100 Agile Terms to Know with Definition

Agile terms to know
100 Agile Terms to Know

In this list of 100 agile terms to know, we have explained in very simple language the most common jargon used in Agile Project Management. Agile project management is an iterative approach to planning and guiding project processes. It emphasizes flexibility and collaboration and is often used in software development. The Agile methodology is based on the Agile Manifesto, which values individuals and interactions, working software, and customer collaboration over processes and tools. Agile project management is typically done using Scrum, Kanban, or a hybrid of the two. It involves regular meetings, such as daily stand-ups, sprint planning, and sprint reviews, to track progress and make adjustments as needed.

We have covered in detail three very pertinent topics. Feel free to refer them before coming to the benefits

  1. The Difference between Agile Project Management with Waterfall
  2. 8 Commonly used project Management methods with their Pros and Cons and when to use them
  3. Agile Project Management Benefits

Agile Terms to Know

  1. Agile – A methodology for project management that emphasizes flexibility, collaboration, and customer satisfaction.
  2. Scrum – An Agile framework for managing and completing complex projects.
  3. Sprint – A time-boxed period, usually two to four weeks, in which a potentially releasable product increment is created.
  4. Backlog – A list of items, such as tasks or features, that a team needs to complete in order to deliver a product.
  5. User Story – A brief description of a feature or function from the perspective of the end user.
  6. Acceptance Criteria – The specific requirements that a user story must meet in order to be considered “done.”
  7. Sprint Planning – A meeting held at the beginning of a sprint to plan the work for the upcoming sprint.
  8. Daily Scrum – A short daily meeting where team members share what they did yesterday, what they plan to do today, and any obstacles they are facing.
  9. Sprint Review – A meeting held at the end of a sprint to review the work completed during the sprint and gather feedback from stakeholders.
  10. Sprint Retrospective – A meeting held at the end of a sprint to reflect on the sprint and identify areas for improvement.
  11. Product Owner – The person responsible for prioritizing the items in the backlog and making decisions about the product.
  12. Scrum Master – The person responsible for facilitating the Scrum process and removing obstacles that prevent the team from delivering working software.
  13. Kanban – A visual method for managing and tracking the flow of work, typically used in conjunction with Scrum.
  14. Continuous Integration – The practice of frequently integrating code changes into a shared repository.
  15. Continuous Delivery – The practice of automatically building, testing, and deploying code changes to a production environment.
  16. Pair Programming – A technique in which two developers work on the same code at the same time, with one typing and the other reviewing.
  17. Test-Driven Development – A technique in which developers write automated tests before writing any code.
  18. Refactoring – The process of changing the structure of code without changing its behavior.
  19. Velocity – A measure of the amount of work a team can complete in a sprint.
  20. Burn-down Chart – A chart that shows the remaining work in a sprint over time.
  21. Burn-up Chart – A chart that shows the total work completed in a sprint over time.
  22. Minimum Viable Product (MVP) – The minimum set of features that a product must have in order to be released to customers.
  23. Epic – A large user story that is broken down into smaller user stories.
  24. Release – The process of making a new version of a product available to customers.
  25. Sprint Backlog – A list of items that the team has committed to completing during the current sprint.
  26. Definition of Done (DoD) – A shared understanding of what constitutes a “done” user story.
  27. Time-box – A fixed period of time during which a specific activity or set of activities must be completed.
  28. Retrospective – A meeting or process used to reflect on past events or activities in order to identify areas for improvement.
  29. Pairing – A technique in which two people work together on the same task or problem.
  30. Increment – A completed piece of work that adds
  31. Stand-up – A short daily meeting where team members give updates on their progress and any obstacles they are facing.
  32. Technical Debt – The cost of maintaining and modifying the existing codebase over time.
  33. Waterfall – A traditional project management methodology that involves completing one phase of a project before moving on to the next.
  34. Lean – A methodology that focuses on maximizing value while minimizing waste.
  35. Self-organizing Team – A team that is empowered to make decisions about how to complete the work.
  36. Collaborative – A work environment that encourages collaboration and cooperation.
  37. Empirical Process Control – A process of using data and feedback to make decisions and improve processes.
  38. Iterative – A process of repeatedly improving a product or process through small, incremental changes.
  39. Cross-functional Team – A team that is composed of members with different skills and expertise.
  40. Continuous Improvement – A process of continuously identifying and implementing ways to improve a product or process.
  41. Pairwise Comparison – A technique used to compare and prioritize items in a backlog.
  42. Root Cause Analysis – A process used to identify the underlying cause of a problem or issue.
  43. Impact Mapping – A technique used to visualize and plan the impact of a product or project.
  44. Timeboxing – A technique of allocating a fixed amount of time for a specific activity or set of activities.
  45. Value Stream Mapping – A technique used to visualize and analyze the flow of work and value in a process.
  46. Flow – The state of having steady, uninterrupted progress of work.
  47. Work In Progress (WIP) – The amount of work that is currently being done but not yet completed.
  48. Pull System – A system in which work is only started when it is needed.
  49. Process Cycle Efficiency (PCE) – A measure of how effectively a process is using its resources.
  50. Cumulative Flow Diagram (CFD) – A chart that shows the flow of work over time.
  51. Lead Time – The time between when a piece of work is started and when it is completed.
  52. Cycle Time – The time between when a piece of work is started and when it is delivered to the customer.
  53. Blocking Issue – An issue that prevents work from being completed.
  54. Feedback Loop – A process of receiving and incorporating feedback in order to improve a product or process.
  55. Collaborative Planning – A planning process that involves all members of a team.
  56. Incremental Delivery – The practice of delivering small, frequent releases of a product.
  57. Event Storming – A technique used to map out and understand the flow of events in a process.
  58. Test Automation – The use of software tools to automate the process of testing.
  59. Continuous Deployment – The practice of automatically deploying code changes to a production environment as soon as they are ready.
  60. Retrospective Prime Directive – A statement used to remind team members that the purpose of a retrospective is to improve, not to blame.
  61. Story Point – A unit of measure used to estimate the relative size or complexity of a user story or task.
  62. Planning Poker – A technique used to estimate the relative size or complexity of user stories or tasks.
  63. Technical Spike – A time-boxed investigation into a technical problem or uncertainty.
  64. Information Radiator – A display of information that is visible to all team members and stakeholders.
  65. Retrospective Action Item – An action or task identified during a retrospective that needs to be completed to address an issue or improve the process.
  66. Continuous Feedback – A process of gathering and incorporating feedback throughout the development process.
  67. Impact Analysis – A technique used to identify and understand the potential impact of a change or decision.
  68. Service Virtualization – The use of simulation software to emulate the behavior of dependent systems during testing.
  69. Test-Driven Development (TDD) – A software development process in which automated tests are written before any code is written.
  70. Refactoring Session – A time-boxed period dedicated to improving the design and structure of the code.
  71. Code Review – The process of reviewing and inspecting code changes before they are integrated into the main codebase.
  72. Code Smell – A pattern in the code that suggests it may be poorly designed or hard to maintain.
  73. Codebase – The set of all code files that make up a software application.
  74. Code Coverage – A measure of how much of the codebase is executed during testing.
  75. Code Freeze – A period during which no code changes are allowed in order to stabilize the codebase.
  76. Codebase Management – The process of organizing and maintaining the codebase.
  77. Codebase History – The record of all changes made to the codebase over time.
  78. Codebase Metrics – Data or statistics that provide information about the codebase, such as code complexity or test coverage.
  79. Design Sprint – A time-boxed period in which a team works together to design and prototype a new product or feature.
  80. Pair Rotations – A technique in which team members switch partners frequently to work on different tasks or problems.
  81. Collective Code Ownership – A practice in which all team members are responsible for the quality and maintainability of the codebase.
  82. Pair Mentoring – A technique in which an experienced team member works with a less experienced team member to teach them new skills or techniques.
  83. Codebase Health – The overall quality and maintainability of the codebase.
  84. Continuous Refactoring – The process of regularly reviewing and improving the codebase to keep it maintainable and high-quality.
  85. Codebase Audits – A process of reviewing and evaluating the codebase to identify issues or areas for improvement.
  86. Pair Debugging – A technique in which two team members work together to identify and fix bugs in the code.
  87. Codebase Governance – The process of establishing and enforcing rules and guidelines for managing the codebase.
  88. Codebase Standards – A set of guidelines or best practices for writing and organizing code.
  89. Codebase Maintenance – The ongoing process of keeping the codebase in good condition and fixing any issues that arise.
  90. Codebase Optimization – The process of improving the performance of the codebase by reducing its complexity or making it more efficient.
  91. Niko Niko Calendar – A visual tool used to track team members’ mood and engagement levels throughout a sprint.
  92. Kanban Board – A visual tool used to manage and track the flow of work in a project.
  93. Minimum Viable Product (MVP) – The minimum set of features that a product must have in order to be released to customers.
  94. Minimum Marketable Product (MMP) – The minimum set of features that a product must have in order to be marketed and sold to customers.
  95. Open Space – A meeting format in which participants set their own agenda and work on their own topics of interest.
  96. Personas – A tool used to represent the different types of users or customers that a product or service is intended for.
  97. Parametric Estimation – A method of estimating the size of a project or task using statistical data and mathematical models.
  98. CRC (Class Responsibility Collaborator) – A technique used to identify the responsibilities of each class in a software design.
  99. Anti-pattern – A common but ineffective solution to a problem or pattern of behavior that leads to negative consequences.
  100. Epic – A large user story that is broken down into smaller user stories.

