Supply Chain Management For Dummies book cover

Supply Chain Management For Dummies

By: Daniel Stanton Published: 11-10-2017

Supply Chain Management For Dummies helps you connect the dots between things like purchasing, logistics, and operations to see how the big picture is affected by seemingly isolated inefficiencies. Your business is a system, made of many moving parts that must synchronize to most efficiently meet the needs of your customersand your shareholders. Interruptions in one area ripple throughout the entire operation, disrupting the careful coordination that makes businesses successful; that's where supply chain management (SCM) comes in. SCM means different things to different people, and many different models exist to meet the needs of different industries.

Articles From Supply Chain Management For Dummies

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33 results
Managing Risks in the Supply Chain

Article / Updated 07-27-2020

Managing risks in the supply chain is a necessary evil. To make a difference in your supply chain and manage the complex challenges that come with it, you need to decide what to do about each risk. The good news is that your options for handling any risk in the supply chain are fairly simple. You have four choices: Accept the risk. Transfer the risk. Avoid the risk. Mitigate the risk. Accept the risk in the supply chain Even though you know that a risk exists, you don’t always have a good way to resolve it. The risk may be relatively small, for example, or it could be so enormous that it’s impossible to avoid. In those cases, you may decide that the risk is part of the business you’re in and that you’ll deal with the consequences if the risk materializes. Following are some examples of supply chain risks that you may decide to accept: A forklift runs out of fuel in a distribution center. A supply chain manager breaks her leg while skiing. A giant comet collides with Earth. Could these things happen? Yes. Do you need to devote effort to preparing a special plan for them? Probably not. Transfer the risk in the supply chain Sometimes, you can make someone else deal with a risk for you, which is exactly what insurance companies do. You pay them for a policy, and they accept the responsibility to pay for the damages if something goes wrong. You can buy insurance to cover many of the risks that can come up in a supply chain, such as theft, fires, and accidents. In another scenario, you can write contracts with your customers and suppliers that transfer risk to them in the event that a risk materializes. For example, you could make your suppliers deliver their products to your facility; if a shipment were to be stolen during transit, then your supplier would be responsible. Your supplier will probably charge more for their products in exchange for assuming this additional risk. Avoid the risk to the supply chain In some cases, the best way to deal with a risk in the supply chain is to make it go away. If you’re concerned that a certain supplier won’t be able to meet your requirements, you can switch to a different supplier. If you’re afraid that a certain port may have a labor strike, you can ship your freight through a different port. Avoiding a risk to the supply chain can be the cheapest and easiest way to deal with it. Mitigate the risk to the supply chain If you can’t accept, transfer, or avoid the risk, the only option left is to do something about it — that is, mitigate the risk. The goal of mitigating a risk to the supply chain is to reduce the probability, the impact, or both. In other words, you’re trying to lower the risk score. How much you need to lower the score depends on how much the risk could cost you and how much money you can afford to invest in mitigation. Generally, you should mitigate a risk to the point that you’re willing to accept it. If one of your risks is that a customer will cancel a big order, for example, you probably want to mitigate that risk. You could talk with your customer, offer incentives, and make sure that you have a good relationship. You may not be able to eliminate the risk, but you can probably bring it down to an acceptable level and then focus your energy and resources on other parts of the business. Commercial agreements can be used to mitigate risks in the supply chain. For example, if your risk register identifies the financial stability of a supplier as a major concern, then you might include in the terms of your commercial agreement that suppliers need to provide periodic financial updates. The risk register shown below includes a column for actions. Adding an Action column helps you track how you are planning to manage each risk. Supply Chain Risk Register with Actions Risk Probability Effect Risk Score Action Port strike 9 9 81 Avoid Supplier fire 3 9 27 Transfer Forklift breakdown 6 1 6 Accept Comet strike 1 10 10 Accept Canceled customer order 8 6 48 Mitigate When you choose to mitigate a risk you should also decide how it will be mitigated and who will be accountable for that work. You may need to create a project to mitigate a risk in the supply chain. The International Organization for Standardization (ISO) has created a global standard to help companies implement risk management processes. You can purchase a copy of the ISO 31000 standard.

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Managing Your Supply Chain in Difficult Times

