CPSM Blog

You will pass the CPSM - Happy New Year !

 

 

If you are reading this post - you got here because you searched the Internet and were motivated enough to do so. Wonderful- you are a supply management leader !

I am pretty sure that you have very little competition because less than 10% of the world's supply managers - that are qualified to take the CPSM- are really trying to even find out about the certification let alone try and take the exam. How do I know ? - from the statistics of this blog which is the top blog on the CPSM. 

So if you are motivated enough to investigate the CPSM - you are going to make it. Just stay with it.

Best of Luck and Happy 2022.

 

Supplier performance appraisals

Unlike the Human Resources annual employee appraisal, you do not appraise all suppliers annually. Here again you take a strategic (see Risk-Value Matrix) view and do appraise strategic suppliers and critical suppliers annually - if not more often. If there are problems with leverage suppliers - you will hear from users quickly anyway, and you can be relatively more relaxed with non-critical suppliers.

In general though, you would like all suppliers to work as well as a great in-house employee.

The Chief Supply Officer/Chief Procurement officer may not be able to tell you the exact number of items they buy, because these may run into thousands or even hundreds of thousands. That is why, many supply management software have a supply evaluation module (e.g. SAP) that can pull up a supplier evaluation right away. The data sources are (a) order placed (b) actual delivery vs. time promised (c) report of goods received inspection report for quality (d) response time for supplier any service requests (e) satisfaction of users for the product or service purchased. Thus, if everyone in organizations involved with a product or service were diligent in inputting data, then the supply software would make supplier performance appraisals painless and easy.

However, if there are thousands of items you cannot expect every internal user to fill in a survey in a timely manner and therefore allow the software to give useful appraisals.

It thus comes back to the skill of the supply management leader to identify suppliers by segments of importance to your organization's success. You then have to ensure that performance appraisals are carried out and remedial action (including firing the supplier, if necessary) is taken in a timely manner.

Firing the supplier is a completely avoidable situation if this task is managed well. Here are the steps for the supplier performance management process:

1. Decide KPI's: Decide KPI's (Key Performance Indicators) with the user department and clearly communicate those with suppliers. Sometimes you do not need a 100% quality performance. Thus if you need a stationery item like a pencil, there is no catastrophic situations if one batch of pencil leads break more easily in use. However, if a critical valve passes inspection and leaks without reason in a sensitive application, it could be trouble. Maybe, you might want to define performance more broadly beyond "quality inspection on supply" to "quality in use".
2. Jointly develop targets: "Jointly" is the key word here. You are trying to buy something for an internal process to make something else. Assume that you want to reduce material costs by reducing gauge-without reducing performance. Close "joint" collaboration between the supplier and the user is necessary to induct a lower gauge input and then jointly work with quality folks to ensure that the lower specs , lower gauge input does not affect the quality of the output adversely.
3. Review and appraise performance: Review KPI's and identify areas of improvement.
4. Collaborate to improve: Once again, "jointly" or "collaboratively" is the key here. Generally, suppliers are very keen to improve and the only thing they need is the opportunity to work as a team with your internal folks to try and improve. In some cases, e.g. a technology platform change - the supplier may be helpless and you will need to find a new supplier who works with the new technology platform. However, if you just need a supplier to up their game on the existing technology its a far better idea to work with suppliers that are already familiar with your process,users and organizations and have an ongoing relationship. Also see more on technology platforms in "S Curves of Innovation".

Developing new supplier qualification plans

For this topic of the CPSM Exam, the supply management professional is encouraged to think about the implications of getting a new supplier on-board. Here are some of the topics in this section:

1. Tell your customers that you are changing suppliers: Let us say you are moving your courier from FedEx to UPS or vice-verse and the courier delivers parts to your dealers. It is a good idea to let the receiving folks at  your dealers know that you are changing the courier.It gives the dealer's people a chance to build contact with the new vendor who can be critical on some occasions.
2. Map the supply chain with the new supplier: Mapping the supply chain allows you to visualize where the new supplier will fit in and what else might be impacted.
3. Quality Systems: If you are an ISO 9000 company then the new supplier must follow certain processes so that you remain in compliance. Thus, if for example you have an inventory receiving system, the supplier needs to reference your purchase order so that inventory receivers can properly tally receipts with purchase orders placed.
4. Logistics systems: New suppliers must understand and comply with logistic systems that work for your organization as they start supplies.
5. Financial Analysis: Particularly for bigger purchases the financial standing of the supplier company might need to be verified. You do not want a supply problem if the supplier firm suddenly runs out of working capital.
6. Gathering requirements from internal/external customers: The supply manager needs to be alert and gather requirements from internal and external customers who will be impacted by the new suppliers item. Do not assume that everything will fall in place automatically because everyone was used to the earlier supplier/system and a new supplier may not immediately fit in unless requirements are clear.
7. Supplier Evaluation: In HR, employees need to know exactly how they will be evaluated ahead of the start of the evaluation period. It is a good idea to go over the evaluation criteria with your new suppliers so that they know what is important for your organization.

