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The Seven principles of Supply Chain Management

 

1. Segment customers based on their service needs:
This is about getting to know how to best, most profitably service the key types of customers of your product and service offering.
2. Customise your logistics network:
F
ollowing on from determining which customer segments are most important to you, you will need to customise the logistics network to the service requirements and profitability for each of them.
3. Drive operations from demand:
L
isten to market signals and align demand planning to ensure optimal resource allocation.
4. Differentiate product closer to the customer:
Differentiate product and services closer to the customer to speed conversion across the supply chain.
5. Source strategically:
Manage sources of supply strategically to reduce the total cost of acquiring and owning materials and services.
6. Develop a supply chain-wide technology strategy:
Support multiple levels of decision-making and give a clear view of the flow of products, services and information.
7. Use supply chain spanning performance measures:
Gauge collective (that is, together with your trading partners) success in reaching the end-user effectively and efficiently.

Extremely  important it is to know what your customers really need and – more importantly - what they are willing to pay for. This information allows you to separate them into distinct categories in terms of their demand patterns and service requirements, and then build your supply chain strategy according to their real needs. This principle, customer segmentation, is the first step in creating an efficient supply chain for your organisation. Getting to work with the seven principles of Supply Chain Management By Barry Elliott, partner, Oliver Wight Asia Pacific Customise your logistics network So, the next challenge is to use this newfound information to create an efficient and complete fulfillment process, starting from the time of a client’s query and continuing through to the final collection of payment for a purchase.

It seems to us that the most obvious place to concentrate is on configuring your logistics network for the segments that you have identified. The range of possibilities is as varied as the types of businesses that exist, as shown by the following examples of three very different segments:

• Sophisticated organisation with high- volume, high frequency of order and delivery, reasonably few products, and little in the way of value added services required; example: the packaging purchases by bottlers of soft drinks

• Smaller organisations, low-volume, low frequency of order and delivery, probably a wide range of products, and these customers may find value added services (like Vendor Managed Inventory) appealing; example: pharmaceutical purchases by a small clinic

• Firms who run very, very large but infrequent major events; example: brewers who supply to clients in the sports or entertainment industry It becomes quite obvious that these three kinds of customers need to be serviced in very different ways, for both their benefit and yours. Since it is quite likely that you cannot afford to set up whole, independent supply chains for each of them, how can your same facilities, procedures, people, and systems deal really effectively and efficiently with such extremes?
The options for creating effective fulfillment are often a continuation of the working relationship you have with the customer, where dialogue helps create a win-win situation.
Here are the key foundations that would lead your organisation to excel in the fulfillment process:

Manufacturing: manufacturing is driven by time, efficiency, and customer needs. Small production volumes can be produced at low cost, provided that manufacturing options are understood and kept opened and flexible with in-house or outsourcing. Continuous monitoring of the marketplace allows you to select the best option that suits your environment the most

Inventory: implementation of a joint manufacturer/customer policy for inventory such as Just In Time (JIT) or Vendor Managed Inventory (VMI) is encouraged. Inventory should be managed in real time and known at all times

Warehousing: the warehousing network is fully aligned to meeting customer needs at the lowest delivered cost and customers can select their own delivery options on each order

Transportation: proactive management of mixed-mode transportation (air, ship, road) with tradeoffs in inventory, freight costs and customer service should be fully understood. Transportation costs are optimised across the entire supply chain. Delivery across suppliers, manufacturers and distributors are coordinated and
leveraged. Customer orders from different divisions are merged efficiently. Warehouse cross-docks are used. Use of the third party logistics providers allows full truckload economics compared with less-than-truckload (LTL) from individual manufacturers

Performance monitoring: perfect order metrics are used and monitored. Delivery/order accuracy are recorded and used proactively by customer service personnel. Orders are generated centrally by the manufacturer and reviewed by the customer as part of the Vendor Managed Inventory Flexibility and responsiveness to the specific needs of the client of your manufacturing system, inventory management, and logistics network are the key drivers of the efficient fulfillment process. With these indispensable factors, you can have “virtual” separate supply chains for your customers in all different segments. Drive operations from demand Looking at this next principle, the obvious question is “what do we mean by driving operation by demand - isn’t that what everybody normally does? What else could be used to plan the whole business if not needs from the customers?” While most companies think that they are planning and driving their business from customer demand, it is more likely that it is actually the demand ‘forecast’  that is being used; and there is one thing about the demand forecast that holds steady – it is always wrong, either by a few degrees or by leaps and bounds. So, how well could we operate the business or allocate our resources if we use the demand forecast figure, the always-wrong figure, instead of using the real demand? How would you know if you currently plan your operation based on the forecast? Following are a few key things that you may have experienced; these are NOT good things:

• There is a supply chain for each business unit. Supply chain units within the company plan and forecast independently
• Sales forecasting is based on historical customer sales and spreadsheet analysis. Many forecasts are developed by the different groups in the supply chain - there is no one common forecast that drives all supply chain functions
• Salespeople are responsible for developing the sales forecasts but they are rewarded on their ability to exceed the forecast
• Understanding of customer markets is predominantly based on sales history and general macro-economic measures
• Production overstretches to respond to every order. Emergency orders become normal practice. A ‘big-brain' planner uses experience to plan manually. In times of shortage, customer orders are allocated on a ‘first come, first served’ basis with some prioritisation of key accounts All of us know that, if we could, we should respond immediately to customer demand and use that information to trigger our planning process, sourcing process, and resource allocation, back along our supply chain.
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