Hill A.V. The Encyclopedia of Operations Management: A Field Manual and Glossary of Operations Management Terms and Concepts

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technology transfer – Theory of Constraints (TOC)

The Encyclopedia of Operations Management Page 356

www.roadmappingtechnology.com. The University of Minnesota Technological Leadership Institute (TLI)

(http://tli.umn.edu) makes technology roadmapping a key topic in many of its programs.

See disruptive technology, New Product Development (NPD), product life cycle management, technological

forecasting.

technology transfer – The process of sharing skills, expertise, knowledge, processes, technologies, scientific

research, and intellectual property across different organizations, such as research laboratories, governments,

universities, joint ventures, or subsidiaries.

Technology transfer can occur in three ways: (1) giving it away through technical journals, conferences, or

free training and technical assistance, (2) commercial transactions, such as licensing patent rights, marketing

agreements, co-development activities, exchange of personnel, and joint ventures, and (3) theft through industrial

espionage or reverse engineering.

See intellectual property (IP), knowledge management, reverse engineering.

telematics – The science of sending, receiving, and storing information via telecommunication devices.

According to Wikipedia, the word “telematics” is now widely associated with the use of Global Positioning

System (GPS) technology integrated with computers and mobile communications technology in automotive and

trucking navigation systems. This technology is growing in importance in the transportation industry. Some

important applications of telematics include the following:

• In-car infotainment

• Navigation and location

• Intelligent vehicle safety

• Fleet management

• Asset monitoring

• Risk management

See Global Positioning System (GPS), logistics.

termination date – A calendar date by which a product will no longer be sold or supported.

Many manufacturing and distribution companies use a policy of having a “termination date” for products and

components. A product (and its associated unique components) is no longer sold or supported after the

termination date. The advantages of having a clearly defined termination date policy include:

• Provides a clear plan for every functional area in the organization that deals with products (manufacturing,

purchasing, inventory, service, engineering, and marketing). This facilitates an orderly, coordinated phase-

out of the item.

• Communicates to the salesforce and the market that the product will no longer be supported (or at least no

longer be sold) after the termination date. This often provides incentive for customers to upgrade.

• Allows manufacturing and inventory planners to bring down the inventories for all unique components

needed for the product in a coordinated way.

Best practices for a termination date policy include the following policies: (1) plan ahead many years to

warn all stakeholders (this includes marketing, sales, product management, purchasing, and manufacturing), (2)

ensure that all functions (and divisions) have “buy-in” to the termination date, and (3) do not surprise customers

by terminating a product without proper notice.

See

all-time demand, obsolete inventory, product life cycle management.

terms – A statement of a seller’s payment requirements.

Payment terms generally include discounts for prompt payment, if any, and the maximum time allowed for

payment. The shipping terms determine who is responsible for the freight throughout the shipment. Therefore, a

shipper will only be concerned about tracking the container to the point where another party takes ownership.

This causes problems with container tracking because information may not be shared throughout all links in the

supply chain.

See Accounts Payable (A/P), Cash on Delivery (COD), demurrage, FOB, Incoterms, invoice, waybill.

theoretical capacity – See capacity.

Theory of Constraints (TOC) – A management philosophy developed by Dr. Eliyahu M. Goldratt that focuses

on the bottleneck resources to improve overall system performance. 

The Theory of Constraints (TOC) recognizes that an organization usually has just one resource that defines

its capacity. Goldratt (1992) argues that all systems are constrained by one and only one resource. As Goldratt

states, “A chain is only as strong as its weakest link.” This is an application of Pareto’s Law to process

management and process improvement. TOC concepts are consistent with managerial economics that teach that

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Theta Model − Theta Model

Page 357 The Encyclopedia of Operations Management

the setup cost for a bottleneck resource is the opportunity cost of the lost gross margin and that the opportunity

cost for a non-bottleneck resource is nearly zero.

The “constraint” is the bottleneck, which is any resource that has capacity less than the market demand.

Alternatively, the constraint can be defined as the process that has the lowest average processing rate for

producing end products. The constraint (the bottleneck) is normally defined in terms of a resource, such as a

machine, process, or person. However, the TOC definition of a constraint can also include tools, people,

facilities, policies, culture, beliefs, and strategies. For example, this author observed that the binding constraint

in a business school in Moscow in 1989 was the mindset of the dean (rector) who could not think beyond the

limits of Soviet Communism, even for small issues, such as making photocopies

The Goal (Goldratt 1992) and the movie of the same name, include a character named Herbie who slowed

down a troop of Boy Scouts as they hiked though the woods. Herbie is the “bottleneck” whose pace slowed

down the troop. The teaching points of the story for the Boy Scouts are (1) they needed to understand that

Herbie paced the operation (i.e., the troop could walk no faster than Herbie) and (2) they needed to help Herbie

with his load (i.e., the other Scouts took some of Herbie’s bedding and food so Herbie could walk faster). In the

end, the troop finished the hike on-time because it had better managed Herbie, the bottleneck.