Develop/implement a supplier diversity program

This topic is 1-F-3 in the CPSM exam and explores why organizations should have a supplier diversity program, how such a program should be developed and how it should be implemented. Here is a summary of ideas that the CPSM aspirant needs to consider:

1. Why Supplier Diversity: Supplier diversity refers to minority and women owned suppliers. You have read a lot about how minority and women employees seem to have a lesser percentage of jobs than in the population. Efforts by Human Resources to improve the situation has resulted in major improvements in the US and the world. The logic is simple and becomes clearer when you think that when 50% of the population is women, they should have 50% jobs if they have the qualifications. The same for minority employment. It is relatively easier to hire a diverse workforce because hiring, supervision and performance is at an individual level. On the other hand, suppliers particularly of bigger organizations tend to be larger firms with a lot of good history that provides comfort ( and lower risk, think Risk-Value matrix)  to the buying company. In other words, it seems simply more risky to buy from smaller diverse organizations. Thus at an NMSDC ( National Minority Supplier Corporation) meeting a supplier sadly commented that the only real orders received were for non-core services like cafeteria, lawns and facilities maintenance. Bigger organizations tended to stay with existing suppliers for direct raw materials and services as it just seemed safer. The more enlightened organizations ( a major insurance company I know of ) has a simple logic: if customers are changing in composition, and becoming more diverse, it makes sense that employees and suppliers are equally diverse. And that is a better business logic for diversity than simply moral arguments of "that is the right thing to do."
2. How supplier diversity: Larger organizations have between 1 or 2 supplier diversity managers that try to include and introduce diverse suppliers into the organization from the supply department. These diversity managers work with organizations like the NMSDC and Women owned business organizations ( see the SBA website) who try and facilitate entry as suppliers to such organizations. Processes involved include registration at a diverse-supplier portal  so that the supplier pool is enlarged. Also efforts at including diverse suppliers as Tier-2 suppliers to the main Tier-1 suppliers is also attempted. The process is slow and a lot remains to be done.
3. Measuring supplier diversity:The more evolved the buying organization and the higher the top management priority, the more the measurement and reporting of how much in each commodity was purchased from diverse suppliers. In addition, the ISM has a new qualification called CPSD, that brings credentials to this very specialized advocacy function.

To summarize, just as diverse employees reflect diversity in the market of organizations, diverse suppliers reflect customer diversity and is a very important supply leadership goal for supply management leaders.

Developing and managing effective supplier relationships

I am particularly fond of this topic in the CPSM exam, because it is close to my research interests and PhD dissertation on Innovation Generation in Supply Chain Relationships.So it is wonderful that the topic finds a place in the 1-F-2 section.

Generally speaking suppliers tend to be under-utilized resources in organizations despite their knowledge,ability and enthusiastic willingness to help the mission of the buying firm. This help is not merely to step up with additional supplies, in an emergency but to provide innovative ideas and solutions for the client. Most supply managers tend to call on suppliers for quotes, expediting supply, changing supply quantities on short notice. Rarely do supply managers draw upon the knowledge and skills of the supplier to promote innovation and new product development in their mainstream operations. Here are some important points that the section covers to promote leadership among supply managers on this critical topic:

• Confidentiality of Intellectual Property: Most suppliers tend to be long term suppliers and it becomes easy to share information about each others intellectual property particularly when mutual innovation is involved. Explicit agreements,training to ensure that such proprietary information or knowledge is not shared with competitors needs to be articulated for both parties.
• Improving trust between suppliers and your organization: Trust improvement is necessary if you want the supplier organization to deploy mental band-width to your challenges. Simple steps to acheive this trust include:
•  Meetings between different levels of supplier including top managements, your user departments and your marketing folks can help. Because all are trying to serve your customer.
• Timely payment is something that is simple to do but just gets missed. It can have an enormous impact on supplier trust and motivation. If your finance folks want to pay 30 days later than agreed, just tell your supplier and frequently they will agree and bless you for helping their cash flow planning!
• Supplier survey,training and feedback is important as you try to segment your suppliers by potential and ability. Minor investments in these areas can reap big dividends for your organization.
• Early Supplier Involvement (ESI) is important for innovation, as that helps in the new product development process when you are working with existing core technologies.

