7 Principles of Supply Chain Management Explained

Would you like to understand supply chain management concepts but don't have time to study from a
textbook? This article will explain to you the key principles of supply chain management in 5 minutes.

September 4, 2013 · By SupplyChainOpz

There is scarcely anything that has not been covered in this amazing
article, illustrating the brilliance of Anderson, Britt and Favre.
It’s a must-read for anyone associated with Supply Chain Management
and certainly warrants archiving as a reference point to stimulate and
refresh thinking in this regard.

Background
In 1997, Supply Chain Management Review published one article called
“The Seven Principles of Supply Chain Management” written by David
Anderson, Frank Britt and Donavon Favre.

At that time, Supply Chain Management (SCM) was a pretty new term
so this article did the excellent job to explain important supply chain
management principles in one shot.

More than 10 years pass and this article is considered the “classic”
article and got republished in 2010, and again in 2013.
As of now, it got more than 160 citations from both scholarly articles and
trade publications.
The following section will show the summary of 7 principles in
infographic form and I will discuss if the concept from 1997 is still
relevant to current business environment.
1) Adapt Supply Chain to Customer’s Needs
Both business people and supply chain professionals are trained to
focus on customer’s needs. In order to understand customer better, we
divide customers into different groups and we call it “segmentation”. The
most primitive way to segment customer is ABC analysis that groups
customer based on sales volume or profitability. Segmentation can also
be done by product, industry and trade channel.
Back then, Anderson et al suggested that customer be segmented
based on service needs, namely, “sales and merchandising needs” and
“order fulfillment needs”.
I totally agree that we should focus on customer’s needs but this doesn’t
seem to be enough these days. The reason is that your customers may
not know what they need until your competitors offer something different.
For example, in 2011 Amazon initiated a program called Amazon
Prime (free 2-day shipping and discounted 1-day shipping). Today,
people are still discussing if this program makes sense.
But one thing for sure, customer turns to Amazon more and more. The
morale of this story is that you should “anticipate” customer’s needs as
well.

2) Customize Logistics Network

When you segment customer based on service needs, you may have to
tailor different logistics networks to serve different segment. However,
this principle doesn’t hold true for all situations.
For example, if you were contract manufacturer in China, you might
already have different logistics networks for different customers. Each
customer in US or EU might already control source of raw materials, ask
you to provide dedicated production lines, nominate 3pl companies and
air/sea carriers. So, logistics network design is kind of initiative driven
mainly by customer.

3) Align Demand Planning Across Supply Chain

Supply chain practitioners are taught to share demand data with trading
partners so nobody has to keep unnecessary stock. In general, this
principle holds true. But in reality, only Walmart is actively sharing
demand data to trading partners.
There is a very interesting paper by Williams and Waller 2011, the result
of research found that;
 If you make demand forecast based on SKU/Customer level, using your
own historical order data is more accurate than using POS data you get from
retailers
 If you make demand forecast based on SKU/Store level, using POS data you get
from retailers is more accurate than using your own historical order data
The implication is that the absence of demand sharing is not necessary
bad. But when you got demand data from trading partners, you MUST
use it the right way.

4) Differentiate Products Close to Customer

The is something that Dell is very famous for, keeping components and
assemble them only after customer places the order in order to increase
product variety. This principle is still true, but, there is another principle
that you should consider.
“Standardization” is in the opposite polarity of “Differentiation”. For
example, some cosmetics manufacturers formulate products and choose
packaging and labelling that comply with regulations of multiple countries
in Asia. So they only make one SKU that can be sold in 15 countries
instead of 1 SKU/Country. By standardizing product appropriately, they
can drive cost down drastically due to economy of scale. So
standardization is something that you should also consider.

5) Outsource Strategically
This is the principle that stands the test of time. In short, don’t ever
outsource your core competency. More information about outsourcing
can be found from the infographic named “7 Pitfalls of Outsourcing and
How to Avoid Them”.

6) Develop IT that Support Multi-Level Decision Making

If you search Google for the term “critical success factor erp”, you’ll find
lots of information about how to implement Enterprise Resource
Planning (ERP) successfully.
My opinion is that IT project shouldn’t be done in isolation, business
process reengineering is something that you have to do before IT
project. This will equip you with full understanding about process
deficiencies then you can determine what kind of technology that you
really need.

7) Adopt Both Service and Financial Metrics

Anderson et al suggested that activity based costing (ABC) be
implemented so you can determine customer’s profitability. However,
there is the interesting twist about ABC concept.
In 1987, Robert Kaplan and W Bruns defined the activity based costing
concept in his book “Accounting and Management: A Field Study
Perspective”. However, in 2003 Robert Kaplan said that it’s difficult to
maintain ABC costing model to reflect changes in activities, processes,
products and customers. Then, he introduced the refined concept
called Time Driven Activity Based Costing.
To my understanding, practitioners are still using traditional ABC and
supply chain researchers are still citing traditional ABC articles. My
question is, does traditional ABC really work? Register, and comment
below.

