Week 1 Reading Materials PDF

Unit 1: Supply Chain Basics A supply chain is a network of people, processes, resources, and technologies in an organization that work collectively to produce products and services for an end user, or customer. Supply chains have existed since people began trading goods and services. They have evolv...

Unit 1: Supply Chain Basics A supply chain is a network of people, processes, resources, and technologies in an organization that work collectively to produce products and services for an end user, or customer. Supply chains have existed since people began trading goods and services. They have evolved from exchange trading on the Silk Trade road in the 1400s through supplying the troops in World War I and World War II to the complex networks of today’s global supply chains. Supply chains now consist of multi-national, global networks of companies working together to build products and provide services. Modern supply chains will be discussed in depth in Unit 3. What is a Supply Chain? A supply chain is a network of individual functions within an organization that begins with the development of a strategic plan and ends with the delivery of a product or service. Those functions are listed below; each is explored in subsequent learning blocks: Demand Planning Supply Management and Procurement Inventory Management Warehousing Operations Manufacturing and Service Operations Transportation Operations Customer Service Operations It is immensely dangerous to business health to manufacture a product without first planning what inventory will be required and when it will be needed. It is equally risky to attempt to obtain goods and materials from suppliers without a demand plan that feeds procurement purchase requisitions in order of priority based on need dates and supplier lead times. Without linkages in the entire supply chain, chaos would occur and the company would soon have to close its doors. Now it is easier to see that the demand plan drives and signals procurement for the orderly acquisition of goods and materials, which in turn enables an organization to receive and stock inventory in a warehouse, etc. For example, before tomato sauce can be made available to consumers, it goes through many steps from farmers to retailers. Farmers buy seeds and fertilizers to grow tomatoes, which are sold as raw material to food processors that employ their factories to convert the tomatoes into tomato sauce, juice, canned tomatoes, and ketchup. To convert the fresh tomatoes, processors need to purchase other raw materials, such as vinegar, salt, spices, cans, and labels; therefore, food processors must work with many different suppliers. The finished products are then combined into larger packages, transported to warehouses, and subsequently distributed to grocery stores. There are often levels of suppliers within a supply chain called tiers. Suppliers that sell directly to factories or main operators are referred to as tier one suppliers; suppliers that sell to tier one suppliers are referred to as tier two suppliers. This cycle continues into tier three suppliers, tier four suppliers, etc. The final customers who purchases and consumes products and services are called consumers or end customers. End customers’ needs and wants are the driving force behind the entire supply chain. They are the ones who create demand and ultimately pay for all the product and service functions in supply chains. Without end customers, supply chains would collapse due to a lack of demand for products and services. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Therefore, at any point in the supply chain, focus on the needs and wants of end customers must be maintained. For that to occur, careful attention must be placed on the values and expectations of each element of the supply chain leading to end customers; this approach, which keeps the end customer in mind even several steps away from the point of sale, is referred to as the voice of customers. Examples of Supply Chains in Use All companies are part of at least one supply chain, whether they sell directly to the end customers, provide services, manufacture products, or extract raw materials from the earth (see Figure 1). For example, a customer may go to a Walmart store to buy laundry detergent. In this case, the supply chain begins by planning to satisfy customer needs through a sales forecast for laundry detergent. Proctor & Gamble, as a manufacturer of detergents, develops a forecast for sales; from that forecast, a demand plan is developed that enables its procurement department to procure the raw materials used to make the detergent along with plastic containers, labels, and other necessities. These procured items are received, stored, and then used in the manufacturing process. The individual completed containers of detergent are then packaged in boxes for shipment, transported to distribution centers, and ultimately delivered to retailers like Walmart. Another supply chain example is based on a customer who needs to purchase laptop computers online. The supply chain includes: Defining how many laptops might be sold in a given period (like an annual sales forecast) Creating the demand plan to procure the necessary components (inventory) from suppliers to assemble the laptops Designing the value-added facility where final laptop assembly will occur Ensuring a system exists to control and issue the inventory Implementing a team of customer service representatives to take orders and interface with end customers, including Internet live chat to answer questions and provide recommendations Ensuring assembled laptops are adequately packaged for transportation and reliable carriers are used to deliver the final laptop and associated peripherals Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Figure 1. A supply chain from the farm to the customer’s home. Developed by LINCS in Supply Chain Management Consortium. Sometimes reverse logistics might occur, which require that products (in this case, the laptop) returned by the customers travel in the opposite direction