Also see Innovation in the B2B and Supply Chain : You are less locked-in than you think.

Rationalizing the supply base - opportunities and benefits

"Rationalizing the supply base" invariably produces stress and anxiety among both suppliers and supply management professionals. Perhaps the word "rationalizing" reminds one of "rationalizing" within the organization that typically means retrenchment and reduction of work force- at least from the employees viewpoint. Some of these concerns for employment are real.

Nevertheless, professional supply managers and also professional B2B marketers should try to understand the purpose of rationalizing the supply base. The earlier you understand and implement it- the better is the performance of your supply chain.  Here are some key points on this topic:

1. Every supplier and commodity is not same: Think of the Risk Value matrix and it tells you that you have a variety of suppliers that can be divided on dimensions of Risk vs. Value to your operations. Suppliers must also understand that their product may be a strategic item in one instance eg. a fresh fish supplier to a restaurant chain vs. a grocery chain. The restaurant chain might be in a bigger crisis in case fresh fish supply is suddenly disrupted. Just thinking of suppliers in an ABC model is also quite effective. "C" class suppliers are those that supply low value items including MRO items that have many vendors. Supply managers with tactical and transactional skills can handle this category. The "B" category of suppliers might involve $1-5 million of supplies and they might include packaging items that are very important to your market. Supply managers must have relational skills and some strategic skills to deal with this category. Finally, you have the "A" list items that total over $5 million that matter a lot to your own customers. Here you need strategic skills in the supply manager.
2. Segment suppliers in each category: After categorizing suppliers either through the Risk-Value method or the ABC method you need to segment suppliers. Segmenting methods include categories like Approved Suppliers,Preferred Suppliers and Diverse suppliers. The bad suppliers can have categories like Disqualified or Debarred Suppliers who might be temprarily suspended for bad performance. Segmentation of suppliers helps a lot by saving time when it is time to order.
3. Transactional,Collaborative and Strategic Alliance: You supplier relationship strategy follows the ABC model where transactional relationships are fine for non-critical items. You want employees to buy their own stationery from approved suppliers- just set up a contract and let people buy through their P-Cards. Perhaps have two supply sources and an annual contract list of prices. Collaborative relationships are important in items that your people must work collaboratively to come up with a great offering for your customer- packaging development is an example in this category. Strategic Alliance can be for more long term joint activity that can completely revolutionize your business- strategy consultants, innovation developing suppliers fall in this category.

Ongoing supply base rationalization does help efficiency  but can come with risks particularly when natural disasters happen as in the case of the Japan Tsunami.

Data based forecasts- planning and communicating supply strategies

This section is a massive 14 pages with 7 questions in the CPSM Exam 1 and carries over from the old CPM. But here is an exciting twist to the section - it deals with planning and communicating supply strategies based on data based forecasts. This post gives you a re-arranged order of the content of the section so that you get a better sense of how the topics fit into the supply management leader's role:

1. Forecasts of volume: It all starts with forecasts of purchasing volume. And that depends on the production plan which is based in turn on sales forecasts. Thus, supply managers must take a keen interest in the sales forecasting process because that gives you an early heads up of the quantities of raw materials, components and spares, lubricants and greases and anything else that supports your production process including capital equipment.
2. Buying strategies: Once you know what you need to buy for the year you can start breaking down specific buying strategies. These can include spot buying, forward buying, volume purchase agreements, just-in-time buying etc. Also included is the decision and management of outsourcing.
3. Which buying strategy to choose? : A good place to start thinking of which buying strategy to choose depends on where each item is on your organization's Risk-Value Matrix. A bottleneck item like a critical valve for a chemical plant costs little but a malfunction, can shut down the whole plant. Carrying a few spare valves is a smart idea.
4. The money equation: Supply managers must consider the financial side of things. Carrying a few extra valves may be foresight  but staying with just-in-time with major raw materials can save money on inventory carrying cost. Hedging including long hedging by buying a futures contract can be money saving for some commodities. These commodities can go into food products (eg. wheat in bread or edible oil for your cooked frozen food plant) metals (like copper for electrical equipment). By buying futures for raw materials might really save money. dollar averaging and contracting are also important techniques to reduce costs on the money end of the supply planning.

Thus, this section although a traditional supply management topic has exciting new challenges based on big data on forecasts, globalized suppliers and sophisticated financial options that can save for your organization.

How Supply Managers should evaluate competitive offerings

This section (1-E-2) of the CPSM exam is an eye opener both both B2B marketers and Supply Chain and Purchasing Professionals.It deals with the point in the business buying process that supply managers must evaluate bids that are received.

