Chapter 13 SCM integration

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 Me

CHAPTER 13

PROCESS INTEGRATION

Learning Objectives

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

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

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

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

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

Reevaluate the Integration Model Annually

Extend Process Integration to Second-Tier SC Partners

Assess & Improve

External Process

Integration &

Performance

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

The Supply Chain Management Integration Model- Cont.

Align SC Strategies with Key SC Process Objectives

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

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

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

Obstacles to Process Integration Along the Supply ChainThe 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

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,

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:

remain proprietary

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

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.

Obstacles to Process Integration Along the Supply Chain- Cont.

To Avoid Bullwhip Effect- Demand

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

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

period sales quotas, or when buyers spend

end-of-year 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

Obstacles to Process Integration Along the Supply Chain- Cont.To Avoid Bullwhip Effect-

1 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)

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