15 Supply Chain Concepts You Should Know to Get Ready for the CSCP Exam

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Please bear with us as we take care of some admin stuff. You probably already understand these, but we put together this page just to make sure. The Partners of Real World Supply Chain LLC are not affiliated in any way with its past or present employers. It is also not affiliated with any industry association. The content provided here was independently developed by our team. It represents our own interpretation and teaching of the material. This may differ from the interpretation and intent of other groups. Each persons experience, dedication and motivation will be different. So, as you can assume, we cannot guarantee any specific results based on preparing with this guide. You should use this guide only to supplement the official CSCP preparation materials. We worked very hard to ensure that this report is free of errors. But were a small team. So some details can and do get missed. We do not assume any responsibility for errors, omissions and varied individual interpretations of the content. Though if you do spot an error, wed appreciate it if you could let us know so we can make the required corrections. Heres the great part. We are committed to helping you grow and succeed. And we dont say those words lightly. Wed love to hear about your own challenges. Well try our best to help where we can. Please contact us for anything.

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15 Supply Chain Concepts You Should Know to Get Ready for the CSCP Exam
01 Increasing Importance of Supply Chain Management
The market place is more demanding than ever. Competition is stiff. Frequent product introductions are often required to survive. The product offerings available to customers are practically limitless. And customer expectations for quality, features, availability and price are just as demanding. This leads to shorter product life cycles and greater demand volatility. At the same time, for many products, the developing markets represent an increasingly large portion of the total revenue. So companies cant focus on just supplying North America, developed Europe and developed Asia. These developing markets typically require customized versions of a base product in order to satisfy customer needs. A supply chain that quickly and efciently delivers products to just about every country around the world is often required to compete. The ability to introduce new products quickly is critical. Equally important is the ability to effectively phase out products without incurring signicant inventory write-offs. To make things worse, the challenging market place is coming at a time of increasing nancial pressure. Companies face slowing growth rates, margin pressure, reduced access to capital and demanding shareholders. As such, companies are looking to reduce spending in supply chain operations and optimize working capital.

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02 Supply Chain Design & Management Linked to Business Strategy

It makes sense that a companys supply chain strategy be aligned with its business strategy. Three typical strategies are low cost, differentiation and focus. A low cost strategy might be utilized for a high volume product that is considered a commodity. In this case, the supply chain might focus on large batch sizes, minimal manufacturing changeovers and low total supply chain inventory. A differentiation strategy might require a supply chain that can consistently delivery high quality products with short product life cycles and maintain high customer service levels. Distribution centers might be established close to the customer. Postponement inventory strategies might be implemented to enable late stage customization or rapid nished product changes. A focused strategy is similar to a differentiation strategy, but its goal is to service a niche market. This may require a supply chain that nears 100% customer service levels. It may even, for example, air freight orders to meet customers with demanding expectations. There are a variety supply chain design decisions like manufacturing locations, number of distribution centers and transportation modes that can be made to align the supply chain with corporate strategy.

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03 Supply Chain Collaboration

Supply chains are expanding geographically. Customer demands are increasing and rapidly changing. As a result, more and more players are getting involved in getting products to customers. Information sharing across the organization becomes more critical to successful management of operations to ensure customer service, supply chain spending and inventory turn targets are met. Within the company, this requires open sharing of real time or near real time supply chain information. Moreover, collaboration extends beyond the company walls to key suppliers and customers. Collaboration across all nodes of the supply chain leads to one version of the truth. A robust S&OP process (and the actual periodic meeting) plays a critical role in achieving this.

