Supply Chain and Operations Management Glossary (P)

Pallet: Platform, usually of wood, about 6 inches high by 40 in. by 48 in. on which goods are placed, so they can be picked up by a forklift to be placed in storage or on a truck. These dimensions allow two pallets to be placed side by side in a standard U.S. truck trailer. In Europe, a pallet size of approximately 48 in. by 32 in. is sometimes used. More recently, plastic based pallets have been introduced. Although more expensive, they last longer and have less danger of carrying dangerous insects from one part of the world to another. In order to prevent the spread of pests, some countries require wood pallets to be treated at 56 degrees centigrade and or fumigated with methyl bromide.
Plastic pallets can be made in shapes that allow nesting of empty pallets (i.e., nesting pallets can be stored one on top of the other, so that the vertical height of the stack of, say ten, nesting pallets is considerably less than ten times the height of a single pallet). In flexible manufacturing, the term “pallet” is sometimes used to denote a metal plate for carrying various products along a production line. Each product manufactured on the line (e.g., motorcycle engines and small car engines) has its own pallet type. All pallets have the same interface on the bottom, so that all products can be carried down the line and mounted on the same standard fixtures.

Palletize: process of placing goods on a pallet and fastening them in some fashion (e.g., with shrink wrap), so that the assembly is stable during shipment.

Palm’s Theorem: If a base stock inventory policy is used, and demands per unit time have a Poisson distribution with mean D, and lead times are i.i.d. with mean L, then the distribution of items on order at any randomly chosen instant is Poisson with mean D*L.

Pareto Analysis: A sorting of objects according to their volume, size, rate, etc. A typical result is that a small fraction of the objects (e.g., 15%) constitute a majority (e.g., 85%) of the total volume. See also, ABC analysis. Pareto Optimum: an allocation of something (e.g., total profit in a supply chain) such that there is no other allocation in which each player does at least as well, and at least one player does strictly better.

p.d.f.: probability density function. A mathematical function or curve such that the probability that a random variable falls between two values x and y is equal to the area under the curve between x and y. PDF 417 code: A 2 dimensional, laser scannable code used to store up to 1100 characters of information. The code is used for supply chain purposes in the automobile industry and by the U.S. department of defense. Some states use it to store information on driver license cards. Other 2-D codes are Data Matrix code and MaxiCode. For more details, see

Peak load pricing: The practice of setting a higher price for demand that occurs when a production facility is running at capacity. In the electrical industry, a customer may have to pay an additional charge based on the peak amount of electricity used during a day or month. The purposes of peak load pricing are: a) to help pay for the capacity that the supplier must add to handle the peak load, and b) to motivate the users to smooth heir demand or move their demand to non-peak periods.

PERT (Program Evaluation and Review Technique): A project management technique similar to CPM but with additional features to represent random activity times. First used to manage Polaris Fleet Ballistic Missile program.

PGP (Pretty Good Privacy): A widely used, “open” public key encryption system. See: Garfinkel, S.(1995), GP:Pretty Good Privacy, O’Reilly&Associates, ISBN 1-565920988. The technology is similar to RSA.

Phillips curve: The relationship, conjectured and observed by A. W. Phillips, that there tends to be a tradeoff between unemployment and inflation. That is, low unemployment tends to be associated with inflation.

Picking: the process of picking items from storage to satisfy today’s orders. It may occur at several levels, such as picking a full pallet, picking a case (for satisfying an order from a retailer) from a pallet, or picking an individual item (for satisfying retail demand) from a case. See, for example, pick-to-light and bucket brigade.

Pick-to-light: A warehouse that uses a pick-to-light system has a small electronic display, typically including a ight, next to each storage slot. A central computer will display which items are to be picked (via the light) and ow many (on the display). There is typically a button that the picker can push to turn off the light to indicate to the computer that the proper number have been picked.

Piggy back: Multi-modal transportation in which product is loaded onto a highway trailer; a tractor hauls the trailer to a rail yard. The trailer is loaded onto a special flatcar. The flat car is hauled in a train to near the product destination and the process is reversed. Good for high volume product where speed is not so mportant.

