APICS Certified Supply Chain Professional” Cc S Cc P LEARNING SYSTEM PC PAS CSc ue eu cd Creme) Se pee ay Peet Peery Section E: Managing the Supply ChainPreparing for the Certification Exam Studying the APICS CSCP Learning System combined with on-the-job knowledge, profesional experience, and other APICS learning teas, such a the APICS Ditionary. isthe most effective way ta prepare Tor the ‘APICS CSCP cerication examination, The APICS CSCP Learning Sytem is ntended tc cover the bay of ‘knowledge tested by the APICS CSCP cetfiation examination, however the APICS CSCP Learning ‘System doesnot tach the est." The Leaning System focuses on caring knowledge, whereas the exam ‘eas the candidate's ability o apply that knowledge in accordance with accepted industry andar ‘Content onthe exam is hsed on el- word scenarios and requires candidates to apply the onceps in the [ADICS CSCP Learning Sytem. While both the APICS CSCP Learning Sytem andthe APICS CSCP ‘xrticaton examination ae based oa the APICS CSCP Exam Content Manual which:+ avilable or ree download a was LearnCSCB.com > Resource Center > Cerifeaion am Resour), thy ate ‘developed independently of one anaher. To preserve exam inter, specie exam questions aod thet ‘endth ae not shared withthe APICS CSCP Learing System developers. 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APICS Dictionary, 13" Edition Reference Definitions contained within the APICS CSCP Leating Syst we copie with he AFICS Deedonary, [Bukedion. You may purchase the complete dictonay from the APICS bookstore, Module 2—Book I Checklist: Supply Chain Strategy, Design, and Compliance Section Start Date Completion Date Section Quis Se 2A: Sustanailisy 2-8: Risk management 2G: Globalization 2D: Logists| 2-8: Managing the supply hain “Loo fortis test onthe Web at www LearnCSCP com.Module 2: Supply Chain Strategy, Design, and Compliance Book 1 Module 2, Book 1 Contents Introduction, a Section A: Sustainability 23 “The Economic arpctive. a ‘The Evionmentl Pept. 29 “The Socal enpestive as ‘The United Nations Glaal Compact 221 iol Reporting ive. an Section B: Risk Management. aa ‘Wenifcation and Mitigation ofan Response Risk 227 Security and Repulaory Concerns 21 150 31000, isk Managerent—Princples and Ouielnes 282 Section C: Globalization . 2.99 ets of Globally Dispersed Suply and Demand 260 Fre Tide Zones 245 “rang Blcs an Operational Considerations 281 Implications of Globalization 204 ‘Section D: Logisties, ‘Transporation. Warehousing ‘Transportation and Warehousing Tradeofs Csomer Service Section E: Managing the Supply Chain. Indicators of Supply Chain Performance ficient versus Responsive Supply Chains ‘nei eed @ nentsModule 2, Book 2 Contents Section F: Technology. Role of Techology in Supply Chin Management Key Application Tools Data Acquistion ad Communication Tools Sopply Chan Design and Optimization Inxroegvizationtntegration Tos, leeronie Busnes. ‘Section G: Influencing and Prioritizing Demand. Designing Products and Services Marketing Selng. “Matching Customer Ordes to Supply. Section H: Customer Rolationship Management (CRM) Developing and implementing a CRM Siategy Using Technology to implement CRM Measuring Customer Service Challenges in nplementng CRM. Section I: Supplier Relationship Management (SRM) ‘Supple Sleton. Devoping and Implementing SRM Suategis Creating Aliances with Supliers Using Technology to implement SRM Measuring SRM ‘Challenges in Implementing SRM Section J: Inventory Planning and Control Inventory Planing Inventory Conte! Bibliography. Cumulative Course Index Aig eed ‘Version 3.1, 2013 Baton @ rsa ptomen natnAPICS Certified Supply Chain Professional™ (CSCP) Learning System “Tis products based on the APICS CSCP Eom Content Manual (ECM) developed by APICS. Although the text is based onthe body of knowledge tested by the APICS CSCP exam, program developers donot Ihave acces tothe exam questions. Therefore, eadng the text does not guaante a passing sore. he references in hs manual have ben selected solely onthe basso heir educational value othe APICS CSCP certification program and onthe conten ofthe material. APICS does not endose any services or ther materials that may be offered or resonnmendd by the authors or publishers of books and publications ised in this module Every effet has been made to ensure tha all infomation i