Daniel Stanton

Cheat Sheet / Updated 01-11-2023

A supply chain is a complex system made up of people, processes, and technologies that deliver value to a customer. Supply chains connect the functional departments within a company, and they connect every company to its customers and suppliers. Supply chain management involves coordinating all the work that is required to profitably deliver a product or service to your customer.

Article / Updated 07-15-2022

The process of making anything starts when you decide what to make, how much to make, and when to make it. In a manufacturing company, this process is (conveniently) called production planning and scheduling. Service companies often make life more complicated by finding creative names for this process, but most of them sound a lot like “service planning and scheduling.” If you’re working in a services supply chain, try not to get hung up on the word make. Just remember that the point of any make process is to transform inputs such as raw materials and technical skills into outputs for a customer. For a doctor, the make process would be performing a surgical procedure. For an artist, it would be creating a painting. Planning production Before you can create a good production plan, you need to take a lot of factors into account. Here are 10 examples of the kinds of information that you really, truly need to consider before you can tell whether a production plan will work: Determine when customers need the product and whether they’re waiting for it now. Determine how long it’ll take you to make the product. Determine the capacity of your manufacturing process. Determine the setup time required to make the product and whether that time will affect the setup time for other products. Determine how to prioritize the order in which you’ll make products. Determine what parts, components, or supplies you need to have on hand so that you can make a particular product. Determine whether you already have the parts you need or have to order them. If you must order parts, determine the supplier’s lead time and the shelf life of the products. Identify risks that could disrupt production. Determine whether you need to schedule time for breaks, holidays, changeovers, and equipment maintenance. This list isn’t complete, but it’s enough to make the point: You have so many factors to consider that production planning can quickly become overwhelming. The only way to make it work is to develop a production planning process and set some rules. You also need to ensure that the rules give you enough flexibility to change the plan when necessary. The following figure is a high-level view of the steps involved in creating a production schedule. Setting a demand goal Production planning starts with a high-level goal: how much you want to sell. You can think of this goal as the “in a perfect world” scenario. If you think you’ll have 1 million customers next month in your fast-food restaurant, you’d start with a demand goal of 1 million hamburgers. This high-level demand goal is called the master demand schedule (MDS). It’s okay if your MDS is optimistic, but try to keep it reasonable. There’s no point in building a production plan for a sales target that you’d never be able to meet. Creating a production schedule After determining your demand goal, you break that sales goal down into a master production schedule (MPS). In other words, building the MPS is how you to decide what you’ll need to make each day to meet the MDS goal. Creating an MPS forces you to look more closely at the materials you need and when you need them. It also drives you to look at the people and equipment you have available to make your products. As you build your MPS, you begin to uncover production constraints, which are bottlenecks or problems that may interfere with production. You may not be able to order as much of the raw materials as you want because your suppliers don’t have enough capacity, for example. Or perhaps your manufacturing equipment can’t produce the materials quickly enough. In the example of a fast-food restaurant, two obvious constraints that the MPS will need to address are space and time. You have a limited amount of room to store buns, meat patties, and lettuce, and these ingredients are perishable, so you need to use them before they spoil. Each constraint that you find requires you to make some decisions. You need to consider whether you can do something to resolve or eliminate the constraint, such as find a new supplier or rent extra storage space. Or you may need to change your production schedule. It’s common to repeat this constraint resolution process several times, because each time you change the MPS to resolve a constraint, you need to check whether that change affects other constraints. In other words, production scheduling is an iterative process. Finalizing the production schedule When you know what materials you need to order, and you’re confident that they can be delivered on time, you can finalize, publish, and execute your production schedule. The final production schedule gives your team its actual production targets: how much you expect to make and when you expect to make it. Your production schedule also drives purchase orders to authorize buying the components you need from your suppliers. The schedule may be broken into jobs or batches of products that are similar or that are being made for the same customer. When the jobs are scheduled, you can sequence the delivery of parts so that they show up just in time (JIT) for you to use them. Lean Manufacturing often combines parts sequencing and JIT deliveries. In an automotive assembly plant, for example, many kinds of upholstery are used for car seats, so the seats are sequenced to show up in a particular order and are delivered to the assembly line JIT. If everything works properly, your production schedule won’t change and should be stable. But things don’t always work that way. Even after the production schedule is published, there’s a good chance that you may end up making changes if things don’t go as you expect — if a shipment of supplies gets delayed or a machine breaks down, for example. When you revise the schedule, you may have to change the order of production jobs or adjust your production targets. This replanning also affects both your suppliers and your inventory levels, because it changes the order in which you use each component. Because so many activities are driven by the production schedule, frequent replanning can cause confusion and frustration. A production schedule that changes too often is called a nervous schedule. Nervous production schedules create waste in a supply chain, such as unnecessary work and excess inventory. Most companies make a choice about how far in advance they can realistically change the production schedule without creating chaos for their supply chain. This threshold, usually measured in days or weeks, is called a time fence. A company might decide that it’s okay to make a change to the production schedule with at least one week’s notice. In this case, it would be possible (but not desirable) to make changes