According to TOC, the overall performance of a system can be improved when an organization identifies its

constraint (the bottleneck) and manages the bottleneck effectively. TOC promotes the following five-step

methodology:

1. Identify the system constraint – No improvement is possible unless the constraint or weakest link is found.

The constraint can often be discovered by finding the largest queue.

2. Exploit the system constraints – Protect the constraint (the bottleneck) so no capacity is wasted. Capacity

can be wasted by (1) starving (running out of work to process), (2) blocking (running out of an authorized

place to put completed work), (3) performing setups, or (4) working on defective or low-priority parts.

Therefore, it is important to allow the bottleneck to pace the production process, not allow the bottleneck to

be starved or blocked, focus setup reduction efforts on the bottleneck, increase lotsizes for the bottleneck,

and inspect products before the constraint so no bottleneck time is wasted on defective parts.

3. Subordinate everything else to the system constraint – Ensure that all other resources (the unconstrained

resources) support the system constraint, even if this reduces the efficiency of these resources. For example,

the other processes can produce smaller lotsizes so the constrained resource is never starved. The

unconstrained resources should never be allowed to overproduce.

4. Elevate the system constraints – If this resource is still a constraint, find more capacity. More capacity can

be found by working additional hours, using alternate routings, purchasing capital equipment, or

subcontracting.

5. Go back to Step 1 – After this constraint problem is solved, go back to the beginning and start over. This is

a continuous process of improvement.

Underlying Goldratt’s work is the notion of synchronous manufacturing, which refers to the entire

production process working in harmony to achieve the goals of the firm. When manufacturing is synchronized,

its emphasis is on total system performance, not on localized measures, such as labor or machine utilization.

The three primary TOC metrics are throughput (T), inventory (I), and operating expenses (OE), often called

T, I, and OE. Throughput is defined as sales revenue minus direct materials per time period. Inventory is

defined as direct materials at materials cost. Operating expenses include both labor and overhead. Bottleneck

management will result in increased throughput, reduced inventory, and the same or better operating expense.

See absorption costing, bill of resources, blocking, bottleneck, buffer management, CONWIP, critical chain,

current reality tree, Drum-Buffer-Rope (DBR), facility layout, future reality tree, gold parts, Herbie, Inventory

Dollar Days (IDD), lean thinking, opportunity cost, overhead, pacemaker, Pareto’s Law, process improvement

program, routing, setup cost, setup time reduction methods, starving, synchronous manufacturing, throughput

accounting, Throughput Dollar Days (TDD), transfer batch, utilization, variable costing, VAT analysis.

Theta Model – A forecasting model developed by Assimakopoulos and Nikolopoulos (2000) that combines a long-

term and short-term forecast to create a new forecast; sometimes called the Theta Method.

The Soviet Union was a secretive society, which meant that photocopies were rarely used.

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Thiel’s U – Third Party Logistics (3PL) provider

The Encyclopedia of Operations Management Page 358

The M3 Competition runs a “race” every few years to compare time series forecasting methods on hundreds

of actual times series (Ord, Hibon, & Makridakis 2000). The winner of the 2000 competition was a relatively

new forecasting method called the “Theta Model” developed by Assimakopoulos and Nikolopoulos (2000). This

model was difficult to understand until Hyndman and Billah (2001) simplified the mathematics. More recently,

Assimakopoulos and Nikolopoulos (2005) wrote their own simplified version of the model. Although the two

simplified versions are very similar in intent, they are not mathematically equivalent.

Theta Model forecasts are the average (or some other combination) of a longer-term and a shorter-term

forecast. The longer-term forecast can be a linear regression fit to the historical demand, and the shorter-term

forecast can be a forecast using simple exponential smoothing. The Theta Model assumes that all seasonality has

already been removed from the data using methods, such as the centered moving average. The apparent success

of this simple time series forecasting method is that the exponential smoothing component captures the “random

walk” part of the time series, and the least squares regression trend line captures the longer-term trend.

See exponential smoothing, forecasting, linear regression.

Thiel’s U – An early Relative Absolute Error (RAE) measure of forecast errors developed by Henri Thiel (1966).

