu erwerben, bevor die größere Welt. Weil die Psychologie-Abteilung vorübergehend geschlossen hatte, nahm ich einige Kurse in der Philosophie, machte einige Forschung, und las Psychologie auf meinem eigenen für ein Jahr. Im Januar 1958 landeten meine Frau Irah und ich am Flughafen von San Francisco, wo der mittlerweile berühmte Soziologe Amitai Etzioni darauf wartete, uns nach Berkeley, zum Flamingo Motel an der University Avenue und zum Beginn unserer Karriere zu bringen . Meine Erfahrung der Graduiertenschule war ganz anders als die der Studenten heute. Die wichtigsten Sehenswürdigkeiten waren Prüfungen, darunter eine enorme Multiple-Choice-Test, dass alle von der Psychologie umfasst. (Eine lange Liste der klassischen Studien mit der Frage, welche der folgenden ist nicht eine Studie des latenten Lernens in den Sinn kommt). Es gab weniger Wert auf formale Lehre, und praktisch keinen Druck zu veröffentlichen, während in der Schule. Wir nahmen ziemlich viele Kurse und lasen breit. Ich erinnere mich an einen Kommentar von Professor Rosenweigs anlässlich meiner mündlichen Prüfung. Ich sollte meinen gegenwärtigen Zustand genießen, riet er, weil ich nie wieder so viel Psychologie kennen würde. Er hatte recht. Ich war ein eklektischer Student. Ich nahm einen Kurs über subliminale Wahrnehmung von Richard Lazarus und schrieb mit ihm einen spekulativen Artikel über die zeitliche Entwicklung der Wahrnehmungen, die gesund und richtig verworfen wurde. Von diesem Thema kam ich zu einem Interesse für die mehr technischen Aspekte der Vision und ich verbrachte einige Zeit lernen über optische Bänke von Tom Cornsweet. Ich auditierte die klinische Sequenz und lernte über Persönlichkeitstests von Jack Block und von Harrison Gough. Ich nahm Kurse über Wittgenstein in der Philosophie. Ich schwatzte in der Philosophie der Wissenschaft. Es gab keinen bestimmten Reim oder Grund zu dem, was ich tat, aber ich hatte Spaß. Meine wichtigste intellektuelle Erfahrung in diesen Jahren kam nicht in der Graduiertenschule vor. Im Sommer 1958 fuhren meine Frau und ich über die Vereinigten Staaten, um ein paar Monate in der Austen Riggs Klinik in Stockbridge, Massachusetts zu verbringen, wo ich mit dem bekannten Psychoanalytiker Theoretiker David Rapaport studierte, der mich bei einem Besuch befreundet hatte Nach Jerusalem ein paar Jahre zuvor. Rapaport glaubte, daß die Psychoanalyse die Elemente einer gültigen Gedächtnistheorie enthielt. Die Kernideen dieser Theorie, so argumentierte er, wurden im siebten Kapitel von Freuds Interpretation of Dreams, die ein Modell der mentalen Energie (cathexis) skizziert. Mit den anderen jungen Leuten im Rapaports-Kreis studierte ich dieses Kapitel wie einen talmudischen Text und versuchte, daraus experimentelle Vorhersagen über kurzfristiges Gedächtnis abzuleiten. Das war eine wunderbare Erfahrung, und ich wäre zurückgegangen, wenn Rapaport nicht plötzlich später in diesem Jahr gestorben wäre. Ich hatte enormen Respekt vor seinem heftigen Geist. Fünfzehn Jahre nach diesem Sommer, veröffentlichte ich ein Buch mit dem Titel Aufmerksamkeit und Anstrengung, die eine Theorie der Aufmerksamkeit als eine begrenzte Ressource enthalten. Ich erkannte nur beim Schreiben der Bestätigungen für das Buch, dass ich das Gelände, zu dem Rapaport mich zuerst geführt hatte, wieder besucht hatte. Austen Riggs war ein bedeutendes intellektuelles Zentrum für Psychoanalyse, das hauptsächlich der Behandlung dysfunktioneller Nachkommen reicher Familien gewidmet war. Ich durfte in den Fall-Konferenzen, die normalerweise an Freitagen geplant waren, in der Regel zu einem Patienten, der einen Monat der Live-in Beobachtung in der Klinik ausgewertet hatte zu bewerten. Die Anwesenden hätten in der Nacht zuvor einen Ordner mit detaillierten Notizen von jeder Abteilung über die betreffende Person erhalten und gelesen. Es würde einen regen Austausch von Eindrücken unter den Mitarbeitern geben, darunter auch der berühmte Erik Erikson. Dann kam der Patient zu einem Gruppengespräch, dem eine brillante Diskussion folgte. An einem dieser Freitagen fand das Treffen statt und wurde wie üblich durchgeführt, trotz der Tatsache, dass der Patient in der Nacht Selbstmord begangen hatte. Es war eine bemerkenswert ehrliche und offene Diskussion, gekennzeichnet durch den Widerspruch zwischen dem mächtigen rückblickenden Sinn der Unvermeidlichkeit des Ereignisses und der offensichtlichen Tatsache, dass das Ereignis nicht vorhergesehen worden war. Das war eine andere kognitive Illusion, die verstanden werden sollte. Viele Jahre später schrieb Baruch Fischhoff unter meiner und Amos Tverskys Aufsicht eine schöne Dissertation, die den Nachschlageffekt beleuchtete. Im Frühjahr 1961 schrieb ich meine Dissertation über eine statistische und experimentelle Analyse der Beziehungen zwischen Adjektiven im semantischen Differential. Dies ermöglichte mir, mich in zwei meiner Lieblingsaktivitäten einzubringen: die Analyse komplexer Korrelationsstrukturen und die Programmierung von FORTRAN. Eines der Programme, die ich schrieb, würde zwanzig Minuten dauern, um auf dem universitären Großrechner zu laufen, und ich konnte feststellen, ob es ordnungsgemäß funktionierte, durch die Abfolge der Bewegung auf den sieben Bandeinheiten, die es benutzte. Ich schrieb die These in acht Tagen, die Eingabe direkt auf die lila dito Blätter, die wir für die Duplizierung zu der Zeit verwendet. Das war wohl das letzte Mal, dass ich etwas ohne Schmerzen schrieb. Das Papier selbst war durch scharfen Kontrast so verworren und trostlos, dass meine Lehrerin, Susan Ervin, die Erfahrung des Lesens als Waten durch feuchten Brei einprägsam beschrieb. Ich verbrachte den Sommer 1961 in der Ophthalmologie Abteilung, die Forschung auf Kontur-Interferenz. Und dann war es Zeit, nach Jerusalem zurückzukehren und in der Psychologie an der Hebräischen Universität zu lehren. Ausbildung zu einem professionellen Ich liebte Unterricht Studenten und ich war gut darin. Die Erfahrung war durchweg erfreulich, weil die Studenten so gut waren: Sie wurden aufgrund einer hart umkämpften Aufnahmeprüfung ausgewählt und die meisten waren leicht PhD-Material. Ich übernahm die Grundstudienjahresstatistik-Klasse und lehrte für einige Jahre sowohl den Kurs als auch den zweiten Jahrgang in Forschungsmethoden, zu denen auch eine große Dosis an Statistiken gehörte. Um effektiv zu unterrichten, habe ich eine Menge ernsthaftes Denken über gültige Intuitionen, auf denen ich zeichnen und irrtümliche Intuitionen, die ich lehren sollten Studenten zu überwinden. Natürlich hatte ich keine Ahnung, aber ich legte die Grundlage für ein Programm zur Untersuchung des Urteils unter Unsicherheit. Ein weiterer Kurs, den ich unterrichtete, betraf die Psychologie der Wahrnehmung, die auch ganz direkt zu demselben Programm beigetragen hat. Ich hatte viel in Berkeley gelernt, aber ich fühlte, dass ich nicht ausreichend ausgebildet war, um zu forschen. Ich beschloss deshalb, dass ich, um die grundlegenden Fähigkeiten zu erwerben, ein geeignetes Laboratorium haben und regelmäßige Wissenschaft machen müsste - ich brauchte, um ein fester short-order Koch zu sein, bevor ich anstreben konnte, ein Chef zu werden. So habe ich ein Vision Lab eingerichtet und in den nächsten Jahren habe ich kompetente Arbeit zur Energieintegration in Sehschärfe gemacht. Gleichzeitig versuchte ich, ein Forschungsprogramm zu entwickeln, um die affiliative Motivation bei Kindern zu untersuchen, indem ich einen Ansatz nannte, den ich Psychologie einzelner Fragen nannte. Mein Modell für diese Art von Psychologie war die von Walter Mischel (1961a, 1961b) berichtete Studie, in der er zwei Fragen, die er an Kinderproben in karibischen Inseln stellte, vorgestellt hatte: Sie können diesen (kleinen) Lutscher heute oder diesen (großen) Lutscher morgen, und jetzt können wir so tun, dass es einen magischen Mann 8230, die Sie in etwas ändern könnte, was Sie sein möchten, was würden Sie wollen Die Antwort auf diese Frage wurde bewertet 1, wenn es sich auf einen Beruf oder Zu einem erfolgsbezogenen Merkmal, sonst 0. Die Antworten auf diese schönen Fragen erwiesen sich als plausibel mit zahlreichen Merkmalen des Kindes und des kindlichen Hintergrunds. Ich fand dies inspirierend: Mischel war es gelungen, eine Verbindung zwischen einem wichtigen psychologischen Konzept und einer einfachen Operation zu schaffen, um es zu messen. Es gab (und ist immer noch) fast nichts wie es in der Psychologie, wo Begriffe sind häufig mit Verfahren, die nur durch lange Listen oder durch gewölbte Absätze der Prosa beschrieben werden kann, verbunden sind. In meinen Ein-Fragen-Studien habe ich ganz schöne Resultate erhalten, aber ich habe nie irgendeine Arbeit geschrieben, denn ich hatte mir unmögliche Maßstäbe gesetzt: Um die Literatur nicht zu verschmutzen, wollte ich nur Erkenntnisse berichten, auf die ich im Detail geantwortet hatte Mindestens einmal, und die Replikationen waren nie ganz perfekt. Ich erkannte nur allmählich, dass meine Bestrebungen mehr statistische Macht und daher viel größere Proben als ich war intuitiv geneigt zu laufen gefordert. Diese Beobachtung kam auch einige Zeit später. Meine Errungenschaften in der Forschung in diesen frühen Jahren waren ziemlich humdrum, aber ich war begeistert von mehreren Möglichkeiten, um Psychologie auf die reale Welt zu bringen. Für diese Aufgaben arbeitete ich zusammen mit einem Kollegen und Freund Ozer Schild. Gemeinsam haben wir ein Trainingsprogramm für Funktionäre entworfen, die neue Immigranten aus unterentwickelten Ländern wie dem Jemen in moderne Landwirtschaftsmethoden einführen (Kahneman und Schild, 1966). Wir haben auch eine Schulung für Instruktoren in der Flugschule der Air Force entwickelt. Unser Vertrauen in die Nützlichkeit der Psychologie war groß, aber wir waren uns auch der Schwierigkeiten bewusst, das Verhalten zu verändern, ohne Institutionen und Anreize zu verändern. Vielleicht haben wir etwas Gutes getan, und wir haben sicher viel gelernt. Ich hatte die meisten Befriedigung Eureka Erfahrung meiner Karriere beim Versuch zu lehren, Fluglehrer, dass Lob ist effektiver als Strafe für die Förderung der Skill-Learning. Als ich meine enthusiastische Rede beendet hatte, hob einer der erfahrensten Lehrer im Publikum seine Hand und machte seine eigene kurze Rede, die damit begann, dass eine positive Verstärkung für die Vögel gut sein könnte, ging aber weiter zu bestreiten, dass es optimal war Für Flugkadetten. Er sagte, bei vielen Gelegenheiten habe ich gelobt, Flugkadetten für die saubere Ausführung von einigen aerobatic Manöver, und im Allgemeinen, wenn sie es wieder versuchen, sie noch schlimmer. Auf der anderen Seite habe ich oft an Kadetten für schlechte Ausführung geschrien, und im Allgemeinen machen sie das nächste Mal besser. Also bitte sag uns nicht, dass Verstärkung funktioniert und Bestrafung nicht, weil das Gegenteil der Fall ist. Das war ein fröhlicher Moment, in dem ich eine wichtige Wahrheit über die Welt verstand: Weil wir dazu neigen, andere zu belohnen, wenn sie es gut tun und sie bestrafen, wenn sie schlecht sind, und weil es eine Regression zum Mittel gibt, ist es ein Teil des Menschen Dass wir statistisch bestraft werden, um andere zu belohnen und für die Bestrafung belohnt zu werden. Ich arrangierte sofort eine Demonstration, in der jeder Teilnehmer zwei Münzen an einem Ziel hinter seinem Rücken, ohne Feedback geworfen. Wir messen die Entfernungen vom Ziel und konnten sehen, dass diejenigen, die am besten das erste Mal getan hatten, sich meistens auf ihren zweiten Versuch verschlechtert hatten, und umgekehrt. Aber ich wusste, dass diese Demonstration nicht die Auswirkungen der lebenslangen Exposition gegenüber einer perversen Kontingenz rückgängig machen würde. Meine erste Erfahrung der wirklich erfolgreichen Forschung kam 1965, als ich auf Sabbaticalurlaub an der Universität von Michigan war, wo ich von Jerry Blum eingeladen worden war, das ein Labor hatte, in dem freiwillige Teilnehmer verschiedene kognitive Aufgaben führten, während im Griff der leistungsfähigen Emotionale Zustände durch Hypnose induziert. Dilatation der Pupille ist eine der Manifestationen der emotionalen Erregung, und ich wurde deshalb an den Ursachen und Konsequenzen von Veränderungen der Pupillengröße interessiert. Blum hatte einen Doktoranden namens Jackson Beatty. Mit den primitiven Geräten machten Beatty und ich eine echte Entdeckung: Als die Leute einer Reihe von Ziffern ausgesetzt waren, mußten sie sich immer weiter ausbreiten, ihre Schüler wuchsen stetig, während sie auf die Ziffern lauschten, und zogen sich stetig zusammen, wenn sie die Serie rezitierten. Eine schwierigere Transformationsaufgabe (Hinzufügen von 1 zu jeder einer Folge von vier Ziffern) führte zu einer viel größeren Erweiterung der Pupille. Wir veröffentlichten schnell diese Ergebnisse, und innerhalb eines Jahres hatte vier Artikel, von denen zwei in Science erschienen. Die geistige Anstrengung blieb der Schwerpunkt meiner Forschung während des folgenden Jahres, das ich in Harvard verbrachte. Während dieses Jahres hörte ich auch ein brillantes Gespräch über experimentelle Studien der Aufmerksamkeit von einem Stern englischen Psychologen namens Anne Treisman, die meine Frau zwölf Jahre später werden würde. Ich war so beeindruckt, dass ich mich verpflichtet, ein Kapitel über die Aufmerksamkeit für ein Handbuch in kognitiver Psychologie zu schreiben. Das Handbuch wurde nie veröffentlicht, und mein Kapitel wurde schließlich ein ehrgeiziges Buch. Die Arbeit, die ich in diesem Jahr gemacht habe, war auch interessanter als die Arbeit, die ich in Jerusalem gemacht hatte. Als ich 1967 nach Hause kam, war ich schließlich ein gut ausgebildeter Forschungspsychologe. Die Zusammenarbeit mit Amos Tversky Von 1968 bis 1969 lehrte ich ein Graduierten-Seminar über die Anwendung der Psychologie auf reale Probleme. In dem, was sich als ein lebensveränderndes Ereignis herausstellte, bat ich meinen jüngeren Kollegen Amos Tversky, der Klasse darüber zu erzählen, was in seinem Bereich des Urteils und der Entscheidungsfindung vor sich ging. Amos erzählte uns von der Arbeit seines ehemaligen Mentors Ward Edwards, dessen Labor ein Forschungsparadigma verwendete, in dem das Thema zwei Buchbags mit Pokerchips gezeigt wurde. Die Beutel sollen sich in ihrer Zusammensetzung unterscheiden (z. B. 70:30 oder 30:70 weißer). Einer von ihnen wird nach dem Zufallsprinzip gewählt, und dem Teilnehmer wird Gelegenheit gegeben, von ihm nacheinander zu probieren und nach jedem Versuch die Wahrscheinlichkeit anzugeben, dass er aus dem überwiegend roten Beutel stammte. Edwards hatte aus den Ergebnissen geschlossen, dass die Leute konservative Bayesianer sind: sie passen fast immer ihr Vertrauensintervall in die richtige Richtung, aber selten weit genug. Eine lebhafte Diskussion rund um Amoss Vortrag entwickelt. Die Idee, dass die Menschen waren konservativ Bayesian schien nicht zu passen mit der alltäglichen Beobachtung der Menschen häufig Sprung zu Schlussfolgerungen. Es erschien auch unwahrscheinlich, dass die Ergebnisse, die in dem sequentiellen Sampling-Paradigma erhalten wurden, sich auf die Situation beziehen, die typischerweise typischer ist, in der Probenbelege auf einmal geliefert werden. Schließlich schlug das Etikett des konservativen Bayesianers das unplausible Bild eines Prozesses vor, der die richtige Antwort erhält und dann mit einer Vorspannung verfälscht. Ich lernte vor kurzem, dass einer von Amoss Freunden traf ihn an diesem Tag und hörte von unserer Konversation, die Amos beschrieb als schwer schüttelte seinen Glauben an die neo-Bayesian Idee. Ich erinnere mich, dass Amos und ich beschlossen, uns zum Mittagessen zu treffen, um unsere Jäger über die Art und Weise zu diskutieren, in der Wahrscheinlichkeiten wirklich beurteilt werden. Dort tauschten wir persönliche Berichte über unsere eigenen wiederkehrenden Urteilsfehler in diesem Bereich und beschlossen, die statistischen Anschauungen von Experten zu studieren. Ich verbrachte den Sommer 1969 an der Applied Psychological Research Unit in Cambridge, England. Amos hielt dort für ein paar Tage auf seinem Weg in die Vereinigten Staaten. Ich hatte einen Fragebogen zu Intuitionen über die Stichprobenvariabilität und die statistische Kraft ausgearbeitet, die weitgehend auf meinen persönlichen Erfahrungen mit falscher Forschungsplanung und erfolglosen Replikationen basierte. Der Fragebogen bestand aus einer Reihe von Fragen, von denen jeder für sich alleine stand - das sollte ein weiterer Versuch sein, mit einzelnen Fragen Psychologie zu machen. Amos ging aus und verwaltete den Fragebogen zu den Teilnehmern an einer Sitzung der Mathematischen Psychologie-Verbindung und einige Wochen später trafen wir in Jerusalem, um die Resultate zu betrachten und ein Papier zu schreiben. Die Erfahrung war magisch. Ich hatte vorher eine gemeinsame Arbeit genossen, aber das war etwas ganz anderes. Amos wurde oft von Leuten beschrieben, die ihn als die klügste Person, die sie kannten, kannten. He was also very funny, with an endless supply of jokes appropriate to every nuance of a situation. In his presence, I became funny as well, and the result was that we could spend hours of solid work in continuous mirth. The paper we wrote was deliberately humorous - we described a prevalent belief in the law of small numbers, according to which the law of large numbers extends to small numbers as well. Although we never wrote another humorous paper, we continued to find amusement in our work - I have probably shared more than half of the laughs of my life with Amos. And we were not just having fun. I quickly discovered that Amos had a remedy for everything I found difficult about writing. No wet-mush problem for him: he had an uncanny sense of direction. With him, movement was always forward. Progress might be slow, but each of the myriad of successive drafts that we produced was an improvement - this was not something I could take for granted when working on my own. Amoss work was always characterized by confidence and by a crisp elegance, and it was a joy to find those characteristics now attached to my ideas as well. As we were writing our first paper, I was conscious of how much better it was than the more hesitant piece I would have written by myself. I dont know exactly what it was that Amos found to like in our collaboration - we were not in the habit of trading compliments - but clearly he was also having a good time. We were a team, and we remained in that mode for well over a decade. The Nobel Prize was awarded for work that we produced during that period of intense collaboration. At the beginning of our collaboration, we quickly established a rhythm that we maintained during all our years together. Amos was a night person, and I was a morning person. This made it natural for us to meet for lunch and a long afternoon together, and still have time to do our separate things. We spent hours each day, just talking. When Amoss first son Oren, then fifteen months old, was told that his father was at work, he volunteered the comment Aba talk Danny. We were not only working, of course - we talked of everything under the sun, and got to know each others mind almost as well as our own. We could (and often did) finish each others sentences and complete the joke that the other had wanted to tell, but somehow we also kept surprising each other. We did almost all the work on our joint projects while physically together, including the drafting of questionnaires and papers. And we avoided any explicit division of labor. Our principle was to discuss every disagreement until it had been resolved to mutual satisfaction, and we had tie-breaking rules for only two topics: whether or not an item should be included in the list of references (Amos had the casting vote), and who should resolve any issue of English grammar (my dominion). We did not initially have a concept of a senior author. We tossed a coin to determine the order of authorship of our first paper, and alternated from then on until the pattern of our collaboration changed in the 1980s. One consequence of this mode of work was that all our ideas were jointly owned. Our interactions were so frequent and so intense that there was never much point in distinguishing between the discussions that primed an idea, the act of uttering it, and the subsequent elaboration of it. I believe that many scholars have had the experience of discovering that they had expressed (sometimes even published) an idea long before they really understood its significance. It takes time to appreciate and develop a new thought. Some of the greatest joys of our collaboration-and probably much of its success - came from our ability to elaborate each others nascent thoughts: if I expressed a half-formed idea, I knew that Amos would be there to understand it, probably more clearly than I did, and that if it had merit he would see it. Like most people, I am somewhat cautious about exposing tentative thoughts to others - I must first make sure that they are not idiotic. In the best years of the collaboration, this caution was completely absent. The mutual trust and the complete lack of defensiveness that we achieved were particularly remarkable because both of us - Amos even more than I - were known to be severe critics. Our magic worked only when we were by ourselves. We soon learned that joint collaboration with any third party should be avoided, because we became competitive in a threesome. Amos and I shared the wonder of together owning a goose that could lay golden eggs - a joint mind that was better than our separate minds. The statistical record confirms that our joint work was superior, or at least more influential, than the work we did individually (Laibson and Zeckhauser, 1998). Amos and I published eight journal articles during our peak years (1971-1981), of which five had been cited more than a thousand times by the end of 2002. Of our separate works, which in total number about 200, only Amos theory of similarity (Tversky, 1977) and my book on attention (Kahneman, 1973) exceeded that threshold. The special style of our collaborative work was recognized early by a referee of our first theoretical paper (on representativeness), who caused it to be rejected by Psychological Review . The eminent psychologist who wrote that review - his anonymity was betrayed years later - pointed out that he was familiar with the separate lines of work that Amos and I had been pursuing, and considered both quite respectable. However, he added the unusual remark that we seemed to bring out the worst in each other, and certainly should not collaborate. He found most objectionable our method of using multiple single questions as evidence - and he was quite wrong there as well. The Science 74 article and the rationality debate From 1971 to 1972, Amos and I were at the Oregon Research Institute (ORI) in Eugene, a year that was by far the most productive of my life. We did a considerable amount of research and writing on the availability heuristic, on the psychology of prediction, and on the phenomena of anchoring and overconfidence - thereby fully earning the label dynamic duo that our colleagues attached to us. Working evenings and nights, I also completely rewrote my book on Attention and Effort . which went to the publisher that year, and remains my most significant independent contribution to psychology. At ORI, I came into contact for the first time with an exciting community of researchers that Amos had known since his student days at Michigan: Paul Slovic, Sarah Lichtenstein, and Robyn Dawes. Lewis Goldberg was also there, and I learned much from his work on clinical and actuarial judgment, and from Paul Hoffmans ideas about paramorphic modeling. ORI was one of the major centers of judgment research, and I had the occasion to meet quite a few of the significant figures of the field when they came visiting, Ken Hammond among them. Some time after our return from Eugene, Amos and I settled down to review what we had learned about three heuristics of judgment (representativeness, availability, and anchoring) and about a list of a dozen biases associated with these heuristics. We spent a delightful year in which we did little but work on a single article. On our usual schedule of spending afternoons together, a day in which we advanced by a sentence or two was considered quite productive. Our enjoyment of the process gave us unlimited patience, and we wrote as if the precise choice of every word were a matter of great moment. We published the article in Science because we thought that the prevalence of systematic biases in intuitive assessments and predictions could possibly be of interest to scholars outside psychology. This interest, however, could not be taken for granted, as I learned in an encounter with a well-known American philosopher at a party in Jerusalem. Mutual friends had encouraged us to talk about the research that Amos and I were doing, but almost as soon as I began my story he turned away, saying, I am not really interested in the psychology of stupidity. The Science article turned out to be a rarity: an empirical psychological article that (some) philosophers and (a few) economists could and did take seriously. What was it that made readers of the article more willing to listen than the philosopher at the party I attribute the unusual attention at least as much to the medium as to the message. Amos and I had continued to practice the psychology of single questions, and the Science article - like others we wrote - incorporated questions that were cited verbatim in the text. These questions, I believe, personally engaged the readers and convinced them that we were concerned not with the stupidity of Joe Public but with a much more interesting issue: the susceptibility to erroneous intuitions of intelligent, sophisticated, and perceptive individuals such as themselves. Whatever the reason, the article soon became a standard reference as an attack on the rational-agent model, and it spawned a large literature in cognitive science, philosophy, and psychology. We had not anticipated that outcome. I realized only recently how fortunate we were not to have aimed deliberately at the large target we happened to hit. If we had intended the article as a challenge to the rational model, we would have written it differently, and the challenge would have been less effective. An essay on rationality would have required a definition of that concept, a treatment of boundary conditions for the occurrence of biases, and a discussion of many other topics about which we had nothing of interest to say. The result would have been less crisp, less provocative, and ultimately less defensible. As it was, we offered a progress report on our study of judgment under uncertainty, which included much solid evidence. All inferences about human rationality were drawn by the readers themselves. The conclusions that readers drew were often too strong, mostly because existential quantifiers, as they are prone to do, disappeared in the transmission. Whereas we had shown that (some, not all) judgments about uncertain events are mediated by heuristics, which (sometimes, not always) produce predictable biases, we were often read as having claimed that people cannot think straight. The fact that men had walked on the moon was used more than once as an argument against our position. Because our treatment was mistakenly taken to be inclusive, our silences became significant. For example, the fact that we had written nothing about the role of social factors in judgment was taken as an indication that we thought these factors were unimportant. I suppose that we could have prevented at least some of these misunderstandings, but the cost of doing so would have been too high. The interpretation of our work as a broad attack on human rationality - rather than as a critique of the rational-agent model - attracted much opposition, some quite harsh and dismissive. Some of the critiques were normative, arguing that we compared judgments to inappropriate normative standards (Cohen, 1981 Gigerenzer, 1991, 1996). We were also accused of spreading a tendentious and misleading message that exaggerated the flaws of human cognition (Lopes, 1991, and many others). The idea of systematic bias was rejected as unsound on evolutionary grounds (Cosmides amp Tooby, 1996). Some authors dismissed the research as a collection of artificial puzzles designed to fool undergraduates. Numerous experiments were conducted over the years, to show that cognitive illusions could be made to disappear and that heuristics had been invented to explain biases that do not exist (Gigerenzer, 1991). After participating in a few published skirmishes in the early 80s, Amos and I adopted a policy of not criticizing the critiques of our work, although we eventually felt compelled to make an exception (Kahneman and Tversky, 1996). A young colleague and I recently reviewed the experimental literature, and concluded that the empirical controversy about the reality of cognitive illusions dissolves when viewed in the perspective of a dual-process model (Kahneman and Frederick, 2002). The essence of such a model is that judgments can be produced in two ways (and in various mixtures of the two): a rapid, associative, automatic, and effortless intuitive process (sometimes called System 1), and a slower, rule-governed, deliberate and effortful process (System 2) (Sloman, 1996 Stanovich and West, 1999). System 2 knows some of the rules that intuitive reasoning is prone to violate, and sometimes intervenes to correct or replace erroneous intuitive judgments. Thus, errors of intuition occur when two conditions are satisfied: System 1 generates the error and System 2 fails to correct. In this view, the experiments in which cognitive illusions were made to disappear did so by facilitating the corrective operations of System 2. They tell us little about the intuitive judgments that are suppressed. If the controversy is so simply resolved, why was it not resolved in 1971, or in 1974 The answer that Frederick and I proposed refers to the conversational context in which the early work was done: A comprehensive psychology of intuitive judgment cannot ignore such controlled thinking, because intuition can be overridden or corrected by self-critical operations, and because intuitive answers are not always available. But this sensible position seemed irrelevant in the early days of research on judgment heuristics. The authors of the law of small numbers saw no need to examine correct statistical reasoning. They believed that including easy questions in the design would insult the participants and bore the readers. More generally, the early studies of heuristics and biases displayed little interest in the conditions under which intuitive reasoning is preempted or overridden - controlled reasoning leading to correct answers was seen as a default case that needed no explaining. A lack of concern for boundary conditions is typical of young research programs, which naturally focus on demonstrating new and unexpected effects, not on making them disappear. (Kahneman and Frederick, 2002, p. 50). What happened, I suppose, is that because the 1974 paper was influential it altered the context in which it was read in subsequent years. Its being misunderstood was a direct consequence of its being taken seriously. I wonder how often this occurs. Amos and I always dismissed the criticism that our focus on biases reflected a generally pessimistic view of the human mind. We argued that this criticism confuses the medium of bias research with a message about rationality. This confusion was indeed common. In one of our demonstrations of the availability heuristic, for example, we asked respondents to compare the frequency with which some letters appeared in the first and in the third position in words. We selected letters that in fact appeared more frequently in the third position, and showed that even for these letters the first position was judged more frequent, as would be predicted on the idea that it is easier to search through a mental dictionary by the first letter. The experiment was used by some critics as an example of our own confirmation bias, because we had demonstrated availability only in cases in which this heuristic led to bias. But this criticism assumes that our aim was to demonstrate biases, and misses the point of what we were trying to do. Our aim was to show that the availability heuristic controls frequency estimates even when that heuristic leads to error - an argument that cannot be made when the heuristic leads to correct responses, as it often does. There is no denying, however, that the name of our method and approach created a strong association between heuristics and biases, and thereby contributed to giving heuristics a bad name, which we did not intend. I recently came to realize that the association of heuristics and biases has affected me as well. In the course of an exchange of messages with Ralph Hertwig (no fan of heuristics and biases), I noticed that the phrase judging by representativeness was in my mind a label for a cluster of errors in intuitive statistical judgment. Judging probability by representativeness is indeed associated with systematic errors. But a large component of the process is the judgment of representativeness, and that judgment is often subtle and highly skilled. The feat of the master chess player who instantly recognizes a position as white mates in three is an instance of judgment of representativeness. The undergraduate who instantly recognizes that enjoyment of puns is more representative of a computer scientist than of an accountant is also exhibiting high skill in a social and cultural judgment. My long-standing failure to associate specific benefits to the concept of representativeness was a revealing mistake. What did I learn from the controversy about heuristics and biases Like most protagonists in debates, I have few memories of having changed my mind under adversarial pressure, but I have certainly learned more than I know. For example, I am now quick to reject any description of our work as demonstrating human irrationality. When the occasion arises, I carefully explain that research on heuristics and biases only refutes an unrealistic conception of rationality, which identifies it as comprehensive coherence. Was I always so careful Probably not. In my current view, the study of judgment biases requires attention to the interplay between intuitive and reflective thinking, which sometimes allows biased judgments and sometimes overrides or corrects them. Was this always as clear to me as it is now Probably not. Finally, I am now very impressed by the observation I mentioned earlier, that the most highly skilled cognitive performances are intuitive, and that many complex judgments share the speed, confidence and accuracy of routine perception. This observation is not new to me, but did it always loom as large in my views as it now does Almost certainly not. As my obvious struggle with this topic reveals, I thoroughly dislike controversies where it is clear that no minds will be changed. I feel diminished by losing my objectivity when in point-scoring mode, and downright humiliated when I get angry. Indeed, my phobia for professional anger is such that I have allowed myself for many years the luxury of refusing to referee papers that might arouse that emotion: If the tone is snide, or the review of the facts more tendentious than normal, I return the paper back to the editor without commenting on it. I consider myself fortunate not to have had too many of the nasty experiences of professional quarrels, and am grateful for the occasional encounters with open minds across lines of sharp debate (Ayton, 1998 Klein, 2000). Prospect theory After the publication of our paper on judgment in Science in 1974, Amos suggested that we study decision-making together. This was a field in which he was already an established star, and about which I knew very little. For an introduction, he suggested that I read the relevant chapters of the text Mathematical Psychology, of which he was a co-author (Coombs, Dawes and Tversky, 1970). Utility theory and the paradoxes of Allais and Ellsberg were discussed in the book, along with some of the classic experiments in which major figures in the field had joined in an effort to measure the utility function for money by eliciting choices between simple gambles. I learned from the book that the name of the game was the construction of a theory that would explain Allaiss paradox parsimoniously. As psychological questions go, this was not a difficult one, because Allaiss famous problems are, in effect, an elegant way to demonstrate that the subjective response to probability is not linear. The subjective non-linearity is obvious: the difference between probabilities of .10 and .11 is clearly less impressive than the difference between 0 and .01, or between .99 and 1.00. The difficulty and the paradox exist only for decision theorists, because the non-linear response to probability produces preferences that violate compelling axioms of rational choice and are therefore incompatible with standard expected utility theory. The natural response of a decision theorist to the Allais paradox, certainly in 1975 and probably even today, would be to search for a new set of axioms that have normative appeal and yet permit the non-linearity. The natural response of psychologists was to set aside the issue of rationality and to develop a descriptive theory of the preferences that people actually have, regardless of whether or not these preferences can be justified. The task we set for ourselves was to account for observed preferences in the quaintly restricted universe within which the debate about the theory of choice has traditionally been conducted: monetary gambles with few outcomes (all positive), and definite probabilities. This was an empirical question, and data were needed. Amos and I solved the data collection problem with a method that was both efficient and pleasant. We spent our hours together inventing interesting choices and examining our preferences. If we agreed on the same choice we provisionally assumed that other people would also accept it, and we went on to explore its theoretical implications. This unusual method enabled us to move quickly, and we constructed and discarded models at a dizzying rate. I have a distinct memory of a model that was numbered 37, but cannot vouch for the accuracy of our count. As was the case in our work on judgment, our central insights were acquired early and, as was the case in our work on judgment, we spent a vast amount of time and effort before publishing a paper that summarized those insights (Kahneman and Tversky, 1979). The first insight came as a result of my naiumlveteacute. When reading the mathematical psychology textbook, I was puzzled by the fact that all the choice problems were described in terms of gains and losses (actually, almost always gains), whereas the utility functions that were supposed to explain the choices were drawn with wealth as the abscissa. This seemed unnatural, and psychologically unlikely. We immediately decided to adopt changes andor differences as carriers of utility. We had no inkling that this obvious move was truly fundamental, or that it would open the path to behavioral economics. Harry Markowitz, who won the Nobel Prize in economics in 1990, had proposed changes of wealth as carriers of utility in 1952, but he did not take this idea very far. The shifts from wealth to changes of wealth as carriers of utility is significant because of a property of preferences that we later labeled loss-aversion . the response to losses is consistently much more intense than the response to corresponding gains, with a sharp kink in the value function at the reference point. Loss aversion is manifest in the extraordinary reluctance to accept risk that is observed when people are offered a gamble on the toss of a coin: most will reject a gamble in which they might lose 20, unless they are offered more than 40 if they win. The concept of loss aversion was, I believe, our most useful contribution to the study of decision making. The asymmetry between gains and losses solves quite a few puzzles, including the widely noted and economically irrational distinction that people draw between opportunity costs and real losses. Loss aversion also helps explain why real-estate markets dry up for long periods when prices are down, and it contributes to the explanation of a widespread bias favoring the status quo in decision making. Finally, the asymmetric consideration of gains and losses extends to the domain of moral intuitions, in which imposing losses and failing to share gains are evaluated quite differently. But of course, none of that was visible to Amos and me when we first decided to assume a kinked value function - we needed that kink to account for choices between gambles. Another set of early insights came when Amos suggested that we flip the signs of outcomes in the problems we had been considering. The result was exciting. We immediately detected a remarkable pattern, which we called reflection: changing the signs of all outcomes in a pair of gambles almost always caused the preference to change from risk averse to risk seeking, or viceversa. For example, we both preferred a sure gain of 900 over a .9 probability of gaining 1,000 (or nothing), but we preferred a gamble with a .9 probability of losing 1,000 over a sure loss of 900. We were not the first to observe this pattern. Raiffa (1968) and Williams (1966) knew about the prevalence of risk-seeking in the negative domain. But ours was apparently the first serious attempt to make something of it. We soon had a draft of a theory of risky choice, which we called value theory and presented at a conference in the spring of 1975. We then spent about three years polishing it, until we were ready to submit the article for publication. Our effort during those years was divided between the tasks of exploring interesting implications of our theoretical formulation and developing answers to all plausible objections. To amuse ourselves, we invented the specter of an ambitious graduate student looking for flaws, and we labored to make that students task as thankless as possible. The most novel idea of prospect theory occurred to us in that defensive context. It came quite late, as we were preparing the final version of the paper. We were concerned with the fact that a straightforward application of our model implied that the value of the prospect (100. 01 100. 01) is larger than the value of (100. 