Article / Updated 07-27-2020

Supply chain plans are built on assumptions about what will happen in the future, and these assumptions are usually based on past experience. In any event, it’s a good idea to have a supply chain plan for difficult times. For example, if the transit time between one of your suppliers and one of your factories has always been 15 days in the past then you would assume that the transit time will be 15 days for future orders, too. This 15-day transit time will be used to determine when to send an order to that supplier so that it will arrive at your factory on time. But past performance is not a guarantee of future results. Although we have to make assumptions in order to plan how a supply chain should perform, we need to deal with reality when it comes to managing the day-to-day operations. Think about the potential effects that any of the following events could have on your supply chain: A shipping container filled with raw materials for your product gets quarantined in a port for 30 days. One of your factories is closed because of an epidemic. A key supplier files for bankruptcy protection. A major customer unexpectedly cancels a huge order for your products. A new customer unexpectedly places a huge order for your products. Each situation represents a scenario that supply chains around the world face every day, and your supply chain needs to be able to respond. You need to understand a few basic principles to implement a risk management process that spans your supply chain: Risk = Uncertainty: Every plan you make is based on assumptions about how the future is going to play out. So you should analyze your supply chain and plan the way you want things to work. You also need to be flexible enough — in your planning and in your thinking — to adapt to what happens around you. Risk management is fundamentally about reducing uncertainty as much as you can and then adapting and responding to the uncertainty that remains. Statistics ≠ Probabilities: This principle can save you from a lot of trouble. Analysts commonly look at how often something has happened in the past (statistics) and use that data to predict how often the thing is likely to happen again (probabilities). This approach can be useful in some cases, but it can also lead to poor decision-making in supply chains. Statistics say that a disease epidemic is unlikely, for example, so worrying about that situation in advance might not seem worthwhile. But the probability that a particular disease will start to spread may be 100 percent, if you knew that people were coming into direct contact with it. The problem with ignoring this risk is that you really don’t have enough information about the disease and the people that are coming into contact with it to know the true probability of whether there will be an outbreak. In other words, relying on general statistics about how epidemics emerge can lead you to underestimate the risk for a particular disease. Flexibility = Insurance: In many cases, the best way to manage a supply chain risk is to have a Plan B. If your risk is that a supplier could go bankrupt, your Plan B could be to have at least two suppliers. If your risk is that a cargo vessel could be delayed, your Plan B could be to have extra inventory on hand. In many cases, the flexibility needed to protect your supply chain from a risk comes with a cost, so it may be tempting to eliminate this flexibility to save money. The key is to recognize how valuable that flexibility could be in the event of a supply chain disruption and then decide whether it’s worth the cost. In other words, think of the cost of supply chain flexibility as though it were the premium on an insurance policy. Maybe the premium is too expensive, and you’re better off paying the price if you have a problem. In many cases, the flexibility is cheap compared to the cost of a supply chain disruption. The Supply Chain Risk Leadership Council offers a free handbook called “Supply Chain Risk Management: A Compilation of Best Practices” that includes a list of all the different things that can go wrong in a supply chain. Building supply chain resilience for difficult times You may find people using the words risk, threat, and disruption interchangeably, but in the context of supply chain management each of them means something slightly different. A risk is an event that may or may not occur; a hurricane, for example. A threat is the impact the risk would have on your supply chain; in the case of a hurricane, one threat could be that your factory would be flooded. A disruption is how the threat would impact your business and that of your supply chain partners. If there were a hurricane that flooded your factory, your supply chain would be disrupted because you could not manufacture products. Strictly speaking, risks can be either good or bad; there is a risk you might receive a big order, but there is also a risk that you could lose a customer. Good risks, such as a big order, are called upside risks because they are related to growing your business; bad risks are called downside risks. Either type of risk can lead to supply chain disruptions. For example, a rapid increase in customer orders can trigger a buildup of inventory and overwhelm a distribution center. The result would be a disruption in the ability of the distribution center to process shipments efficiently. The disruption caused by an upside risk can be just as expensive as the disruption from a downside risk, especially when it triggers the Bullwhip Effect. Even so, it is typical for supply chain risk management processes to focus mostly on the downside risks. A supply chain’s vulnerability to disruptions can have serious consequences for all the businesses involved. Reducing this vulnerability requires collaboration among the firms in a supply chain so that they can help one another deal with threats as they emerge. The goal, of course, is to engineer and manage your supply chain so that it can function during and after a disruption — in other words, to be resilient. You can think about supply chain resilience in terms of a shipment of bananas bound from South America to a grocery store in the United States. A lot of uncertainty is involved in that supply chain, from weather to commodity prices to the reliability of the cargo ship. From these risks and others, you see that the supply chain has many threats — many things that could go wrong. If a threat occurs, it can cause a disruption. If the ship breaks down, for example, it could delay the delivery of bananas and disrupt the store’s supply chain. But if the grocery store has extra inventory or another source of supply then it can continue selling bananas to its customers in spite of the supply chain disruption, so its supply chain is resilient. Supply chain risk management is very similar to business continuity management. Business continuity plans are often focused on making a particular facility or company more resilient; supply chain risk management looks more broadly at how all of the companies working together contribute to the resilience of a supply chain.

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The Risk Management Process: Identifying, Classifying, and Scoring Risks in the Supply Chain

