CHAPTER 13- SUPPLY CHAIN PROCESS INTEGRATION Principles of Supply Chain Management: A Balanced...
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Transcript of CHAPTER 13- SUPPLY CHAIN PROCESS INTEGRATION Principles of Supply Chain Management: A Balanced...
CHAPTER 13- SUPPLY CHAIN PROCESS CHAPTER 13- SUPPLY CHAIN PROCESS INTEGRATIONINTEGRATION
Principles of Supply Chain Management:
A Balanced Approach
Prepared by Daniel A. Glaser-Segura, PhD
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 2
Learning ObjectivesLearning 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.
© 2005 Thomson Business and Professional Publishing 3
Chapter Thirteen OutlineChapter Thirteen Outline
Supply Chain Mgmt (SCM) Integration Model
Identify Key SC Trading PartnersReview & Establish SC StrategiesAlign SC Strategies w/ObjectivesDevelop 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.
© 2005 Thomson Business and Professional Publishing 4
IntroductionIntroduction
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.
© 2005 Thomson Business and Professional Publishing 5
The Supply Chain Management The Supply Chain Management Integration ModelIntegration Model
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 6
The Supply Chain Management The Supply Chain Management Integration Model- Cont.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.
© 2005 Thomson Business and Professional Publishing 7
The Supply Chain Management The Supply Chain Management Integration Model- Cont.Integration Model- Cont.
Align SC Strategies with Key SC Process Objectives
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 8
The Supply Chain Management The Supply Chain Management Integration Model- Cont.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.
© 2005 Thomson Business and Professional Publishing 9
The Supply Chain Management The Supply Chain Management Integration Model- Cont.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.
© 2005 Thomson Business and Professional Publishing 10
The Supply Chain Management The Supply Chain Management Integration Model- Cont.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.
© 2005 Thomson Business and Professional Publishing 11
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chainthe 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.
© 2005 Thomson Business and Professional Publishing 12
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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): 19-20.
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 13
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.
© 2005 Thomson Business and Professional Publishing 14
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.
© 2005 Thomson Business and Professional Publishing 15
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.
© 2005 Thomson Business and Professional Publishing 16
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.
© 2005 Thomson Business and Professional Publishing 17
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.
© 2005 Thomson Business and Professional Publishing 18
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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).
Principles of Supply Chain Management: A Balanced Approach by Wisner, Leong, and Tan.
© 2005 Thomson Business and Professional Publishing 19
Obstacles to Process Integration Along Obstacles to Process Integration Along the Supply Chain- Cont.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.