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An Affiliate of
92 Years Old and still counting!
May 2013 Volume 21, Issue 12
Communiqué Newsletter of ISM Central Indiana, Inc. Established in 1917
Inside This
Issue:
Letter From
the Board
1
New Name 2
Introduction of
New Board
3
Manage Your
Supply Chain
Analytics like a
Baseball Team
4-7
Making Supply
Chain Visibility
Visible
8-9
Finance: Manu-
facturers' Big
Squeeze Puts
Pressure on Sup-
pliers
9-10
Building superi-
or capabilities
for strategic
sourcing
11-15
ISM Term of the
Month
15
New Member &
Social Media
Links
16
CPSM Certifica-
tion Details
17
Calendar of ISM
Events
17
Hello everyone! This program year went by quickly and we
wrapped it up with our annual golf outing on Thursday, May
16th at West Chase in Brownsburg. The proceeds from this
event go towards our ISM-CI Scholarship Fund.
As we move into our break over the summer, I want to take
some time to remind everyone that our Program Year (with
monthly PDMs) runs August through May with a break in
December for the holidays. Therefore, after our golf-outing,
we won’t be meeting together again until August. During
this time, the BOD will continue to meet and work on the
2013-2014 activities. We have a great group of board mem-
bers who are very excited about improving over last year
and identifying ways to add even more value to our mem-
bership. Please stay tuned for new activities and volunteer
opportunities!
If you have any questions or suggestions for next year’s
events, please feel free to contact me or any of the board
members.
Enjoy the summer!
Megan
Page 2
We have a new name:
ISM-Central Indiana, Inc.
We also have a new website:
www.ISMCentralIndiana.org
Check out our new email Addresses:
President@ISMCentralIndiana.org
VP@ISMCentralIndiana.org
Treasurer@ISMCentralIndiana.org
Secretary@ISMCentralIndiana.org
PastPresident@ISMCentralIndiana.org
Communications@ISMCentralIndiana.org
Education@ISMCentralIndiana.org
Membership@ISMCentralIndiana.org
Excellence@ISMCentralIndiana.org
Programs@ISMCentralIndiana.org
Should you have any questions, concerns, or comments,
please send to our Office Manager at:
CustomerService@ISMCentralindiana.org
Vision ISM Central Indiana will serve as a center of excellence in estab-
lishing and maintaining best-in class professional standards of com-
petency and conduct for the Procurement Profession and its mem-
bers, in matters pertaining to research, education, and certification.
Mission ISM Central Indiana exists to provide opportunities, resources, and
leadership for professional development, certification, and network-
ing for our membership, and to advance the purchasing and supply
management profession within our affiliate area.
President
Megan Mills President@ISMCentralindia
na.org
Vice-President
Stacie Neuhaus, C.P.M.
VP@ISMCentralindiana.org
Treasurer
Erica Voetsch, CPSM Treasurer@ISMCentralindi
ana.org
Director of Programs
Patrick Carroll, CPSM Programs@ISMCentralindia
na.org
Director of Education
Michelle Moore Education@ISMCentralindi
ana.org
Director of
Communications
Dan Levine Communications@ISMCen
tralindiana.org
Director of Membership
Ron Wright, C.P.M. Membership@ISMCentralin
diana.org
Director of Excellence
Mira Pike Excellence@ISMCentralindi
ana.org
Secretary
David Mumper Secretary@naISMCentralin
diana.org
Past President Lea Anne Fuchs, C.P.M.
CFSP PastPresident@ISMCentrali
ndiana.org
Office Manager
Wendy Bayley
317-889-9225 CustomerService@ISMCen
tralindiana.org
Page 3
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President Megan Mills
Vice President Erica Voetsch
Secretary David Mumper
Treasurer William Wilz
Past President Lea Anne Fuchs
Director of Communications Emily Tornquist
Director of Education Michelle Moore
Director of Membership Ron Wright
Director of Excellence Rachel Mendez
Director of
Programs Pat Carroll
CONGRATULATIONS TO THE
NEW BOARD FOR 2013—2014.