References
- David, J., Frank, E. B., & Donavon, J. F. (1997). The Seven Principles of Supply Chain
Management.

- Williams, B. D., & Waller, M. A. (2011). Top‐Down Versus Bottom‐Up Demand Forecasts: The
Value of Shared Point‐of‐Sale Data in the Retail Supply Chain. Journal of Business Logistics,
32(1), 17-26.

- Kaplan, R. S., & Bruns, W. (1987). Accounting and Management: A Field Study Perspective.
Harvard Business School Press. ISBN 0-87584-186-4.

- Kaplan, R., & Anderson, S. (2006). Time-driven activity-based costing.

https://www.supplychainopz.com/2013/07/principles-of-supply-chain-management.html
7 Best Supply Chain Books of All Time
In this article, a supply chain management professional will rank books based on popularity and
practicality and present the list of 7 best supply chain books.

Finding the Best Supply Chain Books

We've found that most recommendations on the web are based on just personal opinions. In the
publishing industry, Nielsen BookScan is the most widely used database for a book ranking
method. In short, Nielsen provides the point of sales data from various retail outlets and gross
sales quantity will be summarized. Anyway, access to this database costs an arm and a leg.
Therefore, we develop the ranking method using unbiased performance evaluation and the
results are as below:

#The links below are paid links.

Best Supply Chain Books are as below:

1. Supply Chain Management For Dummies

If the purpose of this book is to introduce readers to the supply chain models, performance
evaluation, and best practices, it has succeeded in a reader-friendly manner and it doesn't
involve math. Apart from nice and useful graphics as seen in "the dummies" series, it provides
readers with the links to external websites on the spot so readers can dig deeper.

This book tries to make readers understand customers' requirements (with the use of a
simplified Quality Function Deployment.) The chapter about supply chain network design uses a
graphic tool like Value Stream Mapping instead of math algorithms which are done quite nicely.
Overall, the book covers the most important aspects of supply chain management.

2. Essentials of Supply Chain Management

If readers want to understand what supply chain management really is and how to use
technology to improve the supply chain, this is the book we are talking about. First, it explains
the difference between supply chain management and logistics nicely. We love how this book
segments supply chain strategy according to "Responsiveness" and "Efficiency" which are quite
easy to grasp. A chapter about Supply Chain Coordination aka "Bullwhip Effect" saves readers
a lot of time so you don't have to read difficult scholarly articles.

This book is very easy to read according to "The Essentials" series standard. Graphics and
conceptual models are very easy to understand. Every chapter has either an "In the Real World"
section to introduce readers to the supply chain management concept in reality or an "Executive
Insight" section to introduce readers to a short case study.

In short, this is a technology-oriented book worth reading.

3. Logistics and Supply Chain Management

The purpose of this book is to introduce readers to the supply chain mindset, the competition
between supply chain vs supply chain NOT company vs company. The author introduces the
most important supply chain concept, Cost vs Value. The entire chapter is dedicated to
customer value and how to achieve it. Instead of explaining forecasting formulas, the author
explains the push/pull points concept and how to improve the quality of demand planning in
general. A whole chapter is used to explain how to reduce lead time so a supply chain can be
more responsive.
This book is very easy to read. Even though it gears toward college students, it's easy enough
for beginners. Spending a year in the library or getting this book, the choice is yours.

4. The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19

In a world full of uncertainty, the supply chain has become more complex than it used to be.
This book presents contemporary topics from Covid-19 and beyond. In the production of this
book, the author interviewed 20 executives from leading companies for input.

In short, this book will show readers how to apply the supply chain risk management concept
like how to handle disruption itself and what kind of decision making and information sharing in
the supply chain is required. It will also explain how to create the supply chain capabilities for
the future.

5. Supply Chain Management: Strategy, Planning, and Operation

If readers would like to explore the realm of supply chain analytics, this is the book. It covers
many decision-making models in supply chain and operations management that readers can
implement in a spreadsheet. Each chapter comes with college-level case studies. Even though
this is a math-heavy book, some chapters like supply chain strategy, supply chain performance,
and supply chain metrics (chapters 1-3) are simple enough to read. A chapter about supply
chain network design (chapter 4) is surprisingly simple because it doesn't involve any math
algorithm.
6. Strategic Supply Chain Management: The Five Core Disciplines for Top Performance

This is a very good book for anyone who would like to learn how to use supply chain processes,
metrics, and best practices to create a solid supply chain strategy. At the end of each chapter,
an extensive real-world case study will be presented. Charts and graphs are presented nicely
and are easy to understand. Please note that this book is based on Supply Chain Operations
Reference Model (SCOR Model). However, prior knowledge of this model is not required.

7. Logistics Management and Strategy: Competing through the Supply Chain

If readers would like to learn supply chain management from case studies, this is the book for
you. Each chapter comes with many case studies to demonstrate the concepts. Some case
studies that we love: 2.5 Segmented supply chain strategy process at Kimberly-Clark Europe,
5.2 Managing lead time at Electro-Coatings Ltd, 6.5 CPFR trials in the UK grocery sector, and
many more.

