Vault Career Guide to Supply Chain Management (Vault Career Library)

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VAULT CAREER GUIDE TO

SUPPLY CHAIN MANAGEMENT

? 2005 Vault Inc.

VAULT CAREER GUIDE TO

SUPPLY CHAIN MANAGEMENT

JAVED KHAN AND THE STAFF OF VAULT

? 2005 Vault Inc.

Copyright ? 2005 by Vault Inc. All rights reserved. All information in this book is subject to change without notice. Vault makes no claims as to the accuracy and reliability of the information contained within and disclaims all warranties. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Vault Inc. Vault, the Vault logo, and “the most trusted name in career informationTM” are trademarks of Vault Inc. For information about permission to reproduce selections from this book, contact Vault Inc., 150 W. 22nd St., 5th Floor, New York, NY 10011, (212) 366-4212. Library of Congress CIP Data is available. ISBN 1-58131-391-8 Printed in the United States of America

ACKNOWLEDGMENTS We are extremely grateful to Vault’s entire staff for all their help in the editorial, production and marketing processes. Vault also would like to acknowledge the support of our investors, clients, employees, family, and friends. Thank you!

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Table of Contents INTRODUCTION

1

THE SCOOP

3

Chapter 1: Supply Chain Basics

5

Manufacturing Nuts and Bolts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Production Process Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 What is the Supply Chain? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Chapter 2: Making it Run Smoothly

15

Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Critical Skills and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Chapter 3: Trends in Supply Chain Management 25

GETTING HIRED

Chapter 4: Supply Chain Hiring

29

31

Skills and Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Getting In . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Chapter 5: Resumes and Interviews

35

Sample Supply Chain Resumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 The Supply Chain Interview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Sample Interview Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

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Vault Career Guide to Supply Chain Management Table of Contents

ON THE JOB

Chapter 6: Job Responsibilities

41

43

Job Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 The MBA in Supply Chain Management . . . . . . . . . . . . . . . . . . . . . . . . . .45

Chapter 7: Our Survey Says

APPENDIX

49

55

Supplier Audit Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57

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Introduction Supply chain management is the coordination of efforts of a network of vendors that provides materials and components for a company’s products. Supply chain management primarily takes place in manufacturing companies such as Chrysler, Sony, and Boeing. Of course, no two companies operate the same way, so supply chain management practices vary greatly — even for companies in the same industry. For example, a company at the cutting edge of technology tends to look for a supply chain that has very short lead times (the time to make and deliver a product), whereas a company whose products have many competitors needs a supply chain that focuses on cost reduction. The methods described in this book are representative of many companies, but there are always exceptions to the rule. One of the exciting aspects of Supply Chain Management is that it is a dynamic field. There are constant innovations being made such as RFID (Radio Frequency Identification) and Vendor Managed Inventory, and the globalization of the economy continues to have a significant impact on the industry.

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1

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THE SCOOP Chapter 1: Supply Chain Basics Chapter 2: Making it Run Smoothly Chapter 3: Trends in Supply Chain Management

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Supply Chain Basics CHAPTER 1

Manufacturing Nuts and Bolts Components and Material “Components” are products made by a supplier and purchased by your company and then assembled in your company’s plant, while “material” refers to a product that your company uses to manufacture a part in your company’s plant. The easy way to remember this is that components get assembled and material gets converted. For an automobile plant, a tire would be a component (or part) and a large sheet of steel that would be used to fabricate the hood of a car would be material. You have probably seen an automobile assembly line on television. A car door would be called a component. A car door with a window already installed, a motor to open and close the window already wired, and the upholstery on the inside of the door already attached is referred to as a subassembly. A subassembly is an intermediate step between a part (a door) and a completed product (an automobile). Picture an automobile chassis progressing on a horizontal conveyor, fender panels arriving from overhead hangers, assemblers aligning the fender into the correct position, and robots welding the fender to the chassis. Note that these are called assembly lines, not manufacturing lines. Car companies do most of the final assembly of their products themselves, but do not actually manufacture the thousands of components that go into these cars. Instead, they choose to purchase components and subassemblies from suppliers. This is done because of cost and quality reasons. It would be very expensive for an automobile company to purchase all of the equipment and gain the expertise to be able to make the different types of components (sheetmetal, plastic, electronics, fabric, etc.) that go into a product. Therefore, it makes sense to partner with companies (suppliers) that specialize in specific types of manufacturing (CNC, injection molding, upholstery, stamping, etc.) and have those companies supply the parts and subassemblies for the cars. The automobile suppliers typically have multiple customers (i.e. Ford, Dodge, and Honda), which makes it easier for them to justify the research and equipment expense involved in making a part (like a spark plug) to sell to the car companies. Coordinating the efforts of these numerous suppliers is a full time job. This is what supply chain management Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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Vault Career Guide to Supply Chain Management Supply Chain Basics

is. Supply chain management practitioners have to find suppliers, get them to agree to make the desired components for a competitive price, and then coordinate with the suppliers to make sure the components are available for the assembly lines as needed. Supply chain managers also have to take action when a supplier sends parts late or sends parts that do not meet the requirements. Car companies hire many supply chain managers. Most of the time, managers work in the plant for which they purchase components, but this is not always the case. The supply chain manager acts as the main customer to the supplier.

What goes on in a factory? In a manufacturing plant, raw materials are converted into components, which are then assembled into products. If the value added by this process is greater than the cost required to conduct it, profit can be earned by a company wishing to undertake this task. The first step is to create a forecast of how many products will be sold, which is done by the plant’s Sales Department. After determining the time required to make one unit of product, the engineering department will calculate the number of machines and people required. Since machines are usually capitalized (which means the cost is distributed over a few years instead of all at once), the machines will depreciate (the portion of the cost of the capital equipment that is taken annually) whether they are used are not. Similarly, factory workers are paid by the hour for being at the plant regardless of whether or not they are making product. One can argue that their supervisor (part of the Production Department) should send the workers home if there is nothing for the factory workers to do. For this reason, factory workers are called a variable cost – the expense of labor to make the product should be proportional to the number of units produced. In actuality, direct labor (factory workers) is correlated with but not directly proportional to the number of units produced. Economies of scale and economies of volume affect the amount of labor required to make a product. Economy of scale means that costs per unit decrease as volume increases. For example, if 100,000 square feet of space is required to make 100,000 units annually, the required space to make 1,000,000 units annually is most likely less than 1,000,000 square feet. Economies of volume refers to the cumulative effect of making a product, and is also known as learning curve effects. For example, the time that it takes to make a product in the third year of production should be a lot less than in the first year of production. Understanding the economics of a manufacturing plant will help a supply chain manager perform his/her job better by being able to see how poor supplier performance (something a supply chain 6

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Vault Career Guide to Supply Chain Management Supply Chain Basics

manager is expected to control) affects the factory. In addition to factory workers, raw materials are also a variable cost. Obviously, there should be a known number of components that go into a product. If more units are to be made, more components are required. On the other hand, most costs of a manufacturing plant are fixed costs. These costs are not dependent on the number of units produced. In addition to depreciation mentioned above, employee salaries (indirect labor), and rent are examples of fixed costs. These fixed costs are also known as fixed overhead. Manufacturing plants are motivated to maximize the number of units produced because this reduces the fixed overhead cost per unit. For example, if the rent on a building is $10,000 per month and the production is 5,000 bicycles per month, then the amount of rent that would be allocated to each unit is $2. However, if there was a 50% increase in production, this cost would be reduced to $1.33 per bicycle. Again, the desire is to maximize the utilization of a company’s assets. If a company is running 24 hours a day, 7 days a week, the assets are being 100% utilized. If a company runs only 40 hours per week, the assets are used only 24% of the time. On the other hand, if a company has the assets and the factory workers but does not have the raw materials, money is lost every minute. The fixed overhead costs are only one factor that drives the urgency to always have raw material available. Another is customer satisfaction. In this age of instant gratification, customers do not tolerate out-of-stock situations. The expectation is that a customer should be able to receive a product the day after they place the order. If one provider cannot meet that requirement, the consumer will find one that can.

Production Process Issues What happens when parts arrive late? In order to keep the production process running smoothly, raw materials must always be available. When raw materials are not available when they are needed, the production department is forced to investigate, notify, reschedule, and setup to make a different product. A novice supply chain manager might conclude that the solution lies in purchasing extra material, beyond what the forecast calls for, to be safe. This may prevent having to shut down a production line due to a raw material shortage, but there are risks associated with that also. Imagine if someone who strongly dislikes going to the grocery store decided to buy one year’s worth of groceries at once. Would this action Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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Vault Career Guide to Supply Chain Management Supply Chain Basics

prevent this person from having to go to the grocery store for a full year? Would this person not run out of food for a full year? There are obvious disadvantages to this strategy. Some groceries are perishable, groceries take up a lot of space, they would have to be paid for upfront even though some of them would not be used for an entire year, some groceries might not be found in their storage location because they are under a big pile of other groceries, unexpected guests could come and consume groceries faster than expected, the person’s tastes could change and they could get tired of some of their purchases, the person could develop a fondness for a new grocery item that they did not buy on their annual trip, or the price for a grocery item could come down significantly. The list could go on and on. Thus, every manufacturing plant has to find a balance between buying enough raw material to keep the production lines going, and not buying so much raw material that it becomes a burden. There is no optimal inventory level that applies to all plants. A common inventory goal is 12 inventory turns per year. This is a metric that supply chain managers are expected to contribute toward improving. Inventory turns are defined as the revenue of a company divided by the dollar value of the inventory. Reducing inventory results in a higher number of inventory turns. Inventory levels are important in any organization, but in publicly traded companies they are even more critical because high inventory values can make investors think that a company’s products are losing popularity and cause the stock price to decrease. Supply chain management jobs exist in both public and private companies, but more so in public ones. Some plants operate under Just-In-Time principles (JIT). In this scenario, raw materials are delivered when they are needed, and go straight to the production floor instead of being warehoused first. The automotive industry is famous for practicing JIT. Truckloads of seats for cars arrive at defined intervals (often hourly) and connect to the conveyors that carry one seat at a time to their assembly area. The desire to be on the JIT bandwagon is overshadowed by the risk factor of running out of parts on the production line for most manufacturing plants. Many plants claim to operate under JIT principles just to impress customers and competitors, even though they actually receive weekly shipments of raw materials.

Avoiding defects Avoiding part shortages and increasing inventory turns are not the only goals for a supply chain manager. The parts that arrive have to meet certain specifications. This may sound trivial, but if a supply chain manager orders 8

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Vault Career Guide to Supply Chain Management Supply Chain Basics

an aluminum plate 8 inches long, 8 inches wide, ? inch thick, with purple anodizing, what are the chances that is what they will actually receive? The chances are less than 100%. A manufacturing industry novice might think that if a company has given a supplier a detailed drawing specifying what they want, the supplier will provide products that meet those specifications. But if this were the case, companies would not have incoming quality inspection, first articles (a thorough inspection of a part the first time it is received), MRB (Material Review Board) locators, and supplier quality engineers just to verify that the supplier is meeting the specifications that have been outlined for them. Wanton disregard by suppliers to the specifications is not what is being implied here, but the fact of the matter is that sometimes parts are received in manufacturing plants that do not meet the specifications. Of course, cost is always part of the issue. Some companies require a certificate of compliance with each shipment of product. This definitely adds to the cost of the raw material and it does not guarantee that 100% of the material in the shipment will be per the specifications, but it helps. A supply chain manager is under perpetual pressure to reduce costs. Some companies gamble and try out a cheaper supplier because they have decided that the cost savings outweigh any quality compromises. Some suppliers can be both cheaper and higher-quality than others, but the general rule is higher quality carries a higher price.