02). The prediction is wrong, of course, because most decision makers will spontaneously transform the former prospect into the latter and treat them as equivalent in subsequent operations of evaluation and choice. To eliminate the problem we proposed that decision-makers, prior to evaluating the prospects, perform an editing operation that collects similar outcomes and adds their probabilities. We went on to propose several other editing operations that provided an explicit and psychologically plausible defense against a variety of superficial counter-examples to the core of the theory. We had succeeded in making life quite difficult for that pedantic graduate student. But we had also made a truly significant advance, by making it explicit that the objects of choice are mental representations, not objective states of the world. This was a large step toward the development of a concept of framing, and eventually toward a new critique of the model of the rational agent. When we were ready to submit the work for publication, we deliberately chose a meaningless name for our theory: prospect theory. We reasoned that if the theory ever became well known, having a distinctive label would be an advantage. This was probably wise. I looked at the 1975 draft recently, and was struck by how similar it is to the paper that was eventually published, and also by how different the two papers are. Most of the key ideas, most of the key examples, and much of the wording were there in the early draft. But that draft lacks the authority that was gained during the years that we spent anticipating objections. Value theory would not have survived the close scrutiny that a significant article ultimately gets from generations of scholars and students, who only are obnoxious if you give them a chance. We published the paper in Econometrica . The choice of venue turned out to be important the identical paper, published in Psychological Review . would likely have had little impact on economics. But our decision was not guided by a wish to influence economics. Econometrica just happened to be the journal where the best papers on decision-making to date had been published, and we were aspiring to be in that company. And there was another way in which the impact of prospect theory depended crucially on the medium, as well as the message. Prospect theory was a formal theory, and its formal nature was the key to the impact it had in economics. Every discipline of social science, I believe, has some ritual tests of competence, which must be passed before a piece of work is considered worthy of attention. Such tests are necessary to prevent information overload, and they are also important aspects of the tribal life of the disciplines. In particular, they allow insiders to ignore just about anything that is done by members of other tribes, and to feel no scholarly guilt about doing so. To serve this screening function efficiently, the competence tests usually focus on some aspect of form or method, and have little or nothing to do with substance. Prospect theory passed such a test in economics, and its observations became a legitimate (though optional) part of the scholarly discourse in that discipline. It is a strange and rather arbitrary process that selects some pieces of scientific writing for relatively enduring fame while committing most of what is published to almost immediate oblivion. Framing and mental accounting Amos and I completed prospect theory during the academic year of 1977 to 1978, which I spent at the Center for Advanced Studies at Stanford, while he was visiting the psychology department there. Around that time, we began work on our next project, which became the study of framing. This was also the year in which the second most important professional friendship in my life - with Richard Thaler - had its start. A framing effect is demonstrated by constructing two transparently equivalent versions of a given problem, which nevertheless yield predictably different choices. The standard example of a framing problem, which was developed quite early, is the lives saved, lives lost question, which offers a choice between two public-health programs proposed to deal with an epidemic that is threatening 600 lives: one program will save 200 lives, the other has a 13 chance of saving all 600 lives and a 23 chance of saving none. In this version, people prefer the program that will save 200 lives for sure. In the second version, one program will result in 400 deaths, the other has a 23 chance of 600 deaths and a 13 chance of no deaths. In this formulation most people prefer the gamble. If the same respondents are given the two problems on separate occasions, many give incompatible responses. When confronted with their inconsistency, people are quite embarrassed. They are also quite helpless to resolve the inconsistency, because there are no moral intuitions to guide a choice between different sizes of a surviving population. Amos and I began creating pairs of problems that revealed framing effects while working on prospect theory. We used them to show sensitivity to gains and losses (as in the lives example), and to illustrate the inadequacy of a formulation in which the only relevant outcomes are final states. In that article, we also showed that a single-stage gamble could be rearranged as a two-stage gamble in a manner that left the bottom-line probabilities and outcomes unchanged but reversed preferences. Later, we developed examples in which respondents are asked to make simultaneous choices in two problems, A and B. One of the problems involves gains and elicits a risk-averse choice the other problem involves losses and elicits risk-seeking. A majority of respondents made both these choices. However, the problems were constructed so that the combination of choices that people made was actually dominated by the combination of the options they had rejected. These are not parlor-game demonstrations of human stupidity. The ease with which framing effects can be demonstrated reveals a fundamental limitation of the human mind. In a rational-agent model, the agents mind functions just as she would like it to function. Framing effects violate that basic requirement: the respondents who exhibit susceptibility to framing effects wish their minds were able to avoid them. We were able to conceive of only two kinds of mind that would avoid framing effects: (1) If responses to all outcomes and probabilities were strictly linear, the procedures that we used to produce framing effects would fail. (2) If individuals maintained a single canonical and all-inclusive view of their outcomes, truly equivalent problems would be treated equivalently. Both conditions are obviously impossible. Framing effects violate a basic requirement of rationality which we called invariance (Kahneman and Tversky, 1984) and Arrow (1982) called extensionality. It took us a long time and several iterations to develop a forceful statement of this contribution to the rationality debate, which we presented several years after our framing paper (Tversky and Kahneman, 1986). Another advance that we made in our first framing article was the inclusion of riskless choice problems among our demonstrations of framing. In making that move, we had help from a new friend. Richard Thaler was a young economist, blessed with a sharp and irreverent mind. While still in graduate school, he had trained his ironic eye on his own discipline and had collected a set of pithy anecdotes demonstrating obvious failures of basic tenets of economic theory in the behavior of people in general - and of his very conservative professors in Rochester in particular. One key observation was the endowment effect, which Dick illustrated with the example of the owner of a bottle of old wine, who would refuse to sell it for 200 but would not pay as much as 100 to replace it if it broke. Sometime in 1976, a copy of the 1975 draft of prospect theory got into Dicks hands, and that event made a significant difference to our lives. Dick realized that the endowment effect, which is a genuine puzzle in the context of standard economic theory, is readily explained by two assumptions derived from prospect theory. First, the carriers of utility are not states (owning or not owning the wine), but changes - getting the wine or giving it up. And giving up is weighted more than getting, by loss aversion. When Dick learned that Amos and I would be in Stanford in 19778, he secured a visiting appointment at the Stanford branch of the National Bureau of Economic Research, which is located on the same hill as the Center for Advanced Studies. We soon became friends, and have ever since had a considerable influence on each others thinking. The endowment effect was not the only thing we learned from Dick. He had also developed a list of phenomena of what we now call mental accounting. Mental accounting describes how people violate rationality by failing to maintain a comprehensive view of outcomes, and by failing to treat money as fungible. Dick showed how people segregate their decisions into separate accounts, then struggle to keep each of these accounts in the black. One of his compelling examples was the couple who drove through a blizzard to a basketball game because they had already paid for the tickets, though they would have stayed at home if the tickets had been free. As this example illustrates, Dick had independently developed the skill of doing one-question economics. He inspired me to invent another story, in which a person who comes to the theater realizes that he has lost his ticket (in one version), or an amount of cash equal to the ticket value (in another version). People report that they would be very likely still to buy a ticket if they had lost the cash, presumably because the loss has been charged to general revenue. On the other hand, they describe themselves as quite likely to go home if they have lost an already purchased ticket, presumably because they do not want to pay twice to see the same show. Behavioral economics Our interaction with Thaler eventually proved to be more fruitful than we could have imagined at the time, and it was a major factor in my receiving the Nobel Prize. The committee cited me for having integrated insights from psychological research into economic science 8230.. Although I do not wish to renounce any credit for my contribution, I should say that in my view the work of integration was actually done mostly by Thaler and the group of young economists that quickly began to form around him, starting with Colin Camerer and George Loewenstein, and followed by the likes of Matthew Rabin, David Laibson, Terry Odean, and Sendhil Mullainathan. Amos and I provided quite a few of the initial ideas that were eventually integrated into the thinking of some economists, and prospect theory undoubtedly afforded some legitimacy to the enterprise of drawing on psychology as a source of realistic assumptions about economic agents. But the founding text of behavioral economics was the first article in which Thaler (1980) presented a series of vignettes that challenged fundamental tenets of consumer theory. And the respectability that behavioral economics now enjoys within the discipline was secured, I believe, by some important discoveries Dick made in what is now called behavioral finance, and by the series of Anomalies columns that he published in every issue of the Journal of Economic Perspectives from 1987 to 1990, and has continued to write occasionally since that time. In 1982, Amos and I attended a meeting of the Cognitive Science Society in Rochester, where we had a drink with Eric Wanner, a psychologist who was then vice-president of the Sloan Foundation. Eric told us that he was interested in promoting the integration of psychology and economics, and asked for our advice on ways to go about it. I have a clear memory of the answer we gave him. We thought that there was no way to spend a lot of money honestly on such a project, because interest in interdisciplinary work could not be coerced. We also thought that it was pointless to encourage psychologists to make themselves heard by economists, but that it could be useful to encourage and support the few economists who were interested in listening. Thalers name surely came up. Soon after that conversation, Wanner became the president of the Russell Sage Foundation, and he brought the psychologyeconomics project with him. The first grant that he made in that program was for Dick Thaler to spend an academic year (1984-85) visiting me at the University of British Columbia, in Vancouver. That year was one of the best in my career. We worked as a trio that also included the economist Jack Knetsch, with whom I had already started constructing surveys on a variety of issues, including valuation of the environment and public views about fairness in the marketplace. Jack had done experimental studies of the endowment effect and had seen the implications of that effect for the Coase theorem and for issues of environmental policy. We made a very good team: Jacks wisdom and imperturbable calm withstood the stress of Dicks boisterous temperament and of my perfectionist anxieties and intellectual restlessness. We did a lot together that year. We conducted a series of market experiments involving real goods (the mugs studies), which eventually became a standard in that literature (Kahneman, Knetsch and Thaler, 1990). We also conducted multiple surveys in which we used experimentally varied vignettes to identify the rules of fairness that the public would apply to merchants, landlords, and employers (Kahneman, Knetsch and Thaler, 1986a). Our central observation was that in many contexts the existing situation (e. g. price, rent, or wage) defines a reference transaction, to which the transactor (consumer, tenant, and employee) has an entitlement - the violation of such entitlements is considered unfair and may evoke retaliation. For example, cutting the wages of an employee merely because he could be replaced by someone who would accept a lower wage is unfair, although paying a lower wage to the replacement of an employee who quit is entirely acceptable. We submitted the paper to the American Economic Review and were utterly surprised by the outcome: the paper was accepted without revision. Luckily for us, the editor had asked two economists quite open to our approach to review the paper. We later learned that one of the referees was George Akerlof and the other was Alan Olmstead, who had studied the failures of markets to clear during an acute gas shortage. One question that arose during this research was whether people would be wiling to pay something to punish another agent who treated them unfairly, and in some circumstances would share a windfall with a stranger in an effort to be fair. We decided to investigate these ideas using experiments for real stakes. The games that we invented for this purpose have become known as the ultimatum game and the dictator game. Alas, while writing up our second paper on fairness (Kahneman, Knetsch and Thaler, 1986b) we learned that we had been scooped on the ultimatum game by Werner Guth and his colleagues, who had published experiments using the same design a few years earlier. I remember being quite crestfallen when I learned this. I would have been even more depressed if I had known how important the ultimatum game would eventually become. Most of the economics I know I learned that year, from Jack and Dick, my two willing teachers, and from what was in fact my first experience of communicating across tribal boundaries. I was also much impressed by an experimental game that Dick Thaler, James Brander, and I invented and called the N game. The game is played by a group of, say, fifteen people. On each trial, a number 0lt N lt15 is announced. The participants then make simultaneous choices of whether or not to enter. Those who decide to enter announce their choice simultaneously. The payoff to the N entrants depends on their number, according to the following formula: .25(N - N). We played the game a few times, once with the faculty of the psychology department at U. B.C. The results, although not surprising to an economist, struck me as magical. Within very few trials, a pattern emerged in which the number of entrants, N, was within 1 or 2 of N, with no obvious systematic tendency to be higher or lower than N. The group was doing the right thing collectively, although conversations with the participants and the obvious statistical analyses did not reveal any consistent strategies that made sense. It took me some time to realize that the magic we were observing was an equilibrium: the pattern we saw existed because no other pattern could be sustained. This idea had not been in my intellectual bag of tools. We never formally published the N game - I described it informally in Kahneman (1987) - but it has been taken up by others (Erev amp Rapoport, 1998). That was the closest my research ever came to core economics, and since that time I have been mostly cheering Thaler and behavioral economics from the sidelines. There has been much to cheer about. As a mark of the progress that has been made, I recall a seminar in psychology and economics that I co-taught with George Akerlof, after Anne Treisman and I had moved from the University of British Columbia to Berkeley in 1986. I remember being struck by the reverence with which the rationality assumption was treated even by a free thinker such as George, and also by his frequent warnings to the students that they should not let themselves be seduced by the material we were presenting, lest their careers be permanently damaged. His advice to them was to stick to what he called meat-and-potatoes economics, at least until their careers were secure. This opinion was quite common at the time. When Matthew Rabin joined the Berkeley economics department as a young assistant professor and chose to immerse himself in psychology, many considered the move professional suicide. Some fifteen years later, Rabin had earned the Clark medal, and George Akerlof had delivered a Nobel lecture entitled Behavioral Macroeconomics. Eric Wanner and the Russell Sage Foundation continued to support behavioral economics over the years. I was instrumental in the idea of using some of that support to set up a summer school for graduate students and young faculty in that field, and I helped Dick Thaler and Colin Camerer organize the first one, in 1994. When the fifth summer school convened in 2002, David Laibson, who had been a participant in 1994, was tenured at Harvard and was one of the three organizers. Terrance Odean and Sendhil Mullainathan, who had also participated as students, came back to lecture as successful researchers with positions in two of the best universities in the world. It was a remarkable experience to hear Matthew Rabin teach a set of guidelines for developing theories in behavioral economics - including the suggestion that the standard economic model should be a special case of the more complex and general models that were to be constructed. We had come a long way. Although behavioral economics has enjoyed much more rapid progress and gained more respectability in economics than appeared possible fifteen years ago, it is still a minority approach and its influence on most fields of economics is negligible. Many economists believe that it is a passing fad, and some hope that it will be. The future may prove them right. But many bright young economists are now betting their careers on the expectation that the current trend will last. And such expectations have a way of being self-fulfilling. Later years Anne Treisman and I married and moved together to U. B.C. in 1978, and Amos and Barbara Tversky settled in Stanford that year. Amos and I were then at the peak of our joint game, and completely committed to our collaboration. For a few years, we managed to maintain it, by spending every second weekend together and by placing multiple phone calls each day, some lasting several hours. We completed the study of framing in that mode, as well as a study of the conjunction fallacy in judgment (Tversky and Kahneman, 1983). But eventually the goose that had laid the golden eggs languished, and our collaboration tapered off. Although this outcome now appears inevitable, it came as a painful surprise to us. We had completely failed to appreciate how critically our successful interaction had depended on our being together at the birth of every significant idea, on our rejection of any formal division of labor, and on the infinite patience that became a luxury when we could meet only periodically. We struggled for years to revive the magic we had lost, but in vain. We were again trying when Amos died. When he learned in the early months of 1996 that he had only a few months to live, we decided to edit a joint book on decision-making that would cover some of the progress that had been made since we had started working together on the topic more than twenty years before (Kahneman and Tversky, 2000). We planned an ambitious preface as a joint project, but I think we both knew from the beginning that we would not be granted enough time to complete it. The preface I wrote alone was probably my most painful writing experience. During the intervening years, of course, we had continued to work, sometimes together sometimes with other collaborators. Amos took the lead in our most important joint piece, an extension of prospect theory to the multipleoutcome case in the spirit of rank-dependent models. He also carried out spectacular studies of the role of argument and conflict in decision-making, in collaborations with Eldar Shafir and with Itamar Simonson, as well as influential work on violations of procedural invariance in collaborations with Shmuel Sattath and with Paul Slovic. He engaged in a deep exploration of the mathematical structure of decision theories with Peter Wakker. And, in his last years, Amos was absorbed in the development of support theory, a general approach to thinking under uncertainty that his students have continued to explore. These are only his major programmatic research efforts in the field of decision-making - he did much more. I, too, kept busy, and also kept moving. Anne Treisman and I moved to UC Berkeley in 1986, and from there to Princeton in 1993, where I happily took a split appointment that located me part-time in the Woodrow Wilson School of Public Affairs. Moving East also made it easier to maintain frequent contacts with friends, children and adored grandchildren in Israel. Over the years I enjoyed productive collaborations with Dale Miller in the development of a theory of counterfactual thinking (Kahneman and Miller, 1986), and with Anne Treisman, in studies of visual attention and object perception. In addition to the work on fairness and on the endowment effect that we did with Dick Thaler, Jack Knetsch and I carried out studies of the valuation of public goods that became quite controversial and had a great influence on my own thinking. Further studies of that problem with Ilana Ritov eventually led to the idea that the translation of attitudes into dollars involves the almost arbitrary choice of a scale factor, leading some people who have quite similar values to state very different values of their willingness to pay, for no good reason (Kahneman, Ritov and Schkade, 1999). With David Schkade and the famous jurist Cass Sunstein I extended this idea into a program of research on arbitrariness in punitive damage decisions, which may yet have some influence on policy (Sunstein, Kahneman, Schkade and Ritov, 2002). The focus of my research for the past fifteen years has been the study of various aspects of experienced utility - the measure of the utility of outcomes as people actually live them. The concept of utility in which I am interested was the one that Bentham and Edgeworth had in mind. However, experienced utility largely disappeared from economic discourse in the twentieth century, in favor of a notion that I call decision utility, which is inferred from choices and used to explain choices. The distinction could be of little relevance for fully rational agents, who presumably maximize experienced utility as well as decision utility. But if rationality cannot be assumed, the quality of consequences becomes worth measuring and the maximization of experienced utility becomes a testable proposition. Indeed, my colleagues and I have carried out experiments in which this proposition was falsified. These experiments exploit a simple rule that governs the assignment of remembered utility to past episodes in which an agent is passively exposed to a pleasant or unpleasant experience, such as watching a horrible film or an amusing one (Frederickson and Kahneman, 1993), or undergoing a colonoscopy (Redelmeier and Kahneman, 1993). Remembered utility turns out to be determined largely by the peak intensity of the pleasure or discomfort experienced during the episode, and by the intensity of pleasure or discomfort when the episode ended. The duration of the episode has almost no effect on its remembered utility. In accord with this rule, an episode of 60 seconds during which one hand is immersed in painfully cold water will leave a more aversive memory than a longer episode, in which the same 60 seconds are followed by another 30 seconds during which the temperature rises slightly. Although the extra 30 seconds are painful, they provide an improved end. When experimental participants are exposed to the two episodes, then given a choice of which to repeat, most choose the longer one (Kahneman, Fredrickson, Schreiber and Redelmeier, 1993). In these and in other experiments of the same kind (Schreiber and Kahneman, 2000), people make wrong choices between experiences to which they may be exposed, because they are systematically wrong about their affective memories Our evidence contradicts the standard rational model, which does not distinguish between experienced utility and decision utility. I have presented it as a new type of challenge to the assumption of rationality (Kahneman, 1994). Most of my empirical work in recent years has been done in collaboration with my friend David Schkade. The current topic of our research is a study of well-being that builds on my previous research on experienced utility. We have assembled a multi-disciplinary team for an attempt to develop tools for measuring welfare, with the design specification that economists should be willing to take the measurements seriously. Another major effort went into an essay that attempted to update the notion of judgment heuristics. That work was done in close collaboration with a young colleague, Shane Frederick. In the pains we took in the choice of every word it came close to matching my experiences with Amos (Kahneman and Frederick, 2002). My Nobel lecture is an extension of that essay. One line of work that I hope may become influential is the development of a procedure of adversarial collaboration . which I have championed as a substitute for the format of critique-reply-rejoinder in which debates are currently conducted in the social sciences. 1 Both as a participant and as a reader I have been appalled by the absurdly adversarial nature of these exchanges, in which hardly anyone ever admits an error or acknowledges learning anything from the other. Adversarial collaboration involves a good-faith effort to conduct debates by carrying out joint research - in some cases there may be a need for an agreed arbiter to lead the project and collect the data. Because there is no expectation of the contestants reaching complete agreement at the end of the exercise, adversarial collaborations will usually lead to an unusual type of joint publication, in which disagreements are laid out as part of a jointly authored paper. I have had three adversarial collaborations, with Tom Gilovich and Victoria Medvec (Gilovich, Medvec and Kahneman, 1998), with Ralph Hertwig (where Barbara Mellers was the agreed arbiter, see Mellers, Hertwig and Kahneman, 2001), and with a group of experimental economists in the UK (Bateman et al . 2003). An appendix in the Mellers et al . article proposes a detailed protocol for the conduct of adversarial collaboration. In another case I did not succeed in convincing two colleagues that we should engage in an adversarial collaboration, but we jointly developed another procedure that is also more constructive than the reply-rejoinder format. They wrote a critique of one of my lines of work, but instead of following up with the usual exchange of unpleasant comments we decided to write a joint piece, which started by a statement of what we did agree on, then went on to a series of short debates about issues on which we disagreed (Ariely, Kahneman, amp Loewenstein, 2000). I hope that more efficient procedures for the conduct of controversies will be part of my legacy. Part 2 - Eulogy for Amos Tversky (June 5, 1996) People who make a difference do not die alone. Something dies in everyone who was affected by them. Amos made a great deal of difference, and when he died, life was dimmed and diminished for many of us. There is less intelligence in the world. There is less wit. There are many questions that will never be answered with the same inimitable combination of depth and clarity. There are standards that will not be defended with the same mix of principle and good sense. Life has become poorer. There is a large Amos-shaped gap in the mosaic, and it will not be filled. It cannot be filled because Amos shaped his own place in the world, he shaped his life, and even his dying. And in shaping his life and his world, he changed the world and the life of many around him. Amos was the freest person I have known, and he was able to be free because he was also one of the most disciplined. Some of you may have tried to make Amos do something he did not want to do. I dont think that there are many with successes to recount. Unlike many of us, Amos could not be coerced or embarrassed into chores or empty rituals. In that sense he was free, and the object of envy for many of us. But the other side of freedom is the ability to find joy in what one does, and the ability to adapt creatively to the inevitable. I will say more about the joy later. The supreme test of Amoss ability to accept what cannot be changed came in the last few months. Amos loved living. Death, at a cruelly young age was imposed on him, before his childrens lives had fully taken shape, before his work was done. But he managed to die as he had lived - free. He died as he intended. He wanted to work to the last, and he did. He wanted to keep his privacy, and he did. He wanted to help his family through their ordeal, and he did. He wanted to hear the voices of his friends one last time, and he found a way to do that through the letters that he read with pleasure, sadness and pride, to the end. There are many forms of courage, and Amos had them all. The indomitable serenity of his last few months is one. The civic courage of adopting principled and unpopular positions is another, and he had that too. And then there is the heroic, almost reckless courage, and he had that too. My first memory of Amos goes back to 1957, when someone pointed out to me a thin and handsome lieutenant, wearing the red beret of the paratroopers, who had just taken the competitive entrance exam to the undergraduate program in Psychology at Hebrew University. The handsome lieutenant looked very pale, I remember. He had been wounded. The paratrooper unit to which he belonged had been performing an exercise with live fire in front of the general staff of the Israel Defense Forces and all the military attaches. Amos was a platoon commander. He sent one of his soldiers carrying a long metal tube loaded with an explosive charge, which was to be slid under the barbed wire of the position they were attacking, and was to be detonated to create an opening for the attacking troops. The soldier moved forward, placed the explosive charge, and lit the fuse. And then he froze, standing upright in the grip of some unaccountable attack of panic. The fuse was short and the soldier was certainly about to be killed. Amos leapt from behind the rock he was using for cover, ran to the soldier, and managed to jump at him and bring him down just before the charge exploded. This was how he was wounded. Those who have been soldiers will recognize this act as one of almost unbelievable presence of mind and bravery. It was awarded the highest citation available in the Israeli army. Amos almost never mentioned this incident, but some years ago, in the context of one of our frequent conversations about the importance of memory in our lives, he mentioned it and said that it had greatly affected him. We can probably appreciate what it means for a 20-year old to have passed a supreme test, to have done the impossible. We can understand how one could draw strength from such an event, especially if - as was the case for Amos - achieving the almost impossible was not a once-off thing. Amos achieved the almost impossible many times, in different contexts. Amos almost impossible achievements, as you all know, extended to the academic life. Amos derived some quiet pleasure from one aspect of his record: by a large margin, he published more articles in Psychological Review . the prestigious theory journal of the discipline, than anyone else in the history of that journal, which goes back more than 100 years. He had two pieces in press in Psychological Review when he died. But other aspects of the record are even more telling than this statistic. The number of gems and enduring classics sets Amos apart even more. His early work on transitivity violations, elimination by aspects, similarity, the work we did together on judgment, prospect theory and framing, the Hot Hand, the beautiful work on the disjunction effect and Argument-Based Choice, and most recently an achievement of which Amos was particularly proud: Support Theory. How did he do it There are many stories one could tell. Amos lifelong habit of working alone at night while others slept surely helped, but that wouldnt quite do it. Then there was that mind - the bright beam of light that would clear out an idea from the fog of other peoples words, the inventiveness that could come up with six different ways of doing anything that needed to be done. You might think that having the best mind in the field and the most efficient work style would suffice. But there was more. Amos had simply perfect taste in choosing problems, and he never wasted much time on anything that was not destined to matter. He also had an unfailing compass that always kept him going forward. I can attest to that from long experience. It is not uncommon for me to write dozens of drafts of a paper, but I am never quite sure that they are actually improving, and often I wander in circles. Almost everything I wrote with Amos also went through dozens of drafts, but when you worked with Amos you just knew. There would be many drafts, and they would get steadily better. Amos and I wrote an article in Science in 1974. It took us a year. We would meet at the van Leer Institute in Jerusalem for 4-6 hours a day. On a good day we would mark a net advance of a sentence or two. It was worth every minute. And I have never had so much fun. When we started work on Prospect Theory it was 1974, and in about 6 months we had been through 30- odd versions of the theory and had a paper ready for a conference. The paper had about 90 of the ideas of Prospect Theory, and quite properly did not impress anyone. We spent the better part of the following four years debugging it, trying to anticipate every objection. What kept us at it was a phrase that Amos often used: Lets do it right. There was never any hurry, any thought of compromising quality for speed. We could do it because Amos said the work was important, and you could trust him when he said that. We could also do it because the process was so intensely enjoyable. But even that is not all. To understand Amos genius - not a word I use lightly - you have to consider a phrase that he was using increasingly often in the last few years: Let us take what the terrain gives. In his growing wisdom Amos believed that Psychology is almost impossible, because there is just not all that much we can say that is both important and demonstrably true. Let us take what the terrain gives meant not over-reaching, not believing that setting a problem implies it can be solved. The unique ability Amos had - no one else I know comes close - was to find the one place where the terrain will yield (for Amos, usually gold) - and then to take it all. This skill in taking it all is what made so many of Amos papers not only classics, but definitive. What Amos had done did not need redoing. Whether or not to over-reach was a source of frequent, and frequently productive tension between Amos and me over nearly 30 years. I have always wanted to do more than could be done without risk of error, and have always taken pride in preferring to be approximately right rather than precisely wrong. Amos thought that if you pick the terrain properly you wont have to choose, because you can be precisely right. And time and time again he managed to be precisely right on things that mattered. Wisdom was part of his genius. Fun was also part of Amos genius. Solving problems was a lifelong source of intense joy for him, and the fact that he was richly rewarded for his problem solving never undermined that joy. Much of the joy was social. Almost all of Amos work was collaborative. He enjoyed working with colleagues and students, and he was supremely good at it. And his joy was infectious. The 12 or 13 years in which most of our work was joint were years of interpersonal and intellectual bliss. Everything was interesting, almost everything was funny, and there was the recurrent joy of seeing an idea take shape. So many times in those years we shared the magical experience of one of us saying something which the other would understand more deeply than the speaker had done. Contrary to the old laws of information theory, it was common for us to find that more information was received than had been sent. I have almost never had that experience with anyone else. If you have not had it, you dont know how marvelous collaboration can be. Ariely, D. Kahneman, D. amp Loewenstein, G. (2000). Joint comment on When does duration matter in judgment and decision making. Journal of Experimental Psychology . General, 129, 524-529.Glossary of Supply Chain Terms Stymied by stickering. Exasperated by XML. And just what is Poka Yoke. anyway Let Inbound Logistics glossary of transportation, logistics, supply chain, and international trade terms help. ABC Analysis: A classification of items in an inventory according to importance defined in terms of criteria such as sales volume and purchase volume. ABC Classification: Classification of a group of items in decreasing order of annual dollar volume or other criteria. This array is then split into three classes called A, B, and C. The A group represents 10 to 20 by number of items, and 50 to 70 by projected dollar volume. The next grouping, B, represents about 20 of the items and 20 of the dollare volume. The C-class contains 60 to 70 of the items, and represents about 10 to 30 of the dollar volume. ABC Inventory Control: An inventory control approach based on the ABC volume or sales revenue classification of products (A items are highest volume or revenue, C - or perhaps D - are lowest volume SKUs.) ABC Model: In cost management, a representation of resource costs during a time period that are consumed through activities and traced to products, services, and customers, or to any other object that creates a demand for the activity to be performed. ABC System: In cost management, a system that maintains financial and operating data on an organizations resources, activities, drivers, objects and measures. ABC Models are created and maintained within this system. Abnormal Demand: Demand in any period that is outside the limits established by management policy. This demand may come from a new customer or from existing customers whose own demand is increasing or decreasing. Care must be taken in evaluating the nature of the demand: Is it a volume change, is it a change in product mix, or is it related to the timing of the order Absorption Costing: In cost management, an approach to inventory valuation in which variable costs and a portion of fixed costs are assigned to each unit of production. The fixed costs are usually allocated to units of output on the basis of direct labor hours, machine hours, or material costs. Synonym: Allocation Costing. Accelerated Commercial Release Operations Support System (ACROSS): A Canada Customs system to speed the release of shipments by allowing electronic transmission of data to and from Canada Customs 24 hours a day, 7 days a week. Acceptable Quality Level (AQL): In quality management, when a continuing series of lots is considered, AQL represents a quality level that, for the purposes of sampling inspection, is the limit of a satisfactory process average. Acceptable Sampling Plan: In quality management, a specific plan that indicates the sampling sizes and the associated acceptance or non-acceptance criteria to be used. Also see: Acceptance Sampling . Acceptance Number: In quality management, 1) A number used in acceptance sampling as a cut off at which the lot will be accepted or rejected. For example, if x or more units are bad within the sample, the lot will be rejected. 