Page 4
Manage Your Supply Chain Analytics like a Baseball Team
Lessons learned from major league balls provide insights for supply
chain managers on how to manage social analytics. Jeff Kavanaugh, managing partner, Infosys May 10, 2013
“People in both financial markets and baseball operate with beliefs and biases. To
the extent you can eliminate both and replace them with data, you gain a clear ad-
vantage.” —Michael Lewis, Moneyball
Knowing that a supply chain disruption can cause revenue leakage and market
share loss, supply chain managers have tweaked every angle and measured
every corner to speed delivery and improve production. As supply chains be-
come more complex and pressures increase, supply chain managers need to
ensure that they have the right information to compete. The customer per-
spective has come to the forefront as an important element that has been
missing.
In the past managers sought to understand customers using focus groups and
marketing studies, but social analytics has emerged as a new and powerful
tool. Social analytics has begun to revolutionize the actionable information
available to the decision makers charged with supply chain management. Major
League Baseball (MLB) can provide insights for supply chain managers to learn
about the impact of social analytics.
Every summer since 1933 MLB has held an All Star Game where the National
League and American League put their finest players on display for the ulti-
mate exhibition game. The All-Star game has become a highly popular baseball
event, second only to the World Series. What makes this game unique is that
fans vote on who will play the starting positions for each league. The players
and managers also get to vote on positions such as pitchers and backup play-
ers. Then there is one additional player who is voted in by fans after the list of
33 players for each league is announced. This is a true collaboration to select
the best and most popular players and to create a great baseball exhibition for
the fans to watch and enjoy – in some respects, it was an early form of social
media
Baseball fans love being part of the All-Star Game experience because their
opinion matters on the players who take the field. Likewise, consumers want
their opinions about products and services to be heard and to feel like they
make an impact. While the desire to be heard is universal and long-standing,
only recently has technology evolved to provide consumers with robust tools
to do so. With the social media revolution now deeply rooted into our every-
day lives and a staple of our culture, it is has become much easier to express
opinions through e-mail, social networking sites, blogs, text, chat, and yes,
even using a telephone to talk to someone.
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In the last decade social analytics has risen to the forefront in the business of
baseball, from planning a team and creating a roster to evaluating performance
on the field and getting the most from the club payroll. In similar fashion the
impact of analytics is being harnessed to improve supply chain management
performance. Social feedback loops provide a huge advantage through under-
standing customers and how they perceive a company’s products or services.
This combination of social, analytics, cloud computing and mobility has enabled
unprecedented consumer influence, starting in consumer-centric industries like
retail, but now permeating even business-to-business companies and sectors
like heavy manufacturing.
For many years marketing and advertising groups have conducted polls to
gauge consumer opinions, and over the last few years they have learned to in-
corporate social analytics as well. Marketers have taken real-time data and
learned to measure advertising campaign effectiveness, understand customer information needs, and determine brand perception. This includes not only
historical customer purchase data, but also purchase suggestions and predic-
tions.
The Oakland Athletics were highlighted in the book (and movie) Moneyball for
taking one of the lowest payroll teams and outperforming almost every other
major league team. They did this by focusing on analytics and statistics. They
took much of the gut feel of scouting out of the evaluation with regards to
what constitutes a useful player and competitive team. Instead, they relied on
measurable and tangible data – they applied analytics to find bargains to build
their roster. They did this by focusing on key performance indicators like price for foot speed, on-base percentage and several other factors. These analyses
helped them move beyond players’ past performances and begin to see pat-
terns that helped predict how a player might perform in the future.
According to a recent study on supply chain progress, those companies that
have both strong visibility and analytics capabilities are almost twice as likely to
be in the top 20% of business growth than firms that do not. Social analytics
has the ability to help supply chain managers make critical adjustments, main-
tain proper inventory levels, monitor order management and decrease returns,
which in turn help control costs and improve customer satisfaction. Like the
Oakland Athletics, supply chain managers have the opportunity to measure
data and apply analytics from customer sentiment about their products and
services. Social analytics is even more critical for companies that sell through
indirect channels, as they lack as much direct access to the end customer.
Supply chain management (SCM) professionals feel more pressure than ever to
get the right products to the right place, at the right time, at the right cost.
The right place can be on the other side of the world and the right time often
means now, given increased consumer needs for immediate gratification. To
manage this feat, leaders in SCM are also harnessing social analytics and its
power to predict trends in product demand. Using the baseball analogy,
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Page 6
product lines can be compared to players on a baseball team. Analytics can
help supply chain professionals understand how the customers think about
products and how they perform in specific situations.
