Principles of Supply Chain Management

From CEOpedia | Management online

Basic principles of Supply Chain Management can be grouped in accordance with their main scopes of application. Speed of the entire supply chain and reduction of difference of the execution times of the tasks. They are in fact particularly important from the point of view of supply chain design, and the basic objectives are to provide competitive infrastructure and logistics organization to enable the implementation of global flow of goods, information and funds.

Role of supply chain management in economy

Supply chain management involves coordinating of relationships with suppliers, companies and final customers to deliver the highest value at a lowest cost for the entire chain. Most important feature in supply chain management is proper cooperation between enterprises in the chain, to integrate the activities while maintaining independence in the legal sense.

The concept of the extended supply chain has been in practice from the second half of the twentieth century. This was a consequence of the severity of the need for cooperation of enterprises in pursuit of the objectives in an environment where the pace and scale of change have increased substantially. In the supply chain decisions about design and development of individual units should take into account relationships with others.

The concept of the supply chain was established as an alternative to the traditional perception of the relationship between suppliers and customers, which are characterized by antagonism and use of bargaining power.

Suppliers strive to ensure rapid inventory turnover and low operating costs. To achieve sufficient flexibility to changing customer expectations it is important to ensure close cooperation of suppliers and flexible information flows between these units. Fast and undistorted customer service is not possible without the exchange of information between producers and distributors, allowing quick delivery of information about changes in preferences and demand.

Suppliers strive to maintain fuller control of their own business, but planning and coordinating the flow of raw materials, semi-finished products, finished products, recycled waste, information and funds are implemented in the whole chain.

Principles of supply chain management

  • Speed ​​of tasks performed from receipt of order to collecting of money for goods supplied to customers, which is primarily associated with the provision of adequate infrastructure,
  • Harmonizing the actions of subsequent links in the chain - diversification of time required to perform tasks by individual units in the chain, allowing the reduction of inventory levels and thus cost reduction.
  • Ensuring the flow of information between cooperating units - in particular on the demand for finished products reported by customers, to ensure an adequate level of stocks of raw materials or semi-finished products and to determine the required duration of the contract, to provide the cash flow needed to protect stock levels.
  • Knowledge and understanding of the expected results of cooperation - primarily related to the arrangements between partners regarding expected results for the entire chain and the use of appropriate performance indicators.
  • Value creation - associated with the need to recognize and take into account the expectations of all stakeholders in the supply chain operations.

Role of information flow in Supply Chain Management

Ensuring the flow of information in an appropriate form, place and time and knowledge of assumptions concerning cooperation efforts primarily affect the activity of individual links in the chain and the implementation of these principles should facilitate the adjustment of supply to demand, as well as an assessment of performance in the whole chain. Creating value for stakeholders stems from the assumption that this form of cooperation between enterprises is intended to enable stakeholders to achieve higher benefits.

Electronic product code in Supply Chain Management

Electronic Product Code is a kind of serial number, unique on a global scale, which can be called the successor to the standard bar code. It is often used in combination with the RFID (Radio Frequency Identification) system. With the labeling of product with that EPC number (which most often occurs in the form of a sticker labels, so-called tag) it is possible to identify the position of each product in the supply chain.

Currently, the most common type of code is 96-bit EPC, which contains identification number, called SGTIN (Serialized Global Trade Identification Number), information about the manufacturer, type of facility and its serial number

Basic elements of EPC tag in Supply Chain Information flow

Names and application of fields stored in 96-bit EPC tag

  • Header - specifies the length of the entire EPC identification number,
  • Filter - used for fast filtering and pre-selection of basic logistics types,
  • Split - indicates the length of a company prefix and unit designation,
  • 'Company Prefix - identifies the manufacturer of the product,
  • Identification Unit - defining the type of product,
  • Identification number - a unique number for each item.