Thiel’s U statistic (or Thiel’s inequality coefficient) is a metric that compares forecasts to an upper bound on

the naïve forecast from a random walk, which uses the actual value from the previous period as the forecast for

this period (Thiel 1966). Thiel proposed two measures for forecast error that Armstrong calls U

and U

. SAP

uses still another variant of Thiel’s coefficient, labeled U

below.

2 2

1 1

T T

t t

D F



 







 





( )

t t

D D











According to Armstrong and Collopy (1992), the U

metric has better statistical properties than U

or U

Although Thiel’s U metrics are included in many forecasting tools and texts, Armstrong and Collopy do not

recommend them because other RAE metrics are easier to understand and have better statistical properties.

See forecast error metrics, Mean Absolute Percent Error (MAPE), Relative Absolute Error (RAE).

Third Party Logistics (3PL) provider – A firm that provides outsourced services, such as transportation,

logistics, warehousing, distribution, and consolidation to customers but does not take ownership of the product.

Third Party Logistics providers (3PLs) are becoming more popular as companies seek to improve their

customer service capabilities without making significant investments in logistics assets, networks, and

warehouses. The 3PL may conduct these functions in the client’s facility using the client’s equipment or may

use its own facilities and equipment. The parties in a supply chain relationship include the following:

 First party – The supplier

 Second party – The customer

 Third party (3PL) – A company that offers multiple logistics services to customers, such as transportation,

distribution, inbound freight, outbound freight, freight forwarding, warehousing, storage, receiving, cross-

docking, customs, order fulfillment, inventory management, and packaging. In the U.S., the legal definition

of a 3PL in HR4040 is “a person who solely receives, holds, or otherwise transports a consumer product in

the ordinary course of business but who does not take title to the product” (source: www.scdigest.com,

2009).

 Fourth party (4PL) – An organization that manages the resources, capabilities, and technologies of multiple

service providers (such as 3PLs) to deliver a comprehensive supply chain solution to its clients.

With a 3PL, the supplier firm outsources its logistics to two or more specialist firms (3PLs) and then hires

another firm (the 4PL) to coordinate the activities of the 3PLs. 4PLs differ from 3PLs in the following ways

(source: www.scdigest.com, January 1, 2009):

 The 4PL organization is often a separate entity established as a joint venture or long-term contract between a

primary client and one or more partners.

 The 4PL organization acts as a single interface between the client and multiple logistics service providers.

 All aspects of the client’s supply chain are managed by the 4PL organization.

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throughput accounting − time fence

Page 359 The Encyclopedia of Operations Management

 It is possible for a 3PL to form a 4PL organization within its existing structure.

See the International Warehouse Logistics Association (www.iwla.com) site for more information.

See bullwhip effect, consolidation, customer service, fulfillment, joint venture, logistics, receiving,

warehouse.

throughput accounting – Accounting principles based on the Theory of Constraints developed by Goldratt.

Throughput is the rate at which an organization generates money through sales. Goldratt defines throughput

as the difference between sales revenue and unit-level variable costs, such as materials and power. Cost is the

most important driver for our operations decisions, yet costs are unreliable due to the arbitrary allocation of

overhead, even with Activity Based Costing (ABC). Because the goal of the firm is to make money, operations

can contribute to this goal by managing three variables:

 Throughput (T) = Revenue less materials cost less out-of-pocket selling costs (Note that this is a rate and is

not the same as the throughput time.)

 Inventory (I) = Direct materials cost and other truly variable costs with no overhead

 Operating expenses (OE) = Overhead and labor cost (the things that turn the “I” into “T”)

Throughput accounting is a form of contribution accounting, where all labor and overhead costs are ignored.

The only cost that is considered is the direct materials cost. Throughput accounting is applied to the bottleneck

(the constraint) using the following key performance measurements: output, setup time (average setup time by

product and total setup time per period), downtime (planned and emergency), and yield rate. The bottleneck has

the greatest impact on the throughput accounting measures (T, I, and OE), which in turn affect the goal of

making money for the firm. Noreen, Smith, and Mackey (1995) is a good reference on this subject.

See absorption costing, Activity Based Costing (ABC), focused factory, Inventory Dollar Days (IDD),

overhead, Theory of Constraints (TOC), Throughput Dollar Days (TDD), variable costing, Work-in-Process

(WIP) inventory.

Throughput Dollar Days (TDD) – A Theory of Constraints (TOC) measure of the reliability of a supply chain

defined in terms of the dollar days of late orders.

The entry Inventory Dollar Days (IDD) has much more detail on this measure.

See Inventory Dollar Days (IDD), operations performance metrics, Theory of Constraints (TOC),

throughput accounting.

throughput ratio – See value added ratio.

throughput time – See cycle time.

tier 1 supplier – A sourcing term for an immediate supplier; a tier 2 supplier is a supplier to a supplier.

