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The 7 Principles of Supply Chain Management
The most requested article in the 10-year history of Supply Chain Management Review was one that appeared in our very first issue in the spring of 1997. Written by experts from the respected Logistics practice of Andersen Consulting (now Accenture), “The Seven Principles of Supply Chain Management,” layed out a clear and compelling case for excellencein supply chain management. The insights provided here remain remarkably fresh ten years later.
By David L. Anderson, Frank F. Britt, and Donavon J. Favre -- Supply Chain Management Review, 4/1/2007
* Principle 1: Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
* Principle 2: Customize the logistics network tothe service requirements and profitability of customer segments.
* Principle 3: Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
* Principle 4: Differentiate product closer to the customer and speed conversion across the supply chain.
* Principle 5: Manage sources of supplystrategically to reduce the total cost of owning materials and services.
* 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 7: Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively andefficiently.
* Translating Principles into Practice
* Reaping the Rewards
Managers increasingly find themselves assigned the role of the rope in a very real tug of war—pulled one way by customers' mounting demands and the opposite way by the company's need for growth and profitability. Many have discovered that they can keep the rope from snapping and, in fact, achieve profitable growth bytreating supply chain management as a strategic variable.
These savvy managers recognize two important things:
1. They think about the supply chain as a whole—all the links involved in managing the flow of products, services, and information from their suppliers' suppliers to their customers' customers (that is, channel customers, such as distributors and retailers).
2. They pursue tangibleoutcomes—focused on revenue growth, asset utilization, and cost.
Rejecting the traditional view of a company and its component parts as distinct functional entities, these managers realize that the real measure of success is how well activities coordinate across the supply chain to create value for customers, while increasing the profitability of every link in the chain.
Our analysis ofinitiatives to improve supply chain management by more than 100 manufacturers, distributors, and retailers shows many making great progress, while others fail dismally. The successful initiatives that have contributed to profitable growth share several themes. They are typically broad efforts, combining both strategic and tactical change. They also reflect a holistic approach, viewing the supply chainfrom end to end and orchestrating efforts so that the whole improvement achieved—in revenue, costs, and asset utilization—is greater than the sum of its parts.
Unsuccessful efforts likewise have a consistent profile. They tend to be functionally defined and narrowly focused, and they lack sustaining infrastructure. Uncoordinated change activity erupts in every department and function and puts thecompany in grave danger of “dying the death of a thousand initiatives.” The source of failure is seldom management's difficulty identifying what needs fixing. The issue is determining how to develop and execute a supply chain transformation plan that can move multiple, complex operating entities (both internal and external) in the same direction.
To help managers decide how to proceed, we...