This article “The seven principles of supply chain management” published in 1997 in the journal “Supply chain management.” Anderson, D., Britt, F., and Favre, D. together compose this article which includes seven principles of supply chain management. Even though in 1997, the supply chain was a pretty new term and very few people know about the importance of supply chain in the business organisation. This article organised the basic concept of supply chain management and excellently explain the importance of the Supply Chain Management principles in one shot. More than 10 years pass, this article was considered one of the best and useful articles on the Supply Chain Management (SCM). This article was again republished in 2010 and in 2013. This articles best explains the basic principles of supply chain management that helps a company to improve their performance with customer satisfaction, and it also explain how these principles help in increasing the profitability of a company. This article also focuses on how the company can integrate the various supply chain activities to improve the asset utilisation, reduction in operation cost, minimise the transportation cost, reduce cost, and create price advantages over its competitors that help attract new customers and retain existing ones.
For a business organisation, it is very much essential to know the needs of customers and more importantly, it is essential to know what they are willing to pay. Through this article, the authors of the article want to describe the importance of knowing your customers and about their needs, and create the supply chain in such a way the helps the organisation to fulfil customer’s real needs. After reading this article, one can easily understand how they can separate their customers in different segment and categories in terms of their demand and service requirements and then create the supply chain strategy accordingly. Through this article, authors want to convey that if these supply chain management principles can be implemented in any organisation, it will definitely satisfy the customer’s needs with profitable growth in the business. However, authors of this article also state that it is not easy or one-time practice rather it is on-going practice to execute and monitor well these seven principles in the organisation.
The seven principles described in this article are as follow:
Divide the customers into segments based on their needs and requirements: The first principle of this article focuses on customer segmentation and creating an efficient supply chain for the organisation. Although, through this article focuses on to meet the customer demands with the need for profitable growth. Anderson, Britt, and Favre (2013) suggested that customers should be segmented according to their needs and requirements.
However, as a critique of this article, it can be said that ‘identification of customer needs’ is not only one factor rather there are so many other factors that are essential in modern days of business. It is not enough to know only their requirements rather it is also essential to know what other competitors offer to the customer and are they providing something different to their customers. As an example, Amazon started a program called Amazon prime in which company allowed two days of free shipping and discounted one-day shipping charge as well. This program is still in discussion that it makes any sense or not, but people attracted towards the Amazon and the numbers of customers are rising day by day.
Modify the supply chain or logistics network: If the organisation divides the customers into different segments, then definitely management has to change many policies, strategies, and programs related to supply chain network and need to modify it. However, this principle does not apply everywhere and in every situation.
As an example, if a contract manufacturer in China of an organisation and that might have the different carrier or logistic networks for different customers. However, if we consider the EU or USA, each customer can demand to provide a dedicated production line through air/sea carrier or 3pl for his or her own owned source of raw material. Therefore, supply chain network mainly designed as per the need and requirement of customers.
Anticipation of future market demands and make plan accordingly and alignment of demand data with trade partners: Actually, this principle is a true principle for modern day business and in supply chain network management, but in reality only ‘Wal-Mart’ is actively sharing their demand data with their trading partners.
Williams and Waller (211) described in his article that demand forecasting based on SKU/customer data is more reliable than POS data get from retailers but demand forecasting based on SKU/store level, then data collected from retailers is more reliable than any POS data sources or any other past data.
Focus on differentiate products closer to the customer: this principle is still true, but there are some other problems related to this principle. Actually, ‘Dell’ keeps the components of their laptops and assembles their laptops when customer places the order in order to enhance the product variety of company.
Therefore, here there is another principle that should be considered that “Standardisation” is the opposite polarity of “Differentiation.” As an example, some cosmetic manufacturing companies’ usage the labelling and packaging that comply with multiple countries’ rules and regulations in Asia. Therefore, they make only one SKU that can be sold more than 15 countries. Thus, after standardizing the product appropriately they can sell the product at high cost due to the economy of scale. Therefore, Standardization is another principle that could be considered instead of the fourth principle of this article.
Proper strategy formulation for outsourcing: This is the principle that still stands the test of time. In other words, a company should not outsource their core competency and must rely on self-production/manufacturing/logistics networks.