See purchasing, supply chain management.

time bucket – A time period used in planning and forecasting systems.

The time bucket (period) for most MRP systems is a day. These systems are often called bucketless because

they use date-quantity detail rather than weekly or monthly time buckets. In contrast, many forecasting systems

forecast in monthly or weekly time buckets.

See Croston’s Method, exponential smoothing, finite scheduling, forecasting, Materials Requirements

Planning (MRP), production planning.

time burglar – A personal time management term that refers to anything (including a person) that steals time from

someone else; someone who wastes the time of another person.

Time burglars are people who often stop by and ask, “Got a minute?” and then proceed to launch into 20

minutes of low-value discussion. Some situations, such as a friend stopping by to say “hello,” are just minor

misdemeanors, but disruptions that arrive during a critical work situation could be considered a crime.

The key time management principle for managers is to explain the situation and then offer to schedule

another time for a visit. A reasonable script is, “I can see this is going to take some more time to discuss. Let’s

schedule some time to talk about this further. When is a good time for you?”

The term “time burglar” can also be applied to junk e-mail, unnecessary meetings, too much TV, surring the

Internet, and other time wasting activities. Time burglars are everywhere, so stop them before they strike.

See personal operations management.

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time fence – Time Phased Order Point (TPOP)

The Encyclopedia of Operations Management Page 360

time fence – A manufacturing planning term used for a time period during which the Master Production Schedule

(MPS) cannot be changed; sometimes called a planning time fence.

The time fence is usually defined by a planning period in days (e.g., 21 days) during which the Master

Production Schedule (MPS) cannot be altered and is said to be frozen. The time fence separates the MPS into

a firm order period followed by a tentative time period. The purpose of a time fence policy is to reduce short-

term schedule disruptions for both manufacturing and suppliers and improve on-time delivery for customers by

stabilizing the MPS and reducing “system nervousness.”

Oracle makes a distinction between planning, demand, and release time fences. More on this topic can be

found at http://download.oracle.com/docs/cd/A60725_05/html/comnls/us/mrp/tfover.htm (January 11, 2011).

See cumulative leadtime, firm planned order, Master Production Schedule (MPS), Materials Requirements

Planning (MRP), planned order, planning horizon, premium freight, Sales & Operations Planning (S&OP).

time in system – The total start to finish time for a customer or customer order; also called customer leadtime.

The time in system is the turnaround time for a customer or customer order. In the queuing context, time in

system is the sum of the wait time (the time in queue before service begins) and the service time.

Do not confuse the actual time in system for a single customer, the average time in system across a number

of customers, and the planned time in system parameter, which is used for planning purposes.

See customer leadtime, cycle time, leadtime, Little’s Law, queuing theory, turnaround time, wait time.

time management – See personal operations management.

time study – A work measurement practice of collecting data on work time by observation, typically using a stop

watch or some other timing device. 

The average actual time for a worker in the time study is adjusted by his or her performance rating to

determine the normal time for a task. The standard time is then the normal time with an allowance for breaks.

See normal time, performance rating, scientific management, standard time, work measurement, work

sampling.

time to market – The time it takes to develop a new product from an initial idea (the product concept) to initial

market sales; sometimes called speed to market.

In many industries, a short time to market can provide a competitive advantage, because the firm “first to

market” with a new product can command a higher margin, capture a larger market share, and establish its brand

as the strongest brand in the market. Precise definitions of the starting and ending points vary from one firm to

another, and may even vary between products within a single firm. The time to market includes both product

design and commercialization. Time to volume is a closely related concept.

See clockspeed, market share, New Product Development (NPD), product life cycle management, time to

volume, time-based competition.

time to volume – The time from the start of production to the start of large-scale production.

See New Product Development (NPD), time to market.

time-based competition – A business strategy to (a) shorten time to market for new product development, (b)

shorten manufacturing cycle times to improve quality and reduce cost, and (c) shorten customer leadtimes to

stimulate demand. 

Stalk (1988) and Stalk and Hout (1990) make strong claims about the profitability of a time-based strategy.

The strategy map entry presents a causal map that summarizes and extends this competition strategy. The

benefits of a time-based competition strategy include: (1) segmenting the demand to target the time-sensitive and

price-insensitive customers and increase margins, (2) reducing work-in-process and finished goods inventory, (3)

driving out non-value activities (e.g., JIT and lean manufacturing concepts), and (4) bringing products to market

faster. These concepts are consistent with the Theory of Constraints and lean thinking.

See agile manufacturing, flow, operations strategy, Quick Response Manufacturing, resilience, time to

market, value added ratio.