If you have studied commerce or basic business at any level (including high school) you would have come across transportation terms like CIF, FOB etc. Also called Incoterms, you need to be clear about what each means. But the purpose of this section, is not merely to teach the Supply Manager some commercial terms - but it's purpose is to elevate the supply profession to a leadership role in organizations by thinking about the strategic imperatives of this stage of the buying process.

At this point of the purchasing process both your (buying) organization and  potential suppliers  have gone through a whole gamut of processes of developing bid documents,preparing bids, meeting bid submission deadlines etc.

Now the time is to decide among different supplier bids. The key message here that is not very clear in the section, is that your buying process should be fair and appear to be fair. In other words, you need to be really clear that you are comparing apples to apples and not apples to oranges. If you did not specify the CIF price basis then different suppliers might quote FOB,CIF etc. It now becomes your task to make things equivalent so that a fair comparison can be made.

Even before you open bids the "appearing to be fair" rule applies. If you said in the bid documents that bids would be opened at 3 pm in public... just do so... even if no bidding supplier shows up, call in some colleagues and open bids at a pre-fined location. Get people to sign in, that they were present.

Bridge topics in this section, include dealing with a multi-functional purchasing or buying center situation.Here some kind of scoring/grading rubric needs to be developed. However, the grading/scoring policy should be available clearly in the bid documents. For example, you might give timely supply a 60% score and evidence could be at least one reference from current customers about timeliness of supply. If a prospective supplier has  a reference who confirms- the bidder gets a 60% score. If you have three or four such criteria clearly decided at the bid document preparation stage, you'll find that there are some clearly better bids.

You might also have to account for supplier diversity in your selection process and that becomes a criteria as well.

To summarize, at this bid opening and supplier decision stage , supply managers should be doing what they said - clearly and without creating confusion among the supplier (B2B marketer) community.

How Supply Managers Analyze Potential Sources of Goods and Services

For this topic of the CPSM exam, I had run out of time and hence there is no previous detailed post on the topic. Another possibility of neglecting to write on this section (despite a respectable 6 question load in Exam 1) is that the section is somewhat dry and operational and this post aims to make the topic more interesting and celebratory given the upcoming Happy New Year 2014!

Task 1-E-1 lists the options the supply manager tends to consider when sourcing goods or services. But guess what: this is a large chunk of the supply management job and the strategic fun comes in actually deciding which path to follow for a  particular sourcing challenge.

Since a lot of non-Supply Managers also read this blog, it is worthwhile to back off a bit and understand how the buying process starts in organizations. The user department comes up with a need and has a budget and the supply (purchasing) folks are asked to find suppliers ( read the post on buy-task).

How supply managers should analyze potential sources is the subject of this section. The analysis includes:

1. An analysis of the existing supply base. The worst nightmare for a supply manager is a failed supplier, for any reason, and stopped production. Supply Managers tend to be risk averse, and would ideally have a few suppliers lined up - just in case. However, there may be organizational regulations that need full and open competition- for example, in Government organizations and larger buy amounts. There could be technical competition where one supplier might be able to offer superior technology or there might be single source when there is a strategic alliance or joint venture. Examples of packaging companies in equity joint ventures with consumer product companies exist that allows dedicated supplier staff and filling lines right at the buying organization premises.
2. Nature of sources and their effect on procurement must be analyzed. For example, it might be cheaper to import in which case the supply manager must clearly articulate issues surrounding exchange rates,duties,transportation and applicable laws. On the other hand, there might be a company mandate to encourage local suppliers and employment, in which case the supply manager will have to find ways to encourage local businesses.
3. Existing versus New Sources is a decision that follows the buy-task considerations  unless the existing supplier is failing in significant ways. When organizations are used to old suppliers they did not change them unless there were problems of cost,quality or performance. This inertia among supply managers was primarily because it was too difficult to find another supplier. A major change in searching for suppliers today is the Internet search engines like Google, Yahoo and Bing that allows searching for local,global or any other criteria the supply manager might want to consider.

We wish our readers a very Happy 2014 !

Supply Chain safety policy implementation,monitoring and communication

Supply Chain safety policy implementation,monitoring and communication is a critical function for supply management leaders and if you recall the BP oil leak, you begin to get some context on this vital supply management function. So long as everything goes well, no one realizes the systematic steps you take to maintain safety within your organization and your supply chain. Just in case, something does go wrong it helps when you have a clear documented safety plan including its implementation, monitoring and communication both within your organization, your supply chain and also with your customers.

