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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM 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 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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM The Supply Chain Management Integration ModelCont Align SC Strategies with Key SC Process Objectives MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM 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 MBA Nguyen Phi Hoang@2015_SCM 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 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 MBA Nguyen Phi Hoang@2015_SCM 10 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 MBA Nguyen Phi Hoang@2015_SCM 11 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 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 (2002): 19-20 MBA Nguyen Phi Hoang@2015_SCM 12 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 it: Simple start - sharing information MBA Nguyen Phi Hoang@2015_SCM 13 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 MBA Nguyen Phi Hoang@2015_SCM 14 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 MBA Nguyen Phi Hoang@2015_SCM 15 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 MBA Nguyen Phi Hoang@2015_SCM 16 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 MBA Nguyen Phi Hoang@2015_SCM 17 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 Eliminate price discounting Many retailers have adopted everyday low prices (EDLP) MBA Nguyen Phi Hoang@2015_SCM 18 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 MBA Nguyen Phi Hoang@2015_SCM 19 ... Improve External Integration & SC Performance • Extend Integration to 2nd-Tier SC Partners • Reevaluate Integration Model Annually MBA Nguyen Phi Hoang@2015 _SCM Obstacles to Process Integration Along... Nguyen Phi Hoang@2015 _SCM 13 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... 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