Time Phased Order Point (TPOP) – An extension of the reorder point system that uses the planned future

demand to estimate the date when the inventory position will hit the safety stock level; it then backschedules

using the planned leadtime from that date to determine a start date for a planned order.

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time series forecasting − total cost of ownership

Page 361 The Encyclopedia of Operations Management

The Time Phased Order Point (TPOP) system is used to determine the order timing in all Materials

Requirements Planning (MRP) systems. TPOP uses the gross requirements (the planned demand) to determine

the date when the planned inventory position will hit the safety stock level. It then uses the planned leadtime to

plan backward in time (backschedule) to determine the start date for the next planned order. The lotsize (order

quantity) can be determined with any lotsizing rule, such as lot-for-lot, fixed order quantity, EOQ, day’s supply,

week’s supply, etc. TPOP can be used over the planning horizon to create many planned orders.

See lotsizing methods, Materials Requirements Planning (MRP), reorder point, safety stock.

time series forecasting – A forecasting method that identifies patterns in historical data to make forecasts for the

future; also called intrinsic forecasting. 

A time series is a set of historical values listed in time order (such as a sales history). A time series can be

broken (decomposed) into a level (or mean), trend, and seasonal patterns. If the level, trend, and seasonal

patterns are removed from a time series, all that remains is what appears to be random error (white noise). Box-

Jenkins methods attempt to identify and model the autocorrelation (serial correlation) structure in this error.

A moving average is the simplest time series forecast method, but it is not very accurate because it does not

include either trend or seasonal patterns. The Box-Jenkins method is the most sophisticated, but is more

complicated than most managers can handle. The exponential smoothing model with trend and seasonal factors

is a good compromise for most firms.

Univariate time series methods simply extrapolate a single time series into the future. Multivariate time

series methods consider historical data for several related variables to make forecasts.

See autocorrelation, Box-Jenkins forecasting, Croston’s Method, Durbin-Watson statistic, exponential

smoothing, forecasting, linear regression, moving average, seasonality, trend.

time-varying demand lotsizing problem – The problem of finding the set of lotsizes that will “cover” the

demand over the time horizon and will minimize the sum of the ordering and carrying costs.

Common approaches for solving this problem include the Wagner-Whitin lotsizing algorithm, the Period

Order Quantity (POQ), the Least Total Cost method, the Least Unit Cost method, and the Economic Order

Quantity. Only the Wagner-Whitin algorithm is guaranteed to find the optimal solution. All other lotsizing

methods are heuristics; however, the cost penalty in using these heuristics is generally small.

See Economic Order Quantity (EOQ), lotsizing methods, Period Order Quantity (POQ), Wagner-Whitin

lotsizing algorithm.

TOC – See Theory of Constraints.

tolerance – An allowable variation from a predefined standard; also called specification limits.

All processes have some randomness, which means that no manufacturing process will ever produce parts

that exactly achieve the “nominal” (target) value. Therefore, design engineers define tolerance (or specification)

limits that account for this “common cause variation.” A variation from the standard is not considered significant

unless it exceeds the upper or lower tolerance (specification) limit. Taguchi takes a different approach to this

issue and creates a loss function around the nominal value rather than setting limits.

See common cause variation, Lot Tolerance Percent Defective (LTPD), process capability and performance,

Taguchi methods.

ton-mile – A measure of freight traffic equal to moving one ton of freight one mile. See logistics.

tooling – The support devices required to operate a machine.

Tooling usually includes jigs, fixtures, cutting tools, molds, and gauges. In some manufacturing contexts,

the requirements for specialized tools are specified in the bill of materials. Tooling is often stored in a tool crib.

See fixture, Gauge R&R, jig, manufacturing processes, mold.

total cost of ownership – The total cost that a customer incurs from before the purchase until the final and

complete disposal of the product; also known as life cycle cost.

Some of these costs include search costs, purchase (acquisition) cost, purchasing administration, shipping

(delivery), expediting, premium freight, transaction cost, inspection, rework, scrap, switching cost, installation

cost, training cost, government license fees, royalty fees, Maintenance Repair Operations (service contracts,

parts, labor, consumables, repair), information systems costs (support products, upgrades), inventory carrying

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Total Productive Maintenance (TPM) – touch time

The Encyclopedia of Operations Management Page 362

cost, inventory redistribution/redeployment cost (moving inventory to a new location), insurance, end of life

disposal cost, and opportunity costs (downtime, lost productive time, lost sales, lost profits, brand damage)

Life cycle cost is very similar to the total cost of ownership. The only difference is that life cycle cost

identifies cost drivers based on the stage in the product life cycle (introduction, growth, maturity, and decline).

