Supply Chain and Operations Management Glossary (C)

Cabotage: Carriage of goods or people between an origin and destination, both in the same state or country, by a carrier not from that state or country. Many states or countries have laws prohibiting such shipments by foreign carriers, except perhaps for “incidental” shipments which are the first step of shipping the good to a foreign state.

CAD (Computer Aided Design): A software system that at a minimum has an ability to give and manipulate a graphical display of the product being designed. It usually also has analysis capability (e.g., the ability to determine whether a rack of a given design can in fact support a specified weight). This analysis capability is frequently based on FEA.

CAFÉ (Corporate Average Fuel Economy): In the U.S., the NHTSA (http://www.nhtsa.org) requires that the average fuel economy of all passenger vehicles sold by a manufacturer in the U.S. must achieve a specified minimum average fuel economy measured in miles per gallon. For model year 2000, the minima were 20.7 mpg for light trucks (e.g., “sport utility vehicles”), and 27.5 for cars. The harmonic mean is used in computing CAFE. The penalty for not achieving it is $5.50 for each tenth of a mpg by which a manufacturer falls short times the number vehicles sold.

Call center: A collection of agents staffing telephones. There are two major types of call centers, inbound and outbound. An inbound center handles calls arriving randomly from customers (e.g., ordering items from a catalog, reporting problems with your products, etc.) An outbound center originates calls to clients (e.g., soliciting new business, reporting problems with fulfilling their order, scheduling service visits, politely asking them to pay their account, etc.) See also: predictive dialing.

Carmack amendment: A U.S. Federal law that specifies liability limits of a carrier to a shipper for lost or damaged goods, as well as a time limit within which a shipper may file a claim. Liabilities limits may be based on such things as a maximum dollars per pound. State law is preempted by the Carmack amendment. See also Warsaw convention.

Category management: An allocation of management authority according to product type, typically in supermarket retailing. Example categories are: baked goods, produce, soft drinks, etc.

Calorie: energy in heat form needed to raise the temperature of one gram of water by one degree Celsius. 1000 calories = 3.968 BTU. A note of caution, the unit of energy referred to in the popular press as a calorie, is usually a kilo-calorie.

Carousel: A storage system in which product is brought to the picker, rather than the picker walking to the storage bin. The storage bins are typically mounted on motor driven chains. A vertical carousel may allow one to exploit higher storage for picking than one could with plain manual picking. In general, higher storage densities may be achieved, as well as higher pick rates per person.

Carrier: A firm that carries freight (e.g., a trucking firm). In contrast, see shipper.

Case: standard shipping unit to retailers (e.g., supermarket goods are typically shipped in units of a case. For example, 12 bottles of wine to a case). Multiple cases may in turn be bundled into a skid on a pallet for loading onto a truck with a forklift.

c.d.f. (Cumulative Distribution Function): The left tail probability of a distribution. For a given constant t and a random variable X, it is the probability that X ≤ t.

Cellular manufacturing: A factory layout in which machines are grouped by product produced rather than by the more traditional grouping by function (e.g., all the cutting machines grouped together in one department, all the welding machines grouped in another department, and all the punching machines grouped together in a third department). In contrast, a manufacturing cell might have grouped together a single cutting machine, a single welding machine and a single punch, each appropriate for producing a specific product. The advantage of the cellular arrangement is that WIP and handling may be substantially reduced. In traditional manufacturing, the time in system for an item consists of: production time + wait for sibling parts of the batch to finish a step + wait to have batch transported to next step. In cellular manufacturing, the last two waits are eliminated. There can be several disadvantages to the cellular style: one may need moveable or flexible machines, so the appropriate machines can be quickly physically moved and grouped together as needed for the product. If substantial process specific skill is required to operate or maintain a machine, it may be easier to manage things if similar machines and/or laborers are physically close.

Censored observation: An observation is censored if it is only a bound on the actual value that one desires to observe. For example, sales data are usually censored observations of what we would really like to observe: demand data. This is because if a prospective customer sees that we are out-of-stock of the item she would like to purchase (e.g., if we show our stock level on our website) then the customer typically will not bother to tell us what she wanted if the stock level is zero. Traditional catalog merchants on the other hand, force a customer to reveal what they would like to buy before the merchant reveals whether the product is in stock. In the same way, the catalog merchant gains more information about customers’ willingness to substitute other products for out-of-stock products.

Central limit theorem: The result that a sum of random variables has the Normal distribution in the limit as the number of random variables in the sum gets large, as long as the random variables are independent and have bounded variance.

Channel: In marketing, the collection of firms from original manufacturer to final retailer who are involved with providing a specific good or service.

Channel conflict: A situation in which there is disagreement among members of a supply chain or channel on how it should be managed. A common example is when a manufacturer sells its product both through distributors as well as directly to the final retail customers. The distributors find themselves competing with their supplier for retail sales. At one time Compaq computer found itself in such a channel conflict situation when it tried to switch to a direct retail sale system from a distributor based system, so as to provide the fas response of its direct-sale-based competitor, Dell Computer.