to the production schedule outside the one-week time fence. But when the company crosses that time fence — is less than one week out from a production run — the schedule is frozen, and no more changes will be allowed. The earlier in the process you can identify a constraint and replan the production schedule, the better off you’ll be. In most cases, changing the production schedule after you’ve already issued purchase orders for the supplies means that you’ll end up with extra inventory, which increases your costs. You can think about the challenge of production scheduling for a fast-food restaurant. Suppose that something unexpected happens: You sell fewer burgers than you expected, everyone asks for extra pickles, or there’s a recall on lettuce. In each case, you need to see whether these differences change your goals or create constraints; if they do, you’d need to replan your production schedule. Your production targets should always be aligned with your sales goals to ensure that you aren’t making too much or too little to satisfy your customers. This process is called sales and operations planning. In the old days, people prepared and updated production schedules manually, which was a complex, time-consuming process. Today, most companies update schedules automatically by using material requirements planning software. Capacity Every person, every group of people, and every machine in the world has a limit to how much it can process or produce in a particular amount of time. Whether you’re in the business of manufacturing bottles or delivering babies, you refer to this limit as your capacity. There are lots of ways to measure and define capacity, but when you strip away the fluff, every supply chain manager needs to understand three concepts because they factor into your production plan: design capacity, operating capacity, and capacity utilization. Design capacity Design capacity (or theoretical capacity) is the maximum that a machine (or person) can possibly produce. The design capacity of your imaginary fast-food restaurant is the amount you could make if every person and every machine were running continuously, every minute of every day. That capacity might mean a whole lot of hamburgers and French fries but still isn’t infinite. Operating capacity Let’s be real: Most processes don’t run at their design capacity (at least not for very long!). People need to take breaks. Facilities shut down for shift changes. It takes time to perform equipment maintenance and software upgrades. When you take all these constraints into account, you end up with a new limit on how much you can make, which is much lower than your design capacity. This limit is called your operating capacity (or effective capacity). Unless you’re making only one product over and over, you probably need to shut down some machines and make changes between jobs, such as switching tools or bringing in different components. This setup time affects how much operating capacity is available for making products. And, of course, things can go wrong: A machine could break down, you could run out of inventory, or someone could be late for a shift. Any of these issues — and many others — can slow a manufacturing process, and all of them eat away at your efficiency. Because you could never possibly make more of a product than your design capacity would allow, the design capacity is technically one of your production constraints. Because operating capacity is almost always lower than design capacity, however, it’s rare for a process to be constrained by the design capacity. Operating capacity is one of the main constraints on production. In many cases, you can do things to increase operating capacity, such as running extra shifts or changing your maintenance procedures. Therefore, you may have some flexibility when managing the operating capacity for your production plan. A common goal for supply chain managers is to increase operating capacity and get it as close as possible to the design capacity. Capacity utilization With all the factors that can constrain production, the actual output of a manufacturing process is often a fraction of how much you think it could make. A common way to measure production output, or yield, is the percentage of operating capacity that you actually use. This percentage is called capacity utilization. If your process is running at full speed, making as many widgets as it possibly can, your capacity utilization is 100 percent. The U.S. Federal Reserve tracks industrial production and capacity utilization across various business sectors as a way to measure how well the economy is doing. Find the latest capacity utilization rates. A common goal of supply chain management is to increase capacity utilization. The more capacity you use, the more products you’re producing and the more money you’re able to make with the assets you have. You can see how these concepts are related by looking at the fast-food restaurant example. The number of burgers that you make is your production output, which is a smaller quantity than your operating capacity, which in turn is smaller than your design capacity. This figure illustrates the relationship of production output (capacity utilization) to operating capacity and design capacity. Increasing capacity utilization always sounds like a good idea at first. But when you look at it more closely, sometimes it can increase your costs and decrease your efficiency. Your car, for example, probably has the capacity to drive at 100 miles per hour, but it gets much better gas mileage at closer to 50 miles per hour. (Let’s ignore traffic laws for a second and focus on the mechanical issues.) In addition to burning more gas, driving your car at 100 miles per hour is going to cause many of the parts to wear out more quickly, and it gives you less time to react to a pothole in the road. So, even though the car has the capacity to go faster if you need it to, you’ll probably choose a slower pace for day-to-day commuting. In other words, you’ll decide that it’s better, overall, to operate your car well below its design capacity. In the same way, manufacturing processes often become less efficient when they get close to their capacity limits. One obvious reason is that equipment may wear out faster, which causes breakdowns. Also, increasing capacity utilization (in other words, making more products) can create an inventory problem if the rest of your supply chain can’t keep up. Your real goal as a supply chain manager is to make only as many products as your customers will buy — to provide enough supply to meet demand. If your output is high, but your sales are low, increasing manufacturing capacity utilization means that you’ll build up unneeded inventory and tie up your company’s cash, which is bad for the supply chain. The goal of production planning and scheduling is to make as many products as your customers will buy at the precise time that they need them. Building your production schedule around customer demand and your supply chain’s constraints ensures that you use your capacity efficiently while keeping your inventory as low as possible.

