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15 Supply Chain Concepts You Should Know to
Get Ready for the CSCP Exam
from the team at
REAL WORLD SUPPLY CHAIN
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Disclaimer
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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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 efficiently 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 significant inventory write-offs.
To make things worse, the challenging market place is coming at a time of increasing
financial 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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15 Supply Chain Concepts You Should Know to
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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. Postponementinventory strategies might be implemented to enable late stage customization or rapid
finished 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 keysuppliers 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 influence.
Understand that you keep inventory to manage supply/demand variability and manage
constraints in the supply chain.
There are five basic types of inventory:
1. finished 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 functionsof 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 fixed 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
flow. And decreases in inventory positively effect cash flow.
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 finished 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 finished 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. Define 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 benefits 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 profitable. There are a number of functions associated with customerrelationship 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.
Define planning parameters and static data to define the supply chain structure:
1. Define the planning horizon (eg, 24 months)
2. Define the planning time bucket (eg, months, weeks, days)
3. Define target inventory levels for all materials at all nodes in the supply chain
4. Define transportation lanes and lead times for all materials and nodes in the
supply chain
5. Define 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 fixed manufacturing schedules
4. Collect fixed procurement plans
5. Collect latest capacity data for all constrained resources
Plan the supply chain:
1. Calculate the finished 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 finished good
replenishment requirements and pass raw material requirements upstream
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