Bill of Materials (BOM): A list of all purchased and
manufactured parts used to produce the final product. The Bill of Materials includes a
detailed definition of the finished product -specifications of all parts and
components - to be manufactured as well as methods and procedures. (see Drawing
Package)
Cost of Goods Sold (COGS): The dollar value used for
the product shipped—the value of material plus direct manufacturing labor and
overhead.
Customer Evaluation Period: A policy to define how
long a customer has to evaluate a product before it is returned or paid for.
Cycle Counting: To count selected items in physical
inventory on an on-going basis. The cycle can be daily, weekly or monthly.
Demo Pool: Products used by marketing for
promotional purposes.
Documentation Control procedure: Insures the drawing
package used in manufacturing is the latest version of the design.
Drawing package: The product definition provided to
Manufacturing by Engineering for use in planning, ordering material and building. It
includes blueprints, a Bill of Materials, lists of procedures, methods and specifications
needed to realize the product design.
Inventory Build: The official build plan in
manufacturing is derived from the master schedule and may include product not covered by
customer sales orders in addition to those covered.
Inventory Classifications: The accounting
definitions of the various elements of inventory including at the very least: Raw
Material, Work In Process (WIP) and Finished Goods (FG).
Inventory Mark-Up: The combined value of direct
labor and overhead assigned to the WIP or Finished Goods and used for setting the cost
value of the product (COGS).
Inventory Report: The total inventory broken down by
classification and all items related to quantity, unit price and total dollars.
Long Lead Items: Items purchased and held in stock
to fulfill needs outside the master schedule and which have to be available for shorter
lead time requirements of a product.
Material Receipts Report: A running daily report
showing the cumulative month-to-date receipt of material (components and parts).
Material Resource Planning (MRP) Report: Whenever
changes are made to the master schedule an MRP report should be run to determine new
requirements for material and direct labor.
Master Schedule-Product Build: The product building
plan used by manufacturers to build and ship orders.
Min-Max Policy: Allows some items in inventory to be
ordered outside of the master schedule in order to keep a controlled quantity of usable
material on hand.
Material Resource Planning (MRP) Schedule: Plans the
required resources and timing for material availability and labor as defined by the master
schedule.
Return Material Authorization (RMA): The mechanism
and paper work which allows a customer to return product.
Material Review Board (MRB): A committee made of
representatives from several departments, which determines the disposition of rejected
material and products.
Obsolete Inventory: A definition of the inventory
items not used for an extended period of time, and not likely to be used in the future.
Obsolete Inventory report: Lists the items of
inventory not used in a set period of time, and for which no future use is foreseen.
Official Forecast — Revenue and Units:
Marketing generates a forecast of sales it expects to make for an upcoming period using
actual customer orders and a best-guess estimate of potential sales. As amended and
approved by Upper Management (depending on the amount of risk they are willing to take)
the Official Forecast becomes the basis for planning manufacturing production and the
driving force for developing the Master Schedule used for Revenue and Inventory planning.
Outstanding Purchase Order Report: A report on the
material purchased and committed to production but not yet received. When run on a regular
basis it provides insight as to when material will be received into the manufacturing
process.
Physical Inventory Procedure: The detailed mechanics
for doing a complete counting of the physical inventory.
Purchasing Authority: Buying material which fulfills
the master schedule.
Raw Material: The elements of inventory purchased
from vendors in their basic forms—components and parts.
Receiving Policy: Defines what material can and
should be received based on the quantity and schedule given to the supplier and the needs
outlined by the Master Schedule.
Reserves Accounting Inventory: Deter-mines the
amount of reserves to be carried on the books in order to minimize the impact of an
anticipated write-down of inventory.
Return Material Authorization (RMA) Report: A
running account of returns from the field and their status.
Returns Policy: A guide to the
Manufacturing department for working on and returning customer rejects or up-grades.
Safety Stock: Minimum stock of items used for
repairs and spares, but not to be used for primary manufacturing of the product.
Scrap Policy: The criteria for scrapping
(discarding) material should be determined by the MRB.
Standards (Standard Cost): The book value of the
inventory elements (based either on the purchase price of parts and components or an
average of the various prices paid for the items) used as the basis for valuing COGS and
inventory.
Standards Policy: Defines the value of each item in
inventory and carried on the accounting books and used in the Cost-of-Goods Sold.
Surplus Inventory: A definition of inventory items
considered in excess of the projected needs based on an approved sales forecast for a
defined period of time.
Surplus Material Report: Excess items that will not
be used in the forecasted sales projection if it is extended at least one year.
Transactions Procedure: The policy that covers the
acceptable procedure for items entering or leaving (ins and outs) inventory.
Variances: The differences between the actual cost
at a given point in time as related to the standard cost. It is a criteria for measuring
performance of the actual cost of manufacturing the product to the planned standards
costs.
Work In Process (WIP) Report: Also known as Work in
Progress, this covers the inventory classification of material between raw material and
finished goods that has been assigned the added value of labor and overhead.