Article / Updated 04-14-2020

Managing your supply chain always comes with risk. If you hope to mitigate those successfully, you’ll need to understand the risks you may be facing. Use this guide to identify, classify, and score risk in your supply chain. Identifying risks in the supply chain The first step in managing risks in a supply chain is identifying them. You probably have a good idea of some of the things that could go wrong with your supply chain. To really understand the scope of risks, however, you need to get input from other people who see, understand, and manage different parts of the supply chain. Following are some of the groups you should include in your process to identify supply chain risks: Transportation Distribution/warehousing Purchasing Information technology Accounting and finance Legal Sales and marketing Key customers Key suppliers It might be easiest for you to reach out to each of these groups separately, but you could also invite all of them to join a supply chain risk management committee. However you choose to engage this team, use their input to make a list of the risks that could affect your supply chain. You can create this list by brainstorming, and you may need to give people some ideas to prompt their thinking. Here are some risk categories that you can ask your supply chain team members to think about: Accidents Crime, terrorism, and war Financial problems Government regulations and politics Management problems Manufacturing problems Market trends Natural disasters and epidemics Supplier problems Surge in customer demand Technology trends Transportation and distribution problems Workforce and training issues Getting people to think about these risks in concrete terms and write them down tends to be an eye-opening experience. The odds that any one of these risks will materialize may be low, but the odds that at least one of them will materialize is high. It’s a good bet that something will surprise you, but you have no way to know which thing it will be. Classifying risks in the supply chain Once you have identified your supply chain risks, you need to decide which risks are most important. You may be most concerned about the risk of a fire at your supplier’s distribution center, for example, or with the risk of disease outbreak that would shut down travel between countries. One approach is to classify risks according to their scope. Classifying risks according to their scope is useful when you want to decide how — or whether — to mitigate them. Risks fall into three general scope categories: Global: Risks that affect everybody in the world. Managing global risks is the responsibility of senior management, but your risk management planning can ensure that your leaders are aware of the global risks and their potential effects on your supply chain. Systemic: Risks that affect more than one facility or company. These risks could disrupt the entire supply chain, not just its parts. Systemic risks are especially important in supply chain risk management because you are looking at how all of the companies in a supply chain contribute to delivering value to a customer. Many times, people don’t realize how severe a systemic risk can be because they think about it in terms of how it affects them locally rather than how it affects the rest of the supply chain. The responsibility for managing systemic risks is often shared between leaders in several different companies, so these companies need to collaborate in order to manage the risks effectively. Local: Risks that affect the people in a particular company or facility. Local risks are the responsibility of facility and operations managers and are often addressed in a business continuity plan. Your supply chain risk management process can be useful in ensuring that each of these separate plans are complete and properly aligned. Scoring risks to the supply chain After you identify and classify the risks in your supply chain, the next step is scoring them. Risk scores can help you prioritize which risks you need to be most concerned about. You score risks based on how likely they are to occur (the probability) and how severe their effects would be (the impact). Then you multiply these scores together to get an overall risk score. There are many different scoring systems for probability and impact ratings, but here’s an example to get you started. On a scale of 1 to 10, assign a value to the likelihood that a risk will occur in your supply chain: 10: Will occur; 100 percent probability 5: May occur; 50 percent chance 1: Very unlikely to occur; 10 percent chance, or less Use a scale of 1 to 10 to assign a value to the impact of a risk on your supply chain: 10: Would stop the supply chain or cost someone his or her job 5: Would be a major problem taking days to fix but wouldn’t stop the supply chain from operating 1: Would create a problem that the supply chain can handle in the normal course of business Use a scale of 1 to 100 to categorize the risk score after you multiply the probability value by the impact value: 100: This risk needs to be resolved immediately. 50: This risk needs to be monitored closely and mitigated effectively. 25: The company should have a mitigation plan in place for this risk. A risk can never have a zero score for either probability or impact. If the score is zero in either category, it isn’t a risk. The document that you use to track and score risks is called a risk register. The table below shows a typical risk register. Supply Chain Risk Register Risk Probability Impact Risk Score Port strike 9 9 81 Supplier fire 3 9 27 Forklift breakdown 6 1 6 Comet strike 1 10 10 Canceled customer order 8 6 48 If you create your risk register in a spreadsheet program, such as Microsoft Excel, you can sort your risks according to the risk scores. You can also create reports and graphs so that you can communicate the status of your risks more clearly. A common way to visualize risks is to use a risk plot or a heat map. The image below shows an example heat map for supply chain risks. Risk scoring is handy but not perfect. Just because a risk gets a low score doesn’t mean that you should ignore it, especially if the potential impact is severe. Any risk that has the potential for someone to get hurt needs to be addressed, even if the probability (and the risk score) are low. Risk scoring is like taking a snapshot of risks as they are today. You should keep your risk register up to date as circumstances change, watch for new risks to appear, and monitor changes in the scores of existing risks. Want to learn more? Use this guide to learn how to make a risk-management plan.

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American Production and Inventory Control Society Certificates and Certifications

