Cannibalization Definition

CANNIBALIZATION:

Cannibalization refers to the notion of a company making a conscious business decision that will have a negative impact on either a current product or member of a distribution channel (or entire channel, via disintermediation). This type of decision is typically designed to allow the company to survive in the long-term, and avoid having its products challenged by competitors' products as technology progresses.

PRODUCT BUILDING

Product Bundling refers to the bundling together of more than one product for a sale. This is very common for digital products, where the marginal costs of each product is very low. If most of the marginal cost is associated with packaging and distribution, this is further reduced when the products are bundled together, as they share the same costs of packaging and distribution. Thus the incremental cost to the firm (i.e. Microsoft!) for bundling together additional software products is very small (actually zero aside from any opportunity cost). Thus a suite of products may allow for greater market penetration into different software markets than if the software was sold separately. For software that is not currently used by the consumer, but is purchased through a bundled package, it works to lock-in the consumer once he/she decides to use that category of software. Thus bundled software can ensure strong market positions across multiple markets.

While product bundling is a regular phenomena for software and related products, product unbundling may occur in the traditional content provider markets as microtransactions can provide payment options for smaller increments of the product. Thus rather than having to buy an entire CD (a bundling of different song titles, mostly of little relevance to each other) the consumer may be able to pay for a single song title, unbundled.

BRAND

A brand is a product from a known source (organization). The name of the organization can also serve as a brand. The brand value reflects how a product's name, or company name, is perceived by the marketplace, whether that is a target audience for a product or the marketplace in general (clearly these can have different meanings and therefore different values). It is important to understand the meaning and the value of the brand (for each target audience) in order to develop an effective marketing mix, for each target audience.

ADVERTISING:

ADVERTISING is a paid form of communicating a message by the use of various media. It is persuasive, informative, and designed to influence purchasing behavior or thought patterns.

1 BARTERING:

BARTERING is a system of trading goods and services for advertising time or space. For example, a hotel might trade-out the value of one or two nights' stay to the newspaper in return for the same value in advertising space.

BENCHMARKS:

BENCHMARKS are standards or averages by which similar items can be compared.

CONTEXTUAL MARKETING:

CONTEXTUAL MARKETING is marketing that occurs in the context of when a person is more likely to be interested in the product/industry. Thus, a page sponsorship can be considered contextual, as the viewer has elected to view the page, and assuming the sponsorship is for a product that is related to the content of the page, the product has the right context (the viewer self-selected to view the content). Text advertisements that are relevant to the content of the web page they appear are another example of contextual marketing.

Contextual Marketing will also become more evident with the evolution of wireless marketing (m-commerce). Wireless marketing will take advantage of knowing where the consumer is located using GPS. This can then translate into marketing messages that have direct relevance to the consumer as the messages relate to the context of the consumer at the point in time they are being delivered.

COOPERATIVE ADVERTISING:

COOPERATIVE ADVERTISING (co-op advertising) is an arrangement between manufacturer and retailer to reimburse the retailer in full or in part for local placement of manufacturer-produced ads and commercials. These ads would include the addition of the retailer's name in the copy. Co-op advertising might also mean a joint effort between two or more businesses to pool advertising money for more buying power. The ads would feature both company names and benefits.

CPT:

CPT (cost per thousand) divides the cost of an advertising medium by the number of persons in the target audience who are reached by the medium.

DEMOGRAPHICS:

DEMOGRAPHICS are the physical characteristics of a population such as age, sex, marital status, family size, education, geographic location, and occupation.

2 LOGO:

LOGO is a unique symbol or design that represents a company. Also called, a trademark.

MARKETING:

MARKETING includes identifying unmet needs; producing products and services to meet those needs: and pricing, distributing, and promoting those products and services to produce a profit.

MARKETING MIX / NICHE:

MARKETING MIX includes a combination of product, packaging, price, channels of distribution, advertising, promotion, and personal selling to get the product in the hands of the customer.

MARKET NICHE is the unique advantage or benefit a product or service offers a particular group of customers. Marketing success is dependent upon establishing how a product stands out from similar ones.

MEDIA:

MEDIA (singular medium) are the print (newspaper, magazines, etc.) and electronic (radio and television) communication devices used for advertising.

POSITIONING:

POSITIONING is the attempt to control the public's perception of a product or service as it relates to competitive products.

PUBLIC RELATIONS:

PUBLIC RELATIONS is a form of communication primarily directed tiward gaining public understanding and acceptance. Public relations usually deals with issues rather than products or services, and is used to build goodwill with public or employeess. Examples of public relations are employee training, support of charitable events, or a news release about some positive community participation.

PURCHASE CYCLES:

3 PURCHASE CYCLES are the time periods between purchases of a product, which is important in estimating product or service demand.

TARGET MARKET:

Target Market is the specific group of customers that a company aims to capture. They have been identified as people with needs or wants that can be met with the products or services from this company.

TEST MARKETING:

Test Marketing is a limited introduction of a product or service to test public reaction for a full market strategy. Giving the public a small sample of what is to be offered is a form of test marketing.

OUTSOURCING:

Paying another company to provide services which a company might otherwise have employed its own staff to perform, e.g. software development. (1995-03-28)

AVERAGE COST:

The average cost of a unit of product is made up of its fixed costs/#units produced, and the variable cost per unit. With digital products, where the variable costs are very small (and in some instances zero) the average cost of the product declines as more units are produced and sold. Thus the market leader for a product typically has the lowest average costs per unit. This allows the leader to have increased margins, and increased flexibility to lower price. This is one of the reasons why first-mover advantage can be so important.

BREAK EVEN ANALYSIS:

Break Even Analysis refers to the calculation to determine how much product a company must sell in order to break even on that product. It is an effective analysis to measure the impact of different marketing decisions. It can focus on the product, or incremental changes to the product to determine the potential outcomes of marketing tactics. The formula for a break even analysis is:

Break even point ($) = (Total Fixed Costs + Total Variable Costs). Total Variable Costs = Variable cost per unit x units sold Unit contribution (contribution margin) = Price per unit - Variable cost per unit.

When looking at making a change to the marketing program, one can calculate the incremental break even volume, to determine the merits of the change. This determines the required volume needed such that there is no effect to the company due to the change.

4 If making changes to fixed costs (changing advertising expenditure etc.): Incremental break even volume = change in expenditure / unit contribution. Thus if a company increased its advertising expenditure by $1 million, and its unit contribution for the specific product is $20, then the company would need to sell an additional 50,000 units to break even on the decision.

If making changes to the unit contribution (change in price, or variable costs): Incremental break even volume = (Old Unit Volume x (Old Unit Contribution - New Unit Contribution)) / New Unit Contribution Thus if a company increased its price from $15 to $20, and had variable costs of $10, it is increasing its unit contribution from $5 to $10, assume also an old unit volume of 1 million. It could therefore reduce its volume by 500,000 to break even on the decision.

When making changes to a specific product, cannibalization of other products may occur. To calculate the effect of cannibalization, the Break Even Cannibalization rate for a change in a product is: New Product Unit Contribution / Old Product Unit Contribution. New Product is the planned addition to a product line (or change to a product within a product line), Old Product is the product that loses sales to the new product (or the product line that loses sales). The cannibalization rate refers to the percentage of new product that would have gone to the old product, this must be lower than the break even cannibalization rate in order for the change to be profitable.

FIXED COSTS:

Fixed costs refer to the costs associated with a product, that are fixed over a number of units. Thus regardless of the number of units produced and sold, the fixed costs remain the same. Examples of fixed costs are rent on equipment, utility costs, and research and development costs. With digital products, much of the fixed costs are actually sunk costs, and therefore non-recoverable costs. A large portion of the costs associated with digital products are fixed, and sunk, and not variable costs, which are more typical of traditional manufactured goods. Break even analysis, which is a tool that determines the volume at which a company must sell a product in order to break even, distinguishes between fixed and variable costs in its calculations.

SUNK COSTS:

Sunk costs refer to costs that are non-recoverable fixed costs. Digital products usually have significant sunk costs (when compared to other fixed costs) in the form of research & development and intellectual property (patents etc.) for the product. If the product is not successful in the marketplace, the costs associated with the the product development (intellectual property, labor) cannot be recovered. Thus when making pricing decisions about the product in the future, one should not factor in the sunk costs. If a product's cost structure is made up of sunk costs (no other fixed costs) and zero marginal costs then any price above zero will contribute to the company's bottom line. Other fixed costs, that are not sunk (rent, depreciation on equipment etc.) should be factored in when making

5 pricing decisions in the future, since these are ongoing costs to the company. The company will continue to have to pay these costs in the future, this is not the case for sunkcosts.

The development of the Netscape browser is a good example of a product whose cost structure was comprised primarily of sunk costs. Regardless of the success of the product in the market, the major parts of the costs were already expended (product development). This enabled Netscape tremendous flexibility as it used its web site to allow users to download the product for free (actually it was not free, but Netscape did not pursue individual consumers for sales revenue). The only type of cost this presented to Netscape was the opportunity costs of lost sales from those who downloaded the browser for free. These free downloads enabled Netscape to build market share quickly, thus establishing first mover advantage and significant market leadership (for a short time!)

Another example of a sunk cost is the cost of a seat on an airplane to the airline. The Cost of an airline seat is primarily fixed and sunk (as long as one assumes the flight was going to take place regardless of whether the seat was sold) with a small portion attributed to variable costs if one considers the food and beverage service. Thus it makes sense for the airline to develop a pricing structure designed to maximize the revenue of the aircraft during a flight. They can do this by changing their pricing depending on the demand for a particular flight, and by offering additional benefits to their frequent flyers (to upgrade etc. 'course I am writing this on an airplane!) Essentially, as long as the price of a seat covers the variable cost of the seat, its revenue will contribute to the bottom line of the airline. This assumes opportunity costs are not a factor.

BARRIER TO ENTRY:

Barrier to Entry refers to the costs incurred for a new entrant to enter a marketplace.

Examples include fixed costs such as the development of a factory (for traditional manufactured goods), branding and lock-in established by current competitors in the form of switching costs. Barriers to entry can also refer to any "hidden" cost established to reduce freedom of choice. Thus traditional retailing environments, that rely on geography as a competitive advantage, are building barriers to entry to those not in close proximity to their customer base.

ECONOMIES OF SCALE:

Economies of scale refers to the notion of increasing efficiencies of the production of goods as the number of goods being produced increases. Typically the average costs of producing a good will diminish as each additional good is produced, since the fixed costs are shared over an increasing number of goods.

Due to economies of scale, larger companies have greater access to markets in terms of selecting media to access those markets, and can operate with larger geographic reach.

6 For traditional companies, size does have its limits, where additional size actually increases costs to companies (impacts communications costs etc., diminishing returns). Thus many industries tend to operate more effectively in an oligopolistic fashion, with few large firms, rather than one monopolist. (This should occur even if the government allowed monopolists and monopolists behaved legally). Digital companies tend not to suffer from this size limitation.

OPPORTUNITY COSTS:

Opportunity costs refer to the costs associated with giving up an opportunity. They are relevant in the marketing of digital products when one considers the value lost to the company when giving away a product for free. Since digital goods primarily consist of fixed costs and often have zero marginal costs then marketing strategy often dictates to give-away a version of the product to encourage consumers to upgrade at a later time (assuming lock-in etc.) The only cost incurred here would be the opportunity cost of the lost revenue from the consumers that would have paid for this version of the product in the first place. To avoid this situation, companies typically segment their markets, and offer a free product, with limited functionality (and no customer support or documentation) to a casual user group, and an upgraded version, at a price, with customer support etc. to a more sophisticated customer. The company will hope the casual user will upgrade to the upgraded version as they become more sophisticated users and more reliant on the product. They also assume the sophisticated user will not be satisfied with the free version, due to its lack of functionality.

CONTRIBUTION MARGINS:

Contribution margin (or margins) refer to the amount of revenue per product that is available to "contribute" towards the fixed costs and the profit of the company. Since, for digital products, the variable costs are typically very small, or zero, most of the revenue earned from the sale of a product form the contribution margin. Assuming the contribution margin (unit price - unit variable cost) > 0, then the product is worth marketing, since the fixed costs are sunk. This also assumes the product does not cannibalize sales from another product in the product line, if so, the opportunity costs need to be considered.

REVERSE PRICING MODEL:

Reverse Pricing Model refers to a model that allows the consumer to establish his/her requirements and offer those requirements for bid by the seller. Thus rather than the seller marketing a product to the buyer, the reverse is occuring. Priceline has pioneered this model in the consumer marketplace, using airline tickets as the product. This model further reflects the changing power in the market from the supplier to the consumer. When this model can be effectively combined with the group buying model one can envision powerful groups of buyers creating interesting demands on companies.

AUCTION PRICING SYSTEM:

7 Using an auction pricing system, sellers are not constrained by having to fix a price without knowing what the market will bare (traditional pricing methodology). If a seller sets a price too low, using a classified advertisement for example, the demand will be high and the product will be purchased. The seller, however, will not get the most revenue the market would have paid, if the buyers had had to compete for the purchase. The buyer who wanted the product most (willing to pay the highest price) would not automatically receive the product. Conversely, if the seller advertises too high a price, using a classified adversitement, the product will not sell. By allowing buyers to bid up the price from a low price point, the product will sell to the highest bidder (assuming it clears a minimum asking price). The auction pricing system is a dynamic pricing model, much like the reverse pricing model. Game Theory can impact the strategies involved in setting a starting price (for the seller) and bidding strategies for the buyers.

DYNAMIC PRICING:

Dynamic Pricing refers to a fluid pricing scheme between the buyer and seller, rather than the more traditional (and more recent, over the last 100 years) fixed pricing. Dynamic pricing is a legacy from the past, that has losts its significance with the advent of the industrial revolution and mass marketing and mass communication. Before the industrial revolution, most trade occured in markets, with many buyers and sellers bartering for goods.

Current, and evolving models for dynamic pricing include the auction pricing system, group pricing system and reverse pricing system. Typically these systems will better reflect the true market value of the product involved, but also require additional work on the part of the purchaser. These systems will evolve more rapidly when better standards are established and when intelligent agents evolve. Not all markets will be served well with a dynamic pricing model.

DE facto standard:

A widespread consensus on a particular product or {protocol} which has not been ratified by any official {standard}s body, such as {ISO}, but which nevertheless has a large market share. The archetypal example of a de facto standard is the {IBM PC} which, despite is many glaring technical deficiencies, has gained such a large share of the {personal computer} market that it is now popular simply because it is popular and therefore enjoys fierce competition in pricing and software development. (1994-10-27)

First Mover Advantage Definition

The First-Mover Advantage refers to the advantage gained by the first company that enters a certain market. This advantage is exacerbated for digital products and markets. There are a number of reasons this advantage exists. A company that is able to increase sales quickly is able to reduce the average cost of the product, over other competitors. This allows the first company to have more flexibility with pricing, either reducing the price to make it less attractive for new entrants (increasing barriers to entry) or increasing

8 the margin and therefore profit while prices remain fixed, this additional profit can then be used for further innovation. The first-mover can also take advantage of the learning curve effect. First-mover advantage can be further successful if the company is able to achieve lock-in of its installed-base. Thus once lock-in occurs, it is more difficult for other marketers to attract those customers away from the first marketer.

First-mover advantage is not always sustainable, and Microsoft has been very effective at being the second company in many markets, and subsequently dominating those markets. A simple example of this was the Netscape's browser vs. Microsoft's Internet Explorer. Netscape was the first-mover, gaining upwards of 90% market-share, but was not able to sustain its position with the onslaught of Microsoft. Netscape did not establish ANY lock-in, either due to the user interface, or proprietary functionality and both products were essentially being given away, so there was no price advantage. Microsoft is clearly positioned to give a product away for the long-term to gain market share.

ISO(17799) The International Standards Organization (ISO) specification 17799 provides a baseline for information security management. Many organizations utilize the ISO 17799 standard as guidelines for developing their own policies. Numerous regulations utilize the ISO framework as the basis for their own logical and technological control requirements.

ERP:

(ERP) Any {software} system designed to support and automate the business processes of medium and large businesses. This may include manufacturing, distribution, personnel, project management, payroll, and financials. ERP systems are accounting- oriented information systems for identifying and planning the {enterprise}-wide resources needed to take, make, distribute, and account for customer orders. ERP systems were originally extensions of {MRP II} systems, but have since widened their scope. An ERP system also differs from the typical MRP II system in technical requirements such as {relational database}, use of {object oriented programming} language, {computer aided software engineering} tools in development, {client/server} {architecture}, and {open system} {portability}. {JBOPS} are the major producers of ERP software.

Manufacturer Resource Planning:

(MRP II) A system based on {MRP} which allows manufacturers to optimise materials, procurement, manufacturing processes, etc., and provide financial and planning reports. In the late 1970s and early 1980s, manufacturers integrated MRP and other manufacturing and business functions. This renaissance is commonly known as Manufacturing Resource Planning (MRP II). According to the American Production and Inventory Control Society, Inc. (APICS), MRP II is a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning in dollars, and has a simulation capability to answer "what if"

9 questions. It includes business planning, sales and operations planning, production scheduling, material requirements planning (MRP), capacity requirements planning, and the execution support systems for capacity and material. Output from these systems is integrated with financial reports such as the business plan, purchase commitment report, shipping budget, and inventory projections in dollars. Manufacturing resource planning is a direct outgrowth and extension of closed-loop MRP. See also {Enterprise Resource Planning}, {SAP} R/2, R/3, and {Baan}. (1999-02-16)

Electronic Funds Transfer Point of Sale:

A method of electronic payment which allows money to be transferred from the account of the shopper to the merchant in close-to real-time. Generally the shopper will give the merchant a credit or debit card, which will be swiped to obtain the account information. The shopper will then be required to either sign a receipt or enter a {PIN} via a keypad to authorise the transaction. (2003-06-22)

EDI:

(EDI) The exchange of standardised document forms between computer systems for business use. EDI is part of {electronic commerce}. EDI is most often used between different companies ("trading partners") and uses some variation of the {ANSI X12} {standard} (USA) or {EDIFACT} (UN sponsored global standard). [{Electronic Commerce Dictionary}]. (1995-10-06)

DBMS:

(DBMS) A suite of programs which typically manage large structured sets of persistent data, offering ad hoc query facilities to many users. They are widely used in business applications. A database management system (DBMS) can be an extremely complex set of software programs that controls the organisation, storage and retrieval of data (fields, records and files) in a database. It also controls the security and integrity of the database. The DBMS accepts requests for data from the application program and instructs the operating system to transfer the appropriate data. When a DBMS is used, information systems can be changed much more easily as the organisation's information requirements change. New categories of data can be added to the database without disruption to the existing system. Data security prevents unauthorised users from viewing or updating the database. Using passwords, users are allowed access to the entire database or subsets of the database, called subschemas (pronounced "sub-skeema"). For example, an employee database can contain all the data about an individual employee, but one group of users may be authorised to view only payroll data, while others are allowed access to only work history and medical data. The DBMS can maintain the integrity of the database by not allowing more than one user to update the same record at the same time. The DBMS can keep duplicate records out of the database; for example, no two customers with the same customer numbers (key fields) can be entered into the database. {Query languages} and {report writers} allow users to interactively interrogate the database and analyse its data. If the DBMS provides a way to interactively enter and update the database, as well

10 as interrogate it, this capability allows for managing personal databases. However, it may not leave an audit trail of actions or provide the kinds of controls necessary in a multi- user organisation. These controls are only available when a set of application programs are customised for each data entry and updating function. A business information system is made up of subjects (customers, employees, vendors, etc.) and activities (orders, payments, purchases, etc.). Database design is the process of deciding how to organize this data into record types and how the record types will relate to each other. The DBMS should mirror the organisation's data structure and process transactions efficiently. Organisations may use one kind of DBMS for daily transaction processing and then move the detail onto another computer that uses another DBMS better suited for random inquiries and analysis. Overall systems design decisions are performed by data administrators and systems analysts. Detailed database design is performed by database administrators. The three most common organisations are the {hierarchical database}, {network database} and {relational database}. A database management system may provide one, two or all three methods. Inverted lists and other methods are also used. The most suitable structure depends on the application and on the transaction rate and the number of inquiries that will be made. Database machines are specially designed computers that hold the actual databases and run only the DBMS and related software. Connected to one or more mainframes via a high-speed channel, database machines are used in large volume transaction processing environments. Database machines have a large number of DBMS functions built into the hardware and also provide special techniques for accessing the disks containing the databases, such as using multiple processors concurrently for high-speed searches. The world of information is made up of data, text, pictures and voice. Many DBMSs manage text as well as data, but very few manage both with equal proficiency. Throughout the 1990s, as storage capacities continue to increase, DBMSs will begin to integrate all forms of information. Eventually, it will be common for a database to handle data, text, graphics, voice and video with the same ease as today's systems handle data. See also: {intelligent database}.

DSD:

A {database} from which data is extracted and analysed statistically (but not modified) in order to inform business or other decisions. This is in contrast to an {operational database} which is being continuously updated. For example, a decision support database might provide data to determine the average salary of different types of workers, whereas an operational database containing the same data would be used to calculate pay check amounts. Often, decision support data is extracted from operation databases.

Business Application Programming Interface

(BAPI) /bap'ee/ A set of {methods} provided by an {SAP} business {object}. Release 4.0 of {SAP AG}'s {R/3} system supports {object-oriented programming} via an interface defined in terms of {objects} and {methods} called BAPIs. For example if a material object provides a function to check availability, the corresponding SAP business object type "Material" might provide a BAPI called "Material.CheckAvailability". The definitions of SAP business objects and their BAPIs are kept in an SAP business object

11 repository. SAP provide {classes} and {libraries} to enable a programming team to build SAP applications that use business objects and BAPIs. Supported environments include {COM} and {Java}. The {Open BAPI Network (http://www.sap.com/solutions/technology/bapis/index.htm)}. gives background information and lists objects and BAPIs. (2002-08-30)

BACKOFFICE:

A suite of network {server} software from {Microsoft} that includes {Windows NT} Server, BackOffice Server (for the integrated development, deployment, and management of BackOffice applications in departments, branch offices, and medium sized businesses); {Exchange Server}; {Proxy Server}; {Site Server} for {intranet} publishing, management, and search; Site Server Commerce Edition For comprehensive {Internet commerce} transactions; {Small Business Server} for business operations, resource management, and customer relations; {SNA Server} for the integration of existing and new systems and data; {SQL Server} for scalable, reliable database and data- warehousing; {Systems Management Server} (SMS) for centralised change- and {configuration-management}. Latest version: 4.5, as of 2000-12-16. {Home (http://www.microsoft.com/backofficeserver/)}.

