Terminology
Supply-chain language can sound like a different dialect. Search this glossary for plain-language definitions and examples, including the planning and forecasting terms used in the 40-hour course.
How to use this page: Search for a word or scroll through the table. Examples use fictional products and numbers. Companies may use some terms differently, so check local definitions when applying them at work.
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Showing 42 terms
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| Topic | Term | In simple words | Example |
|---|---|---|---|
| Forecasting | Demand | The amount of a product or service customers want during a period. | If customers want 120 bottles next month, demand is 120 bottles. |
| Forecasting | Demand forecast | An estimate of future demand made from history, plans and other useful information. It is a best estimate, not a promise. | A forecast of 120 bottles can be revised if a promotion or new information changes the outlook. |
| Forecasting | Demand plan | A reviewed view of expected demand that teams use to prepare for the future. | Sales expects 130 bottles, the forecast is 120, and the team agrees to plan for 125. |
| Forecasting | Forecast error | The difference between what was forecast and what actually happened. | Forecast was 100 units and actual demand was 110: the forecast missed by 10 units. |
| Forecasting | Forecast bias | A repeated pattern of forecasting too high or too low. | If forecasts are above actual demand in most months, the plan has an upward bias. |
| Forecasting | Seasonality | A pattern that repeats at a similar time, such as each summer or holiday period. | Ice-cube trays may sell more in summer each year. |
| Forecasting | S&OP (Sales and Operations Planning) | A regular meeting and process where teams align expected sales, supply, inventory and business goals. | Sales shares a promotion plan; operations checks whether stock and factory time can support it. |
| Forecasting | Demand variability | How much demand changes from one period to another. | Sales of 95, 102 and 98 units are steadier than 60, 140 and 90. |
| Inventory | SKU (stock keeping unit) | A code used to identify one specific product or product version. | A blue bottle and a red bottle may have different SKUs. |
| Inventory | Inventory | Goods or materials a business keeps to sell or to use in making products. | A bottle company may hold finished bottles, caps and packaging. |
| Inventory | On-hand stock | The quantity physically recorded at a location now. Some of it may already be reserved. | The warehouse has 80 cartons, but 20 are promised to orders. |
| Inventory | Inventory position | A planning view of stock after considering usable on-hand stock, expected receipts and demand already committed. Exact rules can vary. | If 80 are on hand, 30 are due in, and 25 are allocated, a simple position is 85. |
| Inventory | Safety stock | Extra stock kept as a buffer against demand or supply being different from the plan. | A shop keeps 15 extra chargers in case a delivery is late or sales rise. |
| Inventory | Reorder point | A stock or inventory-position level that signals it may be time to replenish. | If the trigger is 50 units and the position falls to 48, the planner reviews a new order. |
| Inventory | Cycle stock | The usual stock used between replenishments, excluding extra safety buffer. | A shop orders 100 units and gradually sells them before the next delivery. |
| Inventory | Service level | A target for how reliably a stock or supply policy should meet demand. The exact measure depends on the business. | A team may set a target to have stock available for most customer requests. |
| Inventory | Fill rate | The share of requested units supplied immediately from available stock. | If customers request 100 units and 92 ship now, the fill rate is 92%. |
| Inventory | Stockout | A situation where there is no available stock to meet a request. | A customer asks for a size that is currently unavailable. |
| Inventory | Backorder | A customer order that cannot ship yet and remains open until stock is available. | A customer orders 10 units; 7 ship today and 3 wait for the next receipt. |
| Inventory | Allocation | How limited stock is assigned across customers, orders or locations. | With 40 units and requests for 25 and 30, the planner decides how to split the 40. |
| Supply | Lead time | The elapsed time between starting a replenishment or production step and having usable supply. | A supplier takes 12 days from order confirmation to delivery. |
| Supply | MOQ (minimum order quantity) | The smallest quantity a supplier agrees to sell in one order. | If the MOQ is 200, ordering 120 may not be accepted. |
| Supply | Lot size | The quantity made or ordered together as one batch. | A factory makes 500 labels in one print run. |
| Supply | Purchase order (PO) | A buyer’s formal request to a supplier for specified items and delivery terms. | A PO asks for 300 caps to arrive by 15 June. |
| Supply | Supplier capacity | The maximum quantity a supplier can provide in a stated time period. | A supplier can ship up to 1,000 caps per week. |
| Manufacturing | BOM (bill of materials) | A list of components and quantities needed to make one product. | One kit needs one bottle, one cap and one label. |
| Manufacturing | Independent demand | Demand that comes directly from customers or the market, rather than from another item’s production plan. | Customer orders for finished bottles are independent demand. |
| Manufacturing | Dependent demand | Demand for a component calculated from the plan to make its parent product. | Planning 100 kits creates a need for 100 caps if each kit uses one cap. |
| Manufacturing | MRP (material requirements planning) | A calculation that works out what materials are needed and when, using demand, stock, product structure and timing. | If 100 kits are due next week and there are 20 caps in stock, MRP helps identify the remaining cap need. |
| Manufacturing | Capacity | The amount of work a person, machine, line or supplier can do in a time period. | A line can pack 600 boxes in one shift. |