Using social analytics, SCM practitioners can discover when there are product
defects or when consumers experience problems in product performance. For
example, consumers may complain about usability of a garden trowel handle
and how it slips in the hand during use. This rapid feedback can provide an ear-
ly warning for a manufacturer to redesign the handle with a non-slip cover to
prevent possible injuries. While customer service may have traditionally been
the only function to hear about this (or care), savvy supply chain professionals
can use this information to adjust future demand and supply plans.
Social analytics can also help discover basic product advantages and disad-
vantages. An automaker might use analytics to find that consumers prefer cars
with tan leather interior in the U.S. Southwest, while northern states prefer
dark fabric. This type of timely feedback allows more market signals to be
more directly and rapidly assimilated in the plan, ultimately dampening the bull-
whip effect, maximizing order fill rates, and reducing excess inventory. A recent report from industry analyst Aberdeen Group suggests that “service”
is by far the largest supply chain stage using social data, and this makes sense
given it is the closest and most visible to the end customer. However, “plan”
and “deliver” also rate highly. The report goes on to say demand management,
order fulfillment and inventory management each have significant potential for
impact by social analytics (Figure 1).
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A Combination of Art and Science
It is crucial to have the right people to interpret and analyze the data, and sup-
ply chains must be agile enough to take advantage of whatever insights that
analytics can provide. Supply chain managers can capitalize on the social media
revolution, as long as they recognize this as a combination of art and science.
Better trend and demand forecasts come from combining social analytics from
R&D, sales and marketing, product engineering, and distributors to ensure bet-
ter forecasting of trends and demands.
Mary Schalett, president of Transworld Data, recently wrote of a retail supply
chain manager who just completed consolidations of their retail and e-tail
warehousing, focused on improving early collaboration with sales and market-
ing. Customers want immediate gratification, and they don’t want to wait on
back orders. Companies need to take advantage of trends like social media and
eke out whatever advantage they can get from improved forecasting and meet-
ing demand. Ultimately, social analytics is about using social media to increase
predictability for key operational metrics.
Back to Moneyball: “Baseball—of all things—was an example of how an unsci-
entific culture responds, or fails to respond, to the scientific method” (from
the preface by author Michael Lewis). Sound familiar? Supply chain manage-
ment used to be considered in this manner, until gradually operations research
and statistical techniques brought more order from the chaos. Add social me-
dia to the mix, and similar challenges reemerge, as social is viewed as unstruc-
tured and unscientific at the individual level. It is only when the data is aggre-
gated and properly structured that useful patterns emerge. Companies need to
use the right data, develop relevant models, make informed decisions and then
measure the results.
For example, baseball used to rely on scouting and a coach’s impressions about
a player. Decisions were made based on questionable inputs, glamorous met-
rics like home runs, and plain old gut feel. Now tangible and measurable attrib-
utes have been added to the equation to improve the data used to make deci-
sions. Enterprises can also learn from this and apply social analytics to develop
better data sets to help them make the right decisions about their supply
chain. Rather than devote more resources to the supply chain, the focus
should be on working smarter and seeing more bottom-line impact by using
available information.
“Each year the Oakland A’s seemed to be more the financial underdog and
each year they won more games. Maybe they were just lucky. Or maybe they
knew something other people didn’t.”Companies can become more competi-
tive and perhaps achieve All-Star status in their own right by improving supply
chain performance with social analytics.
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Making Supply Chain Visibility Visible Jennifer Baljko, Freelance Writer
If it's not one tool a supply chain manager needs, it's another. Or maybe
it's not really more tools that are needed, but rather the patience and
wherewithal to understand the tools you already have and how to make
them work together to do more for you.
Supply chain visibility may fall into this category.
It's debatable whether visibility should be a stand-alone system or some-
thing more comprehensive than a single software platform. And it's usu-
ally safe to say that existing ERP and warehouse management systems
may not go far enough in extrapolating all the "right" data needed to in-
crease visibility within complex, global supply chains.