cument and comet. However, ws and regulations ae constaly changing Therefore, his prodct is dstibuted with the understanding th publisher and authors arent offering legal or professional services. ‘Acknowledgments ‘We woul lke to thank the following dedicated subjet mater experts who sired ther time, experience, nd insihts during the nit development and subsequent pats ofthe CSCP Learning System re Ali Dine now CFP, CSCP Mane os CFM CRM Satta Bos, CSCP ong hon, CFPIG, CIRM, Kinbe Rue CPM, CIRM, CSCP, ‘ABs, CEPIM, CIRM, CSCP Coat caer ‘chat ‘ex Cop Cons, CPM, CIDA, Raj Kara, CSCP IeacioSochex-Chigpe CPM, PMP.CPAM.CQIA,CH, Prakash Kamplelar,CPIM,CSCP CaaS, CPIM, CSCP, CPM Scr, CPshi, CPF PLS Jock Ke, CPIM, CSCR,CP.M, Pam CPIM, CIRM, CSCP Le Chalo PAD, CFP, CSCP— Sse Lane Coat Sein Prat Chay, CSCP Mike Lohman, CSC Ssh ik CPIM, CSCP DrvigN Dadi SCP, LSS Ging Love, CIN, CSP Hin (Abu Teg CPIM, Bet “Things Mata, CSCP cr Prats K-DislCSCP,PMP—Retrg tents crPiM,cScP, DANE Tab, CFPIM, CIRM Suri De, ¢SCP ‘cont Slesp Vai SCP ‘Aaa Desa, CPIM,CIRM, Seven ile, C8CP Rosary Van Trek, CIM, CIRM, {SCP CPM, CPS ‘Aon Miike, CPIM, CIRM, scr ‘Alan Dos CPIM, CSCP “scr ‘Wo Verwoerd CFPIM, CIRM, alph Flo, CFPIM, CIM, Yul Manda, CPIM, CSCP scr esc? eer W Mary, CIRM Robe Vola, PD. CPIM, Lau Gran SCP Mike Olver PAD, CIRM, CSCP_—_ IRM CSCP, CPM JeseeM, Ol CFPM.CSCP Kang Pomtnon, A Wel CPCI, Vivek Wie, ¢SCP ; Gana Chan radon CPIM. CSCP a ims, Joa, CFPIM,CSCP rc PJock PhD..CFPIM, CSCP_ David Rivers CFPIM. CIRM, CSCP aj KoarIgaecsvaran, CPIM, fe auraancs Veron 3.1, 2013 Eon ‘ihe reed @ revrnptnmen nananPECL ULLL UL ULE UUU UU UU UY UUU UU UL UU UU UU SU UU)Introduction ‘leh sere Mogul 2, Supply Chain Soatey, Design, and Compliance eses considerations inthe design of competitive supply chain, the processes that ‘support he organizations strategy, impeovement of he sustainability ofthe ‘organization and its trading partes, nd compliance with applicable regu Section A, “Sustainability inroduoes the concepts of ssthnnbe business practices and shows how they ean be apd and applied tthe spesfc supply chun. An understanding ofthese sustainability practices i required when signing and operating 2 supply chain This section reviews ripe bat ine considerations for an orgaization inthe context of conservation ad stewardship. There isa discussion of leading and lagzng anon inser, environmental and socal standards and epuatory compliance, and the resling impact on supply ehsin decisions. Section B, "Risk Management" focuses on identification and mitigation of and response to risk Designing a robust supply cain requires ecognzing the sources an fem of sk, the magnitude and potential impact ofeach, an maods of mitigating each form of isk. This section includes discussion of security and regulatory concerns and ends with principles, eidlines, and best practices of is management, Section C, "Globalization," explores how to manage globlly dispersed sources ‘of supply and demand, This involves an understanding frequents for ‘operating in multiple countries and moving goods and funds between the countries. Fre trade zones, trading bls, and operations considerations are explained, including the benefits nd effects of each onthe supply cain. The Sceton concludes with implicton and effects of lobalizaion, In Section D, "Logistics" the focus ison understanding the otal eet that, lobaizaton and supply cain management have on inbound and outbound logistics. An understanding of tadeotsbetwaen warehousing transportation, And logit services deision making i alo required Section E, “Managing the Supply Chain," eviews the dyramies of supply and demand and the need to balance efficiency an responsiveness inthe supply cin. All along the supply chin processes, manager ate responsible for . @ wovescnnoncrnnneModule 2 Spl Cain Sra, Design ond Compliance measuring esuls and ensuring that theyre on target to mee thee factona salsa well ax support the onganizationa and static plans. This setion ‘une the indicators of supply chun performance andthe atibte of efflcient nd responsive supply chains. Section F, Technology” explore diferent technologies that enable designing, tracking, operating and communicating between ading partners within a supply chain. basic understanding and th correct application of appropriate ‘technology is needed fr efficient