I hope this list of additional Agile terminology helps you in understanding more about Agile methodologies and practices. Keep in mind that Agile is a continuously evolving field and new terms and practices may arise.

19 Agile Project Management Benefits: A Comprehensive Overview

Agile project Management benefits span from enhanced customer focus to increased savings. In this overview, we have found 19 Agile project management benefits that you should know about to embrace change and digital transformation in your organization. project management is a methodology that emphasizes flexibility, collaboration, and customer satisfaction. It is based on the Agile Manifesto, which outlines a set of values and principles for software development. Agile project management is often used in software development, but it can also be applied to other types of projects. Agile Project Management is gaining immense popularity with the advent of new-age businesses.

We have covered in detail two very pertinent topics. Feel free to refer them before coming to the benefits

  1. The Difference between Agile Project Management with Waterfall
  2. 8 Commonly used project Management methods with their Pros and Cons and when to use them

Agile Project Management Benefits

The Agile Manifesto focused on customer centricity over anything while managing an Agile Project. However, customer centricity or navigating through ambiguity is not the only Agile Project Management benefits. The 12th State of Agile Report, published in 2018 stated many benefits that an Agile Project Can have over traditional project management processes. Here is a comprehensive list of Agile Project Management benefits:

1. Ability to manage changing priorities:

Agile project management provides the ability to manage to change priorities effectively through its flexible and iterative approach. Agile methodologies prioritize flexibility and rapid iteration, which allows teams to quickly adapt to changing requirements and priorities as they arise. The regular sprints, reviews, and retrospectives that are integral to agile approaches ensure that the team is constantly reassessing and adjusting the project’s goals and objectives to align with the ever-changing priorities of the business. This helps to ensure that the project stays aligned with the organization’s overall goals and objectives, and delivers value to the stakeholders.

Agile Project Management Benefits: Adopted from 16th State of Agile Report

2. Increased flexibility

Agile methodologies allow teams to adapt to changing requirements and customer needs. This flexibility helps teams deliver a product that meets the customer’s needs, even if those needs change during the course of the project.

3. Faster delivery

Agile methodologies focus on delivering working software as soon as possible. This helps teams deliver a product to the customer faster, which can be beneficial in industries where time-to-market is a critical factor.

4. Improved communication and collaboration

Agile methodologies emphasize frequent communication and collaboration between team members, which helps to ensure that everyone is on the same page and that the project stays on track.

5. Enhanced customer involvement

Agile methodologies encourage customer involvement throughout the development process. This helps to ensure that the product being developed meets the customer’s needs and can lead to increased customer satisfaction.

Agile Project Management Benefits: Adopted from the 12th State of Agile Report, 2018

6. Better quality

Agile methodologies focus on delivering a high-quality product. The frequent delivery of working software allows teams to identify and fix defects early in the development process, which can lead to a higher-quality product.

7. Increased visibility

Agile methodologies provide increased visibility into the project’s progress. This helps teams identify and address problems early, which can help to keep the project on track and deliver a successful outcome.

8. Increased motivation and team morale

Agile methodologies focus on teamwork, collaboration, and frequent feedback, which can lead to increased motivation and team morale.

Agile Project Management Benefits: Adopted from 16th State of Agile Report

9. Project Visibility

Adopting Agile project management provides increased project visibility through regular meetings such as daily stand-ups and sprint reviews, which help to keep everyone informed of progress and any issues that may arise. This allows for better communication, collaboration, and decision-making.

10. Business/IT alignment

Agile project management encourages regular interaction between business and IT teams, through a collaborative and incremental approach, which helps to ensure that the project stays aligned with the organization’s overall goals and objectives.

11. Delivery speed/time to market

Agile project management emphasizes delivering working software frequently, which helps to speed up the delivery of projects and increases time to market, by providing a flexible approach to managing work and by keeping the project on track.

12. Increased team productivity

Agile project management promotes self-organizing teams and empowers team members to make decisions, which can increase team productivity and motivation. It also helps to improve the flow of work and reduce waste.

Agile Project Management Benefits: Adoption rate

13. Project predictability

Agile project management improves project predictability through regular sprints, which provide clear goals and objectives, a defined process for completing work, and a system for tracking and managing progress.

14. Software Quality

Agile project management promotes the use of test-driven development and continuous integration, which helps to improve software quality by identifying and resolving defects early in the development process.

15. Project risk reduction

Agile project management helps to reduce project risk by providing a flexible approach to managing change and by encouraging regular reviews and retrospectives, which help to identify and mitigate potential risks.

16. Engineering discipline:

Agile project management promotes engineering discipline through practices such as refactoring and pair programming, which help to improve the quality and maintainability of the codebase.

17. Managing distributed teams:

Agile project management helps to manage distributed teams by providing a clear set of goals and objectives, regular communication and collaboration, and a system for tracking and managing progress.

18. Software maintainability

Agile project management promotes software maintainability through practices such as refactoring and pair programming, which help to improve the quality and maintainability of the codebase.

19. Project cost reduction

Agile project management helps to reduce project costs by providing a flexible approach to managing change, reducing waste and delivering working software frequently, which can result in an earlier return on investment and lower overall project costs.

8 Agile Project Management Methods and when to use – A Detailed Guide

Which Agile Project Management method to use is a pertinent debate among practitioners. Considering its flexibility and simplicity of adoption, it has become a go-to methodology for managing projects. The State of Agile Report published in 2018, studied the existence of 15 plus agile methodologies used among practitioners. In this article, we will focus on the 8 most used methodologies, including newly inducted ones that are gaining popularity very rapidly. We wrote a detail post on Agile project management vs Waterfall stating fundamental differences on the both principles of project management.

Agile project management is a project management method that focuses on delivering value to the customer through rapid, iterative cycles of development. There are several methods of agile project management, including Scrum, Kanban, and Lean.

8 Agile Project Management Methods: A detailed overview

Agile Project Management Methods

1. Scrum

Scrum is a framework for managing and completing complex projects. It is one of the widely used and adopted agile project management methods. It is designed to be flexible and adaptable to change, and it is often used in software development. The Scrum process includes sprints, which are short, time-boxed periods of development, typically lasting 1-4 weeks. During each sprint, a cross-functional team works to deliver a potentially releasable product increment. The team holds daily stand-up meetings, called Scrums, to discuss progress and identify any obstacles. At the end of each sprint, the team holds a sprint review and retrospective to review what was accomplished and plan for the next sprint.

Transparency allows the project to be followed by all the members of a team or even throughout the organizationThe role of every developer is not well defined. May cause confusion
The definition of done allows a comparison of output with the intendedDoes not focus on documentation and can be a major issue for knowledge management
Focus on quality is a top priority
Backlog measured, velocity, and increments are critical here
Agile Project Management Methods: SCRUM

2. Kanban

Kanban is a method for managing work as it moves through a process. It is often used in manufacturing and service industries, and it is a popular choice for teams that need to manage a large number of items, such as bugs or customer requests. The Kanban process includes visualizing the workflow, limiting the amount of work in progress, and measuring lead time.

Ability to view the entire status of the project in a single goThere is no time framing resulting in unusual Delays
Can limit the number of tasks running to focus on high priorityPossible only for smaller projects with somehow defined scopes
Heavily Focused on Delivery
The methodology is very simple
Agile Project Management Methods: Kanban

3. Lean

Lean is an approach to managing and improving processes that emphasize the elimination of waste and the continuous improvement of quality. It is often used in manufacturing and service industries and it is based on the principles of the Toyota Production System. Lean focuses on creating value for the customer, reducing waste, and improving efficiency.

Waste Generation is minimalNot much focus on documentation
An MVP way of Product development is usedCritical PM Functions like planning and monitoring is highly minimalized
Teams are focused on reducing waste upstream and downstreamRequire a high degree of expertise as without it, waste cannot be identified
Agile Project Management Methods: Lean

4. XP or Extreme Programming

XP (Extreme Programming) is a software development methodology that emphasizes collaboration, simplicity, and frequent delivery of working software. XP is a highly disciplined approach that places a strong emphasis on programming practices, including testing, refactoring, and pair programming. The goal of XP is to deliver high-quality software that meets the needs of the customer. It is among the most preferred agile project management methods for code heavy industries.

The simplicity of the written code is an advantage since it allows for improvement at any given timeExtreme focus on code and not on other aspects of managing a project
Promotes a highly energizing way of workingNot beneficial for geographically distributed teams
Agile Project Management Methods: Extreme Programming XP

5. Crystal

Crystal is a family of agile methodologies that are designed for specific types of projects and organizations. Each Crystal methodology has its own set of practices and guidelines, but they all share the same core values of communication, flexibility, and quality. Each crystal may or may not use a different agile project management methods for its execution

Requires a technical environment with automated tests, configuration management, and frequent integrationOverdose of methodologies can cause confusion
Facilitates closer communication within teams and promotes interaction and knowledge-sharing between team membersEssential Parts of PM Like Planning and Reviews can be eliminated entirely
Agile Project Management Methods: Crystal


DSDM (Dynamic Systems Development Method) is an Agile agile project management method for managing projects. It is based on the principle that the best way to deliver a project is to involve the end user throughout the development process. DSDM focuses on delivering value to the customer and emphasizes rapid development, collaboration and flexibility.

7. FDD (Feature Driven Development)

FDD (Feature-Driven Development) is an Agile software Agile project management methods that emphasizes the delivery of small, incremental releases of working software. FDD is a model-driven approach that is based on the “feature” as the fundamental unit of work. It encourages frequent communication and collaboration between the development team and the customer.