Article / Updated 03-25-2021

Supply chain careers and job titles can be confusing, because supply chain management is a relatively new field. (The term supply chain has been around only since the 1980s.) Many supply chain jobs are evolving so quickly that the government agencies that track employment data have a hard time keeping up. Staying up to date with new job titles is a little bit easier for companies because they can change job titles fairly easily, without a lot of red tape. When a new job is created, each company tries to come up with an appropriate title. The result is that different companies may call the same job by different names, and because so many job titles are used for the same job, matching job titles with employment categories can be difficult. Drones are rapidly making their way into the supply chain scene, for example, so demand for drone operators is growing. Being a drone operator requires training and licensure, but this job has many titles, such as unmanned aircraft system operator, unmanned vehicle pilot, and commercial drone pilot. So, even if you know what kind of job you are looking for, you may still end up researching several job titles. The U.S. Department of Labor collects employment statistics for jobs based on classification codes. These statistics are published on a national website called O*NET. Many researchers, educational institutions, and government agencies structure their programs around these classifications, so the classifications are useful. This article includes information from O*NET OnLine by the U.S. Department of Labor’s Employment and Training Administration (USDOL/ETA). O*NET® is a trademark of USDOL/ETA. Used under the CC BY 4.0 license. I have modified all or some of this information. USDOL/ETA has not approved, endorsed, or tested these modifications. The following shows an example of the information you can find on O*NET. To make sense of information about supply chain careers — even from official government sources — you need to understand supply chain processes. A good way to start is to look at job categories, drill down into a category that seems interesting, and find out more about what’s involved with the specific jobs in that category. Then you can use this information to tailor your job search (and your résumé) based on the keywords for each job. The challenge in finding information about supply chain jobs on O*NET is that the jobs are classified in ways that don’t make much sense when you think about them in terms of supply chain management. O*NET uses different codes for transportation managers, logistics managers, and logisticians, for example, but in industry, these titles are often used interchangeably. Ten job categories cover most of the roles that are directly related to the tasks of planning, sourcing, making, delivering, returning, and enabling in a supply chain: Associates Procurement clerks buy stuff from suppliers, and make sure that all the paperwork is in order. Common job titles for procurement clerks include buyer, procurement assistant, procurement officer, procurement specialist, procurement technician, purchasing assistant, purchasing associate, purchasing clerk, purchasing specialist, and warehouse clerk. Stock clerks handle the shipping and receiving of inventory in a factory or distribution center. Common job titles for stock clerks include bay stocker, material handler, receiver, receiving lead, stock clerk, stocker, stockroom clerk, warehouse clerk, warehouse representative, and warehouse worker. Weighers, measurers, checkers, and samplers collect data and metrics throughout the supply chain. Common job titles for these roles include cycle counter, inventory specialist, lab technician, material control manager, quality assurance lab technician, quality control lab technician, quality control operator, quality control technician, scale operator, and supply clerk. Laborers and freight, stock, and material movers move products or packages from one place to another manually (without a forklift). Common job titles for these roles include dock worker, laborer, line tender, loader, material handler, merchandise pickup/receiving associate, receiver, receiving associate, shipping and receiving materials handler, and warehouse worker. Machine feeders and offbearers support the machines in a supply chain by loading products on them and unloading products from them. Job titles for these roles include feeder, line operator, lug loader, machine feeder, offbearer, sawmill worker, and tube puller. Packers and packagers put products in the proper packaging to ensure that the products are protected. Job titles for these roles include bagger, inspector packer, mini shifter, pack-out operator, packager, packer, picker and packer, sacker, selector packer, and shipping clerk. Industrial truck and tractor operators move materials around a distribution center or storage yard, using a fork truck. Common job titles for these roles include checker loader, forklift technician, fork truck driver, forklift driver, forklift operator, lift truck operator, shag truck driver, spotter driver, tow motor operator, and truck driver. Light truck or delivery services drivers drive small delivery trucks to pick up parts from suppliers or drop off packages to customers. Common job titles for these roles include bulk delivery driver, delivery driver, driver, driver/merchandiser, package car driver, package delivery driver, route driver, route supervisor, service provider, and truck driver. Heavy and tractor-trailer truck drivers drive big rigs — the semis that move freight across the country. Common job titles for these roles include delivery driver, driver, line haul driver, log truck driver, over-the-road driver, production truck driver, road driver, semi-truck driver, tractor-trailer operator, and truck driver. Technicians Electromechanical technicians operate, test, maintain, or calibrate unmanned, automated, servomechanical, or electromechanical equipment. These technicians may operate unmanned submarines, aircraft, or other equipment at work sites. Even though it isn’t obvious from the name, this job category includes drone operators. Electromechanical technicians may assist engineers in testing and designing robotics equipment. Job titles for this category include electromechanic, electromechanical technician, electronic technician, engineering technician, laboratory technician, maintenance technician, mechanical technician, product test specialist, test technician, and tester. Robotics technicians build, install, test, or maintain robotic equipment or related automated production systems. Job titles for this category include automation technician, electrical and instrumentation technician, electronics technician, field service technician, instrument specialist, and instrumentation technician. Industrial engineering technologists assist industrial engineers in such activities as quality control, inventory control, and material flow methods. These workers may conduct statistical studies or analyze production costs. Job titles in this category include associate product integrity engineer, head of operation and logistics, liaison engineer, manager, asset management, materials planner/production planner, planner/scheduler, production control supervisor, quality management coordinator, quality tech, and senior quality methods specialist. Industrial machinery mechanics repair, install, adjust, or