SCM Coordination and SCM Integration

Vidhu I vadakkan

School of Management Studies CUSAT, Kochi-22E-mail:vidhu.vadakkann@gmail.com

Abstract: Supply chain management (SCM) is defined as the integration of key business processes from end user through original suppliers providing products, services and information that add value for customers and other stakeholders. The customer is an integral part of the supply chain and the primary purpose of any supply chain is to satisfy customer needs in the process of generating the profit for itself. Supply chain activities begin with a customer order and end with a satisfied customer. There must be an easy access for coordination and integration among the suppliers for effective Supply Chain Management. These elements are equally important for fluctuation of orders, inventory maintenance, replenishment lead times, transportation costs etc. Certain incentives are also permitted by the supply chain partners in order to avoid the distortions (unavoidable delays, over ordering etc.)[1]. Coordination is realized when a decision maker in the supply chain, acting rationally, makes decisions that are efficient for the supply chain as a whole [2]. Supply Chain Integration is defined as an approach that seeks to coordinate and harmonize all elements of a supply chain from raw material to finished product in order to achieve higher levels of overall performance and reduced cost [3]. Increasing competition due to market globalization, product diversity and technological breakthroughs stimulates independent firms to collaborate in a supply chain that allows them to gain mutual benefits. This requires the collective know-how of the coordination mode, including the ability to synchronies interdependent processes, to integrate information systems and to cope with distributed learning. The researcher utilized secondary data, including digital libraries, online databases, journals, etc. to review SCM research papers in different aspects. This exploratory study reveals the evolution of SCM in various industries, including manufacturing and service industries, and its future trends. SCM assists the business organization to compete in the dynamic international market [4].

Key Words: Supply Chain Management, Supply Chain Management Coordination, Supply Chain Management Integration.

1.0 INTRODUCTION

1.1. General Information

SCM had its origin in factory assembly lines and Japanese management practice, took practical shape in the Electronic Data Interchange (EDI) systems of the 1960s, and was developed in 1990s into Enterprise Resource Planning (ERP) systems. These were firstly unlinked systems independently controlling Production, Storage, Distribution, Material Control, etc. In a second stage of development, these systems were integrated under one plan, and this last plan was then vertically integrated with upstream suppliers and downstream customers [5]. Forrester is the first to identify the phenomenon of oscillating and amplifying order behavior upstream of supply chains and its effects on inventories, capacity utilization and other operational parameters. This Forrester effect has become known as the bullwhip effect and can be considered to be the best-known phenomenon of supply chain inefficiencies. The first time the bullwhip effect was evident in an industrial company in the supply chain of Procter & Gambles diaper products. Though diaper sales were relatively stable, fluctuations of distributor orders were much higher and so were material orders of Procter & Gambles suppliers (Lee 1997). After this discovery, the same effect has been observed in other supply chains as well and is still evident. The bullwhip effect is evidence of the consequences of uncoordinated decision making for which there must be easy access for coordination, collaboration and integration for an effective Supply Chain Management.The resulting order fluctuations have a variety of consequences for the supply chain. These fluctuations increase manufacturing costs, inventory costs, replenishment lead times, transportation costs, and labor costs for shipping and receiving. Additionally, the level of product availability decreases and relationships across supply chains are affected negatively (Andraski et. al. 1998)[6].