8. SAFe (Scaled Agile Framework)

SAFe (Scaled Agile Framework) is an Agile framework for managing large, complex projects. It is designed to help organizations scale Agile methods to multiple teams and projects. SAFe emphasizes the importance of aligning the work of multiple teams to the overall goals of the organization and it is widely used in large organizations. Among its peers of agile project management methods, it has gained immense popularity recently

In summary, XP is a disciplined approach of Agile methodology that emphasizes programming practices, Crystal is a family of Agile methodologies tailored for specific types of projects and organizations, DSDM is an Agile framework for managing projects which focuses on delivering value to the customer, FDD is an Agile methodology that emphasizes on delivering small, incremental releases of working software and SAFe is an Agile framework for managing large, complex projects, aligning the work of multiple teams to the overall goals of the organization.

Scrum by far is the most popular method followed by Kanban and others. Here is a comparative adoption graphic adopted from the same report.

Agile Project Management Methods, Adopted from 12th State of Agile Report

Each method of agile project management has its own strengths and weaknesses. Scrum is best used for complex projects that require a lot of coordination and collaboration, Kanban is best used for teams that need to manage a large number of items, and Lean is best used for teams that want to improve their process efficiency.

In summary, Agile project management methodologies like Scrum, Kanban, and Lean are widely used in software development and other industries for their ability to deliver value to the customer through rapid, iterative cycles of development. Each method has its own strengths and weaknesses and it’s best to choose the one that aligns with your project’s requirements, goals, and team’s capabilities.

Agile Project Management Methodology: Factors to Consider

When deciding which Agile Project Management method is the best for a particular project, there are several factors to consider

  1. Team size: Scrum is best suited for small teams of 7-9 members. Larger teams may require more structure and coordination, which can be achieved through the use
  2. Project complexity: Agile methodologies such as Scrum and Kanban are well-suited for projects with well-defined requirements and a clear understanding of the end goal. On the other hand, more complex projects, such as those involving multiple teams or a high level of uncertainty, may require a more flexible approach like Lean or SAFe.
  3. Team size and structure: Agile methodologies like Scrum work best with small, cross-functional teams. If the team is large or distributed, methodologies like SAFe or DSDM may be more suitable.
  4. Industry and domain: Different industries and domains may have their own specific requirements and constraints. For example, Scrum is commonly used in software development, while Kanban is often used in manufacturing and service industries.
  5. Business goals: The specific business goals and objectives of the project should also be taken into account when choosing an Agile methodology. For example, if the goal is to deliver a product increment as soon as possible, Scrum may be the best choice, whereas if the goal is to improve process efficiency, Lean may be the best choice.
  6. Communication and collaboration: The Agile methodology should also align with the team’s communication and collaboration style. For instance, if the team prefers frequent and direct communication, Scrum or FDD would be a good fit.

In summary, the best Agile methodology to use depends on the specific characteristics of the project, the team, and the business goals. It’s important to evaluate the project’s complexity, team size, industry, domain, and business goals, as well as communication and collaboration style to make an informed decision.

10 Tools for Lean SCM

We wrote a detailed blog on Lean Supply chain management here. Please visit the link. We believe it will be value adding to you

This post specifically focuses on the various tools used in Lean Supply chain management.

Tools for Lean SCM employs the usage of various tool. In this blog post, we have discussed in detail 10 such tools for lean SCM. The lean approach, in contrast to many other so-called “flavors of the month,” has been around for a very long time. Even after being preached and implemented all over the world for the past three decades, the lean movement is still going strong. In the modern world of business management, the lean method is still the one that has the most adherents all over the world. More than 70 percent of organizations have, to some degree or another, implemented lean practices.

One of the reasons why lean is used so extensively and is still the most advantageous method is that it has a set of practical tools that can be readily applied in almost any business circumstance. This is one of the reasons why lean continues to be the most popular method.

These 10 Tools for Lean SCM, draws inspiration from the various lean tools used by TPS These tools’ primary functions are to visualize the flow of materials throughout the production lines and supply chains, as well as to identify the locations of waste products. They help to identify the bottleneck and prioritize the corrective actions, as well as facilitate discussion and communication, which is facilitated by them, and they also help to pull together the principles of lean thinking.

There are a wide variety of commonly employed tools that can offer direct assistance to lean supply chain management. The vast majority of the data presented in the tools was taken from Peter Hines and David Taylor’s article titled “Going Lean” (2000).

Tools for Lean SCM 1: Value Stream Mapping

The figure illustrates how the value stream mapping tool can be used to map out the value-adding and wasteful processes that occur from the supplier to the customer. These processes include logistics, purchasing, order fulfillment, and production.

Value Stream Mapping Example, Source Wikipedia

Tools for Lean SCM 2: Time-Based Process Mapping

As can be seen in Figure, the time-based process mapping tool is essentially a “walk-through” tool that can identify and map out the activity time (which is supposed to be value adding) and waste time (which is non-value adding) in each step that the material has gone through.

Time Based Process Mapping, Source Here

Tools for Lean SCM 3: Process Activities Mapping

The tool for process activity mapping creates a map that depicts the four distinct activities that the materials have to go through, which are operation, transport, inspection, and storage. Each activity type has a key associated with it, which helps with visualization. In addition to this, a plan flow diagram can be included to improve the flow.

Process Activities Mapping: Source

Tools for Lean SCM 4: Supply Chain Response Matrix

The inventory and lead times that must be maintained by a supply chain in order to provide a certain level of customer service are factored into an evaluation using a supply chain response matrix. It helps identify large chunks of time and inventory and gives managers the ability to evaluate whether or not there is a requirement to keep the inventory.

Supply Chain Response Matrix: Source

Tools for Lean SCM 5: Logistics Pipeline Map

The supply chain response matrix is complemented by the logistics pipeline map. On the horizontal axis, it displays the accumulated amount of process time, and on the vertical axis, it displays the levels of inventory. This reveals the precise locations within each operation where time and inventory are accumulated (see figure).

Logistics Pipeline Map: Source

Tools for Lean SCM 6: Value Adding Time Profile

The value-adding time profile is a graph that shows the accumulation of value-adding costs as well as costs that do not add value against the passage of time. It is a very helpful instrument for analyzing the compression of time as well as mapping out the areas in which money is being wasted. It is not very different from Value Stream Mapping

Tools for Lean SCM 7: Time profile for value addition

The process of quality filter mapping is a tool that can be used to locate quality issues that may exist in the order fulfillment process or in the supply chain as a whole. The map illustrates the locations in the value stream that are most likely to have three distinct types of quality defects.

Tools for Lean SCM 8: Production variety funnel

A visual mapping technique known as the production variety funnel plots the number of product varieties present at each stage of the manufacturing process. This method is used to determine the point at which a generic product begins to cater to the needs of a specific customer in either an increasing or complete manner

Production Variety Funnel: Source

Tools for Lean SCM 9: Quality filter mapping

Quality Filter Mapping: Source

Tools for Lean SCM 10: Demand amplification mapping

Demand amplification mapping is a graph that plots quantity against time and displays the batch sizes of a product at various stages of the production process. This could be planned out with an organization or along the supply chain. Additionally, it can be used to display the quantity of inventory that is held at each stage of the supply chain.

Demand Amplification Mapping: Source

CPFR-Collaborative Planning Forecasting and Replenishment – A Comprehensive Overview

The term CPFR (Collaborative planning, forecasting, and replenishment) refers to the business process where two or more trade partners pool their resources to develop strategies for meeting client demand, to boosting availability while lowering inventory, transportation, and logistics costs. CPFR combines knowledge of SCM, Inventory Management, and Demand Forecasting among others for fruitful results for both organizations. Generally, Consumer goods and food and beverage are the industries with the highest level of CPFR involvement.

Collaborative Planning, Forecasting, and Replenishment’s (CPFR) primary goal are to “optimize” the supply chain operation through Collaboration and sharing of information between partners. The involvement of these organizations creates synergy and helps in waste reduction between partners.

CPFR Model

Brief Overview of the Model

The CPFR model is centered on the client, who generates sales demand for a product. The retailer and its auxiliary services, such as category management, POS forecasting, replenishment management, buying, logistics & distribution, store execution, supplier scorecard, and vendor management, surround the client.

The manufacturer and their operations make up the outer ring of the CPFR model. The model’s four quadrants Strategy & Planning, Demand & Supply Management, Execution, and Analysis are its general organizational structure.

Eight business activities Collaboration Arrangement, Joint Business Plan, Sales Forecasting, Order Planning & Forecasting, Order Generation, Order Fulfillment, Exception Management, and Performance Assessments are used by the retailer, manufacturer, and supply chain partners to communicate.

What are the 4 phases of CPFR in supply chain collaboration?

When it comes to supply chain operations, CPFR, there are four essential components. The following is a succinct description of them:

Strategy and Planning

The plan for cooperative interactions amongst supply chain partners is laid out at this phase. All organizations taking part in partnerships are supposed to have established parameters for their cooperation as well as similar commercial objectives. The strategy and planning phase also outlines roles, duties, and processes.

Demand and Supply Management

The planning of orders and the forecasting of sales are the main topics of this section.


This stage focuses on the procedures for creating, stocking, sending out, and delivering materials to final consumers.


This component includes an evaluation of the performance of the supply chain as well as the handling of exceptions during the fulfillment process.