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04 Inventory Management
Inventory is one of the largest assets that supply chain managers can directly inuence. Understand that you keep inventory to manage supply/demand variability and manage constraints in the supply chain. There are ve basic types of inventory: 1. nished goods inventory 2. work-in-process inventory 3. raw material inventory 4. in-transit inventory 5. maintenance inventory Note that safety stock, cycle stock, buffer inventory, anticipatory inventory, hedge inventory are all examples of different functions of inventory. Inventory can be viewed under Current Assets on the balance sheet. This means that inventory is an asset with a reasonable expectation to be converted to cash within one year. The cost of goods sold on the Income Statement includes the direct labor and material costs for the inventory sold as well as the xed overhead allocated to that inventory. The Changes in Inventories line on the Statement of Cash Flow shows the change in inventory value for the period reported. Increases in inventory negatively affect cash ow. And decreases in inventory positively effect cash ow. Inventory management should be performed at a high level where target inventory levels are set for each node of the supply chain. It should also be performed at a detailed SKU level where rules such as individual safety stock levels, minimum order quantities, order frequency are established.

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05 Demand Planning
Forecast has two main types: independent and dependent demand. Independent demand is best described as customer demand for nished goods. Its important to note that forecasts for independent demand rarely are 100% accurate, particularly when a forecast lag for comparison is used to calculate forecast error. Dependent demand is then the requirements from the downstream node in the supply chain that are passed to the upstream node. For example the projected bulk material requirements for nished good manufacture would be considered dependent demand. Qualitative and quantitative forecast methods exist and are valuable methods for estimating future demand. For quantitative forecasting, methods based on extrinsic and intrinsic data exist. Extrinsic data like housing starts might be used to estimate demand for lumber. Examples of intrinsic forecasting algorithms include nave forecast method, moving average, weighted moving average and exponential smoothing. A couple of important parting notes. Dene the time bucket, time horizon and frequency of forecasting. Also, aggregate forecasts typically are more accurate than SKU level forecasts.

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06 Customer Relationship Management

The general philosophy of Customer Relationship Management is to design your supply chain in a customer-driven method. Basically, this means that customer needs drive strategy and operations. Developing a close relationship with key customers benets you in the long term. Nurturing current customers so they become lifetime customers is one of the main goals of customer relationship management. Lifetime customers tend to require lower marketing expense, are easier to satisfy and are more protable. There are a number of functions associated with customer relationship management including customer segmentation, customer relationship building and customer collaboration.

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07 Supplier Relationship Management

Practically all companies will utilize some external suppliers of materials and services to support business operations. This can be a simple as utility providers of electricity to microchip suppliers to make computers. Supplier Relationship Management is a shift from transaction focused management to collaborative management. Suppliers are seen as strategic partners. The basic idea is that the long term success of your suppliers impact your own long term success. Supplier Relationship Management aims to improve product development, reduce costs to both organizations, improve supply reliability and reduce risk.

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08 Logistics
Generally speaking logistics is aimed at supplying the appropriate product in the correct quantity and at the correct time to meet each customer demand. Traditional logistics includes transportation and warehousing. The common transportation modes are air, water, road, rail and pipeline. Each of these has an appropriate application. Warehousing activities including receiving, storing, picking and shipping product. And in some ways, for better or for worse, when people here supply chain, they think logistics. Understanding the mechanics of logistics are still as important as ever. But as supply chain leaders, its viewed simply as one of the many technical processes you need to learn.

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09 Supply Chain Planning Process

Supply chain planning is a large topic. Below are the high level steps that can be followed to plan a supply chain end-to-end. Dene planning parameters and static data to dene the supply chain structure: 1. Dene the planning horizon (eg, 24 months) 2. Dene the planning time bucket (eg, months, weeks, days) 3. Dene target inventory levels for all materials at all nodes in the supply chain 4. Dene transportation lanes and lead times for all materials and nodes in the supply chain 5. Dene manufacturing operations including input materials, output materials, yields, batch sizes and lead times

Refresh dynamic data: 1. Collect latest customer forecast data 2. Collect starting inventory levels for all materials at all nodes of the supply chain 3. Collect xed manufacturing schedules 4. Collect xed procurement plans 5. Collect latest capacity data for all constrained resources

Plan the supply chain: 1. Calculate the nished good in-market replenishment requirements and pass requirements upstream while offsetting the requirements to factor in transportation lead time 2. Calculate manufacturing operations required to supply nished good replenishment requirements and pass raw material requirements upstream

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based on the dened manufacturing operations, batch sizes and yields. Raw material requirements need to be offset to account for manufacturing lead time. 3. Balance capacity utilization of all constrained resources 4. Calculate raw material procurement requirements based on requirements for operations

This is a basic outline for planning a supply chain end-to-end. It is provided to give you a sense of what data is required as well as the general process for calculating requirements and passing them upstream.