Article / Updated 08-21-2018

APICS is one of the oldest, best-known supply chain management associations. Originally the American Production and Inventory Control Society, the organization became more global and expanded beyond inventory and production control, so it dropped the long name. You can find information about APICS certifications online. Certified Professional in Inventory Management (CPIM) CPIM is a preferred qualification for supply chain planners and analysts, consisting of five modules: Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources These five modules are broken into two exams: one exam for the first module (Basics of Supply Chain Management) and a second exam that covers the other four modules. You take the tests at an authorized testing center. You don't need to take the two exams at the same time, and you can take them in any order, but you need to complete both to become certified. Each exam of 150 questions is administered on a computer, and you have three and a half hours to complete each test. You receive your score as soon as you complete the exam. There are no perquisites for CPIM. You can prepare for the exam by studying on your own, by taking classes, or by using online study tools. You get a discount on the materials by joining APICS as a PLUS member, which costs $220. Then you can purchase all of the books and the two exam vouchers for $1,680. If you want to take an instructor-led class, check with your local APICS chapter or a local college. If you register for a class, make sure you look at the fine print: Some training providers include the cost of books and exam vouchers in the tuition fee, but others make you buy the materials on your own. APICS members get access to the Exam Content Manuals for each certification, which include sample test questions. Certified in Logistics, Transportation and Distribution (CLTD) CLTD, one of the newest supply chain certifications, has eight modules: Logistics and Supply Chain Overview Capacity Planning and Demand Management Order Management Inventory and Warehouse Management Transportation Global Logistics Considerations Logistics Network Design Reverse Logistics and Sustainability These eight modules are all covered by one exam that you take at an approved testing center. It is a computer-based exam with 150 questions, and you have three and a half hours to complete it. You'll receive your score as soon as you complete the test. To be eligible for the CLTD exam you need to have three years of related experience, a bachelor's degree, or another supply chain certification from APICS or the Institute for Supply Management. To document that you have met one of these requirements you need to complete the Certification Eligibility application on the APICS website before you'll be allowed to register for the exam. You can prepare for CLTD on your own, or you can take a class from your APICS chapter or a local college. If you decide to take a class, make sure you read the fine print: The cost of books and exam vouchers is not always included in the price. You get a discount on the materials by joining APICS as a PLUS member, which costs $220. Then you can purchase all of the books and the exam voucher for $1,370. For more information, check out APICS credentials. Complete the Certification Eligibility application at least two weeks before you plan to register for the exam. APICS exams are administered by Pearson Vue, which has testing centers around the world. Certified Supply Chain Professional (CSCP) CSCP covers a range of supply chain topics and breaks the material into three modules: Supply Chain Design Supply Chain Planning and Execution Supply Chain Improvement and Best Practices These three modules are all covered by one exam that you take at an approved testing center. It is a computer-based exam with 150 questions, and you have three and a half hours to complete it. You'll receive your score immediately. You can prepare for the CSCP on your own, or you can take a class from your APICS chapter or a local college. If you decide to take a class, make sure you read the fine print: The cost of books and exam vouchers is not always included in the price. To be eligible for the CSCP exam you need to have three years of related experience, a bachelor's degree, or another supply chain certification from APICS or the Institute for Supply Management. To document that you have met one of these requirements you need to complete the Certification Eligibility application on the APICS website before you'll be allowed to register for the exam. You get a discount on the materials by joining APICS as a PLUS member, which costs $220. Then you can purchase an exam voucher for $695 and purchase the learning system for $995. Some universities offer college credits for CPIM and CSCP certifications. Check with the National College Credit Recommendation Service. You can sometimes find used copies of APICS study materials online, but they may be illegal copies. Buying or selling APICS materials illegally is a violation of the APICS ethics rules and can lead to having your certification revoked. Supply Chain Operations Reference-Professional (SCOR-P) SCOR-P isn't a certification but an endorsement you earn by attending a three-day class. The class explains the SCOR model and discusses how the metrics work and how to implement projects based on SCOR. If you need to implement the SCOR model in your company, taking the SCOR-P class helps you build a deeper understanding of the steps to follow. There is a list of SCOR-P classes online. If you have several people who need to be trained, you can schedule private SCOR-P classes through your local APICS chapter. There is a free APICS Dictionary app that includes study tools to help you prepare for exams. You can download the app onto your mobile device from the App Store or the Google Play Store.

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10 Questions to Ask About Your Supply Chain