Chimney stacked pallet: A skid/pallet stacked so that all items have at least one face on the outside. This may leave an empty vertical core so that the skid looks like a chimney. The customer (e.g., a retailer) of the skid may request this form of stacking, so that the pallet can be quickly checked for contents when it arrives at the customer. There are no items hidden on the inside that can be seen only after the skid has been broken down.

CLM (Council of Logistics Management): Not-for-profit organization for professionals interested in
logistics management.

Coase’s law: Due to Ron Coase, states that a firm will get large in a vertically integrated sense , or do more activities internally rather than outsourcing them to the extent that it is cheaper to do the activities inhouse. Coase was originally impressed by the extreme vertical integration of firms such as Ford in the early 1900’s. Coase paid particular attention to three kinds of transaction costs associated with outsourcing an activity: 1) Search costs, finding an acceptable supplier, 2) Contracting costs, the cost of managing the contract, and 3) Coordination cost (e.g., how to efficiently share the right information). Coase was a professor at the University of Chicago Law School and won a Nobel Prize for this work.

COD (Cash on Delivery): An arrangement whereby the buyer pays for the goods upon delivery, in contrast to FOB.

Code sharing: An airline practice in which two airlines (e.g., United and Lufthansa) sell tickets for the same flight (product code), usually an intercontinental flight. United will market the flight in the U.S.
Lufthansa will market it in Europe.

Coefficient of variation: The standard deviation divided by the mean.

COGS (Cost of Goods Sold): An estimate of the cost of the goods sold in a period. This estimate may vary depending upon such things as whether LIFO rather than FIFO is used in accounting for inventory. Combinatorial auction: An auction in which bidders may bid on combinations of objects as well as individual objects. For example, if a buyer needs 500 square meters of contiguous space and the seller is selling a number of properties, each with 250 square meters of space, the buyer would bid on a pair of adjacent properties.

Compound Poisson Distribution: A generalization of the Poisson distribution. It is representative of a demand process in which the number of orders in a specified period has a Poisson distribution, but additionally, the number of units requested in each order is also a random variable having some specified distribution. If θ = mean number of orders received in a period and the number of units requested in each order has mean µ and standard deviation σ, then the number of units requested per period has mean θµ and variance θ( µ2 + σ 2). If θj is the mean number of orders of size j in a period, and Pn is the probability of total demand in units being equal to n in a period, then:
P0 = e- θ ,
P1 = θ1
P0 ,
P2 = [ θ1
P1 + 2 θ2
P0]/2 ,
Pj = [ θ1
Pj-1 + 2 θ2
Pj-2 + 3 θ3
Pj-3 + …+ j θj
P0 ]/ j .

Condo: A long distance trailer tractor that has a bunk for sleeping.

Conjoint analysis: A method for approximating the utility function of a typical customer for a class of products. Products in the class are assumed to be completely described by a set of factors or attributes such as length of warranty, wheelbase, fuel efficiency, etc. The total attractiveness or utility of a product is then assumed to be a weighted sum of these factor levels. The purpose of conjoint analysis is to find an appropriate set of weights. The usual method is to show each of a large number of consumers two or more different products and ask each consumer to rank the products by attractiveness. Linear programming can then be used to find a set of weights that are as consistent as possible with these rankings.

Consolidate: Combine many shipments to a common destination into a single shipment.

Constant sum game: See Zero sum game.

Continuous move: In trucking, the situation where a vehicle drops off a load at a site and then is able to pick up a load of something else at the same site to be hauled elsewhere, thus avoiding a deadhead.

Control chart: A simple graphical and statistical procedure for helping to discover controllable aspects of a production process, so as to help produce a less variable product. A typical application of a control chart is to measure the quality (e.g., weight, diameter, etc.) of individual products as they exit the production process. The units are grouped into batches of size 4 or 5. The mean and standard deviation are computed over say the first 20 batches. A chart is then constructed with a center line at the mean and upper and lower limits at plus and minus three standard deviations. The qualities of subsequent batches are then plotted on this graph. One looks for patterns in this graph, in particular trends. If such a pattern is discovered, it is probably an indication that there is something systematic going in the process (e.g., a tool is becoming loose, etc.) Thus, there is an opportunity and motivation to identify this cause, eliminate it, and thus produce a more predictable quality level. Variations and generalizations of this methodology are sometimes called statistical process control.

CONWIP (Constant Work in Process): a style of operating a production line so that the WIP remains
constant. Initially a fixed number of units are released into the line. Subsequently, an additional unit is
released to the line only when a unit finishes. This terminology and method was popularized by W.J. Hopp and M. L. Spearman. Note its similarity to a base stock policy and kanban.

a file stored on your computer, typically stored in a subdirectory called cookies and/or called cookies.txt, in which information may be stored by websites that you visit. It is an efficient means by which a vendor with a website can do a simple form of CRM. Various tidbits of information about your interests can be stored in this file. For example, if you are greeted by name when you access a website such as Amazon.com, it is because your name is stored in a cookies file on your computer.

