Importance Of Integration Within A Supply Chain Business Essay

Supply Chain Integration is the extending of E-Business Information System solutions across not only the internal extended business enterprise both up stream and down stream but to external business partners such as suppliers/vendors and customers.

This report will focus on the importance that Information Technology (IT) such as Enterprise Resource Planning (ERP) Systems and the role they play in today’s modern society and how their implementation will bind enterprises not only on a domestic stage but also within a global economy.

We will commence by analysing current traditional practices within Supply Chain Management (SCM) both domestically and globally and progress to a more modern day SCM operation.

As we progress through and analyse the two markets, both domestically and globally, the importance of technological integration will highlight and identify possible gaps as well as illustrate what the positive outcome will be as a result of Supply Chain Integration.

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The conclusion will outline what the benefits are and what the way forward is for Enterprise Supply Chains who want to be at the forefront of operating a market leading Integrated Supply Chain solution. My personal view point will also be put forward as speculation into what untapped future Supply Chain Integration may be.

3. Introduction

In starting to analyse the importance of Supply Chain Integration we must first

understand traditional supply chain practices.

Traditional supply chain management framework focuses time and resources within a silo driven structure. This type of operation is intra-departmentally focused and does not extend its information systems, efficiencies, resources, collaboration, vision and analysis of operating costs outside the boundaries of its blinkered approach.

This approach has been in practice since major changes in manufacturing, transportation and generally the way business is conducted, this was seen as one of the outcomes of the industrial revolution.

In analysing change and trying to identify the importance of Supply Chain Integration in today’s modern society, we first must understand the shift in paradigm from a vertically non integrated framework to a horizontally integrated framework.

Contemporary Supply Chain networks now operate a horizontally integrated enterprise framework. In essence, part of the driving force has been the recognised importance in technological advancements and the role they play in achieving one thing, value. Montorio (2007), quite rightly notes “Supply chain integration is a vital element in obtaining and maintaining competitive advantages by creating value for all participants in the supply chain”.

4. Background Conceptual Information, definitions, characteristics and examples

Traditional non integrated models as noted within figure 1, Emerald (2012), sees each supply chain business works vertically independently of each other with physical goods traveling down stream and information traveling up stream. Each Business Intelligence System (BIS) operates within its own stream below without cross systems integration.

Figure 1

Operating a non system integrated supply chain is short sighted and brings with it many disadvantages. These disadvantages can be classified as lack of economic value, lack of market value and lack of relevancy value.

Lack of economic value increases costs across the enterprise, does not take advantage of any economies of scale, is slow or has no visibility into product service or creation.

Lack of market value has limited product assortment, can not take advantage of any economies of scope and is lacking in product service and presentation.

Lack of relevancy value can not take advantage of customisation, can not concentrate on segmented diversity and can not take advantage of product and service positioning. Businesses that still operation in this fashion are function orientated.

Modern day Supply Chains have shifted their behavioral change towards an integrated flow orientated view and also observe a Total Cost Management solution. This new way of thinking has been somewhat imparted on the industry due to the evolution in behaviours, industry challenges and Information Technology. Companies and industries have moved away from using industry specific software to implementing Enterprise Resource Planning systems.

The scenario below is a horizontal integrated model which incorporates integration of information as an umbrella within an Enterprise Resource Planning system as well as covering all key stakeholders.

Figure 2

. 2012. . [ONLINE] Available at: http://www.ijlm.org/images/info-flow520.jpg. [Accessed 14 October 2012].

Integration takes into account the eight major supply chain processes.

Bowersox (2012, p.15) describes the Eight Supply Chain Integrative Processes as:

Demand Planning Responsiveness

Customer Relationship Collaboration

Order Fulfillment/Service Delivery

Product/Service Development Launch

Manufacturing Customisation

Supplier Relationship Collaboration

Life Cycle Support

Reverse Logistics

The integration of these processes across departments, organisations, industries and countries requires all levels of the process to be actively engaged. In essence, integration reaches far beyond the importance of information systems, although this is a driver factor in the evolution. Other dynamics considered within Supply Chain Integrations Management are the integration of cultures (language barriers and systems conversions), environment (sustainability and impact of carbon footprint), processes (migration of many to one standard), cost orientation (not all parties can afford the design and implementation) and customer orientation (understanding what the right economy of scope is for each market segment demand).