Financial Information exchange:

(FIX) A {standard} messaging {protocol} for the {real-time} electronic exchange of securities transactions.

Opportunity Management System:

(OMS) A system that stores sales opportunities and related information. Each sales lead can be tracked with information such as source, type, worth, status, likelihood of closure etc. An OMS can perform other related tasks such as prioritising sales calls and generating analyses that assist the fine-tuning of marketing strategies. See also {Customer Relationship Management}.

IBM:

(IBM) The best known American computer manufacturer, founded by Thomas J. Watson (born 1874-02-17), known as "Big Blue" after the colour of its logo. IBM makes everything from {mainframes} to {personal computers} (PCs) and has been immensely successful in selling them, chiefly to business. It has often been said that "Nobody has ever been sacked for buying IBM". The {IBM PC} in its various versions has been so successful that unqualified reference to a "PC" almost certainly means a PC from IBM, or one of the many brands of {clone} produced by other manufacturers to cash in on IBM's original success. Alternative expansions of "IBM" such as Inferior But Marketable; It's Better Manually; Insidious Black Magic; It's Been Malfunctioning; Incontinent Bowel Movement, illustrate the considerable antipathy most hackers have long felt toward the

12 "industry leader" (see {fear and loathing}). Quarterly sales $15351M, profits $689M (Aug 1994). {Home (http://www.ibm.com/)}.

IE:

(IE, MSIE) {Microsoft}'s free {World-Wide Web} {browser} for {Microsoft Windows}, {Windows 95}, {Windows NT}, and {Macintosh}. Internet Explorer is the main rival to {Netscape Navigator} (which runs on many more {platforms}). Both support the same core features and offer incompatible extensions. Microsoft combined later versions of IE with their {file system} browser, "Explorer" and bundled it with {Windows 95} in an attempt to use their dominance of the {desktop} {operating system} market to force users to abandon Netscape's browser, which they perceived as a potential threat. This, and other dubious business moves, became the subject of a US Department of Justice antitrust trial in late 1998/early 1999. {Home (http://www.microsoft.com/ie/)}.

Business Process Re-engineering:

(BPR) Any radical change in the way in which an organisation performs its business activities. BPR involves a fundamental re-think of the business processes followed by a redesign of business activities to enhance all or most of its critical measures - costs, quality of service, staff dynamics, etc.

Asset management:

The process whereby a large organisation collects and maintains a comprehensive list of the items it owns such as hardware and software. This data is used in connection with the financial aspects of ownership such as calculating the total cost of ownership, depreciation, licensing, maintenance, and insurance.

CONFERENCE CALLS:

Conference calls are calls made between multiple parties either using a phone built for calling out on multiple lines or by using a "meet me" or conferencing line where multiple partiescancallin.

Conference calls are used widely by businesses to have virtual meetings. Conferencing equipment is built by multiple manufacturers.

BANKRUPTCY:

A condition in which a business cannot meet its debt obligations and petitions a federal district court for either reorganization of its debts or liquidation of its assets. In the action the property of a debtor is taken over by a receiver or trustee in bankruptcy for the benefit

13 of the creditors. This action is conducted as prescribed by the National Bankruptcy Act, and may be voluntary or involuntary.

BAD DEBTS:

Funds owing to a business which are determined to be uncollectible.

ANNUAL RECEIPTS:

Receipts are averaged over a firm's latest 3 completed fiscal years to determine its average annual receipts. "Receipts" means the firm's gross or total income, plus cost of goods sold, as defined by or reported on the firm's Federal Income Tax return. The term does not include, however, net capital gains or losses, nor taxes collected for and remitted to a taxing authority if included in gross or total income. The firm may not deduct income taxes, property taxes, cost of materials or funds paid to subcontractors. Travel, real estate and advertising agents, providers of conference management services, freight forwarders and customs brokers may deduct amounts they collect on behalf of another. If a firm has not been in business for 3 years, the average weekly receipts for the number of weeks the firm has been in business is multiplied by 52 to determine its average annual receipts.

ACCOUNTS PAYABLE:

Trade accounts of businesses representing obligations to pay for goods and services received

504 Loan Program:

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the Certified Development Company (CDC) (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The maximum SBA debenture is $1,000,000 for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $35,000 provided by the SBA. The maximum SBA debenture is $1.3 million for meeting a public policy goal.

Venture Capital Definition

The Venture Capital (VC) Industry is a major source of funding for the entrepreneurial community. The industry itself has evolved over a number of years, but has only recently emerged as a popular career for many new MBAs. The industry focus is on early stage, pre-IPO funding opportunities. Typically a fund will be raised, that will be invested in a number of different opportunities, that are reasonably high risk. In return for the investment, the VC receives an equity stake in the business. The VC also helps the business develop its management team, and takes seats on the board of the company. VCs are typically interested in making few large investments, due to the manpower needed to

14 support each investment (recruiting and board seats). They focus not only on the business opportunity that is presented to them, but closely on the management team that is offered (human capital is clearly becoming the differentiating advantage of any business at this point!) In order for an entrepreneur to have an audience with a VC, s/he needs to have a pre-existing connection (a reference to the VC). Without this, the VC is unlikely to review the business plan. This further supports the notion that the VC and entrepreneurial community in Silicon Valley is a ecosystem that benefits from the mutual relationships that are already established, and is resistent to outsiders looking in (almost a closed system!)

A recent growth of alternative sources of pre-IPO investment is coming from Angel Investors. These are typically successful entrepreneurs (cashed out) who are looking for additional investment opportunities in order to remain connected to the entrepreneuarial community.

Accounts Receivable:

Trade accounts of businesses representing moneys due for goods sold or services rendered evidenced by notes, statements, invoices or other written evidence of a present obligation.

Pre-Money Valuation:

Pre-Money Valuation refers to the value of the company before an outside investment is made. Thus if a company has a pre-money valuation of $5 million, and a Venture Capitalist invests $10 million, then the Venture Capital firm will own 66% of the business after the investment ($10M / $15M = 66%)

M-Commerce:

MCommerce (Mobile Commerce) refers to access to the internet via a mobile device, such as a cell phone or a PDA. Once m-commerce becomes ubiquitous (it has greater rates of acceptance in places like Europe and Japan than it does in the US due to standards that have developed (Japan the standard is I-mode, in europe is is WAP), it will change the utility of the web from a business standpoint. Contextual Marketing, the ability to communicate with a person when the person is likely to be receptive to the communication, will begin to occur, due to the mobility of access versus a PC. SMS is the messaging system across mobile devises that complements m-commerce.

Ecosystem An ecosystem is a system whose members benefit from each other's participation via symbiotic relationships (positive sum relationships). It is a term that originated from biology, and refers to self-sustaining systems.

The bumblebee hive is an example of an ecosystem, highlighted in Bernd Heinrich's book, Bumblebee Economics. The bumblebees' hive is a living system with one goal, to gather enough energy to ensure the survival of the bumblebee's genetic information.

15 Bumblebees (unlike most other species) live in colonies and depend on each other for survival. Bumblebees extract pollen for protein and nectar for their sole source of energy from neighboring plants. Plants, in turn, rely on bumblebees to inadvertently brush pollen from one plant to another, to enable the plants' reproduction process to begin. The relationship between the bumblebee and the plant is symbiotic, as each benefits from each other's participation. The bumblebee hive goes through a life cycle, through the year. Entering the fall the queen bee lays eggs that are fed a different diet. These eggs turn into virgin queens and males. When the frost hits, the remaining worker bees die as does the queen, the virgin queens and males fly off, mate, the males die and the inseminated queens seek shelter through the winter. The process then begins again.

As it applies to business, an ecosystem can be viewed as a system where the relationships established across different industries become mutually beneficial, self-sustaining and (somewhat) closed. This is clearly the case for Silicon Valley with the entrepreneurial industry, the venture capital industry needed to fund the entrepreneurial industry, and Stanford University, supplying the human capital needed to develop innovative/creative ideas and technologies. The goal of this ecosystem is to generate entrepreneurial ventures. Once an ecosystem is established, and is able to take first-mover advantage, it becomes very difficult for other regions to emulate. The region exhibits network effects and is able to establish lock-in since the switching costs associated with moving to another region are prohibitive. The collective costs of many moving out of the region (i.e. if another region tried to incentivize a large move) would be prohibitive. Thus current members have a clear incentive to remain, and new would-be entrepreneurs, venture capitalists and students interested in this industry have a significant incentive to relocate to this region.

Channel Conflict:

Channel conflict is the outcome of developing additional channels between the producer and consumer (often direct in terms of using the web). This creates a "conflict" with traditional channel members along the value chain, which are concerned with getting disintermediated. This occurs with legacy businesses as they explore the web for comme

Technology Diffusion Process:

The diffusion process refers to the process of adoption of new products by the consumer marketplace. The consumer marketplace is segmented into four groups: innovators (2.5% of population), early adapters (13.5%), early majority (34%), late majority (34%), and laggards (16%). Thus innovators are more likely to adopt a new product earlier than the early majority etc. This has implications for target marketing with new products.

Permission Marketing :

Permission Marketing refers to a communications process, between the marketer and the consumer, that the consumer gave "permission" to the marketer to participate. This is becoming more common with the web, as consumers "opt-in" to a mailing list from a

16 company's web-site. This allows the marketer to develop an ongoing dialog, in order to build a positive relationship and communicate messages relevant to the marketer's product. Product information, combined with additional incentives (prizes or other rewards) are usually used. Seth Godin has pioneered this area.

SUPPLY CHAIN :

Supply Chain refers to the distribution channel of a product, from its sourcing, to its delivery to the end consumer (also known as the value chain). The supply chain is typically comprised of multiple companies who are increasingly coordinating activities via an extranet.

Mesothelioma:

Mesothelioma is a rare form of cancer in which malignant (cancerous) cells are found in the mesothelium, a protective sac that covers most of the body's internal organs. Most people who develop mesothelioma have worked on jobs where they inhaled asbestos particles.

Working with asbestos is the major risk factor for mesothelioma. A history of asbestos exposure at work is reported in about 70 percent to 80 percent of all cases. However, mesothelioma has been reported in some individuals without any known exposure to asbestos.

Asbestos is the name of a group of minerals that occur naturally as masses of strong, flexible fibers that can be separated into thin threads and woven. Asbestos has been widely used in many industrial products, including cement, brake linings, roof shingles, flooring products, textiles, and insulation. If tiny asbestos particles float in the air, especially during the manufacturing process, they may be inhaled or swallowed, and can cause serious health problems. In addition to mesothelioma, exposure to asbestos increases the risk of lung cancer, asbestosis (a noncancerous, chronic lung ailment), and other cancers, such as those of the larynx and kidney.

Mesothelioma cancer as a byproduct of asbestos in the workplace has caused many lawsuits affecting companies who have asbestos products in the workplace environment.

Learning Curve:

The learning curve represents the outcome of a company's experience when developing a product. As the company becomes more experienced, it is able to develop a better product, or develop products more efficiently at reduced cost. The learning curve effect has a significant role in helping companies benefit from first-mover advantage. Later entrants into the marketplace have a difficult time overcoming the experience advantage, as first-movers release additional versions of the product.

17 SWITCHING COSTS:

Switching Costs refer to the notion of the hidden costs a consumer is faced when switching from one product to another in the marketplace. Consumers should really try to factor in the switching costs when making purchasing decisions, since these impact purchasing decisions they may be faced with in the future (limiting freedom of choice). Switching costs are developed by companies in order to try to establish lock-in.

The airlines have a good understanding of switching costs consumers face, and have developed the frequent flyer program to raise switching costs and increase loyalty among their installed bases. Digital products can establish switching costs in a variety of ways, including user interfaces, user training, accumulated data storage etc.

BUSINESS:

A commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities.

Definition of a Business

Business Licence By-law No. 988-2000 requires every person or company proposing to operate a business in the City of Abbotsford to obtain a business licence prior to commencing operation.

A business means:

"carrying on a commercial or industrial undertaking of any kind or nature, or providing professional, personal, or other services for the purpose of gain or profit, but does not include an activity carried on by the government, its agencies, or government-owned corporations. For the purpose of this definition, farming and the sale of produce grown on the property, are exempt from the requirement to obtain a business license."

Businesses are not permitted to open or operate until a Business Licence has been issued and authorized by the Business Licence Inspector pursuant to the City of Abbotsford Business Licence By-law No. 988-2000. Persons failing to comply with this By-law are subject to a $100 fine.

Logistics - (business definition) Logistics is defined as a business planning framework for the management of material, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment. -- (Logistix Partners Oy, Helsinki, FI, 1996)

Logistics - The procurement, maintenance, distribution, and replacement of personnel and materiel. -- (Websters Dictionary)

18 Logistics - ...the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements." Note that this definition includes inbound, outbound, internal, and external movements, and return of materials for environmental purposes. -- (Reference: Council of Logistics Management, http://www.clm1.org/mission.html, 12 Feb 98)

Business Logistics - The science of planning, design, and support of business operations of procurement, purchasing, inventory, warehousing, distribution, transportation, customer support, financial and human resources. -- (MDC, LogLink / LogisticsWorld, 1997)

Cradle-to-Grave - Logistics planning, design, and support which takes in to account logistics support throughout the entire system or product life cycle. -- (MDC, LogLink / LogisticsWorld, 1997)

Acquisition Logistics - Acquisition Logistics is everything involved in acquiring logistics support equipment and personnel for a new weapons system. The formal definition is "the process of systematically identifying, defining, designing, developing, producing, acquiring, delivering, installing, and upgrading logistics support capability requirements through the acquisition process for Air Force systems, subsystems, and equipment. -- (Reference: Air Force Institute of Technology, Graduate School of Acquisition and Logistics.)

Integrated Logistics Support (ILS) (1) - ILS is a management function that provides planning, funding, and functioning controls which help to assure that the system meets performance requirements, is developed at a reasonable price, and can be supported throughout its life cycle. -- (Reference: Air Force Institute of Technology, Graduate School of Acquisition and Logistics.)

Integrated Logistics Support (ILS) (2) - Encompasses the unified management of the technical logistics elements that plan and develop the support requirements for a system. This can include hardware, software, and the provisioning of training and maintenance resources. -- (Reference: ECRC University of Scranton / Defense Logistics Agency Included with permission from: HUM - The Government Computer Magazine "Integrated Logistics" December 1993, Walter Cooke.)

Logistics Support Analysis (LSA) - Simply put, LSA is the iterative process of identifying support requirements for a new system, especially in the early stages of system design. The main goals of LSA are to ensure that the system will perform as intended and to influence the design for supportability and affordability. -- (Reference: Air Force Institute of Technology, Graduate School of Acquisition and Logistics.)

LOGISTICS:

19 The management of business operations, such as the acquisition, storage, transportation and delivery of goods along the supply chain.

SUPPLY CHAIN:

The network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product.

BACKWARD INTEGRATION:

Acquiring ownership of one's supply chain, usually in the hope of reducing supplier power and thus reducing input costs.

MARKET SHARE:

The percentage of the total sales of a given type of product or service that are attributable to a given company.

MARKET:

A public place where buyers and sellers make transactions, directly or via intermediaries. Also sometimes means the stock market.

ACTIVE MARKET:

Market characterized by high volume, either for a specific security or an entire exchange. Usually, more active markets are more liquid and have smaller bid/ask spreads.

BLACKMARKET:

A market where products are bought and sold illegally.

BUYER’SMARKET:

A market which has more sellers than buyers. Low prices result from this excess of supply over demand. also called soft market. opposite of seller's market.

SELLER’SMARKET:

A market which has more buyers than sellers. High prices result from this excess of demand over supply.

DEMAND:

The amount of a particular economic good or service that a consumer or group of

20 consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. Demand for a good or service is determined by many different factors other than price, such as the price of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or nearly infinite at a given price. Along with supply, demand is one of the two key determinants of the market price.

CONSUMER:

An individual who buys products or services for personal use and not for manufacture or resale.

MARKETPRICE:

A security's last reported sale price (if on an exchange) or its current bid and ask prices (if over-the-counter); i.e. the price as determined dynamically by buyers and sellers in an open market. also called market value.

OPENMARKET:

A market which is widely accessible to all investors or consumers.

APPRAISAL:

A professional opinion, usually written, of the market value of a property, such as a home, business, or other asset whose market price is not easily determined. Usually required when a property is sold, taxed, insured, or financed.

PRICEDISCOVERY:

The process of determination of market prices through the interactions of buyers and sellers in a free marketplace.

OLIGOPOLY:

A market dominated by a small number of participants who are able to collectively exert control over supply and market prices.

MONOPOLY:

A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, barriers to entry, or governmental regulation). In such

21 an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.

PUREMONOPOLY:

A market in which one company has control over the entire market for a product, usually because of a barrier to entry such as a technology only available to that company.

BARRIERSTOENTRY:

Circumstances particular to a given industry that create disadvantages for new competitors attempting to enter the market. These may include government regulations, economic factors, and marketing conditions.

PERFECTCOMPETITION:

Market in which no participant can influence prices. Characterized by a free flow of information, no barriers to entry, and a large number of buyers and sellers.

PRODUCT:

The end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want.

GNP:

Gross National Product. GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their location. GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal.

GOAL:

Goals should be directed toward a vision and consistent with the mission. Something the organization wants and expects to accomplish in the future.

ETHICS:

The branch of philosophy that defines what is good for the individual and for society and establishes the nature of obligations, or duties, that people owe themselves and one another.

22 The word ethics is derived from the Greek word ethos, which means "character," and from the Latin word mores, which means "customs." In modern society, it defines how individuals, business professionals, and corporations choose to interact with one another.

Business executives are faced with two types of ethical issues in conducting their day-to- day affairs.

Micromanagement issues include conflicts of interest, employee rights, fair performance appraisals, sexual harassment, proprietary information, discrimination, and accepting or offering gifts.

Macromanagement issues include corporate social responsibility, product liability, environmental ethics, comparable worth, layoffs and downsizings, employee screening tests, employee rights to privacy in the workplace, and corporate accountability.

STRATEGIC MANAGEMENT:

It is the process of specifying an organization's objectives, developing policies and plans to achieve these objectives, and allocating resources so as to implement the plans. It is the highest level of managerial activity, usually performed by the company's Chief Executive Officer (CEO) and executive team. It provides overall direction to the whole enterprise. An organization’s strategy must be appropriate for its resources, circumstances, and objectives. The process involves matching the company's strategic advantages to the business environment the organization faces. One objective of an overall corporate strategy is to put the organization into a position to carry out its mission effectively and efficiently. A good corporate strategy should integrate an organization’s goals, policies, and action sequences (tactics) into a cohesive whole, and must be based on business realities. Business enterprises can fail despite 'excellent' strategy because the world changes in a way they failed to understand. Strategy must connect with vision, purpose and likely future trends. To see how strategic management relates to other issues, see management and futures studies.

OPERATIONAL STRATEGY:

The “lowest” level of strategy is operational strategy. It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO).

Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies. The unicist approach to strategy integrates the different levels as a unified field.

BUSINESS STRATEGY, which refers to the aggregated operational strategies of single business firm or that of an SBU in a diversified corporation refers to the way in which a firm competes in its chosen arenas.

23 CORPORATE STRATEGY, then, refers to the overarching strategy of the diversified firm. Such corporate strategy answers the questions of "in which businesses should we compete?" and "how does being in one business add to the competitive advantage of another portfolio firm, as well as the competitive advantage of the corporation as a whole?"

SBU:

A strategic business unit is a semi-autonomous unit within an organization. It is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. Each SBU is responsible for developing its business strategies, strategies that must be in tune with broader corporate strategies.

STOCK MARKET:

A market in which stocks are bought and sold (see stock exchange). Also, the general condition of the sale of securities in a corporation. an exchange where security trading is conducted by professional stockbrokers

Short selling

In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime or losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets.

Margin buying

In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as ten percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-days are up) and using part

24 of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim).

NICHE MARKET:A niche market is a narrowly defined group that includes all of the following:

1. Individuals in the group have the same specialized interests and needs. 2.They have a strong desire for what you offer. 3. You have (or you can create) a compelling reason for prospects in the group to do business with you instead of with someone else. 4.You can easily reach individual prospects within the group. 5. The group is large enough to produce the volume of business you need. 6. The group is small enough that your competition is likely to overlook it.

A niche market is a smaller portion of a larger market. It generally refers to a group whose needs are not being addressed by mainstream providers.

Another definition of a niche market would be a narrowly defined group of potential customers.

Large businesses must move large volumes of goods to be profitable. This means they cannot cater to every segment of a market - only to the largest (and therefore, most profitable) segements. This leaves smaller segements of a market with specific needs that are not being met. This creates a profitable opportunity for smaller, more specialized businesses.

PROMOTION:

Generally, promotion is communicating with the public in an attempt to influence them toward buying your products and/or services.

How does promotion differ from advertising? Promotion is the broader, all inclusive term. Advertising is just one specific action you could take to promote your product or service. Promotion, as a general term, includes all the ways available to make a product and/or service known to and purchased by customers and clients.

Examples: Contests and advertising are two examples of popular promotion activities.

ADVERTISING: Advertising is bringing a product (or service) to the attention of potential and current customers. Advertising is typically done with signs, brochures, commercials, direct mailings or e-mail messages, personal contact, etc.

25 Accountability Responsibility for results and an obligation to report.

Accounting Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in the financial statements.

