Ten commandments of SCM

Looking at supply chain management from a mathematical perspective throws up some interesting insights

By Ambuj Khare and Anurag Saxena


In today’s world one has to compete globally and not locally like yesteryears. The world today has become so nimble that it is continuously changing and becoming more complex and competitive. Businesses in the information age must accept these changes and be ready to be more competitive and customer-focused. There is a global competition for labour and trade and operations are now supposed to be performed in real-time. Customers are demanding detailed information about products and services. Companies are facing problems in producing superior products in less resources and information is becoming critical for management decision-making. Owing to these pressures many companies are planning to reap the benefits of alliances with other companies. Supply Chain Management (SCM) is responsible for looking after such alliances and it seeks to make every step in the chain as efficient as possible by ensuring good coordination between the alliances.

The term Supply Chain Management (SCM) came to light in the 1980s. The intent of using this term was to express the need to integrate the key business processes, from end user through suppliers. SCM enables companies and corporations to get involved and work in a cohesive manner for the benefit of customer as well as themselves. A supply chain entails raw materials, suppliers, manufacturing, distribution, customers and consumers. Material from supplier to customer moves on in the supply chain and it is believed that a smooth flow of these materials only depicts the health of the supply chain. However in reality a supply chain entails movement from and to many warehouses. There are many steps involved, many inventories maintained and lot of time consumed. SCM is actually so big that it can be difficult to exemplify each and every component of it. On a bigger canvas, the function of supply chain is to plan, organise, coordinate and control almost all the activities of the company.

Let us revisit some of the terms commonly used in the supply chain scenario. See Table 1 to get a brief description of those terms.

Let us take some key terms commonly used in the supply chain and do a little bit of mathematics on them. Let us see what these terms mean for the supply chain from a mathematical perspective. In Table 2 we have added the digit score (the position at which it appears in the English alphabets) of each of these terms and then taken the sum as the percentage of the sum of digit scores of the term “supply chain”. If we take the sum percentage as the relative importance for the supply chain, the results are absolutely attention grabbing. We can see what these terms mean for the supply chain from the “additive” perspective.

So if one wishes to choose 10 commandants of supply chain management they would be inventory, effectiveness, cross docking, information, operations, customers, integration, strategy, performance and logistics. Let us discuss inventory (relative importance 99 per cent) first; inventory is a list of things held in stocks. If a company has high inventory costs and no synchronisation between stocks and demand, its products are bound to have higher costs and thus the business will be in a bad position.

A company could be very efficient but what matters more at the end of the day is effectiveness (relative importance 96 per cent) as effectiveness means doing the right things to create the most value for the company. Eventual goal of any business is to satisfy the customer. Next is cross docking (relative importance 95 per cent), which is often used to maintain low level of inventory. Retailers like Wal-Mart have shown the benefits of using cross docking. Information (relative importance 93 per cent) is the ability to furnish critical data on product performance, process parameters and cost to internal groups and to external customers value of information can never be ignored. It is said that in a supply chain information flow is as important as the product flow. Effective operations (relative importance 92 per cent) are again the core of supply chain as they are the systems that create and deliver the firm’s primary products and services. If operations are the core then customers (relative importance 92 per cent) are the essence as they are the ones that purchase goods and services that are provided through a supply chain.

Further, a supply chain revolves around efficient integration (relative importance 92 per cent) of suppliers, manufacturers, warehouses and stores. Strategy (relative importance 80 per cent) means deliberately choosing a different set of activities to deliver a unique mix of value. It is used to define supply chain objectives. Performance (relative importance 79 per cent) describes the way in which a company performs and is indicative of supply chain health. And finally for logistics (relative importance 78 per cent), we can quote Strahan and Bodegraven (2004), “supply chain management and logistics are part of the same solution set, one filling the gaps, and one closing them. It is possible to have passable logistics without supply chain management.

It is not possible to have a great supply chain without also having terrific logistics”.

If one further probes into the multiplicative effect of the digits of these terms then we find something even more interesting. In Table 3 we can see what these terms mean for the supply chain from the “multiplicative” perspective.It is said that numbers are better tools than words if are making a business decision. We have thus reinforced the words/ terms commonly encountered in a retail supply chain with the help of numbers. 

Ambuj Khare is the Senior General Manager, GENETCO, Oman, and Anurag Saxena is Professor of Management, Indira Gandhi National Open University, New Delhi, India.

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