Both total cost of ownership and life cycle cost can have an even broader scope that includes research and

development, design, marketing, production, and logistics costs.

See financial performance metrics, purchasing, search cost, switching cost, transaction cost.

Total Productive Maintenance (TPM) – A systematic approach to ensure uninterrupted and efficient use of

equipment; also called Total Productive Manufacturing. 

Total Productive Maintenance (TPM) is a manufacturing-led collaboration between operations and

maintenance that combines preventive maintenance concepts with the kaizen philosophy of continuous

improvement. With TPM, maintenance takes on its proper meaning to “maintain” rather than just repair. TPM,

therefore, focuses on preventive and predictive maintenance rather than only on emergency maintenance. Some

leading practices related to TPM include:

 Implement a 5S program with a standardized work philosophy.

 Apply predictive maintenance tools where appropriate.

 Use an information system to create work orders for regularly scheduled preventive maintenance.

 Use an information system to maintain a repair history for each piece of equipment.

 Apply autonomous maintenance, which is the concept of using operators to inspect and clean equipment

without heavy reliance on mechanics, engineers, or maintenance people. (This is in contrast to the old

thinking which required operators to wait for mechanics to maintain and fix their machines.)

 Clearly define cross-functional duties.

 Train operators to handle equipment related issues.

 Measure performance with Overall Equipment Effectiveness (OEE).

Some indications that a TPM program might be needed include frequent emergency maintenance events,

long downtimes, high repair costs, reduced machine speeds, high defects and rework, long changeovers, high

startup losses, high Mean Time to Repair (MTTR), and low Mean Time Between Failure (MTBF). Some of the

benefits for a well-run TPM program include reduced cycle time, improved operational efficiency, improved

OEE, improved quality, and reduced maintenance cost.

See 5S, autonomous maintenance, bathtub curve, downtime, maintenance, Maintenance-Repair-Operations

(MRO), Manufacturing Execution System (MES), Mean Time Between Failure (MTBF), Mean Time to Repair

(MTTR), Overall Equipment Effectiveness (OEE), reliability, reliability engineering, Reliability-Centered

Maintenance (RCM), standardized work, Weibull distribution, work order.

Total Productive Manufacturing (TPM) – See Total Productive Maintenance (TPM).

Total Quality Management (TQM) – An approach for improving quality that involves all areas of the

organization, including sales, engineering, manufacturing, and purchasing, with a focus on employee

participation and customer satisfaction. 

Total Quality Management (TQM) can involve a wide variety of quality control and improvement tools.

TQM pioneers, such as Juran (1986), Deming (1986, 2000), and Crosby (1979) emphasized a combination of

managerial principles and statistical tools. This term has been largely supplanted by lean sigma and lean

programs and few practitioners or academics use this term today. The quality management, lean sigma, and lean

entries provide much more information on this subject.

See causal map, defect, Deming’s 14 points, inspection, lean sigma, Malcolm Baldrige National Quality

Award (MBNQA), PDCA (Plan-Do-Check-Act), quality management, quality trilogy, stakeholder analysis,

Statistical Process Control (SPC), Statistical Quality Control (SQC), zero defects.

touch time – The direct value-added processing time.

See cycle time, run time, value added ratio.

This list was compiled by the author over many years from many sources.

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Toyota Production System (TPS) − trade barrier

Page 363 The Encyclopedia of Operations Management

Toyota Production System (TPS) – An approach to manufacturing developed by Eiji Toyoda and Taiichi Ohno

at Toyota Motor Company in Japan; some people use TPS synonymously with lean thinking

See autonomation, jidoka, Just-in-Time (TPS), lean thinking, muda.

T-plant – See VAT analysis.

TPM – See Total Productive Maintenance (TPM).

TPOP – See Time Phased Order Point (TPOP).

TPS – See Toyota Production System (TPS).

TQM – See Total Quality Management (TQM).

traceability – The capability to track items (or batches of items) through a supply chain; also known as lot

traceability, serial number traceability, lot tracking, and chain of custody.

Lot traceability is the ability to track lots (batches of items) forward from raw materials through

manufacturing and ultimately to end customers and also backward from end consumers back to the raw

materials. Lot traceability is particularly important for food safety in food supply chains.

Serial number traceability is individual “serialized” items and is important in medical device supply

chains. Petroff and Hill (1991) provide suggestions for designing lot and serial number traceability systems.

See Electronic Product Code (EPC), part number, supply chain management.

tracking signal – An exception report given when the forecast error is consistently positive or negative over time

(i.e., the forecast error is biased).