2) The value of the test statistic that divides all possible values into acceptance and rejection regions. Also see: Acceptance Sampling . Acceptance Sampling: 1) The process of sampling a portion of goods for inspection rather than examining the entire lot. The entire lot may be accepted or rejected based on the sample even though the specific units in the lot are better or worse than the sample. There are two types: attributes sampling and variables sampling. In attributes sampling, the presence or absence of a characteristic is noted in each of the units inspected. In variables sampling, the numerical magnitude of a characteristic is measured and recorded for each inspected unit this type of sampling involves reference to a continuous scale of some kind. 2) A method of measuring random samples of lots or batches of products against predetermined standards. Accessibility: A carriers ability to provide service between an origin and a destination. Accessorial Charges: A carriers charge for accessorial services such as loading, unloading, pickup, and delivery, or any other charge deemed appropriate. Accountability: Being answerable for, but not necessarily personally charged with, doing specific work. Accountability cannot be delegated, but it can be shared. For example, managers and executives are accountable for business performance even though they may not actually perform the work. Accounts Payable (AP): The value of goods and services acquired for which payment has not yet been made. Accounts Receivable (AR): The value of goods shipped or services rendered to a customer on whom payment has not been received. Usually includes an allowance for bad debts. Accreditation: Certification by a recognized body of the facilities, capability, objectivity, competence, and integrity of an agency, service, operational group, or individual to provide the specific service or operation needed. For example, the Registrar Accreditation Board accredits those organizations that register companies to the ISO 9000 Series Standards. Accredited Standards Committee (ASC): A committee of ANSI chartered in 1979 to develop uniform standards for the electronic interchange of business documents. The committee develops and maintains US generic standards (X12) for Electronic Data Interchange. Accumulation Bin: A place, usually a physical location, used to accumulate all components that go into an assembly before the assembly is sent out to the assembly floor. Synonym: Assembly Bin. Accuracy: In quality management, the degree of freedom from error or the degree of conformity to a standard. Accuracy is different from precision. For example, four-significant-digit numbers are less precise than six-significant-digit numbers however, a properly computed four-significant-digit number might be more accurate than an improperly computed six-significant-digit number. Acknowledgement: A communication by a supplier to advise a purchaser that a purchase order has been received. It usually implies acceptance of the order by the supplier. Acquisition Cost: In cost accounting, the cost required to obtain one or more units of an item. It is order quantity times unit cost. Action Message: An alert that an MRP or DRP system generates to inform the controller of a situation requiring his or her attention. Active Stock: Goods in active pick locations and ready for order filling. Activity: Work performed by people, equipment, technologies, or facilities. Activities are usually described by the action-verb-adjective-noun grammar convention. Activities may occur in a linked sequence and activity-to-activity assignments may exist. (1) In activity-based cost accounting, a task or activity, performed by or at a resource, required in producing the organizations output of goods and services. A resource may be a person, machine, or facility. Activities are grouped into pools by type of activity and allocated to products. (2) In project management, an element of work on a project. It usually has an anticipated duration, anticipated cost, and expected resource requirements. Sometimes major activity is used for larger bodies of work. Activity Analysis: The process of identifying and cataloging activities for detailed understanding and documentation of their characteristics. An activity analysis is accomplished by means of interviews, group sessions, questionnaires, observations, and reviews of physical records of work. Activity-Based Budgeting (ABB): An approach to budgeting where a company uses an understanding of its activities and driver relationships to quantitatively estimate workload and resource requirements as part of an ongoing business plan. Budgets show the types, number of, and cost of resources that activities are expected to consume based on forecasted workloads. The budget is part of an organizations activity-based planning process and can be used in evaluating its success in setting and pursuing strategic goals. Activity-Based Costing (ABC): A methodology that measures the cost and performance of cost objects, activities, and resources. Cost objects consume activities and activities consume resources. Resource costs are assigned to activities based on their use of those resources, and activity costs are reassigned to cost objects (outpputs) based on the cost objects proportional use of those activities. Activity-based costing incorporates causal relationships between cost objects and activities and between activities and resources. Activity-Based Costing Model: In activity-based cost accounting, a model, by time period, of resource costs created because of activities related to products or services or other items causing the activity to be carried out. Activity-Based Costing System: A set of activity-based cost accounting models that collectively defines data on an organizations resources, activities, drivers, objects, and measures. Activity-Based Management (ABM): A discipline focusing on the management of activities within business processes as the route to continuously improve both the value received by customers and the profit earned in providing that value. AMB uses activity-based cost information and performance measurements to influence management action. See Activity-Based Costing. Activity-Based Planning (ABP): Activity-based planning (ABP) is an ongoing process to determine activity and resource requirements (both financial and operational) based on the ongoing demand of products or services by specific customer needs. Resource requirements are compared to resources available and capacity issues are identified and managed. Activity-based budgeting (ABB) is based on the outputs of activity-based planning. Activity Dictionary: A listing and description of activities that provides a commonstandard definition of activities across the organization. An activity dictionary can include information about an activity andor its relationships, such as activity description, business process, function source, whether value added, inputs, outputs, supplier, customer, output measures, cost drivers, attributes, tasks, and other information as desired to describe the activity. Activity Driver: The best single quantitative measure of the frequency and intensity of the demands placed on an activity by cost objects or other activities. Its used to assign activity costs to cost objects or to other activities. Activity Level: A description of types of activities dependent on the functional area. Product-related activity levels may include unit, batch, and product levels. Customer-related activity levels may include customer, market, channel, and project levels. Activity Ratio: A financial ratio used to determine how an organizations resources perform relative to the revenue the resources produce. Activity ratios include inventory turnover, receivables conversion period, fixed-asset turnover, and return on assets. Actual Cost System: A cost system that collects costs historically as they are applied to production, and allocates indirect costs to products based on the specific costs and achieved volume of the products. Actual Costs: The labor, material, and associated overhead costs that are charged against a job as it moves through the production process. Actual Demand: Actual demand is composed of customer orders (and often allocations of items, ingredients, or raw materials to production or distribution). Actual demand nets against or consumes the forecast, depending on the rules chosen over a time horizon. For example, actual demand will totally replace forecast inside the sold-out customer order backlog horizon (often called the demand time fence), but will net against the forecast outside this horizon based on the chosen forecast consumption rule. Actual to Theoretical Cycle Time: The ratio of the measured time required to produce a given output divided by the sum of the time required to produce a given output based on the rated efficiency of the machinery and labor operations. Administrative Monetary Penalty System (AMPS ): A Canada Customs system of monetary penalties that will be imposed against violations of Canada Customs regulations. Ad Valorem Duty: A duty calculated as a percentage of the shipment value. Also see: Duty Advance Material Request: Ordering materials before the release of the formal product design. This early release is required because of long lead times. Advanced Planning and Scheduling (APS): Techniques that deal with analysis and planning of logistics and manufacturing over the short, intermediate, and long-term time periods. APS describes any computer program that uses advanced mathmatical algorithms or logic to perform optimization or simulation on finite capacity scheduling, sourcing, capital planning, resource planning, forecasting, demand management, and others. These techniques simultaneously consider a range of constraints and business rules to provide real-time planning and scheduling, decision support, available-to-promise, and capable-to-promise capabilities. APS often generates and evaluates multiple scenarios. Management then selects one scenario to use as the official plan. The five main components of an APS system are demand planning, production planning, production scheduling, distribution planning, and transportation planning. Advanced Shipment Notice (ASN): An EDI term referring to a transaction set (ANSI 856) where the supplier sends out a notification to interested parties that a shipment is now outbound in the supply chain. This notification is list transmitted to a customer or consignor designating items shipped. The ASN may also include the expected time of arrival. Advanced Shipping Notice (ASN): Detailed shipment information transmitted to a customer or consignee in advance of delivery, designating the contents (individual products and quantities of each) and nature of the shipment. May also include carrier and shipment specifics, including time of shipment and expected time of arrival. Also see: Assumed Receipt . Aerodynamic Drag: Wind resistance After-Sale Service: Services provided to the customer after products have been delivered. This can include repairs, maintenance, andor telephone support. Synonym: Field Service Agency Tariff: A rate bureau publication that contains rates for many carriers. Agent: An enterprise authorized to transact business for, or in the name of, another enterprise. Agglomeration: A net advantage a company gains by sharing a common location with other companies. Aggregate Forecast: An estimate of sales, oftentimes phased, for a grouping of products or product families produced by a facility or firm. Stated in terms of units, dollars, or both, the aggregate forecast is used for sales and production planning (or for sales and operations planning) purposes. Aggregate Planning: A process to develop tactical plans to support the organizations business plan. Aggregate planning usually includes the development, analysis and maintenance of plans for total sales, total production, targeted inventory, and targeted inventory, and targeted customer backlog for families of products. The production plan is the result of the aggregate planning process. Two approaches to aggregate planning exist - production planning and sales and operations planning. Aggregate Tender Rate: A reduced rate offered to a shipper who tenders two or more class-related shipments at one time and one place. Agility: The ability to successfully manufacture and market a broad range of low-cost, high-quality products and services with short lead times and varying volumes that provide enhanced value to customers through customization. Agility merges the four distinctive competencies of cost, quality, dependability, and flexibility. Air Cargo: Freight that is moved by air transportation. Air Cargo Agent: An agent appointed by an airline to solicit and process international airfreight shipments. Air Cargo Containers: Containers designed to conform to the inside of an aircraft. There are many shapes and sizes of containers. Air cargo containers fall into three categories: 1) air cargo pallets 2) lower deck containers 3) box type containers. Air Carrier: An enterprise that offers transportation service via air. Airport and Airway Trust Fund: A federal fund that collects passenger ticket taxes and disburses those funds for airport facilities. Air Taxi: An exempt for-hire air carrier that will fly anywhere on demand air taxis are restricted to a maximum payload and passenger capacity per plane. Air Transport Association of America: A U. S. airline industry association. Air Waybill (AWB): A bill of lading for air transport that serves as a receipt for the shipper, indicates that the carrier has accepted the goods listed, obligates the carrier to carry the consignment to the airport of destination according to specified conditions. Algorithm: a clearly specified mathematical process for computation a set of rules, which, if followed, produce a prescribed result. All-Cargo Carrier: An air carrier that transports cargo only. Allocation: 1) A distribution of costs using calculations that may be unrelated to physical observations or direct or repeatable cause-and-effect relationships. Because of the arbitrary nature of allocations, costs based on cost causal assignment are viewed as more relevant for management decision-making. 2) Allocation of available inventory to customer and production orders. All Water: Term used when the transportation is completely by water. American National Standards Institute (ANSI): A non-profit organization chartered to develop, maintain, and promulgate voluntary US national standards in a number of areas, especially with regards to setting EDI standards. ANSI is the US representative to the International Standards Organization (ISO). American Society for Quality (ASQ): Founded in 1946, a not-for-profit educational organization consisting of 144,000 members who are interested in quality improvement. American Society of Transportation amp Logistics: A professional organization in the field of logistics. American Trucking Associations: A motor carrier industry association composed of sub-conferences representing various motor carrier industry sectors. American Waterway Operators: A domestic water carrier industry association representing barge operators on inland waterways. Amtrak: The National Railroad Passenger Corporation, a federally created corporation that operates most of the United States intercity passenger rail service. Anti-Dumping Duty: An additional import duty imposed in instances where imported goods are priced at less than the quotnormalquot price charged in the exporters domestic market and cause material injury to domestic industry in the importing country Any-Quantity (AQ) rate: A rate that applies to any size shipment tendered to a carrier no discount rate is available for large shipments. API: American Petroleum Institute also Application Programming Interface APU: APUs automatically shut down the main locomotive engine idle while maintaining all vital main engine systems at greatly reduced fuel consumption Arrival Notice: A notice from the delivering carrier to the Notify Party indicating the shipments arrival date at a specific location (normally the destination). Artificial Intelligence: A field of research seeking to understand and computerize the human thought process. ASRS: See Automated StorageRetrieval System Assemble to Order: A production environment where a good or service can be assembled after receipt of a customers order. The key components (bulk, semifinished, intermediate, sub-assembly, fabricated, purchased, packing, and so on) used in the assembly or finishing process are planned and usually 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. Assembly: A group of subassemblies andor parts that are put together and constitute a major subdivision for the final product. An assembly may be an end item or a component of a higher-level assembly. Assignment: A distribution of costs using causal relationships. Because cost causal relationships are viewed as more relevant for management decision making, assignment of costs is generally preferable to allocation techniques. Synonymous with Tracing. Contrast with Allocation Association of American Railroads: A railroad industry association that represents the larger U. S. railroads. ATA: Actual time of arrival, or also known as the American Trucking Associations. ATD: Actual time of departure ATFI: Automated Tariff Filing Information System Attributes: A label used to provide additional classification or information about a resource, activity, or cost object. Used for focusing attention and may be subjective. Examples are a characteristic, a score or grade of product or activity, or groupings of these items, and performance measures. Audit: In reference to freight bills, the term audit is used to determine the accuracy of freight bills. Auditability: A characteristic of modern information systems gauged by the ease with which data can be substantiated by tracing it to source documents, and the extent to which auditors can rely on pre-verified and monitored control processes. Auditing: Determining the correct transportation charges due the carrier auditing involves checking the freight bill for errors, correct rate, and weight. Audit Trail: Manual or computerized tracing of the transactions affecting the contents or origin or a record. AutoID: Referring to an automated identification system. This includes technology such as bar coding and radio frequency tagging (RFID). Automated Broker Interface (ABI): The U. S. Customs program to automate the flow of customs-related information among customs brokers, importers, and carriers. Automated Call Distribution: A feature of large call center or quotCustomer Interaction Centerquot telephone switches that routes calls by rules, such as next-available employee, skill set, etc. Automated Guided Vehicle System (AGVS): A computer-controlled materials handling system consisting of small vehicles (carts) that move along a guideway. Automated StorageRetrieval System (ASRS): A high-density rack inventory storage system with unmanned vehicles automatically loading and unloading products tofrom the racks. Automatic Tire Inflation System: Automatic tire inflation systems monitor and continually adjust the level of pressurized air to tires, maintaining proper tire pressure even when the truck is moving. Available to Promise (ATP): The uncommitted portion of a companys 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 an MPS receipt is scheduled. In the first period, ATP includes on-hand inventory less customer orders that are due and overdue. Three methods of calculation are used: discrete ATP, cumulative ATP with look ahead, and cumulative ATP without look ahead. Average Cost: Total cost, fixed plus variable, divided by total output. Back Order: Product ordered but out of stock and promised to ship when the product becomes available. Backhaul: The process of a transportation vehicle returning from the original destination point to the point of origin. The 1980 Motor Carrier Act deregulated interstate commercial trucking, thereby allowing carriers to contract for the return trip. The backhaul can be with a full, partial, or empty load. An empty backhaul is called deadheading. Also see: Deadhead Backorder: (1) The act of retaining a quantity to ship against an order when other order lines have already been shipped. Backorders are usually caused by stock shortages. (2) The quantity remaining to be shipped if an initial shipment(s) has been processed. Note: In some cases, backorders are not allowed. This results in a lost sale when sufficient quantities are not available to completely ship an order or order line. Backsourcing: Pulling a function back in house as an outsourcing contract expires. Balanced Scorecard: A structured measurement system based on a mix of financial and non-financial measures of business performance. A list of financial and operational measurements used to evaluate organizational or supply chain performance. The dimensions of the balanced scorecard might include customer perspective, business process perspective, financial perspective, and innovation and learning perspectives. It formally connects overall objectives, strategies, and measurements. Each dimension has goals and measurements. Also see: Scorecard . Balance of Trade: The surplus or deficit which results from comparing a countrys exports and imports of merchandise only. Bale: A large compressed, bound, and often wrapped bundle of a commodity, such as cotton or hay. Bar Code: A symbol consisting of a series of printed bars representing values. A system of optical character reading, scanning, tracking of units by reading a series of printed bars for translation into a numeric or alphanumeric identification code. A popular example is the UPC code used on retail packaging. Bar Code Scanner: A device to read bar codes and communicate data to computer systems. Bar Coding: A method of encoding data for fast and accurate readability. Bar codes are a series of alternating bars and spaces printed or stamped on products, labels, or other media, representing encoded information which can be read by electronic readers called bar. Barge: The cargo-carrying vehicle which may or may not have its own propulsion mechanism for the purpose of transporting goods. Primarily used by Inland water carriers, basic barges have open tops, but there are covered barges for both dry and liquid cargoes. Barrier to Entry: Factors that prevent companies from entering into a particular market, such as high initial investment in equipment. Barter: The exchange of commodities or services for other commodities or services rather than the purchase of commodities or services with money. Base Currency: The currency whose value is quotonequot whenever a quote is made between two currencies. Basing-Point Pricing: A pricing system that includes a transportation cost from a particular city or town in a zone or region even though the shipment does not originate at the basing point. Batch Picking: A method of picking orders in which order requirements are aggregated by product across orders to reduce movement to and from product locations. The aggregated quantities of each product are then transported to a common area where the individual orders are constructed. See Zone Picking. Benchmarking: The process of comparing performance against the practices of other leading companies for the purpose of improving performance. Companies also benchmark internally by tracking and comparing current performance with past performance. Benefit-Cost Ratio: An analytical tool used in public planning a ratio of total measurable benefits divided by the initial capital cost. Also see: Cost Benefit Analysis . Best in Class: An organization, usually within a specific industry, recognized for excellence in a specific process area. Best Practice: A specific process or group of processes which have been recognized as the best method for conducting an action. Best practices may vary by industry or geography depending on the environment being used. Best-practices methodology may be applied with respect to resources, activities, cost object, or processes. Bilateral Contract: An agreement where-in each party makes a promise to the other party. Billing: A carrier terminal activity that determines the proper rate and total charges for a shipment and issues a freight bill. Bill of Activities: A listing of activities required by a product, service, process output, or other cost object. Bill of activity attributes could include volume andor cost of each activity in the listing. Bill of Lading (BOL): A transportation document that is the contract of carriage containing the terms and conditions between the shipper and carrier. Bill of Lading Number: The number assigned by the carrier to identify the bill of lading. Bill of Lading, Through: A bill of lading to cover goods from point of origin to final destination when interchange or transfer from one carrier to another is necessary to complete the journey. Bill of Material (BOM): A structured list of all the materials or parts and quantities needed to produce a particular finished product, assembly, subassembly, or manufactured part, whether purchased or not. Bill of Material Accuracy: Conformity of a list of specified items to administrative specifications, with all quantities correct. Bill of Resources: A listing of resources required by an activity. Resource attributes could include cost and volumes. Bin Center: A drop off facility that is smaller than a public warehouse Binder: A strip of cardboard, thin wood, burlap, or similar material placed between layers of containers to hold a stack together. Blanket Purchase Order: A long-term commitment to a supplier for material against which short-term releases will be generated to satisfy requirements. Oftentimes, blanket orders cover only one item with predetermined delivery dates. Synonyms: Blanket Order, Standing Order. Blanket Rate: A rate that does not increase according to the distance a commodity is shipped. Blanket Release: The authorization to ship andor produce against a blanket agreement or contract. Blanket Wrap: A service pioneered by the moving companies to eliminate packaging material by wrapping product in padded quotblanketsquot to protect it during transit, usually on quotair ridequot vans. Bleeding Edge: An unproven process or technology so far ahead of its time that it may create a competitive disadvantage. Blow Through: An MRP process which uses a quotphantom bill of materialquot and permits MRP logic to drive requirements straight through the phantom item to its components. The MRP system usually retains its ability to net against any occasional inventories of the item. Bonded Warehouse: Warehouse approved by the Treasury Department and under bondguarantee for observance of revenue laws. Used for storing goods until duty is paid or goods are released in some other proper manner. Booking: The act of requesting space and equipment aboard a vessel for cargo which is to be transported. Booking Number: The number assigned to a certain space reservation by the carrier or the carriers agent. Bottleneck: A constraint, obstacle, or planned control that limits throughput or the utilization of capacity. Boxcar: An enclosed railcar used to transport freight Bracing: To secure a shipment inside a carriers vehicle to prevent damage. Bracketed Recall: Recall from customers of suspect lot numbers, plus a specified number of lots produced before and after the suspect ones. Branding: The use of a name, term, symbol, or design, or a combination of these, to identify a product. Break-Bulk: The separation of a consolidated bulk load into smaller individual shipments for delivery to the ultimate consignee. The freight may be moved intact inside the trailer, or it may be interchanged and rehandled to connecting carriers. Break Bulk Cargo: Cargo that is shipped as a unit or package (for example: palletized cargo, boxed cargo, large machinery, trucks) but is not containerized. Break Bulk Vessel: A vessel designed to handle break bulk cargo. Break-Even Point: The level of production or the volume of sales at which operations are neither profitable nor unprofitable. The break-even point is the intersection of the total revenue and total cost curves. Broker: There are 3 definitions for the term quotbrokerquot: 1) an enterprise that owns and leases equipment2) an enterprise that arranges the buying amp selling of transportation of, goods, or services 3) a ship agent who acts for the ship owner or charterer in arranging charters. Bucketed System: An MRP, DRP, or other time-phased system in which all time-phased data are accumulated into time periods, or buckets. If the period of accumulation is one week, then the system is said to have weekly buckets. Buffer: 1) A quantity of materials awaiting further processing. It can refer to raw materials, semi-finished stores, or hold points, or a work backlog that is purposely maintained behind a work center. 2) In the theory of constraints, buffers can be time or material, and support throughput andor due date performance. Buffers can be maintained at the constraint, convergent points (with a constraint part), divergent points, and shipping points. Buffer Management: In the theory of constraints, a process in which all expediting in a shop is driven by what is scheduled to be in the buffers (constraint, shipping, and assembly buffers). By expediting this material into the buffers, the system helps avoid idleness at the constraint and missed customer due dates. In addition, the causes of items missing from the buffer are identified, and the frequency of occurrence is used to prioritize improvement activities. Buffer Stock: A quantity of goods or articles kept in storage to safeguard against unforeseen shortages or demands. Build to Inventory: A quotpushquot system of production and inventory management. Product is manufactured or acquired in response to sales forecasts. Build to Order: A method of reducing inventory by not manufacturing product until there is an actual order from the customer. Bulk Area: A storage area for large items which at a minimum are most efficiently handled by the palletload. Bulk Cargo: Unpacked dry cargo such as grain, iron ore or coal. Any commodity shipped in this way is said to be in bulk. Bullwhip Effect: An extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain. Inventory can quickly move from being backordered to being in excess. This is caused by the serial nature of communicating orders up the chain with the inherent transportation delays of moving product down the chain. The bullwhip effect can be eliminated by synchronizing the supply chain. Bundle: A group of products that are shipped together as an unassembled unit. Bundling: An occurrence where two or more products are combined into one transaction for a single price. Burn Rate: The rate of consumption of cash in a business. Used to determine cash requirements on an on-going basis. A burn rate of 50,000 would mean the company spends 50,000 a month above any incoming cash flow to sustain its business. Entrepreneurial companies will calculate their burn rate in order to understand how much time they have before they need to raise more money, or show a positive cash flow. Business Application: Any computer program, set of programs, or package of programs created to solve a particular business problem or function. Business Continuity Plan (BCP): A contingency plan for sustained operations during periods of high risk, such as labor unrest or natural disaster. CSCMP provides suggestions for helping companies do continuity planning in their Securing the Supply Chain research. A copy of this research is available on CSCMPs web site at cscmp. org . Business Logistics: The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. Business Plan: (1) A statement of long-range strategy and revenue, cost, and profit objectives usually accompanied by budgets, a projected balance sheet, and a cash flow (source and application of funds) statement. A business plan is usually stated in terms of dollars and grouped by product family. The business plan is then translated into synchronized tactical functional plans through the production planning process (or the sales and operations planning process). Although frequently stated in different terms (dollars versus units), these tactical plans should agree with each other and with the business plan. (2) A document consisting of the business details (organization, strategy, and financing tactics) prepared by an entrepreneur to plan for a new business. Business Performance Measurement (BPM): A technique that uses a system of goals and metrics to monitor performance. Analysis of these measurements can help businesses periodically set business goals, then provide feedback to managers on progress towards those goals. A specific measure can be compared to itself over time, compared with a present target, or evaluated along with other measures. Business Process Outsourcing (BPO): The practice of outsourcing non-core internal functions to third parties. Functions typically outsourced include logistics, accounts payable, accounts receivable, payroll, and human resources. Other areas can include IT development or complete management of the IT functions of the enterprise. Business Process Reengineering (BPR): The fundamental rethinking and radical redesign of business processes to achieve dramatic organizational improvements. Business-to-Business (B2B): As opposed to business-to-consumer (B2C). Many companies are now focusing on this strategy, and their web sites are aimed at businesses (think wholesale) and only other businesses can access or buy products on the site. Internet analysts predict this will be the biggest sector on the web. Business-to-Consumer (B2C): The hundreds of e-commerce web sites that sell goods directly to consumers are considered B2C. This distinction is important when comparing web sites that are B2B as the entire business model, strategy, execution, and fulfillment is different. Business Unit: A division or segment of an organization generally treated as a separate profit-and-loss center. Buyer: An enterprise that arranges for the acquisition of goods or services and agrees to payment terms for such goods or services. Buyer Behavior: The way individuals or organizations behave in a purchasing situation. The customer-oriented concept finds out the wants, needs, and desires of customers and adapts resources of the organization to deliver need-satisfying goods and services. Cab Extenders: Also called gap seals, which help to close the gap between the tractor and the trailer Cabotage: A federal law that requires coastal and inter-coastal traffic to be carried in U. S.-built and registered ships. CADEX: See Customs Automated Data Exchange System Cage: (1) A secure enclosed area for storing highly valuable items (2) A pallet-sized platform with sides that can be secured to the tines of a forklift and in which a person may ride to inventory items stored well above the warehouse floor. Caged: Referring to the practice of placing high-value or sensitive products in a fenced off area within a warehouse. Calendar Days: The conversion of working days to calendar days is based on the number of regularly scheduled workdays per week in your manufacturing calendar. Calculation: To convert from working days to calendar days: if work week 4 days, multiply by 1.75 5 days, multiply by 1.4 6 days, multiply by 1.17 Call Center: A facility housing personnel who respond to customer phone queries. These personnel may provide customer service or technical support. Call center services may be in house or outsourced. Synonym: Customer Interaction Center. Can-Order Point: An ordering system used when multiple items are ordered from one vendor. The can-order point is a point higher than the original order point. When any one of the items triggers an order by reaching the must-order point, all items below their can-order point are also ordered. The can-order point is set by considering is set by considering the additional holding cost that would be incurred if the item were ordered early. Capacity Management: The concept that capacity should be understood, defined, and measured for each level in the organization to include market segments, products, processes, activities, and resources. In each of these applications, capacity is defined in a hierarchy of idle, non-productive, and productive views. Capacity Planning: Assuring that needed resources (e. g. manufacturing capacity, distribution center capacity, transportation vehicles, etc.) will be available at the right time and place to meet logistics and supply chain needs. Capacity: The physical facilities, personnel, and processes available to meet the product or service needs of customers. Capacity generally refers to the maximum output or producing ability of a machine, a person, a process, a factory, a product, or a service. Also see: Capacity Management CAPEX: A term used to describe the monetary requirements (CAPital EXpenditure) of an initial investment in new machines or equipment. Capital: The resources, or money, available for investing in assets that produce output. CAPSTAN: Computer-Aided Planned Stowage and Networking system. CARAT: Cargo Agents Reservation Air Waybill Issuance and Tracking. Cargo: Merchandise carried by a means of transportation. Carmack Amendment: An Interstate Commerce Act amendment that delineates the liability of common carriers and the bill of lading provisions. Carnet: A Customs document permitting the holder to carry or send special categories of goods temporarily into certain foreign countries without paying duties or posting bonds. Carousel: A rotating system of layers of bins andor drawers that can store many small items using relatively little floor space. Carrier: A firm that transports goods or people via land, sea, or air. Carrier Assets: Items that a carrier owns (technically or outright) to facilitate the services they provide. Carrier Certificate and Release Order: Used to advise customs of the shipments details. By means of this document, the carrier certifies that the firm or individual named in the certificate is the owner or consignee of the cargo. Carrier Liability: A common carrier is liable for all shipment loss, damage, and delay with the exception of that caused by act of God, act of a public enemy, act of a public authority, act of the shipper, and the goods inherent nature. Cartel: A group of companies that agree to cooperate rather than compete, in producing a product or service. Thus limiting or regulating competition. Cartage: There are two definitions for this term: 1) charge for pick-up and delivery of goods 2) movement of goods locally (short distances). Carton Flow Rack: A storage rack consisting of multiple lines of gravity flow conveyors. Cash Against Documents (CAD): A method of payment for goods in which documents transferring title are given to the buyer upon payment of cash to an intermediary acting for the seller. Cash Conversion Cycle: 1) In retailing, the length of time between the sale of products and the cash payments for a companys resources. 2) In manufacturing, the length of time from the purchase of raw materials to the collection of accounts receivable from customers for the sale of products or services. Also see: Cash-to-Cash Cycle Time . Cash In Advance (CIA): A method of payment for goods whereby the buyer pays the seller in advance of shipment of goods. Cash-to-Cash Cycle Time: The time it takes for cash to flow back into a company after it has been spent for raw materials. Synonym: Cash Conversion Cycle. Calculation: Total Inventory Days of Supply Days of Sales Outstanding - Average Payment Period for Material in Days. Cash with Order (CWO): A method of payment for goods where cash is paid at the time of order, and the transaction becomes binding on both buyer and seller. Catalog Channel: A call center or order processing facility that receives orders directly from the customer based on defined catalog offerings, and ships directly to the customer. Category Management: The management of product categories as strategic business units. This practice empowers a category manager with full responsibility for the assortment decisions, inventory levels, shelf-space allocation, promotions, and buying. With this authority and responsibility, the category manager is able to more accurately judge the consumer buying patterns, product sales, and market trends of that category. Cause-and-Effect Diagram: In quality management, a structured process used to organize ideas into logical groupings. Used in brainstorming and problem-solving exercises. Also known as Ishikawa or fish bone diagram. CELL: A manufacturing or service unit consisting of a number of workstations, and the materials transport mechanisms and storage buffers that interconnect them. Center-of-Gravity Approach: A supply chain planning methodology for locating distribution centers at approximately the location representing the minimum transportation costs between the plants, the distribution centers, and the markets. Central Dispatching: The organization of the dispatching function into one central location. This structure often involves the use of data collection devices for communication between the centralized dispatching function which usually reports to the production control department and the shop manufacturing departments. Centralized Authority: The restriction of authority to make decisions to few managers. Centralized Inventory Control: Inventory decision-making (for all SKUs) exercised from one office or department for an entire company. Certificate of Compliance: A suppliers certification that the supplies or services in question meet specified requirements. Certificate of Insurance: A negotiable document indicating that insurance has been secured under an open policy to cover loss or damage to a shipment while in transit. Certificate of Origin: A document containing an affidavit to prove the origin of imported goods. Used for customs and foreign exchange purposes. Certificate of Public Convenience and Necessity: The grant of operating authority that common carriers receive. A carrier must prove that a public need exists and that the carrier is fit, willing, and able to provide the needed service. The certificate may specify the commodities the carrier may haul, and the routes it may use. Certificated Carrier: A for-hire air carrier that is subject to economic regulation and requires an operating certification to provide service. Certified Supplier: A status awarded to a supplier who consistently meets predetermined quality, cost, delivery, financial, and count objectives. Incoming inspection may not be required. Chain of Customers: The sequence of customers who, in turn, consume the output of each other, forming a chain. For example, individuals are customers of a department store which in turn is the customer of a producer who is the customer of a material supplier. Change Management: The business process that coordinates and monitors all changes to the business processes and applications operated by the business, as well as to their internal equipment, resources, operating systems, and procedures. The change management discipline is carried out in a way that minimizes the risk of problems that will affect the operating environment and service delivery to the users. Change Order: A formal notification that a purchase order or shop order must be modified in some way. This change can result from a revised quantity, date, or specification by the customer an engineering change a change in inventory requirement data etc. Changeover: Process of making necessary adjustments to change or switchover the type of products produced on a manufacturing line. Changeovers usually lead to downtime and for the most part, companies try to minimize changeover time to help reduce costs. Channel: 1. A method whereby a business dispenses its product, such as a retail or distribution channel, call center, or a web-based electronic storefront. 