SCM exam 2

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the characteristics of a product or service that bear on its ability to satisfy stated or implied needs; free of deficiencies


value perspective

a quality perspective that holds that quality must be judged, in part, by how well the characteristics of a particular product or service align with the needs of a specific user


conformance perspective

a quality perspective that focuses on whether or not a product was made or a service was performed AS INTENDED


internal failure costs

costs caused by defects that occur prior to delivery to the customer, including money spent on repairing or reworking defective products, as well as time wasted on these activities


external failure costs

costs incurred by defects that are not detected until a product or service reaches the customer


appraisal costs

costs a company incurs to asses its quality levels


prevention costs

the costs an organization incurs to actually prevent defects from occurring to begin with


total cost of quality curve

a curve that suggests there is some optimal quality level, Q*; curve is calculated by adding costs of internal and external failures, prevention costs, and appraisal costs


total quality management

a managerial approach in which the entire organization is managed so that it excels in all quality dimensions that are important to customers


continuous improvement

a principle of TQM that assumes there will always be room for improvement, no matter how well an organization is doing


employee empowerment

giving employees that responsibility, authority, training, and tools necessary to manage quality


quality assurance

the specific actions firms take to ensure that their products, services, and processes meet the quality requirements of their customers


quality function development

a technique used to translate customer requirements into technical requirements for each stage of product development and production


statistical quality control

the application of statistical techniques to quality control


strategic quality plan

an organizational plan that provides the vision, guidance, and measurements to drive the quality effort forward and shift the organization's course when necessary


process owner

a team or individual who has the authority and responsibility for improving the organization's business processes and who is rewarded accordingly


ISO 9000

a family of standards, supported by the International Organization for Standardization, representing an international consensus on good quality management practices; focuses on processes rather than specific outcomes


just-in-time (JIT)

a philosophy of manufacturing based on planned elimination of all waste and on continuous improvement of productivity



a philosophy of production that emphasizes the minimization of the amount of all the resources (including time) used in the various activities of the enterprise; involves identifying and eliminating non-value-adding activities in design, production, SCM, and customer relations


lean six sigma

a methodology that combines the organizational elements and tools of six sigma with lean's focus on waste reduction


lean supply chain management

an extension of the lean philosophy to supply chain efforts beyond production; seeks to minimize the level of resources required to carry out all supply chain activities



any activity that does not add value to the good or service in the eyes of the consumer


kanban system

a production control approach that uses containers, cards, or visual cues to control the production and movement of goods through the supply chain


two-card kanban system

a special form of the kanban system that uses one card to control production and another card to control movement of materials


move card

a kanban card that is used to indicate when a container of parts should be moved to the next process step


production card

a kanban card that is used to indicate when another container of parts should be produced


pull system

a production system in which actual downstream demand sets off a chain of events that pulls materials through the various process steps


sourcing decisions

high-level, often strategic, decisions regarding what products or services will be provided internally, and which will be provided by external supply chain partners



the use of resources within the firm to provide products or services



the use of supply chain partners to provide products or services


make-or-buy decisions

sourcing decisions


core competencies

organizational strengths or abilities, developed over a long period, that customers find valuable and competitors find difficult or even impossible to copy


total cost analysis

a process by which a firm seeks to identify and quantify all of the major costs associated with various sourcing options


direct costs

costs tied directly to the level of operations or supply chain activities, such as the production of a good or service, or transportation


indirect costs

costs that are not tied to the level of operations or supply chain activity


electronic data interchange (EDI)

an information technology that allows supply chain partners to transfer data electronically between their information systems


preferred supplier

a supplier that has demonstrated its performance capabilities through previous purchase contracts, and therefore receives preference during the supplier selection process


single sourcing

the buying firm depends on a single company for all or nearly all of a particular item or service


multiple sourcing

a sourcing strategy in which the buying firm shares its business across multiple suppliers


cross sourcing

a sourcing strategy in which the company uses a single supplier for a certain part or service in one part of the business, and another supplier with the same capabilities for a similar part in another area of the business


dual sourcing

a sourcing strategy in which two suppliers are used for the same purchased product or service


multi-criteria decision models

models that allow decision makers to evaluate various alternatives across multiple decision criteria



the activities associated with identifying needs, locating and selecting suppliers, negotiating terms, and following up to ensure supplier performance


spend analysis

an activity, typically carried out by purchasing professionals, in which a firm examines spending patterns to identify irregularities or improvement opportunities


merchandise inventory

a balance sheet item that shows the amount a company paid for the inventory it has on hand at a particular point in time


profit margin

the ratio of earnings to sales for a given time period



a measure of financial performance, generally defined as earnings/total assets; higher ROAs are preferred, since it indicates that the firm is able to generate higher earnings from the same asset base


profit leverage effect

a term used to describe the effect that a dollar in cost savings increases pretax profits by one dollar, while a dollar increase in sales only increases pretax profits by the dollar multiplied by the pretax profit margin