But, as Patty Stafford, a senior business consultant at Worldwide Chain
Stores, noted during a recent World Trade Group webinar (the ar-
chived file will be posted here), there are several components vital to
this aspect of supply chain management. The key ones, she said, include:
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While this may look like a hard to manage and even harder to do kind of
list, some of the tools and data may already be in your system. They just
may not be used in the right combination. Stafford said:
How is your organization making data available in a meaningful and time-
ly manner? How has that given you more visibility into what’s happening
in the supply chain? And has it made you more responsive, flexible,
and loved by supply chain partners?
Finance: Manufacturers' Big Squeeze Puts
Pressure on Suppliers Cash managers are exploring their options as their big customers
demand more time to pay their bills
Dave Blanchard | IndustryWeek May 6, 2013
It used to be that the role of the corporate treasury was largely unno-
ticed outside of the finance department, with cash management being
considered an important but tactical, rather than strategic, process. That
image was considerably upgraded in status throughout the recession and
its aftermath, when manufacturers and other large companies grew to
appreciate the treasury's ability to not only keep their companies out of
the red but to take on additional responsibilities, such as cash flow fore-
casting, risk management, financial planning and analysis, and investor re-
lations.
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According to a recent treasury benchmarking study conducted by the
Association of Finance Professionals (AFP), more than half (55%) of all
companies surveyed have expanded their treasury department's role
over the past five years. The key measure of success for treasury, cited
by 79% of respondents, is the ability to reduce banking expenses.
"The best companies are distinguished by great treasuries," says Jim
Kaitz, AFP's president and CEO. "Yet the current business environment
means that companies are demanding a high level of efficiency in treasury
cost structures and process design."
The role of the treasury could expand even further due to a trend re-
ported by The Wall Street Journal (April 17, 2013) whereby large manu-
facturers are demanding more time to pay their suppliers. Consumer
goods giant Proctor & Gamble Co. (IW500/11). for instance, plans to
shift its payment terms from 45 days to 75 days, a move that could free
up $2 billion in cash for P&G, according to the WSJ. Suppliers in turn
would have to make some choices: Can they afford to wait an additional
30 days to get paid? Should they put a similar squeeze on their own sup-
pliers, many of whom tend to be smaller companies? Should they work
with banks to obtain cheap financing (often leveraged by the big compa-
nies), getting payment in a much shorter time frame but giving up a por-
tion of their payment to the bank?
Since small and mid-sized companies can find it difficult to obtain financ-
ing from traditional sources such as banks, another option would be to
work with commercial lending companies. One common alternative is
known as factoring, which is "the outright purchase of a business's out-
standing accounts receivable by a commercial finance company, or fac-
tor," explains Tracy Eden, marketing director for Commercial Finance
Group. "Typically, the factor will advance the business between 70% and
90% of the value of the receivable at the time of purchase; the balance,
less the factoring fee, is released when the invoice is collected." The fee,
he notes, is based on the total face value of the invoice, not the percent-
age advanced, and typically ranges from 1.5% to 5.5%.
Eden cites the example of a start-up manufacturer of plastic items. "After
a slow start, the company saw a big increase in both domestic and over-
seas orders about two years ago. However, the overseas orders tied up
their working capital for long periods of time, and they didn't have
enough inventory to fill some domestic orders." An alternative financing
arrangement, however, provided the company with sufficient cash to fill
orders, and to sustain rapid sales growth throughout this year.
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Building superior capabilities for strategic sourcing Purchased materials and services often make up 60 to 80 percent of a
product’s cost. Companies that don’t invest in the purchasing team’s capabili-
ties are throwing away value.
McKinsey & Co. May 2013 | bySteffen Fuchs, Gillian Pais, and Jeff Shulman
Jack Welch once notoriously said that “engineers who can’t add, oper-
ators who can’t run their equipment, and accountants who can’t foot
numbers become purchasing professionals.” Hyperbole aside, General
Electric’s legendary boss was reflecting a common perception: the pur-
chasing function is little more than a necessary evil in business. No sur-
prise, then, that many companies underinvest in the purchasing team’s
capabilities and leave sourcing out of strategic decision-making processes
in favor of functions, such as manufacturing and sales, that drive revenue.
Over time, of course, a negative compounding effect sets in: up-and-
coming talent flows to the higher-status functions, often exacerbating
the capabilities mismatch when difficult sourcing negotiations come up. If
a supplier’s heavily supported sales team squares off against an underde-
veloped purchasing team, the result, like that of a football match be-
tween Fiji and Brazil, is fairly predictable.