2. A push technology that allows users to subscribe to a web site to browse offline, automatically display updated pages on their screen savers, and download or receive notifications when pages in the web site are modified. Channels are available only in browsers that support channel definitions such as Microsoft Internet Explorer version 4.0. Channel Conflict: This occurs when various sales channels within a companys supply chain compete with each other for the same business. An example is where a retail channel is in competition with a web-based channel set up by the company. Channel Partners: Members of a supply chain (i. e. suppliers, manufacturers, distributors, retailers, etc.) who work in conjunction with one another to manufacture, distribute, and sell a specific product. Channels of Distribution: Any series of firms or individuals that participates in the flow of goods and services from the raw material supplier and producer to the final user or consumer. Also see: Distribution Channel . Chargeable Weight: The shipment weight used in determining freight charges. The chargeable weight may be the dimensional weight or, for container shipments, the gross weight of the shipment less the tare weight of the container. Charging Area: A warehouse area where a company maintains battery chargers and extra batteries to support a fleet of electrically powered materials handling equipment. The company must maintain this area in accordance with government safety regulations. Chassis: A specialized framework that carries a rail or marine container Chock: A wedge, usually made of hard rubber or steel, that is firmly placed under the wheel of a trailer, truck, or boxcar to stop it from rolling. City Driver: A motor carrier driver who drives a local route as opposed to a long-distance, intercity route. Civil Aeronautics Board: A federal regulatory agency that implemented economic regulatory controls over air carriers. CL: Carload rail service requiring shipper to meet minimum weight. Claim: A charge made against a carrier for loss, damage, delay, or overcharge. Class I Carrier: A classification of regulated carriers based upon annual operating revenues -- motor carriers of property 5 million railroads 50 million motor carriers of passengers 3 million. Class II Carrier: A classification of regulated carriers based upon annual operating revenues -- motor carriers of property: 1-5 million railroads: 10-50 million motor carriers of passengers: 3 million. Class III Carrier: A classification of regulated carriers based upon annual operating revenues -- motor carriers of property: 1 million railroads 10 million. Class 1 Railroad: A line haul freight railroad of US ownership with operating revenue in excess of 272.0 million. There are seven (7) Class 1 Railroads in the United States. Two Mexican and two Canadian railroads would also qualify, if they were US companies. Class Rates: A grouping of goods or commodities under one general heading. All the items in the group make up a class. The freight rates that apply to all items in the class are called quotclass rates. quot Classification: An alphabetical listing of commodities, the class or rating into which the commodity is placed, and the minimum weight necessary for the rate discount used in the class rate structure. Classification yard: A railroad terminal area where railcars are grouped together to form train units. Clearance: A document stating that a shipment is free to be imported into the country after all legal requirements have been met. Clearinghouse: A conventional or limited-purpose entity generally restricted to providing specialized services, such as clearing funds or settling accounts. CLM: Council of Logistics Management, now known as The Council of Supply Chain Management Professionals. Closed Loop MRP: A system build around material requirements planning that includes the additional planning processes of production planning (sales and operations planning), master production scheduling, and capacity requirements planning. Once this planning phase is complete and the plans have been accepted as realistic and attainable, the execution processes come into play. These processes include the manufacturing control process of input-output (capacity) measurement, detailed scheduling and dispatching, as well as anticipated delay reports from both the plant and suppliers, supplier scheduling, and so on. The term quotclosed loop implies not only that each of these processes is included in the overall system, but also that feedback is provided by the execution processes so that the planning can be kept valid at all times.. CO: Carbon monoxide Co-Destiny: The evolution of a supply chain from intra-organizational management to inter-organizational management. Co-Packer: A contract co-packer produces goods andor services for other companies, usually under the other companys label or name. Co-packers are more frequently seen in consumer packaged goods and foods. Co-Managed Inventory (CMI): A form of continuous replenishment in which the manufacturer is responsible for replenishment of standard merchandise, while the retailer manages the replenishment of promotional merchandise. Coastal Carriers: Water carriers that provide service along coasts serving ports on the Atlantic or Pacific Oceans or on the Gulf of Mexico. Code: A numeric, or alphanumeric representation of text for exchanging commonly-used information. For example: commodity codes, carrier codes. Codifying: The process of detailing a new standard. COFC: See Container on Flat Car Collaborative Planning, Forecasting, and Replenishment (CPFR): (1) A collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials, to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods. (2) A process philosophy for facilitating collaborative communications. CPFR is considered a standard, endorsed by the Voluntary Inter-Industry Commerce Standards. Collect Freight: Freight payable to the carrier at the port of discharge or ultimate destination. The consignee does not pay the freight charge if the cargo does not arrive at the destination. Collective Paper: All documents (commercial invoices, bills of lading, etc.) submitted to a buyer for the purpose of receiving payment for a shipment. Combi Aircraft: An aircraft specially designed to carry unitized cargo loads on the upper deck of the craft, forward of the passenger area. Commercial Invoice: A document created by the seller. It is an official document which is used to indicate, among other things, the name and address of the buyer and seller, the product(s) being shipped, and their value for customs, insurance, or other purposes. Commercial zone: The area surrounding a city or town to which rate carriers quote for the city or town also apply the ICC defines the area. Committed Capability: The portion of the production capability that is currently in use, or is scheduled for use. Committee of American Steamship Lines: An industry association representing subsidized U. S. flag steamship firms. Commodities: Any article exchanged in trade, most commonly used to refer to raw materials and agricultural products. Commodities Clause: A clause that prohibits railroads from hauling commodities that they produced, mined, owned, or had an interest in. Commodity Buying: Grouping like parts or materials under one buyers control for the procurement of all requirements to support production. Commodity Code: A code describing a commodity or a group of commodities pertaining to goods classification. This code can be carrier tariff or regulating in nature. Commodity Procurement Strategy: The purchasing plan for a family of items. This would include the plan to manage the supplier base and solve problems. Commodity Rate: A rate for a specific commodity and its origin-destination. Common Carrier: Transportation available to the public that does not provide special treatment to any one party and is regulated as to the rates charged, the liability assumed, and the service provided. A common carrier must obtain a certificate of public convenience and necessity from the Federal Trade Commission for interstate traffic. Antonym: Private Carrier. Common Carrier Duties: Common carriers must serve, deliver, charge reasonable rates, and not discriminate. Common Cost: A cost that a company cannot directly assign to particular segments of the business a cost that the company incurs for the business as a whole. Commuter: An exempt for-hire air carrier that publishes a time schedule on specific routes a special type of air taxi. Company Culture: A system of values, beliefs, and behaviors inherent in a company. To optimize business performance, top management must define and create the necessary culture. Comparative Advantage: A principle based on the assumption that an area will specialize in producing goods for which it has the greatest advantage or the least comparative disadvantage. Competitive Advantage: Value created by a company for its customers that clearly distinguishes it from the competition, provides its customers a reason to remain loyal. Competitive Benchmarking: Benchmarking a product or service against competitors. Also see: Benchmarking . Competitive Bid: A priceservice offering by a supplier that must compete with offerings from other suppliers. Complete and On-Time Delivery (COTD): A measure of customer service. All items on any given order must be delivered on time for the order to be considered as complete and on time. Complete Manufacture to Ship Time: Average time from when a unit is declared shippable by manufacturing until the unit actually ships to a customer. Compliance: Meaning that products, services, processes, andor documents comply with requirements. Component: Material that will contribute to a finished product but is not the finished product itself. Examples include tires for an automobile, power supply for a personal computer, or a zipper for a ski parka. Computer-Aided Engineering (CAE): The use of computers to model design options to stimulate their performance. Computer-Based Training: Training that is delivered via computer workstation and includes all training and testing materials. Conference: A group of vessel operators joined for the purpose of establishing freight rates. Conference Carrier: An ocean carrier who is a member of an association known as a quotconference. quot The purpose of the conference is to standardize shipping practices, eliminate freight rate competition, and provide regularly scheduled service between specific ports. Configuration: The arrangement of components as specified to produce an assembly. ConfigurePackage to Order: A process where the trigger to begin to manufacture, final assembly, or packaging of a product is an actual customer order or release rather than a market forecast. In order to be considered a configure-to-order environment, less than 20 of the value added takes place after the receipt of the order or release, and virtually all necessary design and process documentation is available at time of order receipt. Confirmation: With regards to EDI, a formal notice (by message or code) from a electronic mailbox system or EDI server indicating that a message sent to a trading partner has reached its intended mailbox or has been retrieved by the addressee. Confirming Order: A purchase order issued to a supplier listing the goods or services and terms of an order placed orally or otherwise before the usual purchase document. Conformance: An affirmative indication or judgment that a product or service has met the requirements of a relevant specification, contract, or regulation. Synonym: Compliance. Conrail: The Consolidated Rail Corporation established by the Regional Reorganization Act of 1973 to operate the bankrupt Penn Central Railroad and other bankrupt railroads in the Northeast the 4-R Act of 1976 provided funding. Consignee: The party to whom goods are shipped and delivered. The receiver of a freight shipment. Consignment: (1) A shipment that is handled by a common carrier. (2) The process of a supplier placing goods at a customer location without receiving payment until after the goods are used or sold. Also see: Consignment Inventory . Consignment Inventory: (1) Goods or products that are paid for when they are sold by the reseller, not at the time they are shipped to the reseller. (2) Goods or products which are owned by the vendor until they are sold to the consumer. Consignor: The party who originates a shipment of goods (shipper). The sender of a freight shipment, usually the seller. Consolidation: Combining two or more shipments in order to realize lower transportation rates. Inbound consolidation from vendors is called make-bulk consolidation outbound consolidation to customers is called break-bulk consolidation. Consolidation Point: The location where consolidation takes place. Consolidator: An enterprise that provides services to group shipments, orders, andor goods to facilitate movement. Consolidators Bill of Lading: A bill of lading issued by a consolidator as a receipt for merchandise that will be grouped with cargo obtained from other shippers. See also House Air Waybill. Consortium: A group of companies that works together to jointly produce a product, service, or project. Constraint: A bottleneck, obstacle, or planned control that limits throughput or the utilization of capacity. Consul: A government official residing in a foreign country, charged with representing the interests of his or her country and its nationals. Consular Declaration: A formal statement made to the consul of a country describing merchandise to be shipped to that consuls country. Approval must be obtained prior to shipment. Consular Documents: Special forms signed by the consul of a country to which cargo is destined. Consular Invoice: A document, required by some foreign countries, describing a shipment of goods and showing information such as the consignor, consignee, and value of the shipment. Certified by a consular official of the foreign country, it is used by the countrys custom. Consumer-Centric Database: Database with information about a retailers individual consumers used primarily for marketing and promotion. Consumption Entry: An official Customs form used for declaration of reported goods, also showing the total duty due on such transaction. Container: (1) A box, typically 10 to 40 feet long, which is primarily used for ocean freight shipments. For travel to and from ports, containers are loaded onto truck chassis or on railroad flatcars. (2) The packaging, such as a carton, case, box, bucket, drum, bin, bottle, bundle, or bag, that an item is packed and shipped in. Container Chassis: A vehicle built for the purpose of transporting a container so that, when a container and chassis are assembled, the produced unit serves as a road trailer. Container Depot: The storage area for empty containers. Container Freight Station (CFS): The location designated by carriers for receipt of cargo to be packed into containersequipment by the carrier. At destination, CFS is the location designated by the carrier for unpacking of cargo from equipmentcontainers. Container Freight Station Charge: The charge assessed for services performed at the loading or discharge location. Container Freight Station to Container Freight Station (CFSCFS): A type of steamship-line service in which cargo is transported between container freight stations, where containers may be stuffed, stripped, or consolidated. Usually used for less-than-container load shipments. Container I. D.: An identifier assigned to a container by a carrier. See also: Equipment ID. Containerization: A shipment method in which commodities are placed in containers, and after initial loading, the commodities, per se, are not rehandled in shipment until they are unloaded at the destination. Container on Flat Car (COFC): A container that is transported on a rail flatcar. It can be shipped via tractortrailer using a chassis as the wheel section. Container Terminal: An area designated to be used for the stowage of cargo in containers that may be accessed by truck, rail, or ocean transportation. Container Vessel: A vessel specifically designed for the carriage of containers. Container Yard: The location designated by the carrier for receiving, assembling, holding, storing, and delivering containers, and where containers may be picked up by shippers or redelivered by consignees. Container Yard to Container Yard (CYCY): A type of steamship-line service in which freight is transported from origin container yard to destination container yard. Contingency Planning: Preparing to deal with calamities (e. g. floods) and noncalamitous situations (e. g. strikes) before they occur. Continuous Flow Distribution (CFD): The streamlined pull of products in response to customer requirements while minimizing the total costs of distribution. Continuous-Flow, Fixed-Path Equipment: Materials handling devices that include conveyors and drag lines. Continuous Improvement (CI): A structured, measurement-driven process that continually reviews and improves performance. Continuous Process Improvement (CPI): A never-ending effort to expose and eliminate root causes of problems small-step improvement as opposed to big-step improvement. Synonym: Continuous Improvement. Also see: Kaizen. Continuous Replenishment: Continuous replenishment is the practice of partnering between distribution channel members that changes the traditional replenishment process from distributor-generated purchase orders based on economic order quantities to the replenishment of products based on actual and forecasted product demand. Continuous Replenishment Planning (CRP): A program that triggers the manufacturing and movement of product through the supply chain when the identical product is purchased by an end user. Contract: An agreement between two or more competent persons or companies to perform or not to perform specific acts or services or to deliver merchandise. A contract may be oral or written. A purchase order, when accepted by a supplier, becomes a contract. Acceptance may be in writing or by performance, unless the purchase order requires acceptance in writing. Contract Administration: Managing all aspects of a contract to guarantee that the contractor fulfills his obligations. Contract Carrier: A for-hire carrier that does not serve the general public but serves shippers with whom the carrier has a continuing contract. The contract carrier must secure a permit to operate. Contract of Affreightment: A contract between a cargo shipper and carrier for the transport of multiple cargoes over a period of time. Contracts are individually negotiated and usually include cargo description, quantities per shipment and in total, load and discharge ports, freight rates and duration of the contract. Contribution: The difference between sales price and various costs. Contribution is used to cover fixed costs and profits. Contribution Margin: An amount equal to the difference between sales revenue and variable costs. Controlled Access: Referring to an area within a warehouse or yard that is fenced and gated. These areas are typically used to store high-value items and may be monitored by security cameras. Conveyance: The application used to describe the function of a vehicle of transfer. Conveyor: A materials handling device that moves freight from one warehouse area to another. Roller conveyors utilize gravity, whereas belt conveyors use motors. Cooperative Associations: Groups of firms or individuals having common interests agricultural cooperative associations may haul up to 25 percent of their total interstate non-farm, nonmember goods tonnage in movements incidental and necessary to their primary business. Coordinated Transportation: Two or more carriers of different modes transporting a shipment. CORBA: Common Object Request Broker Architecture. Core Competency: Bundles of skills or knowledge sets that enable a firm to provide the greatest level of value to its customers in a way thats difficult for competitors to emulate and that provides for future growth. Core competencies are embodied in the skills of the workers and in the organization. They are developed through collective learning, communication, and commitment to work across levels and functions in the organization and with the customers and suppliers. A core competency could be the capability of a firm to coordinate and harmonize diverse production skills and multiple technologies. To illustrate: advanced casting processes for making steel require the integration of machine design with sophisticated sensors to track temperature and speed, and the sensors require mathematical modeling of heat transfer. For rapid and effective development of such a process, materials scientists must work closely with machine designers, software engineers, process specialists, and operating personnel. Core competencies are not directly related to the product or market. Core Process: That unique capability that is central to a companys competitive strategy. Cost Accounting: The branch of accounting that is concerned with recording and reporting business operating costs. It includes the reporting of costs by departments, activities, and products. Cost and Freight (C amp F): The seller quotes a price that includes the cost of transportation to a specific point. The buyer assumes responsibility for loss and damage and pays for the insurance of the shipment. Cost Allocation: In accounting, the assignment of costs that cannot be directly related to production activities via more measurable means, e. g. assigning corporate expenses to different products via direct labor costs or hours. Cost Center: In accounting, a sub-unit in an organization that is responsible for costs. Cost Driver: In accounting, any situation or event that causes a change in the consumption of a resource, or influences quality or cycle time. An activity may have multiple cost drivers. Cost drivers do not necessarily need to be quantified however, they strongly influence the selection and magnitude of resource drivers and activity drivers. Cost Driver Analysis: In cost accounting, the examination, quantification, and explanation of the effects of cost drivers. The results are often used for continuous improvement programs to reduce throughput times, improve quality, and reduce cost. Cost Element: In cost accounting, the lowest level component of a resource activity, or cost object. Cost, Insurance, Freight: A freight term indicating that the seller is responsible for cost, the marine insurance, and the freight charges on an ocean shipment of goods. Cost Management: The management and control of activities and drivers to calculate accurate product and service costs, improve business processes, eliminate waste, influence cost drivers, and plan operations. The resulting information can be very useful in setting and evaluating an organizations strategies. Cost of Capital: The cost to borrow or invest capital. Cost-of-Goods Sold (COGS): The amount of direct materials, direct labor, and allocated overhead associated with products sold during a given period of time, determined in accordance with Generally Accepted Accounting Principles (GAAP). Cost of Lost Sales: The forgone profit companies associate with a stockout. Cost Trade-Off: The interrelationship among system variables in which a change in one variable affects other variables costs. A cost reduction in one variable may increase costs for other variables, and vice versa. Cost Variance: In cost accounting the difference between what has been budgeted for an activity and what it actually costs. Council of Supply Chain Management Professionals (CSCMP): The CSCMP is a not-for-profit professional business organization consisting of individuals throughout the world who have interests andor responsibilities in logistics and supply chain management, and the related functions that make up these professions. Its purpose is to enhance the development of the logistics and supply chain management professions by providing these individuals with educational opportunities and relevant information through a variety of programs, services, and activities. Countertrade: A reciprocal trading agreement that includes a variety of transactions involving two or more parties. Countervailing Duties: An additional import duty imposed to offset Government subsidies in the exporting country, when the subsidized imports cause material injury to domestic industry in the importing country. Country of Destination: The country that will be the ultimate or final destination for goods. Country of Origin: The country where the goods were manufactured. Courier Service: A fast, door-to-door service for high-valued goods and documents firms usually limit service to shipments weighing fifty pounds or less. Crane: A materials handling device that lifts heavy items. There are two types: bridge and stacker. Credit Level: The amount of purchasing credit a customer has available. Usually defined by the internal credit department and reduced by any existing unpaid bills or open orders. Credit Terms: The agreement between two or more enterprises concerning the amount and timing of payment for goods or services. Critical Differentiators: This is what makes an idea, product, service, or business model unique. Critical Success Factor (CSF): Those activities andor processes that must be completed andor controlled to enable a company to reach its goals. Critical Value Analysis: A modified ABC analysis in which a company assigns a subjective critical value to each item in an inventory. Crossdock: Crossdock operations in a warehouse involve moving goods between different trucks to consolidate loads without intermediate storage. Cross Docking: A distribution system in which merchandise received at the warehouse or distribution center is not put away, but instead is readied for shipment to retail stores. Cross docking requires close synchronization of all inbound and outbound shipment movements. By eliminating the put-away, storage, and selection operations, it can significantly reduce distribution costs. Cross Sell: The practice of attempting to sell additional products to a customer during a sales call. For example, when the CSR presents a camera case and accessories to a customer that is ordering a camera. Cross Shipment: Material flow activity where materials are shipped to customers from a secondary shipping point rather than from a preferred shipping point. CSG: Communications Support Group. Cubage: Cubic volume of space being used or available for shipping or storage. Cube Out: The situation when a piece of equipment has reached its volumetric capacity before reaching the permitted weight limit. Cube Utilization: In warehousing, a measurement of the utilization of the total storage capacity of a vehicle or warehouse. Cubic Capacity: The carrying capacity of a piece of equipment according to measurement in cubic feet. Cubic Space: In warehousing, a measurement of space available, or required, in transportation and warehousing. Cumulative Lead Time: The total time required to source components, build, and ship a product. Cumulative SourceMake Cycle Time: The cumulative internal and external lead time to manufacture shippable product, assuming that there is no inventory on hand, no materials or parts on order, and no prior forecasts existing with suppliers. (An element of Total Supply Chain Response Time) Calculation: The critical path along the following elements: Total Sourcing Lead Time, Manufacturing Order Release to Start Manufacturing, total Manufacture Cycle Time (Make to Order, Engineer to Order, ConfigurePackage to Order) or Manufacture Cycle Time (Make to Stock), Complete Manufacture to Ship Time. Note: Determined separately for Make-to-Order, ConfigurePackage-to-Order, Engineer-to-Order, and Make-to-Stock products. Currency Adjustment Factor (CAF): A surcharge imposed by a carrier on ocean freight charges to offset foreign currency fluctuations. Customer: 1) In VMI, the trading partner or reseller, i. e. Wal-Mart, Safeway, or CVS. 2) In direct consumer, the end customer or user. Customer Acquisition or Retention: The rate at which new customers are acquired, or existing customers are retained. A key selling point to potential marquis partners. Customer Driven: The end user, or customer, motivates what is produced or how it is delivered. Customer Facing: Those personnel whose jobs entail actual contact with the customer. Customer Order: An order from a customer for a particular product or a number of products. It is often referred to as an actual demand to distinguish it from a forecasted demand. CustomerOrder Fulfillment Process: A series of customers interactions with an organization through the order-filling process, including productservice design, production and delivery, and order stats reporting. Customer Profitability: The practice of placing a value on the profit generated by business done with a particular customer. Customer Relationship Management (CRM): This refers to information systems that help sales and marketing functions as opposed to the ERP (Enterprise Resource Planning), which is for back-end integration. Customer Segmentation: Dividing customers into groups based on specific criteria, such as products purchased, customer geographic location, etc. Customer Service: The series of activities involved in providing the full range of services to customers. Customer Service Representative (CSR): An individual who provides customer support via telephone in a call-center environment. Customer-Supplier Partnership: A long-term relationship between a buyer and a supplier characterized by teamwork and mutual confidence. The supplier is considered an extension of the buyers organization. The partnership is based on several commitments. The buyer provides long-term contracts and uses fewer suppliers. The supplier implements quality assurance processes so that incoming inspection can be minimized. The supplier also helps the buyer reduce costs and improve product and process designs. Customization: Creating a product from existing components into an individual order. Synonym: Build to Order. Customs: The authorities designated to collect duties levied by a country on imports and exports. Customs Automated Data Exchange System (CADEX): A Canada Customs system that allows for the electronic transmission of import data for goods that have already been released. Additional information such as accounting data and release notifications are also accessible. Customs Broker: A firm that represents importersexporters in dealings with customs. Normally responsible for obtaining and submitting all documents for clearing merchandise through customs, arranging inland transport, and paying all charges related to these functions. Customs Clearance: The act of obtaining permission to import merchandise from another country into the importing nation. Customs House Broker: A business firm that oversees the movement of international shipments through Customs, and ensures that the documentation accompanying a shipment is complete and accurate. Customs Invoice: A document that contains a declaration by the seller, the shipper, or the agent as to the value of the shipment. Customs Value: The value of the imported goods on which duties will be assessed. CWT: The abbreviation for hundredweight, which is the equivalent of 100 pounds. See Hundredweight. Cycle Inventory: An inventory system where counts are performed continuously, often eliminating the need for an annual overall inventory. It is usually set up so that A items are counted regularly (i. e. every month), B items are counted semi-regularly (every quarter or six months), and C Items are counted perhaps only once a year. Cycle Time: The amount of time it takes to complete a business process. Cycle Time to Process Obsolete and End-of-Life Product Returns for Disposal: The total time to process goods returned as obsolete and end of life to actual disposal. This cycle time includes the time a Return Product Authorization (RPA) is created to the time the RPA is approved, from Product Available for Pickup to Product Received and from Product Receipt to Product DisposalRecycle. Cycle Time to Repair or Refurbish Returns for Use: The total time to process goods returned for repair or refurbishing. This cycle time includes the time a Return Product Authorization (RPA) is created to the time the RPA is approved, from Product Available for Pickup to Product Received, from Product Receipt to Product RepairRefurbish Begin, and from Product RepairRefurbish Begin to Product Available for Use. Dangerous Goods: Articles or substances capable of posing a significant risk to health, safety, or property, and that ordinarily require special attention when transported. See also Hazardous Goods . Dashboard: A performance measurement tool used to capture a summary of the key performance indicatorsmetrics of a company. Metrics dashboardsscorecards should be easy to read and usually have red, yellow, green indicators to flag when the company is not meeting its metrics targets. Ideally, a dashboardscoreboard should be cross functional in nature and include both financial and non-financial measures. In addition, scorecards should be reviewed regularly - at least on a monthly basis, and weekly in key functions such as manufacturing and distribution where activities are critical to the success of a company. The dashboardsscorecards philosophy can also be applied to external supply chain partners like suppliers to ensure that their objectives and practices align. Synonym: Scorecard. Data Dictionary: Lists the data elements for which standards exist. The Joint Electronic Document Interchange (JEDI) committee developed a data dictionary that is employed by many EDI users. Data Interchange Standards Association (DISA): The secretariat which provides clerical and administrative support to the ASC X12 Committee. Data Mining: The process of studying data to search for previously unknown relationships. This knowledge is then applied to achieving specific business goals. Data Warehouse: A repository of data that has been specially prepared to support decision-making applications. Synonym: Decision-Support Data. Database: Data stored in computer-readable form, usually indexed or sorted in a logical order by which users can find a particular item of data they need. Date Code: A label on products with the date of production. In food industries, its often an integral part of the lot number. Days of Supply: Measure of quantity of inventory on hand in relation to number of days for which usage will be covered. For example, if a component is consumed in manufacturing at the rate of 100 per day and there are 1,585 units available on hand, this represents 15.85 days supply. Deadhead: The return of an empty transportation container to its point of origin. See Backhaul . Dead on Arrival (DOA): A term used to describe products which are not functional when delivered. Synonym: Defective. Deadweight Tons (DWT): The cargo carrying capacity of a vesel, including fuel oil, stores and provisions. Decentralized Authority: A situation in which a company management gives decision-making authority to managers at many organizational levels. Decision Support System (DSS): Software that speeds access and simplifies data analysis, queries, etc. Declaration of Dangerous Goods: To comply with the U. S. regulations, exporters are required to provide special notices to inland and ocean transport companies when goods are hazardous. Declared Value for Carriage: The value of the goods, declared by the shipper on a bill of lading, for the purpose of determining a freight rate or the limit of the carriers liability. Deconsolidator: An enterprise that provides services to un-group shipments, orders, goods, etc. to facilitate distribution. Dedicated Contract Carriage: A third party service that dedicates equipment (vehicles) and drivers to a single customer for its exclusive use on a contractual basis. Defective goods inventory (DGI): Those items that have been returned, have been delivered damaged and have a freight claim outstanding, or have been damaged in some way during warehouse handling. Delivery Appointment: The time agreed upon between two enterprises for goods or transportation equipment to arrive at a selected location. Delivery-Duty-Paid: Suppliermanufacturer arrangement in which suppliers are responsible for the transport of the goods theyve produced, which are being sent to a manufacturer. This responsibility includes tasks such as ensuring that products get through Customs. Delivery Instructions: A document issued to a carrier to pick up goods at a location anddeliver them to another location. See also Delivery Order Delivery Order: A document issued by the customs broker to the ocean carrier as authority to release the cargo to the appropriate party. Delivery Performance to Commit Date: The percentage of orders that are fulfilled on o before the internal commit date, used as a measure of internal scheduling systems effectiveness. Delivery measurements are based on the date a complete order is shipped or the ship-to date of a complete order. A complete order has all items on the order delivered in the quantities requested. An order must be complete to be considered fulfilled. Multiple-line items on a single order with different planned delivery dates constitute multiple orders, and multiple-planned delivery dates on a single line item also constitute multiple orders. Calculation: Total number of orders delivered in full and on time to the scheduled commit dateTotal number of orders delivered Delivery Performance to Request Date: The percentage of orders that are fulfilled on or before the customers requested date used as a measure of responsiveness to market demand. Delivery measurements are based on the date a complete order is shipped or the ship-to date of a complete order. A complete order must be complete to be considered fulfilled. Multiple line items on a single order with different planned delivery dates constitute multiple orders, and multiple planned delivery dates on a single line item also constitute multiple orders. Calculation: Total number of orders delivered in full and on time to the customers request dateTotal number of orders delivered Delta Nu Alpha: A professional association of transportation and traffic practitioners. Demand Chain Management: The same as supply chain management, but with an emphasis on consumer pull versus supplier push. Demand Planning Systems: The systems that assist in the process of identifying, aggregating, and prioritizing all sources of demand for the integrated supply chain of a product of service at the appropriate level, horizon, and interval. Demand Pull: The triggering of material movement to a work center only when that work center is ready to begin the next job. In effect, it eliminates the queue from in from of a work center, but it can cause a queue at the end of a previous work center. Demand Side Analysis: Techniques such as market research, surveys, focus groups, and performancecost modeling used to identify emerging technologies. Demand Signal: A signal from a consumer, customer or using operation that triggers the issue of product or raw material. Demand Supply Balancing: The process of identifying and measuring the gaps and imbalances between demand and resources in order to determine how to best resolve the variances through marketing, pricing, packaging, warehousing, outsource plans, or some other action that will optimize service, flexibility, costs, assets, (or other supply chain inconsistencies) in an iterative and collaborative environment. Deming Circle: The concept of a continuously rotating wheel of plan-to-do-check-action (PDCA) used to show the need for interaction among market research, design, production, and sales to improve quality. Also see: Plan-Do-Check-Action . Demographic Segmentation: In marketing, dividing potential markets by characteristics of potential customers, such as age, sex, income, and education. Demurrage: The carrier charges and fees applied when rail freight cars and ships are retained beyond a specified loading or unloading time. Also see: Detention, Express. Denied Party Listing (DPL): A list of organizations that is unauthorized to submit a bid for an activity or to receive a specific product. For example, some countries have bans on certain products like weapons or sensitive technology. Density: A physical characteristic measuring a commoditys mass per unit volume or pounds per cubic foot an important factor in ratemaking, since density affects the utilization of a carriers vehicle. Density rate: A rate based upon the density and shipment weight. Deregulation: Revisions or complete elimination of economic regulations controlling transportation. The Motor Carrier Act of 1980 and the Staggers Act of 1980 revised the economic controls over motor carriers and railroads, and the Airline Deregulation Act of 1978 eliminated economic controls over air carriers. Derived demand: The demand for a products transportation is derived from the products demand at some location. Design for ManufactureAssembly (DFMA): A product design methodology that provides a quantitative evaluation of product designs. Design of Experiments (DOE): A branch of applied statistics dealing with planning, conducting, analyzing, and interpreting controlled tests to evaluate the factors that control the value of a parameter or group of parameters. Destination: The location designated as a receipt point for goodsshipment. Detention: The carrier charges and fees applied when rail freight cars and ships are retained beyond a specified loading or unloading time. Also see: Demurrage, Express . Devanning: The unloading of cargo from a container or other piece of equipment. See Stripping. Differential: A discount offered by a carrier that faces a service time disadvantage over a route. Direct Channel: This is when your own sales force sells to the customer. Your company may ship to the customer, or a third party may handle shipment, but in either case, your company owns the sales contract and retains rights to the receivable from the customer. Your end customer may be a retail outlet. The movement to the customer may be direct from the factory, or the product may move through a distribution network owned by your company. Order information in this channel may be transmitted by electronic means. Direct Cost: A cost that can be directly traced to a cost object since a direct or repeatable cause-and-effect relationship exists. A direct cost uses a direct assignment or cost causal relationship to transfer costs. Also see: Indirect Cost, Tracing Direct Product Profitability (DPP): Calculation of the net profit contribution attributable to a specific product or product line. Direct Production Material: Material that is used in the manufacturingcontent of a product. ( Example: purchased parts, solder, SMT glues, adhesives, mechanical parts, bill-of-materials parts, etc.) Direct Retail Locations: A retail location that purchases products directly from your organization or responding entity. Direct Store Delivery (DSD): Process of shipping direct from a manufacturers plant or distribution center to the customers retail store, thus bypassing the customers distribution center. Also called Direct-to-Store Delivery . Direct-to-Store (DTS) Delivery: Same as Direct Store Delivery. Disaster Recovery Planning: Contingency planning specifically related to recovering hardware and software (e. g. data centers, application software, operations, personnel, telecommunications) in information system outages. Discharge Port: The name of the port where the cargo is unloaded from the export vessel. This is the port reported to the U. S. Census on the Shippers Export Declaration, Schedule K, which is used by U. S. companies when exporting. This can also be considered the first discharge port. Discrete Manufacturing: Discrete manufacturing processes create products by assembling unconnected distinct parts as in the production of distinct items such as automobiles, appliances, or computers. Disintermediation: When the traditional sales channels are disassembled and the middleman gets cut out of the deal. Such as where the manufacturer ships direct to a retailer, bypassing the distributor. Dispatching: The carrier activities involved with controlling equipment involves arranging for fuel, drivers, crews, equipment, and terminal space. Distributed Inventory: Inventory that is geographically dispersed. For example, where a company maintains inventory in multiple distribution centers to provide a higher level of customer service. Distribution: Outbound logistics, from the end of the production line to the end user. The activities associated with the movement of material, usually finished goods 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 fieldwarehouses. Synonym: Physical Distribution . The systematic division of a whole into discrete parts having distinctive characteristics. Distribution Center (DC): The warehouse facility which holds inventory from manufacturing pending distribution to the appropriate stores. Distribution Channel: One or more companies or individuals who participate in the flow of goods and services from the manufacturer to the final user or consumer. Distribution Channel Management: The organizational and pipeline strategy for getting products to customers. Direct channels involve company sales forces, facilities, andor direct shipments to customers indirect channels involve the use of wholesalers, distributors, andor other parties to supply the products to customers. Many companies use both strategies, depending on markets and effectiveness. Distribution Planning: The planning activities associated with transportation, warehousing, inventory levels, materials handling, order administration, site and location planning, industrial packaging, data processing, and communications networks to support distribution. Distribution Requirements Planning (DRP): A system of determining demands for inventory at distribution centers and consolidating demand information in reverse as input to the production and materials system. Distribution Resource Planning (DRP II): The extension of distribution requirements planning into the planning of the key resources contained in a distribution system: warehouse space, workforce, money, trucks, freight cars, etc. Distribution Warehouse: A finished goods warehouse from which a company assembles customer orders. Distributor: A business that does not manufacture its own products, but purchases and resells these products. Such a business usually maintains a finished goods inventory. Synonym: Wholesaler. Diversion: The process of changing the destination andor the consignee while the shipment is enroute. Dock Receipt: A document used to accept materials or equipment at an ocean pier or accepted location. Provides the ocean carrier with verification of receipt and the delivering carrier with proof of delivery. Document: In EDI, a form, such as an invoice or purchase order, that trading partners have agreed to exchange and that the EDI software handles within its compliance-checking logic. Documentation: The papers attached or pertaining to goods requiring transportation andor transfer of ownership. Domestic Trunk Line Carrier: A classification for air carriers that operate between major population centers. These carriers are now classified as major carriers. Door to Door: The through-transport of goods from consignor to consignee. Door to Port: The through transport service from consignor to port of importation. Double Bottoms: A motor carrier operation that involves one tractor pulling two trailers. Double-Pallet Jack: A mechanized device for transporting two standard pallets simultaneously. Doubles: Double trucks are two 28-foot trailers that are pulled by one tractor. Doubles also are known as quotdouble bottoms. quot Download: To merge temporary files containing a days or weeks worth of information with the main data base in order to update it. Downstream: One or more companies or individuals who participate in the flow of goods and services moving from the manufacturer to the final user or consumer. Drayage: The service offered by a motor carrier for pick-up and delivery of ocean containers or rail containers. Drayage agents usually handle full-load containers for ocean and rail carriers. Drayage Firms: Motor carriers that provide local pickup and delivery of trailers and containers (on chassis) Driving Time Regulations: U. S. Department of Transportation rules that limit the maximum time a driver may drive in interstate commerce the rules prescribe both daily and weekly maximums. Drop: A situation in which an equipment operator deposits a trailer or boxcar at a facility at which it is to be loaded or unloaded. Drop Ship: To take the title of the products but not actually handle, stock, or deliver it, e. g. to have one supplier ship directly to another or to have a supplier ship directly to the buyers customer. Drum-Buffer-Rope (DBR): In the theory of constraints, the generalized process used to manage resources to maximize throughput. The drum is the rate or pace of production set by the systems constraint. The buffers establish the protection against uncertainty so that the system can maximize throughput. The rope is a communication process from the constraint to the gating operation that checks or limits material released into the system to support the constraint. Dual Operation: A motor carrier that has both common and contract carrier operating authority. Dual rate system: An international water carrier pricing system in which a shipper signing an exclusive use agreement with the conference pays a rate 10 to 15 percent lower than non-signing shippers do for an identical shipment. Dumping: When a product is sold below cost in a foreign market andor when a product is sold at a lower price in the foreign market than in a domestic market, with the intention of driving out competition in the foreign market. Dunnage: The packing material used to protect a product from damage during transport. DUNS Number: A coded, numerical representation assigned to a specific company (USA). Duty: A tax imposed by a government on merchandise imported from another country. Duty Drawback: A refund of duty paid on imported merchandise when it is exported later, whether in the same or a different form. Duty Free Zone (DFZ): An area where goods or cargo can be stored without paying import customs duties while awaiting manufacturing or future transport. Dynamic Process Control (DPC): Continuous monitoring of process performance and adjustment of control parameters to optimize process output. 