Action Plans Action plans outline the steps required to achieve a goal, typically a strategic goal. They identify who will do what, when and how; and how current issues and unforeseen contingencies are handled. An accounting methodology designed to present a clearer picture of Activity-Based product and service costs through a better identification of the costs of Costing (ABC) activities (such as machine installations or purchase orders) within processes. Under ABC, costs are analyzed at four different levels: (1) Individual unit level (labor, materials, energy), (2) batch level ( setups, material movements, inspections), (3) product-line level (engineering specifications, process engineering, engineering change notices), and (4) facility level (building costs, plant maintenance, administration). Similarly, sales costs were caused at the brand, channel, and customer level. ABC argues that only by changing the capacity constraints in each of these levels could cost be controlled.

ABC differs from traditional accounting methods, which tend to lump all these costs together, as fixed, and charge them to the volume, or cost, of the direct labor expended. The aim of ABC is to provide managers a clearer insight concerning how to link activity costs to operating capacity and, by comparing actual usage with the budget, how to derive useful information regarding excess capacity costs. Using ABC, many indirect costs could be related more clearly to the products and customers that consumed them, thus providing a more accurate picture of product and customer profitability.

Affinity Diagram An Affinity Diagram is a method of structured brainstorming. Members of the team silently write Post-its answering a question such as "What are the issues involved with ...." The Post-its are then "scrubbed" so that they are clear in meaning to all, and grouped into clusters and sub-clusters with header cards for each cluster.

26 Alternative An alternative to formal litigation, which includes techniques such as Dispute arbitration, mediation, and a non-binding summary jury trial. Resolution

Authority The right to command a situation, a task or an activity.

Autocratic A leadership style where the leader independently makes all decisions. Leadership

Balance Sheet Basic financial statement , usually accompanied by appropriate disclosures that describe the basis of accounting used in its preparation and presentation of a specified date the entity's assets, liabilities and the equity of its owners. Also known as a statement of financial position.

Benchmarking A structured and ongoing process for measuring products, services, and practices against other organizations with a view to improving performance and/or identifying processes that require change. Benchmarking is done between consenting companies that may or may not be competitors. It is a means of comparing processes and practices with the “best–in-class” Successfully identifying and applying best practices can reduce business expenses and improve organizational effectiveness.

Best Practices The processes, practices, and systems identified in public and private sector organizations that performed exceptionally well, and are widely recognized as improving an organization's performance in specific areas.

Body Language Messages conveyed by a person's bearing, gestures and facial expressions.

Brainstorming An idea-generating technique built on the assumptions that two heads are better than one, and a group of people working together will come up with more and better ideas. Brainstorming works on the principle that no matter how crazy or irrelevant ideas seem, they may spark an original and worthwhile idea no one would otherwise have thought of.

UBC: For assistance with brainstorming exercises contact Organizational Development and Learning.

27 Brainstorming Guidelines for effective brainstorming include setting a topic, setting a Method time limit, encourage participation from everyone, ensuring that all contributions are listed, and that none of the contributions are evaluated during the session.

Breakthrough A dramatic improvement in work processes. It can occur in technology, in the way work is organized, or in the way people think. This is the goal of Re-engineering.

Bureaucratic Organization based on rules, procedures and hierarchical authority.

Business Process A systematic, disciplined improvement approach that Reengineering critically examines, rethinks, redesigns, and implements the (BPR) redesigned processes of an organization. BPR's goal is to achieve dramatic improvements in performance in areas important to customers and other stakeholders. BPR is also referred to by such terms as business process improvement (BPI) or business process development, and business process redesign. While the term can be applied to incremental process improvement efforts, it is more commonly and increasingly associated with dramatic or radical overhauls of existing business processes. BPR typically relies on information technology to achieve breakthrough results.

At UBC the SIMPL project is one example of a reengineering initiative. A central area that champions reengineering initiatives it is the office of the Director of e-business, within IT Services.

BPR Champion An individual within the organization - generally at the senior level - who undertakes advocacy and support for a BPR program or major project within that program. BPR programs may in fact have several champions, who may not only provide advocacy, but may also be responsible for successful implementation of the program or projects.

Change The term used to describe activities involved in (1) defining and Management instilling new values, attitudes, norms, and behaviors within an organization that support new ways of doing business and overcoming resistance to change; (2) building consensus among customers and other stakeholders on specific changes designed to better meet their needs; and (3) planning, testing, and implementing all aspects of the transition from one organizational mission, structure, or business process to another. Change Management is more commonly, and increasingly associated with total organizational change programs.

28 Also refered to as Transition Management. Organizations or units at UBC requiring assistance with change management are invited to contact Organizational Training and Development. OTD can supply either internal or external facilitators.

Charter A document that specifies the purpose of a team, its power, its reporting relationships, and its specific responsibilities. Also referred to as a Project Charter.

Coaching Coaching is unlocking a person's potential to maximize his or her own performance, by helping them to learn rather than teaching them. Coaches are highly trained professionals who help clients achieve their most meaningful goals faster, and with least effort. Masterful coaches have the ability to draw out the very best in clients, and then guide them towards a more productive, balanced and fulfilling life. UBC: Coaching services are provided through Organizational Development and learning. Typically, coach and clients work through a process that includes: Coaching Process Clarifying a vision of the most successful outcome that the client might achieve through the coaching.

Designing a strong and effective coach/client working relationship.

Clarifying a client's values to assist in decision-making.

Developing a solid, step-by-step plan to achieve the desired results.

Ongoing support to help implement and follow through with the planned actions.

Finding the right approach or perspective to make the entire journey rewarding.

Collective The agreements reached through the process of collective bargaining. Agreements Communities of practice are groups of people who share a concern, a Communities of set of problems, or a passion about a topic, and who increase their Practice knowledge and expertise in that area by meeting and learning together on an ongoing basis. Communities of practice:

Share information

29 Help each other solve problems

Examine common issues

Explore ideas and act as sounding boards

Document information, such as in a manual.

Consensus Acceptance of a team decision so that everyone on the team can live with the decision and support it.

Core Processes Also referred to as "key" or "identity" processes, these are business processes that directly affect the organization's success and survival. The term is used to distinguish these processes from sub processes, which, collectively, form a total process, and "management" or "support" processes, which contribute to the delivery of core processes, but may not have as direct an affect on the success or survivability of the enterprise.

Customer- The concept that all work is a process in which employees are Supplier Chain simultaneously both customers of and suppliers to one another, forming a chain.

Decentralization Dispersal of decision making to lower and or peripheral levels within the organization.

Delegation Authority passed down from superior to subordinate.

Democratic A leadership style where the leader encourages others to participate in Leadership decision making.

Employee Compensation arrangement, generally in writing, used by employers Benefit Plan in addition to salary or wages. Some plans such as group term life insurance, medical insurance and qualified retirement plans are treated favorably under the tax law. Most common qualified retirement plans are: (1) defined benefit plans - a promise to pay participants specified benefits that are determinable and based on such factors as age, years of service, and compensation; or (2) defined contribution plans - provide an individual account for each participant and benefits based

30 on items such as amounts contributed to the account by the employer and employee and investment experience.

Empowerment Giving someone more control over what they do and how they do it.

Environmental An environmental scan, performed within the framework of strategic Scan planning, analyzes information about organization's external environment (economic, social, demographic, political, legal, technological, and international factors), the industry, and internal organizational factors. Labour market projections are examples of information that could be included in an environmental scan.

FAQ Acronym for Frequently Asked Questions. Documents that list and answer the questions most often asked about a particular subject. The World Wide Web contains thousands of FAQs on subjects as diverse as pet grooming and cryptography.

Fiscal Year Period of 12 consecutive months chosen by an entity as its accounting period that may or may not be a calendar year.

Fixed Asset Any tangible asset with a life of more than one year used in an entity's operations.

Fund Method of accounting and presentation whereby assets and liabilities Accounting are grouped according to the purpose for which they are to be used. Generally used by government entities and not-for-profits.

Gap Analysis Gap analysis evaluates the difference between the organization's current position, and its desired future. Gap analysis results in development of specific strategies and allocation of resources to close the gap For example, a university may aim to graduate 60% of each class' first time freshmen after 4 years. If the campus is currently at 40% it constitutes a 20% gap between the existing situation and desired one. Understanding the nature of this gap will allow the university to develop specific strategies to achieve the desired 60% completion rate.

Hawthorne The idea that workers become more productive, and their behaviour Effect changes, when attention is given to them as a group.

31 Human The employees or personnel in a business that help it to achieve its Resources goals. In many firms Human Resources is the name of the department responsible for employees.

Human Human Resources Management concerns the human side of the Resources management of enterprises and employees' relations with firms. Management

Human An integrated approach to Human Resources Management that Resources ensures the efficient management of human resources. It is part of the Planning overall business plan of an organization.

Incremental A term used to connote those BPR programs which seek to improve Improvement the organization's existing business processes through relatively small, ongoing changes, and are not driven by a requirement for radical overhaul of the existing organization or process. See also Business Process Reengineering (BPR), Change Management, and Kaizen.

Information The package of equipment (hardware and software) Technology (IT) Platform and/or systems related to information and communications that can be used as an enabler of a process.

Internal Audit An audit performed within an entity by its staff rather than an independent certified public accountant. At UBC, the Internal Audit Department conducts internal accounting audits. Health Safety and the Environment coordinates audits of various safety systems and procedures.

Internal Control Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.

Internet/World The Internet is the unregulated wild west show of computer networks Wide Web connected together throughout the world. The World Wide Web, or www, is part of the Internet.

Kaizen Japanese term that means improving work through a series of small, gradual, ongoing changes

32 Knowledge Knowledge management is about the use of computer and Management communication tools to help people gather and apply their collective data, information, knowledge and wisdom in order to make better, quicker, wiser and more effective decisions (Gene Meieran) Knowledge Management is about using information strategically to achieve one's business objectives. Knowledge Management is the organizational activity of creating the social environment and technical infrastructure so that knowledge can be accessed, shared and created. (Robert K. Logan)

Management Reporting designed to assist management in decision-making, Accounting planning, and control. Also known as Managerial Accounting.

Organizational The shared norms and values of an organization or business. A good Culture introduction to academic culture is “The Four Cultures of the Academy” by William Bergquiste. The MOST program offers workshops dealing with culture. For information on current offerings, see the Culture category in the current MOST Catalogue.

Pareto Analysis Pareto analysis takes the form of a bar chart showing work related problems or issues, and the number of times (or frequency) each problem occurs. The bars are displayed by frequency, in descending order, identifying the most important problems, issues or defects. Pareto Analysis is related to the 80/20 rule; a rule of thumb that 20 percent of problems cause 80 percent of the work.

PDCA Cycle A four-phase view of the steps involved in continuously improving a process: Plan, Do, Check, and Act.

Pension A retirement plan offered by an employer for the benefit of an employee, usually at retirement, through a Trustee who controls the plan assets. (See Employee Benefit Plan). At UBC the Pension Administration Office administers both staff and faculty pension plans.

Process A series of definable, repeatable, and measurable tasks leading to a useful result for an internal or external customer, or, a collection of activities that together produce a useful product or service. This collection of activities begins with an "input," in the form of resources

33 such as investment capital, knowledge, or physical material, and ends with a specific "output," in the form of a product or service of value to a customer or other key stakeholder. You can summarize the elements of a process using a process map.

Process Owner An individual, or particular process team, held accountable and responsible for the workings and improvement of one of an organization's defined processes and its related sub-processes

Project Charter

Quality Quality in the formal business sense is defined as conformance to specifications. Any product or service that meets its specifications is a quality product or service.

Re-Engineering Re-engineering is the re-design or reconfiguring of business processes. The University of British Columbia, like all publicly funded Request for Bid institutions, procures goods and services of a significant dollar value (RFB) through the competitive bidding process. A request for bid, or rfb, is a key part of this process. Supply Management (formerly known as the purchasing department, provides leadership to the campus in this area. For more detailed information about when to use a request for bid, visit the following supply management resources:

The University of British Columbia, like all publicly funded Request for institutions, procures goods and services of a significant dollar value Proposal (RFP) through the competitive bidding process. A request for proposal, or rfp, is a key part of this process. Supply Management (formerly known as the purchasing department), provides leadership to the campus in this area. For more detailed information about when to use a request for proposal, visit the following supply management resources:

Risk Risk Management is the process of identifying and monitoring Management business risks in a manner that offers a risk/return relationship that is acceptable to an entity's operating philosophy.

34 Shop Steward A Shop Steward is an elected union official who represents workers interests in the place in which the shop steward works.

Specifications What is expected when providing a product or service to a customer.

Stakeholder An individual or group with an interest in the success of an organization and it's products. One of the most common and important of the stakeholder groups is the organization's customers, but, under the broader definition intended, stakeholders could include any individual or group with an interest in the organization, and with a responsibility for its success. Stakeholders thus could consist of the organization's own members, higher authorities, suppliers, and in the case of UBC, the taxpayers of British Columbia and Canada. Stakeholders, in summary, are groups both internal and external to the organization who affect the interests of the organization.

Strategic Issues Strategic issues are the fundamental issues the organization has to address to achieve its mission and move towards its desired future. Strategic issues for UBC might concern tuition fee policy, or our long term approach to recruiting faculty. Strategic planning involves making decisions about major, long-term Strategic goals for an organization. These long-term goals provide a focus for Planning units within the organization, so that all of their goals, and the day to day work that is carried out, moves the organization towards realizing it's plan. TREK 2010 is an example of a strategic plan for UBC. (See There are five key elements of strategic planning:

It recognizes the outside environment and explicitly incorporates elements of it into the planning process.

It has a long-term focus, often 3 to 5 years, but sometimes as many as 10 to 20 years.

It is conducted at the top of the organization and at the top of the organization's major divisions. At UBC we often find strategic plans at the department level, which in terms of a plan could be considered an “organization”. These plans typically help units focus their resources on carrying out the broad goals of TREK 2010.

It involves making decisions that commit large amounts of organizational resources.

It sets the direction for the organization by focusing on the organization's identity and its place in a changing environment.

35 Strategic Strategic thinking refers to decisions made within the framework of Thinking the organization's strategic vision and mission. When strategic planning becomes an organizational norm, deeply embedded within the organization's decision-making process, participants learn to think strategically as part of their regular daily work. Related topics include strategic planning, and SWOT analysis.

Suppliers Suppliers are the people who provide input to a job, whether from inside or outside your department. In quality improvement, the customer and supplier relationship become an interactive relationship that calls for agreeing to and communicating specifications.

SWOT Analysis A brainstormed list of strengths, weaknesses, opportunities, and threats. A SWOT analysis can be a part of a strategic planning session, or any initiative to consider or implement changes in an organization. See the following link for a good detailed presentation on the topic

System Systems Architecture belongs in IT (information technology) Architecture nomenclature, and refers to the description of how system components (hardware and software) interact and work together to achieve system goals.

Telecommuting Working away from the workplace, usually at home by making use of telecommunications.

Top-Down Top-down management refers to a style of management in which all Management the main decisions are taken by the top managers, and handed down to the workforce to carry out..

Total Quality A systematic, organization-wide approach that motivates, supports, Management and enables quality management in all activities, focusing on the (TQM) needs and expectations of internal and external stakeholders. TQM is perceived often as entirely compatible with BPR since both disciplines focus on performance improvement, with BPR offering tools and techniques to make the TQM effort more enduring, particularly from the standpoint of business process. Total Quality Management is based on five fundamental principles: 1.CustomerFocus 2.ContinuousImprovement

36 3.Measurement 4.All organizational staff involved 5. Systematic Support

Value-Added Value-added refers to those activities or steps that add to or change a product or service as it goes through a process. Value-adding steps are the activities that customers view as important, and are distinguished from those steps that may not add value and, hence, become candidates for abandonment.

Vision and Identification of the organization's vision and mission is the first step Mission of any strategic planning process. The organization's vision sets out the reasons for the organization's existence and the "ideal" state that the organization aims to achieve; the mission identifies major goals and performance objectives. Both are defined within the framework of the organization's philosophy, and are used as a context for development and evaluation of intended and emergent strategies.

CHARTER

A document, filed with a U.S. state by a corporation's founders, describing the purpose, place of business, and other details of a corporation. also called articles of incorporation.

CORPORATION

The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, call incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability). Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships.

INCORPORATION

The process by which a business receives a state charter, allowing it to become a corporation.

JOINT STOCK COMPANY

37 A company which has some features of a corporation and some features of a partnership. The company sells fully transferable stock, but all shareholders have unlimited liability.

HOLDING COMPANY

A company controlling partial or complete interest in another company or other companies.

WAGES

Compensation for work.

COMPENSATION

Generally, something received in return for something else.

DIRECT MARKETING

The practice of delivering promotional messages directly to potential customers on an individual basis as opposed to through a mass medium.

BUSINESS PROCESS OUTSOURCING

Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Usually, BPO is implemented as a cost- saving measure for tasks that a company requires but does not depend upon to maintain their position in the marketplace. BPO is often divided into two categories: back office outsourcing which includes internal business functions such as billing or purchasing, and front office outsourcing which includes customer-related services such as marketing or tech support.

BPO that is contracted outside a company's own country is sometimes called offshore outsourcing. BPO that is contracted to a company's neighboring country is sometimes called nearshore outsourcing, and BPO that is contracted with the company's own county is sometimes called onshore outsourcing.

Human Resources may be the most misunderstood of all corporate departments, but it's also the most necessary. Those who work in Human Resources are not only responsible for hiring and firing, they also handle contacting job references and administering employee benefits.

It's true that any individual who works in Human Resources must be a "people person." Since anyone in this department deals with a number of employees, as well as outside individuals, on any given day, a pleasant demeanor is a must.

38 Managing employees is a major job, so those in Human Resources must be equal to the task. Ten or twenty years ago, Human Resources personnel were rarely seen. Instead they worked behind the scenes to ensure personnel records were in order and employee benefits were being properly administered, but the job stopped there. Today's Human Resources personnel don't only handle small administrative tasks. They are responsible for staffing major corporations. This is no minor feat.

It's not enough to be able to screen potential employees, however. Those who work in Human Resources also have to be able to handle a crisis in a smooth, discreet manner. Whether the issue is health care related or regarding sexual harassment or employee disputes, a person working in Human Resources must be trusted to keep an employee's personal details to herself. The Human Resource team must also be a good judge of morale and realize when morale boosting incentives are needed. It's up to them to make sure all employees are comfortable with their surroundings and working under acceptable, if not above average, conditions.

For those looking to enter a career in Human Resources, a college education is necessary. One doesn't necessarily have to have a degree in Human Resources, however. Majoring in Business Administration, Psychology, Labor Relations and Personnel Administration, as well as degrees in Social and Behavioral Sciences, can also be beneficial.

Human Resources may have gotten a bum rap, but it's clearly among the most important departments in any corporation. The next time you have to meet with someone from Human Resources, remember that without her, your company might not be running so efficiently.

Vertical Integration

The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. Because it can have a significant impact on a business unit's position in its industry with respect to cost,differentiation, and other strategic issues, the vertical scope of the firm isan important consideration in corporate strategy.Expansion of activities downstream is referred to as forward integration, and expansion upstream is referred to as backward integration. The concept of vertical integration can be visualized using the value chain. Consider a firm whose products are made via an assembly process. Such a firm may consider backward integrating into intermediate manufacturing or forward integrating into distribution, as illustrated below:

Example of Backward and Forward Integration

No Integration

Raw Materials

39 Intermediate

Manufacturing

Assembly

Distribution

End Customer

Backward Integration

Raw Materials

Intermediate

Manufacturing

Assembly

Distribution

End Customer

Forward Integration

Raw Materials

Intermediate

Manufacturing

Assembly

Distribution

End Customer

Two issues that should be considered when deciding whether to vertically integrate is cost and control. The cost aspect depends on the cost of market transactions between firms versus the cost of administering the same activities

40 internally within a single firm. The second issue is the impact of asset control, which can impact barriers to entry and which can assure cooperation of key value-adding players.

The following benefits and drawbacks consider these issues.

Benefits of Vertical Integration

Vertical integration potentially offers the following advantages:

Reduce transportation costs if common ownership results in closer geographic

proximity.

Improve supply chain coordination.

Provide more opportunities to differentiate by means of increased control over

inputs.

Capture upstream or downstream profit margins.

Increase entry barriers to potential competitors, for example, if the firm can

gain sole access to a scarce resource.

Gain access to downstream distribution channels that otherwise would be

inaccessible.

Facilitate investment in highly specialized assets in which upstream or

downstream players may be reluctant to invest.

Lead to expansion of core competencies.

Drawbacks of Vertical Integration

While some of the benefits of vertical integration can be quite attractive to the firm, the drawbacks may negate any potential gains. Vertical integration potentially has the following disadvantages:

41 Capacity balancing issues. For example, the firm may need to build excess

upstream capacity to ensure that its downstream operations have sufficient

supply under all demand conditions.

Potentially higher costs due to low efficiencies resulting from lack of

supplier competition.

Decreased flexibility due to previous upstream or downstream investments.

(Note however, that flexibility to coordinate vertically-related activities

may increase.)

Decreased ability to increase product variety if significant in-house

development is required.

Developing new core competencies may compromise existing competencies.

Increased bureaucratic costs.

Factors Favoring Vertical Integration

The following situational factors tend to favor vertical integration:

Taxes and regulations on market transactions

Obstacles to the formulation and monitoring of contracts.

Strategic similarity between the vertically-related activities.

Sufficiently large production quantities so that the firm can benefit from

economies of scale.

Reluctance of other firms to make investments specific to the transaction.

Factors Against Vertical Integration

The following situational factors tend to make vertical integration less attractive:

42 The quantity required from a supplier is much less than the minimum efficient

scale for producing the product.

The product is a widely available commodity and its production cost decreases

significantly as cumulative quantity increases.

The core competencies between the activities are very different.

The vertically adjacent activities are in very different types of industries.

For example, manufacturing is very different from retailing.