The exception report signals the manager or analyst to intervene in the forecasting process. The intervention

might involve manually changing the forecast, the trend, underlying average, and seasonal factors, or changing

the parameters for the forecasting model. The intervention also might require canceling orders and managing

both customer and supplier expectations.

Tracking signal measurement – The tracking signal is measured as the forecast bias divided by a measure

of the average size of the forecast error.

Measures of forecast bias – The simplest measure of the forecast bias is to accumulate the forecast error

over time (the cumulative sum) with the recursive equation

1t t t

R E







, where R

is the running sum of the

errors and E

is the forecast error in period t. The running sum of the errors is a measure of the bias and an

exception report is generated when R

gets “large.” Another variant is to use the smoothed average error instead

of the running sum of the error. The smoothed error is defined as

(1 )

t t t

SE SE E





  

Measures of the average size of the forecast error – One measure of the size of the average forecast error

is the Mean Absolute Deviation (MAD). The MAD is defined as

(1 / )

MAD T E





, where T is the number of

periods of history54F . A more computationally efficient approach to measure the MAD is with the smoothed mean

absolute error, which is defined as

(1 )

t t t

SMAD SMAD E

 



  

, where alpha (



) is the smoothing constant

(

0 1



 

). Still another approach is to replace the smoothed mean absolute deviation (SMAD

) with the square

root of the smoothed mean squared error, where the smoothed mean squared error is defined as

(1 )

t t t

SMSE SMSE E

 

  

. In other words, the average size of the forecast error can be measured as

SMSE

. The smoothed MAD is the most practical approach for most firms.

In summary, a tracking signal is a measure of the forecast bias relative to the average size of the forecast

error and is defined by TS = bias/size. Forecast bias can be measured as the running sum of the error (R

) or the

smoothed error (SE

); the size of the forecast error can be measured with the MAD, the smoothed mean absolute

error (SMAD

), or the square root of the mean squared error (SMAD

). It is not clear which method is best.

It is important, in this author’s view, to separate lean thinking from the Toyota Production System. Lean thinking is a

philosophy that can be applied to any organization in any industry and may go well beyond any practices used at Toyota.

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The Encyclopedia of Operations Management Page 364

See cumulative sum control chart, demand filter, exponential smoothing, forecast bias, forecast error

metrics, forecasting, Mean Absolute Deviation (MAD), Mean Absolute Percent Error (MAPE), mean squared

error (MSE).

trade barrier – Any governmental regulation or policy, such as a tariff or quota that restricts imports or exports.

See tariff.

trade promotion allowance – A discount given to retailers and distributors by a manufacturer to promote

products; retailers and distributors sponsor advertising and other promotional activities or pass the discount along

to consumers to encourage sales; also known as trade allowance, cooperative advertising allowance, advertising

allowance, and ad allowance.

Trade promotions include slotting allowances, performance allowances, case allowances, and account

specific promotions. Promotions can include newspaper advertisements, television and radio programs, in-store

sampling programs, and slotting fees. Trade promotions are common in the consumer packaged goods (CPG)

industry.

See consumer packaged goods, slotting.

traffic management – See Transportation Management System (TMS).

trailer – A vehicle pulled by another vehicle (typically a truck or tractor) used to transport goods on roads and

highways; also called semitrailer, tractor trailer, rig, reefer, flatbed; in England, called articulated lorry.

Trailers are usually enclosed vehicles with a standard length of 45, 48, or 53 feet, internal width of 98 to 99

inches, and internal height of 105 to 110 inches. Refrigerated trailers are known as reefers and have an internal

width of 90 to 96 inches and height of 96 to 100 inches. Semi-trailers usually have three axles, with the front

axle having two wheels and the back two axles each having a pair of wheels for a total of 10 wheels.

See Advanced Shipping Notification (ASN), cube utilization, dock, intermodal shipments, less than truck load

(LTL), logistics, shipping container, Transportation Management System (TMS).

transaction cost – The cost of processing one transaction, such as a purchase order.

In a supply chain management context, this is the cost of processing one purchase order.

See search cost, switching cost, total cost of ownership.

transactional process improvement – Improving repetitive non-manufacturing activities.

The term “transactional process improvement” is used by many lean sigma consultants to describe efforts to

improve non-manufacturing processes in manufacturing firms and also improve processes in service

organizations. Examples include back-office operations (e.g., accounting, human resources) and front-office

operations (order-entry, customer registration, teller services).

The entities that flow through these processes may be information on customers, patients, lab specimens, etc.

and may be stored on paper or in electronic form. The information often has to travel across several departments.