Yet purchased materials and services make up 60 to 80 percent of a
product’s total cost in many industries. As a result, companies that do
not invest appropriately in the purchasing team’s capabilities and culture
are throwing away more value than they realize. Organizations that em-
ploy leading-edge purchasing practices achieve almost double the mar-
gins of companies with below-average purchasing departments (20.2 per-
cent versus 10.9 percent, respectively).1 1.These figures are derived
from McKinsey’s proprietary Global Purchasing Excellence surveys and
research on more than 500 companies around the world. Among the
dimensions that affect purchasing’s success, capabilities and culture were
correlated 1.5 to 2.2 times more strongly with a company’s financial per-
formance than the others we studied (exhibit).
We have developed an approach that emphasizes speed and scale to
build and institutionalize capabilities, so that performance improves rap-
idly and continues to get better over the long term. When applied to
purchasing, the approach helps to raise the function’s profile and to give
high-performing procurement professionals more leadership-
development opportunities and exposure to senior management. In our
experience, companies that employ this program in purchasing are able
to attract and retain better purchasing talent and capture the financial
impact more quickly and sustainably. This article will discuss how the
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has improved the performance of purchasing organizations and helped sev-
eral of them realize their goals.
Identifying and building capabilities
To turn the purchasing function into a high-functioning strategic asset, an
organization must first identify the specific capabilities that will create the
most value. They vary by company but may include technical skills such as
the ability to reverse-engineer a supplier’s cost structure accurately or to
conduct a thorough supply-market analysis that produces insights leading to
a competitive advantage. Leadership capabilities—such as the ability to navi-
gate complex cross-functional interests, to manage the trade-offs required
to meet competing needs, and to identify alternatives with perspicacity and
tact—may also be important.
A company can figure out which capabilities have the greatest potential to
contribute to performance by conducting a bottom-up assessment of its
technical and leadership capabilities and comparing them with relevant
benchmarks. For one leading chemical company, this type of assessment re-
vealed a need to improve advanced “should-cost” analytics (that is, clean-
sheet modeling) and cross-functional leadership. The company created a tai-
lored capability-building program to build these specific skills. One year lat-
er, it was routinely convening cross-functional sourcing teams and using
clean-sheet-based negotiations to capture savings that ranged from 10 to 20
percent for many categories.
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Beyond building individual employees’ skills, an organization must embed
them in its processes, systems, and tools. For example, after completing an
initial phase of capability building for individuals, a leading basic-materials
company took the next step. This effort included the implementation of an
improved organizational structure to place a greater focus on value-
generating priorities: transactional activities, such as purchase-order pro-
cessing, were organizationally separated from strategic activities, such as
category management. Data-collection tools and clear processes were insti-
tuted to support a more strategic kind of category management. The com-
pany also worked to ensure that the right individuals were placed in the
right roles. Finally, performance-management systems were put in place to
measure and provide incentives for total-cost-of-ownership savings and con-
tinuous improvement.
Use real work and adult-learning principles
According to our research, the traditional method of providing corporate
training, through infrequent classroom sessions, is one of the least effective
ways to build capabilities. Adults retain new ones more successfully if learn-
ing occurs through shorter, more frequent interventions in which the con-
tent is delivered “just in time.” That is, when training is tied to real work
and the specific activities an individual must complete, trainees get immedi-
ate practice in incremental new skills that directly affect their day-to-day re-
sponsibilities. Over time, these new skills build on each other and develop
into a complete set of improved capabilities.
One of the most effective ways to act on these adult-learning principles and
scale new capabilities quickly is the “train the trainer” approach. In this
technique, a small number of highly skilled and motivated change agents go
through a structured “field and forum” program covering technical and lead-
ership capabilities. While these change agents are in this program, they are
expected to transfer their newly acquired capabilities to others by acting as
mentors for a cohort of key purchasing employees going through an actual
category-sourcing process. These purchasing staffers, with some further
training, then go on to become coaches and mentors themselves. Through
this approach, a combination of coaching and on-the-job training creates an
organizational-talent engine that scales up new capabilities rapidly.