Co-op advertising: Advertising in which a retailer and a supplier share the cost of retail advertising. The reason for the sharing is that both the retailer and the supplier benefit from the advertising. Without the sharing, the retailer would advertise too little.

Correlation: A statistic, between –1 and +1 that measures the extent to which to random variables move together. For example, if X is larger than the mean implies that Y is larger than the mean, then X and Y will tend to be positively correlated, whereas if X is larger than the mean implies that Y is smaller than the mean, then X and Y will tend to be negatively correlated. Mathematically, the correlation is defined by Covariance(X,Y)/[Variance(X)*Variance(Y)]0.5.

Core of a game: Given a set of cooperating players (e.g., a manufacturer, a wholesaler, and a retailer) an allocation of profits or costs is said to be in the core if no individual or subset of individuals can do better by themselves. For example, suppose customers A, B, and C need to have material delivered.

They can save money if they hire a single trip to make the delivery to all three. How should the costs be shared? Example: the cost of delivering to any combination of the three is as follows: {A}:$88, {B}: $91, {C}: $90, {A,B}: $150, {A,C}: $148, {B,C}: $151, {A,B,C}: $180. For example, making a single trip to just B and C costs $148. Making one trip that serves all three costs $180. If CA, CB, and CC are the amounts the three players decide to assess each other, then the core of the game is defined by the


CA ≤ 88; CB ≤ 91; CA ≤ 90; (Else the player is better off by himself); CA + CB ≤ 150; CA + CC ≤ 148; CB + CC ≤ 151; (Else a given pair is better off to exclude the third from their coalition. CA + CB + CC = 180; (Total cost must be allocated). For example, even though the Shapley value suggests that B should pay 61.5, B might be able to successfully argue that everyone pay 60 each because (60, 60, 60) satisfies the above constraints and is thus in the core. The core may be empty. For example, suppose that the cost of a covering all of {A, B, C} is $231 rather than $180. Thus, the average cost per customer of the total trip is $77. Now, even though total costs are minimized by using a single trip, any pair, A and C in particular, may be tempted to drop out of the coalition and reduce their per-customer cost to $74 from $77. See also Nash equilibrium, Shapley value.

Covariance: A statistic that measures the extent to which two variables move together. Given a set of n paired observations: {xi, yi}, with respective means xbar and ybar, then the covariance of this sample is
defined as: Σi(xi, yi – xbar)*( yi – ybar)/n. This is a biased estimate of the population covariance. To
correct for this bias, change the denominator to n-1 rather than n. Observe that the covariance of a
variable with itself is its variance.

CPFR (Collaborative Planning, Forecasting, & Replenishment): A set of guidelines for how participants in a supply chain share information, mainly forecasts and plans for promotions. See also VMI, and http://www.cpfr.org.

CPG (Consumer Product Good): Essentially any product sold in a grocery or drug store.

CPI (Consumer Price Index): An index of prices paid by consumers. It is compiled by the U.S. Bureau of Labor statistics, http://stats.bls.gov. It is the price paid, including sales tax, for a “basket” of goods and services bought by a typical consumer. It is available at the national, regional, and metropolitan area level. One of the major purposes of the CPI is to measure inflation. See also: PPI.

CPM (Critical Path Method): Project management technique in which a project is represented as a set of activities, each having an activity time and a set of predecessors. A principal concern is the minimum
length of time required to complete the project. Crucial output is a critical path, that is, a set of activities such that if any activity on a critical path is delayed, the project will be delayed. This is similar to PERT.

CRM (Customer Relationship Management): The process of managing the interaction with existing or
potential customers, especially by telephone. Part of the process may involve having an extensive online database on individual preferences of each customer. This database may be accessed during the interaction with the customer. Also see RFM.

Cross docking: A system for operating a DC in which product from inbound vehicles moves almost
immediately to outbound vehicles without being put into storage. The supplier of the inbound product may be a completely different firm from the receiver of the outbound product. The major purpose of a cross docking DC may be to “break bulk” at some level (e.g., down to the skid level and “consolidate”). See also DC.

Croston’s forecasting method: A method for forecasting lumpy demand (i.e., when a significant number of the periods have zero demand). Standard forecasting methods, such as simple exponential smoothing, perform erratically on lumpy demand. When no demand occurs, no update is performed. When a positive demand occurs, three exponential smoothing updates are performed of the three estimates of: a) Tbar = the time between positive demands, b) Dbar = the amount of demand when it is positive, and c) the absolute deviation in positive demand. The forecast of expected demand per period

is Dbar/Tbar. See Croston, J.(1972), “Forecasting and Stock Control for Intermittent Demands”,
Operational Research Quarterly, vol. 23, no. 3, pp. 289-303.

Cube: typically refers to the volume of a commodity (e.g., as in cubic meters).

cwt.: hundred weight, one hundred pounds. For many products (e.g., raw milk) the standard unit of
measure is the cwt.

About the Author: AJ Amjad Khanmohamed

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