Supply Chain Management Fundamentals / Lesson 1: Certification and Systems / Lesson 1: Certification and Systems

Lesson 1: Certification and Systems

Introduction

Hello, everyone. Welcome to the course. My name is Tony Swaim, and I will be your guide through Supply Chain Management
Fundamentals.

I've been an online instructor since 1998. Prior to this, I was an adjunct professor and worked as a materials manager for several medical
device manufacturing companies.

My goal is to help you learn to be more effective at supply chain management (SCM). I have worked in supply chain management for more
than 25 years and have helped hundreds of students master the essential elements of planning, scheduling, implementing, and control.

Your success as an SCM practitioner depends not only on how you perceive your position in your organization but also on how well you
interact with other departments, top management, suppliers, and customers. In this course, you will learn how to add value to your
organization by planning the right things, at the right time, at the right place, and at the right cost.

By the time you finish the last lesson, you will know the difference between material requirements planning (MRP) and manufacturing
resource planning (MRP II), understand the essence of operating systems, and know what supply chain means. You will have a firm grasp
on the essentials of sales and operations planning (S&OP), and you'll know how to develop and control a customer demand forecast and
use it to create and drive a master production schedule (MPS).

You will also have mastered the basics of MRP and discovered how to plan capacity by using rough cut capacity planning (RCCP) and
capacity requirements planning (CRP). Finally, you'll be able to create a detailed production schedule and load work centers, as well as
control day-to-day operations by using production activity control (shop floor control).

To get the most out of this course, I encourage you to share your questions and ideas with your classmates and with me in the class
discussion area. I hope you will quickly become comfortable reading responses and posting messages, and if you haven't taken the time to
introduce yourself, please post a message for us today.

To access the class discussion area, simply scroll to the top of this page and click Discussion in the upper-right corner.

Okay. Let's start learning about supply chain management fundamentals. In Lesson 1, we'll discuss professional certification and get
acquainted with the professional society for SCM practitioners: the Association for Supply Chain Management (ASCM), formerly known as
APICS. Then we will review operating systems and define the supply chain. And finally, we'll look at MRP II and identify the role that it
plays in an organization.

Professional Certification and ASCM

As mentioned in Chapter 1, APICS is now known as the Association for Supply Chain Management (ASCM). However, some of the
certifications still go by the APICS name. One of them—the APICS Certified in Production and Inventory Management (CPIM) program—is
part of what this course is about. I want to help you prepare for—and pass—the CPIM exam. So let's talk about it.

The CPIM program was started in 1973 to provide a reference point for SCM practitioners to compare their knowledge to what APICS
considered important. Since 1973, more than 500,000 exams have been taken. ASCM estimates that students spend a few million hours
each year preparing for the CPIM exam.

There are five modules included in the CPIM test series. Of the current exam modules, none of them retain their original title and content.
All five modules are offered through computer-based testing. Scoring is immediate, so while you're still in the testing center, you will know
if you passed.

If you want to know more about the five modules in the CPIM exam, please visit the Supplementary Material section after you finish this
lesson. I have provided a link that describes the CPIM certification program and reviews each of the five modules.

This course will help prepare you for the CPIM exam. However, you will also need two (low-cost) publications available directly from
ASCM. The first publication is the APICS CPIM Exam Content Manual and the second one is the APICS Dictionary. There are links in the
Supplementary Material section for these resources as well.

The CPIM Exam Content Manual contains information on the CPIM program and the exam, many sample questions (with answers and
explanations), suggested study materials, and applications for the exam and for becoming an ASCM member. Best of all, it provides an
introduction, outline, and terminology for all five modules.

The APICS Dictionary defines more than 2,000 terms that you need to know for the CPIM exam. It's the best value I know of for the money.
If you are serious about passing the CPIM exam, I recommend that you know the CPIM Exam Content Manual and the APICS Dictionary
backward and forward. When you are armed with knowledge from these two references and the information from my two courses, you'll
be well prepared.

The Significance of CPIM

Why is the CPIM credential so significant?