A factory’s employees The common perception is that factory workers are blue-collar, predominately male, unskilled laborers who run huge machines. This is really not the case. Not only are there plenty of females in factories, there are plenty of jobs that are semi-skilled labor, skilled labor, and white-collar. All factories maintain a management staff to direct the work of the factory workers. The white-collar jobs of a factory take care of product quality, computer systems, manufacturing engineering, purchasing, safety, human resources, inventory management, and planning. Some of the job titles are Engineer, Planner, Business Analyst, Manager, Controller, and Supervisor.

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Vault Career Guide to Supply Chain Management Supply Chain Basics

What is the Supply Chain? Suppliers and vendors A simple definition of supply chain is the network of vendors that provides materials for a company’s products, but in reality, the supply chain is more complicated. There is a stream of flows from supplier to supplier until a product reaches an end user. For example, oil is rigged from the ground, sent to a refinery, plastic is made, an injection molding shop buys plastic pellets, makes plastics components, ships the components to a customer, the customer assembles the plastic parts into their machine, and then sells the machine to their customer. The further away from the customer, the farther “upstream” a supplier is considered to be. The network of vendors in a supply chain often includes tiered suppliers (meaning a company does not receive materials directly from the supplier, but is involved in getting materials or parts from an upstream supplier to a downstream supplier). The more complex a product, the more significant the upstream supplier’s roles are. From a supply chain manager’s perspective, his suppliers are primarily responsible for managing their own supply chain but he should have some involvement. Oftentimes, a manufacturing facility acts as a supplier to a downstream manufacturing facility. For example, a company could have their manufacturing plant in the U.S. and their assembly plant in Mexico. The U.S. plant would be considered an internal supplier, since it’s part of the same company. The transportation of materials throughout the supply chain is often called logistics. This includes air, land, and sea shipping as well as customs processing to allow materials to cross borders. The supply chain does not end until the product reaches the consumer. For this reason, distribution centers, distributors, and wholesalers are all part of the supply chain. It is not rare for a supply chain to involve a dozen parties. The relationship between a supplier and a manufacturing company is not as simple as a supply chain manager ordering parts and the supplier shipping them. There are continuous flows between the supplier and the customer. Figure X below shows these flows in chronological order from top to bottom. (Note that this figure is for an already established supplier and material.) In the case of a new supplier, a supplier audit (a verification that a supplier has the potential to meet the manufacturer’s needs) should be conducted first to determine if the supplier is appropriate for the work.

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Vault Career Guide to Supply Chain Management Supply Chain Basics

In the case of new material, the customer must first supply the anticipated number of units required, along with all of the drawings and specifications, to the supplier to get a quotation of unit price and lead time. After the quotes are received and a supplier is chosen, a purchase order should be done for the setup costs and samples. Setup costs can be a few hundred to hundreds of thousands of dollars (mostly tooling costs). A supply chain manager should always present the setup costs along with the piece price quote when working with engineers (so manufacturing methods are not specified solely on unit cost). For example, making a simple part by thermoforming would cost about $50 each, whereas making it by injection molding would cost $5 each. However, injection molding requires a $10,000 mold. If you only need 20 pieces annually, you are better off using thermoforming. Depending on whether prototypes or the component have already been made or not, the samples ordered may be just to verify the ability of the supplier to make the parts, or to verify the design of the finished product. In other words, the supplier may fabricate a part correctly, but a manufacturer’s engineering department may determine that the part needs to be redesigned. This would start the process over. Once samples have been approved, the flow of Figure X can be followed. A manufacturing company has to furnish a forecast (usually annually) so the supplier can then go through his supply chain and make sure that all the materials needed (i.e. material, lubricant, machine capacity, labor resources) for the component the supplier provides will be available. A manufacturer then issues a purchase order, which serves as a commitment to purchase a defined number of units. A purchase order must have terms and conditions accompanying it to protect your company. Usually, a customer will not want to receive the entire forecast amount at once. Instead, a manufacturer could issue multiple purchase orders throughout the year, or do what is called a blanket purchase order for a large amount and then make releases against that purchase order for small amounts when they actually want it. For example, a company uses 1,000 rods of aluminum in a year. They may lock into a price for the entire year (the price of aluminum changes daily), but not take delivery of all 1,000 rods at once. Instead, the supply chain manager would request economic order quantity (EOQ) releases. An EOQ is the optimal balance between taking delivery for the entire 1,000 rods at once and paying for material that will not be used for months, and paying transportation, inspection, and transaction costs for receiving frequent smaller shipments. The formula for EOQ is

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Vault Career Guide to Supply Chain Management Supply Chain Basics

where the Order Completion Cost is the total cost of placing the purchase order, paying for a setup at the vendor (if applicable), and paying the transportation and in-house handling to get the components to the production floor. The unit carrying cost is the cost of holding inventory (insurance, warehouse lease, shrinkage costs, security, cost of capital, etc.) Customers can do releases to the supplier at specific time intervals or specific inventory intervals. With inventory intervals, when a customer gets to a certain number of rods left, they would issue a release for the next shipment of rods. A supplier should send a confirmation to the customer acknowledging they have received the purchase order and agreed to the terms and conditions described therein. The supplier sends the material per the purchase order and then sends an invoice for the amount shipped. Once the goods have been accepted by the customer, a payment is sent to the supplier equal to the amount of the invoice.

Figure 1: The Supply Chain Flow Process Forecast Purchase Order Release

Supplier

Confirmation

Customer

Material Invoice Payment

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Vault Career Guide to Supply Chain Management Supply Chain Basics

OEM suppliers There are basically three types of suppliers. In the first, or most conventional scenario, a company provides a design for what they want the supplier to furnish and the supplier makes it to the company’s specifications. The second is the Original Equipment Manufacturer (OEM) supplier. In this case, the company does not specify the design for a custom product, but in fact buys a product that the supplier sells to many customers. These products are called off-the-shelf (a screw is an example of a component that is usually purchased as an off-the-shelf product rather than being custom designed).

Contract manufacturers Contract manufacturers are the third type of suppliers, in which formal contracts between the supplier (the contract manufacturer) and your manufacturing company are relied upon. The contract manufacturer purchases or makes all of the components, assembles the product, tests it, and ships the finished product either directly to the customer or to a warehouse. Companies that want to get out of the manufacturing aspect of their products turn to contract manufacturers. The supply chain manager finds suitable contract manufacturers and manages the relationship after a contract has been signed. A company has to put a huge amount of trust into the contract manufacturer, since the customer does not have the same level of visibility or control over the manufacturing of the product as they do when they are making the product themselves. Contract manufacturing is an option in almost every industry from food processing to semiconductors.

Freight forwarders and transportation providers Transportation providers and freight forwarders are also controlled by a supply chain management practitioner. Transportation providers pick up product from one location and deliver them to another. Obviously, it is very costly to pick up some cargo in Los Angeles and drive it all the way to New York for delivery. For this reason, these companies consolidate shipments from different places in a departing hub (whether it be a port, a warehouse, or an airport), send them to an arriving hub, and then deliver them to their final destination. It is quite common for a transportation provider to hand off a shipment to another company to carry out some or all of the transportation. This is called subcontracting or third party carriers. Specialty transportation providers also exist (i.e. for transporting explosive materials, refrigerated cargo, etc.). Some manufacturing companies have traffic, transportation, or Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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Vault Career Guide to Supply Chain Management Supply Chain Basics

logistics departments that take care of most of this work so a supply chain manager can concentrate on suppliers only. Freight forwarders specialize in transportation across borders. They coordinate the paperwork, book the space with a transportation provider, and track the goods from pickup to delivery. Because of the complexity of customs requirements, tariff codes, and language barriers for different countries, it is better to have freight forwarders involved if a company is dealing with more than a few countries or commodities.

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Making it Run Smoothly CHAPTER 2

Systems ERP Systems Most manufacturing and service companies use an Enterprise Resource Planning (ERP) system. ERP is a large database that links the entire organization (i.e. accounting, purchasing, shipping, manufacturing, and sales) all together. Popular ERP providers include SAP and Oracle. Some small “mom-and-pop” shops do not need ERP because there are so few people involved in the administrative work of the factory.

MRP The sales group of a company enters a forecast of how many of each product they expect to sell into the ERP system. One part of ERP is Materials Requirements Planning (MRP), which takes this forecast and breaks it down into all of the components and materials that are necessary to make each product, using the Bill of Materials (BOM). A BOM is similar to a recipe for making a product. It lists all of the components, materials and quantities required to make a product. A BOM usually has multiple levels. For example, a BOM for a car would have two front doors, an engine, etc. The engine BOM would have pistons, a crankshaft, etc. MRP has four inputs and four outputs. The four inputs are the forecast, the BOM, the current inventory levels, and the MRP parameters. A supply chain manager would most likely only be responsible for the MRP parameters and not the other three inputs. Imagine if the sales group at Boeing plans to sell 400 airplanes this year. This would mean that the supply chain manager should buy enough components and materials to make 400 airplanes, right? Wrong! There may be 100 airplanes sitting outside in inventory. Thus, only enough components and materials need to be purchased for 300 units. See the formula below:

Amount to be manufactured = Amount to be sold – Amount already in stock

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Vault Career Guide to Supply Chain Management Making it Run Smoothly

But what if ERP shows that there are only 50 airplanes in inventory? This complicates it even more. The inventory levels must be accurate (what is physically on hand must match what ERP shows is on hand) in order for the MRP results to be meaningful. For this reason cycle counting is very important. Cycle counting is a verification that the inventory that is shown in the ERP matches the physical quantity. Advanced ERP systems have cycle counting programs in them. They can issue a report of parts that need to be physically counted, the counter counts them, enters the amount counted, and any discrepancy is rectified. Despite such preventive measures, discrepancies between the actual inventory and the ERP inventory still pop up from time to time. Some of the causes are incorrect BOM’s, missing inventory transactions, human error, and employee theft. Let us go back to the car example. If a car has four passenger tires but the BOM shows a car uses five, every time a car gets made, there would be five tires deducted from inventory when only four are actually used. Over time, this would result in a huge positive inventory variance (there would be more physically on hand than ERP shows). Materials Requirements Planning (MRP) parameters vary depending on the ERP system, but the most important parameter is lead time. This is the number of days that normally elapse between the day a component is ordered from the supplier and the day it is delivered or made available for use on the production floor. Lead times depend on many factors, the most common of which are the location of the company (transit time is correlated with distance), what types of products the company makes (i.e. metal, plastic, circuit boards, etc.), and the company itself (some companies specialize in rapid turnaround and some companies are slow compared to others that make the same commodity). Other common MRP parameters are related to minimum purchase amounts, minimum on-hand quantity desired, delaying orders instead of canceling them, and expediting orders instead of issuing additional ones. MRP generation (the frequency with which MRP is regenerated would be determined by a supply chain manager’s boss, the procurement manager) results in a computer report that tells supply chain managers which parts or materials to buy, how much to buy, when to buy them, and when they need to arrive. It is common for MRP to generate a result that shows a component should have been ordered two weeks ago. This is typically caused by an inventory adjustment, a surge in production output, a BOM change, or a change to the MRP parameters. One might think that two dates on the MRP output for each line item are redundant since the difference between the two is the lead time. This is correct if there is no flexibility in the lead time, but 16

