Eskom Procurement Book 2015

PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT

1.3 SUPPLY CHAIN PRINCIPLES A competitive advantage will exist only if there are certain key attributes in a supply chain. The guiding principles presented below are drawn from various theoretical and empirical studies.

1.3.1 IDENTIFY AND SATISFY CUSTOMER NEEDS

Supply chains are expected to lower operating costs and deliver value-added products and services to meet the needs of the ultimate customers. As mentioned above, a fundamental aspect of supply chain management is to ensure that the ultimate customers receive the right products and services at the right place, time and price. Therefore, supply chain partners cannot operate their businesses effectively if the information on the ultimate customers’ needs is missing. In order to get the information on customer needs, it is necessary to apply classical market research techniques, construct an information infrastructure to capture customer transaction data, and store and analyse this data from an operational perspective. In essence, identification and satisfaction of customer needs should be the premise for constructing an efficient and effective supply chain. In supply chain management, a ‘lean’ philosophy is generally described as a systematic approach to identifying and eliminating waste through continuous improvement of a product at the pull of the customer in pursuit of perfection [14]. Lean production therefore encompasses a wide variety of management practices, such as the just-in-time inventory management system, efficient quality systems, integrated work teams, an effective supplier management approach, and so forth [15]. Lean practices create synergies that lead to a streamlined and high-quality system that produces finished products at the pace of customer demand, with little or no waste [14]. Companies that have adopted a lean approach have reduced internal lead times; created processes that are more predictable and repeatable; reduced work-in-process inventories; applied just-in-time delivery strategies; and worked to reduce setup times dramatically. Furthermore, lean practices substantially reduce indirect costs and improve the use of physical space, in addition to creating cross-trained, empowered and more highly motivated workers. However, for maximum supply chain efficiency, all partners are expected to engineer, align, and execute their processes in line with lean practices. In a nutshell, lean practices should be extended to all supply chain operations so that the supply chain can respond quickly to market demand fluctuations, reduce wastages and maximise its profitability.

1.3.2 ADOPT A LEAN PHILOSOPHY

1.3.3 CREATE A SUPPLY CHAIN INFORMATION INFRASTRUCTURE

Supply chains require an information infrastructure that supports electronic brokerage and contracting, meeting and collaboration, product advertising,

5 CHAPTER 1