maintain industrial production and processing machinery or refinery and pipeline distribution systems. Job titles in this category include fixer, industrial machinery mechanic, industrial mechanic, loom fixer, machine adjuster, maintenance mechanic, maintenance technician, master mechanic, mechanic, and overhauler. Conveyor operators and tenders control or tend conveyors or conveyor systems that move materials or products to and from stockpiles, processing stations, departments, or vehicles. These workers may control the speed and routing of materials or products. Job titles in this category include assembly line tender, bander, cartoner operator, chain puller, chipper operator, debarker operator, packing line operator, press operator, process line operator, and process operator. Bus and truck mechanics and diesel engine specialists diagnose, adjust, repair, or overhaul buses and trucks, or maintain and repair any type of diesel engines. These workers include mechanics working primarily with automobile or marine diesel engines. Job titles in this category include bus mechanic, diesel mechanic, diesel technician, fleet mechanic, general repair mechanic, mechanic, service technician, trailer mechanic, transit mechanic, and truck mechanic. Manufacturing engineering technologists develop tools, implement designs, or integrate machinery, equipment, or computer technologies to ensure effective manufacturing processes. Job titles in this category include business process analyst, manufacturing coordinator, manufacturing technology analyst, product manager, and scientist. Planners and analysts Logistics analysts analyze product delivery or supply chain processes to identify or recommend changes. These workers may manage route activity, performing tasks such as invoicing, electronic billing, and shipment tracing. Job titles in this category include global logistics analyst, logistics analyst, and supply chain analyst. Management analysts conduct organizational studies and evaluations, design systems and procedures, conduct work simplification and measurement studies, and prepare operations and procedures manuals to help management operate more efficiently. Job titles in this category include administrative analyst, business analyst, employment programs analyst, leadership development manager, management analyst, management consultant, organizational development consultant, principal consultant, program management analyst, and quality control analyst. Operations research analysts formulate and apply mathematical modeling and other optimizing methods to develop and interpret information that helps management with decision-making, policy formulation, and other functions. These workers may collect and analyze data, as well as develop decision-support software, services, or products. They may also develop plans to optimize the time and cost for a logistics network. Job titles in this category include analytical strategist, business analytics director, business insight and analytics manager, decision analyst, operations research analyst, operations research group manager, operations research manager, and scientist. Production, planning, and expediting clerks coordinate and expedite the flow of work and materials within or between departments of an establishment according to a production schedule. Duties include reviewing and distributing production, work, and shipment schedules; conferring with department supervisors to determine progress of work and completion dates; and compiling reports on progress of work, inventory levels, costs, and production problems. Job titles in this category include master scheduler, material coordinator, materials planner, planner, production assistant, production clerk, production controller, production planner, production scheduler, and scheduler. Cargo and freight agents expedite and route incoming and outgoing cargo and freight shipments in airline, train, and trucking terminals and on shipping docks. These workers take orders from customers and arrange pickup of freight and cargo for delivery to the loading platform. They also prepare and examine bills of lading to determine shipping charges and tariffs. Job titles in this category include cargo agent, documentation clerk, drop shipment clerk, freight broker, intermodal dispatcher, international coordinator, load planner, logistics coordinator, logistics service representative, expeditor, and operations manager. Engineers Industrial engineers design, develop, test, and evaluate integrated systems for managing industrial production processes, including human work factors, quality control, inventory control, logistics and material flow, cost analysis, and production coordination. Job titles in this category include engineer, engineering manager, industrial engineer, manufacturing specialist, operations engineer, plant engineer, process engineer, production engineer, supply chain engineer, and tool engineer. Logistics engineers design or analyze operational solutions for projects such as transportation optimization, network modeling, process and methods analysis, cost containment, capacity enhancement, routing and shipment optimization, and information management. Job titles in this category include logistics engineer, reliability engineer, and systems engineer. Manufacturing engineers design, integrate, and/or improve manufacturing systems or related processes. These workers may work with commercial or industrial designers to refine product designs in a way that increases productivity and decreases costs. Job titles in this category include advanced manufacturing engineer, advanced manufacturing vice president, facility engineer, manufacturing director, manufacturing engineer, manufacturing engineering director, manufacturing engineering manager, plant engineer, process engineer, and process improvement engineer. Robotics engineers research, design, develop, or test robotic applications. Job titles in this category include associate professor of automation, automation engineer, engineer, and plant floor automation manager. Supervisors First-line supervisors of production and operating workers directly supervise and coordinate the activities of production and operating workers such as inspectors, precision workers, machine setters and operators, assemblers, fabricators, and plant and system operators. Job titles in this category include assembly supervisor, department manager, manufacturing supervisor, molding supervisor, production manager, production supervisor, quality assurance supervisor, shift supervisor, supervisor, and team leader. Dispatchers schedule and dispatch workers, work crews, equipment, or service vehicles for conveyance of materials, freight, or passengers, or for normal installation, service, or emergency repairs rendered outside the place of business. Duties may include using a radio, telephone, or computer to transmit assignments, as well as compiling statistics and reports on work progress. Job titles in this category include aircraft dispatcher, city dispatcher, dispatch manager, dispatcher, operations dispatcher, rail operations controller, train dispatcher, and truck dispatcher. Loss prevention managers plan and direct policies, procedures, or systems to prevent the loss of assets. These workers try to protect the supply chain from theft by determining risk exposure or potential liability and then developing risk control measures. Job titles in