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in fact there usually is. The two components of lead time are supplier lead time and transit lead time. The supplier can be asked to expedite an order to decrease the lead time, or use an express shipping method to decrease the transit lead time. In the end, MRP is just a computer algorithm – if the inputs are flawed, the outputs will be also. If a supply chain manager’s job was just to execute what MRP instructs, the job would be quite easy. But there are always considerations that have not or cannot be input into MRP. For example, if the power supply of a product will be replaced with a different one in a few months, MRP will not know about this by looking at the current BOM. The supply chain manager will have to second-guess the demand that is generated by MRP for the current power supply, knowing that only enough power supplies should be ordered to cover the period before the new power supply goes into effect and the primary BOM changes. Some more advanced ERP systems use Engineering BOMs and Planning BOMs to mitigate some of the shortcomings of MRP, but unfortunately, these systems are not foolproof either. A supply chain practitioner needs to question every line of MRP output and understand what is driving the prescribed action. In addition, a supply chain manager needs to look at what is not showing up on MRP output. There may be parts that require action but are not in the MRP reports. As a supply chain manager becomes more familiar with the hundreds of parts he manages and the dozens of engineering projects in the works, he will become better at catching items that are not in the MRP. In the power supply example above, the demand for the new power supply would not show up, even though it still needs to be ordered. MRP is merely a tool to assist in managing the supply chain, not a catch-all solution to supply chain management.

Kanbans Kanban, the Japanese word for signal, is one of those buzzwords that everyone in manufacturing caught on to, but unlike most other buzzwords, kanbans have not quickly faded into the past. A kanban is a signal from the production floor to the warehouse, supplier, and/or supply chain manager that a part is close to running out and needs to be replenished. Kanbans usually take the form of a piece of paper/card, an empty bin, or a bar code scan, but the word kanban is also used to describe the number of parts that comprise one signal (also known as kanban size) and the space on a shelf or floor where parts should reside. For example, assume an assembly line uses 1,500 springs per hour, the EOQ for the spring is 60,000, and the springs are kept in bins of Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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30,000 each. This means two bins are ordered at a time. When the bins are empty, they are moved from production to receiving, so the bins can be refilled by the shipment arriving from the supplier. This empty space offers a visual cue. A supply chain manager can simply walk on to the floor, see which kanbans are empty, and check on their status.

Supplier scorecards Supplier scorecards have become an effective tool in managing suppliers. At specific intervals determined by the procurement manager (monthly or quarterly are usually the most valuable), supply chain managers provide feedback to their suppliers on their performance. The feedback can be done in the form of stars (like restaurant ratings) or grades (like in school). There should be a rating for quality, on-time delivery, “other,” and a total grade which is a weighted average of the first three ratings. A company would decide the weightings based on what is most important to them. The “other” category would take into consideration other important factors, such as cost reduction, ability to expedite orders, responsiveness in new products/engineering changes, and customer service. Supply chain managers should get input from other departments when determining these ratings. For example, there may be a supplier that usually forgets to send a packing list along with the shipment. The receiving department has to then contact the supplier’s shipping department and ask them to fax a copy of the packing list so they can receive the shipment. This information might never get communicated to the supply chain manager unless he asks.

Supplier audits Supply chain managers should also conduct supplier audits to verify that a supplier has the ability to make good quality products. Although most supply chain managers are too busy to conduct as many supplier audits as they would like, they will probably also agree that supplier audits are one of the most valuable tools a supply chain manager has. There are two types of audits – one for existing suppliers and one for prospective suppliers. For existing suppliers, the audit can be less thorough because the supply chain manager already has experience with the supplier’s performance. For prospective suppliers, however, a full audit must be conducted to be able to make a judgment on the potential of the supplier to fulfill the needs of the company. A complete audit will take about four hours. It might be helpful to send a list of items you will be asking about ahead of time, though some supply chain

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managers prefer to ask to see things “on the spot” so the supplier has not rehearsed the audit ahead of time. But most supplier audits are quite similar, so a supplier already knows what to expect. The complete audit should not be completed in a conference room. It is important to walk around and see the supplier’s facility; see the production area and the quality assurance area. Ask some questions directly of the workers. See the appendix for a thorough list of supplier audit questions. If supply chain managers only had a handful of suppliers to manage, the job would be a lot easier. Even though supply chain managers try to consolidate the number of suppliers they manage, it is almost always not feasible to reduce the number. How does a supply chain manager make the time to audit all suppliers? The likelihood that you would be able to audit every one of your suppliers annually is low. Instead, you have to prioritize based on “bang for your buck.” The first priority is problem suppliers; the ones with quality or delivery problems need to be audited. This will help you determine if they are trainable. In other words, do they have the potential to become great suppliers or do you need to start looking for other sources? The second priority is high-dollar-value suppliers. Even if they are fully meeting your needs, it is important to get some face time with them and keep the relationship strong. The final priority is low-dollar-volume suppliers that are performing well.

Corrective action reports Of course, there will be times when suppliers make mistakes. The most common supplier errors are shipping parts late, and sending parts that do not meet the specifications. For late deliveries, the approach is to talk to the suppliers and let them know that late deliveries are unacceptable. Suppliers know it is their duty to have parts arrive to the customer on time. Your feedback will cause them to investigate, determine what is causing parts to arrive late, and take the proper action to correct it. When parts arrive that do not meet the specifications (usually a drawing), this requires a more formal approach. A corrective action report should be requested from the supplier on the symptom, the root cause, the corrective action, and what will be done to prevent reoccurrence. A supply chain manager should create a form that can be serialized, stored, and sent out to supplier when a quality issue arises. It is also acceptable to instruct the supplier to send a corrective action report (based on their own format), but you must give them enough information for them to be able to do a thorough analysis. The information involved: the quantity of defective parts found, the lots that that those components were part of (if lot control is not practiced, then the receipt dates of the rejected Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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batches is sufficient), the discrepancies, and the effects of those discrepancies. It is always good to send back some samples to the supplier so they can see for themselves what the defect was. In some cases, a digital picture is enough. If only some of the parts in a lot are defective, it is advisable to return the entire lot to the supplier so they can sort out the good and bad parts. Depending on the cost of the defective part and the costs of processing them, it usually does not make sense to initiate corrective action for “one-off” types of incidents.

Second sourcing Second sourcing is finding a backup supplier to provide materials or components in the event the primary supplier has extended downtime (i.e. their building burns down). There are a lot of setup expenses (mostly at the secondary supplier) in getting a second source up and running, such as paying for fixtures, tools, pilot runs, etc. For this reason, you have to pick and choose which parts you will get second sources for. Also, once you get a second source, it makes sense to occasionally buy parts from them even if the primary source does not have a hiccup. This keeps the job fresh in the minds of the second supplier. A good balance might be to have 10-20% of your volume coming from the second source. If you do not get periodic shipments from the second supplier and only wait until your primary supplier has a major incident, you run the risk of finding out that the second supplier has issues that prevent them from providing parts (i.e. lost tooling, lost knowhow, etc.) too. Since you are buying a much smaller volume from the second source suppliers, expect to pay a much higher price. In critical situations, you will be happier to pay a higher price from a secondary source than have to shut down the production lines for an extended amount of time while you are at the mercy of your primary source. The amount of second sourcing you do depends on how much risk your company is willing to take in terms of the primary supplier never having an extended down period. Your manager can provide guidance on your company’s philosophy on second sourcing.

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NDAs It is often necessary to create Non-Disclosure Agreements (NDAs) with suppliers. This written agreement specifies that the supplier will not share trade secrets related to the parts they make for you to other companies. Confidentiality Agreements and Non-Compete Agreements are also common, but less so. For contract manufacturers, an NDA is an essential part of the contract. Your legal department can provide guidance on which of these, if any, are needed for your suppliers.

Critical Skills and Practices Teamwork Even though it seems trite, teamwork is the key to success. Supply chain managers should view themselves as customer service representatives for the manufacturing operations of the plant. Sitting at one’s desk and just executing orders is the work of a mediocre supply chain manager. Highperformance supply chain managers go beyond that by practicing internal (inside the company) teamwork as well as external (outside the company) teamwork. It is critical for a supply chain manager to build rapport with employees. A supply chain manager relies on the receiving department to promptly process deliveries, so urgent parts can be sent to the manufacturing floor within minutes rather than hours. Setting up a “hot” board in the receiving area, where supply chain managers can list urgent parts, can help, but building a close relationship with the receiving department employees (not just the supervisor) is a lot more valuable. For parts that need to be inspected for quality before they are sent to the floor, the receiving inspection department is involved, so a supply chain manager needs to build a good relationship with this department as well. A mediocre supply chain manager considers their job done when the parts are delivered, but a conscientious manager is not satisfied until the parts are on the manufacturing floor. The material handlers who move the parts around the factory should be made into allies as well. If you have a good relationship with them, they will go out of their way to help you without feeling that you owe them something in return.

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Production supervisors are in charge of the manufacturing and assembly lines, as well as the people who work on the lines. In this sense, they occupy a different place in the manufacturing chain-production supervisors rely on supply chain managers, whereas supply chain managers rely on the other internal departments (receiving, inspection, material handlers) discussed above. Open communication is key to successful relations with the production group. Letting them know why the parts are late and when they will arrive helps them better understand a supply chain manager’s job. Spend time on the production floor. Know the parts you manage beyond just the part number, supplier, and lead time. Talk to the assemblers, understand how the parts you purchase are assembled, learn what challenges they face, and try to see things from your customer’s perspective (internal and external customers). A supply chain manager should build alliances with suppliers. The more information a supply chain manager shares with a supplier, the higher the likelihood that the supplier will feel that they are valued by the customer (your company). If a supplier feels he has a stake in the success of your company, he will be a lot more motivated to help achieve that success. Ideally, suppliers will be rewarded if the company succeeds. One tactic that can help motivate suppliers is to suggest that there will be consolidation in the coming years, i.e. work will be transferred from the lower-performing suppliers to the high-performing suppliers, resulting in the same pie being split into larger pieces. But a supply chain manager has to be aware of the line between the benefits of reducing suppliers and the risk of putting all of one’s eggs in one basket. The companies chosen as key suppliers must be evaluated beyond their on-time delivery and quality. For example, a supplier could have 100% on-time delivery and a superior-quality product, but if 50% of their business is serving an industry that is rapidly declining, there is a high chance that this company may fold. Or a similarly satisfactory supplier may be run by one person. The risk of something happening to that one person needs to be seriously considered. A supply chain manager should let suppliers know about new products in the pipeline or new avenues his company would like to explore. This can also motivate a supplier to perform well, because they know that good suppliers get chosen to make parts for new products. Suppliers have tons of competition – especially offshore – so the supply chain manager is in the position of power here. Have key suppliers give input during the design phase of a new product to help make the product cost-effective from the start, instead of implementing cost reductions after the fact. After all, they are the experts at what they do. An example: a supplier might suggest making a part 22

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out of a different material, which may be more expensive but is easier to machine and results in a net savings.