8020 Rule: A term referring to the Pareto principle. This principle suggests that most effects come from relatively few causes that is, 80 of the effects (or sales or costs) come from 20 of the possible causes (or items). Also see: ABC Classification, Pareto EAN. UCC: European Article NumberingUniform Code Council. The EAN. UCC System provides identification standards to uniquely identify trade items, logistics units, locations, assets, and service relations worldwide. The identification standards define the construction of globally-unique and unambiguous numbers. For additional reference, please see uc-council. orgeanuccsystemsstndsandtechbusapps. html Early Supplier Involvement (ESI): The process of involving suppliers early in the product design activity and drawing on their expertise, insights, and knowledge to generate better designs in less time and ones that are easier to manufacture with high quality. Earnings Before Interest and Taxes (EBIT): A measure of a companys earning power from ongoing operations, equal to earnings (revenues minus cost of sales, operating expenses, and taxes) before deduction of interest payments and income taxes. Also called operating profit. Economic Order Quantity (EOQ): An inventory model that determines how much to order by determining the amount that will meet customer service levels while minimizing total ordering and holding costs. Economic Value Added (EVA): A measurement of shareholder value as a companys operating profits after tax, less an appropriate charge for the capital used in creating the profits. Economy of Scale: A phenomenon whereby larger volumes of production reduce unit cost by distributing fixed costs over a larger quantity. EDI Interchange: Communication between partners in the form of a structured set of messages and service segments starting with an interchange control header and ending with an interchange control trailer. In the context of X.400 EDI messaging, the contents of the primary body of an EDI message. EDIFACT: Electronic Data Interchange for Administration, commerce, and Transport. The United Nations EDI standard. EDI Standards: Criteria that define the data content and format requirements for specific business transactions (e. g. purchase orders). Using standard formats allows companies to exchange transactions with multiple trading partners more easily. Also see: American National Standards Institute . EDI Transmission: A functional group of one or more EDI transactions that are sent to the same location in the same transmission, and are identified by a functional group header and trailer. Efficient Consumer Response (ECR): A demand-driven replenishment system designed to link all parties in the logistics channel to create a massive flow-through distribution network. Replenishment is based on consumer demand and point-of-sale information. Electronic Commerce (EC): Also written as e-commerce. Conducting business electronically via traditional EDI technologies, or online via the Internet. In the traditional sense of selling goods, its possible to do this electronically because of certain software programs that run the main functions of e-commerce support, such as product display, ordering, shipment, billing, and inventory management. The definition of e-commerce includes business activity that is business-to-business (B2B) andor business-to-consumer (B2C) Electronic Data Interchange (EDI): Intercompany, computer-to-computer transmission of business information in a standard format. For EDI purists, computer to computer means direct transmission from the originating application program to the receiving or processing application program. An EDI transmission consists only of business data, not any accompanying verbiage or free-form messages. Purists might also contend that a standard format is one that is approved by a national or international standards organization, as opposed to formats developed by industry groups or companies. Electronic Data Interchange Association: A national body that propagates and controls the use of EDI in a given country. All EDIAs are nonprofit organizations dedicated to encouraging EDI growth. The EDI in the United States was formerly TDCC and administered the development of standards in transportation and other industries. Electronic Funds Transfer (EFT): A computerized system that processes financial transactions and information about these transactions or performs the exchange of value. Sending payment instructions across a computer network, or the company-to-company, company-to-bank, or bank-to bank electronic exchange of value. Electronic Mail (E-Mail): The computer-to-computer exchange of messages. E-mail is usually unstructured (free-form) rather than in a structured format. X.400 has become the standard for e-mail exchange. Embargo: A prohibition upon exports or imports, either with specific products or specific countries. Empirical: Pertaining to a statement or formula based on experience or observation rather than on deduction or theory. End Item: A product sold as a completed item or repair part any item subject to a customer order or sales forecast. Synonym: Finished Goods Inventory. End-of-Life Inventory: Inventory on hand that will satisfy future demand for products that are no longer in production at your company. End User: The final buyer of the product who purchases the product for immediate use. Engineering Change: A revision to a drawing or design released by engineering to modify or correct a part. The request for the change can be from a customer or from production, quality control, another department, or a supplier. Synonym: Engineering Change Order Engineering Change Order (ECO): A documented and approved revision to a product or process specification. Engineer to Order: A process in which the manufacturing organization must first prepare (engineer) significant product or process documentation before manufacture may begin. Enroute: A term used for goods in transit or on the way to a destination. Enterprise Application Integration (EAI): A computer term for the tools and techniques used in linking ERP and other enterprise systems together. Linking systems is key for e-business. Gartner says quotfirms implementing enterprise applications spend at least 30 on point-to-point interfaces. quot Enterprise Resource Planning (ERP) System: A class of software for planning and managing enterprise-wide the resources needed to take customer orders, ship them, account for them, and replenish all needed goods according to customer orders and forecasts. Often includes electronic commerce with suppliers. Examples of ERP systems are the application suites from SAP, Oracle, PeopleSoft, and others. Entry Form: The document that must be filed with Customs to obtain the release of imported goods and to allow collection of duties and statistics. Also called a Customs Entry Form or Entry. Enveloping: an EDI management software function that groups all documents of the same type, or functioal group, and bound for the same destination into an electronic envelope. Enveloping is useful where there are multiple documents such as orders or invoices issued to a single trading partner that need to be sent as a packet. Environmentally Sensitive Engineering: Designing features in a product and its packaging that improve recycling, etc. It can include elimination of compounds that are hazardous to the environment. EPC or ePC: Electronic Product Code. An electronically coded tag that is intended as an improvement to the UPC bar code system. The EPC is a 96-bit tag which contains a number called the global Trade Identification Number (GTIN). Unlike a UPC number, which only provides information specific to a group of products, the GTIN gives each product its own specific identifying number, giving greater accuracy in tracking. Equipment: The rolling stock carriers use to facilitate the transportation services that they provide, including containers, trucks, chassis, vessels, and airplanes, among others. Equipment I. D.: An identifier assigned by the carrier to a piece of equipment. See also Container ID. Equipment Positioning: The process of placing equipment at a selected location. Ergonomic . The science of creating workspaces and products which are human friendly to use. ETA: The Estimated Time of Arrival. Ethical Standards: A set of guidelines for proper conduct by business professionals. Evaluated Receipts Settlement (ERS): A process for authorizing payment for goods based on actual receipts with purchase order data when price has already been negotiated. The basic premise behind ERS is that all of the information in an invoice has already been transmitted in the shipping documentation. Therefore, the invoice is eliminated and the shipping documentation is used to pay the vendor. Exception Rate: A deviation from the class rate changes (exceptions) made to the classification. Exclusive Patronage Agreements: A shipper agrees to use only a conferences member liner firms in return for a 10 to 15 percent rate reduction. Exclusive Use: Vehicles that a carrier assigns to a specific shipper for its exclusive use. Exempt Carrier: A for-hire carrier that is free from economic regulation. Trucks hauling certain commodities are exempt from Interstate Commerce Commission economic regulation. By far, the largest portion of exempt carriers transports agricultural commodities or seafood. Expediting: (1) Moving shipments through regular channels at an accelerated rate. (2) To take extraordinary action because of an increase in relative priority. Synonym: Stock chase Expert System: A computer program that mimics a human expert. Export: To send goods and services to another country. Export Compliance: Complying with rules for exporting products, including packaging, labeling, and documentation. Export Broker: An enterprise that brings together buyer and seller for a fee, then eventually withdraws from the transaction. Export Declaration: A document required by the U. S. Treasury department and completed by the exporter to show the value, weight, consignee, destination, etc. pertinent to the export shipment. The document serves two purposes: to gather trade statistics and to provide a control document if the goods require a valid export license. Export License: A document secured from a government authorizing an exporter to export a specific quantity of a controlled commodity to a certain country. An export license is often required if a government has placed embargoes or other restrictions upon exports. Export Management Company: A private firm that serves as the export department for several manufacturers, soliciting and transacting export business on behalf of its clients in return for a commission, salary, or a retainer plus commission. Export Sales Contract: The initial document in any international transaction it details the specifics of the sales agreement between the buyer and seller. Export Trading Company: A firm that buys domestic products for sale overseas. A trading company takes title to the goods an export-management company usually does not. Exporter Identification Number (EIN): A number required for the exporter on the Shippers Export Declaration. A corporation may use their Federal Employer Identification Number as issued by the IRS individuals can use their Social Security Numbers. Express: (1) Carrier payment to its customers when ships, rail cars, or trailers are unloaded or loaded in less than the time allowed by contract and returned to the carrier for use. See Demurrage, Detention . (2) The use of priority package delivery to achieve overnight or second-day delivery. Extended Enterprise: The notion that supply chain partners form a larger entity which works together as though it were a single unit. Extensible Markup Language (XML): A computer term for a language that facilitates direct communication of data among computers on the Internet. Unlike the older hypertext markup language (HTML) which provides data tags that give instructions to a web browser on how to display information, XML tags give instructions to a browser or to application software which help to define specifics about the category of information. External Factory: A situation where suppliers are viewed as an extension of the firms manufacturing capabilities and capacities. The same practices and concerns that are commonly applied to the management of the firms manufacturing system should also be applied to the management of the external factory. Extranet: A computer term describing a private network (or a secured link on the public Internet) that links separate organizations and uses the same software and protocols as the Internet. Used for improving supply chain management. For example, extranets are used to provide access to a supply chain partners internal inventory data which is not available to unrelated parties. Antonym: Intranet. Ex Works: The price that the seller quotes applies only at the point of origin. The buyer takes possession of the shipment at the point of origin and bears all costs and risks associated with transporting the goods to the destination. 5-Point Annual Average: Method frequently used in PMG studies to establish a representative average for a one-year period. Calculation: 123103 33104 63005 93006 1231075 5-S Program: A program for organizing work areas. Sometimes referred to as elements, each of the five components of the program begins with the letter quotS. quot They include sort, systemize, shine or sweep, standardize, and sustain. In the UK, the concept is converted to the 5-C program comprising five comparable components: clear out, configure, clean and check, conformity, and custom and practice. Sort - get rid of clutter separate out what is needed for the operations. SystemizeSet in Order - organize the work area make it easy to find what is needed. Shine - clean the work area make it shine. Standardize - establish schedules and methods of performing the cleaning and sorting. Sustain - implement mechanisms to sustain the gains through involvement of people, integration into the performance measurement system, discipline, and recognition. The 5-S program is frequently combines with precepts of the Lean Manufacturing Initiative. Even when used separately, however, the 5-S (or 5-C) program is said to yield excellent results. Implementation of the program involves introducing each of the five elements in order, which reportedly generates multiple benefits, including product diversification, higher quality, lower costs, reliable deliveries, improved safety, and higher availability rate. FAS: See Final Assembly Schedule Fabricator: A manufacturer that turns the product of a raw materials supplier into a larger variety of products. A fabricator may turn steel rods into nuts, bolts, and twist drills, or may turn paper into bags and boxes. Facilities: The physical plant, distribution centers, service centers, and related equipment. Failure Modes Effects Analysis (FMEA): A pro-active method of predicting faults and failures so that preventive action can be taken. Fair Return: A profit level that enables a carrier to realize a rate of return on investment or property value that the regulatory agencies deem acceptable for that level of risk. Fair Value: The value of the carriers property the calculation basis has included original cost minus depreciation, replacement cost, and market value. Federal Aviation Administration: The federal agency that administers federal safety regulations governing air transportation. Federal Maritime Commission: Regulatory agency responsible for rates and practices of ocean carriers shipping to and from the United States. FEU: Forty-foot equivalent unit, a standard size intermodal container. Field Finished Goods: Inventory which is kept at locations outside the four walls of the manufacturing plant (i. e. distribution center or warehouse). Field Service Parts: Parts inventory kept at locations outside the four walls of the manufacturing plant (i. e. distribution center or warehouse. Field Warehouse: A warehouse that stores goods on the goods owners property while the goods are under a bona fide public warehouse managers custody. The owner uses the public warehouse receipts as collateral for a loan. Fill Rate: The percentage of order items that the picking operation actually found. Fill Rates by Order: Whether orders are received and released consistently, or released from a blanket purchase order, this metric measures the percentage of ship-from-stock orders shipped within 24 hours of order quotrelease. quot Make-to-stock schedules attempt to time the availability of finished goods to match forecasted customer orders or releases. Orders that were not shipped within 24 hours due to consolidation but were available for shipment within 24 hours are reported separately. In calculating elapsed time for order fill rates, the interval begins at ship release and ends when material is consigned for shipment. Calculation: Number of orders filled from stock shipped within 24 hours or order releaseTotal number of stock orders The same concept of fill rates can be applied to order lines and individual products to provide statistics on percentage of lines shipped completely and percentage of products shipped completely. Final Assembly: The highest level assembled product, as it is shipped to customers. This terminology is typically used when products consist of many possible features and options that may only be combined when an actual order is received. Also see: End Item, Assemble to Order Final Assembly Schedule (FAS): A schedule of end items to finish the product for specific customers orders in a make-to-order or assemble-to-order environment. Its also referred to as the finishing schedule because it may involve operations other than just the final assembly also, it may not involve assembly, but simply final mixing, cutting, packaging, etc. The FAS is prepared after receipt of a customer order as constrained by the availability of material and capacity, and it schedules the operations required to complete the product from the level where it is stocked (or master scheduled) to the end-item level. Final Destination: The last stopping point for a shipment. Finance Lease: An equipment-leasing arrangement that provides the lessee with a means of financing for the leased equipment a common method for leasing motor carrier trailers. Financial Responsibility: Motor carriers must have bodily injury and property damage (not cargo) insurance of not less than 500,000 per incident per vehicle higher financial responsibility limits apply for motor carriers transporting oil or hazardous materials. Finished Goods Inventory (FG or FGI): Products completely manufactured, packaged, stored, and ready for distribution. Also see: End Item FIPS: Federal Information Processing Standards. Firewall: A computer term for a method of protecting the files and programs on one network from users on another network. A firewall blocks unwanted access to a protected network while giving the protected network access to networks outside of the firewall. a company will typically install a firewall to give users access to the Internet while protecting their internal information. Firm Planned Order: In a DRP or MRP system, a planned order whose status has been updated to a fixed order. First In First Out (FIFO): In inventory control and financial accounting, this refers to the practice of using stock from inventory on the basis of what was received first and is consumed first. Antonym: Last In First Out. First Mover Advantage: Market innovator, putting the company in the leadership position. Fixed Costs: Costs which do not fluctuate with business volume in the short run. Fixed costs include items such as depreciation on buildings and fixtures. Fixed Order Quantity: A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a pre-determined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity. Fixed Overhead: Traditionally, all manufacturing costs, other than direct labor and direct materials, that continue even if products are not produced. Although fixed overhead is necessary to produce the product, it cannot be directly traced to the final product. Also see: Indirect Cost Fixed Quantity Inventory Model: A setup wherein a company orders the same (fixed) quantity each time it places an order for an item. Flatbed: A flatbed, also called a haul brite, is a type of trailer on a truck that consists of a floor and no enclosure. Flatcar: A railcar without sides, used for hauling machinery. Flexibility: Ability to respond quickly and efficiently to changing customer and consumer demands. Flexible-Path Equipment: Materials handling devices that include hand trucks and forklifts. Flexible Specialization: A strategy based on multi-use equipment, skilled workers, innovative senior management to accommodate the continuous change that occurs in the marketplace. Flight Number: An identifier associated with the air equipment (plane). Typically a combination of two letters, indicating the airline, and three or four digits indicating the number of the voyage. Float: The time required for documents, payments, etc. to get from one trading partner to another. Floor-Ready Merchandise (FRM): Goods shipped by suppliers to retailers with all necessary tags, prices, security devices, etc. already attached so goods can be cross docked rapidly through retail DCs, or received directly at stores. Flow Rack: A storage method where product is presented to picking operations at one end of a rack and replenished from the opposite end. Flow-Through Distribution: A process in a distribution center in which products from multiple locations are brought in to the D. C. and are re-sorted by delivery destination and shipped in the same day. Also known as a quotcross-dockquot process in the transportation business. See Cross Docking. FOB: A term of sale defining who is to incur transportation charges for the shipment, who is to control the shipment movement, or where title to the goods passes to the buyer originally meant quotfree on board ship. quot See Free on Board . FOB Destination: Title passes at destination, and seller has total responsibility until shipment is delivered. FOB Origin: Title passes at origin, and buyer has total responsibility over the goods while in shipment. Forecast: An estimate of future demand. A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and can be based on extrinsic (external) or intrinsic (internal) factors. Various forecasting techniques attempt to predict one or more of the four components of demand: cyclical, random, seasonal, and trend. Forecasting: Predictions of how much of a product will be purchased by customers. Relies upon both quantitative and qualitative methods. Also see: Forecast . Foreign Trade Zone (FTZ): An area or zone set aside at or near a port or airport under the control of the US Customs Service, for holding goods duty-free pending Customs clearance. For-Hire Carrier: A carrier that provides transportation service to the public on a fee basis. Forklift Truck: A machine-powered device used to raise and lower freight and to move freight to different warehouse locations. Form Utility: The value the production process creates in a good by changing the items form. Four Ps: A set of marketing tools to direct the business offering to the customer. The four Ps are product, price, place, and promotion. Four-Wall Inventory: The stock which is contained within a single facility or building. Fourth Party Logistics (4PL): Differs from third party logistics in the following ways: (1) 4PL organization is often a separate entity established as a joint venture or long-term contract between a primary client and one or more partners (2) 4PL organization acts as a single interface between the client and multiple logistics service providers (3) All aspects (ideally) of the clients supply chain are managed by the 4PL organization (4) It is possible for a major third party logistics provider to form a 4PL organization within its existing structure ( Strategic Supply Chain Alignment John Gattorna). Free Along Side (FAS): The seller agrees to deliver the goods to the dock alongside the overseas vessel that is to carry the shipment. The seller pays the cost of getting the shipment to the dock the buyer contracts the carrier, obtains documentation, and assumes all responsibility from that point forward. Free Alongside Ship: A term of sale indicating that the seller is liable for all changes and risks until the goods sold are delivered to the port on a dock that will be used by the vessel. Title passes to the buyer when the seller has secured a clean dock or ships receipt of goods. Free on Board (FOB): Contractual terms between a buyer and a seller that define where title transfer takes place. Free Time: The period of time allowed for the removal or accumulation of cargo before charges become applicable. Freight: Goods being transported from one place to another. Freight Bill: The carriers invoice for payment of transport services rendered. Freight-All-Kinds (FAK): An approach to rate making whereby the ante is based only upon the shipment weight and distance widely used in TOFC service. Freight Carriers: Companies that haul freight, also called quotfor-hirequot carriers. Methods of transportation include trucking, railroads, airlines, and sea borne shipping. Freight Charge: The rate established for transporting freight. Freight Collect: The freight and charges to be paid by the consignee. Freight Consolidation: The grouping of shipments to obtain reduced costs or improved utilization of the transportation function. Consolidation can occur by market area grouping, grouping according to scheduled deliveries, or using third party pooling services such as public warehouses and freight forwarders. Freight Forwarder: An organization which provides logistics services as an intermediary between the shipper and the carrier, typically on international shipments. Freight forwarders provide the ability to respond quickly and efficiently to changing customer and consumer demands and international shipping (importexport) requirements. Freight Forwarders Institute: The freight forwarder industry association. Freight Prepaid: The freight and charges to be paid by the consignor. Freight Quotation: A quotation from a carrier or forwarder covering the cost of transport between two specified locations. Fronthaul: The first leg of the truck trip that involves hauling a load or several loads to targeted destinations. Fulfillment: The act of fulfilling a customer order. Fulfillment includes order management, picking, packaging, and shipping. Full Containerload (FCL): A term used when goods occupy a whole container. Full-Service Leasing: An equipment-leasing arrangement that includes a variety of services to support the leased equipment a common method for leasing motor carrier tractors. Full-time Connection: A communication link between two (or more) entities which is normally maintained continuously. Full Truckload (FTL): Same as Full Containerload, but in reference to motor carriage instead of containers. Fully Allocated Cost: The variable cost associated with a particular output unit plus a common cost allocation. Functional Acknowledgement (FA): A specific EDI Transaction Set (997) sent by the recipient of an EDI message to confirm the receipt of data but with no indication as to the recipient applications response to the message. The FA will confirm that the message contained the correct number of lines, etc. via control summaries, but does not report on the validity of the data. Functional Group: Part of the hierarchical structure of EDI transmissions, a functional group contains one or more related transaction sets preceded by a functional group header and followed by a functional group trailer. Functional Silo: A view of an organization where each department or functional group is operated independently of other groups within the organization. Each group is referred to as a quotSilo. quot This is the opposite of an integrated structure. Gain Sharing: A method of incentive compensation where supply chain partners share collectively in savings from productivity improvements. The concept provides an incentive to both the buying and supplier organizations to focus on continually reevaluating, reenergizing, and enhancing their business relationship. all aspects of value delivery are scrutinized, including specification design, order processing, inbound transportation, inventory management, obsolescence programs, material yield, forecasting and inventory planning, product performance, and reverse logistics. The focus is on driving out limited value cost while protecting profit margins. Gathering Lines: Oil pipelines that bring oil from the oil well to storage areas. General Agreement on Tariffs and Trade (GATT): A multilateral trade agreement aimed at expanding international trade as a means of raising world welfare. General-Commodities Carrier: A common motor carrier that has operating authority to transport general commodities, or all commodities not listed as special commodities. General-Merchandise Warehouse: A warehouse used to store goods that are readily handled, are packaged, and do not require a controlled environment. General Order (GO): A customs term referring to a warehouse where merchandise not entered within five working days after the carriers arrival is stored at the risk and expense of the importer. Global Positioning System (GPS): A system which uses satellites to precisely locate an object on earth. Used by trucking companies to locate over-the-road equipment. Global Strategy: A strategy that focuses on improving worldwide performance through the sales and marketing of common goods and services with minimum product variation by country. Its competitive advantage grows through selecting the best locations for operations in other countries. Globalization: The process of making something worldwide in scope or application. Going-Concern Value: The value that a firm has as an entity, as opposed to the sum of the values of each of its parts taken separately particularly important in determining a reasonable railroad rate. Gondola: A railcar with a flat platform and sides three to five feet high, used for top loading long, heavy items. Goods: A term associated with more than one definition: 1) Common term indicating movable property, merchandise, or wares. 2) All materials which are used to satisfy demands. 3) Whole or part of the cargo received from the shipper, including any equipment supplied by the shipper. Government Bill of Lading (GBL): The bill of lading used for shipments made by U. S. Government agencies. Grandfather Clause: A provision that enabled motor carriers engaged in lawful trucking operations before the passage of the Motor Carrier Act of 1935 to secure common carrier authority wo proving public convenience and necessity a similar provision exists for other modes. Granger Laws: State laws passed before 1870 in Midwestern states to control rail transportation. Great Lakes Carriers: Water carriers that operate on the five Great Lakes. Grid Technique: A quantitative technique to determine the least-cost center, given raw materials sources and markers, for locating a plant or warehouse. Gross Margin: The difference between total revenue and the cost-of-goods sold. Synonym: Gross Profit Margin. Gross National Product (GNP): A measure of a nations output the total value of all final goods and services a nation produces during a time period. Gross Weight: The total weight of the vehicle and the payload of freight or passengers. GTDI: European Guidelines for Trade Data Interchange. GTIN: Global Tracking Identification Number or Global Trade Item Number. GTIN is the globally-unique EAN. UCC System identification number, or key, used for trade items (products and services). Its used for uniquely identifying trade items (products and services) sold, delivered, warehoused, and billed throughout the retail and commercial distribution channels. Unlike a UPC number, which only provides information specific to a group of products, the GTIN gives each product its own specific identifying number, giving greater accuracy in tracking. Also see: EPC. Guaranteed Loans: Railroad loans that the federal government cosigns and guarantees. GUI: Graphical User Interface. Handling Costs: The cost involved in moving, transferring, preparing, and otherwise handling inventory. Hard Copy: Computer output printed on paper. Harmonized Commodity Description amp Coding System (Harmonized Code): An international classification system that assigns identification numbers to specific products. The coding system ensures that all parties in intl. trade use a consistent classification for the purposes of documentation, statistical control, and duty assessment. Haulage: The inland transport service which is offered by the carrier under the terms and conditions of the tariff and of the relative transport document. Hawthorne Effect: From a study conducted at the Hawthorne Plant of Western Electric Company from 1927-1932 which found that the act of showing people that you are concerned usually results in better job performance. Studying and monitoring of activities are typically seen as being concerned and results in improved productivity. Hazardous Goods: Articles or substances capable of posing a significant risk to health, safety, or property, and that ordinarily require special attention when transported. Also called Dangerous Goods. Hazardous Material: A substance or material which the Department of Transportation has determined to be capable of posing a risk to health, safety, and property when stored or transported in commerce. Heijunka: In the just-in-time philosophy, an approach to level production throughout the supply chain to match the planned rate of end product sales. Hierarchy of Cost Assignability: In cost accounting, an approach to group activity costs at the level of an organization where they are incurred, or can be directly related to. Examples are the level where individual units are identified (unit level), where batches of units are organized or processed (batch level), where a process is operated or supported (process level), or where costs cannot be objectively assigned to lower level activities or processes (facility level). This approach is used to better understand the nature of the costs, including the level in the organization at which they are incurred, the level to which they can be initially assigned (attached), and the degree to which they are assignable to other activity andor cost object levels, i. e. activity or cost object cost, or sustaining costs. Hi-Low: Usually refers to a forklift truck on which the operator must stand rather than sit. Highway Trust Fund: A fund into which highway users (carriers and automobile operators) pay the fund pays for federal governments highway construction share. Highway Use Taxes: Taxes that federal and state governments assess against highway users (the fuel tax is an example). The government uses the use tax money to pay for the construction, maintenance, and policing of highways. Home Page: The starting point for a web site. Its the page thats retrieved and displayed by default when a user visits a web site. The default home-page name for a server depends on the servers configuration. On many web servers, it is index. html or default. htm. Some web servers support multiple home pages. Hopper Cars: Railcars that permit top loading and bottom unloading of bulk commodities some hopper cars have permanent tops with hatches to provide protection against the elements. Horizontal PlayHorizontal Hub: This is a term for a function that cuts across many industries and usually defines a facility or organization that is providing a common service. Hostler: An individual employed to move trucks and trailers within a terminal or warehouse yard area. House Air Waybill (HAWB): A bill of lading issued by a forwarder to a shipper as a receipt for goods that the forwarder will consolidate with cargo from other shippers for transport. Household Goods Warehouse: A warehouse that stores household goods. Hub: 1) A large retailer or manufacturer having many trading partners. 2) A reference for a transportation network as a quothub and spokequot which is common in the airline and trucking industry. For example, a hub airport serves as the focal point for the origin and termination of long-distance flights where flights from outlying areas are fed into the hub airport for connecting flights. 3) A common connection point for devices in a network. 4) A web quothubquot is one of the initial names for what is now known as a quotportal. quot It came from the creative idea of producing a web site which would contain many different quotportal spotsquot (small boxes that looked like ads with links to different, yet related content). This content, combined with Internet technology, made the idea a milestone in the development and appearance of web sites, primarily due to the ability to display a lot of useful content and store ones preferred information on a secured server. The web term quothubquot was replaced with portal. 