this category include loss prevention manager, logistics loss prevention manager, loss prevention operations manager, manager of loss prevention operations, and market asset and protection manager. Managers Supply chain managers direct or coordinate production, purchasing, warehousing, distribution, or financial forecasting services and activities to limit costs and improve accuracy, customer service, or safety. These workers analyze procedures and identify opportunities for streamlining activities to meet product distribution needs, as well as direct the movement, storage, or processing of inventory. (In other words, they focus on process improvement.) Job titles in this category include global supply chain director, supply chain director, supply chain manager, and supply chain vice president. Transportation managers plan, direct, or coordinate the transportation operations within an organization or the activities of organizations that provide transportation services. Job titles in this category include director of operations, fleet manager, freight coordinator, global transportation manager, traffic manager, train operations manager, trainmaster, transportation director, transportation manager, and transportation supervisor. Storage and distribution managers plan, direct, or coordinate the storage or distribution operations within an organization or the activities of organizations that store or distribute materials or products. Job titles in this category include cold-storage supervisor, customer service manager, distribution center manager, distribution manager, distribution operation manager, load-out supervisor, shipping manager, shipping supervisor, stores supervisor, and warehouse manager. Logistics managers plan, direct, or coordinate purchasing, warehousing, distribution, forecasting, customer service, or planning services. These workers manage logistics personnel and logistics systems, as well as direct daily operations. Job titles in this category include global logistics manager, integrated logistics programs director, logistics manager, logistics solution manager, and supply chain logistics manager. Logisticians analyze and coordinate the logistical functions of a firm or organization. These workers are responsible for the entire life cycle of a product, including acquisition, distribution, internal allocation, delivery, and final disposal of resources. Job titles in this category include client services administrator, logistician, logistics director, logistics team lead, logistics vice president, operations vice president, production planner, program manager, supervisory supply management specialist, and supportability engineer. Purchasing managers plan, direct, or coordinate the activities of buyers, purchasing officers, and related workers involved in purchasing materials, products, and services. Job titles in this category include commodity manager, director of materials, director of purchasing, director of strategic sourcing, materials manager, procurement manager, procurement officer, purchasing director, purchasing manager, purchasing supervisor, wholesale or retail trade merchandising manager, and procurement manager. General and operations managers plan, direct, or coordinate the operations of public or private-sector organizations. Duties and responsibilities include formulating policies, managing daily operations, and planning the use of materials and human resources. Job titles in this category include business manager, facility manager, general manager, operations director, operations manager, plant manager, plant superintendent, production manager, and store manager. Sales representatives Information technology managers IT project managers plan, initiate, and manage IT projects. These workers lead and guide the work of technical staff, and serve as liaisons between the business and technical aspects of projects. They also plan project stages; assess business implications for each stage; and monitor progress to ensure that deadlines, standards, and cost targets are met. Job titles in this category include IT manager, IT project manager, program manager, project manager, team coach, project leader, team leader, technical project lead, project management office (PMO) leader, and transition manager. Software developers research, design, develop, and test operating-system software, compilers, and network distribution software for industrial, business, and general computing applications. These workers set operational specifications and formulate and analyze software requirements; they may design embedded systems software. They also apply principles and techniques of computer science, engineering, and mathematical analysis. Job titles in this category include developer, infrastructure engineer, network engineer, publishing systems analyst, senior software engineer, software architect, software developer, software engineer, systems coordinator, and systems engineer. Computer and information systems managers plan, direct, or coordinate activities in such fields as electronic data processing, information systems, systems analysis, and computer programming. Job titles in this category include application development director, computing services director, data processing manager, information systems director, information systems manager, information systems supervisor, information technology director, IT manager, management information systems director, and technical services manager. Project managers Executives Three other important job categories are also important: Journalists Educators Vocational education teachers teach or instruct vocational or occupational subjects at the postsecondary level (but at less than baccalaureate level) to students who have graduated from or left high school. These workers include correspondence-school, industrial, and commercial instructors, as well as adult-education teachers and instructors who prepare people to operate industrial, transportation, and communications equipment. Jobs may be in public or private schools or in organizations engaged in a primary business other than education. Job titles in this category include mentor, coach, instructor, professor, adjunct professor, and teacher. Career/technical education teachers teach occupational, career and technical, or vocational subjects at the secondary-school level in public or private schools. Job titles in this category include business education teacher, instructor, marketing education teacher, and technology education teacher. Business teachers teach courses in business administration and management, such as accounting, finance, human resources, labor and industrial relations, marketing, and operations research. These workers includes teachers who are primarily engaged in teaching and those who do a combination of teaching and research. Job titles in this category include associate professor, business administration professor, business instructor, business office technology instructor, business professor, faculty member, instructor, management professor, marketing professor, and professor. Humanitarian supply chain professionals You can think of these job categories in terms of the framework in the following figure. In general, the higher you go on this chart, the more money you’ll be paid but the fewer job openings you’re likely to find. The use of the words logistics, purchasing, or operations is a clear sign of a supply chain job.