9 Steps of the cPFR process model

  • There are nine steps of Collaborative Planning, Forecasting, and Replenishment (CPFR) :
  • Develop Front End Agreement
  • Create the Joint Business Plan
  • Create the Sales Forecast
  • Identify Exceptions for Sales Forecast
  • Resolve/Collaborate on Exception Items
  • Create Order Forecast
  • Identify Exceptions for Order Forecast
  • Resolve/Collaborate on Exception Items
  • Order Generation

Develop an agreement between supply chain partners.  It’s crucial to establish the terms of CPFR collaboration right away. How retailers, suppliers, and manufacturers will improve communication and codify any existing procedures and processes must be agreed upon.

Create one business plan. The business strategy has to be created and approved right away. This guarantees that everyone involved in the supply chain has the same objective of the firm’s success. This is neither a “wish list” of objectives nor a mission statement. The business strategy must include detailed information on both order data and the organizational management of the partners.

Forecast the sales. Sales are now anticipated using the business strategy developed in Step 2. When projecting sales, take into consideration production and inventory planning.

Identify exceptions/deviations in the sales forecast. Now is the time to examine different projections that were created at various supply chain phases. Search for noteworthy deviations or exceptions. This will enable the early detection of any variations.

Resolve exceptions/deviations in the sales forecast. Inform the impacted and accountable partners as soon as possible of any exceptions or deviations. After the exceptions and deviations have been explained, modify the sales projection.

Create the order forecast. Based on the sales data, retailers and suppliers create an order prediction. This is dependent on the company plan’s structural requirements.

Identify exceptions/deviations in the order forecast. This is comparable to what was done in Step 4. Analysis of exceptions or variations from various order estimates made by retailers and suppliers is conducted.

Resolve exceptions/deviations in the order forecast. This is comparable to what was done in Step 5. The order prediction communicates, updates, and renews any exceptions and deviations.

Generate the orders. Once the final order prediction is received, the products are ordered.

What is CPFR used for?

Organizations that have used CPFR in their SCM have reported the following benefits:

  • Improving the accuracy of forecasting demand,
  • Delivering the right product at the right time to the right location,
  • Reducing inventory,
  • Avoiding stockouts, and
  • Improving customer service.

However, having cooperative trade partners that share risk and information throughout the process is the most crucial factor that determines if the CPFR’s objectives and operations will be successful. The supply chain will be “suboptimal” as a result of cooperative planning and forecasting amongst the trade partners, yielding earnings that are less than maximum. It has been shown that forecasts created only by businesses are frequently erroneous, therefore in the CPFR system, when the buyer and seller agree on forecasts, it is feasible to match customer demands with supplier production schedules, resulting in competent replenishment. Additionally, CPFR aids in avoiding expensive post-event modifications when demand or promotions shift.

Challenges for CPFR implementation

CPFR Model

The top three challenges that organizations encounter while implementing CPFR are as follows:

Making internal changes: Internal changes must always be handled by top management since change is never easy. However, if top management is committed to the project and educates staff about the advantages of CPFR, there is a greater likelihood that an internal change will be effective.

The total cost of implementation: While price should always be taken into account, businesses must also assess if doing so would put them at a competitive disadvantage.

Trust: One of the main barriers to CPFR’s widespread deployment is a lack of retailer willingness to disclose the data needed to do so.

Data: The whole model is dependent on generating and utilizing data. Many smaller organizations do not have the technical capability to generate and interpret such a huge volume of data

Lack of IT Systems: Many smaller organizations do not have the IT Systems to generate real-time ordering and inventory management processes which may make the CPFR model unsuitable

CPFR in the Supply Chain Management

Collaborative planning, forecasting, and replenishment, or CPFR, is a technique created to lower supply chain costs by fostering cooperation among several potential partners in a single supply chain.

Origins of CPFR in Supply Chain

CPFR is not only a fancy moniker for a hazy or fuzzy idea. The Voluntary Interindustry Commerce Solutions (VICS) Association, which established a framework and set of instructions for performing CPFR in supply chains, really developed it. It came to know as VICS CPFR model

Since its introduction, some organizations have implemented CPFR warily while others have done so more fervently. For instance, the world’s largest manufacturer of appliances, Whirlpool, embraced CPFR for its supply chain and had great success. Whirlpool struggled with a prediction error rate of 70% before the adoption of CPFR, which fell to 11% when the firm and its supply chain partners started cooperating under the CPFR framework.


How can CFPR help in the reduction of wastage in supply chain management?

CFPR help in the reduction of wastage in supply chain management in 8 ways 

  • Start at the end, with the customer
  •  Review production lines and administrative processes for unnecessary procedures and rework
  •  Map communication channels to highlight breakdowns
  • Review equipment and delivery policies
  • Bring in suppliers and industry experts for a fresh perspective
  •  Review returns policy and handling
  •  Set up feedback loops and return for regular reviews
  • 8 Establish reports and tolerance levels to monitor future waste

The benefits of CPFR

  • Ties with supply chain partners are strengthened.
  • provides sales and order forecast analysis, which raises the forecast’s accuracy.
  • Control the supply chain and proactively solve issues before they arise.
  • Collaboration on upcoming needs and goals is encouraged.
  • Combine the functions of forecasting, planning, and logistics.
  • Effective category management and comprehension of customer buying trends.

How did Walmart benefit from the CPFR Model?

Walmart co-led the development of the CPFR concept in 1995. Soon after, the business started testing the idea with a few chosen suppliers in Walmart Stores. The CPFR model was having a beneficial effect on shop stock as early as 1997. Listerine was one product that had the highest improvement. The in-stock average for Listerine increased from 87% to 98% with the implementation of CPFR.

Walmart continues to apply the fundamentals and openness of CPFR with its suppliers. The business provides suppliers with access to a single forecast figure so they may comment on other variables affecting the number and suggest changes.


CPFR principles were developed several years ago to solve significant business shortcomings and inefficiencies between producers and retailers. CPFR has advanced to the point where it is now a widely recognized method for improving interactions and business operations amongst these trade partners. The main goal of CPFR is to change the business mindset from one of internal emphasis to one of multi-enterprise knowledge and information exchange.

The advantages that people who use the CPFR model experience demonstrate the worth of a collaborative planning paradigm. Making the shift to a collaborative culture based on trust is one of the biggest obstacles to CPFR implementation for the majority of businesses. The organizations that successfully vault the “four walls” that perpetuate segregated methods, and establish collaborative operational agreements with important trading partners, rapidly discover that confidence increases swiftly


What is CPFR used for?

Improving the accuracy of forecasting demand,
Delivering the right product at the right time to the right location,
Reducing inventory,
Avoiding stockouts, and
Improving customer service.

What are the 4 phases of CPFR in supply chain collaboration?

Strategy and Planning
Demand and Supply Management

What are the Nine steps of CPFR?

Develop Front End Agreement
Create the Joint Business Plan
Create the Sales Forecast
Identify Exceptions for Sales Forecast
Resolve/Collaborate on Exception Items
Create Order Forecast
Identify Exceptions for Order Forecast
Resolve/Collaborate on Exception Items
Order Generation

What is the difference between S&OP and CPFR?

Sales and Operations Planning commonly referred to as S&OP, is a cross-functional business process that helps align sales and operations planning. The primary objective of S&OP is to create a single, consensus-based operational plan for the entire organization. This planning process involves multiple teams, including sales, marketing, supply chain, finance, and operations. S&OP is a long-term planning process that is typically done on a monthly or quarterly basis.

Collaborative Planning, Forecasting, and Replenishment, commonly referred to as CPFR, is a collaborative business process that helps improve the efficiency and effectiveness of supply chain management. CPFR involves the sharing of information between supply chain partners to create a single, shared plan for demand forecasting, inventory management, and replenishment. The primary objective of CPFR is to create a more accurate forecast of customer demand, reduce inventory costs, and improve supply chain efficiency.

What are the benefits of CPFR?

Ties with supply chain partners are strengthened.
provides sales and order forecast analysis, which raises the forecast’s accuracy.
Control the supply chain and proactively solve issues before they arise.
Collaboration on upcoming needs and goals is encouraged.
Combine the functions of forecasting, planning, and logistics.
Effective category management and comprehension of customer buying trends

lean Supply chain management – Lean Supply chain management- Definition, History, and Aspects


Lean supply chain management focuses on the elimination of waste from the waste. In a nutshell, lean supply chain management is all about streamlining your company’s supply chain in order to eliminate waste and improve efficiency. By reducing or eliminating non-value-added activities throughout the supply chain, lean supply chain management can help your company save time and money while also improving customer satisfaction. Lean supply chain management examples would be companies like Toyota, IKEA, and Walmart who have achieved mastery in eliminating waste from every aspect of the supply chain

Historical Background

From the 1950s to the 1980s, Toyota led the Japanese auto industry to create a unique production/manufacturing system that turned it into the world’s largest auto exporter. The Toyota Production System (TPS) is now called lean manufacturing. Lean was first coined in MIT’s International Motor Vehicle Programme (IMVP) (Massachusetts Institute of Technology). The program focused on Japan’s unanticipated competitive advantages over the U.S. and Europe. Many books and articles have covered the program’s findings. “The Machine that Changed the World” defines ‘lean’ as we know it.

Lean manufacturing is a production management system developed by Toyota and refined by scholars and practitioners worldwide. Lean manufacturing distinguishes itself from mass production by reducing waste and error and manufacturing in small batches. Japan’s highly skilled workforce drives the system’s success. Lean means doing more with less.