and effective supply chun management In Seton G, "nuening and Prortzing Demand," how members ofa supply ‘tan influence demand and how they may neo to peiotize demand is explained. A thorough understanding of the design proces, as wells ‘markecng and selling prodets nd serves, required fr succes Section H, “Customer Relationship Management (CRM),” focuses on effective ‘eustomer relationship management. This requires an understanding of the underlying concepts th enabling technologies, andthe requirements for improved demand management, astomer servic, and ligament of eastomer- facing processes and resourses. CRM helps crest nd ainsi demand forthe products and services being produced. Section, “Supplier Relationship Management (SRM)," explains suceesfl implementation of supplier relationship management. Ths reuires an understanding ofthe underlying concepts, the enabling technologies, and the requirments for improved management of sources of supply. Wile CRM fuses on creating demand, SRM lps ensure that tis demand can be aie ina way that delivers profit to all members ofthe supply cain ad station ‘ote supply cain customers Section J, “Inventory Planing as Cont,” explores how inventories youghout the suply chain must be planned, located, nd controlled for effective supply chain management. Managing inventories in tum requires an understanding ofthe tal costs of mainaning—and not maintaining — inventory andthe ecniques fer planning and contoting inventory. ‘Aig rereSection A: Sustainability This section is designed to + Deseribe whats mean by tiple bottom line + Describe dhe aspects of sstinsbiliy—economic, environmental, and sci '+ Define mieo- and macroeconomic eonsieratons for sustsinabiity + entity leading an lagging economic indicators + Explain how to balance shot- and longterm economic performance ‘+ Describe ISO 14000 and 2000 standards and guidance and thei respective roles + Explain industry specific guidelines and standards “+ Define corporat socal responsi and its relate considerations ‘+ Desrbe the United Nations Global Compact. ‘+ Desrbe the Global Reporting Initiative (GRD, -Accaring tothe APICS Dictionary, 1th ein, sustainability involves the “activites that provide present benefit without compromising the needs of future generations." The triple bottom line (TL) concept, brit introduced at the ‘begining of Modal has the component tht crete a sassinable business ‘model, shown in Exhibit 2-1; the TL inks afr’ ability to keep operating scessfilly (economic sustainably withthe two other key measures, environmental and socal conbatons. Originally coined in 1987 by the Brantand ‘Commission in Europe, his term was popularized by environmental activist John Etkington in his book Carbs with Forks: Tipe Bottom Line of 2st Century Dusiness, Exhibit 24: The Tipe Bottom Line Sostt © nsaris a Version 31,2013 Eon ‘igh eeeModule 2 Supply Chain Sate, Desi ondConplonce Etkington believes that inorder for a busness to be economically viable overtime, must invest its profs For growth of it easter markets and must reinvest and track its contusions and impact on the environment and social capita as well. This approach usually requires frm to mes or change its business model so tha it factors inal teenies. In order to integrate rp bot in thinking into the ‘varios aspect ofthe busines, TL must be ily integrated into a business model from te start rater than ang it as an aerthought. This involves creating | ‘busines plan that reflects the organizations commitment to eonsevation and stewardship. Such a plan spells out the fin's isin, marketing operation, icing and growth strategies sn exp how it wil integrate envionment an social elements into its business sategy. These strategies should cascade int the Planning, goal sting, and proceses of key functions within the company. Once this ‘occu, the organization has a trly comprehensive aecountng and performance reporting mechani to measure its progress on multiple evel “The neat tee topics adres the TBL's components, Topic 4 addresses the United "Nations Global Compact, and TopieS covers the Gib Reporting native (GRD, +* Topic 1: The Economic Perspective ‘Macro and micro considera- tions Agh rsened nord to design and operate a sustainable busines and supply cain, we need to bul foundation of knowledge about sustainable sins practices