Follow-up Another critical trait that separates good supply chain managers from exceptional ones is follow-up. A supply chain manager should let suppliers know a due date for quotes when quotes are sent out. A few days before the deadline for the quotes, follow up with the suppliers that have not sent in quotes. Ask them to give something in writing, even if they are not interested in quoting the specific job. Also, after a purchase order is issued, ask the supplier to send a confirmation, which is a signed or stamped affirmation that the purchase order was received, confirming that the quantity, due date, and price are acceptable, and the terms and conditions of the purchase order are agreed to. This does not guarantee there will not be any problems, but it goes a long way to catching issues (such as missing faxes) early, instead of after the due date. In addition to following up, keep in communication with the people who make the MRP forecast (either planning, master scheduling, or marketing). The sooner you know about changes, the sooner you can make them happen. Secondly, keep in touch with the engineers. Ask them about projects in the works and how those will affect existing parts on order. Thirdly, stay in communication with the quality assurance department. Ask them which of the components you manage they are having problems with, if any. Share this information with the respective suppliers. Finally, keep in touch with production. They use the stuff you buy. They can also let you know about any significant inventory adjustments so you can change your orders accordingly.

Reducing costs Some companies focus on cost reduction more than others. For a company whose customers are price sensitive (i.e. customers for economy cars, personal computers, grocery items, etc.), the need to reduce costs to increase sales is paramount. On the other hand, some companies, particularly high tech companies, focus on innovation. This means that new products are constantly displacing old products, and for this reason, the effort required to reduce costs on products that have a short life span doesn’t make as much sense.

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Vault Career Guide to Supply Chain Management Making it Run Smoothly

Change Finally, change is good. Many people fear change and enjoin the “if it ain’t broke, don’t fix it” mentality. In today’s world, change is inevitable and companies that do not adapt get left behind. Keep this in mind in your supply chain. Once you have your supply chain running smoothly, do not feel you can sit back, relax, and ride your success. Stay tuned to your customer’s needs, the direction in which your company is going, and the trends in supply chain management is undergoing.

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Trends in Supply Chain Management CHAPTER 3 Offshore outsourcing As you are probably aware, many manufacturing jobs are being relocated to places outside of the United States. The labor rates in countries like China are much lower than those in the United States. Years ago, quality was inferior in these low-cost countries, but now that is no longer the case. As a supply chain manager, it is important to always keep offshore (any country outside of the United States, even Mexico, is considered offshore in supply chain circles) sources for parts and materials an option. Although cost savings is the major advantage of offshore suppliers, there are some risks involved. There are uncontrollable delays due to customs, communication barriers with non-native English speaking suppliers, time differences that hinder quick responses to inquiries, extended lead times for transit, additional transportation costs, difficulties in enforcing contracts, and foreign policy concerns (for example, if you start buying parts from Poland, and then relations between the U.S. and Poland go sour and the two countries stop trading, your supply chain will be affected due to no wrongdoing on behalf of your supplier). But the savings gained by the lower labor rates overshadow the risks in most cases.

Vendor-managed inventory Another trend in supply chain management is vendor-managed inventory. You may have been in the grocery store and noticed that the person stocking the bread shelf was not an employee of the store. This is a good example of vendor-managed inventory. Not only can you have the supplier deliver the parts to the point of use, you can put the onus on them to keep the shelf full. This may mean giving them read-only access to your ERP, or some other method so they can keep track of your inventory levels for the parts they supply and take the steps necessary to keep the shelves stocked. Of course, they will not know if there is an unexpected change in the works (like a marketing promotion that will triple the requirements for their parts). For this reason, you still have to stay involved and keep in constant communication with the supplier.

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Vault Career Guide to Supply Chain Management Trends in Supply Chain Management

Supplier consolidation Supplier consolidation is becoming more popular as organizations become more productive or “right-sized.” In other words, as people in your department get laid off, you will have to do more work. Having fewer suppliers to manage makes this easier. Also, the more work you give to a supplier, the larger the percentage of their work you provide. Suppliers are most responsive to their main customers. Therefore, you have more leverage with them when you need to expedite parts. Another benefit of supplier consolidation is that you get more competitive pricing because you are a main customer and the supplier does not want to lose you.

Sarbanes-Oxley Compliance The Sarbanes-Oxley Act (SOX) has affected supply chain management by creating more “checks and balances” requirements. The intent of this act is to force publicly traded companies to implement sufficient internal controls so that companies are no longer able to report high revenues and profits when that is not actually the case. For a supply chain manager, this means that it is even more important to document instructions to suppliers, get the proper signatures every time a purchase order is changed, and make efforts to control inventory write-offs. As with most federal regulations, SOX is written in a general enough manner that every company has to interpret and decide how to make their operation compliant to it. Speak to the appropriate employees in Accounting to understand your employer’s requirements for SOX as it pertains to supply chain management.

ISO The International Organization for Standards (ISO) came up with requirements similar to SOX years before SOX was implemented. ISO applies mainly to manufacturing and service organizations and is more related to operations, so SOX can be considered ISO for the rest of the company. ISO-certified suppliers are not necessarily better than non-ISOcertified suppliers, but it is more likely that a certified supplier will have documented traceability, procedures, and processes. Recently, there’s been more of an emphasis within the industry of requiring suppliers to be certified (or only working with ISO-certified suppliers). This is based on the philosophy that the higher prices charged by ISO-suppliers (because they have to have staff to create and control all of their documentation) are worth the improved quality.

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Vault Career Guide to Supply Chain Management Trends in Supply Chain Management

Barcoding Barcoding has helped to increase the productivity of warehouse workers. When a supplier sends a shipment and it arrives on your receiving dock, the receiving department has to find the packing list, read it, and enter all of the necessary information into ERP so the parts can get put into inventory and the supplier can get paid. With barcoding, all of the information the receiving department needs can be put in a series of barcodes on the packing list or on the box itself. The purchase order number, part number, quantity, etc. can all be entered into ERP by scanning the bar code instead of manually entering the information. This saves time and reduces human error. Barcoding is also used to update ERP when parts are moved from the warehouse to the production floor and when they are consumed into a subassembly.

RFID Radio Frequency Identification (RFID) is different from barcoding because it does not require a line-of-sight scan. (Imagine if there were a doorway between the warehouse and the manufacturing area. If a cart full of parts with RFID tags on them were to pass through the doorway and that doorway had an RFID reader on it, it could process all the parts that go through that doorway and update ERP accordingly. The warehouse worker would not have to transact each type of part on the cart (either manually or by barcode) and the orientation of the parts on the cart would not matter.)

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Wondering what it's like to work at a specific employer? M | A.T. Kearney | ABN Amro | AOL Time Warner | AT&T | AXA | Abbott Laboratorie Accenture | Adobe Systems | Advanced Micro Devices | Agilent Technologies | Alco c. | Allen & Overy | Allstate | Altria Group | American Airlines | American Electr ower | American Express | American International Group | American Manageme ystems | Apple Computer | Applied Materials | Apria Healthcare Group | AstraZenec utomatic Data Processing | BDO Seidman | BP | Bain & Company | Bank One | Bank merica | Bank of New York | Baxter | Bayer | BMW | Bear Stearns | BearingPoin ellSouth | Berkshire Hathaway | Bertelsmann | Best Buy | Bloomberg | Boeing | Bo llen | Borders | Boston Consulting Group | Bristol-Myers Squibb | Broadvie ternational| Brown Brothers Harriman | Buck Consultants| CDI Corp.| CIBC Wor Markets | CIGNA | CSX Corp| CVS Corporation | Campbell Soup Company| Cap Gem rnst & Young| Capital One | Cargill| | Charles Schwab | ChevronTexaco Corp. | Chiqui rands International | Chubb Group | Cisco Systems | Citigroup | Clear Channel | Cliffo hance LLP | Clorox Company | Coca-Cola Company | Colgate-Palmolive | Comcas omerica | Commerce BanCorp | Computer Associates | Computer Science orporation | ConAgra | Conde Nast | Conseco | Continental Airlines | Corning orporate Executive Board | Covington & Burling | Cox Communications | Credit Suis rst Boston | D.E. Shaw | Davis Polk & Wardwell | Dean & Company | Dell Compute eloitte & Touche | Deloitte Consulting | Delphi Corporation | Deutsche Bank | Dewe allantine | DiamondCluster International | Digitas | Dimension Data | Dow Chemica ow Jones | Dresdner Kleinwort Wasserstein | Duracell | Dynegy Inc. | EarthLink astman Kodak | Eddie Bauer | Edgar, Dunn & Company | El Paso Corporation ectronic Data Systems | Eli Lilly | Entergy Corporation | Enterprise Rent-A-Car | Ern Young | Exxon Mobil | FCB Worldwide | Fannie Mae | FedEx Corporation | Feder eserve Bank of New York | Fidelity Investments | First Data Corporation | FleetBosto nancial | Ford Foundation | Ford Motor Company | GE Capital | Gabelli Ass Management | Gallup Organization | Gannett Company | Gap Inc | Gartner | Gateway enentech | General Electric Company | General Mills | General Motors | Genzyme eorgia-Pacific | GlaxoSmithKline | Goldman Sachs | Goodyear Tire & Rubber | Gra hornton LLP | Guardian Life Insurance | HCA | HSBC | Hale and Dorr | Halliburton allmark | Hart InterCivic | Hartford Financial Services Group | Haverstick Consulting earst Corporation | Hertz Corporation | Hewitt Associates | Hewlett-Packard | Hom epot | Honeywell | Houlihan Lokey Howard & Zukin | Household International | IBM KON Office Solutions | ITT Industries | Ingram Industries | Integral | Intel | Internation aper Company | Interpublic Group of Companies | Intuit | Irwin Financial | J. Walt hompson | J.C. Penney | J.P. Morgan Chase | Janney Montgomery Scott | Janu apital | John Hancock Financial | Johnson & Johnson | Johnson Controls | KLA-Tenc orporation | Kaiser Foundation Health Plan | Keane | Kellogg Company | Ketchum imberly-Clark Corporation | King & Spalding | Kinko's | Kraft Foods | Kroger | Ku almon Associates | L.E.K. Consulting | Latham & Watkins | Lazard | Lehman Brother ockheed Martin | Logica | Lowe's Companies | Lucent Technologies | MBI | MBNA Manpower | Marakon Associates | Marathon Oil | Marriott | Mars & Company | McCan rickson | McDermott, Will & Emery | McGraw-Hill | McKesson | McKinsey & Compan Merck & Co. | Merrill Lynch | Metropolitan Life | Micron Technology | Microsoft | Mill rewing | Monitor Group | Monsanto | Morgan Stanley | Motorola | NBC | Nestle | New ubbermaid | Nortel Networks | Northrop Grumman | Northwestern Mutual Financ etwork | Novell | O'Melveny & Myers | Ogilvy & Mather | Oracle | Orrick, Herrington utcliffe | PA Consulting | PNC Financial Services | PPG Industries | PRTM | PacifiCa ealth Systems | PeopleSoft | PepsiCo | Pfizer | Pillsbury Winthrop | Pitne Go| Pharmacia to www.vault.com owes | Preston Gates & Ellis | PricewaterhouseCoopers | Principal Financial Group

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GETTING HIRED Chapter 4: Supply Chain Hiring Chapter 5: Resumes and Interviews

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Supply Chain Hiring CHAPTER 4

Skills and Education Education requirements Most job openings for a supply chain manager require a bachelor’s degree, but as with many types of jobs, significant experience in the job can substitute for a degree (usually this is about ten years of experience). Although all majors will typically be considered for a supply chain manager position, business and engineering majors are definitely preferred. There are few, if any, schools that offer bachelor’s degrees in supply chain management. Business majors are desired because they have learned how to do financial analysis and how to provide numerical substantiation for their decisions (i.e. whether it makes sense to invest in a $10,000 stamping die). Engineering majors are recruited because they are able to more easily understand the technical aspects of the parts and materials they buy as well as the complexities of the processes the supplier uses to make those parts and materials. Written and verbal communication skills are very important also. The ability to persuade suppliers to act with urgency is extremely useful as well.