Examples of Principles of Supply Chain Management

  • Collaboration: Collaboration is when partners in a supply chain work together to create added value for customers. For example, a company might work with its suppliers to develop a product that meets the customer’s needs and is more cost-efficient than competitors.
  • Visibility: Visibility is the ability to track and monitor products, orders, and shipments throughout the supply chain. This can be done through the use of technology like RFID tags, GPS tracking, and real-time analytics.
  • Agility: Agility is the ability to quickly and efficiently respond to changes in demand and customer requirements. This can involve changing production schedules, adjusting inventory levels, or redirecting shipments.
  • Risk Management: Risk management is the process of identifying, assessing, and mitigating risks throughout the supply chain. This includes understanding and managing the risk of supply shortages, product quality issues, and natural disasters.
  • Cost Optimization: Cost optimization is the process of minimizing costs while still meeting customer requirements. This can involve reducing inventory levels, negotiating better prices with suppliers, or finding more efficient transportation routes.

Advantages of Principles of Supply Chain Management

The implementation of the principles of Supply Chain Management (SCM) can bring several advantages to a business. These include:

  • Increased efficiency - By integrating the various elements of the supply chain, companies can reduce waste, streamline processes, and increase the overall efficiency of their operations.
  • Reduced costs - Streamlining processes and eliminating redundant tasks can lead to reduced costs. By reducing the cost of goods, companies can better manage their inventory levels and increase their profitability.
  • Improved customer service - By reducing delays and making sure that products are delivered on time, companies can better meet customer expectations and improve customer satisfaction.
  • Improved visibility - By having access to real-time data about their supply chain, companies can make informed decisions about their operations and better manage their resources.
  • Improved collaboration - By sharing data across the supply chain, companies can improve collaboration between suppliers and customers and ensure that everyone involved in the process is working towards the same goals.
  • Increased agility - By leveraging digital technologies, companies can improve their responsiveness to changing customer needs and the marketplace in general, allowing them to stay ahead of the competition.

Limitations of Principles of Supply Chain Management

The principles of Supply Chain Management have several limitations that can affect the efficiency and effectiveness of the supply chain. These include:

  • Inability to cater to the fluctuating demand: SCM principles are based on the assumption that the demand is stable, however in reality the demand can fluctuate. This makes it difficult to apply the principles in a dynamic environment.
  • Cost-benefit imbalance: The cost of implementing SCM principles can be very high and it is difficult to determine if the benefits outweigh the costs.
  • Difficulty achieving visibility: Visibility of the entire supply chain is essential for efficient SCM, but it is difficult to achieve due to the complexity of the system.
  • Lack of standardized processes: SCM principles require standardized processes, but these processes are often difficult to implement due to the variety of elements involved in the supply chain.
  • Insufficient data: Accurate and up-to-date data is essential for efficient SCM, but it is often difficult to obtain due to the lack of data collection and analysis.

Other approaches related to Principles of Supply Chain Management

Introduction: The following is a list of other approaches related to Principles of Supply Chain Management:

  • Collaborative Planning, Forecasting and Replenishment (CPFR): This approach is based on the idea of collaboration between suppliers and customers, integrating demand and supply planning to create a demand-driven supply chain.
  • Vendor Managed Inventory (VMI): This approach is based on the idea of suppliers managing inventory levels for their customers in order to improve responsiveness, reduce lead times and increase inventory efficiency.
  • Just-in-Time (JIT): This approach is focused on delivering the exact amount of goods at the exact time needed, with the objective of reducing inventory costs and improving customer service.
  • Lean Manufacturing: This approach is focused on the elimination of waste in all areas of the production process, from design to delivery, with the goal of providing customers with products of the highest quality at the lowest cost.
  • Total Quality Management (TQM): This approach is focused on improving the quality of products and services throughout the supply chain, with the aim of creating a competitive advantage through customer satisfaction.

Summary:

The Principles of Supply Chain Management can be supplemented by other approaches such as Collaborative Planning, Forecasting and Replenishment (CPFR), Vendor Managed Inventory (VMI), Just-in-Time (JIT), Lean Manufacturing, and Total Quality Management (TQM). These approaches focus on collaboration, inventory management, time efficiency, waste reduction, and quality assurance, respectively, with the objective of creating a competitive infrastructure and logistics organization that can facilitate the flow of goods, information, and funds.


Principles of Supply Chain Management — recommended articles
Efficient Consumer Response — Procurement logistics — SCM system — Strategic information system — Production logistics subsystem — Contract logistics — Agile supply chain management — Extended enterprise — Coordinative function of logistics

References

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