A

Abandonment: The decision of a carrier to give up or to discontinue service over a route. Railroads must seek ICC permission to abandon routes.

ABB: Activity Based Budgeting

ABC: Activity Based Costing

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 about 20% of the dollar volume. The C-class contains 60 to 70% of the items, and represents about 10 to 30% of the dollar volume.

ABC Costing: Activity Based Costing

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 organization’s resources, activities, drivers, objects and measures. ABC models are created and maintained within this system.

ABI: Automated Broker Interface.

ABM: Activity Based Management

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?

ABP: Activity Based Planning

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

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.

Acceptance Number: In quality management, 1) A number used in acceptance sampling as a cutoff 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.

Accessibility: The ability of a carrier to provide service between an origin and a destination.

Accessory: A choice or feature added to the good or service offered to the customer for customizing the end product. An accessory enhances the capabilities of the product but is not necessary for the basic function of the product. In many companies, an accessory means that the choice does not have to be specified before shipment but can be added at a later date. In other companies, this choice must be made before shipment.

Accessorial charges: A charge for services over and above transportation charges such as: inside delivery, heading, sort and segregate, heating, storage, etc.

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 (A/P): The value of goods and services acquired for which payment has not yet been made.

Accounts receivable (A/R): The value of goods shipped or services rendered to a customer on whom payment has not yet 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 the ANSI chartered in 1979 to develop uniform standards for the electronic interchange of business documents. The committee develops and maintains U.S. generic standards (X12) for Electronic Data Interchange.

Accumulation bin: A charge for services over and above transportation charges such as: inside delivery, heading, sort and segregate, heating, storage, etc.

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.

ACD: Automated Call Distribution

ACE: Automated Commercial Environment

ACH: Automated Commercial Environment

Acknowledgment: 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 output of a system that identifies the need for and the type of action to be taken to correct a current or potential problem. Examples of action messages in an MRP system include release order, reschedule in, reschedule out, and cancel. Synonym: exception message, action report.

Action Plan: A specific method or process to achieve the results called for by one or more objectives. An action plan may be a simpler version of a project plan.

Action Report: Action Message

Activation: In constraint management, the use of non-constraint resources to make parts or products above the level needed to support the system constraint(s). The result is excessive work-in-process inventories or finished goods inventories, or both. In contrast, the term utilization is used to describe the situation in which non-constraint resource(s) usage is synchronized to support the needs of the constraint.

Active Inventory: The raw materials, work in process, and finished goods that will be used or sold within a given period.

Active Stock: The raw materials, work in process, and finished goods that will be used or sold within a given period.

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 organization’s 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 organization’s 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 (outputs) 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 define data on an organization’s resources, activities, drivers, objects, and measurements.

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. ABM uses activity-based cost information and performance measurements to influence management action.

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 common/standard definition of activities across the organization. An activity dictionary can include information about an activity and/or 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. It is 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 Network Diagram: An arrow diagram used in planning and managing processes and projects.

Activity Ratio: A financial ratio used to determine how an organization’s 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 upon 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.

Adaptive Control: 1) The ability of a control system to change its own parameters in response to a measured change in operating conditions. 2) Machine control units in which feeds and/or speeds are not fixed. The control unit, working from feedback sensors, is able to optimize favorable situations by automatically increasing or decreasing the machining parameters. This process ensures optimum tool life or surface finish and/or machining costs or production rates.

Adaptive Smoothing: In forecasting, a form of exponential smoothing in which the smoothing constant is automatically adjusted as a function of one or many items, for example, forecast error measurement, calendar characteristics (launch, replenishment, end of life), or demand volume

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 mathematical 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 APS systems are demand planning, production planning, production scheduling, distribution planning, and transportation planning.

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.

After-Sale Service: Services provided to the customer after products have been delivered. This can include repairs, maintenance and/or telephone support. Synonym: Field Service

Agency Tariff: A publication of a rate bureau that contains rates for many carriers.

Agent: An enterprise authorized to transact business for, or in the name of, another enterprise.

