Supply Chain Policy -10 Things You Should Consider

supply chain policy
19 Feb

In most businesses, it is often the same people doing the same job. When purchasing materials, the same routines are used on each occasion, even if every one of these purchases may be unique, so why do we need a supply chain policy and procedure manual?

Similarly, the steps of booking materials in the warehouse is same regardless of supplier and part number in most scenarios. A such repeated set of activities is called a process.

Professor Bo Bergman1 presents a more formal definition:

“a process is a network of activities repeated in time, whose objective is to create value to the external or internal customer”.

Any supply chain policy & procedure manual involve teamwork rather than assembly lines. Supply chain policy are largely a matter of co-ordination between people, that is, agreement between individuals who cooperate, and agreement about their competence.

In the supply chain, processes can be centralized and decentralized. When defining a supply chain policy, it is often a good idea to describe its characteristics. A supply chain policy should have a first activity and a final activity, a customer, and a supplier; and it is consists of a network of activities, produces a value-adding result at the end; and is repeated time and again.

While writing any supply chain policy you should consider these headings suitable to your business.

Proposed Heading in Any Supply Chain Policy

1.    PURPOSE

 

This heading should define the main reason drive or why you are writing this supply chain policy. For example, if you are writing a supply chain policy for ABC analysis then you might want to say “The purpose of this supply chain policy is to establish the rules of assigning market segmentation codes (ABC codes) to all the parts/SKUs in the business. ABC is driven by a consensus process balancing market needs (decided by historical patterns and future plans), customer agreements, and supply chain characteristics

2.    SCOPE

 

The scope defines what is included and excluded from the supply chain policy parameter. For example, in the ABC segmentation policy example, scope can be defined as “This policy doesn’t cover part obsoletion or reactivation, replenishment and inventory management details though these are tightly linked with ABC codes. These details will be covered in separate policies and work instructions”.

3.    BACKGROUND

This heading is optional. In this section you can write about why this supply chain policy is established, what were the drivers and direction which lead to development of this policy.

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4.    RESPONSIBILITY

 

In any process management there are three important roles1, namely:

  • Process Owner – who is responsible for the strategic direction concerning the process.
  • Process Manager – who is responsible for how the process is controlled operatively, i.e. process fulfils the goals that have been set for it.
  • Competence of Supplier – who is responsible for supplying the appropriate competence needed in the process.

The role and responsibility concept is very important for successful execution of any supply chain policy. Following the example of writing ABC Analysis Policy, people and function who could potential be involved are:

  • Marketing/Product management (target promise time, product life cycle management, frequency of regeneration, new parts ABCQ determination, customer communication)
  • Supply Chain Manager (ERP codes maintenance, ERP lead times, replenishment policy)
  • Customer service Manager (major customer commitments , firm time period, trade customer communication)
  • Manufacturing manager (capacity availability)
  • Pricing manger (price changes with ABCQ)
  • Plant manager/ Head of Operations (reporting and implementation timeline)

 

5.    ADHERENCE TO POLICY

 

This section outlines who is required to follow the policy and related processes and procedures to their best abilities. In this section you can explain which functions are responsible for creating and maintaining a deployment roadmap document to address any compliance gaps to the outline policy.

 

Lastly who will be the governing body or council that will be monitoring the supply chain policy.

6.     ROLES , INPUT and OUTPUT (SIPOC)

 

In this section you can advise who are the key roles and what would be their input to pass on to customer of that process steps. You can describe that using SIPOC . Carrying the example of ABC Analysis, it could be shown as:

  • Supplier: Supply Chain Team
  • Input: Invoice history, open orders, major customers, historical demand of all parts, last ABC analysis
  • Process – Initial ABC generation and Analysis
  • Output- A, B, C classified parts, clear lead time segmentation
  • Customer- Marketing or Product Management.

7.    POLICY – PROCESS STEPS & EXPECTATION

 

In this section you should illustrate each of the process steps one-by-one. This is the most important part of the supply chain process in focus. In this section understand customer requirement, how supply chain process adds value and lastly where is the potential for improvement.

8.    RELATED POLICY REFERENCES

 

In this section you can explain what are the other business supply chain polices which can be referred. For example related to ABC policy, you can mentioned following support polices:

  • Replenishment Policy
  • Inventory Management
  • Capacity Planning
  • Pricing Policy

9.    DEFINITIONS & ACRONUMS

 

Most business these have lot of acronyms and many different definitions and we expect everyone on business to know them! Or maybe we invent them just to confuse newbies. Either way, list them all down here! So when you move ahead with well-earned promotion, the new guy should know all acronyms related to these polices.

 10.    SIGN OF

 

This is a simple yet important step. This section at the end should explain who is the ‘Sponsor’ of this supply chain policy. Who has ‘Recommended’ this policy and lastly who ‘Approved’ this policy!

  1. SPONSORED BY:
  2. RECOMMENDED BY:
  3. APPROVED BY

 

In summary, while writing any supply chain policies and procedures manual, you must think about:

 

  • Organize for improvement– who are the owners and process improvement team?
  • Understand the process– define the input & output, interfaces, customers and suppliers. Map the process, i.e. include the flow of work in the supply chain policy you are writing.
  • Observe the process– establish control points and implement regular measurements.
  • Improve the process continuously– Use and analyze the feedback from the measurement to improve the process.

 

Recommended Reading:

Business Process Management 3rd Edition

Supply Chain Management: Processes, Partnerships, Performance, 4th Edition


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