5 Key Supply Chain Management Principles You Should Know

It goes without saying that only the supply chain that works will survive in the increasingly hyper-competitive market.  And the quickest way to ensure your business and supply chain’s survival is by applying supply chain management principles that work in this modern era.

In the wake of the pandemic, global supply chains did learn a few things but for the most case, they were reminded of the necessity of some of the key principles they had seemed to forget or take for granted. After all, the world and supply chain operations might have changed due to technology, but the principles remain the same for the most part.

Why Are Supply Chain Principles So Important?

As a supply chain manager, your primary mission is to ensure the functionality of your supply chain. But why stop there? As a good supply chain manager, you want your supply chain to kick ass and not just function or survive.

So, how do you do that? 

In 1997, David Anderson, Frank Britt & Donavon Favre published an article in the Supply Chain Management Review. The article was called The Seven Principles of Supply Chain Management. And it went on to become the holy grail of supply chain management worldwide.  

The article is a supply chain classic that has done a great job of helping supply chain managers understand and operate the core principles of a supply chain.

Since supply chain management has changed quite a bit, I have summarized the seven supply chain management into five fundamental principles for today’s market. And explained how they work.

The Five Supply Chain Management Principles

The world looks the same, but underneath, a lot has changed. Well, thanks to technology, the same is true for supply chain management. In a world that is increasingly competitive and fast-paced, supply chain operations have evolved to meet the ever-changing needs of consumers. The five principles here will guide modern-day African supply chains to adapt to the current landscape.

Principle #1: Customer Segmentation

As a supply chain manager, you will realize that not all demands are created equal. While singular, your customer demand for your product might vary in need. 

This is the first principle for every supply chain management. What do I mean? Customers may need your product, but the “how and what” are never the same. For instance, a fast food restaurant may have two primary customers: the eat-ins and the eat-outs. 

The eat-ins come to the restaurant for their meal, while the eat-outs would rather have the meal delivered to their homes or offices. 

They are both customers needing your fast-food’s product but they have very different needs.

Another example. The same fast food restaurant may cater to individuals as well as corporations. You will agree there is bound to be a significant difference in the volume of demand. Again same product, but different needs. So how do you handle such a situation as a supply chain manager? 

The answer is segmentation. Your supply chain can segment your services based on customers, sales, and fulfilment needs. Categorizing your customers using these methods allows you to adjust your supply chain to avoid downtimes.

Principle #2: Supply Chain Adaption

After segmenting your customers based on their needs, there is still a problem. How do you serve all these needs? The trick is to evolve and optimize your supply chain to the point that it can easily adapt to the needs without much fuss. Yes, it might be expensive, and the leadership may kick back on it, but sticking to it is how your supply chain survives. 

Why? 

Adapting a supply chain allows a business to diversify its product offering, thereby boosting sales. It also pays for itself, making the initial investment worth it. Still not sure? Consider Amazon. Launching Amazon Prime may be one of the most ingenious moves of the century. 

The move allowed Amazon to adapt its supply chain network to customers’ needs, but it did not stop there. It also allowed Amazon to diversify its delivery services.

Principle #3: Supply Chain Sourcing And Collaboration

Sourcing can single-handedly make or break any supply chain network. Sourcing allows you to find the right partners for your supply chain. But before that, it is important to answer this question. Why do you need a supplier, and how much do you want to entrust to the supplier or partner?

The answer to that question is what kickstarts and guides the sourcing process.

Sourcing allows your supply chain to do two things. Find the right suppliers to acquire raw materials from and find the right suppliers or partners that can help you manage aspects of your supply chain operation. The latter is also known as outsourcing.

Some organizations outsource some of their supply chain processes, like Tesla. Others outsource all their supply chain processes, like Apple. Very few take it all in-house. With the sourcing decision out of the way, you outline and categorize areas of your supply chain you need other businesses, AKA suppliers and how you want them to engage with the supply chain operation. Do this, bearing in mind their varying relevance to the supply chain. 

Finally, you must do the work and source the right vendors or suppliers to partner with your supply chain. Again the wrong supplier will wreck your entire supply chain operation. 

However, it doesn’t end with sourcing. For this to work, you must forge strategic relationships with your vendors or partners.  And that is where supply chain collaboration plays a huge role. Collaborating with your partners allows you to share relevant information, such as demand planning and forecast data, with them. 

Why?

It enables the alignment of objectives in the supply chain. So while it may be uncomfortable to share data, it can be worth it. Walmart is a major corporation that has taken advantage of this strategy. The company was able to gain a significant edge in inventory management by sharing demand data with partners. 

How?

By sharing information, their partners were able to adjust their business processes and operations to accommodate demands better and faster. Always remember that Collaboration can lead to problems for your supply chain if not done well.

Principle #4: Technology: Implementation and Automation of The Supply Chain

The modern supply chain is so reliant on technology to be effective. Bear in mind that the meaning and definition of effectiveness have changed over the years. For instance, automation will do in a day what it will take 100 labourers to do in a week. In 2024, if certain parts of your supply chain are not automated, how it has survived is a wonder.

The thing is that consumers are much more flexible and have more wealth. This has led to increasing demands. Much more than ever. However, with increasing demands, your supply chain will be prone to failures and mistakes in trying to meet up, especially considering that consumers want a much faster order fulfilment.

However, you can combat those by using technology to automate aspects or all of your supply chain processes. With technology, you can also increase your supply chain’s visibility, integrity, demand volume, and profitability. Amazon purchased Kiva Systems for $775 million to improve the efficiency of their distribution centres in 2012. 

Guess what? It worked.  

The move was transformational for the company, making their fulfilment centres 400% more efficient and saving them a ton of money. Acquisition and implementation of Kiva Systems in Amazon’s fulfilment centres and warehouses saved Amazon over $2.5 billion. The acquisition also saw the “click to ship” cycle cut from 75 minutes humans required to 15 minutes.

Collaborating with partners and implementing technology across all aspects of the supply chain enhances innovation in any supply chain.

Principle 5: Measure Supply Chain Performance

The last supply chain management principle is all about measuring supply chain performance across all aspects. Every business or project takes stock of its performance to determine its successes and failures. It is important to have an idea of what is working and what is not.

Why should the supply chain be any different? 

Two key metrics to measure this are cost and order fulfilment-based metrics. The cost of every supply chain differs, but one thing is sure, your supply chain should not cost 50% to 70% of your revenue.

 Wrap Up

A good supply chain should be adaptable, flexible, and visible, but most importantly, it has to satisfy the customer. The principles mentioned in this article are customer-focused. 

These supply chain management principles are tried and trusted by supply chain managers around the world.  

Applying them can raise your supply chain level from good to excellent, but they have to work together for the supply chain to be successful.

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Obi Tabansi

Obinabo Tochukwu Tabansi is a supply chain digital writer & ghostwriter helping professionals and business owners across Africa explore various strategies that work and learn from the success and failures of various supply chains across the globe. He also ghostwrites social content for logistics & supply chain businesses

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