Agile Manufacturing Tools, techniques, and initiatives that enable a plant or company to thrive under conditions of unpredictable change. Agile manufacturing not only enables a plant to achieve rapid response to customer needs, but also includes the ability to quickly reconfigure operations—and strategic alliances—to respond rapidly to unforeseen shifts in the marketplace. In some instances, it also incorporates “mass customization” concepts to satisfy unique customer requirements. In broad terms, it includes the ability to react quickly to technical or environmental surprises.

Agglomeration: A net advantage gained by a common location with other companies.

Aggregate Forecast: An estimate of sales, often time 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 Inventory: The inventory for any grouping of items or products involving multiple stock keeping units.

Aggregate Inventory Management: Establishing the overall level (dollar value) of inventory desired and implementing controls to achieve this goal.

Aggregate Plan: A plan that includes budgeted levels of finished goods, inventory, production backlogs, and changes in the workforce to support the production strategy. Aggregated information (e.g., product line, family) rather than product information is used, hence the name aggregate plan.

Aggregate Planning: A process to develop tactical plans to support the organization’s business plan. Aggregate planning usually includes the development, analysis, and maintenance of plans for total sales, total production, 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-rated shipments at one time and one place.

Advance Material Request: Ordering materials before the release of the formal product design. This early release is required because of long lead times.

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 provides enhanced value to customers through customization. Agility merges the four distinctive competencies of cost, quality, dependability, and flexibility.

AGVS: Automated Guided Vehicle System

Air Cargo: Freight that is moved by air transportation.

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.

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.

Agglomeration: A net advantage gained by a common location with other companies.

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.

Alaskan carrier: A for-hire air carrier that operates within the state of Alaska.

Alert: Action Message

Algorithm: A clearly specified mathematical process for computation; a set of rules, which, if followed, give a prescribed result.

All-cargo Carrier: An air carrier that transports cargo only.

Allocated Item: In an MRP system, an item for which a picking order has been released to the stockroom but not yet sent from the stockroom.

Allocation: 1) In cost accounting, 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) In order management, allocation of available inventory to customer and production orders.

Allocation Costing: Absorption Costing

Alpha Release: A very early release of a product to get preliminary feedback about the feature set and usability.

Alternate Routing: : A routing, usually less preferred than the primary routing, but resulting in an identical item. Alternate routings may be maintained in the computer or off-line via manual methods, but the computer software must be able to accept alternate routings for specific jobs.

American Customer Satisfaction Index (ACSI): Released for the first time in October 1994, an economic indicator and cross industry measure of the satisfaction of U.S. household customers with the quality of the goods and services available to them—both those goods and services produced within the United States and those provided as imports from foreign firms that have substantial market shares or dollar sales. The ACSI is co-sponsored by the University of Michigan Business School, ASQ and the CFI Group.

American National Standards Institute (ANSI): A non-profit organization chartered to develop, maintain, and promulgate voluntary U.S. national standards in a number of areas, especially with regards to setting EDI standards. ANSI is the U.S. 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 for Testing and Materials (ASTM): Not-for-profit organization that provides a forum for the development and publication of voluntary consensus standards for materials, products, systems and services.

American Society for Training and Development (ASTD): A membership organization providing materials, education and support related to workplace learning and performance.

American Society of Transportation & Logistics: A professional organization in the field of logistics.

American Standard Code for Information Interchange (ASCII): ASCII format - simple text based data with no formatting. The standard code for information exchange among data processing systems. Uses a coded character set consisting of 7-bit coded characters (8 bits including parity check).

American Trucking Association, Inc.: A motor carrier industry association that is made up of Sub conferences representing various sectors of the motor carrier industry.

American Waterway Operators: A domestic water carrier industry association representing barge operators on the inland waterways.

AMS: Automated Manifest System

Amtrak: The National Railroad Passenger Corporation, a federally created corporation that operates most of the United States’ intercity passenger rail service.

Animated GIF: A file containing a series of GIF (Graphics Interchange Format) images that are displayed in rapid sequence by some Web browsers, giving an animated effect.

ANSI: American National Standards Institute

ANSI ASC X12: American National Standards Institute Accredited Standards Committee X12. The committee of ANSI that is charted with setting EDI standards.

ANSI Standard: A published transaction set approved by ANSI. The standards are reviewed every six months.