A business philosophy for identifying and eliminating waste. It’s also customer-driven and adds value to the customer and business.

Lean manufacturing wasn’t created overnight. Years of relentless drive, continuous improvement, and trial-and-error perfected a working system. Lean manufacturing focuses on people, particularly shopfloor operators, to improve management. Active workers make a quality circle and TPM work. Lean Manufacturing emphasizes customer value.

The entire production system is driven by demand, not forecasts. Customized products and more customer options result. Lean manufacturing uses employee intellectual property. Everyone is encouraged to suggest improvements and can stop the assembly line if something is wrong. High commitment, hard work, well-educated workers, and company loyalty are our company values.

Lean manufacturing optimizes organizations and supply bases, not functional silos. It promotes close partnerships with first-tier suppliers and distribution channel partners. It tiers supply bases. Waste between organizations, previously ignored, is a key improvement area. Modular car design fits a tiered supply structure. Overall, the lean system has transformed supply chain management or ‘lean supply management.

Lean Supply chain management principles

Because the entire lean manufacturing system was initially derived from an inherited mass production system, the lean supply chain management practice in mass production is the best place to start when trying to understand what makes lean supply chain management unique and how it operates. In the supply system for mass production, the mass producer purchases the basic components for their products from a large supply base. When you consider that a contemporary automobile will have more than 20,000 fundamental components built into it, the number of suppliers will typically reach between 5000 and 8000. The figure below illustrates how the mass supply structure is almost completely flat. The mass producer is responsible for the assembly of not only the entire vehicle but also a significant number of its subsystems and modules. As a result, the amount of outsourcing is not particularly high.

Lean supply chain management: Low Outsourcing

The mass producer will be responsible for designing the components that will be manufactured by the suppliers. The procedure consists primarily of a sequential order of one step at a time, beginning with the design stage and continuing through the bidding, prototype, check, contract, and production stages. When using this system, finding and selecting a supplier will always begin with determining the cost of the service or good. The bid will go to the person who can produce the identical component at a lower cost. This will typically result in a situation where the suppliers will quote a low price in the hopes of winning the bid, and then they will anticipate raising the price through the process of annual price adjustment. The only pieces of information that suppliers are willing to divulge to buyers are the product’s price and volume.

The mass supply system has led to a consequence that is not in the least bit beneficial. When the supplier was brought into the production too late, even they had better ideas on how the design should have been; however, it was too late to make any changes. It’s possible that the buyer never had any intention of putting the suppliers’ expertise to use in the design of the vehicle in the first place. When a buyer applies intense cost pressure to their suppliers, it is detrimental because the buyer will often play off of the suppliers, which makes the suppliers reluctant to share product information. Because of this, it was impossible for the buyer to make an accurate estimate of the cost of producing the parts. Once the manufacturer has increased the effectiveness of its production, there is no longer an incentive to merge the learning curve (to share the saving). As a consequence of all of these factors, the cost of the parts was high, and their quality was inadequate.

The Japanese have, over the course of their history, developed an entirely new set of business practices known as the lean supply management system (Figure below). They can be summed up in ten lean supply principles, which stand in stark contrast to the tenets of the mass supply system that were previously in place.

Lean Supply Chain Management: High Outsourcing

Aspects of Lean Supply chain management

Lean Supply chain management: Aspects

1) Supply from a more limited first-tier supply base: As shown in the figure above, the lean producer utilizes a large number of suppliers; however, it organizes its management of these suppliers into a tiered structure. The suppliers who provide goods or services directly to the buyer are known as first-tier suppliers. The lean producer now deals directly with this group of first-tier suppliers, and it is from this group that the lean producer obtains all of its supply of subsystems, modules, and components. As a result, the group of first-tier suppliers is referred to as the supply base.

Between two hundred and two hundred and fifty different suppliers make up the supply base for the lean structure. The mass supply system used to have significantly higher levels, but these current levels are significantly lower. The use of a small supply base is a distinct supply chain configuration that is shared by all lean supply chain management systems. This structural change has resulted in a plethora of behavior changes throughout the supply chain, all of which really deliver benefits.

2) Establish an appropriate and usually close partnership: The lean producer is able to spare more time and other resources to interact with each and every one of the first-tier suppliers because they use a much smaller supply base. This allows the lean producer to develop appropriate and usually close partnerships. Because of this, it has become possible for the buyer and the suppliers to have a more intimate working relationship.

In most cases, the close partnership will involve the following shared vision and mission, joint design and development of new products, strategically collaborated capital investment planning, capacity synchronization, coordination on just-in-time delivery, and inventory optimization are all examples of what can be accomplished when people work together. In most cases, the contractual terms for the suppliers range anywhere from the medium to the long term. Communication and participation occur on multiple levels, and with equal regularity, in both formal and informal settings.

3) The selection of suppliers is based on performance rather than price: when a lean producer chooses its suppliers, price is no longer the only criterion, nor is it the most important criterion, as a mass producer will do. Instead, the lean producer chooses its suppliers based on how well they perform. Ranking and selection decisions made by Lean producers will be based on a number of higher-level performance-focused criteria, such as quality standard, R&D capability, delivery reliability, management system and standard, commitment, and relationship. The price will be taken into account as one of the criteria, but it will always be evaluated in relation to the value that the company can provide. In Chapter 6, we will go over the specifics of the supplier selection process. Once they have been chosen as suppliers, the lean producer will treat them as “family members” and enforce a culture that is open to trust and relies on open communication.

4) Single or dual sourcing only: A lean supply chain management producer will typically favor the strategy of “single sourcing” or “dual sourcing,” rather than “multiple sourcing.” When a company uses single sourcing, it means that it will only buy the product (with its own unique SKU) from a single supplier. This indicates that there is neither a backup supplier nor a duplicate supplier for the product in question. When compared to the strategy of using multiple sources, the single-sourcing approach has a number of important advantages. It brings all of the volumes to a single supplier so that the unit cost can be reduced to its absolute minimum; in this way, the supplier can take advantage of economies of scale.

Dealing with two different companies for the same product design could lead to unnecessary complications. This solution offers the convenience and focuses needed when research and product development are required. It is helpful in the development of close partnerships; the act of contracting the product to a single supplier is, in and of itself, a clear statement of trust and the beginning of a partnership.

The use of a single source for all of a company’s procurement needs does, however, present a number of potential dangers. The potential for disruption in supply, regardless of its cause, is a potential problem, and the absence of alternative options may encourage complacency.

5) “Market price minus” rather than “Supplier cost plus”: Lean supply chain management takes a very different approach to the problem of pricing than traditional supply chains do. In a mass supply system, the price of the component that is being supplied is typically determined by the unit cost that the supplier incurs in order to produce the component, in addition to the profit margin that the supplier needs to achieve. This is an example of what is referred to as “supplier cost plus (margin)” pricing. The fact that the vendor’s cost model is simply accepted without being questioned is one of the issues with this strategy.

It is possible for uncompetitive supplier costs to make their way into the supply chain, which would then compromise its ability to remain competitive. The approach known as “market price minus” is utilized by lean supply management producers. It first determines the market price of the supplied component through market research and benchmarking; next, it deducts (subtracts) the agreed-upon reasonable profit margin that the supplier needs to make on each unit; finally, it calls the amount that is left over the ‘target cost.’ In the event that the target cost is lower than the actual cost incurred by the supplier, the buyer and the supplier will collaborate in order to bring the cost down to the level necessary to meet the target cost.

Both the current price of the good or service on the market and the profit margin for the supplier are protected in this manner. This also ensures that all of the prices along the supply chain are competitive with the market, which in turn ensures the success of the product.

6) Early and close engagement with suppliers for new product introductions: In a mass supply system, the new product introduction is solely designed by the mass producer, who is also known as the buyer. The supplier’s job is to simply make it according to the blueprint given, and the supplier does not have any involvement in the design stage.

The lean supply management system makes the decision to identify its suppliers first, and then involve them in the design and planning stage of the new product launch. In this way, the suppliers will have plenty of opportunities to contribute their expertise to the design, and by collaborating with the engineers provided by the buyer, innovation and new ideas can be generated in a manner that is significantly more productive. It is possible for the engineers from the supplier to work at the location of the buyer as the ‘residential engineer,’ acting as if the two businesses are one and the same.

By approaching the design process in this manner, numerous production and engineering issues that may arise later on can be avoided in the early stages of the design process. Collaboration and integration throughout the supply chain are important aspects of this process.

7) Synchronized flexible capacity: In the lean supply chain management system, the assigned capacity for both suppliers and buyers is not permanently fixed. This is due to the fact that a permanently fixed capacity will either be over-capacitated when the demand is low, or it will be under-capacitated when the demand is high.

More importantly, the capacities of the various suppliers and buyers along the supply chain should ideally be synchronized in order to achieve the maximum possible efficiency in the supply chain. A streamlined supply chain that is based on a flexible capacity that is largely synchronized. The ability to adapt one’s production methods at every stage of the supply chain is essential. This capacity flexibility refers to the ability to quickly increase or decrease production levels, as well as the ability to swiftly shift production capacity from one product or service to another.

Such adaptability can be accomplished by implementing plans, procedures, and workers that are adaptable, in addition to employing strategies that make use of the capabilities of other organizations.

8) Just-in-time delivery, also known as JIT: JIT is an approach to lean manufacturing that is well known. It is the central tenet of lean manufacturing and supply chain philosophies, as well as one of its defining characteristics.

