B2B: Business to Business. This is a transaction between two businesses.
B2C: Business to Consumer. This is a transaction between a business and a consumer.
Backhaul: A return trip, carrying goods perhaps at a lower rate, after making the primary delivery. See also deadhead.
Backlog: very similar to back order. Product ordered by customer but not yet delivered.
Back order: unsatisfied product demand for which customer is willing to wait for shipment later, rather than cancel the order.
Backup Agreement: A purchasing arrangement between a supplier and a retailer that bundles the purchase of given number of nonreturnable units, with the option to buy a given number of additional units for quick delivery at a specified price. For example, the retailer might purchase outright 80 units at $150 each, bundled with 20 options at $15 per option, to purchase an additional 20 units at $140 each. Compared to a conventional agreement, a backup agreement spreads the forecasting risk between the supplier and the retailer. A conventional agreement that allows full refund of unsold units puts all the forecasting risk on the supplier (and the retailer will tend to order too much). A conventional agreement with no refunds puts all the forecasting risk on the retailer (and the retailer will tend to order too little).
Bait-and-switch: A situation where a vendor advertises two types of products, a cheap one, Type Y, and a more expensive one Type A. There are two classes of customers: Class II customers are only willing to buy product Y, whereas class I customers prefer product Y but are willing to buy product A if Y is out of stock. An interesting inventory management problem is how many units of product Y to stock. If a small quantity of Y is stocked, then class I customers may arrive hoping to buy Y but end up buying the more expensive (and profitable to the vendor) type A product. This is very similar to revenue management as practiced in the airlines. Ethics/long term customer good will suggests that the vendor should be clear in the advertising of Y that “limited quantities available, no rain checks”.
Balanced Scorecard: Traditional accounting measures are mainly designed for measuring performance as seen by the stockholders. Robert Kaplan of Harvard Business School popularized an extension of accounting measures, consisting essentially of the following steps: 1) Identify the company’s stakeholders (e.g., customers, employees, communities in which the company operates, stockholders). 2) For each stakeholder, identify metrics for the company’s performance. E.g., order fill rates, product return rates; wage rates, employee turnover; charitable gifts, pollution levels; stock price. 3) Measure and report the company’s performance on each of these measures.
Baldrige Award: An award that recognizes quality achievement by U.S. organizations, see http://www.quality.nist.gov. It is named after former Commerce Secretary, Malcolm Baldrige, who was killed in a rodeo accident in 1987. Annual awards may be given in four categories: manufacturing, service, small business, and education/health services.
Balking: The action of an arriving customer in a service system to not join a waiting queue because the queue is too long. This results in a lost sale. Contrast with reneging.
Bar code: A machine readable marking on a product or box. It typically contains 10 to 12 digits of information about the contents of the box. A major manufacturer of barcode printers, Zebra Technologies, takes its name from the appearance of these bar codes. More recent two-dimensional codes may contain as much as 100 characters. See also UPC, RFID. The general public is familiar with bar codes for the use in checkout of purchases at a cash register. Bar codes are also very important in warehouses/DC’s in that they facilitate automated sorting.
Barge: a vessel used mainly in inland water transportation. It typically is not powered. A set of barges, perhaps a half dozen or more, may be grouped into a “tow” which is propelled by a tugboat. The advantage of a barge is that, like a trailer in a tractor-trailer combination, it can be left at a loading or unloading point to be loaded or unloaded over a period of hours or days while the tugboat moves on to other activities.
Base stock policy: An inventory policy whereby, whenever a demand occurs, an order is immediately made to replace the amount sold. It is a Q,r policy with Q = 1. See JIT.
Bathtub curve: A typical shape for the failure rate curve for many pieces of equipment (i.e., the conditional probability of failure in the next hour) is to start high due to the “birth defects” new equipment may have, decrease to a low fairly constant rate for a long period of time, and then increase again as the equipment reaches “old age”. See also failure rate curve, MTBF, IFR, and DFR.
Bay: an open area in a building such as a warehouse, unimpeded by pillars. Thus, a building with n rows of interior pillars would have n+1 bays. If an overhead crane is used for moving material, it can usually move only within one bay.
Beer game: A business game composed of a four level supply chain. Early members of the chain (e.g., the manufacturer) do not see final demand directly, but only indirectly via the information, mainly in the form of orders received from their immediate downstream customer. Small fluctuations in retail demand typically cause big fluctuations in demand seen by the manufacturer, illustrating the bull-whip effect.