Anticipated Delay Report: A report, normally issued by both manufacturing and purchasing to the material planning function, regarding jobs or purchase orders that will not be completed on time and explaining why the jobs or purchases are delayed and when they will be completed. This report is an essential ingredient of the closed-loop MRP system. It is normally a handwritten report. Synonym: delay report

Anticipation Inventories: Additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations.

Anti-Dumping Duty: An additional import duty imposed in instances where imported goods are priced at less than the normal price charged in the exporter's domestic market and cause material injury to domestic industry in the importing country.

Any-Quantity Rate (AQ): The same rate applies to any size shipment tendered to a carrier; no discount rate is available for large shipments.

A/P: Accounts Payable

Applicability Statement 2 (AS2): A specification for Electronic Data Interchange between businesses using the Internet's Web page protocol, the Hypertext Transfer Protocol (HTTP). The specification is an extension of the earlier version, Applicability Statement 1 (AS1). Both specifications

were created by EDI over the Internet (EDIINT), a working group of the Internet Engineering Task Force (IETF) that develops secure and reliable business communications standards.

Application Service Provider (ASP): A company that offers access over the Internet to application (examples of applications include word processors, database programs, Web browsers, development

tools, communication programs) and related services that would otherwise have to be located in their own computers. Sometimes referred to as “apps-on-tap", ASP services are expected to become an

important alternative, especially for smaller companies with low budgets for information technology. The purpose is to try to reduce a company's burden by installing, managing, and maintaining software.

Application-to-Application: The direct interchange of data between computers, without re-keying.

Appraisal Costs: Those costs associated with the formal evaluation and audit of quality in the firm.

Typical costs include inspection, quality audits, testing, calibration, and checking time.

Approved Vendor List (AVL): List of the suppliers approved for doing business. The AVL is usually created by procurement or sourcing and engineering personnel using a variety of criteria such as

technology, functional fit of the product, financial stability, and past performance of the supplier.

APS: Advanced Planning and Scheduling

AQ: Any quantity rate

AQL: Acceptable Quality Level

A/R: Accounts Receivable

Army Corps of Engineers : A federal agency responsible for the construction and maintenance or waterways.

Arrival Notice: A notice from the delivering carrier to the Notify Party indicating the shipment's arrival date at a specific location (normally the destination).

Arrow diagram: A planning tool to diagram a sequence of events or activities (nodes) and the interconnectivity of such nodes. It is used for scheduling and especially for determining the critical path through nodes.

Artificial Intelligence: Understanding and computerizing the human thought process.

ASC: Accredited Standards Committee of ANSI

ASC X12: Accredited Standards Committee X12. A committee of ANSI chartered in 1979 to develop uniform standards for the electronic interchange of business documents.

ASCII: American Standard Code for Information Interchange

ASN: Advanced Shipping Notice.

ASP: Application Service Provider

ASQ: American Society for Quality

AS/RS: Automated Storage and Retrieval System

Association of American Railroads: A railroad industry association that represents the larger U.S. railroads.

ASTM: American Society for Testing and Materials

ASTD: American Society for Training and Development

AS2: Applicability Statement 2

Assemble-to-order: A production environment where a good or service can be assembled after receipt of a customer's order. The key components (bulk, semi-finished, intermediate, subassembly, 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. Synonym: Finish

Assembly: A group of sub assemblies and/or parts that are put together and that constitute a major subdivision for the final product. An assembly may be an end item or a component of a higher level

assembly.

Assembly Line: An assembly process in which equipment and work centers are laid out to follow the sequence in which raw materials and parts are assembled.

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. Syn: Tracing. Contrast with Allocation

Assumed Receipt: The principle of assuming that the contents of a shipment are the same as those presented on a shipping or delivery note. Shipping and receiving personnel do not check the delivery quantity. This practice is used in conjunction with bar codes and an EDI-delivered ASN to eliminate invoices and facilitate rapid receiving.

ATP: Available to Promise

ATS: Available to Sell

Attachment: An accessory that has to be physically attached to the product.

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: The inspection and examination of a process or quality system to ensure compliance to requirements. An audit can apply to an entire organization or may be specific to a function, process or production step.

Audit Trail: Manual or computerized tracing of the transactions affecting the contents or origin of a record.