Article / Updated 03-25-2021

Three words — correlation, causation, and interpolation — are key to almost everything that happens in supply chain analytics. If you understand what they mean and how to use them, the rest of analytics is a breeze. Correlation and causation are closely related. Correlation means that two variables are connected in some way. Causation means that one variable causes another to occur. The fact that two variables are correlated doesn’t necessarily mean that one causes the other to occur. The correlation could be a coincidence, or some other factor may cause both variables to change. Sales of ice cream and sunblock lotion may be closely correlated, for example, but one variable doesn’t cause the other. Both are affected by the season and weather. Generally, the business questions that you ask should be based on trying to understand causation (such as “Does increasing the amount we spend on marketing lead to an increase in sales?”). You usually answer these questions by looking for correlations. The data can’t tell you for certain that advertising was the only reason for the increase in sales, but it can show whether sales tend to go up when you advertise more. Each piece of data that you collect from your supply chain can be plotted as a point on a graph. The amount of product that you sold on a particular day could be a point on a graph. When you plot several pieces of data, such as sales on different days, you end up with multiple points on the graph. To do analysis and look for trends in data, however, you may need to see the data as a line. That is, you collected point data, but you need to convert this data to continuous data to do some kinds of analysis. Many times, you can create a line that does a good job of averaging or approximating the point data. The process of converting point data to a line is called linear interpolation. This figure shows how linear interpolation can turn points into a line that reveals trends in data. In this example, the upward trend in sales would be hard to see with just the raw data points, but it’s clear when you look at the trend of the line. Interpolation is commonly used in forecasting. You can create a line based on the data points from the past and then extend that line into the future to create a forecast. Spreadsheet applications, such as Microsoft Excel, can do interpolations automatically. In Excel, you can add interpolations to a chart by using the trend-line feature. If you want to calculate an interpolation within a cell on an Excel spreadsheet, you can use the FORECAST function. Another way to analyze data is a mathematical process called nonlinear interpolation. Excel’s data visualization tool includes several trend-line options that perform nonlinear interpolation. Correlations are easy to see on a graph, but they can be calculated mathematically as well. Correlations can be positive, negative, or zero. When two things are perfectly and positively correlated, their correlation coefficient is +1.0. The following figure shows two variables that have a positive correlation. In this example, increasing the amount of money spent on advertising coincides, or correlates, with an increase in revenue. When one thing goes up while another thing goes down, their correlation coefficient is –1.0. The following figure shows an example of negative correlation in which lowering the price correlates to an increase in the number of units sold. If no correlation exists between two things — they’re totally independent — their correlation is 0. The following figure shows two variables that appear to have a correlation of 0. When the correlation between two variables is very low or close to 0, those variables are unrelated. In real-world analytics problems, you rarely find correlations that are exactly 1.0, 0.0, or –1.0. As a result, it isn’t always easy to tell whether the data supports your theory. Deciding what level of correlation is considered to be significant or meaningful is a frequent topic of debate among analysts. Deciding whether a correlation is significant depends on the question you’re asking, the data you’re using, and the approach you use to ask the question. You also have to consider confidence (how important is it to be right). There’s a big difference between needing to be 80 percent confident and 99 percent confident. Many times, the best approach is simply to ask a team of supply chain analysts or statisticians what they think the level of significance should be. Seeing that two things are correlated is a useful insight that can help you identify ways to improve your supply chain, even if you can’t claim a high degree of confidence or prove that one caused the other.

Article / Updated 03-25-2021

These days, it’s hard to find a supply chain process that isn’t tied to a piece of software. You can’t place an order, make a phone call, or move a box without logging a transaction in one or more systems. But processes don’t become automated instantly; they need to evolve. An approach that tracks the evolution of a process or the software that supports that process is the capability maturity model (CMM). CMMs usually take four or five steps to describe a journey from immature to mature. This figure shows a four-step CMM. People naturally want to jump from an immature process to a mature one, but virtually every process and every piece of software has to make the journey in gradual steps. Understanding where you are on a CMM can help you focus on where you’re headed and what you need to do next to get there. A process needs to be stable and repeatable before it can be automated effectively. Automating an immature process often leads to extra work, such as correcting inaccurate data and overriding rules in the system. Supply chain software is a business investment. When evaluating any business investment, it’s a good idea to compare the financial consequences of making something versus buying or renting it. You can apply this approach to evaluating an investment in automating a supply chain process by comparing four options: Run the process manually, without software (do nothing). Buy software off the shelf from a vendor (buy). Subscribe to a cloud-based solution (rent). Create a program from scratch (make). The buy option is straightforward. You talk with a sales representative, spend some time negotiating price, install the software on your computers, and train your team. The rent option is newer but rapidly becoming the norm. Instead of buying and installing software on your own computers, you can get a subscription to software that runs in the cloud. You have nothing to install; you just access the software through a web browser or an app and pay for it as you use it. In other words, you rent the software. Making supply chain software involves writing your own software code. For companies that have unique requirements, writing their own software may be a worthwhile investment. But many companies end up making their own software without realizing it. Here’s an example of how companies can accidentally create problems by making their own software: Someone decides that they have a lot of information to keep track of and that things are slipping through the cracks, so they create a spreadsheet to start organizing the data. The spreadsheet becomes a critical part of managing that process. The spreadsheet takes on a life of its own, with more fields being added, and it’s shared with other people who also start to rely on it and make improvements. As the spreadsheet gets bigger and is used more often, people start writing macros and creating complex formulas that automate process steps. At this point, the spreadsheet has actually become a simple software application, but no one realizes that fact yet. The spreadsheet file gets so big that it starts to run slowly, and eventually, the data gets messed up when someone makes a data-entry mistake. To improve the performance of the now-critical spreadsheet, someone creates a database, using a tool such as Microsoft Access. Access is too limiting, so soon the database is rewritten in Structured Query Language (SQL). Now the database is really, truly storing critical data and is essential for operating the business, but no documentation or training materials exist. Then the system crashes unexpectedly, and no one knows how to fix it. A vendor shows up with a piece of software that does something very similar to the database, but does it better and with more bells and whistles. The cost of buying (or renting) this software is cheaper than the cost of maintaining your homegrown system. You need to decide whether to discard all your old data and start fresh or spend a bunch of time and money to import your old data into the new system. The lesson is to be careful about storing important data in spreadsheets. Although using a spreadsheet may be a low-cost option in the short term, it could lead to an expensive migration in the future. If you see this scenario starting to play out in your supply chain, it’s probably a good idea to stop and ask whether a better commercial solution is available. Recognizing that software solutions are available for most supply chain processes and starting with them early in your process maturity can save you time and money. An important rule applies to every supply chain software system: The usefulness of the system depends on the accuracy of the data it has to work with. In other words, garbage in, garbage out. Providing quality data to the system in the first place is very important; so is maintaining the integrity of that data over time.