The reality is that it provides full transparency of any order/product actively or not, moving through the supply chain. This is where we start to identify and understand the importance, impact and advantages of how systems and wider integration across the eight major supply chain processes brings with it a multitude of benefits as it now becomes a seamless and effortless exercise, using minimal resources to make informed decisions.

5. Importance of Integration

Now that we understand what drives systems supply chain integration, it is vital we start to recognise the importance, impact and advantages of working with real time shared data.

The scope impacted across the eight supply chain processes within an integrated supply chain are information, integration it self, work flow and harmonised planning.

Integration importance in Demand Planning means information sharing is transparent, provides real time openness and allows those responsible for premeditated planning within management to allow operations to maximise reaction times is achieving high rates of customer accommodation.

Integrating the customer to achieve high rates of accommodation is well connected to collaborative relational efforts. Ingram (2004) states that customer integrated collaboration “enables individuals to conform to a common way of working and to develop and improve their own ways of working within both their abilities and specific customer needs”. Understanding your customer’s needs and having the ability to openly share those brings with it trust and brand loyalty.

In all of this integration there is an underlying requirement for Electronic Data Interchange (EDI). This is the direct or phased link normally occurring between two or more external parties. Integrated Order Fulfillment ensures that seamless live connections (interface) between connected parties are automatically processed. This decreases administration times and costs in processing and increases, productivity and aids within supply chain meet/exceed delivery windows, therefore adding value to overall increased performance.

Speed to market for businesses is of most importance in trying to gain a competitive market advantage. The way Products and Services are Developed and Launched requires the right integrated framework.

In order to achieve this, the most Lean of processes and relationship collaboration between internal and external parties is required to achieve synergies across functional groups in meeting customer demands.

Cross functional integration ensures that all parties have visibility of what the offer is to the market and drives the correct execution because everyone is working with the same visibility on the one strategy.

A spin off of having integrated processes is the visibility that Manufacturing have within the supply chain process.

Integration transparency helps manufacturing strategies build on planning and techniques such a postponement.

The importance here is that manufacturing know what is traveling through the supply chain, this means that the manufacturing process allows for only providing what is required for the customer. This advantage gives manufacturing the flexibility to change and meet demand. It transforms the operation from a “push” to a “pull” focus. It has all the right parts manufactured for the ready but only assembles them once the order is received.

Achieving a successful down stream supply chain involves a very well integrated up stream structure.

Therefore, collaboration with Suppliers is very important towards realising the facilitation and joint planning in meeting organisational strategic plans.

Suppliers must have full visibility from the end user/customer all the way up stream in order to meet operational developments down stream.

Life cycle support and Reverse Logistics are towards the end of the supply chain. This does not mean that they don’t deserve to have as much importance or require as much attention placed on them. In most instances this is where most customer interaction occurs. After products are delivered nominally known as the “Last Mile”, the single most important aspect for a consumer is after sales service. The requirement to have integrated systems with support service crews and reverse logistics ensures a streamlines solution for all to follow.

From a service perspective it could be as simple as dispatching the correct service crew with the right part from the closest location to perform a repair.

In terms of reverse logistics the importance as an example could be having the correct transport means within the closets vicinity to have goods picked up and returned for either destruction or re-use, which ever is pre-determined to be the most cost effective resolution.

The overall importances of Supply Chain Integration as noted in the above commentary realise the following results:

Integration creates value (Monetary Benefits, Customer Accommodation)

Integration creates Optimisation

Increased information sharing

Drives lowest possible total process cost as a result of transparency

Allows people to manage across multiple enterprises both internally and externally

Breaks down functional barriers and promotes cross divisional or cross company collaboration

Speeds up inventory flow within a supply chain network

Increases information flow

Improves process and quality output

Reduces stock holdings

Greater turn around time (responsiveness), lead times

Provides transparency

Provides increased planning and performance management

Promotes collaboration and accountability

Improved customer awareness i.e. Helps create brand trust (e.g. customers knowing that a company is off shore manufacturing but is doing its corporate due diligence and being supportive of human rights) (i.e. child labour)

Helps to increase awareness in improving sustainability efforts both up/down stream (Supply Chain Sustainability)

Helps expand market penetration and organic growth

All this cross functional integrations goes towards increasing the optimisations of overall processes efficiencies “Supply Chain Synchronisation” while driving down Total Overall Supply Chains Costs.

6. How integration interacts and facilitates the supply chain

Supply Chain Integration interacts on every level of supply chain management.

In this day and age businesses are driven by the facilitation of Information Technology.