Auditing: Determining the correct transportation charges due the carrier: auditing involves checking the accuracy of the freight bill for errors, correct rate, and weight.

Audit ability: A characteristic of modern information systems, gauged by the ease with which data can be substantiated by trading it to source documents and the extent to which auditors can rely on per-verified and monitored control processes.

Authentication: 1) The process of verifying the eligibility of a device, originator, or individual to access specific categories of information or to enter specific areas of a facility. This process involves matching machine-readable code with a predetermined list of authorized end users. 2) A practice of establishing the validity of a transmission, message, device, or originator, which was designed to provide protection against fraudulent transmissions.

Authentication Key: A short string of characters used to authenticate transactions between trading partners.

Auto discrimination: The functionality of a bar code reader to recognize the bar code symbology being scanned thus allowing a reader to read several different symbologies consecutively.

Auto ID: 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 (ACD): A feature of large call center or “Customer Interaction Center” telephone switches that routes calls by rules such as next available employee, skill-set etc.

Automated Clearinghouse (ACH): A nationwide electronic payments system, which more than 15,000 financial institutions use, on behalf of 100,000 corporations and millions of consumer in the U.S. The funds transfer system of choice among businesses that make electronic payments to vendors, it is economical and can carry remittance information in standardized, computer process able data formats.

Automated Commercial Environment (ACE): Update of outmoded Automated Commercial System (ACS). It is intended to provide automated information system to enable the collection, processing and analysis of commercial import and export data, allowing for moving goods through the ports faster and at lower cost, as well as detection of terrorist threats.

Automated Guided Vehicle System (AGVS): A transportation network that automatically routes one or more material handling devices, such as carts or pallet trucks, and positions them at predetermined destinations without operator intervention.

Automated Manifest System (AMS): A multi-modular cargo inventory control and release notification system through which carriers submit their electronic cargo declaration 24 hours before loading. See 24-hour Rule

Automated Storage/Retrieval System (AS/RS): A high-density rack inventory storage system with UN-manned vehicles automatically loading and unloading products to/from the racks.

Automatic Relief: A set of inventory bookkeeping methods that automatically adjusts computerized inventory records based on a production transaction. Examples of automatic relief methods are back flushing, direct-deduct, pre-deduct, and post-deduct processing.

Automatic Rescheduling: Rescheduling done by the computer to automatically change due dates on scheduled receipts when it detects that due dates and need dates are out of phase. Ant: manual rescheduling

Available Inventory: The on-hand inventory balance minus allocations, reservations, back orders, and (usually) quantities held for quality problems. Often called “beginning available balance". Synonyms: Beginning Available Balance, Net Inventory

Available to Promise (ATP): The uncommitted portion of a company’s inventory and planned production maintained in the master schedule to support customer-order promising. The ATP quantity is the uncommitted inventory balance in the first period and is normally calculated for each period in which 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.

Available to Sell (ATS): Total quantity of goods committed to the pipeline for a ship to or selling location. This includes the current inventory at a location and any open purchase orders.

Average Annual Production Materials Related A/P (Accounts Payable): The value of direct materials acquired in that year for which payment has not yet been made. Production-related materials are those items classified as material purchases and included in the Cost of Goods Sold

(COGS) as raw material purchases. Calculate using the 5-Point Annual Average.

Average Cost per Unit: The estimated total cost, including allocated overhead, to produce a batch of goods divided by the total number of units produced.

Average Inventory: The average inventory level over a period of time. Implicit in this definition is a “sampling period” which is the amount of time between inventory measurements. For example, daily inventory levels over a two-week period of time, hourly inventory levels over one day, etc. The

average inventory for the same total period of time can fluctuate widely depending upon the sampling period used.

Average Payment Period (for materials): The average time from receipt of production-related materials and payment for those materials. Production-related materials are those items classified as material purchases and included in the Cost of Goods Sold (COGS) as raw material purchases. (An element of Cash-to-Cash Cycle Time).

Calculation: [Five point annual average production-related material accounts payable] / [Annual production-related material receipts/365]

AVL: Approved Vendor List

Avoidable Cost: A cost associated with an activity that would not be incurred if the activity was not performed (e.g., telephone cost associated with vendor support).

AWB: Air Waybill