Chapter 13 SCM integration

CHAPTER 13
PROCESS INTEGRATION


Learning Objectives
You should be able to:
 Discuss the overall importance of process integration in
supply chain management.
 Describe advantages & obstacles of process integration.
 Understand the important issues of internal & external
process integration.
 Understand the role of information systems in creating
information visibility along the supply chain.
 Describe integration needs along the supply chain.
 Understand the causes of the bullwhip effect & their
impact on process integration.

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Chapter Thirteen
Outline
Supply Chain Mgmt (SCM)
Integration Model
Identify Key SC Trading Partners
Review & Establish SC Strategies
Align SC Strategies w/Objectives
Develop Performance Measures
• Improve Internal Integration of SC

Processes
• Develop SC Measures for Key
Processes
• Improve External Integration & SC
Performance
• Extend Integration to 2nd-Tier SC
Partners
• Reevaluate Integration Model
Annually
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Obstacles to Process
Integration Along the
SC
• The Silo Mentality
• Lack of SC Visibility
• Lack of Trust
• Lack of Knowledge
Activities Causing the
Bullwhip Effect

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Introduction
Primary Goal of Supply Chain Management- create value for the end
customers as well as the firms in the supply chain network. Firms in
the supply chain network must integrate process activities internally &
with other firms in the network.

 Process integration means coordinating & sharing
information & resources to jointly manage a process.
 Process integration is often a difficult task & requires:
•
•
•
•

Training
Willing & competent partners
Trust
Organizational culture change

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The Supply Chain
Management Integration
Model
Identify Critical
Supply Chain Trading
Partners

Review & Establish
Supply Chain Strategies

Align SC Strategies with Key
SC Process Objectives

Develop Internal
Performance
Measures for Key
Processes

Assess & Improve
Internal Integration of
Key SC Processes.
Internal integration
requires

Develop SC Performance
Measures for Key
Processes

Extend Process
Integration to SecondTier SC Partners

Reevaluate the Integration
Model Annually

Assess & Improve
External Process
Integration &
Performance

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The Supply Chain
Management Integration
Model- Cont.
Identify Critical Supply Chain Trading Partners
 Enable sale & delivery of end products to final customers
 Identifying primary trading partners allows the firm to concentrate
on managing these links

Review & Establish Supply Chain Strategies regarding:








Parts purchased & suppliers
Shop layout & manufacturing processes
Design of the products manufactured
Mode of transportation
Warranty & return services
Employee training methods
Types of information technologies used

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The Supply Chain
Management Integration
ModelCont.
Align SC Strategies with Key SC Process Objectives

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The Supply Chain
Management Integration
Model- Cont.

Develop Internal Performance Measures for Key
Processes

 Performance should be continuously measured w/metrics for each
process.
 ERP systems support internal performance measures
 Firm is able to track progress for each of the key processes.

Assess & Improve Internal Integration of Key SC
Processes. Internal integration requires:





Empowered teams & cooperation across all functions
Management support & resources
ERP system
an understanding of the internal supply chain

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The Supply Chain
Management Integration
Model- Cont.

Develop SC Performance Measures for Key Processes
 Monitor the links with trading partners in the key SCM processes.
 Trading partners should monitor a number of cost-oriented
measures averaged across the member firms for each of the key
supply chain processes.

Assess & Improve External Process Integration &
Performance
 Build, maintain & strengthen relationships
 Share information concerning:
• Sales, forecast information, new products, expansion plans,
new processes, & new marketing campaigns process
integration will enable firms to collaborate & share this
information.
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The Supply Chain
Management Integration
Model- Cont.

Extend Process Integration to Second-Tier SC Partners
 Integrate process to second-tier partners & beyond
 Radio-frequency identification (RFID) tag- Microchip device
relays information on product’s whereabouts as it moves through
the supply chain.
 Price of RFID tags is economical (about 5 cents each).

Reevaluate the Integration Model Annually
 Trading partners should revisit the integration model annually to
identify changes within supply chains & to assess the impact
these changes have on integration efforts.

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Obstacles to Process
Integration Along the
Supply The
Chain
Silo Mentality






“I win, you lose”
Using the cheapest suppliers.
Ignoring customers.
Assigning few resources to
new product & service design.