5) An Internet web site that provides a central repository for data or a central planning capability in an industry or supply network. Hub Airport: An airport that serves as the focal point for the origin and termination of long-distance flights flights from outlying areas meet connecting flights at the hub airport. Human Resources (HR): The function broadly responsible for personnel policies and practices within an organization. Hundredweight (CWT): a pricing unit used in transportation (equal to 100 pounds). ICC: Interstate Commerce Commission (U. S.). Igloos: Pallets and containers used in air transportation the igloo shape fits the internal wall contours of a narrow-body airplane. Import: Movement of products from one country into another. The import of automobiles from Germany into the US is an example. Importation Point: The location where goods will be cleared for importation into a country. ImportExport License: Official authorization issued by a government allowing the shipping or delivery of a product across national boundaries. In Bond: Goods are held or transported In-Bond under customs control either until import duties or other charges are paid, or to avoid paying the duties or charges until a later date. Inbound logistics: The management of materials from suppliers and vendors into production processes or storage facilities. Incentive Rate: A rate that induces the shipper to ship heavier volumes per shipment. INCOTERMS: International terms of sale developed by the International Chamber of Commerce to define sellers and buyers responsibilities. Independent Action: A carrier that is a rate bureau member may publish a rate that differs from the rate the rate bureau publishes. Independent Trading Exchange (ITE): Often used synonymously with B2B, e-marketplace, or Virtual Commerce Network (VCN). ITE is a more precise term, connoting many-to-many transactions, whereas the others do not specify the transactions. Indirect Cost: A resource or activity cost that cannot be directly traced to a final cost object since no direct or repeatable cause-and-effect relationship exists. An indirect cost uses an assignment or allocation to transfer cost. IndirectDistributor Channel: Your company sells and ships to the distributor. The distributor sells and ships to the end user. This may occur in multiple stages. Ultimately, your product may pass through the IndirectDistributor Channel and arrive at a retail outlet. Order information in this channel may be transmitted by electronic means. These means may include EDI, brokered systems, or linked electronic systems. Indirect Retail Locations: A retail location that ultimately sells your product to consumers, but who purchases your products from an intermediary, like a distributor or wholesaler. Information: The data, plus the interpretation necessary to understand it. Information System (IS): Managing the flow of data in an organization in a systematic, structured way to assist in planning, implementing, and controlling. Inherent Advantage: The cost and service benefits of one mode compared with other modes. Inland Bill of Lading: The carriage contract used in transport from a shipping point overland to the exporters international carrier location. Inland Carrier: An enterprise that offers overland service to or from a point of export. Insourcing: The opposite of outsourcing, that is, a service performed in house. Inspection Certificate: A document certifying that merchandise (such as perishable goods) was in good condition immediately prior to shipment. Insurance: A system of protection against loss under which a number of parties agree to pay certain sums (premiums) for a guarantee that they will be compensated under certain conditions for specified loss and damage. Insurance Certificate: A document issued to the consignee to certify that insurance is provided to cover loss of or damage to the cargo while in transit. Integrated Carrier: An airfreight company that offers a blend of transportation services such as air carriage, freight forwarding, and ground handling. Integrated Logistics: A comprehensive, system-wide view of the entire supply chain as a single process, from raw materials supply through finished goods distribution. All functions that make up the supply chain are managed as a single entity rather than managing individual functions separately. Interchange: In EDI, the exchange of electronic information between companies. Also, the group of transaction sets transmitted from one sender to one receiver at one time. Delineated by interchange control segments. Intercoastal carriers: Water carriers that transport freight between East and West Coast ports, usually by way of the Panama Canal. Intercorporate hauling: A private carrier hauling a subsidiarys goods and charging the subsidiary a fee this is legal if the subsidiary is wholly owned or if the private carrier has common carrier authority. Interleaving: The practice of assigning an employee multiple tasks which are performed concurrently. Interline: Two or more motor carriers working together to haul a shipment to a destination. Carriers may interchange equipment but usually they rehandle the shipment without transferring the equipment. Intermediate Destination: A stopping point for a shipment prior to the final destination. Intermediately Positioned Warehouse: A warehouse located between customers and manufacturing plants to provide increased customer service and reduced distribution cost. Intermittent-Flow, Fixed-Path Equipment: Materials handling devices that include bridge cranes, monorails, and stacker cranes. Intermodal Container Transfer Facility: A facility where cargo is transferred from one mode of transportation to another, usually from ship or truck to rail. Intermodal Marketing Company (IMC): An intermediary that sells intermodal services to shippers. Intermodal Transportation: Transporting freight by using two or more transportation modes, such as by truck and rail or truck and oceangoing vessel. Internal Customer: The recipient (person or department) of another persons or departments output (good, service, or information) within an organization. Also see: Customer . Internal Labor and Overhead: The portion of COGS that is typically reported as labor and overhead, less any costs already classified as quotoutsourced. quot Internal Water Carriers: Water carriers that operate over internal, navigable rivers such as the Mississippi, Ohio, and Missouri. International Air Transport Association: An international air carrier rate bureau for passenger and freight movements. International Civil Aeronautics Organization: An international agency responsible for air safety and for standardizing air traffic control, airport design, and safety features worldwide. International Import Certificate: A document required by the importing country indicating that the importing country recognizes that a controlled shipment is entering their country. The importing country pledges to monitor the shipment and prevent its re-export, except in accordance with its own export control regulations. International Maritime Bureau (IMB): A special division of the International Chamber of Commerce. International Maritime Organization (IMO): A United Nations-affiliated organization representing all maritime countries in matters affecting maritime transportation, including the movement of dangerous goods. The organization also is involved in deliberations on marine environmental pollution. International Standards Organization (ISO): An organization within the United Nations to which all national and other standard-setting bodies (should) defer. Develops and monitors international standards, including OSI, EDIFACT, and X.400. Internet: A computer term which refers to an interconnected group of computer networks from all parts of the world, i. e. a network of networks. Accessed via a modem and an online service provider, it contains many information resources and acts as a giant electronic message routing system. Interstate Commerce: The transportation of persons or property between states in the course of the movement, the shipment crosses a state boundary. Interstate Commerce Commission (ICC): An independent regulatory agency that implements federal economic regulations controlling railroads, motor carriers, pipelines, domestic water carriers, domestic surface freight forwarders, and brokers. Interstate System: The National System of Interstate and Defense Highways, 42,000 miles of four-lane, limited-access roads connecting major population centers. In-Transit Inventory: Material moving between two or more locations, usually separated geographically for example, finished goods being shipped from a plant to a distribution center. In-transit inventory is an easily overlooked component of total supply chain availability. Intrastate Commerce: The transportation of persons or property between points within a state. A shipment between two points within a state may be interstate if the shipment had a prior or subsequent move outside of the state and the shipper intended an interstate shipment at time of shipment. Inventory: Raw materials, work in process, finished goods, and supplies required for creation of a companys goods and services. The number of units andor value of the stock of goods held by a company. Inventory Accuracy: When the on-hand quantity is equivalent to the perpetual balance (plus or minus the designated count tolerances). Inventory Carrying Cost: One of the elements comprising a companys total supply chain management costs. These costs consist of the following: 1. Opportunity Cost: The opportunity cost of holding inventory. This should be based on your companys own cost of capital standards using the following formula. Calculation: Cost of Capital x Average Net Value of Inventory 2. Shrinkage: The costs associated with breakage, pilferage, and deterioration of inventories. Usually pertains to the loss of material through handling damage, theft, or neglect. 3. Insurance and Taxes: The cost of insuring inventories and taxes associated with the holding of inventory. 4. Total Obsolescence for Raw Material, WIP, and Finished Goods Inventory: Inventory reserves taken due to obsolescence and scrap and includes products exceeding the shelf life, i. e. spoils and is no good for use in its original purpose (do not include reserves taken for Field Service Parts). 5. Channel Obsolescence: Aging allowances paid to channel partners, provisions for buy-back agreements, etc. Includes all material that becomes obsolete while in a distribution channel. Usually, a distributor will demand a refund on material that goes bad (shelf life) or is no longer needed because of changing needs. 6. Field Service Parts Obsolescence: Reserves taken due to obsolescence and scrap. field service parts are those inventories kept at locations outside the four walls of the manufacturing plant i. e. distribution center or warehouse. Inventory Cost: The cost of holding goods, usually expressed as a percentage of the inventory value includes the cost of capital, warehousing, taxes, insurance, depreciation, and obsolescence. Inventory, Days of: The number of days of inventory on-hand at any given time. Inventory In Transit: Inventory in a carriers possession, being transported to the buyer. Inventory Management: The process of ensuring the availability of products through inventory administration. Inventory Planning Systems: The systems that help to strategically balance the inventory policy and customer service levels throughout the supply chain. These systems usually calculate time-phased order quantities and safety stock using selected inventory strategies. Some inventory planning systems conduct what-if analysis and compare the current inventory policy with simulated inventory scenarios to improve the inventory ROI. Inventory Turns: The cost of goods sold divided by the average level of inventory on hand. This ratio measures how many times a companys inventory has been sold during a period of time. Operationally, inventory turns are measured as total throughput divided by average level of inventory for a given period. How many times a year the average inventory for a firm changes over or is sold. Inventory Velocity: The speed at which inventory moves through a defined cycle (i. e. from receiving to shipping). Invoice: A detailed statement showing goods sold or shipped and amounts for each. The invoice is prepared by the seller and acts as the document that the buyer will use to make payment. Irregular Route Carrier: A motor carrier that may provide service utilizing any route. ISO 9000: A series of quality assurance standards compiled by the Geneva, Switzerland-based International Standards Organization. In the United States, ISO is represented by the American National Standards Institute based in Washington, DC. ISO 14000 Series Standards: A series of generic environmental management standards under development by the International Organization of Standardization which provide structure and systems for managing environmental compliance with legislative and regulatory requirements and affect every aspect of a companys environmental operations. Issuing Carrier: The carrier whose name is printed on the bill of lading and with whom the contract of carriage exists. Item: Any unique manufactured or purchased part, material, intermediate, sub-assembly, or product. Jidoka: The concept of adding an element of human judgment to automated equipment. In doing this, the equipment becomes capable of discriminating against unacceptable quality, and the automated process becomes more reliable. Joint Cost: A common cost in cases where a company produces products in fixed proportions and the cost the company incurs to produce one product entails producing another the backhaul is an example. Joint Rate: A rate over a route that requires two or more carriers to transport the shipment. Joint Supplier Agreement (JSA): Indicative of Stage 3 Sourcing Practices, the JSA includes terms and conditions, objective, process flows, performance targets, flexibility, balancing, and incentives. Just In Time (JIT): An inventory control system that controls material flow into assembly and manufacturing plants by coordinating demand and supply to the point where desired materials arrive just in time for use. An inventory reduction strategy that feeds production lines with products delivered just in time. Developed by the auto industry, it refers to shipping goods in smaller, more frequent lots. Just in Time II (JIT II): Vendor-managed operations taking place within a customers facility. JIT II was popularized by the Bose Corporation. The supplier reps, called quotinplants, quot place orders to their own companies, relieving the customers buyers from this task. Many also become involved at a deeper level such as participating in new product development projects and manufacturing planning (concurrent planning). Just-in-Time Logistics (or Quick Response): The process of minimizing the times required to source, handle, produce, transport, and deliver products in order to meet customer requirements. Kaizen: A Japanese term for improvement - continuing improvement involving everyone - managers and workers. In manufacturing, kaizen relates to finding and eliminating waste in machinery, labor, or production methods. Also see: Continuous Process Improvement . Kanban: Japanese word for visible record, loosely translated means card, billboard, or sign. Popularized by Toyota Corporation, it uses standard containers or lot sizes to deliver needed parts to the assembly line just in time for use. Keiretsu: A form of cooperative relationship among companies in Japan where the companies largely remain legally and economically independent, even though they work closely in various ways, such as sole sourcing and financial backing. A member of a keiretsu generally owns a limited amount of stock in other member companies. A keiretsu generally forms around a bank and a trading company but distribution (supply chain) keiretsus exist, linking companies from raw material suppliers to retailers. . Key Performance Indicator (KPI): A measure which is of strategic importance to a company or department. For example, a supply chain flexibility metric is Supplier On-Time Delivery Performance which indicates the percentage of orders that fulfilled on or before the original requested date. Also see: Scorecard. Kitting: Light assembly of components or parts into defined units, Kitting reduces the need to maintain an inventory of pre-build, completed products, but increases the time and labor consumed at shipment. Also see: Postponement Lading: The cargo carried in a transportation vehicle. Laid-Down cost: The sum of the product and transportation costs. The laid-down cost is useful in comparing the total cost of a product shipped from different supply sources to a customers point of use. Land bridge: The movement of containers by ship-rail-ship on Japan-to-Europe moves ships move containers to the U. S. Pacific Coast, rails move containers to an East Coast port, and ships deliver containers to Europe. Land Grants: Grants of land given to railroads to build tracks during their development stage. Landed Cost: Cost of product plus relevant logistics costs, such as transportation, warehousing, handling, etc. Also called Total Landed Cost of Net Landed Costs. Lash Barges: Covered barges that carriers load on board oceangoing ships for movement to foreign destinations. LASH Vessel: A ship measuring at least 820 feet long with a deck crane able to load and unload barges through a stern section that projects over the water. The acronym LASH stands for Lighter (barge) Aboard Ship. Last In First Out (LIFO): In inventory control and financial accounting, this refers to the practice of using stock from inventory on the basis of what was received last is consumed first. This has limited use in stock keeping and is primarily a cost-accounting method. Last Updated: A date and time stamp that is recorded when a field or record was last modified by the user. Lead Logistics Provider (LLP): An organization that organizes other third party logistics partners for outsourcing of logistics functions. Also see: Fourth Party Logistics . Lead Time: The total time that elapses between an orders placement and its receipt. It includes the time required for order transmittal, order processing, order preparation, and transit. Leg: A leg has an origin, destination, and carrier and is composed of all consecutive segments of a route booked through the same carrier. Also called Bookable Leg. Less-Than-Carload (LCL): Shipment that is less than a complete rail car load (lot shipment). Less-Than-Containerload (LCL): A term used when goods do not completely occupy an entire container. When many shippers goods occupy a single container, each shippers shipment is considered to be LCL. Less-Than-Truckload (LTL) Carriers: Trucking companies that consolidate and transport smaller (less than truckload) shipments of freight utilizing a network of terminals and relay points. Less-Than-Truckload (LTL): Trucking companies that consolidate and transport smaller (less than truckload) shipments of freight by utilizing a network of terminals and relay points. Lessee: A person or firm to whom a lessor grants a lease. Lessor: A person or firm that grants a lease. Letter of Credit (LOC): A method of payment for goods in which the buyer established his credit with a local bank, clearly describing the goods to be purchased, the price, the documentation required, and a time limit for completion of the transaction. Upon receipt of documentation, the bank is either paid by the buyer or takes title to the goods themselves and proceeds to transfer funds to the seller. Leverage: Taking something small and exploding it. Leverage can be financial or technological. Life Cycle Cost: In cost account, a products life cycle is the period that starts with the initial product conceptualization and ends with the withdrawal of the product from the marketplace and final disposition. A product life cycle is characterized by certain defined stages, including research, development, introduction, maturity, decline, and abandonment. Life cycle cost is the accumulated costs incurred by a product during these stages. Lift on, Lift off (LOLO): A method by which cargo is loaded onto and unloaded from an ocean vessel, which in this case is with a crane. Lighter: A barge-type vessel used to carry cargo between shore and cargo ship. While the terms barge and lighter are used interchangeably, a barge usually refers to a vessel used for a long haul, while a lighter is used for a short haul. Lighterage: The cost of loading or unloading a vessel by means of barges. Line Functions: The decision-making areas companies associate with daily operations. Logistics line functions include traffic management, inventory control, order processing, warehousing, and packaging. Line-Haul Shipment: A shipment that moves between cities and over distances more than 100 to 150 miles in length. Line Item: A specific and unique identifier assigned to a product by the responsible enterprise. Liner Service: International water carriers that ply fixed routes on published schedules. Link: The transportation method a company uses to connect nodes (plants, warehouses) in a logistics system. Linked Distributed Systems: Independent computer systems owned by independent organizations linked in a manner to allow direct updates to be made to one system by another. For example, a customers computer system is linked to a suppliers system and the customer can create orders or releases directly in the suppliers system. Live: A situation in which the equipment operator stays with the trailer or boxcar while it is being loaded or unloaded. Local Area Network (LAN): A data communications network spanning a limited geographical area, usually a few miles at most, providing communications between computers and peripheral devices. Load Factor: A measure of operating efficiency used by air carriers to determine a planes utilized capacity percentage or the number of passengers divided by the total number of seats. Load Tender (Pick-Up Request): An offer of cargo for transport by a shipper. Load tender terminology is primarily used in the motor industry. Load Tendering: The practice of providing a carrier with detailed information and negotiated pricing (the tender) prior to scheduling pickup. This practice can help assure contract compliance and facilitate automated payments (self billing). Loading Allowance: A reduced rate that carriers offer to shippers andor consignees who load andor unload LTL or Any Quantity shipments. Loading Port: The port where the cargo is loaded onto the exporting vessel. This port must be reported on the Shippers Export Declaration, Schedule D. Schedule D is used by U. S. companies when exporting to determine which tariff is used to freight rate the cargo for carriers with more than one tariff. Local Rate: A rate published between two points served by one carrier. Local Service Carriers: A classification of air carriers that operate between less-populated areas and major population centers. These carriers feed passengers into the major cities to connect with major carriers. Local service carriers are now classified as national carriers. Localized Raw Material: A raw material found only in certain locations. Locational Determinant: The factors that determine a facilitys location. For industrial facilities, the determinants include logistics. Logbook: A daily record of the hours an interstate driver spends driving, off duty, sleeping in the berth, or on duty but not driving. Logistics: The process of planning, implementing, and controlling procedures for the efficient and effective storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements. This definition includes inbound, outbound, internal, and external movements. Also see the Council of Supply Chain Management Professionalrsquos definition of Logistics . Logistics Channel: The network of supply chain participants engaged in storage, handling, transfer, transportation, and communications functions that contribute to the efficient flow of goods. Logistics Costs: The factors associated with the acquisition, storage, movement, and disposition of goods. Logistics Data Interchange (LDI): A computerized system that electronically transmits logistics information. Logistics Management as defined by the Council of Supply Chain Management Professionals (CSCMP): Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirements. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supplydemand planning and management of third party logistics services providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution - strategic, operational, and tactical. Logistics management is an integrating function which coordinates and optimizes all logistics activities with other functions, including marketing, sales, manufacturing, finance, and information technology. Lot Control: A set of procedures (e. g. assigning unique batch numbers and tracing each batch) used to maintain lot integrity from raw materials, from the supplier through manufacturing to consumers. Lot Size: The quantity of goods a company purchases or produces in anticipation of use or sale in the future. LTL shipment: A less-than-truckload shipment, one weighing less than the minimum weight a company needs to use the lower truckload rate. Lumping: When a driver assists with loading and unloading the trailer contents. Machine Downtimes: Time during which a machine cannot be utilized. Machine downtimes may occur during breakdowns, maintenance, changeovers, etc. Macro Environment: The environment external to a business, including technological, economic, natural, and regulatory forces that marketing efforts cannot control. Maintenance, Repair, and Operating Supplies (MRO): Items used in support of general operations and maintenance, such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. Major Carrier: A for-hire certificated air carrier that has annual operating revenues of 1 billion or more the carrier usually operates between major population centers. Make-or-Buy Decision: The act of deciding whether to produce an item internally or buy it from an outside supplier. Factors to consider in the decision include costs, capacity availability, proprietary andor specialized knowledge, quality considerations, skill requirements, volume, and timing. Make to Order (Manufacture to Order): A manufacturing process strategy where the trigger to begin manufacture of a product is an actual customer order or release rather than a market forecast. For make-to-order products, more than 20 of the value added takes place after the receipt of the order or release, and all necessary design and process documentation is available at the time of order receipt. Make to Stock (Manufacture to Stock): A manufacturing process strategy where finished product is continually held in plant or warehouse inventory to fulfill expected incoming orders or releases based on a forecast. Management of All Logistics: The effective management of all costs associated with logistics functions and activities so as to minimize their sum across the product supply chain. Manifest: A document which describes individual orders contained within a shipment. Manufacture Cycle Time: The average time between commencement and completion of a manufacturing process, as it applies to make-to-stock products. Calculation: Average of units in WIPAverage daily output in units Manufacturers Representative: One who sells goods for several firms but does not take title to them. Manufacturing Calendar: A calendar used in inventory and production planning functions that consecutively numbers only the working days so that the component and work order scheduling may be done based on the actual number of workdays available. Synonyms: M-Day Calendar, Planning Calendar, Production Calendar, Shop Calendar Manufacturing Execution Systems (MES): Programs and systems that participate in shop-floor control, including programmed logic controllers and process control computers for direct and supervisory control of manufacturing equipment process information systems that gather historical performance information, then generate reports graphical displays and alarms that inform operations personnel what is going on in the plant currently and a short history into the past. Quality control information is also gathered - a laboratory information management system may be part of this configuration to tie process conditions to the quality data that are generated. Thereby, cause-and-effect relationships can be determined. The quality data at times affect the control parameters that are used to meet product specifications, either dynamically or offline. Manufacturing Lead Time: The total time required to manufacture an item, exclusive of lower-level purchasing lead time. For make-to-order products, its the length of time between the release of an order to the production process and shipment to the final customer. For make-to-stock products, its the length of time between the release of an order to the production process and receipt into finished goods inventory. Included are order preparation time, queue time, set-up time, run time, move time, inspection time, and put-away time. Synonym: Manufacturing Cycle Time. Manufacturing Resource Planning (MRP-II): A method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer what-if questions. It consists of a variety of processes, each linked together: business planning, production planning (sales and operations planning), master production scheduling, material requirements planning, capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports, such as business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP. Mar Ad: See Maritime Administration. Marginal Cost: The cost to produce one additional unit of output. The change in total variable cost resulting from a one-unit change in output. Marine Cargo Insurance - Average: A term in marine cargo insurance signifying loss or damage to merchandise. Marine Cargo Insurance - FPA (Free of Particular Average): A provision in a marine cargo insurance policy that no claim shall be paid for damage to goods in the course of a voyage unless a loss is sustained that totals or exceeds a certain percentage of the value as specified in the policy. The object of such a provision is the avoidance of petty claims. Marine Cargo Insurance - General Average: A loss arising out of a voluntary sacrifice made of any part of a shipment or cargo to prevent loss of the whole and for the benefit of all persons concerned. Marine Cargo Insurance - Open Policy: A cargo insurance policy that is an open contract i. e. it provides protection for all of an exporters shipments afloat or in transit within a specified geographical trade area for an unlimited period of time, until the policy is cancelled by the insured or by the insurance company. It is quotopenquot because the goods that are shipped are also detailed at that time. This is usually shown in a document called a marine insurance certificate. Maritime Administration (Mar Ad): A U. S. government agency, not actively involved in vessel operation, that administers laws for maintenance of a merchant marine for the purposes of defense and commerce. Market Demand: In marketing, the total demand that would exist within a defined customer group in a given geographical area during a particular time period given a known marketing program. Market Dominance: The absence of effective competition for railroads from other carriers and modes for the traffic to which the rail rate applies. The Staggers Act stated that market dominance does not exist if the rate is below the revenue-to-variable-cost ratio of 160 percent in 1981 and 170 percent in 1983. Market-Positioned Warehouse: Warehouse positioned to replenish customer inventory assortments and afford maximum inbound transport consolidation economies from inventory origin points with relatively short-haul local delivery. Market Segment: A group of potential customers sharing some measurable characteristics based on demographics, psychographics, lifestyle, geography, benefits, etc. Marks and Numbers: Marks and numbers placed on goods used to identify a shipment or parts of a shipment. Marquis Partners: Key strategic relationships. This has emerged as perhaps the key competitive advantage and barrier to entry of e-marketplaces. Get the big players in the fold first, offering equity if necessary. Mass Customization: The creation of a high-volume product with large variety so that a customer may specify his or her exact model out of a large volume of possible end items, while manufacturing cost is low because of the large volume. An example is a personal computer order in which the customer may specify processor speed, memory size, hard disk size and speed, removable storage device characteristics, and many other options when PCs are assembled on one line and at a low cost. Master Air Waybill (MAWB): The bill of lading issued by air carriers to their customers. Material Acquisition Costs: One of the elements comprising a companys total supply chain management costs. These costs consist of the following: 1. Materials (Commodity) Management and Planning: All costs associated with the supplier sourcing, contract negotiation and qualification, and the preparation, placement, and tracking of a purchase order - including all costs related to buyerplanners. 2. Supplier Quality Engineering: The costs associated with the determination, developmentcertification, and monitoring of suppliers capabilities to fully satisfy the applicable quality and regulatory requirements. 3. Inbound Freight and Duties: Freight costs associated with the movement of material from a vendor to the buyer, including all associated administrative tasks. Duties are those fees and taxes levied by government for moving purchased material across international borders. Customs broker fees should also be included in this category. 4. Receiving and Put Away: all costs associated with taking possession of material and storing it. Note - inventory-carrying costs are normally covered in a separate worksheet. 5. Incoming Inspection: All costs associated with the inspection and testing of received materials to verify compliance with specifications. Materials Handling: The physical handling of products and materials between procurement and shipping. Material Index: The ratio of the sum of the localized raw material weights to the weight of the finished product. Materials Management: Inbound logistics from suppliers through the production process. The movement and management of materials and products from procurement through production. Materials Planning: The materials management function that attempts to coordinate materials supply with materials demand. Material Requirements Planning (MRP): A decision-making methodology used to determine the timing and quantities of materials to purchase. Matrix Organizational Structure: An organization structure in which two (or more) channels of command budget responsibility, and performance measurement exist simultaneously. For example, both product and functional forms of organization could be implemented simultaneously in other words, the product and functional managers have equal authority and employees report to both managers. Maximum Order Quantity: An order quantity modifier applied after the lot size has been calculated that limits the order quantity to a pre-established maximum. m-Commerce: Mobile commerce applications involve using a mobile phone to carry out financial transactions. This usually means making a payment for goods or transferring funds electronically. Transferring money between accounts and paying for purchases are electronic commerce applications. An emerging application, electronic commerce has been facilitated by developments in other areas in the mobile world, such as dual slot phones and other smarter terminals, and more standardized protocols which allow greater interactivity and therefore, more sophisticated service. Mean: The arithmetic average of a group of values. Synonym: Arithmetic Mean. Measurement Ton: Forty cubic feet used in water transportation ratemaking. Median: The middle value in a set of measured values when the items are arranged in order of magnitude. If there is no single middle value, the median is the mean of the two middle values. Merge In Transit: The process of quotmergingquot shipments from suppliers and going directly to the buyer or to the store, bypassing the seller. A quotdrop shipmentquot from several vendors to one buyer. Merger: The combination of two or more carriers into one company that will own, manage, and operate the properties that previously operated separately. Message: The EDIFACT term for a transaction set. A message is the collection of data, organized in segments, exchanged by trading partners engaged in EDI. Typically, a message is an electronic version of a document associated with a common business transaction, such as a purchase order or shipping notice. A message begins with a message header segment, which identifies the start of the message (e. g. the series of characters representing one purchase order). The message header segment also carries the message type code, which identifies the business transaction type. EDIFACTs message header segment is called UNH in ANSI X12 protocol, the message header is called ST. A message ends with a message trailer segment, which signals the end of the message (e. g. the end of one purchase order). EDIFACTs message trailer is labeled UNT the ANSI X12 message trailer is referred to as SE. Micro-Land Bridge: An intermodal movement in which the shipment is moved from a foreign country to the U. S. by water and then moved across the U. S. by railroad to an interior, non-port city, or vice versa for exports from a non-port city. Mileage Allowance: An allowance, based upon distance, that railroads give to shippers using private railcars. Mileage Rate: A rate based upon the number of miles the commodity is shipped. Mini-Land bridge: An intermodal movement in which the shipment is moved from a foreign country to the U. S. by water and then moved across the U. S. by railroad to a destination that is a port city, or vice versa for exports from a U. S. port city. Minimum Weight: The shipment weight the carriers tariff specifies as the minimum weight required to use the TL or CL rate the rate discount volume. Mixed Loads: The movement of both regulated and exempt commodities in the same vehicle at the same time. Modal Split: The relative use that companies make of transportation modes the statistics include ton-miles, passenger-miles, and revenue. Motor Carrier: An enterprise that offers service via motor carriage. Movement of Goods: The transfer of goods from one location to another. MRO items: Maintenance, repair, and operating items--office supplies, for example. MRP-II: See Manufacturing Resource Planning. MSDS: See Material Safety Data Sheet. Multi-Currency: The ability to process orders using a variety of currencies for pricing and billing. Multi-Language: Pertaining to the ability to process orders in many different country-specific languages using voice and text. Multinational Company: A company that both produces and markets products in different countries. Multiple-Car Rate: A railroad rate that is lower for shipping more than one carload at a time. Multi-Skilled: Pertaining to individuals who are certified to perform a variety of tasks. National Carrier: A for-hire certificated air carrier that has annual operating revenues of 75 million to 1 billion the carrier usually operates between major population centers and areas of lesser population. National Industrial Transportation League: An association representing shippers and receivers interests in matters of transportation policy and regulation. Nationalization: Public ownership, financing, and operation of a business entity. National Motor Bus Operators Organization: An industry association representing common and charter bus firms now known as the American Bus Association. National Motor Freight Classification (NMFC): A tariff, which contains descriptions and classifications of commodities and rules for domestic movement by motor carriers in the US. National Railroad Corporation: Also known as Amtrak, the corporation established by the Rail Passenger Service Act of 1970 to operate most of the United States rail passenger service. Negotiable BOL: Provides for the delivery of goods to a named enterprise or to their order (anyone they may designate), but only upon surrender of proper endorsement and the bill of lading to the carrier or the carriers agents. Also known as an order bill of lading. Negotiations: A set of discussions between two or more enterprises to determine the business relationship. Net Assets: Total net assets are calculated as Total Assets - Total Liabilities where the total assets are made up of fixed assets (plant, machinery, and equipment) and current assets which is the total of stock, debtors, and cash (also includes AR, inventory, prepaid assets, deferred assets, intangibles, and goodwill). The total liabilities are made up in much the same way as long-term liabilities and current liabilities (includes AP, accrued expenses, deferred liabilities). Net Weight: The weight of the merchandise, unpacked, exclusive of any containers. New Product Introduction (NPI): The process used to develop products that are new to the sales portfolio of a company. Node: A fixed point in a firms logistics system where goods come to rest includes plants, warehouses, supply sources, and markets. No Location (No Loc): A received item for which the warehouse has no previously established storage slot. Non-Certificated carrier: A for-hire air carrier that is exempt from economic regulation. Nonconformity: Failure to fulfill a specified requirement. Non-Negotiable BOL: Provides for the delivery of goods to a named enterprise and to no one else. Also known as a straight bill of lading. Non Vessel Operating Common Carrier (NVOCC): A firm that offers the same services as an ocean carrier, but which does not own or operate a vessel. NVOCCs usually act as consolidators, accepting small shipments (LCL) and consolidating them into full container loads. They also consolidate and disperse international containers that originate at or are bound for inland ports. They then act as a shipper, tendering the containers to ocean common carriers. They are required to file tariffs with the Federal Maritime Commission and are subject to the same laws and statutes that apply to primary common carriers. North American Free Trade Agreement (NAFTA): A free trade agreement, implemented January 1, 1994, between Canada, the United States and Mexico. Notify Party: The name of an organization, or individual, that should be notified when a shipment reaches its destination. Not otherwise specifiedNot elsewhere specified (NOSNES): This term often appears in ocean or airfreight tariffs respectively. If no rate for the specific commodity shipped appears in the tariff, then a general class rate (for example: printed matter NES) will apply. Such rates usually are higher than rates for specific commodities. Obsolete Inventory: Inventory for which there is no forecast demand expected. A condition of being out of date. A loss of value occasioned by new developments that place the oldeer property at a competitive disadvantage. Ocean Bill of Lading: The bill of lading issued by the ocean carrier to its customer. Ocean Carrier: An enterprise that offers service via ocean (water) transport. Offline: A computer term which describes work done outside of the computer system or outside of a main process within the corporate system. Offshore: Utilizing an outsourcing service provider located in a country other than where the client is located. On-Demand: Pertaining to work performed when demand is present. Typically used to describe products which are manufactured or assembled only when a customer order is placed. One-Piece Flow: Moving parts through a process in batches of one. One-Way Networks: The advantages generally lie with either the seller of buyer, but not with both. B2C web sites are one-way networks. Online: A computer term which describes activities performed using computer systems. On-Line receiving: A system in which computer terminals are available at each receiving bay and operators enter items into the system as they are unloaded. Operating Differential Subsidy (ODS): A payment to an American-flag carrier by the U. S. government to offset the difference in operating costs between U. S. and foreign vessels. Operating Ratio: A measure of operating efficiency defined as Operating expenses divided by the Operating revenues x 100. Operational Performance Measurements: (1) In traditional management, performance measurements related to machine worker, or department efficiency or utilization. These performance measurements are usually poorly correlated with organizational performance. (2) In theory of contraints, performance measurements that link causally to organizational performance measurements. Throughput, inventory, and operating expense are examples. Also see: Performance Measures . Optimization: The process of making something as good or as effective as possible with given resources and constraints. Order: A type of request for goods or services. Order Cycle: The time and process involved from the placement of an order to the receipt of the order. Order Cycle Time: The time that elapses from placement of order until receipt of order. This includes time for order transmittal, processing, preparation, and shipping. Order Entry and Scheduling: The process of receiving orders from the customer and entering them into a companys order processing system. Orders can be received through phone, fax, or electronic media. Activities may include quottechnicallyquot examining orders to ensure an orderable configuration and provide accurate price, checking the customers credit and accepting payment (optionally), identifying and reserving inventory (both on hand and scheduled), and committing and scheduling a delivery date. Order Fill: A measure of the number of orders processed without stockouts, or the need to back order, expressed as a percentage of all orders processed in the distribution center or warehouse. Order Management: The planning, directing, monitoring, and controlling of the processes related to customer orders, manufacturing orders, and purchase orders. Regarding customer orders, order management includes order promising, order entry, order pick, pack and ship, billing, and reconciliation of the customer account. Regarding manufacturing orders, order management includes order release, routing, manufacture, monitoring, and receipt into stores or finished goods inventories. Regarding purchase orders, order management includes order placement, monitoring, receiving, acceptance, and payment of supplier. Order Management Costs: One of the elements comprising a companys total supply chain management costs. These costs consist of the following: 1. New Product Release Phase In and Maintenance: This includes costs associated with releasing new products to the field, maintaining released products, assigning product ID, defining configurations and packaging, publishing availability schedules, release letters and updates, and maintaining product databases. 2. Create Customer Order: This includes costs associated with creating and pricing configurations to order and preparing customer order documents. 3. Order Entry and Maintenance: This includes costs associated with maintaining the customer database, credit check, accepting new orders, and adding them to the order system, as well as later order modifications. 4.ContractProgram and Channel Management: This includes costs related to contract negotiation, monitoring progress, and reporting against the customers contract, including administration of performance or warranty-related issues. 5. Installation Planning: This includes costs associated with installation engineering, scheduling and modification, handling cancellations, and planning the installation. 6. Order Fulfillment: This includes costs associated with order processing, inventory allocation, ordering from internal or external suppliers, shipment scheduling, order status reporting, and shipment initiation. 7. Distribution: This includes costs associated with warehouse space and management, finished goods receiving and stocking, processing shipments, picking and consolidating, selecting carriers, and staging productssystems. 8. Transportation, Outbound Freight, and Duties: This includes costs associated with all company-paid freight duties from point of manufacturer to end customer or channel. 9. Installation: This includes costs associated with verification of site preparation, installation, certification, and authorization of billing. 