Lean sigma programs can often improve transactional processes by reducing non-value-added steps, queue time,

cycle time, travel time, defects, and cost while improving customer satisfaction.

See lean sigma, lean thinking, service management, waterfall scheduling.

transfer batch – A set of parts that is moved in quantities less than the production batch size.

When a batch of parts is started on a machine, smaller batches can be moved (transferred) to the following

machines while the large batch is still being produced. The smaller batch sizes are called transfer batches,

whereas the larger batch produced on the first machine is called a production batch. The practice of allowing

some units to move to the next operation before all units have completed the previous operation is called

operation overlapping. The Theory of Constraints literature promotes this concept to reduce total throughput

time and total work in process inventory. When possible, transfer batches should be used at the bottleneck to

allow for large production batch sizes, without requiring large batch sizes after the bottleneck. It is important to

have large batch sizes at the bottleneck to avoid wasting valuable bottleneck capacity on setups.

See bottleneck, lotsizing methods, pacemaker, Theory of Constraints (TOC).

transfer price – The monetary value assigned to goods, services, or rights traded between units of an organization.

One unit of an organization charges a transfer price to another unit when it provides goods or services. The

transfer price is usually based on a standard cost and is not considered a sale (with receivables) or a purchase

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Page 365 The Encyclopedia of Operations Management

(with payables). Some international firms use transfer prices (and related product costs) to shift profits from

high-tax countries to low-tax countries to minimize taxes.

See cost of goods sold, purchasing.

transportation – See logistics.

Transportation Management System (TMS) – An information system that supports transportation and

logistics management; also called fleet management, transportation, and traffic management systems. 

Transportation Management Systems (TMSs) are information systems that manage transportation operations

of all types, including shippers, ocean, air, bus, rail, taxi, moving companies, transportation rental agencies and

all types of activities, including shipment scheduling through inbound, outbound, intermodal, and intra-company

shipments. TMSs can track and manage every aspect of a transportation system, including fleet management,

vehicle maintenance, fuel costing, routing and mapping, warehousing, communications, EDI, traveler and cargo

handling, carrier selection and management, accounting, audit and payment claims, appointment scheduling, and

yard management. Most TMSs provide information on rates, bills of lading, load planning, carrier selection,

posting and tendering, freight bill auditing and payment, loss and damage claims processing, labor planning and

assignment, and documentation management.

Many TMSs also provide GPS navigation and terrestrial communications technologies to enable government

authorities and fleet operators to better track, manage, and dispatch vehicles. With these technologies,

dispatchers can locate vehicles and respond to emergencies, send a repair crew, and notify passengers of delays.

The main benefits of a TMS include lower freight costs (through better mode selection, route planning, and

route consolidation) and better customer service (better shipment tracking, increased management visibility, and

better on-time delivery). A TMS can provide improved visibility of containers and products, aid in continuous

movements of products, and reduce empty miles.

See

Advanced Shipping Notification (ASN), cross-docking, Electronic Data Interchange (EDI), intermodal

shipments, logistics, materials management, on-time delivery (OTD), Over/Short/Damaged Report, trailer,

Warehouse Management System (WMS), waybill.

transportation problem – A mathematical programming problem of finding the optimal number of units to send

from location i to location j to minimize the total transportation cost.

The transportation problem is usually shown as a table or a matrix. The problem is to determine how

many units should be shipped from each “factory” (row) to each “market” (column). Each factory has limited

capacity and each market has limited demand.

The transshipment problem is an extension of the transportation problem that allows for intermediate nodes

between the supply and demand nodes. Transportation and transshipment problems can be extended to handle

multiple periods where the product is “shipped” from one period to the next with an associated carrying cost.

The size of these problems can become quite large, but network algorithms can handle large networks

efficiently. However, network algorithms only allow for a single commodity (product) to be shipped. More

general linear programming and integer programming approaches can be used when the firm has multiple

products. Unfortunately, the solution algorithms for these approaches are far less efficient. The transportation

and transshipment problems can be solved with special-purpose algorithms, network optimization algorithms, or

with general purpose linear programming algorithms. Even though they are both integer programming problems,

they can be solved with any general linear programming package and can still be guaranteed to produce integer

solutions because the problems are unimodular.

The mathematical statement for the transportation problem with N factories (sources) and M markets

(demands) is as follows:

Transportation problem: Minimize

1 1

N M

ij ij

i j

c x

 



Subject to

ij j







, for j = 1, 2, …, M and

ij i







, for i = 1, 2, …, N

where c

is the cost per unit of shipping from factory i to market j, x

is the number of units shipped from factory

i to market j, D

is the demand in units for market j, and C

is the capacity (in units) for factory i. The goal is to