2.0 SUPPLY CHAIN MANAGEMENT COORDINATION AND INTEGRATION SCM COORDINATION

2.1. Supply Chain Management Coordination

Coordination aims at achieving global optimization within a defined supply chain network. Interactive, joint collaborative efforts aim to exploit hidden potential and consequently expand the optimization potential, i.e. it shifts the efficient performance frontier upwards. The three types of coordination in terms of level of involvement, in ascending order: (1) simple information exchange, (2) formulated information sharing, and (3) modeled collaboration.Simple information exchange is straightforward in its meaning. It refers to information exchange without additional interpretation or rules. In formulated information sharing, such policies as restocking policies are shared together with operational information. In modeled collaboration, operational models are also shared, together with capabilities, factory load, inventories, and orders. This understanding can be directly linked to the three levels of collaboration which are data exchange, cooperative collaboration and cognitive collaboration. These views, however, indicate a more extensive information sharing scheme on the highest level instead of a close team-work-like working relationship. As in the bullwhip effect, supply chain profitability as a whole can only be maximized when all stages are coordinated. This does not mean coordination is less important or relevant; it is just not as intensive. Consequently, this must lead to concerted decisions. The significance of coordination has been confirmed by a study conducted by Thonemann among manufacturing companies. There, supply chain coordination has been identified as the top success factor by manufacturing companies. It is inferred that a supply chain is fully coordinated when all decisions are aligned to accomplish global system objectives. Information sharing is of central importance for coordination which allows for coordinated forecasts and forecasts based on richer information.Thus, a lack of coordination occurs when decision makers have incomplete information or incentives that are not compatible with system-wide objectives. As in bullwhip effect, even full information availability does not guarantee optimal supply chain performance. Nevertheless, full information availability can have a significant, positive impact on supply chain performance. But the problem of conflicting objective functions may remain and cause forecasts to be distorted (Swaminathan and Tayur). Complementary to the counter-measures identified by Lee, Padmanabhan, and Whang in the context of the bullwhip-effect, Chopra and Meindl have considered five categories of obstacles to coordination. These comprise factors that lead to local optimization, an increase in information delay, distortion, and variability within the supply chain. These categories are: a) Incentive obstacles: These are obstacles that are caused by wrong incentives provided to supply chain members in order to influence their decisions to support global optimization instead of pareto-efficient solutions. b) Information processing obstacles: They consist of orders based on forecasts instead of customer demand, and a lack of information sharing. c) Operational obstacles: Lot requirements, rationing and shortage gaming, and large replenishment lead times can be summarized as operational obstacles. The effect of lead times was pointed out which can result in the halving of forecast errors.d) Pricing obstacles: Lot sizes based on quantity discounts and price fluctuations contribute largely to the variability within supply chains.e) Behavioral obstacles: Policies and management practices, such as frequency of MRP runs, limited company perspective and local optimization characterize this category. Centralization, known as risk pooling, referred to as a horizontal coordination mechanism. Risk pooling reduces demand variability if demand is aggregated across locations. It is a means by which safety stock and average inventory can be reduced in a system. Of course, some costs might increase, such as transportation costs or customer lead time and therefore this has to be weighed against the benefits. Square root rule is a system for inventory can be reduced proportionally to the square root of the number of stock locations before and after centralization, under certain assumptions, researchers have summarized the major strategies and coordination mechanism:a) Price coordination using quantity discounts: System optimization is sought through the alignment of a manufacturers pricing structure with a customers purchasing incentives under a variety of conditions, such as capacity restrictions and different information availability.b) Non-price coordination: This includes mechanisms such as service territories, quantity forcing, and service differentiation.c) Buy-back and returns policy: Such strategies aim to increase stocking incentives for customers, especially for perishable products.d) Quantity flexibility: Contracts including flexible quantities such as a guaranteed amount of minimum purchases by a buyer and maximum amount of products made available through a supplier aim at sharing the risks of forecast deviations.e) Allocation rules: Due to scarce capacity resources, customers might distort their orders, which in turn lead to supply chain inefficiencies [1].Under certain conditions, a supply chain is better off not providing truthful information about actual order requirements but also note that this might change if conditions change, such as marginal cost for capacity or marginal customer costs. Increasing competition due to market globalization, product diversity and technological breakthroughs stimulates independent firms to collaborate in a supply chain that allows them to gain mutual