Principles of Supply Chain Management  - Full 2024 Guide

Principles of Supply Chain Management  - Full 2024 Guide

Written By : Bakkah

15 Jan 2024

Many organizations seek to improve their supply chain management continuously, by balancing between customer needs and providing products that satisfy their needs and desires. This achieves the competitive advantage of the organization, increases net profits, and controls production costs. let's learn more about the Principles of Supply Chain Management through this article. 

Principles of Supply Chain Management:

Supply Chain Management is one advanced management technique that was developed rapidly in various global industries. Reflected in six principles, it has become a necessary factor for the success of organizations today. The application of these principles will ensure customer satisfaction and increase profit growth 

1. Dividing Customers into Groups 

The first of the Principles of Supply Chain Management is dividing customers into distinct groups based on their needs and use your supply chain to meet their needs. This classification lets you serve each group more efficiently in terms of average cost and profitability within and across customer segments.  

However, can the organization achieve a full understanding of the value of customers through the level of service provided to them? 

The answer is no. The organization cannot achieve this, but by dividing customers according to their specific needs, it can develop its service portfolio to a more adaptive one to constant changes in demand rate.  You can use an advanced analysis method such as cluster analysis and factor analysis to predict the profit margin for each segment. 

 2. Maintaining Differentiation of Products and Delivery on Time  

Most producers use the traditional way to set production targets based on potential estimates of demand on the final products and determining the time required to convert raw materials into final products. There are many methods such as cellular manufacturing or the Just-in-time (JIT) production method.  

However, applying these methods may face some problems, for example, when you apply the JIT method in a volatile environment, you may have a delay in receiving raw materials, and this, in turn, results in a delay in delivery. Supply Chain Management addresses this issue by Stock Keeping Units (SKUs) and applying an Automatic Supply Strategy or ensuring there are reserved raw materials to cover their needs. 

 3. Setting up a Network for Supply Chain Systems  

Principle e adopts of Principles of Supply Chain Management on Organizations take the traditional harmony approach to design the network of supply systems to organize inventory, raw materials, and transportation activities. It can also follow another approach to achieve effective and efficient use of assets.  

Raw materials are used to meet the needs of individuals with appropriate quality standards to ensure the achievement of competitive advantage and reduce production costs.  

The network may be designed to meet the average service needs of all customers, or it may be designed to satisfy the overall needs of a single customer segment. 

4. Proper Planning of Market Demand 

Demand forecasting is a historical procedure that relies on the availability of accurate and timely information, providing a complete picture of the expected rate of demand in the market.  

Functional orientation can cause some problems to the demand forecasting process because self-centered forecasting, based on the organization's administrative departments of is incompatible with the distinct management of the supply chain.  

The distinction in the supply chain is achieved through the application of the Cross-Functional Planning Process or using demand planning software (DPS). 

5. Creating Cooperation and Commitment with the Supplier Chain 

Principle 5 adopts of Principles of Supply Chain Management the organization must establish long-term cooperation and commitment with suppliers through which the supplier delivers raw materials according to the right quantities, prices, and on time without any delay or shortage.  

The absence of this realistic relationship makes managing your organization's supply chain ineffective, resulting in obstacles like price war or one of the competitors getting a lower price for raw materials.  

Effective supply chain management requires focusing on the supplier's cost structure and reducing these costs to ensure that you get the lowest price in the market, increasing the profit margin for your organization. 

6. Using Technology in the Supply Chain 

Many organizations work to develop the supply chain through the application of the technology expansion strategy, which helps in the decision-making process and gives a visualization of the flow of services and final products in the market, using modern technological technologies and software in all stages of production processes, or even in the process of planning demand and obtaining information.   

It adopts the approach of process re-engineering by abandoning the functional orientation and focusing on the operational orientation by involving Material Requirement Planning (MRP), developing a computerized system to build inventory, schedule production, manage inputs, and include marketing activities and purchasing operations. 

What are the best Courses And Certificates For Supply Chain Management?

There are many supply chain management courses that could help you in your career, such as:

The basic principles of Supply Chain Management help obtain goods most efficiently and cost-effectively. Get certified now and make your step forward in your profession through Supply Chain Courses from Bakkah.