The 7 Principles of Supply Chain Management

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Principle 4: Differentiate product closer to the customer and speed conversion across the supply chain

Principle 4, highlights the value of postponement in supply chain management to meet market demand and enhancing company’s growth. Through postponement, it aims to achieve mass customisation to meet different market demand while keeping the product cycle time compressed. This is highly important and applicable in the current market climate where globalisation has resulted in higher customer demand and increased market differentiation. From the article, the 2 case studies display the difference between when postponement is implemented and when it is not in two different manufacturers. For the hardware company, which understands the need for postponement and identify the appropriate leverage point, enhanced order fulfilment, reduced inventory level, increased asset utilisation and compressed cycle time, unlike the health and beauty care products warehouse. Through them, it not only displays the advantage of postponement and mass customisation, it also displays the cost impact for the absence of them. The article added that the key to create the positive impact is to identify the leverage point in the manufacturing process where the product is unalterably configured to meet a single requirement and to assess options that can increase flexibility and companies should try to push it closer to actual demand to maximise the flexibility in responding to emerging customer demand (L.Anderson, et al., 1997). However, as every business is different from each other, can one size fit all? In the article, there are no further details of how this principle can be used and the limitations of it.

With further research regarding postponement application, Supply Chain Management Encyclopaedia pointed that postponement can be applied in 5 forms, Manufacturing Postponement, Assembly Postponement, Packaging Postponement, Labelling Postponement and Time Postponement (2011). The decision can be made, based on the nature of business, products, distribution channels and location. A business which produces a large variety of products whose demand is unpredictable and not positively correlated, and is of about the same size, it can benefit the most out of this methodology. Hence, the limitation would be if a business produces positively correlate end products and if a single product contributes the majority of the demand the increased manufacturing expense due to postponement would likely outweigh the small benefit the aggregation provides the dominant product (Chopra & Meindi, 2016).

Principle 5: Manage sources of supply strategically to reduce the total cost of owning materials and services

Principle 5, highlights how companies can source strategically and work with their supplier to reduce cost and eventually extend to gain-sharing for greater profitability. This principle can be applied to seek long-term partnership in businesses, which encourages growth in all contributing parties. In the article, to show the differences in the 2 approaches, the authors compare the mindset of 2 managers, one traditional and the other, described as an enlightened view. While the 1st approach encourages the different suppliers to engage in a price war to gain from the lowest price, the 2nd approach tries to align all parties towards the same goal to achieve win-win scenarios. Win-win scenarios are highly desirable for many, but it does not come easy and has its limitations. The authors of the article highlighted that key success for the application of the principle is, sound knowledge of all cost involved, only with this prerequisite, a company can determine the best way of acquiring every kind of material and service the company required.

Though the principle encourages profitability and helps contributes to the business in long-term growth, P.Cachon & Lariviere has highlighted the limitations that the principle has. First, revenue sharing generally does not coordinate competing retailers when each retailer's revenue depends on its quantity, its price, and the actions of the other retailers. Second, the additional cost is incurred in the administration of gain sharing, therefore it will not be practical if the cost of administration is higher than the gain from the coordination. Third, revenue sharing does not coordinate a supply chain when non-contractable and costly retailer effort influences demand (P.Cachon & Lariviere, 2005). When gain sharing is not applicable to the company, other methods such as quantity flexibility and buybacks can be considered.

Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information

Principle 6 gives us a basic view of how IT could enhance Supply Chain Management. The authors claimed that many companies have been replacing inflexible and poorly integrated systems with enterprise-wide systems but could not maximise the capabilities of it. The 3 key aspects of Supply Chain Technology strategy that companies should focus are Operations and Transaction Management, Planning and Decision Support, and Strategic Analysis. Until today, it is a very useful concept for managers to develop their strategic thinking and designing the supply chain system. For example, through Electronic Data Interchange (EDI), organisations can share the capability and communicate information electronically instead of the traditional form of mail, courier, & fax. (Rohita, 2006). Through this, information can be transmitted instantly, thus enhancing communication and coordination among the partners within the supply chain.

Principle 7: Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently

Principle 7, highlights the two elements that play a crucial role in assessing the company's overall performance, Service and Financial metrics. Service helps to build a company’s reputation. Not only from the company’s perspective, they need to produce high-quality product, but also from customers side, customer recognise that particular brand. Companies exist for profit, to be precise, it should be the maximisation of profit. To determine the profitability of a company is critical, they must clearly understand the imbalance between actual cost and revenue. However, the traditional accounting just focuses on cost type and ignored the cost of activities, this may lead to the managers make the wrong decision based on insufficient data.

Activity-based costing (ABC) is a method of assigning costs to products or services based on the