7 Principles of Supply Chain Management

...

starts selling the updated version of an existing product in market, it is likely that the demand for the existing product will decline because customers will buy the updated version. Although the decline in demand for the original product is not indicated by historical data, the historical demand is still useful that allows the firm to estimate the combined total demand for the two versions.

By implication, the demand data sharing is a good practice to prevent unnecessary fluctuations in the supply and orders placed, yet it might not be important to apply in supply chain management.

Principle 4

The author’s opinion in principle 4 stated that knowing the point of the last possible moment to start the product differentiation is very important to increase the product variety and meet the customers’ every single requirement. Manufacturers are strengthening their ability to respond actual demand by compressing the process between initiation and completion of product manufacturing, which is called lead time. The flexibility of speed of product conversion from raw materials to finished and customized products is the actual challenge to emerge the customer demand.

When the demands occur, the speed of locating just-in-time production differentiation in the manufacturing processes affect the response on customer demand. Postponement, modularized design or modification of manufacturing process will increase flexibility to make product configuration. In actual world, Dell Company only keeps their components till the customer’s order placement is up. This approach will lead to product variety and lower inventory cost.

In another way, what contradicts differentiation is standardization; which is the system that evolves and improves the technical specifications. Standardization can boost compatibility, interoperability, safety, repeatability or quality in supply chain management because of it is more efficient for manufactures to keep the stock units. Standardization is clinical in Supply chain management not only save cost but also brings the smoothness between functional groups within the organization.

For example, electronic components manufacturers require meeting the IP standards when making the housing for their components. In fact, IP standards classify the degree of protection against intrusion by mechanical and electrical enclosures. IP standards, Ingress Protection Marking, simply introduce the internationally manufacturers to interoperate and comply with the requirements of the classification.

Principle 5

This principle is focused and discussed on managing sources of supply strategically in order to reduce the total cost. It was mentioned in the article that the approach to get the best pricing for the supply is to have many competing suppliers. However, such approach with the aim of only paying the lowest price possible to the suppliers have not been making good relationships with the suppliers. Therefore, what the manufacturers need to understand and consider other than placing high demands is that the suppliers’ costs are also directly affecting their cost. In other words, as the supplier’s cost gets higher, manufacturers will also have to purchase the supplies at higher prices that suppliers demand.

On the other side, the reason why manufacturers are asking high demands to suppliers is directly due to high demand of customers. Customers might lose interest if their favorite products are often sold out or out of stock. Thereby, the relationship between suppliers and manufacturers are affected while struggling among demands. Therefore, manufacturers have to know the marketplace position and industry structure well so that they can contemplate on different ways of how to approach their suppliers such as requesting short-term bids, entering into long-term contracts, strategic supplier relationships, outsourcing and integrating vertically.

Being partners, both manufacturers and suppliers are required to share the same goal of reducing costs across the whole supply chain. By doing so, it can help to lower the prices in the marketplace with greater profitability. However, according to the article, some companies without fundamental prerequisite are yet to recognize and apply this approach. It is vital for all the companies to have this knowledge in order to determine the best possible way of gaining materials and services that they buy.

The author believe that this principle is empirical. As mentioned in the article, traditionally, no good relationship between manufacturers and suppliers were made from only determining to pay as low a price as possible for the materials. Most of the manufacturers were only focusing on getting lower prices previously and it did not work out well with the suppliers due to lack of sound knowledge. The author has learnt previously that it is important to reduce the supply chain cost. However, with the help of this article, the author has come to realize that both manufacturers and suppliers must share the same goal to reduce costs across the supply chain to lower the prices in the marketplace.

Principle 6

It was described in the article that in order to strengthen reengineered business processes, many companies have been trying to implement and replace systems but ending up with inflexible, poorly integrated and enterprise-wide systems which cannot be used for real-world operations. Simply put, although they can capture data in details, they are not made to be useful in the real business yet. Therefore, according to the article, in order to build a useful information technology system, it needs the integration of three essential capabilities such as operations and transaction management (short-team), planning and decision support (mid-term) and strategic analysis (long-term).

The author believes that this principle is empirical too as the companies have been investing enormously in technology but most of them are yet to achieve fully capable systems. However, once such capable systems are implemented, there is no doubt that there will be a lot of benefits from a proper information flow system. For example, it will prevent the fluctuations of prices demand by the suppliers during the peak and seasonal times. But with the proper information flow system, the manufacturers will be able to share information with the suppliers on the amount of supplies to be supplied in advance so that there will not be needed to spend additionally for the manufacturers even during the peak and seasonal times.

However, there can also be more than one suppliers in the industry. In case of information leakage, the competing suppliers will get to know the prices of supplies from the respective supplier that are