The addition of the new activity places the firm in competition with another

player with which it needs to cooperate. The firm then may be viewed as a

competitor rather than a partner

Alternatives to Vertical Integration

There are alternatives to vertical integration that may provide some of the same benefits with fewer drawbacks. The following are a few of these alternatives for relationships between vertically-related organizations:

long-term explicit contracts

franchise agreements

joint ventures

co-location of facilities

implicit contracts (relying on firms' reputation)

Mckinsey growth pyramid

Introduction

This model is similar in some respects to the well-established Ansoff Model. However, it looks at growth strategy from a slightly different perspective.

43 The McKinsey model argues that businesses should develop their growth strategies based on:

• Operational skills • Privileged assets • Growth skills • Special relationships

Growth can be achieved by looking at business opportunities along several dimensions, summarised in the diagram below:

• Operational skills are the “core competences” that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology.

• Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketing-based business these assets might include a particularly large customer database, or a well-established brand.

• Growth skills are the skills that businesses need if they are to successfully “manage” a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions.

44 • Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition.

The model outlines seven ways of achieving growth, which are summarised below:

Existing products to existing customers

The lowest-risk option; try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty

Existing products to new customers

Taking the existing customer base, the objective is to find entirely new products that these customers might buy, or start to provide products that existing customers currently buy from competitors

New products and services

A combination of Ansoff’s market development & diversification strategy – taking a risk by developing and marketing new products. Some of these can be sold to existing customers – who may trust the business (and its brands) to deliver; entirely new customers may need more persuasion

New delivery approaches

This option focuses on the use of distribution channels as a possible source of growth. Are there ways in which existing products and services can be sold via new or emerging channels which might boost sales?

New geographies

With this method, businesses are encouraged to consider new geographic areas into which to sell their products. Geographical expansion is one of the most powerful options for growth – but also one of the most difficult.

New industry structure

This option considers the possibility of acquiring troubled competitors or consolidating the industry through a general acquisition programme

New competitive arenas

This option requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries.

45 stock market

A market in which stocks are bought and sold (see stock exchange). Also, the general condition of the sale of securities in a corporation.

Captive Market A captive market is a group of consumers who have limited choice in terms of the products they can select/purchase (no choice)! This type of market was common during the production era when there was a limited supply of goods (and great demand). It occurs when the market is monopolistic, thus there is only one supplier in the marketplace. This is more likely to occur with digital products (Microsoft is a good example of this). It can occur when a marketer has achieved significant lock-in for its installed based. Thus the switching costs for the consumer to try a competing product become prohibitive.

Industry A basic category of business activity. The term industry is sometimes used to describe a very precise business activity (e.g. semiconductors) or a more generic business activity (e.g. consumer durables). If a company participates in multiple business activities, it is usually considered to be in the industry in which most of its revenues are derived.

Employee relations is that aspect of Human Resources that directs attention to assist employees and management to establish a work environment that is stimulating and creative and that supports an environment in which the individual can perform to the best of his or her ability.

SWOT Analysis

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to thefirm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates.As such, it is instrumental in strategy formulation and selection. The following diagram shows how a SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan

46 /\

Internal Analysis External Analysis

/ \ / \

Strengths Weaknesses Opportunities Threats

|

SWOT Matrix

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include: patents strong brand names good reputation among customers cost advantages from proprietary know-how exclusive access to high grade natural resources favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses: lack of patent protection a weak brand name poor reputation among customers high cost structure lack of access to the best natural resources lack of access to key distribution channels

47 In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity preventsthe firm from reacting quickly to changes in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include: an unfulfilled customer need arrival of new technologies loosening of regulations removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the firm. Some examples of such threats include: shifts in consumer tastes away from the firm's products emergence of substitute products new regulations increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

48 SWOT / TOWS Matrix

STRENGTHS WEAKNESSES

OPPURTUNITIES S-O strategies W-O strategies

THREATS S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.

W-O strategies overcome weaknesses to pursue opportunities.

S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

ESTOPPEL :

(1) A legal principle that prevents a person from asserting or denying something in court that contradicts what has already been established as the truth.

Equitable estoppel A type of estoppel that bars a person from adopting a position in court that contradicts his or her past statements or actions when that contradictory stance would be unfair to another person who relied on the original position. For example, if a landlord agrees to allow a tenant to pay the rent ten days late for six months, it would be unfair to allow the landlord to bring a court action in the fourth month to evict the tenant for being a week

49 late with the rent. The landlord would be estopped from asserting his right to evict the tenant for late payment of rent. Also known as estoppel in pais.

Estoppel by deed A type of estoppel that prevents a person from denying the truth of anything that he or she stated in a deed, especially regarding who has valid ownership of the property. For example, someone who grants a deed to real estate before he actually owns the property can't later go back and undo the sale for that reason if, say, the new owner strikes oil in the backyard.

Estoppel by silence A type of estoppel that prevents a person from asserting something when she had both the duty and the opportunity to speak up earlier, and her silence put another person at a disadvantage. For example, Edwards' Roofing Company has the wrong address and begins ripping the roof from Betty's house by mistake. If Betty sees this but remains silent, she cannot wait until the new roof is installed and then refuse to pay, asserting that the work was done without her agreement.

Promissory estoppel A type of estoppel that prevents a person who made a promise from reneging when someone else has reasonably relied on the promise and will suffer a loss if the promise is broken. For example, Forrest tells Antonio to go ahead and buy a boat without a motor, because he will sell Antonio an old boat motor at a very reasonable price. If Antonio relies on Forrest's promise and buys the motorless boat, Forrest cannot then deny his promise to sell John the motor at the agreed-upon price.

(2) A legal doctrine that prevents the relitigation of facts or issues that were previously resolved in court. For example, Alvin loses control of his car and accidentally sideswipes several parked cars. When the first car owner sues Alvin for damages, the court determines that Alvin was legally drunk at the time of the accident. Alvin will not be able to deny this fact in subsequent lawsuits against him. This type of estoppel is most commonly called collateral estoppel.

Mission A mission is a statement of general purpose: the reason the organization exists. Who are we? What do we do? For whom do we do it? Why do we do it?

Goal Goals should be directed toward a vision and consistent with the mission. Something the organization wants and expects to accomplish in the future.

Objective An object is: a specific measurable result expected within a particular time period, consistent with a goal and strategy. A clear "milepost" along the strategically chosen path to the goal.

50 Strategy The action path the organization has chosen to realize goals. Strategies establish broad themes for future actions and should reflect reasoned choices among alternative paths

STRATEGIC BUSINESS UNITS

· SBU are distinct little businesses set up as units in a larger company to ensure that a certain product is promoted and handled as though it were an independent business.

· To be called an SBU, a business unit must meet specific criteria:

1) have its own mission, distinct from the missions of other SBUs

2) have definable groups of competitors

3) prepare its own integrative plans

4) manage its resources in key areas

5) have a proper size

AUTHORITY: a form of power: formal authority is legitimate power

Line and staff authority

Line authority: managers with line authority are those people in the organization who are directly responsible for achieving organizational goals

· line authority is represented by the standard chain of command

· is based on legitimate power

Staff authority: belongs to those individuals or groups in an organization who provide services and advice to line managers

Functional authority: is the right which is delegated to an individual or a department to control specified processes, practices, policies, or other matters relating to activities undertaken by persons in other departments

STAFFING: filling and keeping filled positions in the organizational structure

51 MOTIVATION

The willingness to exert toward high levels of effort toward organizational goals, conditioned by the effort`s ability to satisfy some individual need

Need: an internal state that makes certain outcomes appear attractive

The motivation process

Unsatisfied need------Tension------drives------search beh------satisfied need------reduction of tension

TQM

(Total Quality Management) An organizational undertaking to improve the quality of manufacturing and service. It focuses on obtaining continuous feedback for making improvements and refining existing processes over the long term.

ISO9000

A family of standards and guidelines for quality in the manufacturing and service industries from the International Organization for Standardization (ISO). ISO 9000 defines the criteria for what should be measured. ISO 9001 covers design and development. ISO 9002 covers production, installation and service, and ISO 9003 covers final testing and inspection. ISO 9000 certification does not guarantee product quality. It ensures that the processes that develop the product are documented and performed in a qualitymanner.

Initially popular in Europe, ISO 9000 certification began to increase in the U.S. in the early 1990s. Certification requires exacting documentation and demonstrations in practice over time. The process, which can take up to a year, involves two major players in addition to the company being certified. A consultant provides (and may help implement) a plan for documenting the company's ISO system. Once documented, a registrar interviews the company's management and line staff to make sure that the new system, as documented, has been effectively implemented. Only a few dozen companies worldwide are authorized to conduct such audits for the issuance of ISO 9000 certificates.

ISO

(International Organization for Standardization, Geneva, www.iso.ch) An organization that sets international standards, founded in 1946. The U.S. member body is ANSI. ISO deals with all fields except electrical and electronics, which is governed by the older International Electrotechnical Commission (IEC). With regard to information processing, ISO and IEC created JTC1, the Joint Technical Committee for information technology.

52 It carries out its work through more than 185 technical committees and 2,700 subcommittees and working groups, and is made up of standards organizations from more than 95 countries, some of them serving as secretariats for these technical bodies.

APL

(A Programming Language) A high-level mathematical programming language noted for its brevity and matrix generation capabilities. Developed by Kenneth Iverson in the mid- 1960s, it runs on micros to mainframes and is often used to develop mathematical models. It is primarily an interpreted language, but compilers are available.

APL uses unique character symbols and, before today's graphical interfaces, required special software or ROM chips to enable the computer to display and print them. APL is popular in Europe. abacus

One of the earliest counting instruments. Similar devices predate the Greek and Roman days. It uses sliding beads in columns that are divided in two by a center bar. The top is "heaven," where each of two beads is worth 5 when moved to the center bar. The bottom is "earth," where each of five beads is worth 1 when moved toward the center.

Trademarks

A trademark is a brand identification for a product or service, the latter technically called a "service mark." The mark can be written text, text in a particular stylized form or a graphic symbol. Company names and products are often registered with the U.S. Patent & Trademark Organization (USPTO) to help ensure their legal usage. For more information, visit www.uspto.gov.

We Are Not a Source of Trademark Registrations The purpose of this Encyclopedia is to provide a meaningful definition of computer science, telecommunications, semiconductor and electronics terms and related products, but it is not meant to be a source of trademark registration information. When we know of an origin of a term, we state it. There are thousands of terms in this database that do not include a lineage, because we either did not know of it at the time of writing or felt it was not pertinent.

We Believe Everything Is a Trademark We believe that every name of a product is a trademark of its respective organization. If a company creates a name for its product and continues to use it, it is a de facto trademark whether or not it is registered. Among other legal reasons, registration serves to officially document how long a name has been in use.

Contact the Company If a particular technology in this database is attributed to an organization, we do not know

53 if it is a de facto or de jure trademark of that organization. To find out trademark information about a product in this publication, please contact the legal counsel of the organization that is mentioned as its creator.

Copyright

The legal ownership of a "work," which can take any of the following forms: written text, program source code, graphics images, sculpture, music, sound recording, motion picture, pantomime, choreograph and architecture. Before January 1, 1978, a work had to be published to be copyrighted. After that date, any work expressed in paper or electronic form is automatically copyrighted for the life of the author plus 70 years. Registration with the Copyright Office is not required, although it is beneficial if there are disputes later on. In the U.S., a copyright symbol is not mandatory, but recommended.

For works by an anonymous author or an author who uses a fictitious name (pseudonymous) as well as works "made for hire," such as a publication written by an employee of a company, the copyright lasts 120 years from date of creation or 95 years from date of publication, whichever is shorter.

Technology

Applying a systematic technique, method or approach to solve a problem. Much of today's technology implies the use of computers.

Technology gap

(1) The difference in technologies used and/or developed in two companies, countries, ethnic groups, etc., where one is more advanced than the other.

(2) The difference between those who have computers and high-tech devices in general and those who do not. Also known as the "digital divide."

(3) The difference between current-day products and the technology on the drawing boards.

1-Sample Sign Test

Test the probability of a sample median being equal to hypothesized value.

H0: m1=m2=m3=m4 (null hypothesis) Ha: At least one is different (alternate hypothesis)

2-Sample t Test

2 - Sample t Test : The two sample t-Test is used for testing hypothesis about the location two sample means being equal.

54 1 - Sample t Test : The one sample t-Test is used for testing hypothesis about the location of the sample mean and a target mean being equal.

3P

A 3D model of TQM, having People, Product and Process as the 3 axis. For Implementing TQM, all the 3 parameters should be improved.

1. People: Satisfaction of both Internal and External customer.

2. Product: Conforming to the requirements specified.

3. Process: Continuous Improvement of all the operations and activities is at the heart of TQM.

5 Laws of Lean Six Sigma

5 Laws of Lean Six Sigma have been formulated to provide direction to improvement efforts. The laws are a conglomeration of Key Ideas of Six Sigma and Lean.

Law 0: The Law of the Market - Customer Critical to Quality defines quality and is the highest priority for improvement, followed by ROIC (Return On Invested Capital) and Net Present value. It is called the Zeroth law as it is the base on which others are built.

Law 1: The Law of Flexibility - The velocity of any process is proportional to the flexibility of the process.

Law 2: The Law of Focus - 20% of the activities in a process cause 80% of the delay. (Related to Pareto Principle)

Law 3:The Law of Velocity - The velocity of any process is inversely proportional to the amount of WIP. This is also called "Little's Law".

Law 4: The complexity of the service or product offering adds more non-value, costs and WIP than either poor quality (low Sigma) or slow speed (un-Lean) process problems.

5 Why's

The 5 why's typically refers to the practice of asking, five times, why the failure has occurred in order to get to the root cause/causes of the problem. There can be more than one cause to a problem as well. In an organizational context, generally root cause analysis is carried out by a team of persons related to the problem. No special technique is required.

55 An example is in order: You are on your way home from work and your car stops:

 Why did your car stop? Because it ran out of gas.

 Why did it run out of gas? Because I didn't buy any gas on my way to work.

 Why didn't you buy any gas this morning? Because I didn't have any money.

 Why didn't you have any money? Because I lost it all last night in a poker game.

I hope you don't mind the silly example but it should illustrate the importance of digging down beneath the most proximate cause of the problem. Failure to determine the root cause assures that you will be treating the symptoms of the problem instead of its cause, in which case, the disease will return, that is, you will continue to have the same problems over and over again.

Also note that the actual numbers of why's is not important as long as you get to the root cause. One might well ask why did you lose all your money in the poker game last night?

_____ Here's another example. I learned the example using the Washington Monument used when demonstrating the use of the 5 Whys.

The Washington Monument was disintegrating Why? Use of harsh chemicals Why? To clean pigeon poop Why so many pigeons? They eat spiders and there are a lot of spiders at monument Why so many spiders? They eat gnats and lots of gnats at monument Why so many gnats? They are attracted to the light at dusk. Solution: Turn on the lights at a later time.

5C

5C ia a 5 step technique very similar to 5S to stabilise, maintain and improve the safest, best working enviroment to support sustainable Qyality, Cost and Delivery.

What are the 5Cs?

Clear Out: Separate the essential from the non essential

Configure: A place for everything and everything in its place.

Clean and Check: Manualy clean to spot abnormal conditions.

56 Conformity: Ensures that the standard is maintained and improved.

Custom and Prctice: Everyone follows the rules, understands the benefits and contributes to the improvement.

5S

5S is the Japanese concept for House Keeping.

1.) Sort (Seiri) 2.) Straighten (Seiton) 3.) Shine (Seiso) 4.) Standardize (Seiketsu) 5.) Sustain (Shitsuke)

Japanese - English Translations ------Seiri - Put things in order (remove what is not needed and keep what is needed) Seiton - Proper Arrangement (Place things in such a way that they can be easily reached whenever they are needed) Seiso - Clean (Keep things clean and polished; no trash or dirt in the workplace) Seiketsu - Purity (Maintain cleanliness after cleaning - perpetual cleaning) Shitsuke - Commitment (Actually this is not a part of '4S', but a typical teaching and attitude towards any undertaking to inspire pride and adherence to standards established for the four components)

5Z This standard defines the procedure of “5Z Accreditation” which is the scheme to promote, evaluate, maintain and improve process control using the Genba Kanri principles. “5Z” is a general term for the following five actions ending with “ZU”…meaning “Don’t” in Japanese.

-UKETORAZU (Don’t accept defects) -TSUKURAZU (Don’t make defects) -BARATSUKASAZU (Don’t create variation) -KURIKAESAZU (Don’t repeat mistakes) -NAGASAZU (Don’t supply defects)

57 6 Ms

The traditional 6Ms are:

* Machines * Methods * Materials * Measurements * Mother Nature (Environment) * Manpower (People)

6W

Your project planning should answer following question:

WHAT : What will you make/do this? WHY : Why will you make/do this? WHERE : Where will you make/do this? WHO : Who will make/do this? WHEN : When will you start/stop this (time scheduling)? WHICH : Which will you make/do this (process, tooling, material sources etc…)?

7 QC Tools

Histograms Cause and Effect Diagram Check Sheets Pareto Diagrams Graphs Control Charts Scatter Diagrams

7 Wastes Of Lean

The 7 wastes are at the root of all unprofitable activity within your organization.

The 7 wastes consist of:

1. Defects 2. Overproduction 3. Transportation 4. Waiting 5. Inventory 6. Motion 7. Processing

58 Use the acronym 'DOTWIMP' to remember the 7 Wastes of Lean.

The worst of all the 7 wastes is overproduction because it includes in essence all others and was the main driving force for the Toyota JIT system, they were smart enough to tackle this one to eliminate the rest.

8 D Process

The 8D Process is a problem solving method for product and process improvement. It is structured into 8 steps (the D's) and emphasizes team. This is often required in automotive industries. The 8 basic steps are: Define the problem and prepare for process improvement, establish a team, describe the problem, develop interim containment, define & verify root cause, choose permanent corrective action, implement corrective action, prevent recurrence, recognize and reward the contributors.

Of course, different companies have their different twists on what they call the steps, etc...but that is the basics.

8 D is short for Eight Disciplines which oOriginated from the Ford TOPS (Team Oriented Problem Solving) program. (First published approximately 1987) D#1 - Establish the Team D#2 - Describe the problem. D#3 - Develop an Interim Containment Action D#4 - Define / Verify Root Cause D#5 - Choose / Verify Permanent Corrective Action D#6 - Implement / Validate Permanent Corrective Action D#7 - Prevent Recurrence D#8 - Recognize the Team

8 Wastes of Lean

An easy way I learned at a seminar to remember the wastes, they spell TIM WOODS

T - Transport - Moving people, products & information I - Inventory - Storing parts, pieces, documentation ahead of requirements M - Motion - Bending, turning, reaching, lifting

W - Waiting - For parts, information, instructions, equipment O - Over production - Making more than is IMMEDIATELY required O - Over processing - Tighter tolerances or higher grade materials than are necessary D - Defects - Rework, scrap, incorrect documentation S - Skills - Under utilizing capabilities, delegating tasks with inadequate training

59 Acceptable Quality Level - AQL

Acceptable Quality Level. Also referred to as Assured Quality Level. The largest quantity of defectives in a certain sample size that can make the lot definitely acceptable; Customer will definitely prefer the zero defect products or services and will ultimately establish the acceptable level of quality. Competition however, will 'educate' the customer and establish the customer's values. There is only one ideal acceptable quality level - zero defects - all others are compromises based upon acceptable business, financial and safety levels.

Accessory Planning

The planned utilization of remnant material for value-added purposes.

Accuracy

1) Accuracy refers to clustering of data about a known target. It is the difference between a physical quantity's average measurements and that of a known standard, accepted 'truth,' vs. 'benchmark.' Envision a target with many arrows circling the bullseye,however,none of them are near each other.

2) Precision refers to the tightness of the cluster of data. Envision a target with a cluster of arrows all touching one another but located slightly up and to the right of the bullseye.

In practice it is easier to correct a process which has good precision than it is to correct a process which is accurate. This is due to the increased amount of variation associated with accurate but not precise process.

Active Data

Actively and purposefully make changes in our data to monitor the corresponding impact and results on the Xs and Ys.

Analysis Of Variance (ANOVA)

Analysis of variance is a statistical technique for analyzing data that tests for a difference between two or more means by comparing the variances *within* groups and variances *between* groups. See the tool 1-Way ANOVA.

Alpha Risk

Alpha risk is defined as the risk of rejecting the Null hypothesis when in fact it is true.

Synonymous with: Type I error, Producers Risk

In other words, stating a difference exists where actually there is none. Alpha risk is

60 stated in terms of probability (such as 0.05 or 5%).

The value (1-alpha) corresponds to the confidence level of a statistical test, so a level of significance alpha = 0.05 corresponds to a 95% confidence level.

AffinityDiagram

A tool used to organize and present large amounts of data (ideas, issues, solutions, problems) into logical categories based on user perceived relationships and conceptual frameworking.

Often used in form of "sticky notes" send up to front of room in brainstorming exercises, then grouped by facilitator and workers. Final diagram shows relationship between the issue and the category. Then categories are ranked, and duplicate issues are combined to make a simpler overview.

ANOVA

ANalysis Of VAriance (ANOVA), a calculation procedure to allocate the amount of variation in a process and determine if it is significant or is caused by random noise. A balanced ANOVA has equal numbers of measurements in each group/column. A stacked ANOVA: each factor has data in one column only and so does the response.

APQP

Advanced Product Quality Planning

Phase 1 - Plan & Define Programme - determining customer needs, requirements & expectations using tools such as QFD review the entire quality planning process to enable the implementation of a quality programme how to define & set the inputs & the outputs.

Phase 2 - Product Design & Development - review the inputs & execute the outputs, which include FMEA, DFMA, design verification, design reviews, material & engineering specifications.

Phase 3 - Process Design & Development - addressing features for developing manufacturing systems & related control plans, these tasks are dependent on the successful completion of phases 1 & 2 execute the outputs.

Phase 4 -

61 Product & Process Validation - validation of the selected manufacturing process & its control mechanisms through production run evaluation outlining mandatory production conditions & requirements identifying the required outputs.