Moreover, Charts and graphs are well organized and easy to understand. The end-of-the-
chapter summary is very useful.

How We Rank Supply Chain Books

We perform the search queries in Google Scholar. About 1,000 search results are displayed.
Then we rank supply chain management books based on these criteria:
- Citation Counts: citation count is used to determining the popularity of the supply chain
management books.

- WorldCat Library Counts: we also check how well supply chain management books perform by
looking into WorldCat Library System and checking how many copies of each book are in this
system. The reason is that librarian staffs have a systematic vetting process so we would like to
know what kind of books they choose.

- Amazon Sales Rank: in the case of newer supply chain management books, we use Amazon
Sales Rank to determine if each book is popular.

- Awards and Endorsements: we also use awards/endorsements from authority figures in the
supply chain industry to reflect the practicality of the supply chain management books.

- Relevancy: only highly relevant books about supply chain management will be listed.

- Editorial Decision: the editor's decision is used to finalize the list of the best supply chain
management books.

Do you like supply chain books on this list?

References

- Moed, H. F. (2006). Citation analysis in research evaluation (Vol. 9). Springer Science &
Business Media.

- Sodhi, M. S., Son, B. G., & Tang, C. S. (2008). ASP, the art and science of practice: What
employers demand from applicants for MBA-level supply chain jobs and the coverage of supply
chain topics in MBA courses. Interfaces, 38(6), 469-484.

Books We Recommend

- Purchasing Book

- Operations Management Book

- Inventory Control Book

- Lean Books

Last review and update: July 5, 2022

Posted by Ben Benjabutr
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About the Author and Editor:

Ben Benjabutr is the author and editor of Supply Chain Opz. He holds an M.Sc. in Logistics
Management with 10+ years of experience. You ca
7 Best Inventory Control Books Ever Written
Do you want to improve inventory control in your warehouse and need inventory management
books? This article will show you the 7 best inventory control books.

Finding Best Inventory Control Books

Many people think inventory management is a clerical task but they're absolutely wrong.
According to most inventory management books, achieving effective inventory management
requires the examination of all aspects of the supply chain such as,

1. Basic Inventory Control: deals with basic knowledge of inventory management such as
inventory forecasting, inventory ordering policy, review cycle, safety stock policy and inventory
operations management.

2. Inventory Accuracy: focuses on how to manage and reconcile the difference between the
inventory record in the computer system and actual inventory in a warehouse. Inventory
accuracy helps demand planners to make a more accurate demand forecast and reduce lost
sales.

3. Inventory Strategy: how to formulate a sound inventory management strategy that balances
cost versus customer service level for both short and long-term planning.

4. Material Management: how to manage inventory in the manufacturing environment which

may include purchasing, forecasting, lot sizing, production planning, and safety stock (this is
also called production and inventory management in some books.)

5. Warehouse Management: the good flow of materials inside a warehouse is crucial for modern
inventory management. Basic warehouse operations such as cargo receipt, cargo storage and
layout planning, order picking, order packing and order shipping are covered here.

6. Warehouse Safety: this subject has become more and more important due to labor and
regulatory issues. Modern warehouse safety also includes the use of visual control like in lean
manufacturing and the six sigma program.

7. Distribution Management: deals with the delivery of finished product inventory to the end
customers including stock and ordering systems. Sometimes, it also includes some aspects of
transportation management such as fleeting planning and vehicle routing.

Ranking Factors of Inventory Control Books

To provide readers and inventory professionals with a list of inventory management books that
they can use to create a positive change in their organizations, we use these criteria:

- Sales Rank: we pull out the list of inventory management books available on Amazon.com that
are related to inventory management and inventory control to ensure that we get the best books
on the market. Then we check sales rank to determine how good each book is.
- Categorization: we group the inventory management books based on 7 types of inventory
control activities we mentioned earlier.

- Citation Analysis: we conduct citation analysis for the books. Citation count is a factor we use
to separate great books from their peers.

- Editorial Decision: we carefully examine the inventory management books and make a final
cut.

#The links below are paid links.

Best Inventory Control Books are as below:

1. Essentials of Inventory Management

2. Warehouse Management: The Definitive Guide to Improving Efficiency and Minimizing

Costs in the Modern Warehouse

3. World-Class Warehousing and Material Handling

4. Introduction to Materials Management

5. Supply Chain Network Design: Applying Optimization and Analytics to the Global Supply
Chain

6. Warehouse Safety: A Practical Guide to Preventing Warehouse Incidents and Injuries

7. Inventory Accuracy: People, Processes, & Technology

Do you like inventory control books on this list?

References

- Silver, E. A. (1981). Operations research in inventory management: A review and critique.

Operations Research, 29(4), 628-645.

- De Koster, R., Le-Duc, T., & Roodbergen, K. J. (2007). Design and control of warehouse order
picking: A literature review. European journal of operational research, 182(2), 481-501.

Books We Recommend

- Supply Chain Books

- Purchasing Book

- Operations Management Book

- Lean Books