The Just-In-Time (JIT) method of material control is predicated on the idea that a process should only be carried out when a customer indicates a need for additional parts that were produced by that process. When a process is run in a JIT manner, it allows for the production of goods and the delivery of those goods just in time for them to be sold.

This guiding principle applies to all aspects of lean supply chain management. The production of parts and their delivery just in time for assembly into subassemblies is referred to as just-in-time manufacturing. The demand from the end user is what serves as the impetus for getting work started across the entire supply chain. One way to think about lean supply chain management is as a chain of customers, with each link in the chain being coordinated with its neighbors by just-in-time signals.

The demand placed by the final customer in the marketplace acts as the impetus for the entirety of the supply chain. A pull system is characterized by the flow of materials and goods through the supply network. This system is described as having these characteristics. In response to the demand placed by the final customer, components move backward through the supply chain.

9) Alignment of incentives and rewards: The lean supply chain management places a significant amount of emphasis on the alignment with the suppliers through the use of incentives and rewards. The goal of the lean producer, in their role as the buyer, is not to siphon off a portion of the profit made by the supplier, but rather to collaborate with the supplier in order to bring down the costs, so that together they can construct a more robust supply chain.

We will recognize and appreciate the contributions that our suppliers made toward the reduction in costs, and we will offer them incentives. In most cases, when a supplier makes a certain amount of savings through the implementation of efficiency improvements, the supplier will keep fifty percent of those savings for themselves rather than passing the savings on to the buyer in the form of reduced component prices.

Any contributions made toward a better design or an improvement in quality will be rewarded with an increase in business. This strategy not only improves the alignment of the value added to the reward but also significantly boosts the suppliers’ motivation and commitment to the process of developing a competitive supply chain.

10) Willingness to share a significant portion of its proprietary information: The lean supply chain management also represents a culture of mutual trust and loyalty at the very least and typically within the supply chain. There is a willingness on the part of suppliers to disclose substantial amounts of confidential information to buyers.

Not only does this openness and trust make the supply chain significantly more visible, making it much easier to coordinate, but more importantly, it creates synergy between the parties involved. The value of information rises when it is disseminated to a wider audience and utilized by more people.

Supplier Selection Criteria – An Absolute Guide with Checklist

Supplier selection criteria: A Comprehensive Overview

Supplier selection criteria form the very basic procurement strategy. The criteria for supplier selection is a mission-critical task that falls under the purview of the purchasing function. This is especially important to keep in mind when we are discussing strategic components as well as bottleneck components. In neither of these groups is there any evidence to suggest who the suppliers are.

The long-term competitiveness of the supply chain will be directly impacted by a number of factors, including the quality of the suppliers and the integrity with which they were selected. The following is a possible breakdown of the steps involved in supplier selection criteria; however, this is in no way intended to be an exhaustive or all-encompassing list. The following are the procedures that should be followed when selecting the suppliers

Procedures for Supplier selection Criteria

Set up supplier selection criteria: Setting up supplier selection criteria is the most important procedure. Selection Criteria are generally a combination of two or many sub-criteria which include, quality, time of delivery, reputation, and so on. We will discuss in detail about these in the later part of the blog

Initial contact: Initial contact may be initiated from the supplier or from the purchasing team. Subsequent responses can form the base for procurement

Formal evaluation: Many organizations have a formal method of evaluation of a supplier and publicly available for discussion and evaluation. These forms criteria for supplier evaluation and selection which can be referred by the suppliers and can be allowed to enter the bidding process

Price quotation: It is one of the most primitive forms of supplier selection criteria that is used to date. The assessment of the supplier is solely dependent on the price it offers to the purchasing team. Before empaneling a supplier, generally, an RFQ- Request for Quotation is floated across many similar suppliers and generally, the lowest quote is selected

Financial data: The financial data of the supplier is a key for supplier selection criteria. Whether the supplier will be able to make substantial capital and revenue expenses for the business or will invest money in expanding the business is generally assessed before selecting a supplier

Reference checking: References of previous purchasing offices are taken before assessing a supplier

Supplier visit: Supplier visits are generally planned before the assessment to physically check the facilities and competencies of the supplier. Many organizations follow this method to find non-conformances of a supplier and give them adequate time to resolution before awarding final business

Audits, assessments, or surveys: Audits and surveys are not very different supplier assessments. However, audits and surveys have long-term continuity and improvement plans attached to them.

Supplier Selection Criteria : Methodologies

It would appear that the primary focus of these processes is on defining the criteria and determining how to evaluate them. However, there are three ways that are rather distinct from one another regarding the choice of suppliers.

Quantity of Supply

The first consideration is the quantity of the product that can be supplied by the vendor. This strategy will generally involve testing the product prototype to determine whether or not the quality and technical criteria can be reached, as well as whether or not the delivery terms are suitable.

Competencies of the Supplier

The second factor is determined by the capabilities that are shown by the provider. It typically determines whether or not the provider possesses the potential for design and development, strategic investment in technology and talents, and management that is up to scratch. This capability-based approach is frequently utilized for long-term supplier selection, and the process can be initiated well before the concept of the component is beginning to take form.

Combination of two techniques

The combination of the selection of products and capabilities is the third option. It is applicable in the event that a strategically significant new part is going to be procured from a different supplier. In order to maintain the growth of the supply chain, the supplier must not only meet all of the needs that are unique to the product, but they also need to be able to produce newer generations of the product in the long run. The following are some examples of widely applied criteria for capacity filtering

Assessment criteria on the supplier’s capability:

  • Total quality management policy
  • BS 5750/ ISO 9000 certification or equivalent
  • Implementing the latest techniques e.g. JIT, EDI
  • In-house design capability
  • Ability to supply locally or worldwide as appropriate
  • Consistent delivery performance, service standards, and product quality
  • Attitude on total acquisition cost
  • Willingness to change, the flexible attitude of management and the workforce
  • Favorable long-term investment plan

Supplier selection criteria: Quantitative Methodology

Utilizing quantitative techniques is helpful in terms of making the process of selecting a supplier easier. They can help make the selection criteria more sensible; they can serve as the platform for meaningful discussion or debate; they can give traceable documentation, and they may form the factual contents for decision-making. This article presents three fundamental quantitative tools for managers so they can get a head start on developing their own tools tailored to their own industry and goods.

We will narrate supplier selection criteria examples of 3 Suppliers A, B, and C with various competencies and expected results for quality and deliveries.

Supplier selection criteria: Categorial Method

The first one is referred to as the “categorical Method,” and it is displayed in the figure below. After determining the selection criteria, which might include things like quality, delivery, and customer service, you give each potential provider a score based on three different categories: “good” (+), “unsatisfactory” (-), and “neutral” (0). The final step is to add up each potential provider’s category scores to arrive at a total score; the provider with the highest score will be chosen. The application of this strategy couldn’t be easier, although it is somewhat subjective. As a result, it is recommended that a multi-functional team be formed in order to make collective decisions in order to reduce the amount of prejudice that comes from individuals.

Supplier selection criteria: Categorial Method

Supplier selection criteria: Cost Ratio Method

The second approach, which can be seen illustrated in the figure below, is referred to as the “cost ratio method.” In a similar manner, you establish the necessary criteria in comparison to the other vendors. The method differs from the categorical method in that it does not just rely on the subjective opinions of the participants in the study. It does this by utilizing some of the data that is already available on the quality performance, such as the service standard and delivery reliability, for example. Using the data that has been gathered throughout time, you will be able to determine the cost ratios that correlate to each criterion in terms of how much of an additional cost should be incurred as a result of failing to meet that requirement.

After that, the initial unit prices that were quoted by the various suppliers will be readjusted so that the net-adjusted costs may be calculated. It is then made abundantly evident that if the decision of the provider is to be based on the initial quoted unit price, then supplier C ought to be chosen because its cost is the most economical.

However, if the process of selecting a supplier takes into consideration the historical performances of the provider in each of the three areas and uses the net-adjusted cost, then the supplier with the lowest cost is A and not C. A small bit of research into weighing the benefits against the costs led to completely different decisions being made during the choosing process.

Supplier selection criteria: Cost Ratio Method

Supplier selection criteria: Linear Average Method

The fact that all of the factors are given equal weight in the decision-making process is one of the shortcomings of both of the aforementioned approaches. In the real world of business, this is not at all the case. People have diverse inclinations for various criteria for a variety of different reasons. In certain contexts, meeting quality expectations is more essential than meeting delivery deadlines, whereas in other contexts, meeting delivery deadlines is more essential than meeting quality expectations.

The third approach takes into account these preferences by giving a certain amount of weight to each of the criteria. As depicted in the table, this technique is referred to as the “linear-average method.” The weight is a score that represents how important the criterion is in comparison to the other factors. In most cases, the total number of weight scores adds up to 100.

After multiplying the judgment score by the weight, you will get the adjusted judgment score. After that, you will add together all of the adjusted scores to get the total selection criteria (score) for the provider. It is important to keep in mind that the weight can be utilized not only with the cost ratio approach but also in any other way. In the end, the most appropriate technique for selecting suppliers is probably a combination of a few of those different methods.

Supplier selection criteria: Linear Average Method

Though we have selected three criteria – Quality, Delivery, and Service for our assessment, you can consider many others like technical competency, time to delivery, other associations, feedback from other procurement teams, previous track records, and so on. We also have to ensure that these are quantifiable and recordable as we have done here.

4 Stages of Knowledge Based Sourcing – All you Need to Know

What is knowledge based sourcing supply chain?