and how they contribute othe financial well-being of firm a wel a impact its supply chain. The economic, o final, performance i tngible and shor term: the fist botom ine In this fst topic ofthe section, we'l examine: 4 Macro and micro considerations ‘+ Leading and lagging economic inieators 4+ Balancing short- versus long-term peefommance, Any firm, no matter what siz, needs to establish nd maintain sustainable busines practices that are economically viable, The eompany’ mst remain ofiabl as well s competitive. So when considering any type of business peation or pratce, an organization mus evaluate it onto levels: microeconomics and macroeconomics, Microeconomics acwes onthe decisions that businesses and people make in tems of resource allocation and prices of product and serves, I hones in on supply, demand, and other fctors that imps price level for etn fins specifi indastysetors By taking microeconomic factors ino consideration, a . =aLeading and lagging economic indicators ‘Ne eed Seton A Sting company ea dtennine howto optimize its proton and capacity in onder to lower its prices and be more compete. Atte microeconomic lve, the company wil analyze how a factor may poteatlly impacts ecoaamie formance, or stance, in tems of its eash fo, operating ad capital costs, anu retun on capital, Researching microeconomic considerations wl iksly ruie close examination ofthe financial statements and other key financial indicators discussed inthe Section A of Mol (nthe other and, macroeconomics focuses on iggs, broads picture—the ‘over bshuvior of the entre economy as wells whi happening within ferent industries. focuses on econamywie mets sich as et exports or ‘70s domestic product and how the economy may be affected by change ia ‘atonal income aswell sates of growth, employment, and ialation, Interns of wing to “plan” for sustainably, ts wise for a company to look tthe leading and laeing nator to help eesvely pln forthe ure. Accowdig > ‘he APICS Dictionary, 1th ein, a leading indietor i specific business svt index that indicates fre rend.” Leading indators provide information hat enables organizations to anicipate or prt changes inthe future This recognition and knowledge of tends allows fim to prepare to tke ation 0 scheve a cera outcome and avoid undesirable ciramstnces, For instance, f residential hardware manufturer researches the reside home markt and ees that building pemits are down and a cession is neat may desi that should der more less-expensive component pieces frm its supers Frits fest products, since consumers wll probably be mor interested in making repairs to existing hanare rather than buying brand-aew faves ‘The following ar sme leading economic indieators + Building peonits issued for new production files, housing, wachouses, ities (Building permits imply fur constton, and coastuetion leads to other types of production) ‘+ Iiial unemployment insurance laims (The number of inl elas for ‘unemployment is quite dependent upon busines conditions, more so than cotter unemployment meties) ‘Orders for plan equipment (Purchases of new manufacturing equipment indicate tha companies ae gearing up for inerease production or new products) ‘+ Manufactures’ orders for durable goods and materials (Increases in new ozders signi inereases in sctualproducsion, New odes serve to decrease ventory and inerease unfilled orders.) as Version 1,203 Ena ®Moda 2: Spl Cate Srey, Design and Componce Agha reve ‘Changes othe ttl amount of money in an economy that is available at specific point in ime—the money supply adjust fo ination (Bank lending typically declines when inflaton rises Fister than the money supply, and this makes economic expansion dificult) ‘© Sundar & Poor's 30 stock index (vests expectations about the ‘economy and intrest tes ar flected by changes in the tock prices of | the $00 largest US, companies.) ‘+The ference betwen long-term and shoe em intrest ates (The line that ests from long, ata certain tme, the market interest rates of financial inrumen (for instance, abo) over a angeof maturity dates i called a yield curve, I short-term rts ae higher, the graph shows a positive yield curve; if Jng-term rates ae higher, shows a negative yield eure Changes to the yield curve usually accurately predict esononic swings) ‘+ The level of consumer opimism about the esnomy (Consume