1. CHAPTER 13- SUPPLY CHAIN PROCESS INTEGRATION
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD

2. © 2005 Thomson Business and Professional Publishing
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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

3. 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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

4. © 2005 Thomson Business and Professional Publishing
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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

5. The Supply Chain Management Integration Model
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

6. 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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

7. The Supply Chain Management Integration Model- Cont.
Align SC Strategies with Key SC Process Objectives
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

8. 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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

9. 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

10. 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

11. Obstacles to Process Integration Along the Supply Chain
The 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

12. 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):
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

13. 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

14. 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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

15. 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

16. 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
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

17. 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-of-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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

18. Obstacles to Process Integration Along the Supply Chain- Cont.
To Avoid Bullwhip Effect-
Reduce price fluctuations through forward buying activities to take advantage of the low price offers between:
retailers & consumers.
distributors & retailers.
manufacturers & distribution.
Eliminate price discounting. Many retailers have adopted everyday low prices (EDLP).
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing

19. 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.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© Thomson Business and Professional Publishing