Article / Updated 08-21-2018

One of the most exciting and challenging aspects of supply chain management is how quickly things change. New customers, new suppliers, and new technologies are added to supply chains every day. In order for supply chain managers to meet their goals of delivering value to customers while maximizing profits, they need to always be looking for ways to improve. This list provides ten questions that you should ask to make sure your supply chain is meeting your customers' needs, giving your company a competitive advantage, and keeping pace with technology trends. Who are your key customers? One big challenge for supply chain managers is that they're often disconnected from the company's customers. Sales and marketing departments make deals and entice customers to buy; then it's up to the supply chain folks to make the products and deliver them on time. Although supply chain managers have a set of production targets, they often have no idea who their customers are. Although all of your customers are important, your key customers are the ones that are most important for your supply chain. Key customers buy in large quantities, are expected to buy more in the future, or are influential in your industry. As a supply chain manager, you should learn who these key customers are and what makes them important to your business so that you can focus your improvement efforts on profitably meeting their needs. Two common ways for supply chain managers to collaborate directly with key customers are through routine meetings and process improvement projects. What do your key customers value? Your supply chain creates value by addressing your customers' needs. There are many ways to gather data about the things that your key customers expect and are willing to pay for including: Analyzing industry trends Conducting surveys Interviewing customers Attending conferences Sponsoring focus groups As you gain new insights about what your customers value, use this information to improve the metrics for your supply chain. Ensuring that your supply chain is performing in terms of metrics that matter to your key customers helps you capture new customers, sell more to your existing customers, and introduce new products and services that address needs that aren't being met. How could your supply chain create more value? Companies can become comfortable — even complacent — about the relationship they have with their customers. This attitude is dangerous, of course, because what customers want and how much they are willing to pay will change over time. There is often pressure to lower your prices to make your products more competitive. You should always be looking for ways to improve supply chain efficiency because this can allow you to lower prices without sacrificing profits. However, you should also be looking for opportunities to increase revenue by reaching new customers or making your product or service more valuable to your current customers. For example, selling products online can be a good way to connect with new customers, and profitably fulfilling to online sales often involves significant changes to a supply chain. How do you define supply chain management? Many people use the term "supply chain management" when they are really talking about the procurement, logistics, or operations functions. To be effective in improving your company's supply chain, you need to have a broader perspective. For example, a project that reduces procurement costs can end up increasing costs for logistics and operations. As a supply chain manager you should look across all three of these functions and identify the best end-to-end solution. You should also look beyond your own company and understand the effects that a change could have on your suppliers and your customers. Driving down costs and improving performance in a supply chain requires alignment across functions and between companies, and that means everyone needs to think about how their decisions affect the rest of the supply chain. Supply chain management should be viewed as the process of synchronizing the activities within your company and aligning them with your customers and suppliers. What information do you share with suppliers? Your suppliers need to get certain information from you to maximize their value in your supply chain. Many companies try to position themselves as strategic partners with their customers but then maintain a guarded, arms-length relationship with their own suppliers. It's also important to make sure that you are sharing information in a useful way. If the data you share is hard to interpret or changes too frequently, it can cause confusion. Here are two tips for successfully sharing information with your suppliers: Share all the information you can. Decide what information to share with suppliers and what information to hold back. Some business information certainly needs to be protected, but not all of it requires the security of state secrets. In fact, you're probably better off to share every piece of information that could be useful for a supplier unless you can identify a genuine risk from disclosing it. Ask suppliers what they want. Talk with your suppliers to find out what information they want from you and how (and whether) they're able to get it. In many supply chains, one company assumes that another company is getting the information that it needs, but that may be incorrect. The information could be hard to find or interpret, or it could be going to the wrong person in the company. The easiest way to identity and resolve gaps is to have a conversation with the supplier. Sharing information with suppliers can help both your company and the supplier create more value. Many retailers have begun sharing sales and inventory information with their suppliers in order to reduce the bullwhip effect. When suppliers have access to information about supply and demand in retail stores they can do a better job of planning for future needs. How do you compare with competitors? You can find out a lot about how well your own supply chain is doing by benchmarking against other companies, including your competitors. You can do benchmarking informally by researching public information about your competitors. You also can do formal benchmarking by sharing data between companies or working with a research firm that collects data from many companies and provides them all with benchmarking reports. One advantage to participating in a multi-company benchmarking study is that it can allow participants to see how they're performing relative to other companies without having to reveal their identities. Although sharing non-financial data with other companies for benchmarking studies is usually perfectly legal, it's illegal to share some information that could stifle competition. For example, you probably can share information about your inventory turns, but you probably can't share information about your prices. Before sharing any information with someone who works for one of your competitors, make sure that you understand what you can and can't discuss. What changes could increase revenue? There are basically only three ways to increase revenue, and each of them depends on effective supply chain management: Raise prices. Sell more stuff to current customers. Attract new customers. To raise prices, you need to be providing more value than your competitors. As long as you can deliver the product your customers want, when they want it, and where they want it better than your competitors, then you can charge more money. If you are looking for ways to increase revenues by selling more stuff to current customers and attracting new customers, here are some specific goals that supply chain management can pursue: Distribute your products through new channels. Improve customer experience and increase brand loyalty. Adapt your product, package, and processes to the needs of new customers. Think about ways to increase revenue for your company and then get your supply chain team on board with those initiatives. What changes could lower costs? Supply chain management decisions drive most of the costs for every company, so be on the lookout for opportunities to reduce the amount of money that you spend. Following are some supply chain savings to look for: Increase transportation capacity utilization. By squeezing more valuable products into every shipment, you make better use of the money that you spend on transportation and lower your overall costs. Increase supply chain velocity. By increasing the rate at which products move through your supply chain, you increase your return on investment. Inventory velocity can be measured with inventory turns. Shipment velocity can be measured with order lead times or transportation lead times. End-to-end supply chain velocity — how long it takes for a product to get to your customer — can provide important insights about where your products get stuck along the way. Reduce order variability. Variability in order patterns is a well-known driver of costs in supply chains. Variability causes companies to build up inventory, which is expensive. Inventory swings amplify as they move up the supply chain, causing the bullwhip effect. Finding ways to make smaller orders more frequently and reduce variability can translate into significant savings by reducing both inventory and the chance of lost sales from stockouts. Efforts that you make in each of these areas have direct and indirect benefits. The direct benefits are money added to your bottom line. The indirect benefits are reductions in waste and a better utilization of the capacity throughout the supply chain. Often, 80 percent of a company's expenses are tied directly to supply chain decisions. Every dollar saved in the supply chain becomes profit for your company. What affects your supply chain now? Supply chain technology is evolving quickly, and no supply chain manager can afford to ignore it. To stay competitive, keep your finger on the pulse of supply chain technology. Here are a few good ways to stay informed: Read supply chain magazines and blogs. Attend supply chain conferences and trade shows. Subscribe to reports by supply chain consultants and analysts. Stay active in a professional association. Maintain communications with technology vendors. You may not need to learn the ins and outs of every new technology that comes down the pike, but you need to have a sense for how new technologies can help you deliver more value to your customers, either by increasing revenue or reducing costs. What will affect your supply chain in the future? You may have heard the saying "A leader needs to have a microscope in one eye and a telescope in the other." Using your telescope to look at the future of supply chain management can make the field fun and exciting or terrifying and risky. Imagine telling your wristwatch that you want a taco, and a few minutes later, a drone will deliver that taco. That scenario sounds silly, but all of the technology that you'd need for that supply chain is available today. All it would take to make that supply chain a reality is a viable business plan. There will be lots of opportunities to transform supply chains using technology in the next few years, and by recognizing those opportunities early you can get a competitive advantage. Try to imagine ways that each step in your supply chain could be done differently using technology, and look for opportunities to create value in new ways. In many cases, the technology doesn't change what is happening, but it does change how it happens. For example, right now you probably go to the grocery store and pick out your bananas. However, many grocery stores will allow you to place orders through a website and pick them up at the curb. You are still buying bananas, but how you buy them is starting to change. The time that your customers save by ordering online instead of shopping in the store is valuable to those customers. In other cases, new technologies could make an existing supply chain obsolete. For example, imagine a world of autonomous cars that are shared or rented on demand. Rather than buy cars from a dealership, customers may sign up for subscriptions to a car-on-demand service through a website. This new technology could make car dealerships, and their supply chains, obsolete. The only way to measure risks and identify opportunities that come from technological innovation is to stay in touch with trends. Understand the value your supply chain provides to your customers and what additional needs aren't being met; then keep an eye out for new technologies that could help you meet those needs.