The global chemical company mentioned above followed this approach for
its purchasing-transformation program. The company’s purchasing leaders
identified a core set of trainers, who were 100 percent dedicated to driving
change in the organization. Every week, these trainers received seven hours
of technical and leadership training, and in tandem each of them co-led a
cross-functional category-sourcing team. Over the course of 16 weeks, the
trainers led their teams through the full sourcing process while also
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receiving regular coaching, training, and mentoring from their leaders. At
the end of the period, the trainers unanimously declared that this experi-
ence had been the most transformative time in their careers, both profes-
sionally and personally, and that it helped improve their own skills and mind
-sets, as well as the attitudes and capabilities of their colleagues. The train-
ers went on to train others independently and to become highly respected
leaders in the organization. Many were recognized by C-level executives for
their achievements.
Scale up and institutionalize
After the first phase of individual and institutional capability building, a com-
pany must focus on scaling, across the entire organization, the new way of
doing business, so that it is sustainable over the long term. For example, at
the basic-materials company mentioned above, this scale-up was accom-
plished by first setting an austere goal of 7 percent cost reductions across
the entire third-party spending base and creating a clear action plan to reach
that level in two years. This plan involved a sequence of category-sourcing
efforts, with assigned team members and a center of excellence of core
trainers and leaders to provide category teams with the necessary capabili-
ties and expertise. A robust mechanism reported results to the whole or-
ganization to build excitement and credibility for the cost reductions. Two
years later, the organization is well on its way to achieving what many
thought a nearly impossible goal.
The final important piece in the capability-building effort relates to culture:
creating an environment in which purchasing professionals are proud of the
value they add to the organization and have the confidence to take a leader-
ship role in finding and delivering new sources of value. Such cultural change
is the bedrock of a sustainable transformation in a purchasing organization.
Companies can push this change by creating highly visible senior role mod-
els who act out the new culture. These companies do so in several ways:
instituting joint purchasing councils with responsibility for ensuring cross-
functional collaboration and making use of the right forums to publicize suc-
cesses throughout the organization and build excitement. Continuing to
measure the attitudes and mind-sets of the staff carefully (using employee
questionnaires and focus groups, for example) and then making targeted in-
terventions to address challenges are important as well.
For example, at one leading global chemical company, a “victim” mind-set
predominated in the purchasing function. Professionals within the group felt
directionless and disheartened by an environment in which key sourcing de-
cisions were often made without their involvement. To change this attitude,
the company made sure senior leadership was involved in redesigning the
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Page 15
institutionalizing a formal sourcing process, and implementing new databases
and tools. Executives participated in weekly stakeholder meetings and peri-
odic gatherings to address concerns as they arose. The company also made
a significant effort to communicate the project’s successes to the whole or-
ganization. Eighteen months after launch, the purchasing transformation was
on track to exceed some radical savings goals in many categories. The trans-
formation was recognized as one of the most significant efforts the company
had ever undertaken, not only because of the bottom-line impact, but also
because the project fundamentally changed the way the organization operat-
ed.
Companies that have invested in developing best-in-class purchasing capabil-
ities have nearly double the margins of those that have not. By identifying
the capabilities that will drive value, building them in real work situations
using adult-learning principles, and institutionalizing them, a company can
create sustainable performance improvements that enhance the bottom
line.
Terms of the Month:
Safety Stock
Inventory held as buffer against mismatch between forecasted and actual consump-
tion or demand, between expected and actual delivery time, and unforeseen emer-
gencies. Also called reserve inventory.
Waste Reduction
Minimization of waste at its source to minimize the quantity required to be treat-
ed and disposed of, achieved usually through better product design and/or process
management.
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Social Media in the Supply Chain
Page 16 Volume 21, Issue 12
ISM Membership
38,996
Number of CPSM®s
5,211
Number of CPSD®s
253
ISM-Central Indiana
Membership
250
New Members of our Affiliate
Please welcome the following new members of ISM-Central Indiana, Inc.
Name Company
Thomas Bemenderfer IUPUI Student
Brad Wing Student
The Board of ISM-Central Indiana would like to express a warm welcome to each of our new mem-
bers. Please let us know how we can better serve you by answering any questions you may have.
Join us on Linked-In and NETWORK, NETWORK, NETWORK with your colleagues.
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