Negotiation skills Supply chain employers also prize strong negotiation skills. A supply chain manager has to be able to effectively negotiate with suppliers over price and lead time, and not just during the quotation process. When an assembly line has been shut down and the supplier says they will not be able to supply for two weeks, a supply chain manager has to be able to persuade the supplier to improve that date.

Foreign languages Candidates with foreign language skills are also sought by employers. As the supply chain becomes more and more global, being able to communicate with suppliers in other countries in their language becomes even more and more useful.

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Vault Career Guide to Supply Chain Management Supply Chain Hiring

Technical savvy Business-related computer skills such as advanced Excel and Access manipulations will impress employers. If you haven’t had a lot of exposure to these applications in school, check out local adult education programs that offer short courses on business computer applications. Technical knowledge is also very valuable to employers. Manufacturing is a technical process, and if a supply chain manager is not able to understand the technical aspects of those processes, he will only have limited success. It is also important for a supply chain manager to understand the technical complexities of the parts and materials they purchase, so they can engage in constructive dialogue with the suppliers when there are issues that need to be resolved.

Integrity A supply chain manager has a lot of opportunity for unethical behavior. Kickbacks is the term used to describe material benefit (in the form of money, gifts, etc.), in this case from a supplier to a supply chain manager, in exchange for giving work to that supplier. Conflicts of interest also abound, i.e. sending work to a friend or family member even though the price they charge is unreasonable. Employers want to be sure that the person they hire will avoid these types of activities. A general rule of thumb is that if you or your employer would be embarrassed if something you did showed up on the front page of the newspaper, you’d best avoid those situations.

Getting In Don’t choose your first career out of college cavalierly. The difference between having a job one loves and having a job that pays the bills is immeasurable. One or two years very quickly turns into five to seven years, and then the natural progression is to get pigeon-holed into a vocation that is very difficult to transition out of. Similarly, you shouldn’t approach a job search with a slot machine philosophy – the more resumes sent out, the higher the likelihood of finding a job. The purpose of the resume is to get an interview. This may seem trivial, but it has a profound impact on how the resume should be written. The goal of the resume is not to get the reader to say, “I want to hire this person,” it should be to get the reader to say, “I want to talk to this person.” Most recent graduates will not have relevant work

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Vault Career Guide to Supply Chain Management Supply Chain Hiring

experience and their resumes will all look basically the same. This is why companies focus on GPA or the reputation of the school. Most companies can see right through mass resume submissions, and they will question the applicant’s interest level in the specific opening. A customized resume for every job applied for is much more valuable. Customized does not mean just stating the name of the position and the source where the opening was found in the cover letter. Customized means writing a resume and cover letter after pondering over the description of the job, doing research on the company, and making some reasonable inferences (based on the industry the company is in, the state of maturity of the company, etc.). Doing all of this preparation before sending out a resume is part of the reason why looking for work is a full-time job. Spending 10 to 15 hours applying to 10 companies with customized resumes has a higher likelihood of success than spending 10 to 15 hours applying to 100 companies.

Networking The most common advice given by career counselors (which also happens to be the least followed advice by job seekers) is that networking is the best way to get a job. It is a lot easier to stay at home, surf online job boards, and send out resumes “anonymously” than to ask friends for possible contacts, approach these strangers, and risk having a door slammed in your face. However, the likelihood of uncovering this “hidden job market” is much higher through networking than searching online. People get job offers every day for positions for which they submitted resumes online. For recent graduates with little or no experience, there are only a limited number of openings on job boards and the supply of interested candidates far exceeds the number of openings available. One worthwhile approach is to target job openings not posted on online job boards. Not every company posts every opening on online job boards. A good place to find “untapped” jobs is on company web sites. Also, avoid sending your resume to the e-mail address in the job posting. Usually the email address is hr@(insert company name here).com. The chances of your resume getting to the hiring manager are slim, unless you are able to find out who it is and send it directly to them. This is not easy, but it is effective. An almost surefire method to get your resume looked at is to send it in a next day air envelope (i.e. UPS Red or FedEx P1). Networking websites like www.linkedin.com are good places to build up industry contacts. If you do not hear anything two weeks after sending your resume to a company, send it

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again. Add in your cover letter that you are resubmitting your resume and reiterate how perfect you are for the position. Once you have passed the resume hurdle and scheduled an interview (there is usually a phone screen as an intermediate step), the onus is on you to convince the employer that you are better suited for the position than the other candidates. Do your homework before the interview. Study about the position, the company, and the industry. For public companies, Yahoo Finance is a great place to get the scoop on a company. After the interview, send a thank you note. A handwritten note on quality paper is the epitome, but an e-mail will suffice. Be sure to include something in the note that will remind the reader of your interview (without paraphrasing the whole interview) and emphasize how excited you are about the position and how interesting it was to learn about (insert something you learned in the interview here). When salary questions come up, be prepared. Do your homework ahead of time. Just looking at one web site (i.e. www.salary.com) is not sufficient. You need to be able to justify what a reasonable salary is for the position. Depending on the state of the economy, the employer or the employee will have greater leverage when it comes to salary negotiations.

Career paths in supply chain Unlike at other employers where there are very structured career paths (for example, at law firms, where attorneys move from associate to partner to senior partner), supply chain management career paths can take a variety of directions. Recent college graduates can be hired directly into a supply chain manager role or may start as a junior buyer and move into a supply chain position. Supply chain managers can move laterally into other positions both within and outside of procurement or they can move up into management positions.

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Resumes and Interviews CHAPTER 5

Sample Supply Chain Resumes Joseph Smith 200 Shell Parkway Redwood Shores, CA 94065

Phone: 650-322-7921 E-mail: [email protected]

OBJECTIVE Seeking a position in supply chain management where I can use my varied technological, finance and problem-solving skills to help a company improve its operations QUALITIES Hard-working, entrepreneurial, resourceful, flexible, open-minded, creative EDUCATION San Francisco State University – San Francisco, CA BS Business Administration – June, 2005 Focus Area: Management Courses in Business, Economics, Global Strategic Management, Statistics, Financial Accounting, Calculus, Micro/Macroeconomic Analysis PROFESSIONAL EXPERIENCE Bank of America – San Francisco, CA, 2004, Intern • Worked across all departments to provide seamless transition to new computer system; recognized for computer savvy and adaptability • Provided general business support and financial analysis Fairmont Hotel – San Francisco, CA, 2002-2005, Desk Clerk • Maintained and ensured smooth running of front desk at Five-Star hotel Own House Painting Business, 2001-2005 • Painted over 50 houses, generated new business through strong word-of-mouth; developed and honed strong negotiation skills in quoting rates OTHER DATA • Working knowledge of Spanish language and culture • Proficiency in car repair; strong mechanical abilities

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Vault Career Guide to Supply Chain Management Resumes and Interviews

Joseph’s resume Above is an example of a supply chain jobseeker resume: Joseph is a soonto-graduate Business major who is seeking a position in supply chain management. Joseph completed an internship last summer with a bank, and during college, he worked at the front desk of a hotel and painted houses. Joseph highlights his education near the top of the resume because this is what has prepared him for a new career. That is the easy part. But how should he take banking, hospitality, and painting and creatively (but not dishonestly) package those into a resume that would make the recipient want to call Joseph and invite him for an interview? Remember that the goal of a resume is an interview. The goal of the interview is a second interview. The goal of the second interview is a job offer. Joseph studied Spanish for two years and loves Latin culture. In his research about Company X, Joseph learned that Company X is setting up an operation in Mexico. Joseph deduces that a factory in Mexico will most likely require some suppliers in Mexico as well. Based on this, Joseph decides to add a few lines about his knowledge of basic Spanish and his understanding of the culture. During his bank internship, the bank implemented a new computer system across the entire company. Joseph picked up how to use the new system quickly and became the “go-to” person when others had problems with it. In addition to briefly describing his duties at the bank in his resume, Joseph recounted some of his achievements at the bank during his short internship and emphasized how computer savvy and adaptable he was. Joseph knows that negotiation skills are a core competency that hiring managers look for in recruiting supply chain management professionals. Joseph remembered during his house painting days how he would give an estimate and then the homeowner would try to get a lower price. Joseph always managed to get a higher price for the job than the minimum he would be willing to take. He was very proud of his negotiation skills and added a few lines to his resume quantifying how effective he was at negotiating those painting jobs. Joseph works on cars in his free time. This is a relevant addition to his resume because he can use this to demonstrate he has mechanical abilities. Since his degree is not in a technical field, it is good to show that he is not afraid of technology. Joseph’s resume reflects the enjoyment he gets from delving into a problem, finding the cause, and fixing it.

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Below is an example of another promising supply chain candidate’s resume.

John Jacob Gage 4000 Piedmont Ave. Oakland, CA 94611

OBJECTIVE

Phone: 510-876-5309 E-mail: [email protected]

Get a "grownup" sounding e-mail address Tell them what's in it for them

Seeking a challenging position in supply chain management where I can use my technical and non-technical skills to help a company improve their operations QUALITIES Detail-oriented, forward-thinking, open-minded, logical, meticulous, efficient, mature, cost-conscious, devoted, culturally sensitive, results-driven, well-balanced, and well-liked PROFESSIONAL EXPERIENCE

Put your education first, if your experience is irrelevant

Chiron – Emeryville, CA, 2004 Associate Process Engineer (Internship) • Worked with purchasing dept. to create specifications for capital equipment Show accomplishments, not just duties purchases • Devised a method to streamline a process saving the company $150,000 annually • Conducted a make vs. buy analysis for a new product • Collaborated with technicians and made their data entry screens more userfriendly Each bullet should start with an action verb

EDUCATION University of California Berkeley – Berkeley, CA BS Mechanical Engineering – June, 2005 Focus Area: Manufacturing Processes Courses in Statics, Dynamics, Fluids, Thermodynamics, Chemistry, Physics, Differential Equations, Drafting, Computer Programming, and High-Tech Product Design and Rapid Manufacturing OTHER DATA President of Amnesty International – UC Berkeley Chapter; Knowledge of Six Sigma (formal training in DOE and SPC); Volunteer with Redi-Wheels, coordinating transportation for the disabled Try to keep it to one page. Don't leave large blank areas on the resume. Use up the valuable real estate without making it too busy.

