Good Principles Governing Supply Chain Management

One fundamental principle governs the operation of the supply chain and underlines the trading relationship between business partners, suppliers and customers.

The principle of supply and demand.

It's the reason why every organisation exists, commercial, public, not for profit or charity. Without supply and demand you cannot provide or receive products or services, and therefore would need to produce yourself everything you consume.

For most people living in today's world and leading busy lives with different priorities being self sufficient is just impractical. The principle of supply and demand is one upon which all other good principles governing the value chain rest.

Cementing the relationship between all participants in the value chain is the contract, the legally binding document that sets out the terms of supply and demand. Forming a contracting online is sophisticated given the use of technology but basic legal principles still apply as they would when forming an offline contract. But, contracts face different challenges from those made in the offline world, including authentication of the parties and ensuring confidentiality as the contracts are sent across systems and networks.

Cost effective management of value chain

The best sequence of decision-taking for strong and sparkling organisations seeking to achieve cost-effective management of their value chains

  • Define quantified objectives. Too often, reorganisation take place to support ill-defined objectives, without first redesigning processes and value chains – and, worse, computing and information system changes are implemented without first simplifying and standardising processes and data.
  • Construct simple and standard shared processes across each defined value chain. Confirm a structured matrix of processes and value chains, using proven building blocks.
  • Redevelop organisations, along with the appropriate cultures. Organisations are of necessity normally based on functions and on teams, but should be redesigned to support cross-functional processes which have been well implemented and fully involve appropriately motivated staff – through a culture which judiciously balances competition and collaboration.
  • Develop balanced Key Performance Indicators (KPIs) and targets which support the objectives within the organisation.
  • Define standard value chain data and communications. Define data architectures and supporting e-business components, i.e. standard identification, data elements, master data, dynamic data bases and messages.
  • (Re)develop computer applications to support the above.
  • Design supportive Information Systems and Technology facilities and infrastructure.

It is vital to follow the above sequence: business process architecture – data architecture – applications, network and IT architectures.

Business and administrative processes should be as simple and standard as is practicable across the key value chains in order to achieve optimum speed, certainty and low total cost. The more simple and standard these joint processes, the easier it is to apply e-business cost effectively. As this last is progressed, the greater the degree of speed, certainty and low total cost that can be achieved.

Applying e-business before redeveloping processes and data is inevitably unprofitable. Processes and data definitions should be independent of particular technologies, so that these do not need to be altered every time that technology changes. Event Data should be distinguished from Master Data, and the two should be linked by standard identities, such as GS1 (formerly EAN) codes for items and for locations.

Key master data

Master data relate to the relatively stable descriptions and key characteristics of the value chain identities, of which there are four

  • The value chain Participants and their Locations:

i. customers/buyers;

ii. suppliers/sellers;

iii. agents, such as transporters and financial institutions;

iv. authorities, such as government departments and agencies, and inspection bodies;

v. individuals/teams, including employees, citizens, patients, end users and consumers.

  • The Items (products and services) being traded, and their various Logistics Units, such as cases, pallets and containers – including key item characteristics, both of unique items and of types of item: prices and costs: technical specifications, product structures, bills of materials and designs.
  • The Processes (methods, recipes, diagnostics and treatments) by which decisions are taken and work is done.
  • The Assets which are used across the value chain – the physical capital employed, but not traded, across the value chain, e.g. machines, equipment, vehicles.

Master data should ideally be created and communicated by the original source of such data (e.g. the product manufacturer), rather than being recreated by each subsequent user.

Master data should be pre-aligned between value chain participants prior to the communication of transaction data, in order to eliminate errors and to improve speed and certainty of communication and subsequent action. This also enables the many transactions to become simple streams of ID codes and quantities, since all the descriptive information has already been agreed and stored by the participants in their master data files.

Changes in master data need to be communicated and acted upon promptly and in a disciplined manner. Although it is practicable to develop cross-reference tables to allow each organisation to relate one set of identities and definitions to another, this is a difficult and expensive approach to sustain. One of the great virtues of master data is that one does not need to define everything about an Item in order to begin

As much data as are practicable should be capable of being automatically generated, communicated, processed and actioned. Naturally, it is desirable for certain data to be utilised intuitively and well on computer screens by individuals, but this should be largely for tasks to which people add creative value, and not for repetitive data capture or interrogation, or error correction

While it is normally advisable to capture data as they are generated, careful thought needs to be given as to whether to communicate data in "real-time" or to batch it to fit with the data-processing and management schedules of both sender and receiver, in order to improve the cost-effectiveness of the overall value chain. Economic optimisation does not always require data to be communicated immediately they are generated.

Structured communications as defined above from known participants supporting agreed joint processes improve not only the speed, certainty and total cost of value chain operations, but also overall security and safety.