Bill of Lading: A binding legal contract between a shipper and a carrier for each load picked up by the carrier from the shipper. It lists the items picked up and the address to which they are to be delivered. It is the shipper’s receipt from the carrier.
Binomial distribution: Suppose your product is in use by n customers. On any given day, any given customer will generate a service call request with probability p, independent of other customers. A service call request requires a trip to the customer, which takes a full day. Then, the number of service requests in a day has a binomial distribution with parameters n and p. The probability of exactly k service requests in a day is pk(1-p)n-k n!/(k!(n-k)!). The mean of the distribution is np, the variance in the number of service requests is np(1-p). For example, if n = 6 and p = .1, then the probability of k = 0 service requests is .96 = .531441. The probability of 1 request is .1*.95*6!/5! = .354294. The probability of 2 requests is .12*.94 *15 = .098415. The binomial distribution with parameters n and p, converges to the Poisson distribution with mean np, as n gets large and p gets small. The binomial converges to the Normal distribution if p is close to .5 and n gets large.
BOM (Bill of Material): A listing for each product or sub-assembly of all the components or subassemblies that go into it and how many are required. See also MRP.
Bonded storage: secure storage for product for which taxes, such as excise tax, may become due when product leaves storage, depending upon its destination. The warehouse owner guarantees to tax/tariff collecting agencies that product will not be released without payment of any taxes due depending upon where the product is shipped.
Box car: A covered rail car, typically loaded and unloaded via forklift through doors on either side. This is typically forty to fifty feet long. In contrast, see flat, hopper and tank car.
Braess’s paradox: The observation, supposedly made by Braess of traffic in Stuttgart, that for some traffic networks, if new link capacity is added to the network, the total traffic delay at user equilibrium may in fact get worse. The paradox arises because, when individuals optimize individually, they do/may not take into account the impact of their decisions on other parties. For example, when making the decision to take a car vs. a train, or a particular route, we tend to not take into account the additional delay that we may cause other commuters as a result of this decision. There is a strong form and a weak form. The strong form is that every traveler’s travel time is no worse, with some of them experiencing reduced travel time. The weak form is only that total travel time is reduced. The use of “metering” lights at the on-ramps to some expressways is a way to avoid situations very similar to Braess’s paradox. Traffic engineers have discovered that by restricting capacity on the on-ramp total delay is reduced. See also: Wardrop’s Principle.
Break bulk: Disaggregate a big shipment from a single source (e.g., a manufacturer) into smaller quantities to be shipped as needed to multiple customers (e.g., retailers).
BTU (British Thermal Unit): A common measure of performance for energy producing or energy consuming products, defined as the energy in heat form needed to raise the temperature of one pound of water by one degree Fahrenheit. See calorie.
Bucket Brigade: A method for coordinating workers along a pick or production line. Workers remain in sequence as each moves forward with her job along the line. When the last worker completes her job, she takes over the job of her predecessor, who then takes over the job of her predecessor, and so on. Until the first worker introduces a new job to the line.
Bull whip effect: the observation in multi-echelon inventory systems that a small fluctuation in the demand per period at the retail end may result in a dramatic fluctuation in the amount demanded at the manufacturer, analogous to how a small flick of the wrist will cause the tip of a bull whip to move a great distance. The fluctuations in demand by the retailer on the supplier may be due to a number of reasons (e.g., order batching by the retailer if it uses a Q,r inventory model with a large Q, price changes by either the supplier or the retailer, or generally poor information sharing between the retailer and the supplier, so that the supplier is surprised by the large retailer demand when the retailer does a promotion).
Bundle pricing: A vendor does bundle pricing if the vendor sells two or more products as a bundle for a price lower than the sum of the individual product prices. The vendor can sometimes increase revenues thereby. As an example, suppose customer A is willing to pay $800 for product X and $400 for product Y. Customer B is willing to pay $400 for product X and $800 for product Y. If the vendor sets a single market price for each product individually, the most he can make is $1600. If, however, the vendor sells the two products only as a bundle for $1200, he can make $2400.
Burn rate: term used, typically in consulting, for the rate at which cash is being spent, usually on personnel involved in implementation of some system.
By-product: a joint-product of small value relative to the other joint-products.