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Supply Chain Management Principles

Article / Updated 08-21-2018

Many people try to describe supply chain management by talking about what they do, which is a bit like describing a cake by giving someone a recipe. A different approach is to describe what supply chain management actually creates. To continue the cake example, that means describing how the finished cake tastes and what it looks like. The ten principles illustrated here do a good job of describing supply chain management. Customer focus Supply chain management starts with understanding who your customers are and why they're buying your product or service. Any time customers buy your stuff, they're solving a problem or filling a need. Supply chain managers must understand the customer's problem or need and make sure that their companies can satisfy it better, faster, and cheaper than any competitors can. Systems thinking Supply chain management requires an understanding of the end-to-end system — the combination of people, processes, and technologies — that must work together so that you can provide your product or service. Systems thinking involves an appreciation for the series of cause-and-effect relationships that occur within a supply chain. Because they are complex systems, supply chains often behave in unpredictable ways, and small changes in one part of the system can have major effects somewhere else. Bimodal innovation The world of business is changing quickly, and supply chains need to keep up by innovating. Supply chains need continuous process improvement, or sustaining innovation, to keep pace with competitors. Lean, Six Sigma, and the Theory of Constraints are process improvement methods that can help with this task. Continuous process improvement isn't sufficient, though, because new technologies can disrupt industries. This effect is called disruptive innovation. When a new solution for a customer's needs emerges and becomes accepted, this solution becomes the new dominant paradigm. In other words, if you're in the business of making buggy whips, you need to figure out how to make buggy whips better, faster, and cheaper than your competitors do, and at the same time, you need to figure out what the new dominant paradigm is going to be so that you know what you're going to make when buggy whips are replaced by a different technology. Collaboration Supply chain management can't be done in a vacuum. People need to work across silos inside an organization, and they need to work with suppliers and customers outside the organization. A "me, me, me" mentality leads to transactional relationships where people focus on short-term opportunities while ignoring the long-term results. This actually costs more money in the long run because it creates a lack of trust and an unwillingness to compromise among the players in the supply chain. An environment in which people trust one another and collaborate for shared success is much more profitable for everyone than an environment in which each person is concerned only with his or her own success. If you believe that you'll be doing more business together in the future, and that the business with a particular customer will be profitable, then you are more likely to give them a deal on the products they are buying from you today. Also, a collaborative type of environment makes working together a lot more fun. Flexibility Because surprises happen, supply chains need to be flexible. Flexibility is a measurement of how quickly your supply chain can respond to changes, such as an increase or decrease in sales or a disruption in supplies. This flexibility often comes in the form of extra capacity, multiple sources of supply, and alternative forms or transportation. Usually, flexibility costs money, but it also has value. The key is understanding when the cost of flexibility is a good investment. Suppose that only two companies in the world make widgets, and you need to buy 1,000 widgets per month. You may get a better price on widgets if you buy all of them from a single supplier, which would lower your supply chain costs. But you'd have a problem if that supplier experiences a flood, fire, or bankruptcy and can't make widgets for a while. You may save on your purchase price for the widgets, but you're stuck if anything goes wrong with that supplier. If you bought some of your widgets from the other supplier — even at a higher cost — you wouldn't be hurt as badly if the first supplier stopped making widgets. In other words, having a second supplier provides flexibility. Think of the extra cost that you pay to the second supplier as a kind of insurance policy. You're paying more up front to have that insurance policy, but in return, you're increasing the flexibility of your supply chain. Technology The rapid evolution of technology, for moving physical products and for processing information, has transformed the way that supply chains work. A few years ago, we ordered things from a catalog, mailed in checks, and waited for our packages to be delivered. Today, we order products on our phones, pay for them with credit cards, and expect real-time updates until those packages are delivered to our doorsteps. Supply chain management requires understanding how technologies work and how to use them to create value at each step in the supply chain. Global perspective The ability to share information instantly and to move products around the world cheaply means that every company today operates in a global marketplace. No matter what product or service you provide, your company is global. As a supply chain manager, you must recognize that how your business depends on global factors to supply inputs and drive demand for outputs. You also need to think globally about the competition. After all, your company's real competitive threat could be a company you've never heard on the other side of the planet. Risk management When you combine high performance requirements with complicated technologies and dependence on global customers and suppliers, you have a recipe for chaos. There are lots variables, and lots of things can go wrong. Even a small disturbance, like a shipment that gets delayed, can lead to a series of problems further down the supply chain, such as stockouts, shutdowns, and penalties. Supply chain management means being aware of risks and implementing processes to detect and mitigate threats. Stability may be the key to making supply chains work smoothly, but risk management is the key to avoiding or minimizing the costs of dealing with surprises. Done well, risk management can provide opportunities to capture value during times of uncertainty. Visibility You can't manage what you can't see, so supply chain management makes visibility a priority. Knowing what's happening in real time (or close to real time) lets you make better decisions faster. Visibility comes at a cost, however: You have to build your supply chain in a way that lets you capture data about key steps in the process. The value of visibility is that it lets you make decisions based on facts rather than on intuition or uncertainty. Having better visibility into supply and demand allows you to optimize the amount of inventory that you hold throughout the supply chain. Value creation Supply chain management is about creating value — meeting your customers' needs in the right place, at the right time, at the right level of quality, for the lowest cost. This value is the heart of supply chain management. If I had to pick just one principle to describe the whole process of supply chain management, it would be value creation.