through the supply chain. Reverse logistics is a necessary process for product returns resulting from products that are defective, products that require an upgrade or refurbishment, preventive maintenance, or even product recalls stemming from safety or environmental concerns. Typically, customers will interact with the customer service department to determine the nature of a problem, and customer service personnel will issue a return material authorization along with shipping instructions and other details. Supply Chain Management Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. SCM is a comprehensive approach to the management of the entire flow of data, information, materials, and services of the individual supply chain functions previously mentioned. The ability to link these functions and integrate them with other elements in the business process is dictated by the overall management strategy. Therefore, the management of the supply chain cannot be viewed as an independent, standalone organization and must be arranged to work in concert with other business processes, functions, and departments. The Council of Supply Chain Management Professionals (CSCMP) is a professional organization that supports the professional development of its worldwide membership. As defined by CSCMP, Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, and finance and information technology. (CSCMP, 2014) As the CSCMP’s comprehensive definition above makes clear, supply chains have evolved into complex entities (see Figure 2). Figure 2. Council of Supply Chain Management Professionals (CSCMP) logo. Acquired from CSCMP.org. SCM takes into consideration activities involved in confirming that products from the raw material stage are turned into finished products and delivered to customers. These activities include: Sourcing of raw material and parts Manufacturing and assembling Warehousing and controlling inventory Entering and managing orders Finishing, customizing, and packaging Distributing across all channels Delivering to final customers Managing relationships with suppliers Managing relationships with customers Maintaining the information systems necessary to monitor the above activities SCM thus coordinates and integrates these activities into a continuous process, linking the entities together to ensure supply chains are competitive and satisfy customers with the right products at the right prices. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Unit 2: Supply Chain Strategy In today’s environment, Supply Chain Management must be an integral element in developing a corporate strategy. Corporate strategies determine the target markets for companies to pursue, and companies then decide if they want to compete on price, service, quality, innovation, flexibility, or a combination thereof. For example, Walmart pursues a low-cost strategy on everyday goods. Many items offered to consumers at Walmart can be purchased in other retail stores, but they might not be sold at prices as low as those at Walmart. In fact, the supply chains of two different retail stores, even selling the same items, can be quite different. Walmart owns their distribution centers and has their own fleet of trucks to serve their immense number of retail stores and control the flow and availability of products. Figure 3: By Walmart from Bentonville, USA (Walmart’s Grease Fuel Truck) CC BY 2.0 http://www.creativecommons.org/licenses/by/2.0 ), via Wikimedia Commons. Meanwhile, smaller retail stores such as boutiques and other specialty shops do not have as many retail outlets, and the products they offer are not guaranteed to have the lowest prices; additionally, they do not have their own trucks or warehouses, so they must depend on other supply networks for product availability. The competitive strategies companies choose influence product price, delivery time, variety, and quality. Walmart customers shop at that store primarily because of the low price, but consumers may shop at boutique retail stores because of unique product offerings and additional services offered, like gift wrapping and engraving. Supply chains are designed to fit strategically with defined corporate strategies; the numerous organizations and activities in supply chains work together to contribute to the overall goals and objectives associated with those strategies. Understanding customers and supply chain capabilities is important when determining if certain supply chains will be able to support corporate strategies. Figure 4: Supply chain strategy could contribute to the overall competitive The business plan, which includes the competitive strategy, should goal. Developed by LINCS in Supply support consumer demand and the ability to provide products and Chain Management Consortium. services, which in turn drives the supply chain as it seeks to fill customer orders. Several functions within organizations—research and development, procurement, finance, manufacturing, etc.—work together to support their specific supply chains. If the strategic goal for a company is low costs, these functions need to contribute to that goal, such as designing a transportation network that minimizes expenses and procurement’s seeking of low-cost suppliers. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Unit 3: Modern Supply Chains The Global Economy In the late 1980s, the U.S. experienced an increased in foreign competition, and China’s economic strategy became more aggressive as the country opened its borders to begin trading globally. This era was characterized by: Intense competition among industries Growing companies were capturing more international market share using different strategies Rapid increases in technology and products with shorter product life cycles like personal computers, mobile devices, and global positioning systems The ability to coordinate worldwide supply chain activities by using international data networks and the Internet became critical in the 1990s. If companies wanted to stay in business, they had to take coordinated steps to manage the flow of goods, services, funds, and information from suppliers around the world to end customers around the world. From 2000 to the Present From the year 2000 to the present day, companies have needed to develop strong relationships with suppliers to remain competitive. Cooperation with suppliers became critical, replacing the sometimes adversarial nature of those relationships. This recent cooperative supply chain approach of integrating suppliers as teammates has brought about strategies such as improved supplier development, supplier design involvement, the use of full service suppliers, evaluating suppliers on total value, long-term supplier relationships, and strategic cost management. As the supply chain is integrated with the overall business strategy, the impact of ecommerce will continue to reshape business strategies and the supply chains needed to conduct business globally. In response to the challenges presented by worldwide competition and trade, business strategies and processes will continue to evolve to meet the needs of rapidly changing technology and, of course, to continue meeting customers’ expectations. Supply Chain Management Principles SCM is estimated to influence as much as 80% of the costs associated with the total costs of delivering the final product or service. For this reason, optimizing inventory expenses, choosing efficient transportation carriers, working closely with suppliers, and making sure forecasts are synchronized with the demand plan are examples of functions that have become critical within organizations in recent Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. years. From global sourcing to global customers and from brick-and-mortar stores to ecommerce, the coordination and integration of the processes to plan, procure, produce, and deliver products to customers is essential. To meet the needs of customers and achieve the goals of the organization, it is imperative all the functions of the supply chain are integrated and employees understand their impact on others within this broader function. Companies have invested in comprehensive Enterprise Resource Planning (ERP) systems, and today SCM is an integral part of the broader business; it is woven into the fabric of a business, not a standalone element operating in a vacuum. Figure 6: Visual representation of Enterprise Resource Planning. Developed by LINCS in Supply Chain Management Consortium. SCM should be viewed as the integration of the major functions listed in learning blocks 2 through 8, beginning with Demand Planning. Students should focus on the fact that the functions have interdependencies that enable them to work within the broader supply chain. Unit 4: Demand Planning Demand forecasting is an estimate of a company’s future needs and forms the basis for a credible demand plan. Typically, sales forecasting defines what customers will buy over a defined period, usually one year. In turn, the demand planning function defines what inventory and resources are needed to support the sales forecast. As an example, a commercial baker sells cakes, cookies, and breads. The company forecasts, or predicts, how many cakes and cookies its customers Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. might purchase categorized by size and type. These quantities and variations translate into raw material requirements and other resources needed to manufacture finished products. The forecasting part in this example is the finished products of cakes, cookies, and breads, and the demand plan defines the ingredients, ovens, mixers, and equipment used, as well as the number of people preparing the baked goods. Demand planning is the process of planning goods, materials, and resources required for procurement and manufacturing to support the sales forecast. The process starts with the general requirements defined by the sales department for finished or semi-finished products (which require additional manufacturing steps to become finished products; they are also called work in process). The plan further enables the generation of procurement requisitions for raw materials and other goods and materials. The demand planning function also defines other resources needed for manufacturing like mixing and baking equipment along with personnel staffing to perform the necessary operations. The demand plan attempts to achieve a balance that defines the necessary supply elements with anticipated customer demand. This balance is critical to ensuring stock levels are optimized to satisfy manufacturing process requirements, while simultaneously making sure stock levels are not excessive. Having too much inventory is expensive and has inherent risks of obsolescence and shelf-life expiration. Unit 5: Supply Management and Procurement The procurement organization is dependent on procurement requisitions that are fed from the demand planning organization. The demand plan tells or signals the procurement organization to initiate procurement of what is needed by transmitting the requirements in an ERP system. Without linkage to the demand plan, procurement would not know what to buy and when to buy it. The demand plan considers when items are needed in inventory against the supplier’s lead time (the time it takes for a supplier to deliver goods after a PO is placed). Procurement personnel receive requirements on purchase requisitions, solicit suppliers for pricing and delivery, evaluate supplier responses using an evaluation process, negotiate to achieve best value, and make awards by issuing POs. POs are a company’s authorizing documents and financial commitments to buy products and services. The procurement organization makes sure products are accurately described by working with engineering and other internal organizations to avoid confusion about exactly what is needed. Procurement is a function that interacts with suppliers globally to achieve the best value for an organization. Procurement personnel must consider the benefits and risks of working with suppliers in different countries. The specific issues must be managed across different time zones and cultures, and different approaches must be used to mitigate supplier disruptions like natural disasters, embargos, strikes, currency fluctuations, and military conflicts. Procurement personnel must also manage suppliers after awarding a PO to ensure products and services are delivered on time, at the value stated on the PO, and at the correct quality level. If suppliers are not managed and open POs are not tracked, late deliveries could cause manufacturing disruptions and even delivery delays, resulting in lost sales. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Unit 6: Warehousing Operations Warehousing personnel perform the receipt, storage, retrieval, and distribution of procured goods and materials. Initially, goods and materials are received from suppliers into a warehouse by warehousing personnel who unload trucks, inspect items to ensure there is no product or shipping damage, and process the items (now formally part of inventory) to a storage location until they are needed. Once there is a demand for the stored inventory, warehousing personnel retrieve or pick the inventory and deliver it to the intended destination, such as manufacturing for assembly. As manufacturing personnel complete their assembly operations, they process raw materials and semi- finished goods, sending finished products back to the warehouse. At this point, products could be stored for further assembly operations or might be packaged and prepared for immediate delivery to a customer. Warehouses are not always standalone facilities. In some cases, the storage of raw materials, work in process, and finished goods use dedicated portions of the manufacturing facility to expedite the movement of inventory through the various manufacturing processes. In other cases, warehouses and distribution centers may have roles that are entirely distinct from manufacturing operations and focus on storage and order fulfillment. Warehousing operations can be simple floor storage or can include various types of racking for high storage. Many facilities feature sophisticated, automated material handling systems to increase speed and accuracy while reducing costs. Functions performed within warehouses or distribution centers have increased significantly, so this function now plays a greater role in the overall supply chain. From picking items to repacking them into multipacks and shipping individual orders or full truckloads, the complexity of warehousing has resulted in a greater focus on the efficiency of these operations and how they impact the deliveries of customer orders. Warehouses designed to function as distribution centers can provide additional (value-added) services for customers. These could include services like cross-docking and kit assembly. Cross-docking generally moves incoming products directly to outgoing trucks, thus eliminating the need for storage entirely. Kit assembly is performed to pick multiple items and place them into one kit or container for processing to be sent to manufacturing; this enables the manufacturing assembly operation to assemble the final product easily. Warehousing is supported by a warehouse management system (WMS) that is linked to a company’s ERP system. The WMS is integrated with the material handling systems, which includes equipment to move, stock, pick, and route goods in and out of warehouses and distribution centers. These material handling systems feature specialized software that enhances the flow of information and communication to optimize the efficiency of warehouse processes. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/.  Unit 7: Inventory Management Inventory management is an important function to control assets in the supply chain. Individuals working in the supply chain should have an understanding of the roles, costs, and benefits of inventories. Inventory is often obtained from suppliers in the form of raw materials and other goods and materials as a result of POs placed by the procurement department. Inventory also comes in the form of work in process and finished products from manufacturing operations. It may seem obvious that inventory is controlled and managed in a warehouse because this is where the majority of inventory is physically stored. However, the management of inventory, or inventory management, is a function that actually involves the entire supply chain. Inventory management starts with close integration with demand planning and continues until products are successfully delivered to customers. Inventory management is the process of controlling and managing goods, materials, and products to maximize efficiency and profitability. It controls how efficiently resources are utilized in producing products and services for customers. Inventory management systems and personnel interact with warehousing, transportation, demand planning, procurement, and other personnel throughout the company. Companies continually strive to reduce their inventory levels as one approach to reducing operating costs and increasing competiveness. Inventory costs are often one of the largest cost elements in an organization. Inventory management systems are generally part of a broader company-wide ERP system that monitors inventory availability at all levels from raw materials to finished goods. Unit 8: Manufacturing and Service Operations Manufacturing organizations convert raw materials and other procured items into final products that can be delivered to a customer. In order to fabricate products in a manufacturing organization, there must be an accurate sales forecast that is converted into a demand plan; those requirements are sent to procurement to obtain raw materials, equipment, space, and other resources. To aid in this process, the company-wide ERP system includes modules for forecasting, requirements planning, work order scheduling, and links to other business systems. Products cannot be manufactured and services cannot be delivered unless tools are available. This means demand planning must accurately determine what is needed and when it will be required. If procurement does not purchase the materials or if transportation does not deliver them when needed, then the conversion, or manufacturing process, will fail. It is also critical conversions are done with high quality to avoid customer service issues and to avoid costly defects that are often returned through the reverse logistics process. Manufacturing is dependent on demand planning to schedule the assembly work, on procurement to buy needed items, on the warehouse to deliver items for assembly, and on inventory management to ensure the right items are available at the right time. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Manufacturing organizations are generally part of a company’s operations that also includes service operations. Service operations personnel are responsible for products that require routine maintenance, repairs, and warranty work. For example, if an automobile is recalled or needs repair or periodic maintenance, it is not sent back to the factory where it was assembled; instead, there is a separate dealer network of authorized service operations centers. Unit 9: Transportation Operations An appropriate way to understand the field of transportation operations is to consider the economic perspective: transportation involves the physical movement of people and goods between origin and destination points. From a business standpoint, transportation links partners and facilities that are separated geographically in a company’s supply chain, such as customers, suppliers, distributors, plants, warehouses, and retail outlets. Transportation also provides the links between diverse entities spread across the global supply chain and connects the supply chain by moving inventory with trucks, trains, planes, ships, and pipelines. Any combination of two or more of these modes to achieve a delivery requirement is call intermodal transportation. Transportation operations involve ensuring the flow of inventory from points of origin in the supply chain to points of use and consumption. The three primary components in transportation operations are inbound, outbound, and reverse logistics. Inbound logistics supports the procurement of materials and goods from supplier locations, outbound logistics supports the distribution of materials and goods to customer locations, and reverse logistics supports product returns, recycling, reuse of materials, and waste disposal. Transportation focuses on the timely movement of materials and products within and between organizations. In order to control costs, goods must move at the right time from the right place to the right place, while ensuring the correct product, quantity, and quality are ensured. When this is achieved, inventory is reduced, which reduces expenses. Transportation operations have grown in complexity because the options for multiple (intermodal) modes of transportation—air, rail, truck, sea—and their combination can vary daily depending on a number of factors: cost, values, dimensions, weights, time-definite delivery requirements, and other factors like hazardous or refrigerated cargo. For today’s supply chain professional, it is essential to understand the roles of the different modes of commercial surface transportation (railways, road, water, pipeline), commercial modes of air transportation, and the selection criteria for operating carriers to move products in a cost- and time- efficient manner. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/. Unit 10: Customer Service Operations While customer service is presented as the last learning block, it actually threads its way throughout the supply chain. Customer service is essentially the delivery of customer satisfaction and covers all aspects of the supply chain. Customer service focuses on identifying and meeting customers’ needs, wants, and expectations before, during, and after they buy products. It constantly interfaces with logistics and transportation to ensure products get to where they belong, on time. Customer service also interfaces with operations, warehousing, and inventory, which assist in ensuring customers receive products when they need or want them while simultaneously managing inventory to control costs. The function of customer service is essential to any organization, whether in the private sector (e.g., manufacturers, wholesalers, retailers, carriers, and third-party logistics providers) or the public sector (e.g., government agencies, airports, ports, and terminals). The demands have increased significantly, so it is crucial for anyone employed in supply chains to understand the key elements of customer service like distribution channels, e-commerce, brick and mortar stores, and reverse logistics. This function also requires individuals to understand the skills needed to handle customer complains effectively, address customer concerns, and communicate consistently within organizations to satisfy customers. Within the modules of an ERP system or in standalone systems, customer service is supported by: Inventory stock status Customer contact management Sales force management Customer relationship management (CRM) systems Customer service can be a discriminator for a company to maintain excellent customer satisfaction based on the processes for taking orders, resolving problems, and ensuring timely delivery. LINCS.WO.v2.22 (05/02/2016) Page 12 of 13 Content was developed and produced by LINCS in Supply Chain Management Consortium and is licensed under a Creative Commons Attribution 4.0 International License. Under this license, any user of this content herein must provide proper attribution as follows: If you use this document as a bibliographic reference, you should cite this document as follows: Warehousing Operations Certification Track. LINCS in Supply Chain Management Consortium. May 2016. Version: v2.22. www.LINCSeducation.org. Disclaimer: The photos used within this document may only be used with this content. The license does not include copying photos for use with any other content. Unless otherwise noted, this work is licensed under the Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons LINCS.WO.v2.22 (05/02/2016) Page 13 of 13