Article / Updated 03-25-2021

In virtually every supply chain, gaps exist between when something is made and when a customer is ready to buy or receive it. Those gaps mean that products end up sitting around. The problem is that someone owns those products and has money tied up in them. In addition, someone needs to keep track of where those products are and protect them from damage (and perhaps even theft). In other words, even when products are sitting around in a warehouse or distribution center, they still cost a lot of money. That’s why inventory management is so important. The goal of inventory management is to balance the needs of your customers with the cost of meeting their needs. The higher your customers’ expectations are, the more you’ll need to spend on inventory to meet their needs, and the more they’ll need to pay you to have those needs met. Suppose that you run a fast-food restaurant. You know that it’s very important to never, ever run out of French fries. You have to decide how many French fries you need to keep in inventory: enough for an average week, perhaps, or enough for the busiest week you’ve ever had. The only real way to guarantee that you’ll never run out of French fries would be to have an infinite amount of inventory, which would be silly, so you have to determine some reasonable target for inventory. That amount depends on demand (how much your customers are going to buy) and supply. If you know that your suppliers can ship a load of French fries in 24 hours, you don’t need to keep much inventory in your restaurant. But if it takes your supplier a week to send you a new shipment, you probably need to have more inventory on hand as a buffer against a surprise spike in demand. You can think about inventory in terms of the chart in the following figure. Every time a new shipment of French fries arrives, the amount of inventory goes up. As you sell French fries to customers, inventory gradually goes down. You need to make sure that a new shipment shows up before your inventory level reaches zero; otherwise, you’ll have customers who don’t get their French fries. This situation is called a stockout, and it creates two problems: It’s a lost sale. (You’ve lost out on money that you could have earned.) It makes your customers unhappy. (Unhappy customers stop buying from you and also tell their friends about their lousy experience.) Stockouts are major challenges that often go unrecognized. Analyzing the sales that a company makes is easy, but discovering the sales that the company missed because of stockouts is hard. Any store, factory, or distribution center employs eight high-level processes for physical inventory: Receiving Put-away Inventory counts Picking Packing Shipping Yard management Over, short, and damaged These processes are described in the following sections. Receiving When products arrive at a facility, someone needs to let them in. The process for accepting inventory when it arrives is called receiving. Receiving often involves scheduling appointments for deliveries to occur, along with unloading the goods and performing a quality inspection. Receiving is often done at a loading dock — a part of the facility that’s designed to make loading and unloading freight on trucks or railcars easy. In addition to unloading physical goods, receiving includes doing the paperwork and making computer entries to add the inventory to your records. Put-away After products have been received and passed a quality inspection, they need to be stored so that you can find them when you need them. This process is called put-away. The spot where you store a particular product is called a location. Distribution centers often have thousands of locations, all controlled by a warehouse management system. Because products have different characteristics (dimensions, weights, and so on), dividing your locations often makes sense. One section of a warehouse might have small locations for light items; another area may have large locations on the floor for heavy items. This type of division is called slotting. To minimize the distances that people will travel, distribution centers should be laid out so that the products shipped most frequently are closer at hand and those shipped less often are farther away. Inventory counts Inventory is money, so anyone who’s looking at your business from a financial perspective wants to make sure that they know how much money you have and where it’s located. Periodically, you need to perform physical inventory counts to make sure that your records are accurate. The traditional approach to conducting inventory counts is to shut down a facility during a slow time of year to count everything, one item at a time. This process is slow, expensive, and (unfortunately) not very accurate. The people who count the inventory may make mistakes along the way, so instead of fixing the inventory records, you may actually create some new inaccuracies. Therefore, many companies have switched to cycle counting, in which they divide the facility and count each little bit of it at certain times throughout the year. By the end of the year, the company has done at least one physical inventory count in each section of the facility and corrected any errors that were found. Generally, cycle counting is more efficient and accurate than traditional physical inventory counting. Inventory counts can be important for accountants, who want to make sure that the numbers they see on the books line up with what’s happening in the store. Inventory counts are also useful for logistics personnel to confirm that inventory isn’t being lost, damaged, or stolen. When inventory disappears for unexplained reasons, that disappearance is called shrinkage. Shrinkage is part of the game of inventory management, but it’s important to measure shrinkage and keep it as low as possible. Picking When a customer wants a product that you’ve been storing in your distribution center, you need to pick that item off the shelf (or off the floor) and get it ready for shipping. Depending on how big your distribution center is, picking can take a while. (Many distribution centers cover more than 1 million square feet.) If two customers order the same product, you want to pick both items at the same time. And if a single customer orders two products, you want to pick both products during the same