Firm must strive to align SC goals & the
goals & incentives of the firm
Performance reviews of managers must
include their ability to integrate
processes internally & externally.

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Obstacles to Process
Integration Along the Supply
Chain- Cont.
Lack of Supply Chain Visibility

 In a 2002 survey, 67% of manufacturers had not yet
successfully synchronized their supply chain operations
with those of their trading partners

 And 67% said they used different supply chain
management applications than their partners 1
RFID technology promises to add real-time information visibility to supply
chains.

 Technology boards & user boards are being formed now
to develop standards & electronic product codes
(ePCs) for the RFID industry.
[1] Anonymous, “Survey Finds Manufacturers’ Supply Chains Come Up Short,” Logistics Management 41,
no. 9 (2002): 19-20.

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Obstacles to Process
Integration Along the Supply
Chain- Cont.
Lack of Trust
Successful process integration between partners requires trust.
Trust occurs over time- Partners earn trust.
Creating collaboration & trust are based on:
 Start small: Pick a project likely to provide a quick return.
 Look inward: establishing trust with internal constituents.
 Gather ‘round: meet face-to-face.
 Go for the win-win: optimize business for all SC members.
 Do not give away the store: Some information should
remain proprietary
 Just do it: Simple start - sharing information.

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Obstacles to Process
Integration Along the
Supply Chain- Cont.
Lack of Knowledge
 In a survey of 122 executives practicing
SCM, 43 % said lack of core SCM skills
& knowledge was the greatest obstacle
within their own organizations, & 54 %
echoed this opinion for their trading
partners.1
 Firms successfully managing their
supply chains must spend significant
time influencing & increasing the
capabilities of themselves & their
partners.
[1] Bachelor, B “Implementation Imperative
Information Week (28 April 2003), 62-66

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Obstacles to Process

Integration Along the Supply
Chain- Cont.
Bullwhip Effect
 Forecasts & their corresponding orders along the
supply chain can become amplified and accumulate,
causing what is termed the bullwhip effect.
 Variations in demand lead to problems in capacity
planning, inventory control, & workforce & production
scheduling.
 Ultimately, these variations result in lower levels of
customer service & higher total supply chain costs.

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Obstacles to Process
Integration Along the
Supply
Cont.
To Avoid Bullwhip
Effect-ChainDemand
Forecast Updating
 Make actual demand data
available to suppliers.
 Vendor-managed inventory
(VMI)
 Reduce the length of the
supply chain.

 Reduce the lead times from
order to delivery

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Obstacles to Process
Integration Along the Supply
Chain- Cont.
To Avoid Bullwhip Effect- Monitor Order Batching
 Safety stocks, & the desire to order full container
loads of materials causes orders to be placed
monthly or even less often, or at varying time
interval.
 Order batching occurs when sales reps fill end-ofperiod sales quotas, or when buyers spend end-ofyear budgets.
Solution: use frequent & smaller order sizes. Firms can order smaller
quantities of a variety of items from a supplier or use a freight
forwarder to consolidate small shipments.

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Obstacles to Process
Integration Along the
Supply ToChainCont.
Avoid Bullwhip

Effect1. Reduce price fluctuations through
forward buying activities to take
advantage of the low price offers
between:

 retailers & consumers.
 distributors & retailers.
 manufacturers & distribution.
2. Eliminate price discounting. Many
retailers have adopted everyday low
prices (EDLP).

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Obstacles to Process
Integration Along the Supply
Chain- Cont.
To Avoid Bullwhip Effect- Rationing & Shortage Gaming
 Rationing- occurs when demand exceeds the availability of a
supplier’s finished goods. To provide a partial supply to all
customers, goods are rationed to customers. Buyers tend to
inflate their orders to satisfy their real needs.
 Shortage gaming- occurs when production capacity eventually
equals demand & orders are filled completely, demand
suddenly drops to less-than-realistic levels, as the buying firms
try to unload their excess inventories.
Solution: sellers should allocate short supplies based on the demand

histories of their customers. Sharing future order plans with suppliers
allows suppliers to increase capacity if needed, thus avoiding a
rationing situation.

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