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5 Supply Chain Tasks

Article / Updated 08-21-2018

James B. Ayers is a well-known supply chain management expert who works with manufacturers, service companies, and government agencies. In Handbook of Supply Chain Management, 2nd Edition (Auerbach Publications, 2006), Ayers says that supply chain management should concentrate on five tasks: Designing supply chains for strategic advantage: Consider how your supply chain can help you create value. You want to plan to operate your supply chain better, faster, and cheaper than your competitors. You need to think beyond just lowering costs. Also consider ways in which your supply chain can help you grow revenue, innovate your products, and even create new markets. Implementing collaborative relationships: Consider how you can get teams to work together toward a common goal rather than competing for conflicting goals. If your sales team is trying to improve customer service by making sure that you have plenty of inventory available, for example, and your logistics team is trying to reduce inventory to lower costs, both teams are probably going to waste a lot of energy without achieving their goals. Supply chain management can help them align their objectives. Forging supply chain partnerships: Consider how you can build and sustain strong relationships with customers and suppliers. When companies understand that they depend on one another for their success — and perhaps their survival — working well together becomes a priority. Companies that don't do a good job of forming and sustaining supply chain partnerships end up at a competitive disadvantage. Managing supply chain information: Consider how you can make sure that information is shared with others in the supply chain in ways that create value for everyone. When retailers share sales data with their upstream partners, the manufacturers and distributors do a better job of scheduling production and managing inventory. When manufacturers share data about commodity prices and capacity constraints with their downstream supply chain partners, the retailers do a better job of managing pricing and promotions. Sharing the right information up and down the supply chain helps everyone create more value. Making money from the supply chain: Consider how you can leverage your supply chain design, relationships, partnerships, and information to capture value for your company. At the end of the day, businesses are sustainable only if they're able to capture value and generate a profit. In supply chains, a process change for one part often creates value for someone else. Find ways to share this value so that everyone has an incentive to work toward optimizing the value of the entire supply chain and ensuring that all the participants make a profit along the way.

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How to Implement the New Supply Chain Agenda

Article / Updated 08-21-2018

The New Supply Chain Agenda, by Reuben E. Slone, J. Paul Dittmann, and John T. Mentzer (Harvard Business Review Press, 2010) is a business book — the kind that you'd find in an airport bookstore — that breaks down the challenge of supply chain management in a way that focuses on senior executives. The authors talk about working capital and liquidity, strategy, and alignment, and they lay out a five-step system for making a company better at supply chain management. The five steps of the New Supply Chain Agenda are shown here. Placing the right people in the right jobs Implementing supply chain management requires understanding how your job affects other people inside your company, as well as the people up and down the supply chain. If people don't understand the true effect of the jobs that they do, they need to learn so that they can do their jobs better. If someone is unable to learn or doesn't want to learn, he or she isn't the right person for that job. Getting the right people in the right jobs is the first step in implementing an effective supply chain strategy. Putting the right technology in place Supply chains depend on technology. The technology may be something simple, such as a whiteboard with sticky notes that gets updated daily, or it may be something as complicated as an enterprise resource planning system. Each business, and each function within each business, has different technology needs. Figuring out how technology can enable your supply chain to create and capture value and then implementing the right technologies at the right time is the second step in the New Supply Chain Agenda. Focusing on internal collaboration When you look at a company's organization chart, it's easy to see how traditional business structures create silos within a company, with divisions competing for limited resources and often working toward conflicting goals. Managing from a supply chain perspective helps you break down the silos that keep the divisions within a company from working together effectively. By changing the focus from the performance of the separate divisions to looking instead at the performance of the company's supply chain, each division becomes more dependent on the others for their own success. Sales teams need to collaborate with operations teams. Logistics teams need to collaborate with procurement teams. Everyone needs to understand the company's strategy and work toward common goals that support that strategy. Directing external collaboration Traditional business relationships are transactional and often self-centered. Buyers and suppliers approach each deal as a win-lose game: The suppliers are trying to inflate their profits, and the buyers are trying to squeeze them on price. Over the long run, this approach can damage both parties because it destroys value rather than creating it. To build sustainable supply chain relationships, each partner needs to look for opportunities to contribute value to the relationship. In return for their contributions, buyers and suppliers develop systems for sharing the value in sustainable ways. The goal is for every partner in the supply chain to be successful over the long term and to maximize total value. This approach is very different from a transactional approach, in which each party is trying to squeeze every penny from each deal even if it means causing harm in the long run. Applying project management Supply chains are dynamic. Companies respond to changes with projects, so the last step in the New Supply Chain Agenda is implementing strong project management capabilities. Teaching people how to manage projects well and having professional project managers involved are the keys to ensuring that your supply chain evolves as your customers, suppliers, and company change.