benefits. This requires the collective know-how of the coordination mode, including the ability to synchronies interdependent processes, to integrate information systems and to cope with distributed learning. The efficient coordinated scheduling of production and air transportation becomes a challenging problem as global companies move towards higher collaborative and competitive environments [7].Taxonomy of coordination modes:A symbiotic relationship becomes important to facilitate networking among divisions within a firm, or between firms in a supply chain. The main concern of supply chain management is how to coordinate the independent players to work together as a whole to pursue the common goal of chain profitability in changing market conditions. Generally, Malone and Crowston (1994) define coordination as the act of managing interdependencies between activities performed to achieve a goal. In the supply chain context, coordination can be viewed as an act of properly combining (relating, harmonizing, adjusting, aligning) a number of objects (actions, objectives, decisions, information, knowledge, funds) for the achievement of the chain goal. Since the nature of an object of coordination varies, a separate coordination mode is required to manage a specific object. Although the chain members implicitly apply different coordination modes to assist one another to manage processes, capabilities and information in response to market uncertainty, little attention has been paid to distinguishing and unifying them.Taxonomy of coordination refers to the act of classifying different coordination modes under one roof. The mutuality of coordination can be divided into two main dimensions, namely complementarity of processes and coherency of understanding. Complementartly refers to how the chain members collectively manage interdependencies between logistics activities to create value. Interdependence is the degree to which one process depends on the other to achieve the overall value creation processes. Managing logistics processes along the supply chain and removing economic barriers such as incentive misalignment are the concerns of complementarity. Milgrom and Roberts (1990) initiate the concept of complementarily between interdependent activities and modern manufacturing. They argue that modern manufacturing does not involve small adjustments made independently but rather substantial and coordinated changes in the overall business processes from material procurement to product delivery. Complementarities among those activities lead to increases in mutual values such as increased sales and lowered logistics costs that can be shared by the participating members. Similarly, complementarity of the logistics processes across the supply chain leads to substantial benefit for all members. When chain members synchronies decision making about value creation to ensure a seamless flow of goods and services and coordinate the benefit sharing associated with logistics improvement, they are likely to shape complementarily.Coherency refers to the degree of consistency of reasoning across organizational borders through diffusing common understanding. To meet the requirements for coherency, the chain members need to share information and knowledge that can be used to make sense of the process interdependencies and to manage uncertainties along the supply chain. Lissack and Roos (2001) verify the fact that organizations must find ways to make sense about their identity in a turbulent environment in order to build a coherent viewpoint and actions. The second dimension is the focus of coordination on either operational or organizational linkages. Linkages exist when activities taken by one chain member affect activities or outputs of another chain member. Therefore, linkages are the interfaces between firms where chain members need to coordinate their joint decisions. Operational linkages focus on the integration of interdependent processes and information flows that provide ways for partners to carry out logistics planning and day-to-day transactions. Recognizing operational linkages allows the chain members to contribute to, and become involved in, the operational decision making. Organizational linkages consist of interconnected actors who perceive and argue about their own interests in carrying out collective action. Appreciating organizational linkages allows them to understand partnership activities and bargaining realities. Both of these linkages provide the groundwork for successful coordination. Four coordination modes can be identified based on the two dimensions of coordination:(1) Logistics synchronization;(2) Information sharing;(3) Incentive alignment; and(4) Collective learning. [8]Logistics synchronization:Logistics synchronization means recognizing and concerting improvement initiatives that significantly contribute to value creation in the acquisition, consumption and disposition of products and services in todays rapidly changing markets.Govindarajan and Gupta (2001) suggest three interrelated areas to ensure logistics synchronization:(1) Customer definition;(2) Customer value identification; and(3) Value creation process design.Information sharing:Incentive alignment:Incentives define how decision-makers are to be rewarded or penalized for the decisions they make.Collective learning:The coordination of collective learning deals with how to tackle the coherency problem of initiation and diffusion of knowledge across organizational borders (Sawhney and Prandelli, 2000).Coordination theory: There are two approaches to achieve coordination. The first is to centralize decision making to a single entity, which attempts to optimize the network. The second type is decentralized decision making that utilizes coordination mechanisms (Sahin and Robinson, 2002) [7].