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10 Risk Management
Risk management in a supply chain context involves identifying risks to supply that could disrupt operations. These could be risks that simply result in inefcient utilization of assets. Or they could be risks that result in disruptions to supply entirely. These risks need to be identied early enough to allow for mitigation. The visibility provided by end-to-end supply chain management helps greatly in doing so. After risks are identied, their potential impact can be quantied. Often the nancial impact of the risk needs to be estimated so that the appropriate mitigation measures can be deployed. Supply chain risks that could lead to supply disruption are endless. Its important to limit your scope to what you can reasonable predict and mitigate so that your efforts are correctly focused. Here are some general examples of supply chain risk: nancial health of key suppliers natural calamities such as storms changes in government polices and regulations impacting demand or operations labor strikes

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11 Supply and Demand Variability

Inventory, exible operations and data visibility are utilized to mitigate supply chain variability. Two main types of variability impact supply chains: supply and demand. Changing customer demands and expectations, competition, economic trends and unforeseen events all lead to demand variability. Supply variability comes from the uctuations in manufacturing and distribution operations. For example, yields and lead times on operations vary. Raw material deliveries from suppliers also vary depending on their health, performance and competing priorities. All things being equal, inventory needs to increase in response to higher variability. This helps in maintaining target customer service levels. If supply and demand variability were to drop to zero, no safety stock inventory would be required as forecast would be 100% accurate and supply variance would be zero. But of course we know this is essentially impossible.

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12 Technology
Technology has played a key role in the creation of the supply chain management profession. Without the ability to share data securely across an entire supply chain, it would be difcult (if not impossible) to plan end-to-end operations. The scope of technology in support of supply chain management is extensive. Below are some key systems and technologies that are worth understanding.

Relational Database Enterprise Resource Planning (ERP) Advanced Planning and Scheduling (APS) Supply Chain Event Management (SCEM) Warehouse Management System (WMS) Transportation Management System (TMS) Decision Support System (DSS) RFID Barcodes Linear Optimization

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13 Sustainability
Sustainability is dened as the capacity to endure. There are three key components to sustainability in business. They are economic, environmental and social sustainability. Generally speaking, all three are required in order to have a sustainable business. The starting point is most likely economic sustainability. After all, without a viable longterm business model, the company wont exist. However, environmental and social sustainability are equally important. This ensures that current benets do not come at the expense of the future.

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14 Globalization
Supply chains deliver a larger number of products to a large number of markets around the world. Markets for products are increasingly global. And supply chains have to evolve to support this. There is thus even more pressure on supply chains to integrate geographies, technologies and leadership to operate in this type of environment.

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15 Continuous Improvement
Continuous improvement is a culture aimed at constant efforts to implement incremental improvements in products, service or process. Occasional step function changes or breakthrough improvements occur as part of a continuous improvement culture. But for the most part, the goal is to create a culture that is constantly looking for steady improvements. Some of the common tools associated with continuous improvement initiatives are Total Quality Management, Theory of Constraints, Lean, Six Sigma and Kaizen.

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About Real World Supply Chain

Were supply chain practitioners just like you. Over the years, weve heard lots of people newer to the field complain about not finding practical supply chain training. The available programs and materials tend to either be too theoretical or too basic. This gave us the motivation to use the Internet to share concrete, straight-forward, and down-to-earth supply chain insights that people could actually use. As a team, weve managed supply chains representing revenues close to $20 billion. We bring approximately 17 years of combined supply chain experience. We hold several masters degrees. But most important, we like to share and learn. So we invite you to please come visit us at http://realworldsupplychain.com or send us an email at team@realworldsupplychain.com. We look forward to meeting you.

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