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Supply Chain Management: Theory of Constraints

Article / Updated 08-21-2018

The Theory of Constraints (TOC) is one of the simplest, most powerful supply chain concepts. The basic idea is that every process is limited by some kind of constraint (think of the saying, "A chain is only as strong as its weakest link"). TOC is really about tuning an entire supply chain to run at the same pace as the slowest step in the process. There are many examples of how constraints actually control all of the processes around us. In the world of auto racing, there are times when you need to limit the speed at which cars travel around the track, so you send out a pace car that no one is allowed to pass. When you're draining a bathtub, the rate at which water flows out is constrained by the size of your drain. In other words, the most restrictive step in a process is the one that constrains the entire system. TOC helps you focus improvement efforts on the constraints because that is where you can have the greatest effect on the supply chain. After you find the constraint, you have two choices: Slow all the other steps down so that they run at the same speed as the constraining step. This will prevent the buildup of inventory between the steps in your process. Improve the constraint so that the entire system moves faster. As you continue to improve the constraint (perhaps by using Six Sigma), eventually, it reaches the point where it's no longer the slowest step in your process. In other words, it stops being your constraint. Some other step becomes the constraint that's limiting your process, and the cycle starts again. The Theory of Constraints was made popular with a novel called The Goal by Eliyahu M. Goldratt (North River Press, 2014). Herbie was one of the fictional characters in the book, and his name has since been adopted into the jargon of TOC as a way of describing the constraining step in any process. Although looking for a constraint may sound obvious, the problem is that constraints are often hard to find. When a constraint is at the beginning of a process (like a pace car) or at the end of a process (like a bath drain) then the process is probably stable. When a constraint occurs in the middle of a process, the constraint can cause chaos. For example, a machine in the middle of an assembly line that breaks down might be a Herbie. But until you look at it from the perspective of TOC, people might not see how the starts and stops of that one machine actually cause inefficiencies throughout the whole supply chain and lower the company's overall capacity.

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Supply Chain Management: Cross-Functional Project Teams

Article / Updated 08-21-2018

Supply chains connect companies and cut across the silos within a company. As a result, supply chain projects commonly involve team members from many functions. A supply chain project team might include people from business development, customer services, shipping, receiving, manufacturing, information technology, accounting, and human resources. Managing cross-functional supply chain projects is a great way to develop a broad network and a deep understanding of the complexity of supply chains. The project manager must master the use of influence, pay careful attention to communications, and help team members manage their priorities for the benefit of the team. Bringing people with diverse skill sets together as a project team can be a great way to stimulate innovation and accelerate change. Cross-functional project teams have some major challenges, too. Three of the most common challenges for cross-functional project managers are authority, communication, and prioritization. Managing cross-functional supply chain projects is a great way to develop a broad network and a deep understanding of the complexity of supply chains. The project manager must master the use of influence, pay careful attention to communications, and help team members manage their priorities for the benefit of the team. Authority Authority means that you have the ability to hire, fire, reward, and correct someone. Often, key team members report to managers in another division in the company and are only loaned to the project, so it can be difficult for the supply chain project manager to address performance issues directly because they do not have the authority to do so. If the project manager doesn't have the authority to manage the team members, she will need to rely on influence to keep all the team members pulling in the same direction. Communication Experts in any field have their own tools, rules, and language. In supply chain management, the same word can mean something different things depending on the context. For example, transportation companies (such as steamship lines and trucking companies) refer to their customer as the shipper, whereas their customers often use the term shipper to describe the transportation company. The project manager needs to be able to provide translation among functions and encourage people to explain what they're trying to say without using jargon. Priorities When someone is asked to work on a project, that person may not get to stop working on other things; he or she may be working on several projects. If one of the other projects requires more time and attention, you must make sure that your project gets enough support to avoid getting into trouble. Anticipate potential problems so that you can make formal arrangements. You might make an agreement with the team member's boss to ensure that your project has priority, for example. Or perhaps the team member's boss may promise that the team member needs to commit a certain number of hours each week to your project.

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