Supply Chain Management Concepts

Shortly after your alarm clock goes o and the co ee maker

kicks on, the aroma of your favorite co ee lls the air. The supply
chain is responsible for getting those co ee beans across the
world and to your kitchen. Something so common in every
household, takes a great deal of planning, demand forecasting,
procurement, and logistical expertise to move those beans to
local sellers while still fresh. Without a strong supply chain in
place, your ca eine- x options would be severely limited.

SCM involves a series of key activities and processes that must

be completed in an e cient (fuel-conserving, cost-reducing, etc.)
and timely manner. Otherwise, product will not be available
when needed by consumers like you.

The Seven Rights of Fulfillment

The ability to meet customer requirements, for everything from
co ee beans to Crocs, is built upon the expectation that
everything is done correctly in the supply chain. And that means
doing it right the rst time – no mulligans, no mistakes are
allowed. In the quest to provide quality service and satisfy
customers, world-class companies along the supply chain are
guided by the Seven Rights of Ful llment.
If you think about it, every order needs to be executed according
to these seven goals. You must attempt to deliver a “perfect
order” to every customer every time. Doing it right the rst time
makes the customer happy, saves the cost of xing errors, and
doesn't require extra use of assets. Thus, every part of the
organization has a vested interest in pursuing perfection.

A “perfect order” delivery is only attained when all Seven Rights

of Ful llment are achieved. To accomplish a perfect order
ful llment, the seller has to have your preferred product
available for order, process your order correctly, ship the entire
order via the means that you request, provide you with an
advanced shipping noti cation and tracking number, deliver the
complete order on time and without damage, and bill you
correctly. A seller’s ultimate goal is to make the customer happy
by doing the job right, which gives them a good reason to use
the seller’s services again in the future.

SCM Flows
If the goal of SCM is to provide high product availability through
e cient and timely ful llment of customer demand, then how is
the goal accomplished?

Obviously, you need e ective ows of products from the point of

origin to the point of consumption. But there’s more to it.
Consider the diagram of the fresh food supply chain. A two-way
ow of information and data between the supply chain
participants creates visibility of demand and fast detection of
problems. Both are needed by supply chain managers to make
good decisions regarding what to buy, make, and move.
Other ows are also important. In their roles as suppliers,
companies have a vested interest in nancial ows; suppliers
want to get paid for their products and services as soon as
possible and with minimal hassle. Sometimes, it is also necessary
to move products back through the supply chain for returns,
repairs, recycling, or disposal.

Because of all the processes that have to take place at di erent

types of participating companies, each company needs supply
chain managers to help improve their ows of product,
information, and money. This opens the door of opportunity to
you to  to a wide variety of SCM career options for you! 

SCM Processes
Supply chain activities aren't the responsibility of one person or
one company. Multiple people need to be actively involved in a
number of di erent processes to make it work.

It's kind of like baseball. While all the participants are called
baseball players, they don't do whatever they want. Each person
has a role – pitcher, catcher, shortstop, etc. – and must perform
well at their assigned duties – elding, throwing, and/or hitting –
for the team to be successful.

Of course, these players need to work well together. A hit-and-

run play will only be successful if the base runner gets the signal
and takes o running, while the batter makes solid contact with
the ball. The team also needs a manager to develop a game plan,
put people in the right positions, and monitor success.

Winning the SCM “game” requires supply chain professionals to

play similar roles. Each supply chain player must understand his
or her role, develop winning strategies, and collaborate with
their supply chain teammates. By doing so, the SCM team can
awlessly execute the following processes:

Planning – the plan process seeks to create e ective long-

and short-range supply chain strategies. From the design
of the supply chain network to the prediction of customer
demand, supply chain leaders need to develop integrated
supply chain strategies.
Procurement – the buy process focuses on the purchase
of required raw materials, components, and goods. As a
consumer, you're pretty familiar with buying stu !
Production – the make process involves the manufacture,
conversion, or assembly of materials into nished goods or
parts for other products. Supply chain managers provide
production support and ensure that key materials are
available when needed.
Distribution – the move process manages the logistical
ow of goods across the supply chain. Transportation
companies, third party logistics rms, and others ensure
that goods are owing quickly and safely toward the point
of demand.
Customer Interface – the demand process revolves
around all the issues that are related to planning customer
interactions, satisfying their needs, and ful lling orders
perfectly.

Seven Principles of SCM

More than ten years ago, a research study of 100+
manufacturers, distributors, and retailers uncovered some
widely used supply chain strategies and initiatives. These ideas
and practices were distilled down to seven principles and
presented in an article in Supply Chain Management Review, a
magazine widely read by SCM professionals.

Principle 1: Segment customers based on the service

needs of distinct groups and adapt the supply chain to
serve these segments pro tably.
Principle 2: Customize the logistics network to the service
requirements and pro tability 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: Di erentiate product closer to the customer
and speed conversation across the supply chain.
Principle 5: Manage sources of supply strategically 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 clear view of the ow of products, services, and
information.
Principle 7: Adopt channel-spanning performance
measures to gauge collective success in reaching the end-
user e ectively and e ciently.

Though they are more than a decade old, these timeless

principles highlight the need for supply chain leaders to focus on
the customer. They also stress the importance of coordinating
activities (demand planning, sourcing, assembly, delivery, and
information sharing) within and across organizations.

Here's an excerpt from the article:

“Managers increasingly nd 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 pro tability. Many have discovered that they can keep the rope
from snapping and, in fact, achieve pro table growth by treating
supply chain management as a strategic variable.”

These savvy managers recognize two important things:

They think about the supply chain as a whole—all the links

involved in managing the ow of products, services, and
information from their suppliers' suppliers to their
customers' customers (that is, channel customers, such as
distributors and retailers).
They pursue tangible outcomes—focused on revenue
growth, asset utilization, and cost.”

Source: David L. Anderson, Frank F. Britt, and Donavon J. Favre, “The

Seven Principles of Supply Chain Management, Supply Chain
Management Review, (1997).

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