8 Principles of Supply Chain Management

Supply chain management is the process of planning and coordinating all of the people, resources, and technology that contribute to a company’s value creation. Negotiating prices, scheduling manufacturing, and managing logistics all impact a company’s value equation and are vital components of a supply chain. Because they are so interdependent, managing them independently, in silos, is a bad idea. As businesses get larger, their supply chains become longer and their business cycles become faster, making it even more critical to keep the various operations in a supply chain aligned.

Some professionals in supply chain management are generalists, while others are experts. Generalist professionals consider the overall picture, whereas specialists concentrate on a single supply chain stage. Consider the following 8 principles as a starting point for your learning in supply chain management.

1. Customer Focus

Supply chain management begins with a thorough grasp of your consumers and their reasons for purchasing your product or service. When people purchase your products, they are resolving a problem or fulfilling a need. Supply chain managers must comprehend the customer’s problem or demand and ensure that their organisations can address it more effectively, quickly, and affordably than their competitors.

Supply chain management demands a grasp of the end-to-end system – the collection of people, processes, and technology that must all function in concert to deliver your product or service. Systems thinking includes an understanding of the series of causal linkages that occur throughout a supply chain. Because supply chains are complicated systems, they can behave unpredictably, and slight adjustments in one section of the system can significantly influence elsewhere.

2. Innovation

Business is changing at a breakneck pace, and supply chains must adapt by innovating. Continuous process improvement and sustaining innovation is required to keep up with the competition. Lean, Six Sigma and the Theory of Constraints are all methodologies for process improvement that can aid in this endeavour. Continuous process improvement is not sufficient, as new technologies have the potential to disrupt entire sectors. It is referred to as disruptive innovation.

When a novel solution to a customer’s problem is developed and adopted, it becomes the new dominant paradigm. In other words, if you’re in the business of manufacturing scooters, you need to figure out how to make them better, quicker, and cheaper than your competitors while also figuring out what the next dominating paradigm will be, so you know what to create when scooters are phased out.

3. Collaboration

Supply chain management cannot be carried out in isolation. Individuals must collaborate across organisational silos and with suppliers and customers external to the organisation. A selfish mentality results in transactional relationships in which people prioritise short-term gains while overlooking long-term advantages. This costs more money in the long term, as it fosters a lack of trust and a reluctance to compromise among supply chain participants. A community in which people trust one another and collaborate for shared success is far more lucrative for everyone than a community in which each person is solely concerned with his or her personal achievement.

If you can anticipate that you will do more business with a particular customer in the future and that the company will be lucrative, you are more inclined to offer them a discount on the things they are purchasing today. Additionally, a collaborative environment makes collaboration much more enjoyable.

4. Flexibility

Because unexpected events occur, supply chains must be adaptable. Flexibility is a metric that indicates how rapidly your supply chain can adjust to changes in the environment, such as increasing or reducing sales or disruption in supply. This flexibility is frequently manifested through additional capacity, diverse sources of supplies, and alternate delivery modes. Generally, flexibility is costly, but it also has a monetary worth. The trick is to recognise when the cost of flexibility is a worthwhile investment.

5. Technology

The rapid evolution of technology, both for physical product movement and information processing, has altered the way supply chains operate. We used to order items from catalogues, mail-in checks, and wait for our deliveries to arrive. Today, we place orders for things on our phones, pay with our credit cards, and anticipate real-time updates until our deliveries arrive at our doorsteps. Supply chain management necessitates a grasp of how technologies work and how to leverage them to add value at each stage of the supply chain.

6. Global Perspective

Due to the ease with which information can be shared and items can be transported cheaply worldwide, every business today functions in a global economy. Your business, regardless of the product or service you provide, is worldwide. As a supply chain manager, you must understand how your firm is reliant on global forces to supply inputs and generate output demand. Additionally, you must consider the competition on a worldwide scale. After all, your company’s true competitive threat may come from a company on the other side of the globe that you’ve never heard of.

7. Risk Management

When high performance expectations are combined with intricate technology and a reliance on worldwide customers and suppliers, chaos will creep into the supply chain. Numerous variables exist, and countless things can go wrong. Even a minor disruption, such as a delayed shipment, can trigger a cascade of difficulties lower down the supply chain, such as stockouts, shutdowns, and penalties. Supply chain management necessitates being aware of potential hazards and establishing methods for detecting and mitigating threats. While stability is necessary to ensure that supply chains run smoothly, risk management is necessary to avoid or minimise the costs associated with dealing with the unexpected. Risk management, when done well, can give possibilities for value capture during times of uncertainty.

8. Visibility

Because you cannot manage what you cannot see, supply chain management puts great importance on visibility. Knowing what is happening in real-time (or near real-time) enables you to make faster and more informed judgments. However, visibility comes at a cost. You must design your supply chain in such a way that it enables you to collect data on critical process steps. Visibility is valuable because it enables you to make judgments based on facts rather than intuition or ambiguity. By gaining a better understanding of supply and demand, you can optimise the amount of inventory held throughout the supply chain.

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