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LECTURE NOTES [ Part -3 ]

By

M. IFTEKHAR AHMAD

Disclaimer

"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 ascomplementary 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 hereobviously 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.

1st

principle : Principle of Connectivity,



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It addresses the strategic, tactical, and operating connection between the company, itssuppliers, and its third-party service providers. Connectivity includes the important role

of IT, the Internet, and other forms of communication between the supply chain partners.It is, in fact, a basic foundation for the other principles identified here.

2

nd

Principle : Principle of Collaboration.

Based on team work and partnetship, this principle enables a closer link age of the supplychain partners by integrating planning and decision making across organizational

boundaries. True collaboration is an ongoing investment in the extended supply chain. Itrequires all of the participants to better understand the role, business processes, and

expectations of each supply chain partner. Collaboration occurs not only when times aregood but also (and maybe more importantly) when times are bad. It 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.

3rd

Principle : Principle of Synchronization .

Based on the concept of symphony orchestra and bringing together this principle focuseson achieving harmony both within and outside the individual company's domain.

Vendors, manufacturing, sales and marketing, finance, and customers all play a role inthe supply chain orchestration. The interfaces, which take place both internally and

externally between the supply chain partners, need to be seamless, frictionless, andtransparent. 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 ahorizontal 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 torelieve 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 bemade available to third-party logistics providers (3PLs) so that they could more

efficiently position transportation capabilities and more accurately estimate warehouserequirements.

4th

Principle : Principle of Leverage,

It 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-itemsuppliers. In the past decade, many companies have reaped important cost savings by

rationalizing their supplier base. By reducing the number of suppliers from seven to oneor 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 (JIT) 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 onhigh-leverage and high-payout opportunities with core suppliers, customers, and 3PLs.

5th

Principle : Principle of Scalability.

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 thatsuccessfully 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 minimummodification. 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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JIT 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.

Reference :

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

Reference ( continued ):

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

vol.1 , Montgomery Research Inc. San Francisco , California

6. Handfield, R.B. and Nicholas, E.L. ( 1999) , Introduction to Supply Chain Management ,

Prentice Hall , Englewood Cliffs , New Jersy

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