| Manufacturing | Capacity constraint | A limit that prevents a plan from producing or moving more in the available time. | A line has time for 600 boxes but the plan needs 750. |
| Manufacturing | Bottleneck | The step with the tightest capacity that limits the output of the wider process. | If packing is slower than filling, packing may limit finished output. |
| Manufacturing | Utilization | The share of available capacity that a plan uses. | Using 7 of 8 available machine hours is 87.5% utilization. |
| Manufacturing | Production schedule | A timed sequence of work assigned to people, lines or machines. | The schedule says which product runs first and when the line changes over. |
| Manufacturing | Throughput | The amount of finished work moving through a process in a period. | A line completes 400 good units during one shift. |
| Commitments | ATP (available to promise) | The quantity that can be promised using supply expected to be available after existing commitments are considered. | There are 50 units and 35 already promised, so a simple ATP view shows 15 remaining. |
| Commitments | CTP (capable to promise) | A check of whether a requested quantity and date can be met by planning or creating the needed supply and capacity. | A customer asks for 200 units next week; CTP checks materials and line time before confirming. |
| Commitments | Pegging | A link that shows which supply is intended to cover which demand. | A planned production order for 40 units is linked to a customer order for 40. |
| Planning | Netting | Subtracting usable stock and expected supply from demand to find what is still needed. | Demand is 100, stock is 20 and confirmed supply is 30: the simple remaining need is 50. |
| Planning | Firm order | An order treated as committed in the plan, unlike an unconfirmed suggestion. It may still be changeable under local rules. | A confirmed supplier order for 500 units is included as expected supply. |
| Planning | Frozen period | A near-term window where plan changes are restricted or avoided to protect execution. | A factory may avoid changing tomorrow’s schedule after materials and staff are prepared. |
| Planning | Bullwhip effect | A pattern where small changes in customer demand become larger order swings farther upstream. | A shop orders a little extra after a busy week; each upstream company adds its own buffer, so the factory sees a much larger jump. |
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| Forecasting | Baseline forecast | A simple starting estimate made before separate event or human adjustments are added. | Recent weekly sales average 43 units; 43 is the baseline before adding a confirmed event uplift. |
| Forecasting | Holdout period | A later set of observations kept aside to check how a forecast performs on data it did not use to fit itself. | Fit a method on January to September and check its forecast against October to December. |
| Forecasting | MAE (mean absolute error) | The average size of forecast misses, ignoring whether each miss was high or low. | Errors of 4, 6 and 8 units give an MAE of 6 units. |
| Forecasting | MAPE (mean absolute percentage error) | The average absolute miss as a percentage of actual demand. It is not reliable when actual demand is zero or very small. | A miss of 5 units on actual demand of 50 is 10%; on actual demand of 2 it is 250%. |
| Forecasting | WAPE (weighted absolute percentage error) | Total absolute forecast error divided by total actual demand for the periods being measured. | Total absolute error of 20 units over 150 actual units gives WAPE of 13.3%. |
| Forecasting | Forecast value added | A check of whether a review step or adjustment improves a forecast compared with a chosen baseline. | Compare the reviewed forecast with the untouched baseline on the same later periods. |
| Supply | Net requirement | The remaining quantity to supply after accounting for demand, desired ending stock, usable inventory and confirmed receipts. | Demand 57 + target 10 − usable stock 18 − confirmed receipt 10 = 39 units. |
| Manufacturing | BOM (bill of material) | A structured list of components and quantities needed to make a parent product. | One bottle needs one body, one cap and one label. |
| Manufacturing | MRP (material requirements planning) | A planning method that turns a build plan into dated component needs and supply proposals using product structures, stock and lead times. | An order for 80 bottles creates dated needs for 80 caps before usable stock is subtracted. |
| Manufacturing | Routing | The ordered operations and resources used to make a product, often with setup and run-time standards. | Assembly on Line A is followed by labeling on Line B. |
| Manufacturing | Yield | The share of input quantity that becomes acceptable output. | At 95% yield, 100 starts are expected to produce about 95 good units. |
| Capacity | Finite capacity | A plan that assigns work only up to the available time or quantity of a resource in each period. | A 300-minute line cannot accept 330 minutes of planned work in the same shift. |
| Capacity | Bottleneck | The resource that currently limits the flow or output for a particular plan. | If 72 kits are available but the line can make 76, kits limit the build to 72. |
| Scheduling | Critical ratio | Time remaining until an order is due divided by the processing time still needed; a lower value can signal greater urgency. | Six hours remain and two hours of work are needed: the ratio is 3. |
| Scheduling | Schedule adherence | A measure of how closely actual starts, quantities or completions match an agreed schedule, using a stated rule. | A team may compare completed quantity by the planned date with the scheduled quantity. |
| Scheduling | Changeover | The work needed to switch a resource from one product, format or process setting to another. | Changing the line from one bottle color to another may require cleaning and label setup. |
These short definitions are for learning. They simplify concepts and do not replace the detailed rules, formulas or process definitions used by a particular company or planning system.