Pipeline inventory: product on order. Sometimes also defined to be on-hand + on-order. Planogram: A plan for locating products on retail shelves, grocery stores in particular. It is based on such ideas as: high demand items should be placed at eye-level. Items for children are placed at a lower level. Similar products should be together. Complementary products (e.g., pancake mix and pancake syrup) should be together. Higher demand and higher profit products should get more shelf space, etc. PO (Purchase Order): A request by a buyer to a seller to ship a certain number of each of a list of SKU’s. Each SKU on the PO is typically called a line item.

Poisson distribution: a distribution, which tends to be a good approximation of retail demand in a specified time interval (e.g., the number of calls into a call center in a specific hour). If the mean demand is D, then the probability of k demands, for k = 0,1,2,… is: (e-DDk)/k!. The standard deviation is the square root of D. As D becomes large, the Poisson distribution converges to the normal distribution. The approximation is good for, say, D > 15. The binomial distribution with parameters n and p, converges to the Poisson as n gets large and n*p converges to D.

POS (Point Of Sale data): data typically accumulated by retail scanners. Users of these data have up to the minute information on how much of what product was sold when and at which outlet.

Postponement: A modification to a production and distribution process, so that some operation on the product is done later in time and closer to the final customer. Typically there are two motivations: a) less inventory needs to be carried earlier in the process because of risk pooling, and b) transportation costs may be reduced because the not-quite-complete product (“some assembly required”) is easier to transport.

PPI (Producer Price Index): A collection of over 10,000 indices of selling prices received by domestic producers of goods and services. Long term contracts may sometimes have a price escalation clause based on a particular PPI. It is compiled by the U.S. Bureau of Labor statistics, and usually published at the end of the second full week of the month. Both seasonally adjusted and unadjusted versions are available. See also, CPI.

Predictive dialing: A technique used in outbound telephone call centers to increase the utilization of the operator personnel staffing the phones. The predictive dialing system keeps track of a) how long each current call has been in process, and predicts when the next agent will be free, and b) what is the probability that the next dialing attempt will get a “live” answer rather than a busy signal, or no answer. Taking all this into account, it automatically starts dialing the next number to be called such that just as an agent becomes free a “live” person being called will pickup the phone. The statistical theory is much like the overbooking process in airline reservations.

Prisoner’s dilemma: A situation in which two players (e.g., retailers) both make substantial profit if they “cooperate” (e.g., spend moderate amounts on advertising and keep the price high). This is an unstable equilibrium, however, if there is a strong temptation to “cheat” (e.g., obtain more profit for oneself by unilaterally dropping the price and advertising heavily). The situation when both players “cheat” is a stable equilibrium (i.e., neither player is willing to change his decision by himself, however, each player makes less profit than he would if both players cooperated). The term comes from the setting where two accomplices in crime are held prisoner. Each is offered to be set free if he supplies incriminating evidence against the other. Both will receive a light punishment if neither supplies evidence. If one refuses to cooperate but the other supplies evidence, then the uncooperative one receives a severe sentence. This is an example of a nonconstant sum game.

Probit model: A statistical technique frequently used in deciding whether to grant or deny credit to a prospective customer. Identical to the Logit model except that the Normal distribution, rather than the Logistics distribution is used to estimate the probability the prospect is bad.

Promotion: a temporary price reduction, typically publicized or “promoted” with advertising. There seem to be two reasons for promotions: a) seller is trying to reach a sales quota (e.g., for the current quarter) or b) it is a way of doing value based pricing. E.g., if one week out of four the price is lowered, customers who are only willing to pay the low price will wait three weeks to buy their needs for all four weeks, whereas, customers who are price insensitive will pay the high price three times out of four. See: EDLP,

Public key encryption: A two key encryption system whereby the sender uses his private key to encrypt his message (e.g., a PO). His public key, known by all his business partners, is needed to decipher the message. Thus, a recipient of a message is able to verify the source of a message. It also allows the sender to prevent a message from being read by anyone but the intended recipient by encrypting it with the recipient’s public key. The recipient can then decipher the message with his private key. This provides one way of implementing one form of an extranet.

Pull system: A multi-echelon system in which the individual levels use a Q,r inventory policy to request product from their supplier. Q should be small. Pull systems, as opposed to Push systems, are considered “good” or politically correct.

Push system: A multi-echelon system in which a central planner forecasts needs at individual levels and “pushes” product to these levels in advance of the demand. See also: pull system. If forecasts are perfect a push system is very good. If forecasts are bad, it may be really bad.

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