purchase requisition

an internal document completed by a user that informs purchasing of a specific need


reorder point system

a method to initiate the purchase of routine items


statement of work or scope of work (SOW)

terms and conditions for a purchased service that indicate, among other things, what services will be performed and how the service provider will be evaluated



the communication of a user's needs to potential suppliers in the most efficient and accurate way possible


description by market grade or industry standard

a description method used when the requirements are well understood and there is common agreement between supply chain partners about what certain terms mean


description by brand

a description method used when a product or service is proprietary, or when there i a perceived advantage to using a particular supplier's products or services


description by specification

a description method used when an organization needs to provide very detailed descriptions of the characteristics of an item or service


description by performance characteristics

a description method that focuses attention on the outcomes the customer wants, not on the precise configuration of the product or service


Maverick spending

spending that occurs when internal customers purchase directly from non qualified suppliers and bypass established purchasing procedures


preferred supplier

a supplier that has demonstrated its performance capabilities through previous purchase contracts, and therefore receives preference during the supplier selection process


request for quotation (RFQ)

a formal request for the suppliers to prepare bids, based on the terms and conditions set by the buyer


fixed-price contract

a type of purchasing contract in which the stated price does not change, regardless of fluctuations in general overall economic conditions, industry competition, levels of supply, market prices, or other environmental changes


cost-based contract

a type of purchasing contract in which the price of a good or service is tied to the cost of some key inputs or other economic factors, such as interest rates


purchase order (PO)

a document that authorizes a supplier to deliver a product or service and often includes key terms and conditions such as price, delivery, and quality requirements


electronic data interchange (EDI)

an information technology that allows supply chain partners to transfer data electronically between their information systems


electronic funds transfer (EFT)

the automatic transfer of payment from the buyer's bank account to the supplier's bank account


purchase consolidation

the pooling or purchasing requirements across multiple areas in an effort to lower costs


logistics management

"that part of the 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"


direct truck shipment

a shipment made directly, with no additional stops, changing of trucks, or loading of additional cargo


less than truckload shipment

a smaller shipment, often combined with other loads to reduce the costs and improve truck efficiencies


multimodal solutions

transportation solutions that seek to exploit the strengths of multiple transportation modes through physical, information, and monetary flows that are as seamless as possible


road railers

specialized rail cars the size of standard truck trailers that can be quickly switched from rail to ground transport by changing the wheels



any operation that stores, repackages, stages, sorts, or centralizes goods or materials; organizations use warehousing to reduce transportation costs, improve operational flexibility, shorten customer lead times, and lower inventory costs


consolidation warehousing

a form of warehousing that pulls together shipments from a number of sources in the same geographical area and combines them into larger - and hence more economical - shipping loads



a form of warehousing in which large incoming shipments are received and then broken down into smaller outgoing shipments to demand points in a geographic areas; combines the economies of large incoming shipments with the flexibility of smaller local shipments


break-bulk warehousing

a specialized form of cross-docking in which the incoming shipments are from a single source or manufacturer


hub-and-spoke systems

a form of warehousing in which strategically placed "hubs" are used as sorting or transfer facilities; hubs are typically located at convenient, high-traffic locations, spokes refer to the routes serving the destinations associated with the hubs


pup trailer

a type of truck trailer that is half the size of a regular truck trailer


postponement warehousing

a form of warehousing that combines classic warehouse operations with light manufacturing and packaging duties to allow firms to put off final assembly or packaging of goods until the last possible moment


assortment warehousing

a form of warehousing in which a wide array of goods is held close to the source of demand in order to assure short customer lead times


spot stock warehousing

a form of warehousing that attempts to position seasonal goods close to the marketplace


material handling systems

the equipment and procedures needed to move goods within a facility, between a facility and a transportation mode, and between different transportation modes



from a logistics perspective, the way goods and materials are packed in order to facilitate physical, informational, and monetary flows through the supply chain


logistics strategy

a functional strategy that ensures that an organization's logistics choice - transportation, warehousing, information systems, and even form of ownership - are consistent with its overall business strategy and support the performance dimensions that targeted customers most value


common carriers

transportation service providers who handle shipments on a case-by-case basis, without the need for long-term agreements or contracts


contract carriers

transportation service providers who handle shipments for other firms based on long-term agreements or contracts


third-party logistics providers

service firms that handle all of the logistics requirements for other companies


perfect order

a term used to refer to the timely, error-free provision of a product or service in good condition


landed cost

the cost of a product plus all costs driven by logistics activities, such as transportation, warehousing, handling, custom fees, and the like


freight forwarder

an agent who serves as an intermediary between the organization shipping the product and the actual carrier, typically on international shipments


customs broker

an agent who handles customs requirements on behalf of another firm; in the US, customs brokers must be licensed by the Customs Service


reverse logistics system

a complete supply chain dedicated to the reverse flow of products and materials for the purpose and materials for the purpose of returns, repair, remanufacture, and/or recycling