Both the theory and practice of purchasing are continuously evolving. This had led to the emergence of knowledge based sourcing. It is, in fact, an ever-changing and developing field in terms of both theory and practice. When one considers the growth of purchasing over the past three decades, one begins to notice a distinct pattern of evolution. It depends on what the individual wants to get out of it; the pattern can be presented in a variety of different ways. In this section, we break the pattern of evolution down into two different perspectives, each of which contains four essential steps. The first perspective looks at how operational focuses have shifted, whereas the second perspective focuses mostly on how attributes have shifted.

What are the 4 Stages of Knowledge-Based Sourcing?

The 4 Stages of Knowledge-Based Sourcing Are

  1. Product Centric Purchasing
  2. Process-Centric Purchasing
  3. Relational Purchasing
  4. Performance Centered Purchasing
Knowledge Based Sourcing: The 4 Stages

The initial step may be referred to as “product-centered purchasing.” The operation is primarily and exclusively focused on the purchasing of tangible products and the effects that this has on the overall business. Typically, it is evaluated based on the five rights (right price, right time, right quantity, right quality, and from the right sources).

The second stage may be referred to as “process-centered purchasing.” It is primarily an operation that is focused on the process. It goes beyond the direct results that the purchasing activities produce and into the processes that are used to produce those results. This indicates that the managers have come to the conclusion that the processes are both the enablers of the purchasing outcomes and, in many cases, the controllers of those outcomes.

The third stage is sometimes referred to as “relational purchasing.” The operation places a strong emphasis not only on the process itself but also on the relationships that exist between the various organizations. The relationship was adopted as the primary management tool in order to improve product quality and technological advancements; in addition, it had a significant and favorable impact on the integration and growth of suppliers.

The fourth stage is sometimes referred to as “performance-centered purchasing.” It places an emphasis on the optimum performance of the business as a whole as well as the management of the contributions made by the purchasing function to the overall performance of the business. The purchasing function of the company has been strategically connected to the organization’s ultimate goals and the delivery of those goals as a result of this. It is an approach that focuses on systems.

What are the characteristics of the 4 Stages of Knowledge Based Sourcing?

The Characteristics of these 4 stages of Knowledge based sourcing are:

  1. Passive
  2. Independent
  3. Supportive
  4. Integrative
Knowledge Based Sourcing : 4 Steps

The character of stage one is described as “passive.” During this stage, purchasing can be characterized as lacking strategic directions and being primarily reactive to the demands of operational activities. A significant amount of the purchasing manager’s time is spent on routine operations, which provide little visibility into the supply chain. The selection of the supplier is made solely on the basis of price and availability.

The character of stage two can be described as “independent.” At this stage, the purchasing department may have implemented the most recent technology and process, but it is possible that they do not have a strategy that is in line with the industry standard. It is possible that links have been established between purchasing and technical disciplines; performance is based on cost reduction also known as price based sourcing; top management recognizes the importance of professional development and the opportunities in purchasing that contribute to profitability.

The character of stage three can be described as “supportive.” The adoption of purchasing strategies and products that strengthen the firm’s competitive position marks the beginning of purchasing’s role in providing support for the firm’s competitive strategy. Many businesses view their suppliers as one of their most important competitive resources. Continuous monitoring and analysis are being performed on the supply market, the progression of products, and the capabilities of suppliers.

The fourth stage is known as the “integrative” stage. At this point, the purchasing strategy is completely integrated with the function of purchasing within the firm. The concept of multifunctional teams and the training of purchasing professionals in multiple functions starts to gain traction. Communication, both open and closed, with other functional departments is a requirement of the processes in place. The success of purchasing is evaluated according to how much it contributes to the overall success of the company.


It’s interesting to see that the four stages from both points of view can be roughly matched with a few obvious problems. But a more thorough method will be needed to declare the theoretical match and make a new stage model for the buying process. The discussion here is just an introduction to the topic and is meant to get people thinking and talking more.

But there’s no doubt that the buying process has become much more complex and has a much wider and deeper effect on how well a business does. It’s moving away from short-term goals and toward long-term goals. It’s moving from a function to processes, from transactional to relational, and from saving money to improving performance.

Buying in the future might look like knowledge-based buying, which is based on knowledge of the whole business’s goals and stakeholders’ interests, knowledge of the suppliers and their capabilities and potential, knowledge of people and how they feel about relationships and culture, and knowledge of how people use technology.

Kraljic Matrix – A Comprehensive Guide for your Procurement Strategy

What is Kraljic Matrix or Krajlic Purchasing Portfolio Matrix?


“What is the most effective method for buying management?” “What is the most effective tactic for buying and getting supplies?” These are questions that have been asked in the past by a large number of practitioners as well as academics, and they continue to be asked today. In point of fact, there was no lack of solutions to these queries in any of the numerous kinds of literature that existed even in the early years of the subject.

But very few of them could withstand the test of time in terms of their application and universality. Then along came Dr. Peter Kraljic from McKinsey, who asserted that there is no one method that is superior to all others when it comes to the management of purchasing in all contexts. After that, in September 1983, he submitted an article to the Harvard Business Review titled “Purchasing Must Become Supply Management,” in which he suggested the Kraljic Purchasing Portfolio model or Kraljic Matrix, which is pretty well known today.

Since that time, this model has received extensive citations and references all around the world in a variety of different management literature. There are currently several different versions that have been updated by a large number of academics, all of whom have contributed to and further refined the use of this model.

The response that Dr. Kraljic provided to the question can be paraphrased as follows: “although there is no single best way, if we know which product category we are purchasing, there would be the best way to do the purchasing for this product category.”

This is Dr. Kraljic’s explanation of why there isn’t a single best way. In order to classify all of the items that had been purchased, he used a two-dimensional approach. The first is the possibility that the market will run out of the product, and the second is the effect that the item will have on one’s finances. As a result, a matrix with four categories came into being, each of which presented a unique kind of goods that could be bought.

What is Kraljic Matrix Used For?

Kraljic Matrix is a widely accepted tool for determining your purchasing portfolio mix. It is composed of 4 quadrants and compares two parameters

  1. Supply Risk
  2. Supply’s impact on financial risk

Kraljic matrix is widely used in assessing and categorizing supplies and what strategy needs to be incorporated in order to get the best out of these circumstances

What are the four 4 key quadrants in the Kraljic matrix?

The Four Key Quadrants in Kraljic Matrix Are

Leverage Products: Products for which alternate sourcing and substitution are possible

Routing Products: Products that have a large product variety and have large logistical complexity

Strategic Products: Products that give competitive advantages to an organization

Bottleneck Products: These products have larger barriers to entry and generally have a monopolistic market


What are the various components of the Kraljic Matrix?

Leverage Products

Leverage products are those that you acquire from your supplier that will have a large impact on the financing of your own end product, but it is reasonably easy to obtain from the supply market, thus there is low market risk associated with doing so. For instance, a manufacturer of wood furniture should consider purchasing wood because it is a leveraged product.

This is due to the fact that the vast majority of the furniture they produce is constructed out of wood. The price of wood accounts for a significant amount of the total cost, and the price of furniture is directly related to the price of wood on the open market. On the other hand, unless it is a rare wood that they hardly ever use, there is an abundant supply of wood, and there is a very low probability that there will be a short supply.

Kraljic matrix recommends using the approach of competitive bidding when purchasing leverage items of this kind. It should come as no surprise that for competitive bidding to be successful, there must be more than one provider.

This strategy is supported by the minimal supply risk element associated with leverage goods. In this particular scenario, there are a number of potential alternate suppliers, and switching suppliers is an option. The purchaser will then be able to take advantage of the lower price and the cost savings. Because leveraged items have such a substantial influence on a buyer’s finances, it is essential that they be aware of the necessity of taking these steps.

Routine Products

The materials that fall into the category of “routine products” are those that have a negligible effect, monetarily speaking, on the purchaser’s own products and from which there is a large selection available on the market.

Small fixtures, pants, and common components such as springs and nuts are some examples of the goods or materials that fall into this category. When weighed against the whole cost of producing your own goods, their prices are rather low. The availability of such commodities on the market is extremely high, and there is no danger of a shortage occurring.

Kraljic matrix offers a purchasing strategy for routine products that included system contracting in addition to e-commerce solutions. This is because the routine products have a great variety of options, a high level of logistical complexity, and frequently require a lot of manual labor to handle. Ordering is handled via an advanced computer-based system, which is a good fit given the nature of the items.

Although there are other potential sources of supplies accessible, it is not recommended that you place a bid. This is due to the fact that the low cost of the materials made it unnecessary to have a bidding process, and the diversity and complexity of the materials will make it unaffordable to hold a bidding process.

Strategic Products

The products that are considered strategic are those that have a significant level of the financial impact on the final product. They are extremely expensive to develop and build, and they frequently require components that demand high levels of technology. They are typically not offered for sale elsewhere, which results in a significant supply risk. Instead of paying for delivery, the buyer will be responsible for negotiating the terms of the production contract. These products include, for instance, engines for automobiles and compressors for refrigerators.

Kraljic matrix suggested using a purchasing strategy that was a performance-based partnership for the things that were strategic. That entails forming a collaborative relationship with the manufacturer so that both parties may work together on the design and production of the component parts. The suggestion is unquestionably based on sound reasoning. It is typical for these kinds of components not to be made in sufficient quantities to be kept in stock.