trip. When you think about how much time it takes to travel between where items are stored and where they’re packaged for shipment, you see how important — and inefficient — picking can be. The good news is that technologies introduced in the past few years make picking more efficient. A warehouse execution system uses sophisticated routing algorithms to translate customer orders into pick paths that minimize time and distance for the people or robots picking the orders. Pick-to-light systems and other displays give pickers visual cues that help them work faster and more accurately. Pick-to-voice systems have conversations with pickers, telling them where to go and what to pick, and confirming that they’ve done the work correctly. Picking is a great example of how people and technology work side by side in a supply chain to improve efficiency. Packing When you’re going to send something to a customer, you need to make sure that it will arrive in good condition. Packaging is the key. Packaging is a form of protection; it’s like an insurance policy against all the handling and environmental threats that your product will face from the time it leaves your facility until the time your customer is ready to use it. Choosing the right packaging for a shipment depends on the products, the shipping method, and the destination. The right packaging method is the one that ensures that your product arrives in good condition for the lowest cost. By far the most common form of packaging is cardboard, also known as corrugated fiberboard or just corrugate. Corrugate is cheap, strong, and light, so it’s the perfect material for packaging all kinds of products. Some products can still get damaged if they move around inside a cardboard box, however. One solution is to add filler materials such as packing paper, packing peanuts, or bubble wrap. If the products you’re shipping are sensitive to moisture, you may also need to use an anticorrosion coating, special wrapping, or moisture-absorbing packets. Electronic products are sensitive to static electricity, so these products require special protection against electrostatic discharge. Every time you need to touch a product, you add cost to the supply chain. When a product ships from a factory to a retail store, there can be many touches simply because of packaging. A product might be put into a bulk package and then shipped to another facility for custom packaging. Then the custom packaged product might be put in plain cardboard boxes. When the boxes are received by a retailer, the retailer’s employees need to undo all that packaging, dispose of the boxes, and then place the products on store shelves in order to sell them to a customer. To streamline this process, many retailer supply chains are adopting shelf-ready packaging. A common example of shelf-ready packaging is a colorful printed shipping box. These types of boxes can be placed directly on shelves or used in a stand-alone display, saving the retailer a lot of time. Shipping You have lots of ways to ship a product from one place to another. The mode of transportation you choose determines how you need to prepare the freight for shipment, including getting the paperwork and labeling correct. The paperwork for shipping a domestic package via a parcel carrier is very different from the paperwork for shipping internationally on a container ship. Some products, such as alcohol and tobacco, require special licenses or permits. Other products are subject to trade restrictions when they’re shipped to another country. Also, some products are hazardous and may not be accepted by a particular carrier. Getting all these shipping details right requires communication among the seller, the buyer, and each carrier that handles the freight while it’s in transit. In the best cases, mistakes and miscommunications can cause delays that prevent products from reaching customers quickly and safely. In the worst cases, poor management of shipping processes could lead to injuries, lawsuits, and fines. Yard management An important, often-overlooked aspect of managing a distribution facility is yard management, which is the process of tracking the trailers in your parking lot. To understand why yard management is such an important part of inventory management, you have to realize that carriers have two ways to deliver and pick up your freight: Live load and unload: A carrier shows up, unloads your freight from its trailer, and then leaves. Another carrier backs up to your loading dock, puts your cargo on its trailer, and carries it away. The good part of live loading and unloading is that it keeps your freight moving. The bad part is that the truck has to sit and wait while it’s being loaded. Drop and hook: With drop and hook, when a truck arrives at the destination, it drops off the trailer and leaves. You can load a trailer and have it ready for the truck to hook up and haul away when it arrives. Drop and hook is much faster for the truck than live load and unload, and it can be a better choice for making the supply chain run smoothly. The main problem is that when you’re using a drop-and-hook system, you have inventory sitting in trailers in your yard. Managing inventory in the yard is just as important as managing the inventory inside your distribution center. Over, short, and damaged When you have lots of inventory, either in a store or in a warehouse, lots of things can go wrong. Shipments may not have the right number of units in them, for example, or they could get damaged somewhere along the supply chain. To deal with these issues, you should have an over, short, and damaged (OS&D) process. A good OS&D process plays two important roles: It allows you to spend the time you need to deal with exceptions without interfering with the normal flow of products and information. It allows you to fix problems efficiently and maintain accurate records of how they’ve been resolved. You may discover an OS&D issue when you receive products in a store or distribution center, or when you’re selling or shipping a product. Also, while that material is in your facility, it may be dropped or otherwise abused.

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.

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.

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.

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.