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Vault Career Guide to Supply Chain Management Resumes and Interviews

The Supply Chain Interview Situational questions are quite popular in supply chain interviews. Trick questions are rare. Sometimes interviewers ask inappropriate questions (i.e. what country are you from?) but they are usually making small talk or are inexperienced interviewers rather than people with discriminatory intent. It is up to you to decide whether to answer these questions or not. It is important to look professional and serious about the job. The proper dress for a new college graduate job interviews is more dependent on the region of the country than the job title. In Massachusetts, a suit is probably expected for a male whereas in California, a suit might be considered overkill. A rule of thumb is to dress conservatively (overdressed is better than underdressed) and not to use fragrance (because your interviewer might be allergic). If the interviewer is doing all of the talking, politely interrupt and share some of your accomplishments. Make sure you add some meat to your responses (without digressing off topic). The hiring manager decides whether interviews are one-on-one or in a group format. Panel interviews are more efficient because in one hour, four people can ask all of their questions instead of making you sit through four different interviews in which you answer the same questions over and over. Although panel interviews are more efficient for the interviewee (you finish in half the time), they are less efficient for the interviewers (they have to sit twice as long). In panel interviews, keep eye contact with all interviewers, not just the one asking the question. Remember the names of everyone you meet. Ask for their business card. If you are called in for an interview, you can assume that the hiring manager already feels you have the potential to be successful in the job. The important part now is to convince the interviewer that you are the best candidate for the position, compared to the other candidates. Since you have little or no information about the other candidates, you have to go with what you do know – yourself. Sell your skills, knowledge, and personality. Show genuine enthusiasm about the position and the company. Many qualified candidates get passed over for jobs because they do not convey their interest in the position well.

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Sample Interview Questions Why should we hire you? Do not answer this question by stating how you meet the requirements of the position. The hiring manager already knows that. Accentuate your soft skills (communication, negotiation, presentation, etc.). You are trying to stand out among the other candidates. They probably also meet the requirements for the position, so dwelling on this does not gain any yardage for you.

What do you do in your free time? It is common for successful teams to enjoy activities together outside of work. Since you probably do not know what your co-workers do in their free time, honestly tell the interviewer what you do. Keep it general though (i.e. say you like to play sports instead of saying you play basketball). If the hiring manager wants more detail, s/he will ask.

What do you know about our company? Spend time doing research about the company you are interviewing with before you show up. In addition to looking at the company web site to learn about the company’s products or services, also visit other web sites that might give industry information, product reviews, or financial information on the company. A good interviewer will give you an opportunity to ask questions before the end of the interview. It would be good to ask a question on the order of, “While I was looking at your web site, I saw (insert company name here) just introduced a new model called the X. Do you expect this model to increase sales in new markets or take away sales from existing products in the current markets?” This shows more preparation than, say, “How many people work in this company?”

What attracts you to this position? It makes an interviewer feel special if they think that this is the only job you applied for. Without being dishonest, play along with this concept. Your response should draw a connection between your ideals and the ideals of the company, your career aspirations and the opportunities available with this company (a growing company will have numerous opportunities for advancement for an ambitious person once he has demonstrated his abilities), Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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Vault Career Guide to Supply Chain Management Basics

in addition to the obvious attraction (geographic area, ranking as a great company to work for, etc.)

Give an example of a time when you had to deal with someone difficult. Even someone with no work experience has had to deal with someone difficult. Supply chain management requires strong persuasive and negotiation skills. Be sure to give an example that highlights these skills. Maybe you were able to get a professor to change your grade or maybe you were able to buy a car significantly below blue book value. Examples that include loved ones would most likely not be appropriate here because in business you rarely deal with loved ones.

Give an example of a time when you were faced with an ethical dilemma. Be sure the example you give shows you made proper moral judgment and include enough details so there is no ambiguity about whether the decision you made was the right one.

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ON THE JOB Chapter 6: Job Responsibilities Chapter 7: Our Survey Says

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Job Responsibilities CHAPTER 6

Job Responsibilities Supply chain management occupations Below are brief summaries of the duties for supply chain management occupations. Not every organization will have all of these positions and the duties of the positions will not be limited to those described here. Buyer: Buyers do purchasing just like supply chain managers. The difference is that supply chain managers buy parts and materials for the company’s products, whereas buyers purchase everything else. Some examples of items that buyers procure are desktop computers, office supplies, and hand tools. Planner: A planner takes the forecast from marketing/sales and breaks that into a build schedule of what products should be built and when they should be built to meet inventory goals. Planners also work with supply chain managers to control inventory of parts and materials. Purchasing Administrative Assistant: A purchasing administrative assistant takes care of the filing of paperwork for the purchasing department. S/he will also coordinate travel arrangements. Logistics Manager: A logistics manager is responsible for the traffic of goods coming to and going from the factory. This encompasses air, land, and ocean traffic, both domestic and international. Supply Chain Engineer: A supply chain engineer works on technical issues with the supplier. This involves working with suppliers to improve their quality, helping them to analyze failures, and developing new products. Commodity Manager: A commodity manager is similar to a supply chain manager. Some companies separate the ownership of parts and materials for the supply chain managers by product line. For example, if a company makes binoculars, telescopes, cameras, and microscopes, and they have four supply chain managers, they might assign one supply chain manager for each product family. Another approach is to distribute the work by commodity. One supply chain manager would be responsible for the optics on all of the product families and one supply chain manager would be responsible for the

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Vault Career Guide to Supply Chain Management Job Responsibilities

plastic parts on all of the product families. When this is the case, the supply chain managers can be called commodity managers. Receiving Inspector: A receiving inspector is responsible for checking the quality of the parts and materials that come from the vendor before they get moved to the production floor for consumption and before the supplier gets paid. There are statistics charts that define the number of samples from a shipment that need to be checked to meet the desired confidence level that the entire lot received is acceptable, so a receiving inspector does not check 100% of the incoming items. Procurement Manager: A procurement manager is in charge of the buyers and supply chain managers. The procurement manager sets the goals for the department and provides a level of escalation when a supply chain manager is having trouble managing a supplier. Receiving Coordinator: The receiving coordinator processes the parts and materials delivered. This includes doing a receiving transaction in ERP, moving the parts to their location, and making sure the paperwork the supplier sends matches what was received. Receiving Supervisor: The receiving supervisor is responsible for the receiving department. Besides supervising receiving department workers, the receiving supervisor is in charge of creating and improving department processes. Accounts Payable Coordinator: The accounts payable coordinator works in the accounting department and processes the invoices from the suppliers. After verifying the invoices match what was actually received, the accounts payable coordinator sends a payment to the supplier.

Organization Chart A company organization chart (or “org chart”) shows graphically where the supply chain managers are, who they report to, and who their peers are. Some companies have supply chain managers reporting to a procurement manager, a purchasing manager, or a sourcing manager. Here’s an example of a typical org chart of a manufacturing company, showing where the supply chain manager fits in the scheme of things.

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Vault Career Guide to Supply Chain Management Job Responsibilities

Figure 2 – Condensed Organization Chart President VP of Sales

VP or HR

CFO

VP of R&D

VP of Operations

VP of Marketing

Mfg. Director

Materials Director

Quality Director

MRO Buyers

Supply Chain Mgrs.

Asst. Buyers

The MBA in Supply Chain Management MBA graduates seeking opportunities in supply chain management usually pursue either a Project Manager or Director of Materials position. Both of these vocations require previous experience in supply chain management, so the likelihood of a new graduate landing one of these positions is low. A Project Manager is responsible for large transitions related to supply chain management. One example of these transitions is a plant shutdown. A company may decide that it is more cost-effective to stop manufacturing their products themselves, and instead have a vendor do it for them. The management of a plant shutdown project requires cross-functional teamwork between accounting (working out the costs), engineering (helping the vendors get up and running), human resources (laying off the production workers), and manufacturing (managing the inventory to make a seamless transition). Another example of a transition is a large scale vendor change. A company may have a contract manufacturer in Mexico making its products. In an effort to reduce costs, the company may want to partner with a contract manufacturer in Vietnam instead. Making this transition can be even harder than a plant shutdown, because the existing supplier may become bitter and Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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refuse to cooperate. Most often, these transitions are done without notifying the existing supplier until the new supplier is running at the required capacity. A Director of Materials is responsible for the strategy of the purchasing group. He does not get involved in the details of the day-to-day operations of the supply chain management department, but will assume the reins when issues get out of control or need upper-management attention. A Director of Materials also sets the practices of his departments and approves large dollar item purchases. Similarly, the Director of Materials participates in vendor relationship management for the suppliers with whom the company spends the most money. In addition to providing strategic direction to the purchasing group, the Director of Materials spends significant time meeting with the other executives in the company, sharing expertise, championing causes, and staying abreast of issues facing the company. A Director of Materials also spends a lot of time networking with people outside of the company (i.e. industry experts, competitors, and prospective vendors).

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Use the Internet’s

MOST TARGETED job search tools.

Vault Job Board Target your search by industry, function, and experience level, and find the job openings that you want.

VaultMatch Resume Database Vault takes match-making to the next level: post your resume and customize your search by industry, function, experience and more. We’ll match job listings with your interests and criteria and e-mail them directly to your inbox.

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Our Survey Says CHAPTER 7 Salary and benefits It is typical for manufacturing companies to offer medical and dental coverage. Some offer vision insurance also. Although pensions are becoming less common, 401k plans are offered by most employers, with some form of company matching as well. Bonuses and profit sharing are quite popular, but stock options are rather rare. Paid vacation is usually two or three weeks per year, and there are also holidays and personal absence (sick time). The base salary range for a recent college graduate in supply chain management is between $30,000 and $50,000 per year.

Work environment The work environment for a supply chain manager is basically a cubicle. There is significant time on the phone, communicating with suppliers (over an hour per day). A lot of communication is through e-mail, so there can be a paper trail. There are also meetings regarding new products in the pipeline and part shortages that are affecting the production lines. As with most cubicle jobs, there is heavy computer use (over four hours per day)-mostly email, ERP work (placing purchase orders, checking receipts, reviewing MRP, etc.), and other project work such as Excel spreadsheets.

Moving laterally It is standard practice to wait at least one year before you start making efforts to change positions. This gives others in your organization a comfort level with your skills and abilities. But you might consider other opportunities unrelated to supply chain management. For example, you might feel that you have learned so much about customer wants (from being a customer to your suppliers) that you are interested in joining the your company’s customer service team. Let your manager know what your interests are and ask him to help you round out your experience. You can talk to managers in other areas and let them know what types of opportunities you are interested in. They know what positions are opening up before the positions get posted in your company’s job board. This includes talking to your boss’s boss.

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Vault Career Guide to Supply Chain Management Our Survey Says

Training There are two types of training for a supply chain manager – general and specific. General training includes guidelines about what your signing authority is (how big of an order you can place without getting your manager’s approval), the philosophy of the company with respect to inventory, cost reduction, air freight, etc. Specific training deals with learning which parts or materials are your responsibility, how parts get to the floor, which reports need to be run in ERP, how to place a purchase order, etc. Many employers like to shorten this training time by hiring people who already have some experience with the same ERP system or experience managing the same commodity already. If you can show them that you pick up new things quickly, your employer may realize that hiring an experienced supply chain manager does not have significantly greater benefit than hiring a recent college graduate.

