Since Supply Chain Management has become the religion of top management, it requires a doctrine. For this, today we discuss what we refer to as the “Seven Principles” of Supply Chain Management. These seven principles provide a slew of competitive benefits when implemented regularly and exhaustively.
- Segment customers into groups based on their service requirements.
Customers have typically been segmented by industry, product, or trade channel, with each section receiving the same degree of service. Effective supply chain management, on the other hand, divides clients into discrete service segments based on their demands, regardless of industry, and then tailors services to those segments to better understand them. Customers’ requirements are emphasized in the training of both businesspeople and supply chain specialists and this we call “segmentation.” ABC analysis, which divides customers based on sales volume or profitability, is the most basic method of segmenting customers. Product, industry, and trade channel segmentation are additional options.
- Make the Supply Chain Management network your own.
Companies must focus intently on the service requirements and profitability of the customer groups identified while constructing their Supply Chain Management network. The traditional method of establishing a “monolithic” Supply Chain Management network is incompatible with effective supply-chain management. You may need to tailor various logistical networks to accommodate different segments when segmenting customers depending on service needs. This approach, however, does not apply to all cases. As a result, logistics network design is a customer-driven project.
- Pay attention to market demand signals and make plans accordingly.
To detect early warning signals of changing demand in ordering patterns, consumer promotions, and so on, sales and operations planning must span the entire chain. This demand-driven strategy yields more consistent projections and efficient resource allocation. Supply chain professionals are educated to exchange demand data with business partners so that no unneeded inventory is kept on hand. This principle holds true in general. The inference is that demand sharing isn’t always a negative thing. However, if you receive demand data from trading partners, you must use it correctly.
- Bring the product closer to the customer to differentiate it.
Companies can no longer afford to keep inventories on hand to compensate for forecasting failures. Instead, they should defer product differentiation until closer to actual consumer demand in the manufacturing process. “Standardization” is diametrically opposed to “Differentiation.” They can reduce costs significantly by standardizing products adequately owing to economies of scale. As a result, uniformity is something you should think about.
- Manage the sources of supplies strategically.
Supply Chain Management leaders improve margins for themselves and their suppliers by working closely with their main suppliers to minimize the overall costs of owning materials and services. Battling numerous vendors for the lowest price is discouraged while “gain sharing” has become fashionable. This is a concept that has stood the test of time. To summarize, you should never outsource your core skill.
- Create a technological plan for the entire supply chain.
Information technology must enable many levels of decision-making as one of the cornerstones of successful supply chain management. It should also allow for a clear perspective of product, service, and information flow. IT projects should not be undertaken in isolation; business process reengineering must be completed prior to undertaking IT projects. This will provide you with a thorough grasp of process flaws, allowing you to identify what type of technology you actually require.
- Use performance metrics that span several channels.
More than only monitoring internal activities, good supply chain measurement systems do more. They take steps to ensure that every link in the supply chain is covered. Importantly, these assessment systems take into account both service and financial data, such as the genuine profitability of each client. The principles are difficult to execute since they go against engrained functionally oriented thinking about how firms organize, operate, and serve consumers. Those companies that continue and establish a strong supply chain have demonstrated that you can gratify customers while growing. If you are associated with Supply Chain Management, our course in Procurement and Supply Chain Management certainly warrants archiving this article as a reference point to stimulate and refresh thinking in this regard. Enroll now!