The ten principles illustrated here do a good job of describing supply chain management.
Supply chain management principles.Customer focus
Supply chain management starts with understanding who your customers are and why they're buying your product or service. Any time customers buy your stuff, they're solving a problem or filling a need. Supply chain managers must understand the customer's problem or need and make sure that their companies can satisfy it better, faster, and cheaper than any competitors can.Systems thinking
Supply chain management requires an understanding of the end-to-end system — the combination of people, processes, and technologies — that must work together so that you can provide your product or service. Systems thinking involves an appreciation for the series of cause-and-effect relationships that occur within a supply chain. Because they are complex systems, supply chains often behave in unpredictable ways, and small changes in one part of the system can have major effects somewhere else.Bimodal innovation
The world of business is changing quickly, and supply chains need to keep up by innovating. Supply chains need continuous process improvement, or sustaining innovation, to keep pace with competitors. Lean, Six Sigma, and the Theory of Constraints are process improvement methods that can help with this task. Continuous process improvement isn't sufficient, though, because new technologies can disrupt industries. This effect is called disruptive innovation. When a new solution for a customer's needs emerges and becomes accepted, this solution becomes the new dominant paradigm. In other words, if you're in the business of making buggy whips, you need to figure out how to make buggy whips better, faster, and cheaper than your competitors do, and at the same time, you need to figure out what the new dominant paradigm is going to be so that you know what you're going to make when buggy whips are replaced by a different technology.Collaboration
Supply chain management can't be done in a vacuum. People need to work across silos inside an organization, and they need to work with suppliers and customers outside the organization. A "me, me, me" mentality leads to transactional relationships where people focus on short-term opportunities while ignoring the long-term results. This actually costs more money in the long run because it creates a lack of trust and an unwillingness to compromise among the players in the supply chain. An environment in which people trust one another and collaborate for shared success is much more profitable for everyone than an environment in which each person is concerned only with his or her own success. If you believe that you'll be doing more business together in the future, and that the business with a particular customer will be profitable, then you are more likely to give them a deal on the products they are buying from you today. Also, a collaborative type of environment makes working together a lot more fun.Flexibility
Because surprises happen, supply chains need to be flexible. Flexibility is a measurement of how quickly your supply chain can respond to changes, such as an increase or decrease in sales or a disruption in supplies. This flexibility often comes in the form of extra capacity, multiple sources of supply, and alternative forms or transportation. Usually, flexibility costs money, but it also has value. The key is understanding when the cost of flexibility is a good investment.Suppose that only two companies in the world make widgets, and you need to buy 1,000 widgets per month. You may get a better price on widgets if you buy all of them from a single supplier, which would lower your supply chain costs. But you'd have a problem if that supplier experiences a flood, fire, or bankruptcy and can't make widgets for a while. You may save on your purchase price for the widgets, but you're stuck if anything goes wrong with that supplier.
If you bought some of your widgets from the other supplier — even at a higher cost — you wouldn't be hurt as badly if the first supplier stopped making widgets. In other words, having a second supplier provides flexibility.
Think of the extra cost that you pay to the second supplier as a kind of insurance policy. You're paying more up front to have that insurance policy, but in return, you're increasing the flexibility of your supply chain.