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LECTURE NOTES [ Part -3 ]


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"This course material booklet contains information compiled from variety of sources including standard
text books and electronic resources for academic benefits of students to be used by them only as
complementary to class room lectures. Citations of references to the text are made wherever possible.
These notes are not meant for any commercial purpose and are solely meant for internal circulation."

Principles of Supply Chain Management

A principle is defined as "a basic truth, law, or assumption." The principles offered here
obviously do not qualify for the first two definitions. So by the process of elimination,
they are offered here as assumptions. The presentation of these principles is an attempt to
provide a framework in which the supply chain process can fit.

From a careful reading of the business and academic literature, five basic principles of
supply chain management seem to emerge. These five principles deal with connectivity,
collaboration, synchronization, leverage, and scalability.


 


 

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Vt addresses the strategic, tactical, and operating connection between the company, its
suppliers, and its third-party service providers. Connectivity includes the important role
of VT, the Vnternet, and other forms of communication between the supply chain partners.
Vt is, in fact, a basic foundation for the other principles identified here.

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Based on team work and partnetship, this principle enables a closer link age of the supply
chain partners by integrating planning and decision making across organizational
boundaries. True collaboration is an ongoing investment in the extended supply chain. Vt
requires all of the participants to better understand the role, business processes, and
expectations of each supply chain partner. Collaboration occurs not only when times are
good but also (and maybe more importantly) when times are bad. Vt is this ongoing
investment in the learning process that continues to nurture the supply chain relationships.
This investment is not typically made in all customers or suppliers but is reserved for key
partners.



 

 


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Based on the concept of symphony orchestra and bringing together this principle focuses
on achieving harmony both within and outside the individual company's domain.
Vendors, manufacturing, sales and marketing, finance, and customers all play a role in
the supply chain orchestration. The interfaces, which take place both internally and
externally between the supply chain partners, need to be seamless, frictionless, and
transparent. Through the principles of connectivity and collaboration, this
synchronization takes place at the strategic, tactical, and operational level.

The Principle of Synchronization presents a way of thinking about the supply chain as a
horizontal flow model rather than as a traditional command-and-control structure. Full

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implementation of this principle will allow the company and its supply chain partners to
relieve choke points in the system, eliminate buffers of inventory stock, and more
effectively deploy non inventory assets across the supply chain.

Principle of Synchronization calls for capturing original demand data as close to the
source and time of demand as feasible--and concurrently relaying this information to all
partners in the supply chain network. To ensure a synchronized model, this demand data
might be required by tier-one, tier-two, and tier-three suppliers. This data could also be
made available to third-party logistics providers (3PLs) so that they could more
efficiently position transportation capabilities and more accurately estimate warehouse
requirements.

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Vt requires a focus on core customers, core suppliers, and core 3PLs. The principle does
suggest, however, that added resources be committed to high-volume or critical-item
suppliers. Vn the past decade, many companies have reaped important cost savings by
rationalizing their supplier base. By reducing the number of suppliers from seven to one
or two for a specific item, they've been able to synchronize the supplier interfaces more
easily.

This, in turn, can lead to successful just-in-time (JVT) delivery initiatives, collaborative
planning, and a more efficient overall operation. Similarly, a focus on core customers and
3PLs can offer synchronized strategic, tactical, and operating opportunities as well.

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Principle of Leverage simply suggests that the company cluster and focus its assets on
high-leverage and high-payout opportunities with core suppliers, customers, and 3PLs.

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Scalability refers to the company's ability to develop a set of supply chain business
processes that can be duplicated with additional suppliers, customers, and 3PLs. The
principle requires a balance between customization and scalability. Companies that
successfully adhere to this principle build up a core of supply chain processes that can be
customized with minimal changes for additional supply chain partners.

These processes also can be migrated to a larger customer or supplier base with minimum
modification. No supply chain executive wants to run 20 different distribution systems
for 20 key accounts. But some core customers might require special packaging, bar codes,

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JVT sequencing, or security tags. Note that unless supply chain solutions are scalable,
demands for customization will destroy leverage and synchronization, thereby
diminishing overall supply chain efficiency.

 


1. Mentzer, J.T. et. al. (2001): Defining Supply Chain Management, in: Journal of Business
Logistics, Vol. 22, No. 2, 2001, pp. 1±25
2. Mohanty, R.P. and Deshmukh, S.G. ( 2005 ) , Supply Chain Management ± Theories &
Practices , Biztantra , New Delhi
3. Hines, T. 2004. Supply chain strategies: Customer driven and customer focused. Oxford:
Elsevier.
4. La Londe, Bernard J , ³Five principles of supply chain management: connectivity,
collaboration, synchronization, leverage, and scalability have emerged as the core supply
chain principles´. Supply Chain Management Review, May 1, 2003

 
( continued )

5. Anderson, David, L. (1999 ) , Achieving Supply Chain Excellence through Technology,

vol.1 , Montgomery Research Vnc. San Francisco , California
6. Handfield, R.B. and Nicholas, E.L. ( 1999) , Vntroduction to Supply Chain Management ,
Prentice Hall , Englewood Cliffs , New Jersy

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