Principles of Supply Chain Management (SCM)

7 Key Principles of Supply Chain Management (SCM)

Principles of Supply Chain Management- To maintain the balance between customer expectation and reaching profitable growth is essential. The companies need to improve their Supply Chain Management (SCM) for the purpose. The review of the supply chain management process was first published in 1997, in an article named, “Seven principles of supply chain management” by David Anderson, Donavon Favre, and Frank Britt.

Though the term was pretty new at that period, it is quite very familiar in today’s scenario. Let us discuss the concept and let us know how the term is relevant in the current business environment.

Principles of Supply Chain Management
Principles of Supply Chain Management


Here we have listed 7 Principles of Supply Chain Management (SCM) and given a brief about each principle of Supply Chain Management

Principle 1: Adapt the supply chain management tools, based on the service needs of each customer segment

The group of customers is segmented according to the industry, product, etc. The one-size-fits-all approach to serve the customers can average the profit and growth margin. Dividing customers in different groups increase the sales volume and profitability.

Eventually, your customers don’t know what they want, until your competitors offer something to them. So the thumb rule is like, you have to anticipate the need of your customer.

Principle 2: Customize the logistics network for each segment

Now when you have segmented your customer base, the logistics network is the next thing to customize. You have to tailor different logistic networks to serve different segments. To meet the single standard companies have to design and organize their logistic, warehouse and transportation activities.

Principle 3: Align demand planning across the SCM principles

To ignore the practice of keeping unnecessary stocks, the supply chain practitioners share demand data with the trading partners. In the current scenario, Walmart is the only organization which is sharing the demand data. The principle still holds in the business environment. The absence of demand data is not hampering the business anyway, but when you get the demand data, from your trading partners, make the maximum utilization of the same.

Principle 4: Differentiate product closer to the customer

Standardization is the opposite pole of Differentiation. The computer engineering company Dell is famous for the differentiation strategy. They assemble their customers according to the need of the customers and only after the order is placed — this increase in product variety. However, you have to remember that standardizing your product can low down the cost of manufacturing. Nowadays this technique is very much prevalent in the cosmetics industry where the products are designed according to the requirement of the buyers.

Principle 5: Develop IT that support multi-level decision making

If you search on Google for critical success factor, you will get multiple information about the same. You can even learn to implement ERP (Enterprise Resource Planning) successfully in your current business. Enterprise-wide systems are replacing many rigid and poorly integrated systems to sustain the re-engineered business process. It is increasing the understanding of process deficiency, and companies can understand the right type of technology they need.

Principle 6: Outsource Strategically

Outsourcing is to ask some other parties to do some tasks on behalf of the company. It is the fastest way to cut cost. However, there are some golden rules; an organization must follow while outsourcing their works. The companies are advised not to outsource their core competency. The choice of vendors for outsourcing the task must be chosen accordingly. It is always better to retrain a small group of people who have enough knowledge and skill to manage the outsourced vendors.

Principle 7: Adopt both; service and financial metrics

To determine the profitability the companies must follow the ABC (Activity Based Costing) technique. The term was first defined by W Bruns and Robert Kaplan in 1987. Afterwards, it was discovered by the duo that the changes are hard to get reflected in the ABC model. Many companies are still clanged to the traditional ABC method. Before applying the tactic to your business, it is always better to have in-depth knowledge and analyze how it works efficiently to your business.

If you need to understand the SCM tools (Supply Chain Management), you indeed need to read a few books. However, if you are running a lack of time, here are the minutes of the concept. It is a must read the article for those who are associated with Supply Chain Management and want to enhance customer satisfaction and profitability.