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:
- 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.
- 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.
- 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.
- 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.