Consider technology as an important tool in the supply chain and multi-level decision-making: Without the Business process re-engineering (BPR) implementing IT technology in the organisation is a stupidity. There are many advantages of IT system implementation in the organisation, but it will only prove successful when proper process re-engineering has been done before the implementation of the system. An organisation should understand the needs of business and then after the IT department group should decide which technology or system is better for the organisation and for their supply chain network.
Adopt both Service and Financial Metrics: Anderson, et.al suggested that activity-based costing should be implemented in the organisation, thus an organisation can determine the profit it gained from its business operations.
Although, it is very difficult to maintain activity-based costing techniques because it is unable to reflect the changes occurs in the process, activities, products, and customers. In comparison to this, Time Driven Activity Based Costing is an easier technique than Activity Based Costing techniques for financial accounting and metrics. Although, it is tough to find out in recent time that which technique is better technique because most of the business professionals are still using Activity-based costing techniques. Authors of this article focusing on to implement these principles in practice and the management should care three things in their minds; (1) Orchestrate improvement efforts (2) Remember that Rome was not built in a day, and (3) Reaping the rewards.
Marshall (2015) said that supply chain needs a holistic approach. It means viewing the supply chain from end-to-end perspective and orchestrating efforts, so that the whole improvement achieved in the organisation- in terms of proper utilisation of resources, cost reduction, and enhancement in profitability. The authors of this article further mentioned that ‘Rome was not built in a single day’, it means to achieve the target you should work consistently and bring coordinated change in the supply chain that results in an enhancement in profits and customer satisfaction as well. One uncoordinated change brings many problems for the organisation and erupt every departmental function, which further results to put the company in a serious danger situation. The organisation should find out the source of problems and also find out how the problem can be solved. The main issue regarding supply chain management is that determining how it can be developed and executed in the organisation that can help in moving other functions of the organisation in the same direction.
Through these seven principles, authors want to convey that every organisation needs profit maximization through their business process, but it is only possible when customers will be satisfied with the products and services. If any business organisation follows these seven principles of supply chain then it transforms the tug of war between customer satisfaction and profitable growth into a balancing act. According to the authors, it is essential to know the customer requirements and their needs, and how an organisation increases their profitable growth by coordinating the efforts across the supply chain to meet the customer requirements faster, cheaper, and better than other competitors. In the end, it has been stated that balancing approach and combined strategy related to these seven principles helps an organisation to gain competitive advantages over other competitors in the market.
This article is based on conceptual rather than empirical because of most of the principles based on a certain assumption such as the applicability of application in a different organisation, proper execution of planning and strategies, data collection from different sources, and IT system implementation and its proper use. Although, this article best explains the basic principles of supply chain management because it elaborates the concepts related to supply chain management very smartly in short. Although these principles are 20 years old principles and these principles has some limitations as well. The more focus of this article to bring change in the organisation and in the supply chain network, but it is not an easy task because most of the corporate change programs based on the new technological changes or innovations. However, it is human tendency to resist change, especially in the corporate sector. People in any organisation face trouble while they trying to bring uncertain change, especially when their skills are not fit for the new technology or for new work environment.
Thus, it is essential to manage the resistance of employees while management bringing the change in the organisation via seven principles of supply chain management. Although there are some modern uses of these principles such as through this article author mostly focuses on customer satisfaction and their needs. Moreover, these two terminologies are still so important in modern days of business and supply chain management. A company mostly focuses on reducing the logistics cost and need a reduction in delivery time of products, and this article based explain how an organisation can do such things that reduce their cost and enhance their growth of profit. No one can denied from this aspect that even in the modern days companies need to integrate the various supply chain activities to improve their assets utilisation, reduction of cost, and create price advantages that help attract the customers and retain them for long time of period with loyalty- and this results in enhancement of revenue in the organisation.
References:
Anderson, L.D., Britt, F.F., and Favre, J. ‘The seven Principles of Supply Chain Management’, 2013, file:///C:/Users/System04104/Downloads/2945453_227382400_A2SevenPrinciplesofSCM%20(2).pdf (Accessed 24 December 2018).
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