Phase 5 - Launch, Feedback, Assessment & Corrective Action - focuses on reduced variation & continuous improvement identifying outputs & links to customer expectations & future product programmes.

Control Plan Methodology - discusses use of control plan & relevant data required to construct & determine control plan parameters stresses the importance of the control plan in the continuous improvement cycle.

Back-Date

The start and due dates for each operation in the manufacturing process are calculated back from the ship date. (See also Ship Date).

Balanced Experiment

An experiment is balanced when all factor levels (or treatment groups) have the same number of experimental units (or items receiving a treatment). Unbalanced experiments add complexity to the analysis of the data but hopefully for good reason. For example, some levels are of less interest to the researcher than others. Some levels are expected to produce greater variation than others and so more units are assigned to those levels.

Balance is nonessential but desirable if equal accuracy, power, or confidence interval width for treatment comparisons is important. Severe imbalance can induce factor confounding (correlated factors or non-independent treatment levels).

Bar Chart

A bar chart is a graphical comparison of several quantities in which the lengths of the horizontal or vertical bars represent the relative magnitude of the values

Bartlett Test

This test is used to determine if there is a difference in variance between 3 or more samples/groups. It is usefull for testing the assumption of equal variances, which is required for one-way ANOVA.

Baseline

62 A snapshot of the state of inputs/outputs frozen at a point in time for a particular process. A baseline should be recordered to establish a starting point to measure the changes achieved with any process improvement.

Benchmarking

The concept of discovering what is the best performance being achieved, whether in your company, by a competitor, or by an entirely different industry.

Benchmarking is an improvement tool whereby a company measures its performance or process against other companies' best practices, determines how those companies achieved their performance levels, and uses the information to improve its own performance.

Benchmarking is a continuous process whereby an enterprise measures and compares all its functions, systems and practices against strong competitors, identifying quality gaps in the organization, and striving to achieve competitive advantage locally and globally.

Beta Risk

Beta risk is defined as the risk of accepting the null hypothesis when, in fact, it is false.

Consumer Risk or Type II Risk.

Beta risk is defined as the risk of accepting the null hypothesis when, in fact, the alternate hypothesis is true. In other words, stating no difference exists when there is an actual difference. A statistical test should be capable of detecting differences that are important to you, and beta risk is the probability (such as 0.10 or 10%) that it will not. Beta risk is determined by an organization or individual and is based on the nature of the decision being made. Beta risk depends on the magnitude of the difference between sample means and is managed by increasing test sample size. In general, a beta risk of 10% is considered acceptable in decision making.

The value (1-beta) is known as the "power" of a statistical test. The power is defined as the probability of rejecting the null hypothesis, given that the null hypothesis is indeed false.

Brainstorming

A method to generate ideas. Groundrules such as -no idea is a bad idea- are typical. Benefit of brainstorming is the power of the group in building ideas of each others ideas. A problem solving approach/technique whereby working members in a group are conducting a deductive methodology for identifying possible causes of any problem, in order to surmount poor performance in any process or activity pursued by the group members and facilitator.

63 Black Belt

Six Sigma team leaders responsible for implementing process improvement projects (DMAIC or DFSS) within the business -- to increase customer satisfaction levels and business productivity. Black Belts are knowledgeable and skilled in the use of the Six Sigma methodology and tools. Black Belts have typically completed four weeks of Six Sigma training, and have demonstrated mastery of the subject matter through the completion of project(s) and an exam. Black Belts coach Green Belts and receive coaching and support from Master Black Belts.

Black Noise

Sources of variation which are non-random

Business Process Quality Management

Also called Process Management or Reengineering. The concept of defining macro and micro processes, assigning ownership, and creating responsibilities of the owners.

Cause and Effect Diagram

A cause and effect diagram is a visual tool used to logically organize possible causes for a specific problem or effect by graphically displaying them in increasing detail. It helps to identify root causes and ensures common understanding of the causes. It is also called an Ishikawa diagram.

Cause and Effect relationships govern everything that happens and as such are the path to effective problem solving. By knowing the causes, we can find some that are within our control and then change or modify them to meet our goals and objectives. By understanding the nature of the cause and effect principle, we can build a diagram to help us solve everyday problems every time.

Charter

A document or sheet that clearly scopes and identifies the purpose of a Quality improvement project. Items specified include background case, purpose, team members, scope, timeline.

Defects Per Million Opportunities - DPMO

Defects per million opportunities (DPMO) is the average number of defects per unit observed during an average production run divided by the number of opportunities to

64 make a defect on the product under study during that run normalized to one million.

Defects Per Million Opportunities. Synonymous with PPM.

To convert DPU to DPMO, the calculation step is actually DPU/(opportunities/unit) * 1,000,000.

Deming Cycle, PDCA

The Deming Cycle, or PDCA Cycle (also known as PDSA Cycle), is a continuous quality improvement model consisting out of a logical sequence of four repetitive steps for continuous improvement and learning: Plan, Do, Study (Check) and Act. The PDSA cycle (or PDCA) is also known as the Deming Cycle, the Deming wheel of continuous improvement spiral. Its origin can be traced back to the eminent statistics expert Mr. Walter A. Shewart, in the 1920’s. He introduced the concept of PLAN, DO and SEE. The late Total Quality Management (TQM) guru and renowned statistician Edward W. Deming modified the SHEWART cycle as: PLAN, DO, STUDY, and ACT.

Along with the other well-known American quality guru-J.M. Juran, Deming went to Japan as part of the occupation forces of the allies after World War II. Deming taught a lot of Quality Improvement methods to the Japanese, including the usage of statistics and the PLAN, DO, STUDY, ACT cycle.

The Deming cycle, or PDSA cycle:

PLAN : plan ahead for change. Analyze and predict the results. DO : execute the plan, taking small steps in controlled circumstances. STUDY: check, study the results. ACT : take action to standardize or improve the process.

Benefits of the PDSA cycle:

- Daily routine management-for the individual and/or the team - Problem-solving process - Project management - Continuous development - Vendor development - Human resources development - New product development - Process trials

DMAIC

Define, Measure, Analyze, Improve, Control. Incremental process improvement using

65 Six Sigma methodology. See DMAIC Methodology

Pronounced (Duh-May-Ick).

DMAIC refers to a data-driven quality strategy for improving processes, and is an integral part of the company's Six Sigma Quality Initiative. DMAIC is an acronym for five interconnected phases: Define, Measure, Analyze, Improve, and Control.

Each step in the cyclical DMAIC Process is required to ensure the best possible results. The process steps:

Define the Customer, their Critical to Quality (CTQ) issues, and the Core Business Process involved.

 Define who customers are, what their requirements are for products and services, and what their expectations are

 Define project boundaries the stop and start of the process

 Define the process to be improved by mapping the process flow

Measure the performance of the Core Business Process involved.

 Develop a data collection plan for the process

 Collect data from many sources to determine types of defects and metrics

 Compare to customer survey results to determine shortfall

Analyze the data collected and process map to determine root causes of defects and opportunities for improvement.

 Identify gaps between current performance and goal performance

 Prioritize opportunities to improve

 Identify sources of variation

Improve the target process by designing creative solutions to fix and prevent problems.

 Create innovate solutions using technology and discipline

 Develop and deploy implementation plan

Control the improvements to keep the process on the new course.

66  Prevent reverting back to the "old way"

 Require the development, documentation and implementation of an ongoing monitoring plan

 Institutionalize the improvements through the modification of systems and structures (staffing, training, incentives)

Gantt Chart

A Gantt chart is a powerful and preferred visual reporting device used for conveying a project's schedule. A typical Gantt chart graphically displays the work breakdown, total duration needed to complete tasks, as well as %completion. The Gantt chart itself will not display level of effort, and is not an effective planning tool on its own. Today, Gantt Charts may be integrated with other spreadsheet-type reporting devices that convey additional information related to project planning. Furthermore, Gantt Charts are often enhanced with functionality that includes the identification of relationships between tasks, and the ability to dynamically change task attributes.

ISO 9000 Series of Standards

Series of standards established in the 1980s by countries of Western Europe as a basis for judging the adequacy of the quality control systems of companies.

ISO 9001:2000

ISO certification standard from the ISO 9000 series revised in year 2000. ISO 9001:2000 promotes a process based approach to increase the effectiveness of the QMS (Quality Management System) in translating customer requirements to customer satisfaction.

TPM

Japanese management philosphy. Stands for Total Productive Maintenanace. Used to increase time between failure (MTBF) or life of machinery.

Total Quality Management

Total Quality Management (TQM) is a comprehensive and structured approach to organizational management that seeks to improve the quality of products and services through ongoing refinements in response to continuous feedback. TQM requirements may be defined separately for a particular organization or may be in adherence to established standards, such as the International Organization for Standardization's ISO 9000 series. TQM can be applied to any type of organization; it originated in the manufacturing sector and has since been adapted for use in almost every type of organization imaginable, including schools, highway maintenance, hotel management,

67 and churches. As a current focus of e-business, TQM is based on quality management from the customer's point of view.

TQM processes are divided into four sequential categories: plan, do, check, and act (the PDCA cycle). In the planning phase, people define the problem to be addressed, collect relevant data, and ascertain the problem's root cause; in the doing phase, people develop and implement a solution, and decide upon a measurement to gauge its effectiveness; in the checking phase, people confirm the results through before-and- after data comparison; in the acting phase, people document their results, inform others about process changes, and make recommendations for the problem to be addressed in the next PDCA cycle.

The Eight Elements Of TQM

Total Quality Management is a management approach that originated in the 1950's and has steadily become more popular since the early 1980's. Total Quality is a description of the culture, attitude and organization of a company that strives to provide customers with products and services that satisfy their needs. The culture requires quality in all aspects of the company's operations, with processes being done right the first time and defects and waste eradicated from operations.

To be successful implementing TQM, an organization must concentrate on the eight key elements:

Ethics , Integrity ,

Trust , Training ,

Teamwork , Leadership ,

Recognition , Communication

Key Elements TQM has been coined to describe a philosophy that makes quality the driving force behind leadership, design, planning, and improvement initiatives. For this, TQM requires the help of those eight key elements. These elements can be divided into four groups according to their function. The groups are: I. Foundation - It includes: Ethics, Integrity and Trust. II. Building Bricks - It includes: Training, Teamwork and Leadership. III. Binding Mortar - It includes: Communication. IV. Roof - It includes: Recognition.

68 I. Foundation TQM is built on a foundation of ethics, integrity and trust. It fosters openness, fairness and sincerity and allows involvement by everyone. This is the key to unlocking the ultimate potential of TQM. These three elements move together, however, each element offers something different to the TQM concept.

1. Ethics - Ethics is the discipline concerned with good and bad in any situation. It is a two-faceted subject represented by organizational and individual ethics. Organizational ethics establish a business code of ethics that outlines guidelines that all employees are to adhere to in the performance of their work. Individual ethics include personal rights or wrongs.

2. Integrity - Integrity implies honesty, morals, values, fairness, and adherence to the facts and sincerity. The characteristic is what customers (internal or external) expect and deserve to receive. People see the opposite of integrity as duplicity. TQM will not work in an atmosphere of duplicity.

3. Trust - Trust is a by-product of integrity and ethical conduct. Without trust, the framework of TQM cannot be built. Trust fosters full participation of all members. It allows empowerment that encourages pride ownership and it encourages commitment. It allows decision making at appropriate levels in the organization, fosters individual risk- taking for continuous improvement and helps to ensure that measurements focus on improvement of process and are not used to contend people. Trust is essential to ensure customer satisfaction. So, trust builds the cooperative environment essential for TQM.

II. Bricks Basing on the strong foundation of trust, ethics and integrity, bricks are placed to reach the roof of recognition. It includes:

4. Training - Training is very important for employees to be highly productive. Supervisors are solely responsible for implementing TQM within their departments, and teaching their employees the philosophies of TQM. Training that employees require are interpersonal skills, the ability to function within teams, problem solving, decision making, job management performance analysis and improvement, business economics and technical skills. During the creation and formation of TQM, employees are trained so that they can become effective employees for the company.

5. Teamwork - To become successful in business, teamwork is also a key element of TQM. With the use of teams, the business will receive quicker and better solutions to problems. Teams also provide more permanent improvements in processes and operations. In teams, people feel more comfortable bringing up problems that may occur, and can get help from other workers to find a solution and put into place. There are mainly three types of teams that TQM organizations adopt:

A. Quality Improvement Teams or Excellence Teams (QITS) - These are temporary eams with the purpose of dealing with specific problems that often re-occur. These teams are

69 set up for period of three to twelve months. B. Problem Solving Teams (PSTs) - These are temporary teams to solve certain problems and also to identify and overcome causes of problems. They generally last from one week to three months. C. Natural Work Teams (NWTs) - These teams consist of small groups of skilled workers who share tasks and responsibilities. These teams use concepts such as employee involvement teams, self-managing teams and quality circles. These teams generally work for one to two hours a week.

6. Leadership - It is possibly the most important element in TQM. It appears everywhere in organization. Leadership in TQM requires the manager to provide an inspiring vision, make strategic directions that are understood by all and to instill values that guide subordinates. For TQM to be successful in the business, the supervisor must be committed in leading his employees. A supervisor must understand TQM, believe in it and then demonstrate their belief and commitment through their daily practices of TQM. The supervisor makes sure that strategies, philosophies, values and goals are transmitted down through out the organization to provide focus, clarity and direction. A key point is that TQM has to be introduced and led by top management. Commitment and personal involvement is required from top management in creating and deploying clear quality values and goals consistent with the objectives of the company and in creating and deploying well defined systems, methods and performance measures for achieving those goals.

III. Binding Mortar 7. Communication - It binds everything together. Starting from foundation to roof of the TQM house, everything is bound by strong mortar of communication. It acts as a vital link between all elements of TQM. Communication means a common understanding of ideas between the sender and the receiver. The success of TQM demands communication with and among all the organization members, suppliers and customers. Supervisors must keep open airways where employees can send and receive information about the TQM process. Communication coupled with the sharing of correct information is vital. For communication to be credible the message must be clear and receiver must interpret in the way the sender intended.

There are different ways of communication such as: A. Downward communication - This is the dominant form of communication in an organization. Presentations and discussions basically do it. By this the supervisors are able to make the employees clear about TQM. B. Upward communication - By this the lower level of employees are able to provide suggestions to upper management of the affects of TQM. As employees provide insight and constructive criticism, supervisors must listen effectively to correct the situation that comes about through the use of TQM. This forms a level of trust between supervisors and employees. This is also similar to empowering communication, where supervisors keep open ears and listen to others. C. Sideways communication - This type of communication is important because it breaks

70 down barriers between departments. It also allows dealing with customers and suppliers in a more professional manner.

IV. Roof 8. Recognition - Recognition is the last and final element in the entire system. It should be provided for both suggestions and achievements for teams as well as individuals. Employees strive to receive recognition for themselves and their teams. Detecting and recognizing contributors is the most important job of a supervisor. As people are recognized, there can be huge changes in self-esteem, productivity, quality and the amount of effort exhorted to the task at hand. Recognition comes in its best form when it is immediately following an action that an employee has performed. Recognition comes in different ways, places and time such as,

 Ways - It can be by way of personal letter from top management. Also by award banquets, plaques, trophies etc.

 Places - Good performers can be recognized in front of departments, on performance boards and also in front of top management.

 Time - Recognition can given at any time like in staff meeting, annual award banquets, etc.

TAGUCHI'S LOSS FUNCTION

We have seen that Taguchi's quality philosophy strongly emphasizes losses or costs. W. H. Moore asserted that this is an "enlightened approach" that embodies "three important premises: for every product quality characteristic there is a target value which results in the smallest loss; deviations from target value always results in increased loss to society; [and] loss should be measured in monetary units (dollars, pesos, francs, etc.)."

Figure I depicts Taguchi's typically loss function. The figure also contrasts Taguchi's function with the traditional view that states there are no losses if specifications are met.

Figure 1 Taguchi's Loss Function

71 It can be seen that small deviations from the target value result in small losses. These losses, however, increase in a nonlinear fashion as deviations from the target value increase. The function shown above is a simple quadratic equation that compares the measured value of a unit of output Y to the target T.: where L(Y) is the expected loss associated with the specific value of Y.

Essentially, this equation states that the loss is proportional to the square of the deviation of the measured value, Y, from the target value, T. This implies that any deviation from the target (based on customers' desires and needs) will diminish customer satisfaction. This is in contrast to the traditional definition of quality that states that quality is conformance to specifications. It should be recognized that the constant k can be determined if the value of L(Y) associated with some Y value are both known. Of course, under many circumstances a quadratic function is only an approximation.

Since Taguchi's loss function is presented in monetary terms, it provides a common language for all the departments or components within a company. Finally, the loss function can be used to define performance measures of a quality characteristic of a product or service. This property of Taguchi's loss function will be taken up in the next section. But to anticipate the discussion of this property, Taguchi's quadratic function can be converted to:

This can be accomplished by assuming Y has some probability distribution with mean, a and variance o.2 This second mathematical expression states that average or expected loss is due either to process variation or to being off target (called "bias"), or both.

Definition

Simply put, the Taguchi loss function is a way to show how each non-perfect part produced, results in a loss for the company. Deming states that it shows

"a minimal loss at the nominal value, and an ever-increasing loss with departure either way from the nominal value." - W. Edwards Deming Out of the Crisis

A technical definition is

A parabolic representation that estimates the quality loss, expressed monetarily, that results when quality characteristics deviate from the target values. The cost of this deviation increases quadratically as the characteristic moves farther from the target value. - Ducan, William Total Quality Key Terms.

Interpreting the chart

72 This standard representation of the loss function demonstrates a few of the key attributes of loss. For example, the target value and the bottom of the parabolic function intersect, implying that as parts are produced at the nominal value, little or no loss occurs. Also, the curve flattens as it approaches and departs from the target value. (This shows that as products approach the nominal value, the loss incurred is less than when it departs from the target.) Any departure from the nominal value results in a loss!

Loss can be measured per part. Measuring loss encourages a focus on achieving less variation. As we understand how even a little variation from the nominal results in a loss, the tendency would be to try and keep product and process as close to the nominal value as possible. This is what is so beneficial about the Taguchi loss. It always keeps our focus on the need to continually improve.

A business that misuses what it has will continue to misuse what it can get. The point is-- cure the misuse. - Ford and Crowther

Application

A company that manufactures parts that require a large amount of machining grew tired of the high costs of tooling. To avoid premature replacement of these expensive tools, the manager suggested that operators set the machine to run at the high-end of the specification limits. As the tool would wear down, the products would end up measuring on the low-end of the specification limits. So, the machine would start by producing parts on the high-end and after a period of time, the machine would produce parts that fell just inside of the specs.

The variation of parts produced on this machine was much greater than it should be, since the strategy was to use the entire spec width allowed rather than produce the highest quality part possible. Products may fall within spec, but will not produce close to the nominal. Several of these "good parts" may not assemble well, may require recall, or may come back under warranty. The Taguchi loss would be very high.

We should consider these vital questions:

* Is the savings of tool life worth the cost of poor products?

* Would it be better to replace the tool twice as often, reduce variation, or look at incoming part quality?

Calculations

Formulas:

Loss at a point: L(x) = k*(x-t)^2 where, k = loss coefficient

73 x = measured value t = target value

Average Loss of a sample set: L = k*(s^2 + (pm - t)^2) where, s = standard deviation of sample pm = process mean

Total Loss = Avg. Loss * number of samples

For example: A medical company produces a part that has a hole measuring 0.5" + 0.050". The tooling used to make the hole is worn and needs replacing, but management doesn't feel it necessary since it still makes "good parts". All parts pass QC, but several parts have been rejected by assembly. Failure costs per part is $0.45. Using the loss function, explain why it may be to the benefit of the company and customer to replace or sharpen the tool more frequently. Use the data below: measured value 0.459 | 0.478 | 0.495 | 0.501 | 0.511 | 0.527 0.462 | 0.483 | 0.495 | 0.501 | 0.516 | 0.532 0.467 | 0.489 | 0.495 | 0.502 | 0.521 | 0.532 0.474 | 0.491 | 0.498 | 0.505 | 0.524 | 0.533 0.476 | 0.492 | 0.500 | 0.509 | 0.527 | 0.536

Solution:

The average of the points is 0.501 and the standard deviation is about 0.022. find k, using L(x) = k * (x-t)^2 $0.45 = k * (0.505 - 0.500)^2 k = 18000 next, using the Average loss equation: L=k * (s^2 + (pm - t)^2)

L = 18000 * (.022^2 + (.501 - .500)^2) = 8.73

So the average loss per part in this set is $8.73.

For the loss of the total 30 parts produced,

= L * number of samples = $8.73 * 30 = $261.90

74 From the calculations above, one can determine that at 0.500", no loss is experienced. At a measured value of 0.501", the loss is $0.018, and with a value of 0.536", the loss would be as much as $23.00.

Even though all measurements were within specification limits and the average hole size was 0.501", the Taguchi loss shows that the company lost about $261.90 per 30 parts being made. If the batch size was increased to 1000 parts, then the loss would be $8730 per batch. Due to variation being caused by the old tooling, the department is losing a significant amount of money.

From the chart, we can see that deviation from the nominal, could cost as much as $0.30 per part. In addition we would want to investigate whether this kind of deviation would compromise the integrity of the final product after assembly to the point of product failure.

5S

5S is the Japanese concept for House Keeping.