For example, today on Halloween chocolate covered peanut m&m's packs must be clearly marked  "peanut" as you can see in the picture, so that children and parents are aware, in case of peanut allergies. Clear markings on individual packages is a result of good implementation, monitoring and communication between the marketing and supply management folks at m&m and packaging suppliers who supply the printed film. Also involved are packaging quality folks who should have clear protocols to confirm that that each pack has the "peanut" word prominently displayed and there is no inadvertent slip due to packaging machine problems.

Fortunately for the supply manager, workplace safety laws like the Occupational Safety and Health  (OSHA in the US ) provide important guideposts to identify federal,state and local safety laws that must be followed by the organization and also the supply chain. Here tier-2 suppliers are also not excluded for safety liability from the buying organization simply because the supply manager has put a "safety compliance" clause in the contract. Even when the goods are purchased overseas, corporate social responsibility (CSR) requires that the supply manager takes an active role in ensuring that safety is followed as, pointed out in an earlier CSR post.

Other important laws that provide safety guidelines are the US-DOT safety rules (see the Compliance Aids section)  particularly for transportation of hazardous goods.For handling hazardous goods within the organization Material Safety Data Sheets (MSDS) must be posted so that personnel are aware of safe handling practices. Innocuous products like cleaning solvents and ink toners need safe handling and there are numerous websites that give you guidelines for MSDS requirements.

Finally, even after goods are sold the supply manager should keep good records of safety processes followed, in the supply chain and organization  for 4-6 years following the UCC in the US before statute of limitations start to apply. However, this must be confirmed with your country and company legal department.

Towards a Responsible Supply Chain: Develop and Monitor Environmentally Responsible Programs

In this section (1-D-2) of the CPSM exam the supply chain leader is being asked to develop or establish environmentally responsible programs and monitor them in keeping with 9 subtopics that we will briefly discuss in this post. The important thing is to understand that an environmentally responsible supply chain is not merely about going along with environmental responsibility just because your CEO or customers are asking for more environmental responsibility but there is a whole bunch of influences that make it necessary for the leader supply manager to do the right thing environmentally, provided she/he knows "what is right?" Here are the 9 topics that provide some guideposts:

1. Environmental laws include in the US, laws that protect from air pollution like the Clean Air Act, from water pollution like the Clean Water Act and an understanding of the Solid Waste policy. In the US these laws are enforced by both the Environmental Protection agency (EPA) and the Department of Justice at the Federal level. In addition, every state has its own laws that managers must follow and ensure that employees and suppliers also follow. An important law relates to Government Response in case of sudden environmental problems like the BP oil spill is the Comprehensive Response,Compensation and Liability Act  or CERCLA.Managerial actions include responsibilities for air,water and solid pollution at the source, during transit ( say there is a liquid spill during transit) and at destination.
2. Environmental risk transfer processes like transfer of responsibility to a supplier through a contract or through insurance is tricky for the supply manager.Liability in case of hazardous discharge remains with the focal company who will have to organize cleanup under CERCLA if you recall the BP oil spill.
3. ISO and Best practice now requires an Environmental Management System (EMS) to be in place.
4. Audit of best practices can be internal which is an ISO requirement.
   Once the criteria against which the supply chain is being measured for environmental compliance is decided, then the supply chain audit is done to identify weaknesses and address them.Organizations can take reporting to extreme levels like Puma has done in the video. At the very least self disclosure to EPA is helpful to keep compliance in track.

5.Specific organizational values and policies like the organization's mission and goals for environmental responsibility within the ISO context guides the supply chain manager's efforts. Thus, the Puma supply managers will probably have to follow some wide ranging environmental goals as can be seen in the video.

6.ISM Principles of Social Responsibility and Audit are a professional resource when supply managers are asked for their professional inputs into framing their company policy.

7. Buy-Recycled Programs include a formal attempt in the organization's Environmental Management System (EMS) to buy recycled products. This is in addition to efforts to re-use items.

8. Minimization of Waste saves money for the organization and also saves the environment. The three R's of Reduce,Reuse and Recycle is useful for individuals and organizations where supply managers work. See some nice tips  of the 3 R's at the Missouri Department of Natural Resources.

9.End of Lifecycle action for all things purchased is the responsibility of the supply manager. For example when scrapping old equipment through a scrap dealer , the supply manager is responsible for environmentally responsible disposal of the scrap.

To summarize this topic is about environmental pollution (air,water and solid) and knowledge,action and audit of everything the organization buys. The supply manager tries to keep track through the entire lifecycle -from cradle to grave i.e. components that go into an equipment bought to how the scrap equipment was disposed.