The 7 principles of Supply Chain
Management
Introduction
Successful managers
Think of supply chain as a whole
Pursue tangible outcomes focused on
Revenue growth
Asset utilization
Cost
Principle 1
Segment customers
Based on service needs (against traditional ways of
grouping by industry, product or trade channels)
Adapt supply chain to serve them
Types of needs?
Segments?
Segment customers
Need based segmentation may produce odd
Principle 1
Helps understand
Relative value customers place on service offerings
Which customers are most profitable to serve?
Important to correctly match accounts with service packages
Analyze
Profitability of segments
Costs & benefits of alternate service packages
Helps to
Better align their investment in particular customer relationship with the return the
customer generates
Strike & sustain appropriate balance between service and profitability
Set priorities and provide tailored services to maximize customer impact
Activity Based Costing
Principle 2
Customize logistics network
To service requirements & profitability of customer
segments
Multi level networks
Cross docking
3rd party logistics
Principle 3
Listen to market signals & plan accordingly
Across SC
Consistent forecasts
Optimal resource allocation
Principle 4
Differentiate products closer to customer & speed
conversion
Cellular manufacturing
Just-in-time
Mass customization
Postponement
Modular design
Principle 5
Source strategically
To reduce total cost of owning materials & services
Long term contracts
SCORE: Chrysler
Keiretsu
Business network of different companies with close business
relationships and shareholdings in each others companies
Japan – after World War II and collapse of family controlled
monopolies
Horizontal (financial) keiretsu – banks
Vertical (industrial) keiretsu – link suppliers, manufacturers
and distributors in one industry
Principle 6
Develop SC technology strategy
Enterprise wide information systems
Integrate
Short term transaction & operation management
Mid-term planning & decision support
Long term strategic analysis
Bar coding vs. RFID
SCM software
Principle 7
Adopt channel spanning measures
Gauge collective success, not functional
Perfect order
Activity based costing
Identify actual costs & revenues required to serve an account
Data warehouse
Translating principles into practice
Orchestrate improvement efforts
Blueprint to map linkages among initiatives &
implementation sequence
Rigorous assessment of entire supply chain
Set explicit outcome targets for revenue growth, asset
utilization & cost
Translating principles into practice
Rome wasn’t built in a day
Massive task
Balance long term & immediate business needs
Recognize difficulty of change
Extensive visible participation by top managers
Cross-Docking
Popularized by Wal-Mart
Warehouses function as inventory coordination points
rather than as inventory storage points.
Goods arriving at warehouses from the manufacturer:
are transferred to vehicles serving the retailers
are delivered to the retailers as rapidly as possible.
Goods spend very little time in storage at the warehouse
Often less than 12 hours
Limits inventory costs and decreases lead times
Issues with Cross-Docking
Require a significant start-up investment and are very
difficult to manage
Supply chain partners must be linked with advanced
information systems for coordination
A fast and responsive transportation system is necessary
Forecasts are critical, necessitating the sharing of
information.
Effective only for large distribution systems
Sufficient volume every day to allow shipments of fully
loaded trucks from the suppliers to the warehouses.
Sufficient demand at retail outlets to receive full truckload
quantities