Principles of Supply Chain Management

Supply chains consist of a collection of firms acting jointly to design, engineer, manufacture, store, distribute, and market a range of products and services to consumers. These supply chains exhibit varying degrees of integration among the participating firms. There may be little formal integration beyond placing orders, shipping and receiving products, and paying for them. But there may be a variety of activities among the firms to ensure cost-effective, timely, and reliable creation and movement of materials, products, and services needed to meet the end customer’s expectations. In the first chapter, we discuss the forces driving changes to supply chain systems, and then introduce five principles that provide the basis for the design and successful operation a supply chain. We next provide five key observations about supply chain behavior. We emphasize the importance of collaboration among supply chain partners and the linkages between the decisions made at different levels in supply chains. We next review basic deterministic planning models, discuss their assumptions, limitations and flaws, and examine the effects of uncertainty, lead times and other factors on supply chain performance. We then introduce a new paradigm for managing supply chains that addresses the problem of managing uncertainty, which we call the No B/C policy. This policy is discussed in detail in Chapter 5. We end this chapter by illustrating how the five fundamental principles are not always present in one of the world’s most important supply chains, the petroleum supply chain.