Chapter 13

Chapter 13

Chapter 13 SUPPLY CHAIN PROCESS INTEGRATION Disclaimer These slides do not replace the prescribed material. All prescribed material need to be studied for assignment and examination purposes Some of the slide content is based on the 2015 Cengage Learning Instructor resources. 2 CHAPTER OUTLINE

Introduction The Supply Chain Management Integration Model Obstacles to Process Integration along the Supply Chain Managing Supply Chain Risk and Security 3 Introduction Until now, you have studied each of the functions (foundations) of supply chain management individually, for example purchasing, supply management and customer relationship management. However, in order for a business to be truly successful, these different functions of the supply chain cannot work in silos. They should work together to

achieve the overall goal of the organisation. This is referred to as supply chain integration. 4 Introduction Firms in the supply chain must integrate processes to create value for the services and products provided to end customers. Process integration means sharing information and coordinating resources to jointly manage a process or processes. The benefits of collaboration and information sharing between trading partners can be significant. 5

The SCM Integration Model 6 The SCM Integration Model (Continued) 1. Identify Critical SC Trading Partners Sell & deliver products to final customers Identifying primary trading partners allows the firm to concentrate on managing links with these companies

2. Review & Establish SC Strategies for: Parts purchased & suppliers Manufacturing processes Design of the products manufactured Mode of transportation Warranty & return services Outsourcing

Sustainability 7 The SCM Integration Model (Continued) 3. Align SC Strategies w/Key SC Process Objectives Lambert et al. identified 8 key SC processes: 1. 2. 3. 4. 5. 6. 7. 8.

Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development & commercialization Returns management 8 The SCM Integration Model (Continued) 4. Develop Internal Performance Measures for Key Processes Performance should be continuously measured

Create a consistent emphasis on the overall supply chain strategy Firm is able to track progress in each key processes. 5. Assess & Improve Internal Integration of Key SC Processes Formation of cross-functional teams Management support & resources ERP system Develop an understanding of the internal supply chain 9 The SCM Integration Model (Continued) 6. Develop SC Performance Measures for Key Processes Monitor links w/trading partners in key SCM processes.

Trading partners should monitor measures across member firms for each of the SC processes. 7. Assess & Improve External Process Integration & Performance Build, maintain & strengthen relationships Share knowledge management solutions, such as forecast information, new products, & expansion plans. knowledge management solutions enable real-time collaboration and flow of information between supply chain partners 10 The SCM Integration Model (Continued) 8. Extend Process Integration to 2nd Tier SC Partners

Integrate process to 2nd-tier partners & beyond Radio-frequency identification (RFID) tag- relays products location as it moves through the supply chain. Passive RFID tags dont contain internal power. Active RFID tags use battery power & are very expensive. 9. Reevaluate the Integration Model Annually Trading partners should revisit the integration model annually for changes within supply chains (ex. new suppliers entering market, foreign markets opening). Assess the impact of changes on integration efforts. 11 Obstacles to Process Integration (PI) Along the SC

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 Managers must educate suppliers and customers regarding

the overall impact of their actions on the SC 12 Obstacles to PI Along the SC (Continued) Lack of Supply Chain Visibility Information visibility is particularly important in global supply chains Without visibility, extra time must be spent to update data causing higher inventory cost and longer response times Becoming easier with use of cloud-based communication platforms RFID technology promises to add real-time information visibility to supply chains.

13 Obstacles to PI Along the SC (Continued) Lack of Trust Successful process integration requires trust and trust is earned over time Collaboration & trust are based on Start small small scale Look inward establish trust internally Gather round & meet face-to-face Go for the win-win optimize business for all members Do not give away the store: Some information should remain proprietary Just do it: Simple start - sharing information.

14 Obstacles to PI Along the SC (Continued) Lack of Knowledge In the past few years technology has caught up, enabling process integration across extended supply chains Firms successfully managing their supply chains must spend significant time influencing & increasing the capabilities of themselves & their partners. Training of supply chain partner employees is also known as collaborative education, and can result in more successful supply chains

15 Obstacles to PI Along the SC (Continued) Activities Causing the Bullwhip Effect Forecasts & their corresponding orders along the supply chain can become amplified and accumulate, causing the bullwhip effect Variations in demand lead to problems in capacity planning, inventory control, workforce & production scheduling resulting in reduced customer service, increased safety stock, and higher SC costs 16

Obstacles to PI Along the SC (Continued) 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 17 Obstacles to PI Along the SC (Continued) Bullwhip Effect - Order Batching Order batching occurs when sales reps fill end-ofperiod sales quotas, or when buyers spend endof-year budgets

Solution is to 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 Can use automated order systems to order more frequently 18 Obstacles to PI Along the SC (Continued) Bullwhip Effect - Price Fluctuations 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) 19 Obstacles to PI Along the SC (Continued) Bullwhip Effect - Rationing & Shortage Gaming Rationing- When demand exceeds the availability, supplier provides partial supply to customers, who also tend to inflate orders. Shortage gaming- When production capacity equals demand, demand then drops, as the buyers try to unload

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. 20 Managing Supply Chain Risk & Security Managing Supply Chain Risk Increase safety stocks also known as stockpiling and forward buying (stopgap alternative) Identify backup suppliers & logistics services for emergency sourcing (can create ill will with current suppliers)

Diversify the supply base geographically (exposes additional political, customs and exchange rate risks) Utilize a supply chain IT system Develop a formal risk management program (identifies potential disruptions) 21 Managing Supply Chain Risk & Security (Continued) Supply Chain Security System Response Level of Security System Response Description

Basic initiatives Physical security; personnel security; standard risk assessment; computing security; continuity plan; freight protection. Reactive initiatives Larger security organization; C-TPAT compliance; supply base analysis; supply continuity plan; limited training. Proactive initiatives Dir. of security; personnel with military or govt. experience; formal security risk assessment; adv computing security; participation in security groups.

Advanced initiatives Customer/supplier collaboration; learning from the past; formal security strategy; SC drills, simulations, emergency control center. 22

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