expectations often inate inure increases or dcreses in spending) Lagging indleators arth esonomic and financial fictors that eles the changes that have already occured inthe economy. They wully contin patter and offen provide dita or aetionabe information about ix months fe he fact and thereore re more reactionary Fo example the unemployment ate fone ofthe most widely se lagging indicators. Genealy, the unemployment rate wl fll ater afew months of economic grow, Ia leading indiatorof hours worked i increasing, after few months the lagging indicator of unemployment shou fal, ‘Some other lagging economic indleators include the fllowing: + Oustanding busines and commercial loans (Demand fo loans generally peaks afer peak inthe overall economy, sully a year afterward.) * Comparison of inventory to sales (nereases in nvenory sully mean that sales estimates were not achieved, indiatnga slowing economy’) ‘Changes in company profits (Decreases in profitability have the domino fet andar sully felt by many members of supply chain) ‘Spending hy businesses (Decreases in customer spending particularly ‘manufactures’ customer, ultimately result ia a dowatur inthe manufactures bsiness too) ++ The consumer price index (CPD (erases in the pices of consumer related service products usally cur within the fist few months fa recession and ape off at the start ofa recovery) ‘+ Average dation of unemployment (This is measured by the average nunber of weeks an unemployed person is been cut of work, People have amore challenging time finding a job afte a recession has begun) 26 Version 31,2013 Eon @ mameIsing these indicators to build sutinable and competitive prt offerings isnew fran organization or its supply chain(), it might be wel to consult ‘orrescareh wht indicators other sla companies ar sing What's important to remembers that there shouldbe a evident relationship ‘between the inputs thatthe leading indicators measure and the desiced (aging) ‘outputs. Just 5 with ny ontinaous improvement eat, the indicators shouldbe cas to measur, objesive, pertinent othe sustainability sate, cost-efficient, and embraced by the group whose processes are bing analyzed. By paying attention to both leading and lagging indicators, a company can reinforce that itis onthe right tack tems of being sustainable and compete ia the marketplace Balancing Seow will oublance the use ofall these considerations and indicators in the ‘short- and immediate auras well sin one, ve, oon years on now? What ithe long-term —_ tight mix forthe organization an its supply chain? Are the tal players on performance beanandinagreemen? ‘Onentimes within organizations wih sustainability initiatives already ‘underway, there sno alignment ofthe financil-elated goals of tbe dierent function involved in the supply chain, which results in tradofs between shot- versus long-term performance For instance, in “Fading the Supply Chan to 1 the Number" authors Godel and yn Hoeck found wat sles managers and ‘nancial managers were to eager make thei short-term tages and would consequently saifice best practices of supply chain management in ode 0 ‘make the numbers lok beter. Theres ofen a gap betwee tes wo functions andthe supply cain tam, which s quick to ofer examples oftheir integrated, lin ots being derailed by sales and matketngsatvits. Here are some examples ofthe tradofs companies somtimes make between short-and long-term perfomance: + Inorder o mt is en-o month or potng period targets, sles moves lors up fr the fst week after the endothe cutent period Oe this ‘accompanied by incentives for the ester to nde “now,” such 8 Alscouns or compestive payient terms Thisimpacsthe supply hain by puting crunch in the capacity athe end ofthe period wo fulfil these arifcally inflated customer orders and eaves litle demand To the bepnning ofthe next period, One way to resolve this is to provide incentives tothe sales departments on margin as well as revene, because ‘hese ast minute ders cary lower margin. Lower margins ae not good for shor and especialy lng-erm performance. © misanes » enn 31201 Ee ‘eed QeModule 2: Supply Chain Stes, Devin ond Compliance ‘Sometimes the wrong metres are Being used o make short term customer service appear beter than it actly Insts of tracking orders that are dived by the eustomer’s requested due date, companies oflen rack