How does CIPS formulate questions on supply chain management? (Part 1)
Supply chain management (SCM) is emphasized in Level 4, especially in chapter 1 of L4M1. Supply chain management becomes a key task in a business, as it contributes a wide ranges of benefits. CIPS also askes various questions on the topic such as SCM approaches or benefits of SCM. To overcome those challenging questions, you first need to understand what the supply chain is.
From a company’s perspective, a supply chain encompasses all activities from sourcing raw materials to delivering products to end consumers. From a marco perspective, a supply chain begins with the primary sectorm, in which raw materials are extracted; move to the secondary sector, in which these materials are transformed into finished products; and finally reaches to the tertitary sector, in which the products are sold and delivered to consumers. As a buyer, it is essential to grasp a holistic view of the supply chain at both micro and macro levels. Within a supply chain, there are theree typical flows: material flow, financial flow and information flow. To manage a supply chain, buyers need to manage these flows effectively. For example, you are a buyer working in a bakery company. Your company’s supply chain can be described in a graph 1.
Which approaches can be used to manage a supply chain effectively? As a buyer, you may consider various methods, each offering different benefits to your company.
Just In Time
Just in Time (JIT) is a production and inventory management strategy designed to increase efficiency and reduce waste by receiving goods only when they are needed in the production process. In this approach, materials are ordered and received just before they are used in the production. The production is aligned with actual customer demand rather than forecasts. Just in Time in supply chain management helps a company lower inventory holding costs, free up capitcal tied up in inventory, reduce potential risks of obsolete and redundant stocks and faster response to market changes. To implement Just in Time approach effectively, a company must meet the following requirements:
- Suppliers are vetted carefully before awarding contracts. This ensures that all purchased products meet specification requirements and those suppliers have the capacity to deliver orders in the right quantity and fulfill urgent orders.
- A company must make a detailed and precise plan that includes the production schedule, essential resources ( such as human, materials, machinery….), lead time and delivery strategy. The purchased orders have just arrived and will be promptly unloaded and put into the production process. Along with that, the finished products are completed in line with expectations, ensuring that customer’s orders requirement are fully met and the level of inventory are reduced to zero.
- Effective communication between buyers and suppliers are required, allowing supplier to quickly respond to buyer’s demand.
Value analysis & Value engineering
These methods aim to improve the value of a process in the organization. It begins with a first step of examining its functions and associated costs. Value analysis is applied to an existing process while value engineering is applied to a new process. The goal is to maximize functionality of the process while minimizing cost, without compromising its performance.
The method starts by identifying essential functions of a process. Then, you need to evaluate the cost of delivering each function. Finally, you need to seek ways to enhance value by either improving fuctions or reducing costs. Integrating value analysis and value engineering into supply chain management can enhance business processes and reduce operating costs.
Lean and Agile principle
Lean principle in supply chain management aims to build a supply chain that maximize customer value while minimizing waste. Lean identifies eight types of waste in the organization that includes defects, overproduction, waiting, non-utilized talent, transportation, inventory, motion and extra-processing. The Lean principle helps a company boost efficiency & productivity, enhance customer satisfaction, reduce costs, and foster a continuous improvement culture.
A company starts a lean supply chain management by identifying what truly values to customers and focusing on developing processes to deliver that values. After that, it identifies every steps in the process and remove steps that don’t add value. The company must ensure that value-adding steps occur in a smooth way, without any delays or bottlenecks. These processes are continuously reviewed to minimize waste and maximum value creation. In the Lean supply chain, production is linked to actual customer demand to avoid overproduction and excessive inventory.
The Agile principle in supply chain management focuses on building a supply chain that is responsive, adaptive, and flexible to meet evolving customer demands and continuous market changes. By embracing agility, companies can modify operations and logistics in response with real-time changes. The processes are designed to react rapidly to changes in demand or supply (such as developing close relationships with multiple suppliers to ensure a stable source of supply; maintaining safety stock to deal with demand fluctuations or production disruptions; shortening product development process to get products to customers faster). An agile supply chain management requires real-time data tracking to support accurate decision-making, strong collaboration among internal departments and with suppliers, and back up solutions to recover from disruptions.
ERP system
Many companies use ERP systems to manage their supply chains. ERP stands for Enterprice Resource Planning that helps a company manage and integrate their core business processes in a unified way. Normally, ERP systems includes key modules such as finance & accounting, human resources, inventory & supply chain management, manufacturing and production planing, procurement and vendor management….ERP system stores data from all modules in one place, ensuring cross-functional tasks are implemented effectively, eliminating silos and reducing duplication. ERP enables a company to manage information flow efficiently, leading to effective material and financial flows.
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L4M1: https://www.udemy.com/course/cips-l4m1-practice-test-short-learning-guide/?couponCode=LUCKYOCT25
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