If you review employment ads, you'll see that many companies want people with the CPIM credential. In fact, some employers make it a
minimum requirement for certain positions. Many firms, for example, require CPIM certification before a production planner is eligible for a
senior planner position.

Now, not everyone passes the CPIM exam the first time, so don't be discouraged if you have trouble. The tests are tough. But your diligent
studying will only increase your knowledge, and it will pay off. When you see the words "Congratulations. You passed the exam!" on your
computer screen, you'll feel a deep sense of satisfaction and accomplishment.

The CPIM is also important to the industry because it helps standardize terms that we all depend on. When I teach an SCM class and
discover that students do not agree on terms, it's a challenge. For example, students often have trouble differentiating a production plan
from a production schedule. Or they don't understand the similarities between pseudo, planning, phantom, modular, and super bills of
material.

Standardization helps people call an activity or concept by the same name and thereby reduces confusion. So we owe a big thank-you to
the CPIM study materials and the testing process for making our concepts and terms more consistent.

From APICS to ASCM

APICS, the American Production and Inventory Control Society, began in Cleveland in 1957. Since APICS now has an international focus,
they changed their name to The Association for Supply Chain Management (ASCM) in 2018. The organization now has more than 70,000
members and has evolved tremendously.

In addition to CPIM certification, ASCM offers several other credentials, including the Certified Supply Chain Professional (CSCP). It's
designed for professionals who are interested in learning more and demonstrating their knowledge of their entire supply chain. Besides
this additional certification, you can upgrade your basic CPIM certification to a higher designation, Certified Fellow in Production and
Inventory Management (CFPIM), if you achieve high test scores and serve ASCM as a volunteer.

ASCM offers memberships in specific industry groups (SIGs) in such areas as process industries and aerospace. They also offer an
international annual conference, employment referral service, and local chapter meetings.

I really encourage you to become a member of ASCM. You receive many benefits when you join—a monthly magazine, a quarterly
professional journal, a local chapter newsletter, member discounts on conferences, and much more. There are many types of memberships
to choose from too: individual, student, SIG, international, and corporate.

Operating Systems and Supply Chains

I attended my first APICS (now ASCM) conference in Los Angeles many years ago when I was beginning my career. During the break-out
session, the speaker discussed the materials management concept. I recently reviewed my notes from this long-ago session as I
developed this course, and I was amazed to find many of the same concepts that currently make up the SCM body of knowledge.

While the term supply chain management may be new to you, its content is probably not.

I have to tell you a funny story. A professor I know told me that he simply changed the name of his class from Principles of Materials
Management to Supply Chain Management, and his student enrollment increased by more than five times.

Today, companies realize the importance of ASCM and recognize its body of knowledge. Supply chain management is such an integral
part of business operations that employers want the best people possible (and are willing to pay excellent salaries) to perform planning
and control functions.

The future in supply chain management is bright as more colleges and universities offer programs in operations management and
associated subjects. This is an encouraging trend, and I hope it continues so that more people have a better understanding of supply chain
management and are better prepared for whatever challenges the future may bring.

Supply chain management relies on operating systems. Let's see what they're all about.

Operating Systems

Operating systems form processes. When you make breakfast, plan a vacation, or take an online class, you use a process.
Processes take inputs (things that you need, like materials and information) and arrange them in a certain way (called transformation) to
produce outputs (end products). Processes occur within both an internal environment (controllable variables within your company, such as
buildings, equipment, and human resources) and an external environment (uncontrollable variables outside your company, such as
competitors and customers).

Take a look at the following operating system:

Fig. 1.1. Operating system

When you work with an operating system, your goal is to achieve synergy. This means that the whole (output) exceeds the sum of the
individual parts. Think of a low-budget movie that becomes a box office smash. The filmmaker has spent a modest amount on actors'
salaries and promotion, and she ends up making a fortune. So the script, acting, and technical aspects of the film have come together in a
unique way to captivate moviegoers' attention (and increase the proceeds). This is synergy at work.

Achieving synergy means that your operating system meets customer and organizational objectives. So you can see that synergy requires
a careful understanding of your operating system. It's vital for you to have a firm grasp on how inputs arrive (separately or in combination)
and how they are put together (who combines them, where they are combined, and in what sequence).