10. Customer InvoicingAccounting: This includes costs associated with invoicing, processing customer payments, and verification of customer receipt. Order Picking: Assembling a customers order from items in storage. Order Processing: Activities associated with filling customer orders. Ordering Cost: The cost of placing an inventory order with a supplier. Origin: The place where a shipment begins its movement. Original Equipment Manufacturer (OEM): A manufacturer that buys and incorporates another suppliers products into its own products. Also, products supplied to the original equipment manufacturer or sold as part of an assembly. For example, an engine may be sold to an OEM for use as that companys power source for its generator units. Outbound Logistics: The process related to the movement and storage of products from the end of the production line to the end user. Out-of-Pocket Cost: The cost directly assignable to a particular unit of traffic and which a company would not have incurred if it had not performed the movement. Outlier: A data point that differs significantly from other data for a similar phenomenon. For example, if the average sales for a product were ten units per month, and one month the product had sales of 500 units, this sales point might be considered an outlier. Outpartnering: The process of involving the supplier in a close partnership with the firm and its operations management system. Outpartnering is characterized by close working relationships between buyers and suppliers, high levels of trust, mutual respect, and emphasis on joint problem solving and cooperation. With outpartnering, the supplier is not viewed as an alternative source of goods and services (as observed under outsourcing), but rather as a source of knowledge, expertise, and complementary core competencies. Outpartnering is typically found during the early stages of product life cycle when dealing with products that are viewed as critical to the strategic survival of the firm. Also see: Customer-Supplier Partnership . Outsource: To utilize a third party provider to perform services previously performed in house. Examples include manufacturing of products and call centercustomer support. Outsourced Cost-of-Goods Sold: Operations performed on raw material outside of the responding entitys organization that would typically be considered internal to the entitys manufacturing cycle. Outsourced cost-of-goods sold captures the value of all outsourced activities that roll up as cost-of-goods sold. Some examples of commonly outsourced areas are assembly, test, metal finishing or painting, and specialized assembly process. Over, Short, and damaged (OSampD): This is typically a report issued at the warehouse when goods are damaged. Used to file a claim with a carrier. Over-the-Road: A motor carrier operation that reflects long-distance moves the opposite of local operations. OwnerOperator: A truck driver who owns and operates hisher tractortrailer. Packing List: A document containing information about the location of each Product ID in each package. It allows the recipient to quickly find the item he or she is looking for without a broad search of all packages. It also confirms the actual shipment of goods on a line item basis. Pallet: The platform which cartons are stacked on and then used for shipment or movement as a group. Pallets may be made of wood or composite materials. Pallet Wrapping Machine: A machine that wraps a pallets contents in stretch-wrap to ensure safe shipment. Parcel Shipment: Parcels include small packages like those typically handled by providers such as UPS and FedEx. Pareto: A means of sorting data. For example, the number of quality faults by frequency of occurrence. An analysis that compares cumulative percentages of the rank ordering of costs, cost drivers, profits, or other attributes to determine whether a minority of elements have a disproportionate impact. Another example: identifying that 20 of a set of independent variables is responsible for 80 of the effect. Also see: 8020 Rule . Part Standardization: A program for planned elimination of superficial, accidental, and deliberate differences between similar parts in the interest of reducing part and supplier proliferation. A typical goal of part standardization is to reduce costs by reducing the number of parts that the company needs to manage. Passenger-Mile: A measure of output for passenger transportation that reflects the number of passengers transported and the distance traveled a multiplication of passengers hauled and distance traveled. Password: A private code required to gain access to a computer, an application program, or service. Path to Profitability (P2P): The step-by-step model to generate earnings. Pay on Use: Pay on use is a process where payment is initiated by product consumption, i. e. consignment stock based on withdrawal of product from inventory, This process is popular with many European companies. Payment: The transfer of money, or other agreed upon medium, for provision of goods or services. Payment Collection: Obtaining money, or other agreed upon medium, for provision of goods or services. Payroll: Total of all fully-burdened labor costs, including wages, fringe, benefits, overtime, bonus, and profit sharing. PBIT: See Profit Before Interest and Tax. Peak Demand: The time period during which customers demand the greatest quantity. Peer to Peer (P2P): A computer-networking environment which allows individual computers to share resources and data without passing through an intermediate network server. Pegging: A technique in which a DRP system traces demand for a product by date, quantity, and warehouse location. Per Diem: A payment rate one railroad makes to use anothers cars. Perfect Order: The definition of a perfect order is one which meets all of the following criteria: Delivered complete, with all items on the order in the quantity requested Delivered on time to customers request date, using the customers definition of on-time delivery Delivered with complete and accurate documentation supporting the order including packing slips, bills of lading and invoices Delivered in perfect condition with the correct configuration, customer ready, without damage, and faultlessly installed (as applicable) Performance and Event Management Systems: The systems that report on the key measurements in the supply chain - inventory days of supply, delivery performance, order cycle times, capacity use, etc. Using this information to identify causal relationships to suggest actions in line with the business goals. Performance Measures: Indicators of the work performed and the results achieved in an activity, process, or organizational unit. Performance measures should be both non-financial and financial. Performance measures enable periodic comparison and benchmarking. Also see: Performance Measurement Program . Performance Measurement Program: A performance measurement program goes beyond just having performance metrics in place. Typical characteristics of a good performance measurement program include the following: Metrics that are aligned to strategy, and linked to the shop floor or line-level workers. A process and culture that drives performance and accountability to deliver performance against key performance indicators. An incentive plan that is tied to performance goals, objectives, and metrics. Toolstechnology in place to support easy data collection and use. Permit: A grant of authority to operate as a contract carrier. Perpetual Inventory: An inventory record keeping system where each transaction in and out is recorded and a new balance is computed. Personal Computer (PC): An individual unit an operator uses for creating and maintaining programs and files can often access the mainframe simultaneously. Personal Discrimination: Charging different rates to shippers with similar transportation characteristics, or, charging similar rates to shippers with differing transportation characteristics. Physical Distribution: The movement and storage of finished goods from manufacturing plants to warehouses to customers used synonymously with business logistics. See Distribution . Physical Supply: The movement and storage of raw materials from supply sources to the manufacturing facility. PickPack: Picking and packing immediately into shipment containers. Picking: The operations involved in pulling products from storage areas to complete a customer order. Picking by Aisle: A method by which pickers pick all needed items in an aisle regardless of the items ultimate destination the items must be sorted later. Picking by Source: A method in which pickers successively pick all items going to a particular destination regardless of the aisle in which each item is located. Pick List: A list of items to be picked from stock in order to fill an order the pick list generation and the picking method can be quite sophisticated. Pick to Light: A laser identifies the bin for the next item in the rack when the picker completes the pick, the bar code is scanned and the system then points the laser at the next bin. Pick-Up Order: A document indicating the authority to pick up cargo or equipment from a specific location. Piggyback: Terminology used to describe a truck trailer being transported on a railroad flatcar. Place Utility: A value that logistics creates in a product by changing the products location. Transportation creates place utility. Plan-Do-Check-Action (PDCA): In quality management, a four-step process for quality improvement. In the first step (plan), a plan to affect improvement is developed. In the second step (do), the plan is carried out, preferably on a small scale. In the third step (check), the effects of the plan are observed. In the last step (action), the results are studied to determine what was learned and what can be predicted. The plan-do-check-act cycle is sometimes referred to as the Shewhart cycle (Walter A. Shewhart discussed the concept in his book Statistical Method from the Viewpoint of Quality Control) and as the Deming circle (W. Edwards Deming introduced the concept in Japan the Japanese subsequently called it the Deming circle). Synonym: Shewhart Cycle. Also see: Deming Circle. Planned Date: The date an operation such as a receipt, shipment, or delivery of an order is planned to occur. Planned Order: In DRP and MRP systems, a future order the system plans in response to forecasted demand. Plant Finished Goods: Finished goods inventory held at the end manufacturing location. Point of Sale Information (POS): Price and quantity data from the retail location as sales transactions occur. Point of Use Delivery: Delivery right to the production floor of an item. Poka Yoke (mistake proof): The application of simple techniques that prevent process quality failure. A mechanism that either prevents a mistake from being made or makes the mistake obvious at a glance. Police Powers: The United States constitutionally granted right for the states to establish regulations to protect their citizens health and welfare truck weight speed, length, and height laws are examples. Pooling: A shipping term for the practice of combining shipment from multiple shippers into a truckload in order to reduce shipping charges. Port: A harbor where ships will anchor. Port Authority: A state or local government that owns, operates, or otherwise provides wharf, dock, and other terminal investments at ports. Port of Discharge: Port where vessel is off loaded. Port of Entry: A port at which foreign goods are admitted into the receiving country. Port of Loading : Port where cargo is loaded aboard the vessel. Portal: A web site that serves as a starting point to other destinations or activities on the Internet. Initially thought of as a home base-type of web page, portals attempt to provide all Internet needs in one location. Portals commonly provide services such as e-mail, online chat forums, shopping, searching, content, and news feeds. POS: Point of Shipment, or Point of Sale Possession Utility: The value created by marketings effort to increase the desire to possess a good or benefit from a service. Postponement: The delay of final activities (i. e. assembly, production, packaging, etc.) until the latest possible time. A strategy used to eliminate excess inventory in the form of finished goods which may be packaged in a variety of configurations. Pre-Expediting: The function of following up on open orders before the scheduled delivery date to ensure the timely delivery of materials in the specified quantity. Prepaid: A freight term which indicates that charges are to be paid by the shipper. Prepaid shipping charges may be added to the customer invoice, or the cost may be bundled into the pricing for the product. Prepaid Freight: Freight paid by the shipper to the carrier when merchandise is tendered for shipment that is not refundable if the merchandise does not arrive at the intended destination. Present Value: Todays value of future cash flows, discounted at an appropriate rate. Price Erosion: What causes old-line executives to break out in a cold sweat No question about it traditional business models are threatened by the market efficiencies of B2B. When prices begin to plummet, the margin structures of older industries are also threatened. Primary-Business Test: A test the ICC uses to determine if a trucking operation is bona fide private transportation the private trucking operation must be incidental to and in the futherance of the firms primary business. Primary Manufacturing Strategy: Your companys dominant manufacturing strategy. The primary manufacturing strategy generally accounts for 80-plus of a companys product volume. According to a study by Pittiglio Rabin Todd amp McGrath (PRTM), approximately 73 of all companies use a make-to-stock strategy. Private Carrier: A carrier that provides transportation service to the firm that owns or leases the vehicles and does not charge a fee. Private motor carriers may haul at a fee for wholly owned subsidiaries. Private Label: Products that are designed, produced, controlled by, and which carry the name of the store or a name owned by the store also known as a store brand or dealer brand. An example would be Wal-Marts quotSams Choicequot products. Private Trucking Fleets: Private fleets serve the needs of their owners, and do not ordinarily offer commercial trucking services to other customers. Private fleets typically perform distribution or service functions. Private Warehouse: A company-owned warehouse. Private Warehousing: The storage of goods in a warehouse owned by the company that has title to the goods. Proactive: The strategy of understanding issues before they become apparent and presenting the solution as a benefit to the customer, etc. Process: A series of time-based activities linked to complete a specific output. Process Benchmarking: Benchmarking a process (such as the pick, pack, and ship process) against organizations know to be the best in class in this process. Process benchmarking is usually conducted on firms outside of the organizations industry. Also see: Benchmarking, Best in Class, Competitive Benchmarking . Process Improvement: A design or activity which improves quality or reduces costs, often through the elimination of waste on non-value-added tasks. Process Manufacturing: Production that adds value by mixing, separating, forming, andor performing chemical reactions. It may be done in a batch, continuous, or mixed batchcontinuous mode. Process Yield: The resulting output from a process. An example would be a quantity of finished product output from manufacturing processes. Procurement: The business functions of procurement planning, purchasing, inventory control, traffic, receiving, incoming inspection, and salvage operations. Synonym: Purchasing Product: Something that has been or is being produced. Product Characteristics: All of the elements that define a products character, such as size, shape, weight, etc. Product Description: The users description of the product. Product Family: A group of products with similar characteristics often used in production planning (or sales and operations planning). Product ID: A method of identifying a product without using a full description. These can be different for each document type and must, therefore, be captured and related to the document in which they were used. They must then be related to each other in context (also known as SKU, Item Code or Number, or other such name). Production Capacity: Measure of how much production volume may be experienced over a set period of time. Production Line: A series of pieces of equipment dedicated to the manufacture of a specific number of products or families. Production Planning and Scheduling: The systems that enable creation of detailed, optimized plans and schedules, taking into account the resource, material, and dependency constraints to meet the deadlines. Production-Related Material: Production-related material is an item classified as a material purchase and included in cost-of-goods sold as a raw material purchase. Productivity: A measure of resource utilization efficiency defined as the sum of the outputs divided by the sum of the inputs. Profit Ratio: The percentage of profit to sales--that is, profit divided by sales. Profitability Analysis: The analysis of profit derived from cost objects with the view to improve or optimize profitability. Multiple views may be analyzed, such as market segment, customer, distribution channel, product families, products, technologies, platforms, regions, manufacturing capacity, etc. Profitable to Promise: This is effectively a promise to deliver a certain order on agreed upon terms, including price and delivery. Profitable to Promise (PTP) is the logical evolution of Available to Promise (AtP) and Capable to Promise (CTP). While the first two are necessary for profitability, they arent sufficient. For enterprises to survive in a competitive environment, profit optimization is a vital technology. Profit Before Interest and Tax (PBIT): The financial profit generated prior to the deduction of taxes and interest due on loans. Also called operating profit. Pro-forma: A type of quotation or offer that may be used when first negotiating the sales of goods or services. If the pro-forma is accepted, then the terms and conditions of the pro-forma may become the request. Pro Forma Invoice: An invoice, forwarded by the seller of goods prior to shipment, that advises the buyer of the particulars and value of the goods. Usually required by the buyer in order to obtain an import permit or letter of credit. Promotion: The act of selling a product at a reduced price, or a buy oneget one free offer, for the purpose of increasing sales. Pro Number: Any progressive or serialized number applied for identification of freight bills, bills of lading, etc. Proof of Delivery (POD): Information supplied by the carrier containing the name of the person who signed for the shipment, the time and date of delivery and other shipment delivery-related information. POD is also sometimes used to refer to the process of printing materials just prior to shipment ( Print on Demand ). Proportional Rate: A rate lower than the regular rate for shipments that have prior or subsequent moves used to overcome combination rates competitive disadvantages. Protocol: Communication standards that determine message content and format, enabling uniformity of transmissions. Public Warehouse: The warehouse space that is rented or leased by an independent business providing a variety of services for a fee or on a contract basis. Public Warehousing: The storage of goods by a firm that offers storage service for a fee to the public. Public Warehouse receipt: The basic document a public warehouse manager issues as a receipt for the goods a company gives to the warehouse manager. The receipt can be either negotiable or nonnegotiable. Pull Signal: A signal from a using operation that triggers the issue of raw material. Pull or Pull-Through Distribution: Supply chain action initiated by the customer. Traditionally, the supply chain was pushed manufacturers produced goods and pushed them through the supply chain and the customer had no control. In a pull environment, a customers purchase sends replenishment information back through the supply chain from retailer to distributor to manufacturer so goods are pulled through the supply chain. Pull Ordering System: A system in which each warehouse controls its own shipping requirements by placing individual orders for inventory with the central distribution center. A replenishment system where inventory is quotpulledquot into the supply chain (or quotdemand chainquot by POS systems, or ECR programs). Associated with quotbuild to orderquot systems. Purchase Order (PO): The purchasers authorization used to formalize a purchase transaction with a supplier. The physical form or electronic transaction a buyer uses when placing an order for merchandise. Purchase Price Discount: A pricing structure in which the seller offers a lower price if the buyer purchases a larger quantity. Purchasing: The functions associated with buying the goods and services the firm requires. Pure Raw Material: A raw material that does not lose weight in processing. Push Distribution: The process of building product and pushing it into the distribution channel without receiving any information regarding requirements. Also see: Pull or Pull-Through Distribution . Push Ordering System: A situation in which a firm makes inventory deployment decisions at the central distribution center and ships to its individual warehouses accordingly. Push Technology: Web casting (push technology) is the prearranged updating of news, weather, or other selected information on a computer users desktop interface through periodic and generally unobtrusive transmission over the World Wide Web (including the use of the web protocol on intranet). Web casting uses so-called push technology in which the web server ostensibly pushes information to the user rather than waiting until the user specifically requests it. Put Away: Removing the material from the dock (or other location of receipt), transporting the material to a storage area, placing that material in a staging area, and then moving it to a specific location and recording the movement and identification of the location where the material has been place. 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 to an acceptable price. Also, quality has two major components: a) quality of conformance - quality is defined by the absence of defects. b) quality of design - quality is measured by the degree of customer satisfaction with a products characteristics and features. Quality Circle: In quality management, a small group of people who normally work as a unit and meet frequently to uncover and solve problems concerning the quality of items produced, process capability, or process control. Also see: Small Group Improvement Activity. Quality Control: The management function that attempts to ensure that the goods or services in a firm manufacturers or purchases meet the product or service specifications. Quality Function Deployment (QFD): A structured method for translating user requirements into detailed design specifications using a continual stream of quotwhat-howquot matrices. QFD links the needs of the customer (end user) with design, development, engineering, manufacturing, and service functions. It helps organizations seek out both spoken and unspoken needs, translate these into actions and designs, and focus various business functions toward achieving this common goal. Quarantine: The setting aside of items from availability for use or sale until all required quality tests have been performed and conformance certified. Quick Response (QR): A strategy widely adopted by general merchandise and soft lines retailers and manufacturers to reduce retail out of stocks, forced markdowns, and operating expenses. These goals are accomplished through shipping accuracy and reduced response time. QR is a partnership strategy in which suppliers and retailers work together to respond more rapidly to the consumer by sharing point-of-sale scan data, enabling both to forecast replenishment needs. Radio Frequency (RF): A form of wireless communications that lets users relay information via electromagnetic energy waves from a terminal to a base station which is linked, in turn, to a host computer. The terminal can be placed at a fixed station, mounted on a forklift truck, or carried in a workers hand. The base station contains a transmitter and receiver for communication with the terminal. RF systems use either narrow-band or spread-spectrum transmissions. Narrow-band data transmissions move along a single limited radio frequency, while spread-spectrum transmissions move across several different frequencies. When combines with a bar code system of identifying inventory items, a radio frequency system can relay data instantly, thus updating inventory records in so-called real time. Radio Frequency Identification (RFID): The use of radio frequency technology such as RFID tags and tag readers to identify objects. Objects may include virtually anything physical, such as equipment, pallets of stock, or even individual units of product. Ramp Rate: A statement which quantifies how quickly you grow or expand an operation growth trajectory. Can refer to sales, profits, or margins. Rationing: The allocation of product among customers, or components among manufactured goods during periods of short supply. When price is used to allocate product, its allocated to those willing to pay the most. Raw Materials (RM): Crude or processed material that can be converted by manufacturing, processing, or a combination thereof into a new and useful product. Real Time: The processing of data in a business application as it happens, as contrasted with storing data for input at a later time (batch processing). Receiving: The function encompassing the physical receipt of material, the inspection of the shipment for conformance with the purchase order (quantity and damage), the identification and delivery to destination, and the preparation of receiving reports. Receiving Dock: Distribution center location where the actual physical receipt of the purchased material from the carrier occurs. Reengineering: (1) A fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance. (2) A term used to describe the process of making (usually) significant and major revisions or modifications to business processes. (3) Also called Business Process Reengineering. Refrigerated Carriers: Truckload carriers designed to keep perishables good refrigerated. The food industry typically uses this type of carrier. Release-to-Start Manufacturing: Average time from order release to manufacturing to the start of the production process. This cycle time may typically be required to support activities like material movement and line changeovers. Replenishment: The process of moving or resupplying inventory from a reserve (or upstream) storage location or facility to a primary (or downstream) storage or picking location, or to another mode of storage in which picking is performed. Request for Information (RFI): A document used to solicit information about vendors, products, and services prior to a formal RFQRFP process. Request for Proposal (RFP): A document which provides information concerning needs and requirements for a manufacturer. This document is created in order to solicit proposals from potential suppliers. For example, a computer manufacturer may use an RFP to solicit proposals from suppliers of third party logistics services. Request for Quote (RFQ): A document used to solicit vendor responses when a product has been selected and price quotations are needed from several vendors. Resellers: Organizations intermediate in manufacturing and distribution process such as wholesalers and retailers. Resource Driver: In cost accounting, the best single quantitative measure of the frequency and intensity of demands placed on a resource by other resources, activities, or cost objects. Its used to assign resource costs to activities and cost objects, or to other resources. Resources: Economic elements applied or used in the performance of activities or to directly support cost objects. They include people, materials, supplies, equipment, technologies, and facilities. Also see: Resource Driver, Capacity . Retailer: A business that takes title to products and resells them to final consumers. Examples include Wal-Mart, Best Buy, and Safeway, but also include the many smaller independent stores. Return Disposal Costs: The costs associated with disposing or recycling products that have been returned due to customer rejects, end of life, or obsolescence. Return Goods Handling: Processes involved with returning goods from the customer to the manufacturer. Products may be returned because of performance problems or simply because the customer doesnt like the product. Return Material Authorization or Return Merchandise Authorization (RMA): A number usually produced to recognize and give authority for a faulty (perhaps) good to be returned to a distribution center or manufacturer. A form generally required with a warrantyreturn which helps the company identify the original product and the reason for the return. The RMA number often acts as an order form for the work required in repair situations, or as a reference for credit approval. Return on Assets (ROA): Financial measure calculated by dividing profit by assets. Return on Sales: Financial measure calculated by dividing profit by sales. Return Order Management Costs: The costs associated with managing Return Material Authorization (RMA). Includes all applicable elements of the Level 2 component order management cost of total supply chain management cost. Return Product Authorization (RPA): Also called Return Material or Goods Authorization (RMA or RGA). A form generally required with a warrantyreturn which helps the company identify the original product and the reason for the return. The RPA number often acts as an order form for the work required in repair situations or as a reference for credit approval. Return to Vendor (RTV): Material that has been rejected by the customer or the buyers inspection department and is awaiting shipment back to the supplier for repair or replacement. Returns Inventory Costs: The costs associated with managing inventory returned for any of the following reasons: repair, refurbish, excess, obsolescence, end of life, ecological conformance, and demonstration. Includes all applicable elements of the Level 2 component Inventory Carrying Cost of Total Supply Chain Management Cost. Returns Material Acquisition, Finance, Planning, and IT Costs: The costs associated with acquiring the defective products and materials for repair or refurbishing items, plus any finance, planning, and information technology costs to support return activity. Includes all applicable elements of the Level 2 components material acquisition cost (acquiring materials for repairs), supply chain-related finance and planning costs, and supply chain management cost. Returns Processing Cost: The total cost to process repairs, refurbished, excess, obsolete, and end-of-life products, including diagnosing problems and replacing products. Includes the costs of logistics support, materials, centralized functions, troubleshooting service requests, on-site diagnosis and repair, external repair, and miscellaneous. These costs are broken into Returns Order Management, Returns Inventory Carrying, Returns Material Acquisition, Finance, Planning, IT, Disposal, and Warranty Costs. Returns to Scale: A defining characteristic of B2B. Bigger is better. Its what creates the quotwinner takes allquot quality of most B2B hubs. It also places a premium on being first to market and first to achieve critical mass. Reverse Engineering: A process whereby competitors products are disassembled and analyzed for evidence of the use of better processes, components, and techniques. Reverse Logistics: A specialized segment of logistics focusing on the movement and management of products and resources after the sale and after delivery to the customer. Includes product returns for repair andor credit. Roof Fairings: An integrated air deflector mounted on the top of the cab. Root Cause Analysis: Analytical methods to determine the core problem(s) of an organization, process, products, market, etc. Route Trucks Delivery: Trucks that travel fixed routes. Routing or Routing Guide: (1) Process of determining how shipment will move between origin and destination. Routing information includes designation of carrier(s) involved, actual route of carrier, and estimate time en route. (2) Right of shipper to determine carriers, routes, and points for transfer shipments. (3) In manufacturing, this is the document which defines a process of steps used to manufacture andor assemble a product. Routing Accuracy: When specified activities conform to administrative specifications, and specified resource consumptions (both man and machine) are detailed according to administrative specifications and are within 10 of actual requirements. Rules: Documented definitions of how work is to be performed. Safety Stock: The inventory a company holds above normal needs as a buffer against delays in receipt of supply or changes in customer demand. Salable Goods: A part of assembly authorized for sale to final customers through the marketing function. Sales and Operations Planning (SampOP): A strategic planning process that reconciles conflicting business objectives and plans future supply chain actions. SampOP usually involves various business functions, such as sales, operations, and finance to agree on a single planforecast that can be used to drive the entire business. Sales Mix: The proportion of individual product-type sales volumes that make up the total sales volume. Sales Plan: A time-phased statement of expected customer orders anticipated to be received (incoming sales, not outgoing shipment) for each major product family or item. It represents sales and marketing managements commitment to take all reasonable steps necessary to achieve this level of actual customer orders. The sales plan is a necessary input to the production planning process (or sales and operations planning process). It is expressed in units identical to those used for the production plan (as well as in sales dollars). Also see: Sales and Operations Planning . Sales Planning: The process of determining the overall sales plan to best support customer needs and operations capabilities, while meeting general business objectives of profitability, productivity, competitive customer lead times, and so on, as expressed in the overall business plan. Also see: Sales and Operations Planning . Sawtooth Diagram: A quantity-versus-time graphic representation of the order pointorder quantity inventory system showing inventory being received, used up, and reordered. Scalability: 1) How quickly and efficiently a company can ramp up to meet demand. 2) How well a solution to a problem will work when the size of the problem increases. The economies of scale dont really kick in until your reach the critical mass, then revenues start to increase exponentially. Scan: A computer term referring to the action of scanning bar codes or RF tags. Scanlon Plan: A system of group incentives on a companywide or plantwide basis that sets up one measure that reflects the results of all efforts. The Scanlon plan originated in the 1930s by Joe Scanlon and MIT. The universal standard is the ratio of labor costs to sales value added by production. If theres an increase in production sales value with no change in labor costs, productivity has increased while unit cost has decreased. Scenario Planning: A form of planning in which likely sets of relevant circumstances are identified in advance, and used to assess the impact of alternative actions. SCOR: Supply Chain Operations Reference Model. This is the model developed by the Supply-Chain Council (SCC), and is build around six major processes: plan, source, make, deliver, return, and enable. The aim of the SCOR is to provide a standardized method of measuring supply chain performance, and to use a common set of metrics to benchmark against other organizations. Scorecard: A performance measurement tool used to capture a summary of the key performance indicators (KPIs)metrics of a company. Metrics dashboardsscorecards should be easy to read and usually have red, yellow, green indicators to flag when the company is not meeting its metrics targets. Ideally, a dashboardscorecard should be cross functional in nature and include both financial and non-financial measures. In addition, scorecards should be reviewed regularly - at least on a monthly basis and weekly in key functions, such as manufacturing and distribution where activities are critical to the success of a company. The dashboardscorecards philosophy can also be applied to external supply chain partners like suppliers to ensure that their objectives and practices align. Synonym: Dashboard Seasonality: A repetitive pattern of demand from year to year (or other repeating time interval), with some periods considerably higher than others. Seasonality explains the fluctuation in demand for various recreational products which are used during different seasons. Secure Electronic Transaction (SET): In e-commerce, a system of guaranteeing the security of financial transactions conducted over the Internet. Self Billing: A transportation industry strategy which prescribes that a carrier will accept payment based on the tender document provided by the shipper. Self Correcting: A computer term for an online process that validates data and wont allow the data to enter the system unless all errors are corrected. Selling, General, and Administrative (SGampA) Expenses: Includes marketing, communication, customer service, sales, salaries and commissions, occupancy expenses, unallocated overhead, etc. Excludes interest on debt, domestic or foreign income taxes, depreciation and amortization, extraordinary items, equity gains or losses, gain or loss from discontinued operations and extraordinary items. Serial Number: A unique number assigned for identification to a single piece that will never be repeated for similar pieces. Serial numbers are usually applied by the manufacturer but can be applied at other points by the distributor or wholesaler. Serial numbers can be used to support traceability and warranty programs. Service Level: A 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. Service Parts Revenue: The sum of the value of sales made to external customers and the transfer price valuation of sales within the company of repair or replacement parts and supplies, net of all discounts, coupons, allowances, and rebates. Shared Services: Consolidation of a companys back-office processes to form a spinout (0r a separate quotshared servicesquot unit to be run like a separate business), providing services to the parent company and sometimes, to external customers. Shared services typically lower overall cost due to the consolidation, and may improve support as a result of focus. Shareholder Value: Combination of profitability (revenue and costs) and invested capital (working capital and fixed capital). Shelf Life: The amount of time an item may be held in inventory before it becomes unusable. Shelf life is a consideration for food and drugs which deteriorate over time, and for high-tech products which become obsolete quickly. Shingos Seven Wastes: Shigeo Shingo, a pioneer in the Japanese just-in-time philosophy, identified seven barriers to improving manufacturing. They are the waste of overproduction, waste of waiting, waste of transportation, waste of stocks, waste of motion, waste of making defects, and waste of the processing itself. Shipper: The party that tenders goods for transportation. Shipper-Carriers: Shipper-carriers (also called private carriers) are companies with goods to be shipped that own or manage their own vehicle fleets. Many large retailers, particularly groceries and quotbig boxquot stores, are shipper-carriers. Shipping: The function that performs the tasks for the outgoing shipment of parts, components, and products. It includes packaging, marking, weighing, and loading for shipment. Shipping Lane: A predetermined, mapped route on the ocean that commercial vessels tend to follow between ports. This helps ships avoid hazardous areas. In general transportation, the logical route between the point of shipment and the point of delivery used to analyze the volume of shipment between two points. Shipping Manifest: A document that lists the pieces in a shipment. A manifest usually covers an entire load regardless of whether the load is to be delivered to a single destination or many destinations. Manifests usually list the items, piece count, total weight, and the destination name and address for each destination in the load. Shop Floor Production Control Systems: The systems that assign priority to each shop order, maintaining work-in-process quantity information, providing actual output data for capacity control purposes, and providing quantity by location by shop order for work-in-process inventory and accounting purposes. Short Shipment: Piece of freight missing from shipment as stipulated by documents on hand. Shrinkage: Reductions of actual quantities of items in stock, in process, or in transit. The loss may be caused by scrap, theft, deterioration, evaporation, etc. Sigma: A Greek letter commonly used to designate the standard deviation of a population. Six-Sigma Quality: A term generally used to indicate that a process is well controlled, I. e. tolerance limits are -6 sigma (3.4 defects per million events) from the centerline in a control chart. The term is usually associated with Motorola which named one of its key operations initiatives Six-Sigma Quality. Skills Matrix: A visible means of displaying peoples skill levels in various tasks. Used in a team environment to identify the skills required by the team and which team members possess those skills. Slotting: Warehouse slotting is defined as the placement of products within a warehouse facility. Its objective is to increase picking efficiency and reduce warehouse handling costs through optimizing product location and balancing the workload. Small Group Improvement Activity: An organizational technique for involving employees in continuous improvement activities. Also see: Quality Circle . SMART: See Specific, Measurable, Achievable, Realistic, Time Based. Specific, Measurable, Achievable, Realistic, Time Based (SMART): A shorthand description of a way of setting goals and targets for individuals and teams. Spam: A computer industry term referring to the act of sending identical and irrelevant postings to many different newsgroups or mailing lists. Usually this posting is something that has nothing to do with the particular topic of a newsgroup or of no real interest to the person on the mailing list. Split Delivery: A method by which a larger quantity is ordered on a purchase order to secure a lower price, but delivery is divided into smaller quantities and is spread out over several dates to control inventory investment, save storage space, etc. Spot Demand: Demand with a short lead time thats difficult to estimate. Usually supply for this demand is provided at a premium price. An example of spot demand would be when theres a spiked demand for building materials as a result of a hurricane. Staging: Pulling material for an order from inventory before the material is required. This action is often taken to identify shortages, but it can lead to increased problems in availability and inventory accuracy. Also see: Accumulation Bin Stakeholders: People with a vested interest in a company, including manager, employees, stockholders, customers, suppliers, and others. Standard Components: Components (parts) of a product for which there is an abundance of suppliers. Not difficult to produce. An example would be a power cord for a computer. Standard Cost Accounting System: A cost accounting system that uses cost units determined before production for estimating the cost of an order or product. For management control purposes, the standards are compared to actual costs, and variances are computed. Standing Order: See Blanket Purchase Order. Statement of Work (SOW): 1) A description of products to be supplied under a contract. A good practice is for companies to have SOWs in place with their trading partners - especially for all top suppliers. 