Seven Principles of Supply Chain Management

If supply-chain management has become top management's new "belief," then it needs a doctrine. 

Andersen Consulting has stepped forward to provide the needed guidance, espousing what it calls the "Seven Principles" of supply-chain management. When consistently and comprehensively followed, the consulting firm says, these seven principles bring a host of competitive advantages.

The seven principles as articulated by Andersen Consulting are as follows:

1. Segment customers based on service needs . Companies traditionally have grouped customers by industry, product, or trade channel and then provided the same level of service to everyone within a segment. Effective supply-chain management, by contrast, groups customers by distinct service needs--regardless of industry--and then tailors services to those particular segments.

2. Customize the Supply Chain Management network. In designing their Supply Chain Management network, companies need to focus intensely on the service requirements and profitability of the customer segments identified. The conventional approach of creating a "monolithic" Supply Chain Management network runs counter to successful supply-chain management.

3. Lissten to signals of market demand and plan accordingly . Sales and operations planning must span the entire chain to detect early warning signals of changing demand in ordering patterns, customer promotions, and so forth. This demand-intensive approach leads to more consistent forecasts and optimal resource allocation.

4. Differentiate product closer to the customer. Companies today no longer can afford to stockpile inventory to compensate for possible forecasting errors. Instead, they need to postpone product differentiation in the manufacturing process closer to actual consumer demand.

5. Strategically manage the sources of supply . By working closely with their key suppliers to reduce the overall costs of owning materials and services, supply-chain management leaders enhance margins both for themselves and their suppliers. Beating multiple suppliers over the head for the lowest price is out, Andersen advises. "Gain sharing" is in.

6. Develop a supply-chain-wide technology strategy . As one of the cornerstones of successful supply-chain management, information technology must support multiple levels of decision making. It also should afford a clear view of the flow of products, services, and information.  

7. Adopt channel-spanning performance measures . Excellent supply-chain measurement systems do more than just monitor internal functions. They adopt measures that apply to every link in the supply chain. Importantly, these measurement systems embrace both service and financial metrics, such as each account's true profitability.

The principles are not easy to implement, the Andersen consultants say, because they run counter to ingrained functionally oriented thinking about how companies organize, operate, and serve customers. The organizations that do persevere and build a successful supply chain have proved convincingly that you can please customers and enjoy growth by doing so.

(Abstract from the source: “ Supply Chain Management” by Sotiris Zigiaris, M.Sc., BPR Engineer │A Report produced for the EC funded project – BPR HELLAS SA │January 2000)