Webster’s New American Dictionary defines
the words: profit, scheduling and schedule, as follows:
Below is a glossary of terms that will prove to be a useful reference as you learn how
Profit Scheduling ®©
can be applied at your company.
Queue Time - Time elapsed from the moment work arrives at a work center to the moment work is begun.
Setup Time - The elapsed time to prepare a work center to perform the work required.
Run Time - The elapsed time during which the required work is performed.
Wait Time - Time elapsed from the moment work is completed at a work center to the moment the work starts to move to the next work center.
Move Time - Time elapsed from the moment work leaves a work center to the moment the work arrives at the next work center.
Operation time - The sum of setup time and run time.
Interoperation Time - The sum of queue time, wait time and move time.
Manufacturing Flow Time - Total standard hours or minutes for a job including interoperation time spent in manufacturing operations.
Engineering Work Statement - A documentation package including drawings, bills of material, routings, specifications, procedures, etc. that fully defines the content of a job and how a job is to be manufactured and processed.
Category - Categorization of the typical administrative flow time for each class of job.
Class - Classification of a job by the nature and complexity of its engineering work statement.
Administrative Flow Time - Total elapsed time a job spends in administrative operations from the date order is received through the date job enters manufacturing operations.
Total Flow Time - Total elapsed time a job spends in the factory from the time customer order is received through customer shipment, including all administrative operations and all manufacturing operations, both in-factory and out-of-factory.
Applied Direct Labor (ADL) - Time, expressed in monetary terms or units of time, spent by production workers on activities that increased the value of specific jobs.
Indirect Labor (IDL) - Planned time spent by non-production workers on activities that did not increase the value of specific jobs, but to support ADL workers.
Unapplied Direct Labor (UDL) - Unplanned time spent by production workers that could have been spent increasing the value of specific jobs on activities that did not increase the value of specific jobs.
Sales Dollars - Gross sales before discounts, before commissions, plus sales and excise taxes.
Net Sales Dollars - Gross sales less discounts, less commissions, less sales and excise taxes.
Financial Accounting Period - the time basis, typically a calendar month, for measuring the financial performance of the company.
The Profit Model Package ®©
is adjusted for actual variations in operating ratios that may have
occurred during the prior Financial Accounting Period.
Executive Insight recommends the use of the "4-4-5" accounting period
method to minimize performance variations resulting from the fact that
each calendar month has a varying number of calendar and work days.
Profit Scheduling ®© Period - The time basis for measuring company performance using Profit Scheduling ®© tools.
The Profit Scheduling ®©
time period may be a day, week, two weeks, four weeks or a calendar
month and is determined based a on a number of factors, including:
average total flow time of jobs in the company's Engineering Work Statement, etc.
Equivalent $ - Target Sales dollars required during the current Profit Scheduling ®© Period, as adjusted for changes in the Engineering Work Statements of the jobs that are planned to be produced during that period.
Target labor hours - Applied Direct Labor hours for a Profit Scheduling ®© Period calculated by the Profit Model Package ®© to keep the company on schedule to create the company's target profit.
The PMP calculates the direct labor hours that must be applied during a
particular Profit Scheduling ®©
Period based on the engineering
work statements of the jobs planned to be worked on during that period.
Actual labor hours - Actual Applied Direct Labor hours for a particular Profit Scheduling ®© Period.
Throughput - Actual work done, stated in equivalent dollars, during a particular Profit Scheduling ®© Period adjusted for beginning and ending inventory by job.
Throughput Target - Equivalent $ times the ratio of Actual Labor Hours to Target Labor Hours for the Profit Scheduling ®© Period.
Throughput Target normalizes the Equivalent $ to the Actual Labor Hours applied during the particular Profit Scheduling ®© Period.
Proficiency - Throughput divided by the Throughput Target.
Proficiency is a measure of how efficiently the Actual labor
hours were used to create the Throughput for a particular Profit Scheduling ®©
If Proficiency is greater than 1, then the rate at which Throughput
was created by the Actual labor hours exceeded that necessary
to achieve target annual profit. A high proficiency (greater
than 1.0) does not mean that the company is on schedule for profit
Yield - Throughput divided by Equivalent $.
If yield is greater than 1, then windfall profits are
achieved - profits exceed
plan). If yield is less than 1.0, then target annual profit will not be
Factory Burden ($)
Any cost incurred by or during, the manufacturing process that can not easily or practically be allocated to a single unit of production.
G & A Burden ($)
Any cost, excluding sales department expenses and factory burden,
incurred in support of the overall business process that converts and
accounts for the conversion of a customer order to a shipment, including
the billing, collection, and financial accounting.
Factory Overhead Rate ($/Hr)
Factory burden divided by the applied direct labor hours for a specific
G & A Overhead Rate ($/Hr)
G & A burden divided by the applied direct labor hours for a specific
Company Wrap Rate ($/Hr)
The composite rate by which applied direct labor for a job is
multiplied by to calculate the sales price of a product. The
company wrap rate includes or accounts for the following factors:
material, material markup, subcontractor expense, factory burden, G & A
burden, net profit before interest and income tax (NPBIT).
Cost of Goods Sold (CGS) -
The total, expressed in monetary terms, of the labor, materials,
expenses (primarily out-of-factory manufacturing operations), and
allocated manufacturing overhead spent to create products sold to
customers during a specific time period.
Gross Profit (Contribution Margin) - Net sales less cost of goods sold.
Net Profit on Operations - Gross Profit less all other costs incurred to support activities within the factory.
Net Profit Before Interest and Taxes (NPBIT) - Net profit on operations less all other costs incurred that did not support activities within the factory, such as parent company overhead, before interest and tax payments.
Net Profit After Taxes (NPAT) - NPBIT less interest and tax expenses.
Target Sales Velocity (V1) - Target Sales dollars for a period divided by total standard flow time for the period. This term can relate to a single job or all jobs worked on during the period.
Actual Sales Velocity (V2) - Actual Sales dollars for a period divided by total actual flow time. This term can relate to a single job or all jobs completed during the period.
Build $ - All costs related to the product incurred within the plant.