Culture The culture of a company is driven more from the corporate level rather than the vocational level. In other words, there is not really a supply chain management culture. The culture of a company is usually driven by the industry or geographical region. Having said this, it is worth mentioning again that supply chain managers are often looked at suspiciously by other departments because supply chain managers have such major opportunities for unethical behavior. And although actions you take may not be in violation of company policies, if other perceive that you are engaging in unscrupulous conduct, they are going to treat you poorly. For example, if you move $500,000 worth of business from one supplier to another supplier and then take a trip to Jamaica, people might assume that the new supplier paid for your trip. Also, if your boss and coworkers drive Hondas and Toyotas and you buy a new BMW, people will be suspicious. This is not to say that you cannot go to Jamaica and cannot buy a BMW, but supply chain managers are often under the scrutiny of others in their organization. The more people get to know you, the more they will begin to accept and trust your character. You should avoid lavish dinners with suppliers (no matter who pays), very frequent visits to or by suppliers, and going out with suppliers (i.e. golfing). Some companies allow suppliers to take supply chain managers out to lunch. Check with your manager for clarification.

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A Day in the Life: Supply Chain Manager The best way to get a realistic understanding of supply chain management is to spend a day with a practitioner. The following is an account of an especially hectic day in the life of a supply chain manager. Gerard Steele is a 34 year old Supply Chain Manager at Prolific Products, a consumer products company that makes flat panel displays (mostly for automobile multimedia systems). One of Gerard’s co-workers is on disability for six months and her work has been distributed among the remaining co-workers. Gerard has been with Prolific Products for five years and has been practicing supply chain management for twelve years. Gerard got into purchasing right out of college as a junior buyer and moved up to his current position. Gerard specializes in purchasing metal and fabricated metal components. 8:00 a.m.: Check mailbox, fax machine, voicemail, and e-mail. Zeus Manufacturing is asking for orders earlier because they expect to do a plant shutdown for two weeks. The MRP report did not print. Send an e-mail to the IT department asking what happened. Check if the laser diodes that were due from Germany came in yesterday. They did not. Call Germany before they go home for the day. The parts shipped on time but are stuck in customs. Run the Kanban report to see if any parts have multiple empty bins. There are two, a bracket made by a local company, WSB Sheet Metal, and a housing made by Shaker Manufacturing in Ohio. Investigate to make sure there was not an error in-house before calling the suppliers. Ralph at WSB claims to not have gotten the signal and Jeff at Shaker say he can have parts delivered on Monday. Tell both suppliers to deliver on Saturday. 9:00 a.m.: In the Part Shortage Meeting, one supervisor, Leilani, says she is out of 1.250” X 0.030” stainless steel stock. The system shows there is two weeks worth on hand. Further discussion uncovers that the material was rejected and moved to MRB last night and has not yet been transacted. The supervisor needs a delivery date for more material to plan overtime. 10:00 a.m.: Lucky Manufacturing, the offshore contract manufacturer, sent their delivery plan that shows all open purchase orders and the planned ship dates for each. But a comparison with what the system shows open reveals that purchase order 8675309 is not reflected. Send a fax with an explanation and a copy of the purchase order confirmation from the supplier. 10:30 a.m.: Place purchase orders for non-kanban items that showed up on MRP. Service wants a gear that has not been purchased in two

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years. Explain that the lead time is three weeks and suggest buying more than one. 11:00 a.m.: Meet with Larry from Adaptive Manufacturing about another supplier, Stud Metalworks, that appears to be on its last legs and will probably go out of business soon. Formulate a plan to transition all of the Prolific work from Stud Metalworks to Adaptive Manufacturing. Explain the urgency of getting up and running quickly and the necessity to be discreet with Stud Metalworks until Adaptive Manufacturing is fully up and running all needed components. 1:00 p.m.: Go to the production floor to check the shortage board. Receive a complaint that shafts are coming in dirty and have to be cleaned. Ask Supplier Quality Engineer to intervene and communicate back to the supplier, Just Shafts. 1:30 p.m.: Attend a meeting about a new product being introduced (codename Galapagos). The project is on a fast track. Report that the lead time for most parts is three to four weeks but some components are eight weeks. Asked by the team to try to expedite the items that are longer than four weeks’ lead time. 2.30 p.m.: Sales wants to obsolete a product (the MPX3109) that Marketing said would be sold for one more year. The inventory writeoff would be about $800,000. Need to try to have vendors take some of the inventory back. Follow up with suppliers on deliveries and quotes. Ask Accounts Payable to look into an invoice the supplier, Mack Cold Rolling, says is one year old. Walk by the Receiving Department to see what has come in. Equitable Manufacturing wants a forecast for the next 12 months so they can lock in a rate for the raw material. Freight forwarder needs a copy of the commercial invoice to clear a shipment of LCDs that has come in a week early. Negotiate with Bella from Versatile Extrusions on the price of a new frame. She accepts the price. 4:00 p.m.: Engineering wants to tighten the specifications on the die cast chassis. Javier from Zenith Manufacturing says the cost will be 50% higher. Sigma Optics called to inform that they received a bad batch of raw material and will be one week late on their shipment. Called back Sigma Optics to inform that current stock is down to four days and they have to do better. 4:30 p.m.: Check which blanket purchase orders are getting close to running out. Check MRP to determine how many more parts are needed for the quarter. Adjust orders accordingly and send updates to suppliers.

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5:00 p.m.: Teleconference with Penang Production and Prototypes, a supplier in Malaysia. The tooling for the bodies is complete and is being validated in-house. First articles will be sent in one week. Supplier feels the assembly time was probably underestimated and the quotation will need to be revised. Supplier suggests black anodizing the bodies instead of black powder coating. Told supplier would check with Engineering. Marketing probably wants a glossy finish rather than the matte finish that anodizing gives.

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APPENDIX

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Supplier Audit Questions Many of the questions below do not have a right or wrong answer. The answers provided by the prospective supplier should assist you in coming to a conclusion about the business fit between your company and theirs. • How long have they been in business? Just because a company is a year or two old does not mean they are not capable of making customers happy. At the same time, there is a lot to be said for a company that has been in business for a few decades. • Is the company owner-operated? Companies run by the owner are operated differently than those run by an outsider. One is not necessarily better than the other. The owner has a lot more emotional attachment to the company than a hired general manager. If the owner is in his 60s, it is not inappropriate to ask about the future of the company (i.e. retirement plans). • Ownership (sole proprietorship, subsidiary of larger company, etc.)? Companies that are part of a large conglomerate have to heed direction from the parent company. Few large corporations resist the urge to standardize practices or “create synergies” by meddling with the operations of an acquired company. This can result in corporate mandates that make customers dissatisfied. Companies run by a sole proprietor usually are very heavily dependent on that person. If the owner does not have a capable backup person to run the show in his absence, there will definitely be some ugly situations over the years. • Number of locations? Some companies keep business offices in the U.S. and have their manufacturing done in other parts of the world. If you are writing “Made in USA” on your products, you need to know where the components are being made. • Number of employees at each site? If a company has 30 employees in New Hampshire and 150 in Poland, you should find out if the work you are having them quote will be eventually made in Poland even if they told you they have manufacturing in New Hampshire. • Web site? Many small, old-fashioned companies (commonly referred to as mom-and-pop shops) do not have web sites. This does not mean they cannot make quality products. It may mean that they are not quick to adopt new technologies though.

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

• Names of key contacts and their positions? It is important to know who to contact when your primary contacts are unavailable or not able to meet your needs. Going over someone’s head is not a very flattering thing to do but sometimes it is necessary to do your job. • Key competencies? What is this company really good at? You may be looking for a supplier that does stamping work, but the company you are talking to has 20 years of experience doing sheet metal fabrication and only started doing stamping six months ago. They may only have one machine to do stamping and 30 machines to do sheet metal work. Although the supplier may be very serious about getting into the stamping business and planning to expand in that area, you have to ask if you want to be part of their learning curve. • Do they subcontract any work? Suppliers are trying to become more and more of a “one-stop shop” and offer turnkey manufacturing (meaning they make entire products, not just components). But most suppliers find it does not make sense for them to do all the work themselves, so they subcontract some of it. For example, a manufacturer may make a product out of aluminum, send it to one subcontractor (commonly referred to as job shops) for chemical washing, another subcontractor for powder coating, and another subcontractor for printing. • Which countries do they subcontract to? Many companies in southern California send work to Mexico to take advantage of the cheaper labor rate. Some companies find that it makes business sense to send work offshore for the same reason. There are cost savings associated with this, but risks as well (i.e. customs holdups, transportation delays, foreign relations, etc.) • Industries they serve? By knowing which industries a supplier serves, you can make a judgment about whether or not they would be a good fit to do business with your company. For example, if a supplier primarily caters to medical device and semiconductor companies and you are in the toy industry, this supplier might not be a good choice for you. Toys usually are high volume, low cost, and the quality requirements are usually minimal compared to medical devices. • What percentage of their work is with their top 3 customers? This will expose a high reliance level. If more than 30% of their business is with one customer or more than 70% with the top three customers, this company could have some stability issues if one of those customers changes suppliers or has a significant change in demand for their product (up or down). When more orders come in than the supplier has capacity for, the biggest customers get the higher priority.

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

• What percentage of their work is in their top industry? The top industry this company serves should be a rather stable one. For example, if 50% of the supplier’s work is in the defense industry, think about what will happen if the defense budgets get drastically reduced. If the top industry is less than 20% of their work, this is not a large concern. • Are they ISO certified? The International Organization for Standards (ISO) has guidelines for running high-quality manufacturing operations (there are also ISO standards for service companies). When a company meets these standards, they pay an outside party to come and audit their operations. Once they pass this audit, they become ISO certified. Most suppliers not ISO certified will say they are ISO compliant. Learn about ISO standards if you do not know about them by reading an ISO handbook. Many suppliers say it is too costly to get certified, but these costs pay for themselves, since ISO certification opens to the door to many new customers who only use ISO-certified suppliers. If low cost is more important than high quality, using ISO certified suppliers is probably not a good idea. • What type of ERP do they use? It is good to know what system a supplier is using because there may be opportunities for electronic data interchange (purchase orders, confirmations, tracking numbers, invoices, and payments get automatically entered in the respective ERP systems rather than having to be typed in by a person) between your ERP and theirs. The wrong answer to this question is, “We don’t need a computer system.” • How do customer orders flow through their system? Look for holes in their process. The order fulfillment process should be robust enough that errors are minimal. For example, if a purchase order gets confirmed after the production manager analyzes the capacity but there is no check to see if raw material to run the order will be available when needed, that is a hole. If there is no documentation of customer-specified packaging requirements in the shipping department, the chances that your order will show up packaged incorrectly is high. • How are special instructions communicated to the production floor? If the supply chain manager orders part number 605-149 (a white part) but marketing would like some samples of the same part in yellow, how would the supplier require this information be communicated to them? Afterwards, how would this information get sent to the production floor to make sure they paint some of the parts yellow? Creating a new part number with new color specifications may be a waste of effort if marketing ultimately determines the yellow is not something they would