Instead, they must be ordered in accordance with the exact requirements, and in many cases, the components will need to be designed and produced in collaboration with the provider. Therefore, in the strictest sense, it is no longer the purchasing of items; rather, it is the purchasing from the suppliers of the capacities for designing and making products. Because of this, having a system that is “performance-based” is essential, as the focus should be on capabilities.

Bottleneck Products

Bottleneck products are those components that may or may not cost too much in contrast with the total material cost, but they must have them, and it is very difficult to get a hold of them. Bottleneck products are also known as “critical components.” The availability of those components is not guaranteed, and there is a high risk associated with the supply chain for those components. One example of a common bottleneck material is the very little quantity of precious metal that is required for the exhaust purification system.

If it does not have it, the vehicle will not meet the required environmental standard and will not be permitted to be driven on the road. There are only a very small number of supplies in the globe that have the natural resource that can produce those valuable metals, and those supplies are extremely scarce. The gap between supply and demand is extremely wide.

When it came to the purchase of such bottleneck products, the Kraljic matrix suggested an approach that included both securing the supply and looking for alternatives. You have no choice but to make sure you have enough of your present supply because you need it, but you also need to look for other options because there is always the possibility of cutthroat competition.

The alternatives consist of radical new designs, some of which might use different materials that are readily available in sufficient quantities. In this type of partnership setup, the supplier has the upper hand, while purchasers will need to make some adjustments to their plans.

LIFO-Last In First Out Inventory Management – 7 things to know

Definition and Introduction

Lifo Stands for last in first out (LIFO) approach of inventory pricing makes the assumption that the costs of the first item sold are the same as the costs of the most recent purchases. In general manufacturing parlance and Inventory management, LIFO also relates to letting go of your most recently produced inventory than the earliest ones. The LIFO approach charges the materials used in a project or process at the cost of the most recent units acquired and applies value to a company’s inventory.

LIFO – Last in First Out

In other words, the Last in First out system charges the price of the most recent lot of materials until the lot is used up. The cost of the subsequent most recent lot is then applied to the task, division, or process. As a result, a used batch of materials is left in hand.

Materials should be handled as the most current stock on hand when they are brought back from the plant to the warehouse. They must be entered at the same price they were when they were given to the manufacturer on the materials ledger card balance found underneath all of the units currently in stock.

Calculating Cost of Goods Sold

The cost of goods sold (COGS) for a firm is calculated through the inventory process at the end of the year and is reported on your business tax return. Your gross profit for the year is calculated by subtracting COGS from your gross income (before costs).

Here’s how COGS are determined:

  • inventory count at the beginning of the year
  • Including purchases, labor expenditures, and other expenses
  • removing inventories at the year’s conclusion.

Lifo Accounting Method

There are various ways to calculate the cost of your inventory when doing the COGS calculation. There are three typical methods for valuing inventory:

  • Specific Identification: When you can identify and correlate the goods’ real costs to their costs, specific identification is employed for certain types of inventory (for example, a car using the Vehicle ID Number)
  •  Last In, First Out (LIFO): This strategy, known as LIFO, is based on the idea that you sell, consume, or dispose of things in the order they were acquired or created.
  • First In, First Out (FIFO): The FIFO technique assumes that the goods you as the business owner bought or created first are the goods you sell, eat, or discard.

If you use the Last in first out cost method, you may then use one of the IRS-approved grouping criteria to make it simpler to count the items. Two of these guidelines for Last in First Out valuation are:

  • The dollar-value technique divides items and goods into groups based on the kind of products they are.
  • the condensed dollar-value approach, with several inventory types grouped into broad groups

An Example of LIFO Calculation – LIFO Conformity Rule

Assume a product is made in three batches during the year. The costs and quantity of each batch (in order of when they are produced) are as follows:

  • Batch 1: Quantity 2,000 pieces, cost to produce $8,000
  • Batch 2: Quantity 1,500 pieces, cost to produce $7,000
  • Batch 3: Quantity 1,700 pieces, cost to produce $7,700

Total produced: 5,200 pieces. Total cost: $22,700. The average cost to produce one piece: is $4.37.

Next, calculate the unit costs for each batch produced.

  • Batch 1: $8,000/2,000 = $4
  • Batch 2: $7,000/1,500 = $4.67
  • Batch 3: $7,700/1,700 = $4.53

To determine the cost of units sold, under Last In First Out accounting, you start with the assumption that you have sold the most recent (last items) produced first and work backward.

Let’s say 4,000 units were sold during the year. Using Last In First Out, you assume that Batch 3 items were sold first. Thus, the first 1,700 units sold from the last batch cost $4.53 per unit. That’s a total of $7,701.

  • The next 1,500 units sold from Batch 2 cost $4.67 per unit, for a total of $7,005.
  • And the last 800 units sold from Batch 1 cost $4 each, for a total of $3,200.
  • The total cost of the 4000 items sold is $17,906.

The cost of the remaining 1200 units from the first batch is $4 each for a total of $4,800. These units will start off the next year. This helps in determining the LIFO cost flow assumption

advantages of lifo

The following are the main advantages of the Last In First Out method of inventory valuation:

  • The most current cost is applied to the production.
  • The factory receives materials that are methodically priced.
  • Closing inventory losses are kept to a minimum when there is a significant change in the materials

Disadvantages of LIFO

The Last In First Out method of inventory valuation suffers from the following major drawbacks:

  • The closing inventory value may differ from the current market value
  • It may be challenging to keep records when several purchases of the same material are made at different prices
  • Costing difficulties arise when materials are returned to the vendor
  • Costing difficulties arise when materials are returned from the factory to the storeroom

When to use LIFO manufacturing

Last In First Out isn’t a method of production; it’s a method of accounting. Therefore, you don’t use LIFO in order to manufacture a product or service you use Last In First Out to track your inventory during the production process. You might want to use Last In First Out for a production run if you have multiple products/batches being manufactured at the same time. LIFO is often used to track goods when there are large, different batches or lots being manufactured.

For example, if your production facility makes several different kinds of aircraft, each with a small batch of parts, you might want to track each batch separately. If your plant manufactures a range of different products, such as electronics, the same concept could apply. If you have several different batches of materials being processed at the same time, you may want to track them separately using LIFO. LIFO methods are generally used in industries with high volumes of materials that are similar but made at different times and/or in different locations.

They are also used in industries where the most recent inventories are desired by the customer and the manufacturing units have no option but to cater to the customer demand.

How LIFO works in manufacturing

LIFO is a way of tracking materials as they move from raw materials to semi-finished goods, to finished goods. When a batch of goods is completed, all of the inventory associated with that batch is first transferred to the next stage of the process. That means that the inventory that was last to be processed (shipped to a customer or placed in a warehouse) is the first inventory that is processed in the next batch.

 In order to use LIFO, you have to have control of each batch of goods. You need to know what batch each batch belongs to. You also need to know the number of goods in each batch. When you’re using LIFO, you track the inventory in batches. A batch is a batch of goods that was acquired and processed at the same time. For example, if you bought 100 units of a certain component and processed them all at the same time, they would go into the same batch.

LIFO Benefits in Manufacturing

  •  Increases cash flow: If you use LIFO inventory accounting, you have less inventory on hand and therefore less money tied up in inventory. That means your cash flow increases as a result.
  •  Reduces inventory: Using LIFO inventory accounting means there is less money tied up in inventory. With less money tied up in inventory, businesses have more capital available to purchase goods.
  •  More accurate inventory costing: Using LIFO inventory accounting means the most recent goods purchased are the first goods put on the books. That means those goods are more likely to be more accurate in terms of the cost associated with them. 
  •  Better forecasting: When using LIFO inventory accounting, businesses have a more accurate picture of the cost of goods. That means businesses will be better able to forecast the costs associated with producing goods in the future.
LIFO Advantages

Disadvantages of LIFO Manufacturing

  • Higher cost of goods: One drawback of using LIFO inventory accounting is that it will lead to higher costs of goods sold for the current period. That means the company will pay more taxes for the current year.
  •  Inaccurate inventory valuation: Another drawback to using LIFO inventory accounting is that it can result in inaccurate inventory valuation. That means the number of goods on the books may not match the actual quantities of goods in inventory. 
  • Effects on cash flow: Using LIFO inventory accounting will result in lower cash flow. That means the company will have less money available to pay for goods.

What does LIFO mean in Software development?

LIFO is a very common technique in software development. A business analyst who compiles data work on a concept called “Product Backlog” when working on an Agile Program Management. This product backlog is generated when the development team fails to deliver previous commitments. However, with new requirements from customers or the Business Analyst, the development team generally tends to prioritize the last gathered inputs. This helps roll out the product backlog in reverse order. This LIFO method of delivery in Agile Project Management is a very important aspect as it helps in delivering the most recent and important features. This also helps in overcoming the rigidity of delivery making the team more flexible in rolling out the features.

Limitations of the LIFO Method

LIFO can help businesses account for the cost of goods sold in earlier tax years and reduce potential audit issues. However, it is not always the best choice for businesses particularly those with inventory that is consistent or changing at a slow pace. The LIFO method can cause businesses to overvalue their inventory. You can see evidence of this in the graph below, which shows a trend of higher inventory values over time compared to FIFO (which is the opposite of LIFO).

 This means businesses are overvaluing their inventory and will likely owe more taxes as a result. The graph above shows that, historically, businesses using the LIFO method have overvalued their inventory by an average of 8.5%. This means that businesses that use LIFO will likely owe more taxes as a result, though the amount will vary by each business.

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