Since operating systems do not occur in a vacuum, you need to diligently manage your internal and external environment. My friend Jeff
did not manage his environment properly.

Jeff purchased a restaurant near a performing arts center. His waiters and the neighboring businesses comprised part of his internal and
external environment. Jeff's business began to decline, and eventually the restaurant went bankrupt. He could not understand it. The
restaurant critics told him that he served the best cuisine in town.

Jeff interviewed a few of his previous customers and discovered that three of his waiters were very rude (internal environment) and that his
neighbors parked in his customers' parking places (external environment). Too bad he learned about these problems later and not sooner.

In summary, the goal of an operating system is to efficiently convert inputs into outputs and effectively manage your internal and external
environment.

The Supply Chain

The supply chain is a special operating system. It represents a broad spectrum beginning with sourcing raw materials and ending with
maximum customer satisfaction.

Let me give you an example:

A to Z Medical Products manufactures human heart valves from pig hearts. Procurement specialists from A to Z travel around the world
searching for the right size heart because doctors sometimes have difficulty finding a certain size of pig valve for their patients. A to Z's
supply chain leaves a lot to be desired—pigs do not always cooperate.

So A to Z attempts, through research and development, to create an artificial pig heart that can produce any size heart valve. This solution
will greatly enhance their supply chain competitiveness.

This illustration reveals two essential concepts about supply chains:

All activities must flow seamlessly. Strive for maximum efficiency.

A supply chain is only as strong as its weakest link. The part of your supply chain that is deficient reduces your overall effectiveness.

Many companies control an entire supply chain by using vertical integration. A company that grows rubber trees, manufactures tires, and
sells them to retailers is a vertically-integrated organization. This form of integration provides greater control but also requires close
coordination. Another type is horizontal integration, where firms expand by buying similar organizations.

Manufacturing Resource Planning (MRP II)

(Just a note: When you use manufacturing resource planning, make sure you refer to it as MRP two, not MRP the second.)

During the early 1980s, material requirements planning (MRP) was firmly entrenched in many organizations. Management and
practitioners could clearly see the benefits of MRP and wondered if it could be expanded on a larger scale.
Quite often, the marketing and finance departments were in the dark regarding manufacturing planning and how they fit in. Consequently,
production, marketing, and finance operated in their own little spheres and without complete information. As you can imagine, this greatly
reduced organizational effectiveness.

Enter MRP II. MRP II was introduced as a comprehensive organizational information system. It did not replace MRP, nor was it an improved
version of MRP. MRP is the engine of MRP II, generating key information for all areas.

Instead, MRP II was designed to expand the scope of production resource planning and involve other areas of the organization (marketing,
finance, purchasing, engineering, and human resources) in a company's planning process. MRP II also provides many benefits. Information
is used by managers to develop and monitor plans, recognize sales objectives, determine manufacturing capabilities, and identify financial
opportunities and constraints.

Today MRP II is often part of a larger planning system called Enterprise Resource Planning (ERP). Regardless of what MRP II is called, its
value lies in what it does.

Let's identify the different elements of MRP II.

Take a look at the following MRP II diagram:

Fig. 1.2. MRP II

Notice that everything begins with the business plan. Business planning creates a long-range (three to five year) strategic plan for the
organization. A strategic plan focuses on three key questions:

Who are our customers?

What value do we provide?

What changes should we make regarding our customers, products, and process?

A business plan justifies the existence of an organization. It develops strategies that communicate how products are developed,
manufactured, and delivered to customers. The chief executive officer and select support staff develop high-level plans that support these
strategies.

After you create the business plan, all other plans—the sales plan, the production plan, and the financial plan—come together. Marketing
and production executives will identify their plans (expressed either in dollars or units), which also support the business plan. Finance will
then translate the sales and production plans into revenue, cost, and profit projections. These plans usually cover 12 to 24 months.

Developing and reviewing the business plan is important because it provides an opportunity to identify and discuss gaps and conflicts that
may exist between the sales plan and the operations plan.

