Explain the seven principles of supply chain management . Take an example of any product in the market and explain Bullwhip effect. Answer: Seven Principles of SCM are: – 1. Group customer by needs Effective SCM groups customer by distinct service needs, regardless of industry and then tailors services to those particular segments. 2.
Customize the logistics network – In designing their logistics networ k, companies need to focus on the service require ment and pr ofit potential of the customer segments identified. – 3.Listen to signals of market demand and plan accordingly Sales and operations planners must monitor the entire supply chain to detect early warning signals of changing customer demand and needs. This demand driven approach leads ot more consistent forecast and optimal r esource allocation. – 4.
Differentiate the product closer to the customer Companies today no longer can afford to stock pile inventory to compensate for possible forecasting errors. Instead , they need to postpone product differentiation in the manufacturing process closer to actual consumer demand.This strategy allows the supply chain to r espond quickly and cost effectively to changes in customer needs. 5. Strategically manage the sources of supply by working closely with their key suppliers to reduce the overall costs of owning mater ials and services, SCM maximizes profit mar gins both for themselves and their suppliers. 6. Develop a supply chain wide technology strategy – as one of the cornerstones of successful SCM information technology must be able to suppor t multiple levels of decision making.
It also should afford a clear view and ability to measure the flow of products, services and information. 7. Adopt channel spanning performance measur es Excellent supply chain per formance measurement systems do more than just monitor internal functions. They apply performance criteria to every link in the supply chain – criteria that embrace both service and financial metrics, including as each accounts true profitability. Bullwhip Effect in SCM An organization will always have ups and downs. It is necessary that the managers of the organization keep track of the market conditions and analyze the changes.
They must take decisions on the resources and make necessary changes within the organization to meet the market demands. Failing to do so may r esult in wild swings in the orders. This may adver sely affect the functioning of the organization resulting in lack of coordination and trust among supply chain members. The changes may affect the information and may lead to demand amplification in the supply chain. The Bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain.This has its affect on almost all the industries, poses a risk to firms that experience lar ge variations in demand, and also those firms which are dependent on suppliers, distributors and retailers. A bullwhip effect may arise because of a) incr ease in the lead time of the project due to increase in variability of demand b) increase in the stocks to accommodate the increasing demand arising out of complicated demand models and forecasting techniques c) r educed service levels in the organization d) inefficient allocation of resources e) incr eased transportation cost How to prevent it?Bullwhip effect may be avoided by one or more of the following measures – a) Avoid multiple demand forecasting.
b) Breaking the single orders into number of batches of orders c) Stabilize the prices, avoid the risk involved in overstocking by maintaining a proper stock. d) Reduce the variability and uncertainty in point of sale (POS) and sharing infor mation. e) Reduce the lead time in the stages of the project.
f) Always keep analyzing the past figures and tr ack current and future levels of requirements g) Enhance the operational efficiency and outsourcing logistics to a capable and efficient agency.