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

like to go forward with. The point here is to find out if they have a surefire method to handle special requests for you. • How do they prevent defects from occurring? Although many suppliers like to boast they do not have a Quality Assurance (QA) or Quality Control (QC) department because they have “driven quality into their processes,” this is often just a cost savings measure. Is the person making the parts trained as to what is acceptable and not acceptable to the customer? Is the person making the parts trained to use the instruments required to determine if the parts being made are within specifications? Statistical Process Control (SPC) is a common tool used to identify trends in the features of a part over time, to signal correction before a feature goes out of specification. SPC is not a must for every part produced, but it is helpful for many parts. Process Control Plans are instructions that tell an operator what features of the parts they are making need to be checked and at what frequency. Ask the supplier if they use SPC or have Process Control Plans. • What do they do when defects are found? If a machine operator finds that one surface of a part is not as smooth as it used to be, does that operator stop the process, wait for someone to come by so they can ask that person, or just keep running the parts? What kind of written records are created when defects are found? Who reviews these records? • How do they prevent defects from reoccurring? Everyone makes mistakes, but how one reacts is of greater import. A supplier should have a program in which to log defects, and corrective actions in place to prevent them from reoccurring. A supply chain manager will consider the probability of the defect reoccurring, as well as the severity of the defect. Not every defect is worth putting together a team to tackle it. • How do they reduce costs? Some companies say they strive hard to reduce costs. Some will say they keep their costs low from the start, so there is no reduction over time. Companies with impressive cost reduction programs have quantitative commitments to reducing costs over a time period and passing some of those savings to the customer. Most suppliers with over a million dollars in annual revenue should have a person responsible for improving processes to reduce cost, improve quality, and decrease lead time. If this person is not saving the supplier more than their annual salary every year, they should be replaced with someone who will. • What types of quality inspection tools do they have? Understand the commodities you are responsible for managing. Part of this is knowing the manufacturing processes that make these parts and the inspection equipment required to verify their quality. Do not be impressed when a 60

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prospective supplier tells you they have hundred-thousand-dollar laser interferometers or coordinate measuring machines. If the parts you are sourcing cannot be measured by those expensive machines, what value do they provide to you? • How many engineers do they have on staff? There are plenty of people without engineering degrees who can run circles around degreed engineers in certain areas of specialization. However, a supplier does need to have someone who can understand a customer’s engineering level requirements, can give engineering level explanations to the supply chain manager, and can approach problem solving in a systematic fashion. • What types of documentation do they keep for each job? Documentation can be soft or hard copy. Do they keep lot control for each batch? (Lot control is segregation of material from different batches, so if a defect is found in one batch, all the components in that batch can be easily found.) Do they have traceability for the material used to make the components? Do they have quality records for each batch? Do they have a process to make sure a customer’s special requirements (i.e. washing or packing) are fulfilled each time? • How much inventory do they hold for customers? Since you do not want to carry any more inventory than you have to, it is always good to have suppliers carry inventory for you, ready to ship at a moments notice. There has to be an agreement upfront though, for how much of the scrap cost will be absorbed by your company in the event a part the supplier holds in inventory is no longer used by you (due to obsolescence or lack of sales). • What size batches do they normally run? This is related to the question above. Just like a supply chain manager has economic order quantities (EOQ), the supplier has economic batch sizes. The supplier has to balance batch expenses of each job (i.e. setup and outside processing) and the lead time demanded by the customer with the amount of inventory they want to be liable for in the event the supplier stops ordering parts. Another risk here is that if a quality issue is found during assembly of the part (at your facility), the supplier might find out that they have a lot of inventory that is out of specification. This is one reason why companies like to carry as little inventory as possible. • What is their typical lead time? Lead time is critical in determining how much inventory you need to hold. There has to be enough inventory in the pipeline (whether at the supplier or at the customer) to cover the lead time to make more parts at the supplier. Understand the components of this lead time. Visit Vault at www.vault.com for insider company profiles, expert advice, career message boards, expert resume reviews, the Vault Job Board and more.

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

• Is all material on the floor labeled properly? Although the factory workers at the supplier’s factory probably know what they are doing, there will be instances in which a new person is getting trained or a person is running a particular job the first time. In order avoid mix-ups, all materials (raw materials, material in process, and finished goods) should be properly labeled. • Is the work area tidy? Tidy work areas are a sign of order. One cannot help but conclude that a factory that is untidy is in a state of chaos. An orderly work area is part of modern manufacturing practices. • How do they train new hires? It is very common for the root cause of a problem to be a new person working on the line. It is understandable that new people will make more mistakes than veterans, but a supplier must make as much effort as they can to train a new person properly. • Do they have jobs that only one person knows how to run? Even if a supplier has excellent documentation, they are better off if there is more than one person fully trained on every machine or job they run. This mitigates the risk of not being able to fill a customer order because an employee quit or is on vacation. • Are there computers on the production floor? There are still suppliers in the U.S. that have not integrated personal computers into their manufacturing floor. Without a computer, a production worker has to get all of their information by leaving their workstation to go ask someone else. With a computer, a production worker has all the information necessary at their fingertips. This reduces wasted downtime, prevents mistakes, and empowers employees to take more ownership of their production. • Do they have a preventive maintenance program for their equipment? A preventive maintenance program does not guarantee that a machine will never fail,, but the lack of a documented preventive maintenance program is a sign of myopic management. A supplier that takes actions to prevent disasters is superior to one who spends all of his time “fighting fires” that could have been avoided with some strategic planning. • Do they have calibration records for all other measuring instruments? If a supplier is using a caliper (a measuring tool) to measure the parts they are making to see if they meet your specifications, the caliper must be accurate. Depending on the environment and amount of use, measuring instruments should be calibrated about once per year. There should be a database that lists all of the measuring instruments and their calibration due dates. Each measuring instrument should either show the calibration due date or 62

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have some sort of identifier that can be used to look up the due date in the database. • Are employees using proper personal protective equipment? At a minimum, a supplier should meet federal Occupational Safety and Health Administration (OSHA) requirements for the safety and health of their employees. If the environment is noisy, employees should wear earplugs. If the employees risk getting something in their eyes, they should wear safety goggles. Obviously, it is not your job to be the environmental, health, and safety auditor for your suppliers, but negative publicity could result if a worker were seriously injured. • What types of continuous improvement efforts are in place? All suppliers strive for quality, on-time delivery, and competitive pricing. Exceptional suppliers also strive for excellent customer service and continuous improvement over time. Continuous improvement is making a product better, faster, and cheaper. Most suppliers do continually improve, but not many of them pass the savings to customers in the form of price reduction. You will have to ask for it. • How do they choose and qualify suppliers? Remember, it is called a supply chain. That means you should know who your supplier’s suppliers are. You should understand how developed their supply chain is in terms of lead times, second sources, constraints, etc. It probably does not make sense to trace your supply chain all the way to the elemental level. In most cases, you should spend much less than 20% of your time with your supplier’s suppliers, but there may be instances where you have to help your suppliers manage their suppliers. A supplier should have some logical approach to choosing suppliers. They might not keep an AVL (Approved Vendor List), but they should have a process of qualifying and disqualifying suppliers. • Do their suppliers send material certifications? If there is a certain alloy of material you specify your parts need to be made out of, the supplier should receive material certifications from their material supplier that shows that the alloy is what was ordered. You can ask that a copy of these certifications be sent to you with each delivery. • How many shifts do they run per day? A company that runs multiple shifts has more flexibility than one that only runs one shift. For example, you could find out that you are out of parts at 4 p.m. If you call your supplier and ask them to start making parts right away, and if they run two or three shifts per day, they would be more likely to be able to have parts available for you first thing in the morning than a supplier that only runs one shift.

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

• Do they do consignment inventory? Consignment inventory is taking ownership of inventory not when it is delivered to you but when you use it. Consignment inventory is common for public companies because they have more pressure to have low inventory levels than private companies do. For example, a supplier delivers 30 drums of nitric acid to you. The receiving department signs the bill of lading (a shipping document) but the supplier does not send an invoice for the 30 drums and the receiving department does not do a purchase order receipt in the ERP. When a drum of nitric acid is taken from the storage to the point of use, then the receiving department does a purchase order receipt for one drum and the supplier gets paid for one drum. The other 29 drums are sitting in your building but are still owned by the supplier. • Do they support customer’s JIT programs? It is a lot easier to get a supplier who is already doing JIT for another customer up to speed on your JIT program than dealing with a supplier inexperienced with JIT. Be specific about the lead time and frequency of deliveries you are looking for. • Do they accept electronic purchase orders? Every time a human has to do a data entry task, there is a chance for error. Usually, a supply chain manager creates a purchase order, signs it, and faxes it to the supplier, who enters the blurry information into their ERP. Alternatively, problems with EDI (Electronic Data Interchange) are usually negligible after the initial bugs are worked out. With EDI, the purchase order information gets automatically entered into the supplier ERP system. • Do they send electronic invoices? Similar to electronic purchase orders, electronic invoices allow the supplier’s invoice to be entered into the customer’s ERP and paid. The matching of the packing list, purchase order, and invoice is oftentimes not perfect, so there is still a lot of human involvement in this area. • How do they do their quotes? One response: “Our owner has been in manufacturing for 30 years. He can look at a drawing for 30 seconds and tell you how much we can sell it to you for.” Or “Our estimator calculates how much volume of material is required for each part, gets a quote for the raw material, figures out how much machining time is required to make the part, adds in the labor for secondary operations, puts in a 30% margin, and comes up with the quote.” It makes a supply chain manager look bad if after he or she gets a quote from a supplier and gives them the job, they make the parts and then come back with a higher quote. You have to stress when you solicit quotes that the supplier should make proper effort to give an accurate quote from the beginning. Of course there are always unforeseen complications that 64

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Vault Career Guide to Supply Chain Management Supplier Audit Questions

surface only after a part goes into production, but this does not make it acceptable for a supplier to do a cursory analysis when quoting the part. • What is their shop rate? The shop rate is not what the supplier pays their factory workers. It is the rate used to capture both the direct labor and the overhead when quoting jobs. A higher shop rate could mean higher overhead costs, higher labor costs, or higher profits for the supplier. If a supplier has a large quality assurance staff and lots of engineers, the shop rate will probably be higher than that of a smaller supplier. The shop rate is used when quoting a component. For example, if a supplier has a $50 per hour shop rate and it takes 12 minutes to make each part, the labor portion of the quote would be $10 (the material cost would constitute the remainder of the cost). Profit is usually added separately from labor and material cost, but some companies add the profit to the shop rate. • Do they make their tooling in-house? There are plenty of vendors for “off the shelf” tooling (tooling that is commonly used by many companies). But many jobs require custom tooling not available “off the shelf.” Some suppliers make their own custom tooling, and some have it outsourced. The lead time to replace tooling is usually shorter when it is made in-house. If a supplier has custom tooling outsourced, agree with them on a quantity of spare custom tooling that they will always keep in stock for your jobs.

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About the Author Javed Khan has worked in manufacturing plants his entire career, from lowtech to high-tech firm, small business to Fortune 500 company. He has two engineering degrees and an MBA.

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