A current day example (Not to be published) of how integration interacts and facilitates supply chain is as follows:

Woolworths Supply Chain, Off Shore Capital Equipment Purchases

High Level Current Day Process Snapshot

Forecast generated (in excel) based on average supermarket 3800 kit size (Does not consider other kit sizes)

Orders placed six months in advance in SAP(take into account manufacturing and shipping lead times)

Orders received off shore and re-processed into SAP system for suppliers

Orders re-processed into shipping system for tracking

No visibility of manufacturing (until Woolworths office in HK advises of Estimated Time of Despatch (ETD)

Automatic email sent to Buyer once booking has been made on vessel (Excel format)

Shipping coordinator tracks vessels through excel spreadsheet

Shipping coordinator advises warehouse of incoming goods (excel based de-stuffing form)

Vessel landed, shipping coordinator is advised by freight forwarder when goods will be transported from docks to Warehouse

Warehouse receive goods, record the de-stuffing of container and send back excel form to Shipping coordinator for Goods Receipting

Shipping coordinator goods receipts items in system but is dependant on warehouse Stock On Hand (SOH) to manage inventory

Allocations occur based on warehouse SOH

All costs are captured by finance in a clearing account and proportioned every week to create assets

As a very quick snap shot, it’s very easy to see that the process is manual and no one party has full visibility of what stage the order/inventory is at.

High Level Proposed Future Process Snapshot

All SAP module functionality to be activated and integrated

Forecasting and Demand Requirement Planning to take into consideration all new store kit sizes based on demand project program (visibility to all parties)

Interface between Australia and HK to receive all Purchase Orders for off shore supply

Interface between SAP and Shipping system for tracking

Web portal interface with warehouses to goods receipt and manage inventory within Woolworths SAP

Sales orders to appropriate equipment from inventory to projects

Finance incorporation at every stage

The benefit of running and Enterprise Resource Planning system means that no matter what department within an organisation (Internal) you are or whether you are a supplier or customer (External), having full system integration and synchronisation promotes the best lean result for all parties involved with full lucidity and cost avoidance.

The added advantage of running such a system is that part of its functionality is that the actual system is constantly questioning its self based on lean/six sigma principles in order to minimise waste and achieve near perfect quality processes and procedures in meeting consumer demand.

7. Discussions on implications and future directions

Just like all business decisions considerations have to be given to what is productive (Pro’s) and what is contrary (Con’s).

The Pro’s have already been outlines with the Importance’s of this report.

The contrary or implications of integration are:

Financial implications – Cost of integration must be inline with company strategies and with Return On Investment (ROI). Smaller organisation may not have the revenue or capabilities for change.

Resentment to change – Business cultural and behavioural changes must be driven from the top for them to succeed.

Lack of understanding or agreement on where functions are to reside

Unwillingness to share some market sensitive information with a third party

Finding the right partners at your level of business able to integrate

The future direction in Integrated Supply Chain Management will continue to evolve as long as there is competition in the global market.

The way forward will be based around customer demand and an organisations effort in reducing the Cost of Doing Business (CODB) in meeting customer accommodation.

My belief on future directions of supply chain integration is of two view points:

Integrative Regressive

Meaning that, larger companies who want to incorporate smaller business/customer partnerships but have smaller systems and can not afford the latest software can do so by allowing regressive systems compatibility. Spanos (2007) notes that there is a rising need for “Enterprise Application Integration (EAI), Business-to-Business (B2B) integration and interoperability in between the intra-enterprise and trans-enterprise heterogeneous information systems”. This infers the development of a super platform for all communication of supply chain systems.

Direct Progressive

Companies that deal with high turnover businesses will work directly over an open web based platform directly into say a “Woolworths” ERP system through individual business log in information. These companies who are approved business partners and choose to work directly into a “Woolworths Supply Chain” system will be charged with the privilege of doing so. This eliminates the requirement on behalf of the partner to purchase systems as they are in-house integrated in “Woolworths” them selves via an open web based platform.

8. Conclusions

In concluding, it’s very clear that integration within the supply chain is of great importance for the survival of an organisation.

As aggressive globalisation drives organisations to search for a better and more cost effective way to do business, in turn businesses need to adapt there information systems integration to keep up with evolution and provide transparency and flexibility throughout its supply chain.

Without these fundamentals in place to support the cross functional supply chain processes and key stakeholders, an organisation may as well concede to closing its operations!