Sales and marketing may generate a forecast that reflects a significant increase in sales volume. However, this sales volume may not be
reflected in the business plan or supported by recent trends in consumer demand. Let me explain. Suppose that the business plan
identifies that computer sales are expected to be $100 million during 2007. The sales plan for that year may only be $75 million. Sales and
marketing, then, need to justify why their sales forecast is off by $25 million.

One other task that's needed during this phase of MRP II is resource planning, or resource requirements planning, because the production
plan is structured in product families. For example, a garden equipment manufacturer could define families as push mowers, power rotary
mowers, power reel mowers, and riding mowers.

At the resource planning step, you need to look at what it takes (people and machines) to make one typical mower or one typical hedge
clipper. Then multiply each of these one typical items by the number of units stated in the production plan.
The purpose of resource planning is to determine if available capacity is significantly different from required capacity, as defined by the
production plan. For example, let's say that the garden equipment company may need to paint all of their products red. They would need
to compare the number of units they plan to produce to the available paint equipment. This would reveal any mismatch between needed
and required capacity.

The next step is the very important master production scheduling (MPS) process. The MPS balances customer demand and production
capabilities, so you must manage it carefully. An MPS defines the families represented in the production plan in greater detail.

Express your MPS as end products or as options. Automobile manufacturers, for example, use the assemble-to-order strategy to schedule
engines and transmissions as options instead of scheduling cars in a traditional way (one at a time). You will make your MPS decision
based on your type of manufacturing strategy.

To complement your MPS activity, you'll want to use rough cut capacity planning. I'll bet you were afraid rough cut capacity planning would
not have an acronym, but alas, it does: RCCP. RCCP will help you identify key resources and determine capacity shortages that lead to
bottlenecks. For instance, imagine that you run an integrated circuit test center. RCCP can show you if it can take on more business or if it
is fully utilized and can't run any additional tests until you add more equipment and employees.

After you finish performing the MPS and RCCP steps, you will run your material requirements planning (MRP) program to calculate
material needs and also simulate possible scenarios (ask what if questions).

Let's say that a major customer requests a very large order and asks for delivery in two weeks. Your normal lead time is six weeks. Before
you make a decision regarding this opportunity, you'll want to use the simulation capability of MRP to identify major constraints that would
prevent you from filling and shipping this order in two weeks.

After you run your MRP program, you will then review order action reports and release work orders (also called shop orders). Depending
on the nature of your operation, you may also run a capacity requirements planning (CRP) program. CRP is very beneficial for operations
that have a high-mix production environment (many different products). CRP defines labor, equipment, and machinery you need, in great
detail, to support MRP-generated work orders. Be sure to use a computer with sufficient horsepower to run CRP.

Before you execute your plans, remember to search for gaps to determine discrepancies between what you want and what will happen. If
your MRP run indicates that you have insufficient materials, you must adjust your MPS (unless you are able to obtain additional materials).

At this stage of the MRP II process, you probably have many well thought out plans, but you haven't actually manufactured any products
yet. When do you start to produce?

Once everything is harmonized starting with your business plan and continuing through MRP and CRP, then it's time to execute your plans
by using production activity control (PAC) and purchasing (supplier management). Production activity control, also known as shop floor
control, consists of detailed production scheduling, measurements, variance analysis, and corrective action. Purchasing consists of
converting MRP requirements to purchase orders (POs), sending POs to suppliers, and ensuring on-time delivery.

Some Final Words about MRP II

Some people believe that MRP II is out-of-date and no longer valid. Industry experts tout other systems, such as Lean Manufacturing,
Computer Integrated Manufacturing (CIM), customer-oriented manufacturing management systems (COMMS), manufacturing execution
systems (MES), and product data management (PDM) as viable replacements for MRP II.

Based on my experience, however, I believe that MRP II provides a logical framework for all organizations. While its name may change, I
have no doubt that MRP II is here to stay.

Conclusion

Today you learned about professional certification and what ASCM, the professional society for SCM practitioners, offers. You learned
about operating systems and discovered what is meant by the supply chain. You also learned the basics of manufacturing resource
planning (MRP II) and learned how various elements come together.

Next time, as we embark on Lesson 2, we will survey sales and operations planning (S&OP). See you then!