1.) Sort (Seiri) 2.) Straighten (Seiton) 3.) Shine (Seiso) 4.) Standardize (Seiketsu) 5.) Sustain (Shitsuke)

I think the concept of 5S has been twisted and its real meaning and intention has been lost due to attempts to keep each element in English word to start with letter 'S', like the real Nippongo words (seiri, seiton, seiso, seiketsu, and shitsuke). Well, whoever deviced those equivalent English words did a good job,they're close, but the real interpretation is not exactly the correct one. For the benefit of the readers who would like to develop and establish their own understanding and applications, the following are the real meaning of each element in English:

Japanese - English Translations ------Seiri - Put things in order (remove what is not needed and keep what is needed) Seiton - Proper Arrangement (Place things in such a way that they can be easily reached whenever they are needed) Seiso - Clean (Keep things clean and polished; no trash or dirt in the workplace) Seiketsu - Purity (Maintain cleanliness after cleaning - perpetual cleaning) Shitsuke - Commitment (Actually this is not a part of '4S', but a typical teaching and attitude towards any undertaking to inspire pride and adherence to standards established for the four components) ______

75

FIRST S -SORTING(GOOD AND BAD, USEABLE AND NON USEABLE) SECOND S - SYSTEMIC ARRANGEMENT(ONCE SORTED KEEP SYSTEMATICALLY TO HAVE TRACEABILITY) THIRD S -SPIC AND SPAN(KEEP ARRANGED THINGS ALWAYS READY TO USE AND IN DIRT FREE AND TIDY STATUS) FOURTH S -STANDARDIZE(MAKE A PROCESS FOR ABOVE THREE STAGES AND MAKE STANDARDS AND ALSO KEEP ON REVIEWING THESE.) FIFTH S - SELF DISCIPLINE(INDIVIDUAL HAS TO COMMIT)

DMAIC

Define opportunities

Measure performance

Analyze opportunity

Improve performance

Control performance

76 Enterprise resource planning, a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing. As the ERP methodology has become more popular, software applications have emerged to help business managers implement ERP in business activities such as inventory control, order tracking, customer service, finance and human resources.

A collection of programs that enables you to store, modify, and extract information from a database. There are many different types of DBMSs, ranging from small systems that run on personal computers to huge systems that run on mainframes. The following are examples of database applications:

 computerized library systems automated teller machines

77  flight reservation systems computerized parts inventory systems

Management tool through which a plan for evaluation, measurement, and improvement is implemented. The insurance entity can use this tool to analyze market trends, measure sales performance, measure market penetration, and measure product performance.reverse engineering (ri′vərs ′en·jə′nir·iŋ) (engineering) The analysis of a completed system in order to isolate and identify its individual components or building blocks.

Reverse engineering (RE) is the process of discovering the technological principles of a mechanical application through analysis of its structure, function and operation. That involves sometimes taking something (a mechanical device, an electrical component, a software program, etc.) apart and analyzing its workings in detail, usually with the intention to construct a new device or program that does the same thing without actually copying anything from the original. The verb form is to reverse-engineer, spelled with a hyphen.

Industrial espionage

Acquisition of trade secrets from business competitors. Industrial spying is a reaction to the efforts of many businesses to keep secret their designs, formulas, manufacturing processes, research, and future plans. Trade secrets may find their way into the open market through disloyal employees or through various other means. Penalties against those found guilty range from an injunction against further use of the knowledge to substantial damages.

Centralization: The act or process of centralizing, or the state of being centralized; the act or process of combining or reducing several parts into a whole; as, the centralization of power in the general government; the centralization of commerce in a city.

Centralization

Situation in which decision-making power is at the top of an organization and there is little delegation of authority. It is the opposite of Decentralization. Centralization and decentralization are really a matter of degree. Full centralization means minimum autonomy and maximum restrictions on operations of subunits of the organization. As an

78 organization grows in size and complexity, decentralization is generally considered to be effective and efficient.

Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.

Corporate governance is a multi-faceted subject. An important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control. In this sense, corporate governance players should comply with codes to the overall good of all constituents. Another important focus is economic efficiency, both within the corporation (such as the best practice guidelines) as well as externally (national institutional frameworks). In this "economic view", the corporate governance system should be designed in such a way as to optimize results. Some argue that the firm should act not only in the interest of shareholders, but also of all the other stakeholders.

Recently there has been considerable interest in the corporate governance practices of modern corporations, particularly since the high-profile collapses of firms such as Enron Corporation.

Definition

The term corporate governance has come to mean many things. It may describe: the processes by which companies are directed and controlled encouragement of companies' compliance with codes (as in corporate governance guidelines) investment technique based on active ownership (as in corporate governance funds)a field in economics, which studies the many issues arising from the separation of ownership and control

Delegation of decision-making to the subunits of an organization. It is a matter of degree. The lower the level where decisions are made, the greater is the decentralization. Decentralization is most effective in organizations where subunits are autonomous and costs and profits can be independently measured. The benefits of decentralization include: (1) decisions are made by those who have the most knowledge about local conditions; (2) greater managerial input in decision-making has a desirable motivational effect; and (3) managers have more control over results. The costs of decentralization include: (1) managers have a tendency to look at their division and lose sight of overall company goals; (2) there can be costly duplication of services; and (3) costs of obtaining sufficient information increase.

79

Meaning #1: the social process in which population and industry moves from urban centers to outlying districts Synonym: decentalisation

Meaning #2: the spread of power away from the center to local branches or governments

just-in-time

(industrial engineering) A systems approach to developing and operating a manufacturing system so that the least amount of resources is expended in producing the final products. Abbreviated JIT.

Management By Objective (MBO)

System of performance appraisal having the following characteristics: (1) each manager is required to take certain prescribed actions and to complete certain written documents; and (2) the manager and subordinates discuss the subordinate's job description, agree to short-term performance targets, discuss the progress made towards meeting these targets, and periodically evaluate the performance and provide the feedback.

Type Public (NYSE: F)

Founded 1903

Dearborn, Michigan Location List of Ford factories

William Ford, Jr. President, Chairman of the Board, and CEO Joseph Hinrichs Vice President Executive operating committee: Key people Mark Schulz Anne Stevens Lewis Booth Don Leclair Mark Fields

80 Industry Automotive

Aston Martin Ford Jaguar Daimler (div. of Jaguar) Products Land Rover Lincoln Mazda (controls 33.4%) Mercury Volvo (cars only)

Revenue $178.1 billion USD (2005) [1]

Employees 327,531

Website www.ford.com

The Ford Motor Company (usually called Ford; sometimes called FoMoCo), (NYSE: F) is a multinational corporation that manufactures automobiles. The automaker was founded by Henry Ford in Dearborn, Michigan, United States (where the company is currently headquartered), and incorporated in 1903. In its twentieth century heyday, Ford, along with General Motors and Chrysler, were known as Detroit's "Big Three" automakers, companies that dominated the American auto market. Toyota surpassed Ford in revenue starting in 2004. Ford remains one of the world's ten largest corporations by revenue.

Ford introduced methods for large-scale manufacturing of cars, and large-scale management of an industrial workforce, especially elaborately engineered manufacturing sequences typified by the moving assembly lines. Henry Ford's combination of highly efficient factories, highly paid workers, and low prices revolutionized manufacturing and came to be known around the world as Fordism by 1914.

Early history

Henry Ford (ca. 1919)

81 Ford assembly line (1913)

Strike

Organized work stoppage by labor for the purpose of exerting pressure on management with regard to agreeing on better contract terms or working conditions, correcting an unsettled grievance, or recognizing a union as a Bargaining Agent. Strike is the ultimate labor weapon. Public sector strikes are usually illegal.

PepsiCo, Inc.

Type Public (NYSE: PEP)

Founded Purchase, New York, USA (1965)

Location Purchase, New York, USA

Key people Steven Reinemund, Chairman & CEO

Industry Food and beverage

Products Pepsi

82 Sunny Delight Gatorade Lay's Doritos Frappuccino (for Starbucks)

Revenue $32.6 billion USD (2005)

Employees 153,000 (2005)

Website www.pepsico.com

PepsiCo, Inc. NYSE: PEP is a global beverage and

Wal-Mart

Wal-Mart Stores, Inc.

83 Type Discount store/Public (NYSE: WMT)

Founded Rogers, Arkansas, 1962

Location Bentonville, Arkansas, USA

Sam Walton (1918–1992), Founder Key people H. Lee Scott, CEO S. Robson Walton, Chairman

Industry Retail

Wal-Mart Discount Stores Wal-Mart Supercenter Products Sam's Club Neighborhood Markets ASDA

Revenue $315.654 Billion USD (2006)

Net Income $11.231 Billion USD (2006)

Employees 2 Million (2006)

Website http://www.walmartstores.com/

Wal-Mart Stores, Inc. (NYSE: WMT) was founded by Sam Walton in 1962. It is the largest retailer in the world and was formerly the largest corporation in the world based on revenue for 2004 (see Fortune Global 500). In 2006 it was overtaken by three of the global oil majors.

Wal-Mart's impact is hotly debated. Specific areas of controversy include the company's product origins, treatment of employees and suppliers, environmental policies, extraction of public subsidies (corporate welfare), availability of prescription contraceptives at Wal- Mart pharmacy counters, and store impacts on local communities and businesses. [1][2] The controversy is covered in more detail in the Criticism of Wal-Mart article.

84 The exterior of a Wal-Mart Supercenter, located in Madison Heights, Virginia.

The exterior of a Wal-Mart Neighborhood Market, located in Center Point, Alabama.

Wal-Mart operates retail department stores

TVS, India

It has been suggested that TVS Suzuki be merged into this article or section. (Discuss)

TV Sundram Iyengar and Sons Limited (TVS) is the holding company for the TVS Group of companies engaged in the manufacturing of almost all kinds of automotive components, two wheelers and a few other industrial products. They are also into the financial services sector. The turnover of the entire group was close to $2 billion in 2003.

85 TVS was founded by the T.V. Sundaram Iyengar back in 1911.

TVS Champ motorcyle in Chennai

It is the only automotive manufacture in the world to get the prestigious Deming award. Its group company Sundaram Clayton was the first company in India to receive the Deming award. It went on to be awarded the Japan Quality Medal. This medal is only awarded to companies for continuous improvement in quality practice after they have received the Deming award.

TQM

(Total Quality Management) An organizational undertaking to improve the quality of manufacturing and service. It focuses on obtaining continuous feedback for making improvements and refining existing processes over the long term.

ISO9000

A family of standards and guidelines for quality in the manufacturing and service industries from the International Organization for Standardization (ISO). ISO 9000 defines the criteria for what should be measured. ISO 9001 covers design and development. ISO 9002 covers production, installation and service, and ISO 9003 covers final testing and inspection. ISO 9000 certification does not guarantee product quality. It ensures that the processes that develop the product are documented and performed in a quality manner.

Initially popular in Europe, ISO 9000 certification began to increase in the U.S. in the early 1990s. Certification requires exacting documentation and demonstrations in practice over time. The process, which can take up to a year, involves two major players in addition to the company being certified. A consultant provides (and may help implement) a plan for documenting the company's ISO system. Once documented, a registrar interviews the company's management and line staff to make sure that the new system, as documented, has been effectively implemented. Only a few dozen companies worldwide are authorized to conduct such audits for the issuance of ISO 9000 certificates.

86 ISO

(International Organization for Standardization, Geneva, www.iso.ch) An organization that sets international standards, founded in 1946. The U.S. member body is ANSI. ISO deals with all fields except electrical and electronics, which is governed by the older International Electrotechnical Commission (IEC). With regard to information processing, ISO and IEC created JTC1, the Joint Technical Committee forIT.

It carries out its work through more than 185 technical committees and 2,700 subcommittees and working groups, and is made up of standards organizations from more than 95 countries, some of them serving as secretariats for these technical bodies.

APL

(A Programming Language) A high-level mathematical programming language noted for its brevity and matrix generation capabilities. Developed by Kenneth Iverson in the mid- 1960s, it runs on micros to mainframes and is often used to develop mathematical models. It is primarily an interpreted language, but compilers are available.

APL uses unique character symbols and, before today's graphical interfaces, required special software or ROM chips to enable the computer to display and print them. APL is popular in Europe.

abacus

One of the earliest counting instruments. Similar devices predate the Greek and Roman days. It uses sliding beads in columns that are divided in two by a center bar. The top is "heaven," where each of two beads is worth 5 when moved to the center bar. The bottom is "earth," where each of five beads is worth 1 when moved toward the center.

Trademarks

A trademark is a brand identification for a product or service, the latter technically called a "service mark." The mark can be written text, text in a particular stylized form or a graphic symbol. Company names and products are often registered with the U.S. Patent & Trademark Organization (USPTO) to help ensure their legal usage. For more information, visit www.uspto.gov.

87 We Are Not a Source of Trademark Registrations The purpose of this Encyclopedia is to provide a meaningful definition of computer science, telecommunications, semiconductor and electronics terms and related products, but it is not meant to be a source of trademark registration information. When we know of an origin of a term, we state it. There are thousands of terms in this database that do not include a lineage, because we either did not know of it at the time of writing or felt it was not pertinent.

We Believe Everything Is a Trademark We believe that every name of a product is a trademark of its respective organization. If a company creates a name for its product and continues to use it, it is a de facto trademark whether or not it is registered. Among other legal reasons, registration serves to officially document how long a name has been in use.

Contact the Company If a particular technology in this database is attributed to an organization, we do not know if it is a de facto or de jure trademark of that organization. To find out trademark information about a product in this publication, please contact the legal counsel of the organization that is mentioned as its creator.

Copyright

The legal ownership of a "work," which can take any of the following forms: written text, program source code, graphics images, sculpture, music, sound recording, motion picture, pantomime, choreograph and architecture. Before January 1, 1978, a work had to be published to be copyrighted. After that date, any work expressed in paper or electronic form is automatically copyrighted for the life of the author plus 70 years. Registration with the Copyright Office is not required, although it is beneficial if there are disputes later on. In the U.S., a copyright symbol is not mandatory, but recommended.

For works by an anonymous author or an author who uses a fictitious name (pseudonymous) as well as works "made for hire," such as a publication written by an employee of a company, the copyright lasts 120 years from date of creation or 95 years from date of publication, whichever is shorter.

Technology

Applying a systematic technique, method or approach to solve a problem. Much of today's technology implies the use of computers.

88 Definition of: technology gap

(1) The difference in technologies used and/or developed in two companies, countries, ethnic groups, etc., where one is more advanced than the other.

(2) The difference between those who have computers and high-tech devices in general and those who do not. Also known as the "digital divide."

(3) The difference between current-day products and the technology on the drawing boards.

1-Sample Sign Test

Test the probability of a sample median being equal to hypothesized value.

H0: m1=m2=m3=m4 (null hypothesis) Ha: At least one is different (alternate hypothesis)

2-Sample t Test

2 - Sample t Test : The two sample t-Test is used for testing hypothesis about the location two sample means being equal.

1 - Sample t Test : The one sample t-Test is used for testing hypothesis about the location of the sample mean and a target mean being equal.

3P

A 3D model of TQM, having People, Product and Process as the 3 axis. For Implementing TQM, all the 3 parameters should be improved.

1. People: Satisfaction of both Internal and External customer.

2. Product: Conforming to the requirements specified.

3. Process: Continuous Improvement of all the operations and activities is at the heart of TQM.

89 5 Laws of Lean Six Sigma

5 Laws of Lean Six Sigma have been formulated to provide direction to improvement efforts. The laws are a conglomeration of Key Ideas of Six Sigma and Lean.

Law 0: The Law of the Market - Customer Critical to Quality defines quality and is the highest priority for improvement, followed by ROIC (Return On Invested Capital) and Net Present value. It is called the Zeroth law as it is the base on which others are built.

Law 1: The Law of Flexibility - The velocity of any process is proportional to the flexibility of the process.

Law 2: The Law of Focus - 20% of the activities in a process cause 80% of the delay. (Related to Pareto Principle)

Law 3:The Law of Velocity - The velocity of any process is inversely proportional to the amount of WIP. This is also called "Little's Law".

Law 4: The complexity of the service or product offering adds more non-value, costs and WIP than either poor quality (low Sigma) or slow speed (un-Lean) process problems.

5 Why's

The 5 why's typically refers to the practice of asking, five times, why the failure has occurred in order to get to the root cause/causes of the problem. There can be more than one cause to a problem as well. In an organizational context, generally root cause analysis is carried out by a team of persons related to the problem. No special technique is required.

An example is in order: You are on your way home from work and your car stops:

 Why did your car stop? Because it ran out of gas.

 Why did it run out of gas? Because I didn't buy any gas on my way to work.

 Why didn't you buy any gas this morning? Because I didn't have any money.

 Why didn't you have any money? Because I lost it all last night in a poker game.

I hope you don't mind the silly example but it should illustrate the importance of digging down beneath the most proximate cause of the problem. Failure to determine the root

90 cause assures that you will be treating the symptoms of the problem instead of its cause, in which case, the disease will return, that is, you will continue to have the same problems over and over again.

Also note that the actual numbers of why's is not important as long as you get to the root cause. One might well ask why did you lose all your money in the poker game last night?

_____ Here's another example. I learned the example using the Washington Monument used when demonstrating the use of the 5 Whys.

The Washington Monument was disintegrating Why? Use of harsh chemicals Why? To clean pigeon poop Why so many pigeons? They eat spiders and there are a lot of spiders at monument Why so many spiders? They eat gnats and lots of gnats at monument Why so many gnats? They are attracted to the light at dusk. Solution: Turn on the lights at a later time.

5C

5C ia a 5 step technique very similar to 5S to stabilise, maintain and improve the safest, best working enviroment to support sustainable Qyality, Cost and Delivery.

What are the 5Cs?

Clear Out: Separate the essential from the non essential

Configure: A place for everything and everything in its place.

Clean and Check: Manualy clean to spot abnormal conditions.

Conformity: Ensures that the standard is maintained and improved.

Custom and Prctice: Everyone follows the rules, understands the benefits and contributes to the improvement.

5S

5S is the Japanese concept for House Keeping.

1.) Sort (Seiri)

91 2.) Straighten (Seiton) 3.) Shine (Seiso) 4.) Standardize (Seiketsu) 5.) Sustain (Shitsuke)

Japanese - English Translations ------Seiri - Put things in order (remove what is not needed and keep what is needed) Seiton - Proper Arrangement (Place things in such a way that they can be easily reached whenever they are needed) Seiso - Clean (Keep things clean and polished; no trash or dirt in the workplace) Seiketsu - Purity (Maintain cleanliness after cleaning - perpetual cleaning) Shitsuke - Commitment (Actually this is not a part of '4S', but a typical teaching and attitude towards any undertaking to inspire pride and adherence to standards established for the four components)

5Z

This standard defines the procedure of “5Z Accreditation” which is the scheme to promote, evaluate, maintain and improve process control using the Genba Kanri principles. “5Z” is a general term for the following five actions ending with “ZU”…meaning “Don’t” in Japanese.

-UKETORAZU (Don’t accept defects) -TSUKURAZU (Don’t make defects) -BARATSUKASAZU (Don’t create variation) -KURIKAESAZU (Don’t repeat mistakes) -NAGASAZU (Don’t supply defects)

6 Ms

The traditional 6Ms are:

* Machines

* Methods

* Materials

92 * Measurements

* Mother Nature (Environment)

* Manpower (People)

6W

Your project planning should answer following question:

WHAT : What will you make/do this? WHY : Why will you make/do this? WHERE : Where will you make/do this? WHO : Who will make/do this? WHEN : When will you start/stop this (time scheduling)? WHICH : Which will you make/do this (process, tooling, material sources etc…)?

7 QC Tools

Histograms Cause and Effect Diagram Check Sheets Pareto Diagrams Graphs Control Charts Scatter Diagrams

7 Wastes Of Lean

The 7 wastes are at the root of all unprofitable activity within your organization.

The 7 wastes consist of:

1. Defects 2. Overproduction 3. Transportation 4. Waiting 5. Inventory 6. Motion 7. Processing

93 Use the acronym 'DOTWIMP' to remember the 7 Wastes of Lean.

The worst of all the 7 wastes is overproduction because it includes in essence all others and was the main driving force for the Toyota JIT system, they were smart enough to tackle this one to eliminate the rest.

8 D Process

The 8D Process is a problem solving method for product and process improvement. It is structured into 8 steps (the D's) and emphasizes team. This is often required in automotive industries. The 8 basic steps are: Define the problem and prepare for process improvement, establish a team, describe the problem, develop interim containment, define & verify root cause, choose permanent corrective action, implement corrective action, prevent recurrence, recognize and reward the contributors.

Of course, different companies have their different twists on what they call the steps, etc...but that is the basics.

8 D is short for Eight Disciplines which oOriginated from the Ford TOPS (Team Oriented Problem Solving) program. (First published approximately 1987) D#1 - Establish the Team D#2 - Describe the problem. D#3 - Develop an Interim Containment Action D#4 - Define / Verify Root Cause D#5 - Choose / Verify Permanent Corrective Action D#6 - Implement / Validate Permanent Corrective Action D#7 - Prevent Recurrence D#8 - Recognize the Team

8 Wastes of Lean

An easy way I learned at a seminar to remember the wastes, they spell TIM WOODS

T - Transport - Moving people, products & information I - Inventory - Storing parts, pieces, documentation ahead of requirements M - Motion - Bending, turning, reaching, lifting

W - Waiting - For parts, information, instructions, equipment O - Over production - Making more than is IMMEDIATELY required O - Over processing - Tighter tolerances or higher grade materials than are necessary

94 D - Defects - Rework, scrap, incorrect documentation S - Skills - Under utilizing capabilities, delegating tasks with inadequate training

AQL

Acceptable Quality Level. Also referred to as Assured Quality Level. The largest quantity of defectives in a certain sample size that can make the lot definitely acceptable; Customer will definitely prefer the zero defect products or services and will ultimately establish the acceptable level of quality. Competition however, will 'educate' the customer and establish the customer's values. There is only one ideal acceptable quality level - zero defects - all others are compromises based upon acceptable business, financial and safety levels.

Accessory Planning

The planned utilization of remnant material for value-added purposes.

Accuracy

1) Accuracy refers to clustering of data about a known target. It is the difference between a physical quantity's average measurements and that of a known standard, accepted 'truth,' vs. 'benchmark.' Envision a target with many arrows circling the bullseye, however, none of them are near each other.

2) Precision refers to the tightness of the cluster of data. Envision a target with a cluster of arrows all touching one another but located slightly up and to the right of the bullseye.