2) In projection management, the first project planning document that should be prepared. It describes the purpose, history, deliverables, and measurable success indicators for a project. It captures the support required from the customer and identifies contingency plans for events that could throw the project off course. Because the project must be sold to management, staff, and review groups, the statement of work should be a persuasive document. Statistical Process Control (SPC): A visual means of measuring and plotting process and product variation. Results are used to adjust variables and maintain product quality. Stickering: Placing customer-specific stickers on boxes of product. An example would be where Wal-Mart has a request for their own product codes to be applied to retail boxes prior to shipment. Stock-Keeping Unit (SKU): A category of unit with a unique combination of form, fit, and function (i. e. unique components held in stock). To illustrate: If two items are indistinguishable to the customer, or if any distinguishing characteristics visible to the customer are not important to the customer so that the customer believes the two items to be the same, these two items are part of the same SKU. As a further illustration . consider a computer company that allows customers to configure a complete computer from a selection of standard components. For example, they can choose from three keyboards, three monitors, and three CPUs. Customers may also individually buy keyboards, monitors, and CPUs. If the stock were held at the configuration component level, the company would have nine SKUs. If the company stocks at the component level, the company would have 36 SKUs. (9 component SKUs 333 configured product SKUs.) If, as part of a promotional campaign, the company also specially packaged the products, the company would have a total of 72 SKUs. Straight Truck: Straight trucks do not have a separate tractor and trailer. The driving compartment, engine and trailer are one unit. Strategic Alliance: Business relationship in which two or more independent organizations cooperate and willingly modify their business objectives and practices to help achieve long-term goals and objectives. Sub-Optimization: Decisions or activities in part made at the expense of the whole. An example of sub-optimization is where a manufacturing unit schedules production to benefit its cost structure without regard to customer requirements or the effect on other business units. Subcontracting: Sending production work outside to another manufacturer. This can involve specialized operations such as plating metals or complete functional operations. Also see: Outsource. Subhauler: A subhauler drives a tractor under contract for a company. Usually a subhauler is an owneroperator or a small company. Sunk Cost: 1) The unrecovered balance of an investment. Its a cost already paid that is not relevant to the decision concerning the future that is being made. Capital already invested that for some reason cannot be retrieved.2) A past cost that has no relevance with respect to future receipts and disbursements of a facility undergoing an economic study. This concept implies that since a past outlay is the same regardless of the alternative selected, it should not influence the choice between alternatives. Supplier: 1) A provider of goods or services. Also see: Vendor . 2) A seller with whom the buyer does business, as opposed to vendor, which is a generic term referring to all sellers in the marketplace. Supplier Certification: Certification procedures verifying that a supplier operates, maintains, improves, and documents effective procedures that relate to the customers requirements. Such requirements can include cost, quality, delivery, flexibility, maintenance, safety, and ISO quality and environmental standards. Supplier-Owned Inventory: A variant of Vendor-Managed Inventory and Consignment Inventory. In this case the supplier not only manages the inventory, but also owns the stock close to or at the customer location until the point of consumption or usage by the customer. Supply Chain: (1) Starting with unprocessed raw materials and ending with the final customer using the finished goods, the supply chain links many companies together. (2) The material and informational interchanges in the logistical process, stretching from acquisition of raw materials to delivery of finished products to the end user. All vendors, service providers, and customers are links in the supply chain. Supply Chain Design: The determination of how to structure a supply chain. Design decisions include the selection of partners, the location and capacity of warehouse and production facilities, the products, the modes of transportation, and supporting information systems. Supply Chain Execution (SCE): The ability to move the product out of the warehouse door. This is a critical capacity and one that only brick-and-mortar firms bring to the B2B table. Dot coms have the technology, but thats only part of the equation. The need for SCE is what is driving the dot coms to offer equity partnerships to the wholesale distributors. Supply Chain Event Management (SCEM): SCEM is an application that supports control processes for managing events within and between companies. It consists of integrated software functionality that supports five business processes: monitor, notify, simulate, control, and measure supply chain activities. Supply Chain Integration (SCI): Likely to become a key competitive advantage of selected e-marketplaces. Similar concept to the back-end integration, but with greater emphasis on the moving of goods and services. Supply Chain Inventory Visibility: Software applications that permit monitoring events across a supply chain. These systems track and trace inventory globally on a line-item level, and notify the user of significant deviations from the plans. Companies are provided with realistic estimates of when the material will arrive. Supply Chain Management (SCM): Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activites. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply chain management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive, high-performing business model. It includes all of the logistics managment activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance, and information technology. mdash as defined by the Council of Supply Chain Management Professionals (CSCMP) Supply Chain Network Design Systems: The systems employed in optimizing the relationships among the various elements of the supply chain manufacturing plants, distribution centers, points of sale, as well as raw materials, relationships among product families, and other factors to synchronize supply chains at a strategic level. Supply Chain-Related Finance and Planning Cost Element: One of the elements comprising a companys total supply chain management costs. These costs consist of the following: 1. Supply-Chain Finance Costs: Costs associated with paying invoices, auditing physical counts, performing inventory accounting, and collecting accounts receivable. Does NOT include customer invoicingaccounting costs (See Order Management Costs). 2. DemandSupply Planning Costs: Costs associated with forecasting developing finished goods, intermediate, subassembly or end-item inventory plans, and coordinating demandsupply. Supply Chain-Related IT Costs: Information technology (IT) costs (in US dollars) associated with major supply chain management processes as described below. These costs should include: Development costs (costs incurred in process reengineering, planning, software development, installation, implementation, and training associated with new andor upgraded architecture, infrastructure, and systems to support the described supply chain management processes), Execution costs (operating costs to support supply chain process users, including computer and network operations, EDI and telecommunications services, and amortizationdepreciation of hardware) Maintenance costs (costs incurred in problem resolution, troubleshooting, repair, and routine maintenance associated with installed hardware and software for described supply chain management processes. Includes costs associated with database administration systems configuration control, release planning, and management). These costs are associated with the following processes: PLAN 1. Product Data Management - Product phase-inphase-out and release post-introduction support and expansion testing and evaluation end-of-life inventory management. Item master definition and control. 2. Forecasting and DemandSupply Manage and Finished Goods - Forecasting end-item inventory planning, DRP, production master scheduling for all products, all channels. SOURCE 1. SourcingMaterial Acquisition - Material requisitions, purchasing, supplier quality engineering, inbound freight management, receiving, incoming inspection, component engineering, tooling acquisition, accounts payable. 2. Component and Supplier Management - Part number cross references, supplier catalogs, approved vendor lists. 3. Inventory Management - Perpetual and physical inventory controls and tools. MAKE 1. Manufacturing Planning - MRP, production scheduling, tracking, manufacturing engineering, manufacturing documentation management, inventoryobsolescence tracking. 2. Inventory Management - Perpetual and physical inventory controls and tools. 3. Manufacturing Execution - MES detailed and finite interval scheduling, process controls, and machine scheduling. DELIVER 1. Order Management - Order entrymaintenance, quotes, customer database, productprice database, accounts receivable, credits and collections, invoicing. 2 . Distribution and Transportation Management - DRP, shipping, freight management, traffic management. 3. Inventory Management - Perpetual and physical inventory controls and tools. 4. Warehouse Management - Finished goods, receiving and stocking, pickpack. 5. Channel Management - Promotions, pricing and discounting, customer satisfaction surveys. 6. Field ServiceSupport - Field service, customer and field support, technical service, servicecall management, returns, warranty tracking. EXTERNAL ELECTRONIC INTERFACES PlanSourceMakeDeliver - Interfaces, gateways, and data repositories created and maintained to exchange supply chain-related information with the outside world. E-commerce initiatives. Includes development and implementation costs. Note: Accurate assignment of IT-related cost is challenging. It can be done using activity-based costing methods or using other approaches, such as allocation based on user counts, transactions counts, or departmental headcounts. The emphasis should be on capturing all costs. Costs for any outsourced IT activities should be included. Supply Chain Strategic Planning: The process of analyzing, evaluating, and defining supply chain strategies, including network design, manufacturing and transportation strategy, and inventory policy. Supply Planning: The process of identifying, prioritizing, and aggregating, as a whole with constituent parts, all sources of supply that are required and add value in the supply chain of a product or service at the appropriate level, horizon, and interval. Supply Warehouse: A warehouse that stores raw materials. Goods from different suppliers are picked, sorted, staged, or sequenced at the warehouse to assemble plant orders. Support Costs: Costs of activities not directly associated with producing or delivering products or services. Examples are the costs of information systems, process engineering, and purchasing. Also see: Indirect Cost . Surrogate item Driver: In ABC costing, a substitute for the ideal cost driver, but closely correlated to the ideal driver, where item is Resource, Activity, or Cost Object. A surrogate driver is used to significantly reduce the cost of measurement while not significantly reducing accuracy. For example, the number of production runs is not descriptive of the material-disbursing activity, but the number of production runs may be used as an activity driver if material disbursements correlate well with the number of production runs. Sustaining Activity: An activity that benefits an organizational unit as a whole, but not any specific cost object. SWOT Analysis: An analysis of the strengths, weaknesses, opportunities, and threats of and to an organization. SWOT analysis is useful in developing strategy. Synchronization: The concept that all supply chain functions are integrated and interact in real time when changes are made to one area, the effect is automatically reflected throughout the supply chain. 247365: Referring to operations that are conducted 24 hours a day, 7 days a week, 365 days per year, with no breaks for holidays, etc. 247: Referring to operations that are conducted 24 hours a day, 7 days a week. 3D Loading: 3D loading is a method of space optimizing designed to help quickly and easily plan the best compact arrangement of any 3D rectangular object set (boxes) within one or more larger rectangular enclosures (containers). Its based on three-dimensional, most-dense packing algorithms. Tactical Planning: The process of developing a set of tactical plants (e. g. production plan, sales plan, marketing plan, and so on). Two approaches to tactical planning exist for linking tactical plans to strategic plans - production planning and sales and operations planning. Also see: Sales and Operations Planning . Taguchi Method: A concept of offline quality control methods conducted at the product and process design states in the product development cycle. This concept, expressed by Genichi Taguchi, encompasses three phases of product design, parameter design, and tolerance design. The goal is to reduce quality loss by reducing the variability of a products characteristics during the parameter phase of product development. Takt Time: Sets the pace of production to match the rate of customer demand and becomes the heartbeat of any lean production system. Its computed as the available production time divided by the rate of customer demand. For example, assume demand is 10,000 units per month, or 500 units per day, and planned available capacity is 420 minutes per day. The takt time 420 minutes per day500 units per day 0.84 minutes per unit. This takt time means that a unit should be planned to exit the production system on average every 0.84 minutes. Tare Weight: The weight of a substance obtained by deducting the weight of the empty container from the gross weight of the full container. Target Costing: A target cost is calculated by subtracting the desired profit margin from an estimated or market-based price to arrive at a desired production, engineering, or marketing cost. This may not be the initial production cost, but one expected to be achieved during the mature production stage. Target costing is a method used in the analysis of product design that involves estimated a target cost, then designing the productservice to meet that cost. Tariff: A tax assessed by a government on goods entering or leaving a country. The term is also used in transportation in reference to the fees and rules applied by a carrier for its services. Tasks: The breakdown of the work in an activity into smaller elements. Tender: The document which describes a business transaction to be performed. Terms and Conditions (Ts amp Cs): All the provisions and agreements of a contract. Theory of Constraints (TOC): A production management theory which dictates that volume is controlled by a series of constraints related to work center capacity, component availability, finance, etc. Total throughput cannot exceed the capacity of the smallest constraint, and any inventory buffers or excess capacity at non-related work center is waste. Third Party Logistics: Outsourcing all or much of a companys logistics operations to a specialized company. Third Party Logistics Provider (3PL): A firm which provides multiple logistics services for use by customers. Preferably, these services are integrated or bundled together, by the provider. These firms facilitate the movement of parts and materials from suppliers to manufacturers, and finished products from manufacturers, and finished products from manufacturers to distributors and retailers. Among the services they provide are transportation, warehousing, cross docking, inventory management, packaging, and freight forwarding. Third Party Warehousing: The outsourcing of the warehousing function by the seller of the goods. Throughput: A measure of warehousing output volume (weight, number of units). Also, the total amount of units received, plus the total amount of units shipped divided by two. TMS: See Transportation Management System TOC: See Theory of Constraints Total Annual Sales: Total Annual Sales are Total Product Revenue plus post-delivery revenues (e. g. maintenance and repair or equipment, system integration) royalties, sales of other services, spare parts revenue, and rentallease revenues. Total Average Inventory: Average normal use stock, plus average lead stock, plus safety stock. Total Cost Analysis: A decision-making approach that considers minimization of total costs and recognizes the inter-relationship among system variables, such as transportation, warehousing, inventory, and customer service. Total Cost Curve: 1) In cost-volume-profit (break-even) analysis, the total cost curve is composed of total fixed and variable costs per unit multiplied by the number of units provided. Break-even quantity occurs where the total cost curve and total sales revenue curve intersect.2) In inventory theory, the total cost curve for an inventory item is the sum of the costs of acquiring and carrying the item. Total Cost of Ownership (TCO): Total cost of a computer asset throughout its life cycle, from acquisition to disposal. TCO is the combined hard and soft costs of owning networked information assets. quotHardquot costs include items such as the purchase price of the asset, implementation fees, upgrades, maintenance, contracts, support contracts, disposal costs, and license fees that may or may not be up-front or charged annually. These costs are considered quothard costsquot because they are tangible and easily accounted for. Total Cumulative Manufacture Cycle Time: Average time between commencement of upstream processing and completion of final packaging for shipment operations as well as release of approval for shipment. Does not include WIP storage time. Calculation: Average of units in WIPAverage daily output in units - WIP days of supply Total Make Cycle Time: The average processing time between commencement of upstream processing and completion of all manufacturing process steps up to, but not including, packaging and labeling operations (i. e. from start of manufacturing to final formulated product ready for primary packaging.) Does not include hold or test and release times. Calculation: Average of units in active manufacturingAverage daily output in units. Total Product Revenue: The total value of sales made to external customers plus the transfer price valuation of intra-company shipments, net of all discounts, coupons, allowances, and rebates. Includes only the intra-company revenue for product transferring out of an entity, installation services if these services are sold bundled with end products, and recognized leases to customers initiated during the same period as revenue shipments, with revenue credited at the average selling price. Note: Total Product Revenue excludes post-delivery revenues (maintenance and repair of equipment, system integrations), royalties, sales of other services, spare parts revenue, and rentallease revenues. Total Productive Maintenance (TPM): Team-based maintenance process designed to maximize machine availability and performance and product quality. Total Supply Chain Management Cost (five elements): Total cost to manage order processing, acquire materials, manage inventory, and manage supply chain finance, planning, and IT costs as represented as a percent of revenue. Accurate assignment of IT-related cost is challenging. It can be done using activity-based costing methods, or more traditional-based approaches. Allocation based on user counts, transaction counts, or departmental headcounts are reasonable approaches. The emphasis should be on capturing all costs, whether incurred in the entity completing the survey or in a supporting organization on behalf of the entity. Reasonable estimates founded in data were accepted as means to assess overall performance. All estimates reflected fully-burdened actuals inclusive of salary, benefits, space and facilities, and general and administrative allocations. Calculation: Order Management Costs Material Acquisition Costs Inventory Carrying Costs Supply-Chain Related Finance and Planning Costs Total Supply Chain-Related IT CostsTotal Product Revenue (Please see individual component categories for component detail and calculations.) Total Supply Chain Response Time: The time it takes to rebalance the entire supply chain after determining a change in market demand. Also, a measure of a supply chains ability to change rapidly in response to marketplace changes. Calculation: Forecast Cycle Time Re-Plan Cycle Time Intra-Manufacturing Re-Plan Cycle Time Cumulative SourceMake Cycle Time Order Fulfillment Lead Time Total Test Release Cycle Time: The average total test and release time for all tests, documentation reviews, and batch approval processes performed from start of manufacturing to release of final packaged product for shipment. Calculation: Average number of units in test and releaseAverage daily output in units Touch Labor: The labor that adds value to the product - assemblers, welders, packagers, etc. This does not include indirect resources like material handlers who move and stage product, and mechanical and electrical technicians who maintain equipment. Tracing: The practice of relating resources, activities, and cost objects using the drivers underlying their cost causal relationships. The purpose of tracing is to observe and understand how costs are arising in the normal course of business operations. Synonym: Assignment. Tractor: The tractor is the driver compartment and engine of the truck. It has two or three axles. Traceability: 1) The attribute allowing the ongoing location of a shipment to be determined. 2) The registering and tracking of parts, processes, and materials used in production, by lot or serial number. Tracking and Tracing: Monitoring and recording shipment movements from origin to destination. Trading Partner: Companies that do business with each other via EDI (e. g. send and receive business documents such as purchase orders). Trading Partner Agreement: The written contract that spells out agreed upon terms between EDI trading partners. Traffic: A department or function charged with the responsibility of arranging the most economic classification and method of shipment for both incoming and outgoing materials and products. Traffic Management: The management and controlling of transportation modes, carriers, and services. Trailer: The part of the truck that carries the goods. Trailer Drops: When a driver drops off a full truck at a warehouse and picks up an empty one. Trailer on a Flat Car (TOFC): A specialized form of containerization in which motor and rail transport coordinate. Synonym: Piggyback. Transaction: A single completed transmission, e. g. transmission of an invoice over an EDI network. Analogous to usage of the term in data processing in which a transaction can be an inquiry or a range of updates and trading transactions. The definition is important for EDI service operators who must interpret invoices and other documents. Transaction Set: Commonly used business transactions (e. g. purchase order, invoice, etc.) organized in a formal, structured manner consisting of a transaction set header control segment, one or more data segments, and a transaction set trailer control data segment. Transaction Set ID: A three digit numerical representation that identifies a transaction set. Transactional Acknowledgement: Specific transaction sets, such as the Purchase Order Acknowledgement (855), that both acknowledges receipt of an order and provides special status information, such as reschedules, price changes, back order situation, etc. Transit Time: The total time that elapses between a shipments pickup and delivery. Transparency: The ability to gain access to information without regard to the systems landscape or architecture. An example would be where an online customer could access a vendors web site to place an order and receive availability information supplied by a third party outsource manufacturer or shipment information from a third party logistics provider. Also see: Visibility. Transportation Management System: A computer system designed to provide optimized transportation management in various modes along with associated activities, including managing shipping units, labor planning and building, shipment scheduling through inbound, outbound, intra-company shipments, documentation management (especially when international shipping is involved), and third party logistics management. Transportation Mode: The method of transportation: land, sea, or air shipment. Transportation Planning: The process of defining an integrated supply chain transportation plan and maintaining the information which characterizes total supply chain transportation requirements, and the management of transporters, both inter - and intra - company. Transportation Planning Systems: The systems used in optimizing assignments from plants to distribution centers, and from distribution centers to stores. The systems combine moves to ensure the most economical means are employed. Trend: General upward or downward movement of a variable over time such as demand for a product. Trends are used in forecasting to help anticipate changes in consumption over time. Trend Forecasting Models: Methods for forecasting sales data when a definite upward or downward pattern exists. Models include double exponential smoothing, regression, and triple smoothing. Truck Stop Electrification (TSE): Provides power outlets at truck parking spaces in which truck drivers can simply plug in, and turn off their engines, rather than idle their truck engine. Truckload Carriers (TL): Trucking companies which move full truckloads of freight directly from the point of origin to destination. Truckload Lot: A truck shipment that qualifies for a lower freight rate because it meets a minimum weight andor volume. Turnover: 1) Typically refers to inventory turnover 2) In the United Kingdom and certain other countries, turnover refers to annual sales volume. Also see: Inventory Turns . Ubiquity: A raw material that is found at all locations. Umbrella Rate: An ICC ratemaking practice that held rates to a particular level to protect another modes traffic. Unbundled PaymentRemittance: The process where payment is delivered separately from its associated detail. UNECE: United Nations Economic Commission for Europe. Uniform Code Council (UCC): A US association that administrates UCS, WINS, and VICS and provides UCS identification codes and UPC codes. Also, a model set of legal rules governing commercial transmissions, such as sales, contracts, bank deposits and collections, commercial paper, and letters or credit. Individual states give legal power to the UCC by adopting its articles of law. Uniform Product Code (UPC): A standard product numbering and bar coding system used by the retail industry. UPC codes are administered by the Uniform Code Council. They identify the manufacturer as well as the item, and are included on virtually all retail packaging. Also see: Uniform Code Council . Uniform Resource Locator (URL): A string that supplies the Internet address of a web site or resource on the World Wide Web, along with the protocol by which the site or resource is accessed. The most common URL type is , which gives the Internet address of a web page. Some other URL types are gopher:, which gives the Internet address of a Gopher directory, and ftp:, which gives the network location of an FTP resource. Uniform Warehouse Receipts Act: The act that sets forth the regulations governing public warehousing. The regulations define a warehouse managers legal responsibility and define the types of receipts he or she issues. Unit Cost: The cost associated with a single unit of product. The total cost of producing a product or service divided by the total number of units. The cost associated with a single unit of measure underlying a resource, activity, product, or service. Its calculated by dividing the total cost by the measured volume. Unit cost measurement must be used with caution as it may not always be practical or relevant in all aspects of cost management. Unit Load Device (ULD): Refers to airfreight containers and pallets. Unit of Measure (UOM): The unit in which the quantity of an item is managed, e. g. pounds, each, box of 12, package of 20, or case of 144. Various UOMs may exist for a single item. For example, a product may be purchased in cases, stocked in boxes, and issued in single units. Unit Train: An entire, uninterrupted locomotive, car, and caboose movement between an origin and destination. United Nations Standard Product and Service Code (UNSPSC): Developed jointly between the United Nations and Dun amp Bradstreet (DampB). It has a five-level coding structure (segment, family, class, commodity, business function) for nearly 9,000 products. United States Railway Association: The planning and funding agency for Conrail created by the 3-R Act of 1973. Unitization: In warehousing, the consolidation of several units into larger units into larger units for fewer handlings. Unitize: To consolidate several packages into one unit carriers strap, band, or otherwise attach the several packages together. Unplanned Order: Orders which are received that do not fit into the volumes prescribed by the plans developed from forecasts. Upsell: The practice of attempting to sell a higher-value product to the customer. Upside Production Flexibility: The number of days required to complete manufacture and delivery of an unplanned sustainable 20 increase in end-product supply of the predominant product line. The one constraint that is estimated to be the principal obstacle to a 20 increase in end-product supply as represented in days is Upside Flexibility: Principal Constraint. Upside flexibility can affect three possible areas: direct labor availability, internal manufacturing capacity, and key components or material availability. Upstream: Principal direction of movement for customer orders which originate at point of demand or use, as well as other flows, such as return product movements, payments for purchases, etc. Opposite of downstream. Urban Mass Transportation Administration: A U. S. Department of Transportation agency that develops comprehensive mass transport systems for urban areas and for providing financial aid to transit systems. Valuation Charges: Transportation charges to shippers who declare a value of goods higher than the value of the carriers limits of liability. Value Added: Increased or improved value, worth, functionality, or usefulness. Value-Added Network (VAN): A company that acts as a clearinghouse for electronic transactions between trading partners. A third party supplier that receives EDI transmissions from sending trading partners and holds them in a mailbox until retrieved by the receiving partners. Value-Added Productivity Per Employee: Contribution made by employees to total product revenue minus the material purchases divided by total employment. Total employment is total employment for the entity being surveyed. This is the average full-time equivalent employee in all functions, including sales and marketing, distribution, manufacturing, engineering, customer service, finance, general and administrative, and other. Total employment should include contract and temporary employees on a full-time equivalent (FTE) basis. Calculation: Total Product Revenue-External Direct MaterialFTEs Value AddingNon-Value Adding: Assessing the relative value of activities according to how they contribute to customer value or to meeting an organizations needs. The degree of contribution reflects the influence of an activitys cost driver(s). Value Analysis: A method to determine how features of a product or service relate to cost, functionality, appeal and utility to a customer (i. e. engineering value analysis). Also see: Target Costing . Value Based Return (VPB): A measure of the creation of value. Its the difference between economic profit and capital charge. Value Chain: A series of activities, when combined, define a business process the series of activities from manufacturers to the retail stores that define the industry supply chain. Value Chain Analysis: A method of identifying all the elements in the linkage of activities a firm relies on the secure the necessary materials and services starting from their point of origin to manufacture, and to distribution of their products and services to an end user. Value-of-Service Pricing: Pricing according to the value of the product the company is transporting third-degree price discrimination demand-oriented pricing charging what the traffic will bear. Value Proposition: What the hub offers to members. To be truly effective, the value proposition has to be two-sided - a benefit to both buyers and sellers. Variable Cost: A cost that fluctuates with the volume or activity level of business. Velocity: Rate of product movement through a warehouse. Vendor: The manufacturer or distributor of an item or product line. Also see: Supplier . Vendor Code: a unique identifier, usually a number and sometimes the companys DUNS number, assigned by a customer for the vendor it buys from. Example: a grocery store chain buys Oreo cookies from Nabisco. For accounting purposes, the grocery store chain identifies Nabisco as Vendor 76091. One company can have multiple vendor codes. Example: Welchs Foods sells many different products - frozen grape juice concentrate, chilled grape juice, bottled grape juice, and grape jelly. Because each of these items is a different type of product (frozen food, chilled food, beverages, dry food), they may also have a different buyer at the grocery store chain, requiring a different vendor code for each product line. Vendor-Managed Inventory (VMI): The practice of retailers making suppliers responsible for determining order size and timing, usually based on receipt of retail POS and inventory data. Its goal is to increase retail inventory turns and reduce stock outs. Vertical HubVertical Portal: Serving one specific industry. Vertical portal web sites are ones that cater to customers within a particular industry. Similar to the term quotvertical industry, quot these web sites are industry specific, and, like a portal, they make use of Internet technology by using the same kind of personalization technology. In addition to industry-specific vertical portals that cater to consumers, another definition of a vertical portal is one that caters solely to other businesses. Vertical Integration: The degree to which a firm has decided to directly produce multiple value-adding stages, from raw material to the sale of the product to the ultimate consumer. The more steps in the sequence, the greater the vertical integration. A manufacturer that decides to begin producing parts, components, and materials that it normally purchases is said to be backward integrated. Likewise, a manufacturer that decides to take over distribution and perhaps sale to the ultimate consumer is said to be forward integrated. Vessel: A floating structure designed for transport. Vessel Manifest: A list of all cargoes on a vessel. Viral Marketing: The concept of embedding advertising into web portals and pop ups, and as e-mail attachments to spread the word about products or services that the target audience may not otherwise have been interested in. Virtual Corporation: The logical extension of outpartnering. With the virtual corporation, the capabilities and systems of the firm are managed with those of the suppliers, resulting in a new type of corporation where the boundaries between the suppliers systems and those of the firm seem to disappear. The virtual corporation is dynamic in that the relationships and structures formed change according to the changing needs of the customer. Virtual Factory: A changed transformation process most frequently found under the virtual corporation. Its a transformation process that involves merging the capabilities and capacities of the firm with those of its suppliers. Typically, the components provided by the suppliers are hose that are not related to a core competency of the firm, while the components managed by the firm are related to core competencies. One advantage found in the virtual factory is that it can be restructured quickly in response to changing customer demands and needs. Visibility: The ability to access or view pertinent data or information as it relates to logistics and the supply chain, regardless of the point in the chain where the data exists. Vision: The shared perception of the organizations future - what the organization will achieve and a supporting philosophy. This shared vision must be supported by strategic objectives, strategies, and action plans to move in in the desired direction. Synonym: Vision Statement. Voice Activated: Systems which guide users such as warehouse personnel via voice commands. von Thunens Belts: A series of concentric rings around a city to identify where agricultural products would be produced according to von Thunens theory. Voyage: The trip designation (trade route and origindestination) identifier, usually numerically sequential. VSA: Vessel Sharing Agreement. Wall-to-Wall Inventory: An inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area. Warehouse: Storage place for products. Principal warehouse activities include receipt of product, storage, shipment, and order picking. Warehousing: The storage (holding) of goods. Warehouse Management System (WMS): The systems used in effectively managing warehouse business processes and direct warehouse activities, including receiving, putaway, picking, shipping, and inventory cycle counts. Also includes support of radio frequency communications, allowing real-time data transfer between the system and warehouse personnel. they also maximize space and minimize material handling by automating putaway processes. Warranty Costs: Includes materials, labor, and problem diagnosis for products returned for repair or refurbishment. Waste: 1) In just in time, any activity that does not add value to the good or service in the eyes of the consumer. 2) A by-product of a process or task with unique characteristics requiring special management control. Waste production can usually be planned and controlled. Scrap is typically not planned and may result from the same production run as waste. Waterway Use Tax: A per-gallon tax assessed barge carriers for waterway Wave Picking: A method of selecting and sequencing picking lists to minimize the waiting time of the delivered material. Shipping orders may be picked in waves combined by a common product, common carrier, or destination, and manufacturing orders in waves related to work centers. Waybill: Document containing description of goods that are part of common carrier freight shipment. Shows origin, destination, consigneeconsignor, and amount charged. Copies travel with goods and are retained by originatingdelivering agents. Used by carrier for internal record and control, especially during transit. Not a transportation contract. Web: A computer term used to describe the global Internet. Synonym: World Wide Web Web Browser: A client application that fetches and displays web pages and other World Wide Web resources to the user. Web Services: A computer term for information processing services that are delivered by third parties using Internet Portals. Standardized technology communications protocols network services a collections of communication formats or endpoints capable of exchanging messages. Web Site: A location on the Internet. Weight Break: The shipment volume at which the LTL charges equal the TL charges at the minimum weight. Weight Confirmation: The practice of confirming or validating receipts or shipments based on the weight. Weight-Losing Raw Material: A raw material that loses weight in processing. Weight-Point Plan: A supplier selection and rating approach that uses the input gathered in the categorical plan approach and assigns weights to each evaluation category. A weighted sum for each supplier is obtained and a comparison made. The weights used should sum to 100 for all categories. Also see: Categorical Plan. Weight Unit Qualifier: The unit of measure that the user wants to see for weight. What You See Is What You Get (WYSIWYG): An editing interface in which a file created is displayed as it will appear to an end user. Wharfage: A charge assessed by a pier or dock owner against the cargo or a steamship company for use of the pier or dock for the handling of incoming or outgoing cargo. Wide-Area Network (WAN): A public or private data communications system for linking computers distributed over a large geographic area. WMS: See Warehouse Management System Work in Process (WIP): Parts and subassemblies in the process of becoming completed finished goods. Work in process generally includes all of the material, labor, and overhead charged against a production order which has not been absorbed back into inventory through receipt of completed products. World Trade Organization (WTO): An organization established on January 1, 1995 replacing the previous General Agreement on Tariffs and Trade GATT that forms the cornerstone of the world trading system. World Wide Web (WWW): A quotmulti-media hyper-linked database that spans the globequot providing information on desktop and handheld computers and other devices such as web compliant phones and televisions. Unlike earlier Internet services, the quotwebquot provides more than just text combining text, pictures, sounds, and even animation in a graphical user interface for ease of navigation. X12: The ANSI standard for inter-industry electronic interchange of business transactions. Yield: The ratio of usable output from a process to its input. Zone of Rate Flexibility: Railroads may raise rates by a percentage increase in the railroad cost index that the ICC determines the railroads could raise rates by 6 percent per year through 1984 and 4 percent thereafter. Zone of Rate Freedom: Motor carriers may raise or lower rates by 10 percent in one year without ICC interference if the rate change is within the zone of freedom, the rate is presumed to be reasonable. Zone of Reasonableness: A zone or limit within which air carriers may change rates without regulatory scrutiny if the rate change is within the zone, the new rate is presumed to be reasonable. Zone Picking: A method of subdividing a picking list by arrears within a storeroom for more efficient and rapid order picking. A zone-picked order must be grouped to a single location and the separate pieces combined before delivery, or must be delivered to different locations such as a work center. Zone Price: The constant price of a product at all geographic locations within a zone. Sources: CSMP - Council of Supply Chain Management Professionals and its member companies WERC - Warehouse Education and Research Council and its member companies Transportation and Logistics Basics-A Handbook, by R. Neil Southern, PhD, Continental Traffic Publishing, copyright 1997 U. S. Department of Transportation - Maritime Administration 1-800-99-MARAD Tradeport-Californias Gateway to International Trade-tradeport. org Sign Up for Our Newsletter