In practice it is easier to correct a process which has good precision than it is to correct a process which is accurate. This is due to the increased amount of variation associated with accurate but not precise process.

Active Data

Actively and purposefully make changes in our data to monitor the corresponding impact and results on the Xs and Ys.

Analysis Of Variance (ANOVA)

95 Analysis of variance is a statistical technique for analyzing data that tests for a difference between two or more means by comparing the variances *within* groups and variances *between* groups. See the tool 1-Way ANOVA.

Alpha Risk

Alpha risk is defined as the risk of rejecting the Null hypothesis when in fact it is true.

Synonymous with: Type I error, Producers Risk

In other words, stating a difference exists where actually there is none. Alpha risk is stated in terms of probability (such as 0.05 or 5%).

The value (1-alpha) corresponds to the confidence level of a statistical test, so a level of significance alpha = 0.05 corresponds to a 95% confidence level.

Affinity Diagram

A tool used to organize and present large amounts of data (ideas, issues, solutions, problems) into logical categories based on user perceived relationships and conceptual frameworking.

Often used in form of "sticky notes" send up to front of room in brainstorming exercises, then grouped by facilitator and workers. Final diagram shows relationship between the issue and the category. Then categories are ranked, and duplicate issues are combined to make a simpler overview.

ANOVA

ANalysis Of VAriance (ANOVA), a calculation procedure to allocate the amount of variation in a process and determine if it is significant or is caused by random noise. A balanced ANOVA has equal numbers of measurements in each group/column. A stacked ANOVA: each factor has data in one column only and so does the response.

APQP

96 Advanced Product Quality Planning

Phase 1 - Plan & Define Programme - determining customer needs, requirements & expectations using tools such as QFD review the entire quality planning process to enable the implementation of a quality programme how to define & set the inputs & the outputs.

Phase 2 - Product Design & Development - review the inputs & execute the outputs, which include FMEA, DFMA, design verification, design reviews, material & engineering specifications.

Phase 3 - Process Design & Development - addressing features for developing manufacturing systems & related control plans, these tasks are dependent on the successful completion of phases 1 & 2 execute the outputs.

Phase 4 - Product & Process Validation - validation of the selected manufacturing process & its control mechanisms through production run evaluation outlining mandatory production conditions & requirements identifying the required outputs.

Phase 5 - Launch, Feedback, Assessment & Corrective Action - focuses on reduced variation & continuous improvement identifying outputs & links to customer expectations & future product programmes.

Control Plan Methodology - discusses use of control plan & relevant data required to construct & determine control plan parameters stresses the importance of the control plan in the continuous improvement cycle.

Back-Date

The start and due dates for each operation in the manufacturing process are calculated back from the ship date. (See also Ship Date).

Balanced Experiment

An experiment is balanced when all factor levels (or treatment groups) have the same number of experimental units (or items receiving a treatment). Unbalanced experiments

97 add complexity to the analysis of the data but hopefully for good reason. For example, some levels are of less interest to the researcher than others. Some levels are expected to produce greater variation than others and so more units are assigned to those levels.

Balance is nonessential but desirable if equal accuracy, power, or confidence interval width for treatment comparisons is important. Severe imbalance can induce factor confounding (correlated factors or non-independent treatment levels).

Bar Chart

A bar chart is a graphical comparison of several quantities in which the lengths of the horizontal or vertical bars represent the relative magnitude of the values

Bartlett Test

This test is used to determine if there is a difference in variance between 3 or more samples/groups. It is usefull for testing the assumption of equal variances, which is required for one-way ANOVA.

Baseline

A snapshot of the state of inputs/outputs frozen at a point in time for a particular process. A baseline should be recordered to establish a starting point to measure the changes achieved with any process improvement.

Benchmarking

The concept of discovering what is the best performance being achieved, whether in your company, by a competitor, or by an entirely different industry.

Benchmarking is an improvement tool whereby a company measures its performance or process against other companies' best practices, determines how those companies achieved their performance levels, and uses the information to improve its own performance.

Benchmarking is a continuous process whereby an enterprise measures and compares all its functions, systems and practices against strong competitors, identifying quality gaps in the organization, and striving to achieve competitive advantage locally and globally.

98 Beta Risk

Beta risk is defined as the risk of accepting the null hypothesis when, in fact, it is false.

Consumer Risk or Type II Risk.

Beta risk is defined as the risk of accepting the null hypothesis when, in fact, the alternate hypothesis is true. In other words, stating no difference exists when there is an actual difference. A statistical test should be capable of detecting differences that are important to you, and beta risk is the probability (such as 0.10 or 10%) that it will not. Beta risk is determined by an organization or individual and is based on the nature of the decision being made. Beta risk depends on the magnitude of the difference between sample means and is managed by increasing test sample size. In general, a beta risk of 10% is considered acceptable in decision making.

The value (1-beta) is known as the "power" of a statistical test. The power is defined as the probability of rejecting the null hypothesis, given that the null hypothesis is indeed false.

Brainstorming

A method to generate ideas. Groundrules such as -no idea is a bad idea- are typical. Benefit of brainstorming is the power of the group in building ideas of each others ideas.

A problem solving approach/technique whereby working members in a group are conducting a deductive methodology for identifying possible causes of any problem, in order to surmount poor performance in any process or activity pursued by the group members and facilitator.

Black Belt

Six Sigma team leaders responsible for implementing process improvement projects (DMAIC or DFSS) within the business -- to increase customer satisfaction levels and business productivity. Black Belts are knowledgeable and skilled in the use of the Six Sigma methodology and tools.

Black Belts have typically completed four weeks of Six Sigma training, and have demonstrated mastery of the subject matter through the completion of project(s) and an exam.

99 Black Belts coach Green Belts and receive coaching and support from Master Black Belts.

Black Noise

Sources of variation which are non-random

Business Process Quality Management

Also called Process Management or Reengineering. The concept of defining macro and micro processes, assigning ownership, and creating responsibilities of the owners.

Cause and Effect Diagram

A cause and effect diagram is a visual tool used to logically organize possible causes for a specific problem or effect by graphically displaying them in increasing detail. It helps to identify root causes and ensures common understanding of the causes. It is also called an Ishikawa diagram.

Cause and Effect relationships govern everything that happens and as such are the path to effective problem solving. By knowing the causes, we can find some that are within our control and then change or modify them to meet our goals and objectives. By understanding the nature of the cause and effect principle, we can build a diagram to help us solve everyday problems every time.

Charter

A document or sheet that clearly scopes and identifies the purpose of a Quality improvement project. Items specified include background case, purpose, team members, scope, timeline.

Defects Per Million Opportunities - DPMO

Defects per million opportunities (DPMO) is the average number of defects per unit observed during an average production run divided by the number of opportunities to make a defect on the product under study during that run normalized to one million.

Defects Per Million Opportunities. Synonymous with PPM.

100 To convert DPU to DPMO, the calculation step is actually DPU/(opportunities/unit) * 1,000,000.

Deming Cycle, PDCA

The Deming Cycle, or PDCA Cycle (also known as PDSA Cycle), is a continuous quality improvement model consisting out of a logical sequence of four repetitive steps for continuous improvement and learning: Plan, Do, Study (Check) and Act. The PDSA cycle (or PDCA) is also known as the Deming Cycle, the Deming wheel of continuous improvement spiral. Its origin can be traced back to the eminent statistics expert Mr. Walter A. Shewart, in the 1920’s. He introduced the concept of PLAN, DO and SEE. The late Total Quality Management (TQM) guru and renowned statistician Edward W. Deming modified the SHEWART cycle as: PLAN, DO, STUDY, and ACT.

Along with the other well-known American quality guru-J.M. Juran, Deming went to Japan as part of the occupation forces of the allies after World War II. Deming taught a lot of Quality Improvement methods to the Japanese, including the usage of statistics and the PLAN, DO, STUDY, ACT cycle.

The Deming cycle, or PDSA cycle:

PLAN: plan ahead for change. Analyze and predict the results. DO: execute the plan, taking small steps in controlled circumstances. STUDY: check, study the results. ACT: take action to standardize or improve the process.

Benefits of the PDSA cycle:

- Daily routine management-for the individual and/or the team - Problem-solving process - Project management - Continuous development - Vendor development - Human resources development - New product development - Process trials

DMAIC

Define, Measure, Analyze, Improve, Control. Incremental process improvement using Six Sigma methodology. See DMAIC Methodology

101 Pronounced (Duh-May-Ick).

DMAIC refers to a data-driven quality strategy for improving processes, and is an integral part of the company's Six Sigma Quality Initiative. DMAIC is an acronym for five interconnected phases: Define, Measure, Analyze, Improve, and Control.

Each step in the cyclical DMAIC Process is required to ensure the best possible results. The process steps:

Define the Customer, their Critical to Quality (CTQ) issues, and the Core Business Process involved.

 Define who customers are, what their requirements are for products and services, and what their expectations are

 Define project boundaries the stop and start of the process

 Define the process to be improved by mapping the process flow

Measure the performance of the Core Business Process involved.

 Develop a data collection plan for the process

 Collect data from many sources to determine types of defects and metrics

 Compare to customer survey results to determine shortfall

Analyze the data collected and process map to determine root causes of defects and opportunities for improvement.

 Identify gaps between current performance and goal performance

 Prioritize opportunities to improve

 Identify sources of variation

Improve the target process by designing creative solutions to fix and prevent problems.

 Create innovate solutions using technology and discipline

 Develop and deploy implementation plan

Control the improvements to keep the process on the new course.

 Prevent reverting back to the "old way"

102  Require the development, documentation and implementation of an ongoing monitoring plan

 Institutionalize the improvements through the modification of systems and structures (staffing, training, incentives)

Gantt Chart

A Gantt chart is a powerful and preferred visual reporting device used for conveying a project's schedule. A typical Gantt chart graphically displays the work breakdown, total duration needed to complete tasks, as well as %completion. The Gantt chart itself will not display level of effort, and is not an effective planning tool on its own. Today, Gantt Charts may be integrated with other spreadsheet-type reporting devices that convey additional information related to project planning. Furthermore, Gantt Charts are often enhanced with functionality that includes the identification of relationships between tasks, and the ability to dynamically change task attributes.

ISO9000—SeriesofStandards:

Series of standards established in the 1980s by countries of Western Europe as a basis for judging the adequacy of the quality control systems of companies.

ISO9001:2000

ISO certification standard from the ISO 9000 series revised in year 2000. ISO 9001:2000 promotes a process based approach to increase the effectiveness of the QMS (Quality Management System) in translating customer requirements to customer satisfaction.

TPM

Japanese management philosphy. Stands for Total Productive Maintenanace. Used to increase time between failure (MTBF) or life of machinery.

Conflict

Two or more parties having differing interests or perspectives that require resolution to achieve project goals.

The state that exists when two groups have goals that will affect

Conflict Management

103 Handling of conflicts between project participants or groups in order to create optimal project results.

The ability to manage conflict effectively.

The process by which the project manager uses appropriate managerial techniques to deal with the inevitable disagreements, both technical and personal in nature, that develop among those working toward project accomplishment.

Consultant

One who provides some specialized service based on their special qualifications, education or experience.

Confrontation

Where two parties work together toward a solution of the problem

Conflict Resolution

To seek a solution to a problem, five methods in particular have been proven through confrontation, compromise, smoothing, forcing and withdrawal.

Wage

Money paid as compensation for labor or services usually according to contract and on an hourly, daily, or piecework basis.

Waiver

A document stating a cancellation or reduction of a requirement.

Buyer action that grants contract relief from achieving specified performance. Usually applied when the required performance is not worth the cost and/or schedule to achieve full compliance.

What-If Analysis

The process of evaluating alternative strategies.

What-if Simulation

104 Changing the value of the parameters of the project network to study its behavior under various conditions of its operation.

Work Breakdown

A technique for representing all the components, software, services and data contained in the project scope statement. It establishes a hierarchical structure or product oriented "family tree" of elements. It is used to organize, define and graphically display all the work items or work packages to be done to accomplish the project's objectives. A structure for breaking a large project into smaller work components. A task-oriented "family tree" of activities which organizes, defines and graphically displays the total work to be accomplished in order to achieve the final objectives of the project.

COLLECTIVE BARGAINING Negotiations between trade unions and employers on wages and working conditions

GATT was an international organisation established in 1947 which aimed to reduce, by agreement, the levels of tariffs and other protectionist tools and thereby ensure free trade in the world. There were 11 major rounds of negotiations and the last one was the "Uruguay Round". GATT has now been superseded by the World Trade Organisation.

BACKWARD INTEGRATION: Occurs when a company joins with a firm that is involved at an earlier stage of the production chain. An example might be a brewery taking over a hop or barley farm.

BARRIERS-TO-ENTRY: Obstacles to the entry of new firms into a market. Barriers to entry may take various forms. They may be technical barriers, legal barriers or barriers that arise from strong branding of the product

BUYER’S MARKET: The quantity of goods for sale exceeds the amount consumers are willing and able to buy at the current market price. Characterised by low prices

BUSINESS CYCLE: The tendency of economies to move, over time, through periods of boom and slump and occurs when real GDP moves away from its trend path. The business cycle is the fluctuations in the rate of economic growth that take place in the economy. These fluctuations appear to occur around every five years and have probably occurred ever since economies have occurred! It is the aim of all governments to try to dampen the effects of the business cycle and get more balanced long-term growth, but so far they have had limited success. The peak of the business cycle is usually referred to as a boom, and the trough as a recession or depression.

105 BLACK MARKETS: Created when buyers and sellers meet to negotiate the exchange of a prohibited or illegal good. More generally any unofficial market in which prices are inordinately high.

BIAS: Bias is a term which refers to how far the average statistic lies from the parameter it is estimating, that is, the error which arises when estimating a quantity. Errors from chance will cancel each other out in the long run, those from bias will not.

BARTER: The direct exchange of goods and services without the use of money.

COST-BENEFIT-ANALYSIS: A method of assessing the social costs and benefits of an investment project

CONTRIBUTION: The difference between the price charged and the variable costs involved in producing a good.

TARIFFS: Taxes generally on goods imported into a country

Kaizen ( Japanese for "change for the better" or "improvement", the English translation is "continuous improvement", or "continual improvement.") is an approach to productivity improvement originating in applications of the work of American experts such as Frederick Winslow Taylor, Frank Bunker Gilbreth, Walter Shewhart, and of the War Department's Training Within Industry program by Japanese manufacturers after World War II. The development of Kaizen went hand-in-hand with that of quality control circles, but it was not limited to quality assurance.

The goals of kaizen include the elimination of waste (defined as "activities that add cost but do not add value"), just-in-time delivery, production load leveling of amount and types, standardized work, paced moving lines, right-sized equipment, etc. A closer definition of the Japanese usage of Kaizen is "to take it apart and put back together in a better way." What is taken apart is usually a process, system, product, or service.

Kaizen is a daily activity whose purpose goes beyond improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates hard work (both mental and physical), and teaches people how to do rapid experiments using the scientific method and how to learn to see and eliminate waste in business processes.

"Kaizen" is the correct usage. "Kaizen event" or "kaizen blitz" are incorrect usage.

Kaizen is often misunderstood and applied incorrectly, resulting in bad outcomes including, for example, layoffs. This is called "kaiaku" - literally, "change for the worse." Layoffs are not the intent of kaizen. Instead, kaizen must be practiced in tandem with the "Respect for People" principle. Without "Respect for People," there can be no continuous improvement. Instead, the usual result is one-time gains that quickly fade.

106 Importantly, kaizen must operate with three principles in place: process and results (not results-only); systemic thinking (i.e. big picture, not solely the narrow view); and non- judgmental, non-blaming (because blaming is wasteful).

Everyone participates in kaizen; people of all levels in an organization, from the CEO on down, as well as external stakeholders if needed. The format for kaizen can be individual, suggestion system, small group, or large group.

The only way to truly understand the intent, meaning, and power of kaizen is through direct participation, many, many times.

Translation

The original kanji characters for this word are:

In Japanese this is pronounced 'kaizen'.

改 ('kai') means 'change' and

善 ('zen') means 'good'.

In Chinese this is pronounced 'gai shan':

改善 ('gai shan') means 'change for the better' or 'improve'.

改 ('gai') means 'change' or 'the action to correct'.

善 ('shan') means 'good' or 'benefit'. 'Benefit' is more related to the Taoist or Buddhist philosophy, which gives the definition as the action that 'benefits' the society but not one particular individual (i.e. multilateral improvement). In other words, one cannot benefit at another's expense. The quality of benefit that is involved here should be sustained forever, in other words the 'shan' is an act that truly benefits others.

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History

After World War II, the occupational forces brought in American experts who were familiar with statistical control methods and with the War Department's Training Within Industry (TWI) training programs to restore a war-torn nation. TWI programs included Job Instruction (standard work) and Job Methods (process improvement). In conjunction with the Shewhart cycle taught by W. Edwards Deming, and other statistics-based methods taught by Joseph M. Juran, these became the basis of the kaizen revolution in Japan that took place in the 1950s.

107 [edit]

Applications

The Toyota Production System is known for kaizen, where all line personnel are expected to stop their moving production line in the case of any abnormality, and suggestions for improvement are rewarded.

Kaizen often takes place one small step at a time, hence the English translation: "continuous improvement", or "continual improvement." Yet radical changes for the sake of goals, such as just in time and moving lines, also gain the full support of upper level management. Goals for kaizen workshops are intentionally set very high because there are countless examples of drastic reductions in process lead time to serve as proof of their practicality.

The cycle of kaizen activity can be defined as: standardize an operation -> measure the standardized operation (find cycle time and amount of in-process inventory) -> gauge measurements against requirements -> innovate to meet requirements and increase productivity -> standardize the new, improved operations -> continue cycle ad infinitum. This is also known as the Shewhart cycle, Deming cycle, or PDCA.

The "zen" in Kaizen emphasizes the learn-by-doing aspect of improving production. This philosophy is focused in a different direction from the "command-and-control" improvement programs of the mid-20th century. Kaizen methodology includes making changes and looking at the results, then adjusting. Large-scale preplanning and extensive project scheduling are replaced by smaller experiments in improvement, which can be rapidly adapted as new improvements are suggested.

Masaaki Imai made the term famous in his book, Kaizen: The Key to Japan's Competitive Success. An appendix to that book includes a reference to the 5S strategy of disciplined cleanup.

Lean manufacturing is a management philosophy focusing on reduction of the seven wastes

• Over-production • Waiting time • Transportation • Processing • Inventory • Motion • Scrap in manufactured products or any type of business.

108 By eliminating waste (muda), quality is improved, production time is reduced and cost is reduced. Lean "tools" include constant process analysis (kaizen), "pull" production (by means of kanban) and mistake-proofing (poka-yoke). Lean, as a management philosophy, is also very focused on creating a better workplace through the Toyota principle of "respect for humanity."

While some believe that Lean Manufacturing is a set of problem solving tools, most experts now agree that Lean Manufacturing is a holistic, comprehensive, enterprise-wide program designed to be integrated into the organization's core strategy. In addition, experts in this field believe that philosophy-based Lean Manufacturing strategy is the most effective way to launch and sustain lean activities. The so called "Toyota Way," popularized by Dr. Jefferey Liker's book of the same name, emphasizes the creation of the right kind of environment in which to grow and support Lean Thinking.

Key lean manufacturing principles include:

• Perfect first-time quality - quest for zero defects, revealing & solving problems at the source • Waste minimization – eliminating all activities that do not add value & safety nets, maximize use of scarce resources (capital, people and land) • Continuous improvement – reducing costs, improving quality, increasing productivity and information sharing • Pull processing: products are pulled from the consumer end, not pushed from the production end • Flexibility – producing different mixes or greater diversity of products quickly, without sacrificing efficiency at lower volumes of production • Building and maintaining a long term relationship with suppliers through collaborative risk sharing, cost sharing and information sharing arrangements.

Lean is basically all about getting the right things, to the right place, at the right time, in the right quantity while minimizing waste and being flexible and open to change.

Lean thinking got its name from a 1990’s best seller called "The Machine That Changed the World : The Story of Lean Production". The book chronicles the transitions of automobile manufacturing from craft production to mass production to lean production.

The seminal book "Lean Thinking" by Womack and Jones, introduced five core concepts:

1. Specify value in the eyes of the customer 2. Identify the value stream and eliminate waste 3. Make value flow at the pull of the customer 4. Involve and empower employees 5. Continuously improve in the pursuit of perfection.

109 Finally, there is an understanding that Toyota's mentoring process (loosely called Senpai and Kohai relationship) so strongly supported in Japan is one of the ways to foster Lean Thinking up and down the organizational strucuture. The closest equivalent to Toyota's mentoring process is the concept of Lean Sensei, which encourages companies, organizations, and teams to seek out outside, third-party "Sensei" that can provide unbiased advice and coaching, as indicated in Jim Womack's Lean Thinking book

Poka-yoke

Poka-yoke (- pronounced "POH-kah YOH-keh" means "fail-safing" or "mistake- proofing" — avoiding (yokeru) inadvertent errors (poka)) is a behavior-shaping constraint, or a method of preventing errors by putting limits on how an operation can be performed in order to force the correct completion of the operation. The concept was originated by Shigeo Shingo as part of the Toyota Production System. Originally described as Baka-yoke, but as this means "idiot-proofing" the name was changed to the milder Poka-yoke. One example is the inability to remove a car key from the ignition switch of an automobile if the automatic transmission is not first put in the "Park" position, so that the driver cannot leave the car in an unsafe parking condition where the wheels are not locked against movement. Another example can be found in a normal 3.5" floppy disk: the top-right corner is shaped in a certain way so that the disk cannot be inserted upside-down.

Taguchi methods

Taguchi methods are statistical methods developed by Genichi Taguchi to improve the quality of manufactured goods. Taguchi methods are controversial among many conventional Western statisticians unfamiliar with the Taguchi methodology .

Taguchi's principle contributions to statistics are:

1. Taguchi loss-function; 2. The philosophy of off-line quality control; and 3. Innovations in the design of experiments.

Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs. The process is driven by a series of signals, or Kanban (Jp. カンバン also 看板), that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency when implemented correctly.

New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical demand. If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues. To

110 meet a 95% service rate a firm must carry about 2 standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted a trailing 13 week average is a better predictor than most forecastors could provide.

History

The technique was first used by the Ford Motor Company as described explicitly by Henry Ford's My Life and Work (1922): "We have found in buying materials that it is not worth while to buy for other than immediate needs. We buy only enough to fit into the plan of production, taking into consideration the state of transportation at the time. If transportation were perfect and an even flow of materials could be assured, it would not be necessary to carry any stock whatsoever. The carloads of raw materials would arrive on schedule and in the planned order and amounts, and go from the railway cars into production. That would save a great deal of money, for it would give a very rapid turnover and thus decrease the amount of money tied up in materials. With bad transportation one has to carry larger stocks." This statement also describes the concept of "dock to factory floor" in which incoming materials are not even stored or warehoused before going into production. This paragraph also shows the need for an effective freight management system (FMS) and Ford's Today and Tomorrow (1926) describes one.

The technique was subsequently adopted and publicised by Toyota Motor Corporation of Japan as part of its Toyota Production System (TPS).

Japanese corporations cannot afford large amounts of land to warehouse finished products and parts. Before the 1950s, this was thought to be a disadvantage because it reduced the economic lot size. (An economic lot size is the number of identical products that should be produced, given the cost of changing the production process over to another product.) The undesirable result was poor return on investment for a factory.

The chief engineer at Toyota in the 1950s, Taiichi Ohno examined accounting assumptions and realized that another method was possible. The factory could be made more flexible, reducing the overhead costs of retooling and reducing the economic lot size to the available warehouse space.

Over a period of several years, Toyota engineers redesigned car models for commonality of tooling for such production processes as paint-spraying and welding. Toyota was one of the first to apply flexible robotic systems for these tasks. Some of the changes were as simple as standardizing the hole sizes used to hang parts on hooks. The number and types of fasteners were reduced in order to standardize assembly steps and tools. In some cases, identical subassemblies could be used in several models.

Toyota engineers then determined that the remaining critical bottleneck in the retooling process was the time required to change the stamping dies used for body parts. These were adjusted by hand, using crowbars and wrenches. It sometimes took as long as

111 several days to install a large (multiton) die set and adjust it for acceptable quality. Further, these were usually installed one at a time by a team of experts, so that the line was down for several weeks.

Toyota implemented a strategy called Single Minute Exchange of Die (SMED), developed by Shigeo Shingo. With very simple fixtures, measurements were substituted for adjustments. Almost immediately, die change times fell to about half an hour. At the same time, quality of the stampings became controlled by a written recipe, reducing the skill required for the change. Analysis showed that the remaining time was used to search for hand tools and move dies. Procedural changes (such as moving the new die in place with the line in operation) and dedicated tool-racks reduced the die-change times to as little as 40 seconds. Dies were changed in a ripple through the factory as a new product began flowing.

After SMED, economic lot sizes fell to as little as one vehicle in some Toyota plants.

Carrying the process into parts-storage made it possible to store as little as one part in each assembly station. When a part disappeared, that was used as a signal to produce or order a replacement.

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Philosophy

Just-in-time (JIT) inventory systems are not just a simple method that a company has to buy in to; it has a whole philosophy that the company must follow. The ideas in this philosophy come from many different disciplines including; statistics, industrial engineering, production management and behavioural science. In the JIT inventory philosophy there are views with respect to how inventory is looked upon, what it says about the management within the company, and the main principle behind JIT.

Firstly, inventory is seen as incurring costs instead of adding value, contrary to traditional thinking. Under the philosophy, businesses are encouraged to eliminate inventory that doesn’t add value to the product. Secondly, it sees inventory as a sign of sub par management as it is simply there to hide problems within the production system. These problems include backups at work centres, lack of flexibility for employees and equipment, and inadequate capacity among other things.

In short, the just-in-time inventory system is all about having “the right material, at the right time, at the right place, and in the exact amount.”

Effects

112 Some of the results were unexpected. A huge amount of cash appeared, apparently from nowhere, as in-process inventory was built out and sold. This by itself generated tremendous enthusiasm in upper management.

Another surprising effect was that the response time of the factory fell to about a day. This improved customer satisfaction by providing vehicles usually within a day or two of the minimum economic shipping delay.

Also, many vehicles began to be built to order, completely eliminating the risk they would not be sold. This dramatically improved the company's return on equity by eliminating a major source of risk.

Since assemblers no longer had a choice of which part to use, every part had to fit perfectly. The result was a severe quality assurance crisis, and a dramatic improvement in product quality. Eventually, Toyota redesigned every part of its vehicles to eliminate or widen tolerances, while simultaneously implementing careful statistical controls. (See Total Quality Management). Toyota had to test and train suppliers of parts in order to assure quality and delivery. In some cases, the company eliminated multiple suppliers.

When a process problem or bad parts surfaced on the production line, the entire production line had to be slowed or even stopped. No inventory meant that a line could not operate from in-process inventory while a production problem was fixed. Many people in Toyota confidently predicted that the initiative would be abandoned for this reason. In the first week, line stops occurred almost hourly. But by the end of the first month, the rate had fallen to a few line stops per day. After six months, line stops had so little economic effect that Toyota installed an overhead pull-line, similar to a bus bell- pull, that permitted any worker on the production line to order a line stop for a process or quality problem. Even with this, line stops fell to a few per week.

The result was a factory that became the envy of the industrialized world, and has since been widely emulated.

The Just in Time philosophy was also applied to other segments of the supply chain in several types of industries. In the commercial sector, it meant eliminating one or all of the warehouses in the link between a factory and a retail establishment.

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Benefits

As most companies use an inventory system best suited for their company, the Just-In- Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are listed below.

1. Set up times are significantly reduced in the warehouse. Cutting down the set up time to be more productive will allow the company to improve their bottom

113 line to look more efficient and focus time spend on other areas that may need improvement. 2. The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand. 3. Employees who possess multi-skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product. 4. Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers don’t have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day. 5. Increased emphasis on supplier relationships. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public. 6. Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay.

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Problems

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Within a JIT System

The major problem with Just In Time operation is that it leaves the supplier and downstream consumers open to supply shocks. In part, this was seen as a feature rather than a bug by Ohno, who used the analogy of lowering the level of a river in order to expose the rocks to explain how removing inventory showed where flow of production was interrupted. Once the barriers were exposed, they could be removed; since one of the main barriers was rework, lowering inventory forced each shop to improve its own quality or cause a holdup in the next downstream area. Just In Time is a means to improving performance of the system, not an end.

With shipments coming in sometimes several times per day, Toyota is especially susceptible to an interruption in the flow. For that reason, Toyota is careful to use two suppliers for most assemblies. As noted in Liker (2003), there was an exception to this rule that put the entire company at risk by the 1997 Aisin fire. However, since Toyota

114 also makes a point of maintaining high quality relations with its entire supplier network, several suppliers immediately took up production of the Aisin-built parts by using existing capability and documentation. Thus, a strong, long-term relationship with a few suppliers is preferred to short-term, price-based relationships with competing suppliers.

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Within a raw material stream

As noted by Liker (2003) and Womack and Jones (2003), it would ultimately be desirable to introduce flow and JIT all the way back through the supply stream. However, none of them followed this logically all the way back through the processes to the raw materials. With present technology, for example, an ear of corn cannot be grown and delivered to order [1]. The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery.

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Oil

It has been frequently charged that the oil industry has been influenced by JIT (see here (2004), here (1996), and here (1996)). The argument is presented as follows:

The number of refineries in the United States has fallen from 279 in 1975 to 205 in 1990 and further to 149 in 2004. As a result, the industry is susceptible to supply shocks, which cause spikes in prices and subsequently reduction in domestic manufacturing output. The effects of hurricanes Katrina and Rita are given as an example: in 2005, Katrina caused the shutdown of 9 refineries in Louisiana and 6 more in Mississippi, and a large number of oil production and transfer facilities, resulting in the loss of 20% of the US domestic refinery output. Rita subsequently shut down refineries in Texas, further reducing output. The GDP figures for the third and fourth quarters showed a slowdown from 3.5% to 1.2% growth. Similar arguments were made in earlier crises.

Beside the obvious point that prices went up because of the reduction in supply and not for anything to do with the practice of JIT, JIT students and even oil & gas industry analysts question whether JIT as it has been developed by Ohno, Goldratt, and others is used by the petroleum industry. Companies routinely shut down facilities for reasons other than the application of JIT. One of those reasons may be economic rationalization: when the benefits of operating no longer outweigh the costs, including opportunity costs, the plant may be economically inefficient. JIT has never subscribed to such considerations directly; following Waddel and Bodek (2005), this ROI-based thinking conforms more to Brown-style accounting and Sloan management. Further, and more significantly, JIT calls for a reduction in inventory capacity, not production capacity. From 1975 to 1990 to 2005, the annual average stocks of gasoline have fallen by only

115 8.5% from 228,331 to 222,903 bbls to 208,986 (Energy Information Administration data). Stocks fluctuate seasonally by as much as 20,000 bbls. During the 2005 hurricane season, stocks never fell below 194,000 thousand bbls, while the low for the period 1990 to 2006 was 187,017 thousand bbls in 1997. This shows that while industry storage capacity has decreased in the last 30 years, it hasn't been drastically reduced as JIT practitioners would prefer.

Finally, as shown in a pair of articles in the Oil & Gas Journal, JIT does not seem to have been a goal of the industry. In Waguespack and Cantor (1996), the authors point out that JIT would require a significant change in the supplier/refiner relationship, but the changes in inventories in the oil industry exhibit none of those tendencies. Specifically, the relationships remain cost-driven among many competing suppliers rather than quality-based among a select few long-term relationships. They find that a large part of the shift came about because of the availability of short-haul crudes from Latin America. In the follow-up editorial, the Oil & Gas Journal claimed that "casually adopting popular business terminology that doesn't apply" had provided a "rhetorical bogey" to industry critics. Confessing that they had been as guilty as other media sources, they confirmed that "It also happens not to be accurate."

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Theory

Consider a (highly) simplified mathematical model of the ordering process.

Let:

K = the incremental cost of placing an order kc = the annual cost of carrying one unit of inventory D = annual demand in units Q = optimal order size in units TC = total cost over the year

We want to know Q.

We assume that demand is constant and that the company runs down the stock to zero and then places an order, which arrives instantly. Hence the average stock held (the average of zero and Q, assuming constant usage) is Q / 2. Also, the annual number of orders placed is D / Q.

TC consists of two components. The first is the cost of carrying inventory, which is given by Q * kc / 2, i.e. the average inventory times the carrying cost per unit. The second cost is the cost of placing orders, given by D * K / Q, the annual number of orders, D / Q. times the cost per order, K.

Thus total annual cost is

116 .

We differentiate TC with respect to Q and set it equal to 0 to find the Q for minimum total cost, giving

which is known as the Economic Order Quantity or EOQ formula.

The key Japanese breakthrough was to reduce K to a very low level and to resupply frequently instead of holding excess stocks.

In practice JIT works well for many businesses, but it is not appropriate if K is not small.

The theory above can be fairly easily adapted to take into account realistic features such as delays in delivery times and fluctuations in demand.

Both of these are usually modelled by normal distributions.

The delay in delivery, in particular, means that additional 'safety stocks' need to be held if a stockout is to be rendered very unlikely.

Accessory Goods - products required by commercial operations to conduct business, such as: office copiers, automobile wheel balancers, auxiliary power supplies, air compressors, etc.

Accounts Payable - short term debts incurred as the result of day-to-day operations.

Accounts Receivable - monies due your enterprise as the result of day-to-day operations.

Accrual Based Accounting - an accounting method that enters income and expenses into the books at the time of contract versus when payment is received or expenses incurred.

Assets - all real or intellectual property owned by the enterprise that has a positive financial value.

Balance Sheet - a statement of assets and liabilities.

117 Barriers to Entry - conditions that create difficulty for competitors to enter the market. For example, copyrights, trademarks, patents, dedicated distribution channels and high initial investment requirements.

Break-Even Point - the point at which revenues are equal to expenses.

Business Services - services offered to commercial enterprises, such as: equipment maintenance, supplying of part time personnel, engineering, design and management consulting, etc.

Capital - the financial investment required to initiate and/or operate an enterprise.

Cash Based Accounting - an accounting method that enters income and expenses into the books at the time when payment is received or expenses incurred.

Cash Flow - the transfer of monies into and out of an enterprise.

Collateral - assets that can be pledged to guarantee a loan.

Convenience Goods - goods often used by the consumer, but the consumer is unwilling to spend "shopping time" to acquire them. This covers a broad spectrum of products including candy, cigarettes, drugs, newspapers, magazines and most grocery products.

Corporate Image Advertising - a "corporate image" ad is designed to primarily promote the enterprise and secondarily promote the products or services of the enterprise.

Cost of Goods - the direct costs involved in producing a product or service which usually includes labor and materials.

Cost of Sales - the cost of goods plus the expenses involved in selling and delivering the product or service.

Current Assets - Assets that can be converted quickly to cash.

Current Liabilities - All debts incurred in the normal day-to-day business and due within one calendar year.

Debt Service - the regular payments required to keep a loan current.

Depreciation - The gradual erosion of the usability and value (possibly due to obsolescence) of an enterprise's fixed assets. In some cases depreciation can be declared as a tax deduction.

Direct Sales Method - selling direct to the end user with promotional efforts using advertising, direct mail or telephone sales.

118 Distributor - an enterprise that purchases your products for resale to their customers who are usually retail outlets. The distributor expects to receive a significant price discount for providing the distribution service.

Distribution Channel - the path your product follows to be delivered to the end user. This may be through distributors, retail outlets, self service outlets, vending machines, telephone sales, direct mail sales, etc.

Equity - a percentage ownership of an enterprise, usually in the form of stock.

Fashion Goods - goods where style is important and price is secondary. These products could include clothing, jewelry, furniture, draperies, and dishes, but can sometimes be stretched into other areas such as umbrellas, walking canes, cigarette holders, etc.

Fixed Assets - (sometimes called long term assets) these are usually non-liquid assets that are integral to the enterprise's day-to-day business operations such as plants, equipment, furniture and real estate.

Fixed Costs - The day-to-day cost of doing business that is pre-committed, such as salaries, insurance, lease expenses, utilities, etc.

Full Service Retail Sales Method - selling from a sales outlet directly to the end user at retail prices with sales personnel who can explain the purpose and value of the product or service.

Gross Profit - revenues less cost of sales.

Impersonal Service at Customer's Site - this service usually involves working with the customer's property and seldom deals with factors that the customer deems confidential. Examples of this type of service would be: lawn service, typewriter repair, office cleaning, trucking service, etc.

Impersonal Service at Servicer's Site - this service usually involves working with the customer's property and seldom deals with factors that the customer deems confidential. The service is traditionally provided at the servicer's enterprise. Examples of this type of service would be: auto mechanic, TV repair, etc.

Impersonal Service, Volume - this type of service is usually designed such that the same service will satisfy the needs of all customers. It is often the case that the servicer and the customer never meet. Examples of this type of service would be: classified ads, storage lockers, money changers, etc.

Income Statement - (sometimes called Profit & Loss statement) a statement of revenues and expenses.

119 Installation Goods - products requiring large and expensive capital investments that will have a long life. This could include homes, office buildings, manufacturing facilities, and other types of commercial facilities or equipment such as tractors, printing presses, cranes and robotic assembly line processors.

Intangible Assets - non-physical assets such as patents, trademarks, a customer base, brand recognition of your products, etc. This is sometimes called goodwill.

Inventory Turnover - a ratio for evaluating sales effectiveness. For a given accounting period divide total revenue for the product by the average retail value of the product inventory.

Licensing agreement - an agreement between two enterprises allowing one to sell the other's products or services and to use their name, sales literature, trademarks, copyrights, etc. in a limited manner.

Liquidity - the percentage of an enterprise's assets that can be quickly converted into cash.

Long Term Assets - (sometimes called fixed assets) these are usually non-liquid assets that are integral to the enterprise's day to day business operations such as plants, equipment, furniture and real estate.

Long Term Liabilities - all debts that are not current liabilities, that is, debts that are not due until at least one calendar year in the future.

Market Life Cycle - the period of time that a substantial segment of the buying public is interested in purchasing a given product or service form.

Market Penetration Pricing Strategy - if near term income is not critical and rapid market penetration for eventual market control is desired, then you set your prices very low.

Market Share - the percentage of the total sales (from all sources) of a service or product represented by the sales made by your enterprise. i.e. your sales divided by total sales

Material Goods - normally raw or processed materials such as coal or steel that will become part of the purchaser's end product.

Net Profit - total revenues less total expenses.

Net Worth - assets minus liabilities.

On-Site Sales Method - selling directly to the end user using a sales force that calls on the prospect at their home or place of business.

120 Partnership - a legal relationship between two or more individuals to conduct a specifically defined business.

Parts/Sub Assembly Goods - products that will normally become a part of the purchaser's end product. Examples are screws, bolts, transistors, printed circuits, electric motors, forgings, castings, etc.

Personal Service at Customer's Site - this service can be a one-to-one or one-to-many relationship between the servicer and customer, sometimes dealing with factors that the customer deems confidential. The service is traditionally provided at the customer's enterprise. Examples of this type of service would be: tutoring, consulting, etc.

Personal Service at Servicer's Site - this service is usually a one-on-one relationship between the customer and servicer, often dealing with factors the customer deems confidential. The service is traditionally provided at the servicer's enterprise. Examples of this type of service would be: doctor, lawyer, accountant, educational institution, etc.

Personal Service, Volume - some services deal with very high volumes but still require the "personal touch". Examples are airline services or a parcel delivery service like Federal Express.

Pro forma - financial forms (invoices, P&L statements, balance sheets, etc.) based on future expectations.

Product Benefits Advertising - a "product benefits" ad is designed to acquaint the prospect with the strengths of the product or service and the benefits resulting from those strengths.

Product Comparison Advertising - a "product comparison" ad compares the features of your product or service with those of one or more competitive products or services with the intent of showing yours to be more feature rich than the competition.

Product Family Advertising - a "product family" ad is designed to convince the prospect that they have a wide range of functionality to choose from today and after they buy they will not be locked into a single product or service environment in the future.

Production Capacity - the volume of products or services that can be produced by an enterprise using current resources.

Profit Margin - total revenues less total expenses

Proprietary Technology - technology that is unique and legally owned by an enterprise. The technology may be integral to the product or service being offered or it may be used in the production of the product or service.

121 Pull Promotional Strategy - a process that requires direct interface with the end user of the product or service. Use of channels of distribution is minimized during the first stages of promotion and a major commitment to advertising is required. The objective is to "pull" the prospects into the various channel outlets creating a demand the channels cannot ignore.

Push Promotional Strategy - a process of maximizing the use of all available channels of distribution to "push" the product or service into the marketplace. This usually requires generous discounts to achieve the objective of giving the channels incentive to promote the product or service, thus minimizing your need for advertising.

Retained Earnings - profits retained by the enterprise rather than disbursing to the shareholders. Retained earnings are used to improve the value of the enterprise through development and /or promotional programs.

ROI - (Return on Investment) Net Profit divided by Net Worth. A financial ratio indicating the degree of profitability.

Service/Product Mix - this business, while involving both service and product, is distinct in that the quality of the service is often more important than the product received. Examples of this type of service would be: fast food, catering, telephone, etc.

Self-Service Retail Sales Method - selling from a sales outlet directly to the end user, usually at prices lower than full retail price. There are usually no sales personnel to explain the purpose and value of the product or service.

Service Goods - goods viewed by the consumer as competitive products offering a standard "service" and are basically similar, so they will "shop" to get the best price. This would include such products as lawnmowers, refrigerators, television sets, automobiles, etc.

Skimming Pricing Strategy - if you desire quick cash and have minimal desires for significant market penetration and control, then you set your prices very high (this is sometimes called "skimming").

Sole Proprietorship - an enterprise that is owned by a single individual.

Specialty Goods - goods that appeal to a large segment of the buying public and are considered "special" enough that the consumer will specifically ask for the product. For instance, if you invented a cigarette that tasted good and was also proven to be good for your health, people would probably ask for the "healthy cigarette" (even if they didn't know the name). The type of product is not the issue, but rather whether the product is "special" enough that the consumers will "seek it out."

122 Strategic Relationships - an agreement between two or more enterprises to conduct specified business processes in a joint manner. Usually related to technology development and/or marketing and distribution efforts.

Supplies Goods - production support products that will not become a part of the purchaser's end product. Examples are drill bits, machine lubricants, wiping rags, etching chemicals, pencils, paper, paper clips, etc.

Trademark - the name of a product or service that has been legally registered as the property of an enterprise.

Unsought Goods - products that are usually purchased due to adversity rather than desire. For example, coffins, crutches, and medicine are all unsought goods. Another form of unsought goods are products such as life insurance and encyclopedias. They are products that the consumer seldom goes out looking for, therefore, a constant, aggressive selling process is required.

Vertical Integration - the potential within an enterprise to incorporate all aspects of management, production, sales and distribution into their business operations. In theory, the greater the vertical integration, the less vulnerable an enterprise is to outside forces.

Wholesale Sales Method - selling to distributors at significantly discounted prices who in turn sell to full service or self service retail outlets.

Working Capital - the cash available to an enterprise for day-to-day operations.

Just In Time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process invento ry and its associated costs. The bgprocess is driven by a series of signals, or Kanban (Jp. カンバン also 看板), that tell production processes to make the next part. Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency when implemented correctly.

New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs. However, one drawback of the JIT system is that the re-order level is determined by historical demand. If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues. To meet a 95% service rate a firm must carry about 2 standard deviations of demand in safety stock. Forecasted shifts in demand should be planned for around the Kanban until trends can be established to reset the appropriate Kanban level. In recent years manufacturers have touted a trailing 13 week average is a better predictor than most forecastors could provide

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