2.2. Supply Chain IntegrationSupply Chain Integration is the use of technology to underpin the coordination of these business functions. Businesses implementing Supply Chain Integration use a common platform like Celtrinos Smart Admin, to provide a way to connect the disparate systems at each business and the transactional workflow required to move from raw materials to saleable product and the data interchange between each supplier in the process.In the past, every step of the supply chain required manual intervention to process and progress orders and generate the paperwork required to keep track of each interaction. The supplier of raw materials would receive a manual purchase order from the manufacturer and in return create a manual invoice. Several documents would then change hands at every point of the initial purchase process to keep everything on track and ensure an accurate audit trail of the sale. This flurry of documents is then repeated at every step along the supply chain right up to the final sale [10].ISCM Implementation Steps:There is no proven path to implementing ISCM. There are so many operational and strategic facets to ISCM that any given implementation can take an infinite variety of forms, progress through radically different stages, and result in several different outcomes. However, broadly speaking, ISCM implementations should focus on these steps: assessing supply chain opportunities; developing an ISCM vision; developing an ISCM strategy; creating the optimum ISCM organizational structure; establishing the ISCM information and communication network; and Translating the ISCM strategy into actions.While organizations can modify the sequence and emphasis placed on these steps to meet the needs of a particular situation, these activities are recommended as a guide for implementing ISCM.Assessing Supply Chain Opportunities: Changing consumer demographics, the emergence of new distribution channels, the consolidation of trading partners, and the increasing use of computer and telecommunications technology are creating a changing environment for organizations. Each of these factors is producing new challenges and new supply chain opportunities. An effective way to begin assessing supply chain opportunities is by forming an organization-wide steering committee that oversees all related project activities, challenges the basis of recommendations, and approves final recommendations and implementation plans. To spearhead the opportunity assessment effort, the creation of a supply chain assessment team that works under the aegis of the steering committee is recommended.The focus of the assessment team must be on facts rather than guesswork or emotions. Several categories of information need to be gathered and analyzed including: competitiveness of the organization; consumer and trading partner preferences; the strength of the brand or the product line; the impact on production and logistics operations; and Risks and rewards.Developing an ISCM Vision:Step two in the implementation process is to create a vision of the desired supply chain. Visioning provides organizations with specific goals and strategies on how they plan to identify and realize the opportunities they expect to find in the marketplace. Four critical dimensions to be included in formulating an ISCM vision are: sourcing; demand flow; customer service; and Supply chain integration.These objectives are achieved through careful analysis, collaboration, and communication among supply chain partners. Each dimension of the visioning process brings new perspective and progress toward these objectives.Developing an ISCM Strategy:An ISCM strategy must create maximum economic value for the customer. World-class ISCM strategies are based on or incorporate many of the following principles of supply chain excellence: Formulate a differentiated supply chain strategy. Segment customers based on service needs. Customize the logistics network. Organize business units around major processes, not functions. Outsource elements of the chain for higher performance. Differentiate product closer to the customer. Develop a supply-chain-wide technology strategy. Capture signals of market demand and plan accordingly. Set clear guidelines for creating or terminating alliances with supply chain partners. Adopt channel-spanning performance measures.Creating the Optimum ISCM Organizational Structure:Once the ISCM strategy has been articulated and accepted, the next task is to define how the customers needs will be met at each stage of the supply pipeline, as well as who among the participants can best fulfill that need. The role of each partner within an ISCM organizational structure cannot be static. As new customer segments are identified or new channels are developed to serve current customers, the network structure and the role of participating organizations will need to change. In some cases, new participants with new skills, such as electronic capability or global reach, may be recruited. If this is done, the entire network should be reconfigured to ensure effective integration of new with existing players and skills. Some of the more beneficial approaches used to create ISCM organizational structures have been used by firms such as Corning, Allied Signal, and AT&T, including: Engineering and design talent is shared among trading partners, focusing on those projects and products that hold the greatest promise for mutual benefit. Joint design and development and assignment of joint resources to work through challenges and opportunities to isolate innovative and marketable solutions are part of this collaborative effort. Joint training sessions are led by the best available, most highly skilled trainer from among the participating units. Executive overviews are conducted jointly as the search for identifying leading practices that will benefit all the trading partners continues. Benchmarking and high-level briefings serve to ensure that the network remains responsive to changing conditions. Cross-organizational pilot tests of new ideas or products provide benefits both in lessons learned and problems avoided. Joint investments are made in specialized equipment or focused facilities that support the supply network.Establishing the ISCM Information and Communication Network:The thread that draws channel partners together is a common objective and its communication. Information, and the tools and technologies that create it, provide the means to bridge organizational boundaries and support inter-organizational learning. The development of a robust information and communication network aids ISCM participants in achieving several critical supply chain requirements. Several primary features define effective ISCM information and communication systems including: They are based on distributed open systems, or client/server architectures that will allow business systems as well as personal computers to talk with one another; Distributed relational database technology underlies the network structures allowing for ready access and transparent use by individuals and enterprises in any location; Systems span inter-enterprise functional boundaries and enable the development and structuring of global channel-wide information networks, allowing companies to share information regarding customers, production, inventory, and finance with their supply chain partners; and These systems are able to process transactions from multiple organizations and infrastructures rapidly and accurately.ISCM information and communication networks can be divided into the following three stages: Transactionalelectronic execution of transactions; Information-sharingelectronic sharing or exchange of information; and Collaborativeelectronic collaboration on strategic, tactical, and operational planning.Translating ISCM Strategies into Actions:For most organizations, implementing an ISCM strategy spanning material and product flow from vendors to final consumption, across an array of different organizations or functional groups, is a complex task. While the specific implementation path will vary by organization over the months and years following the definition of an ISCM vision and strategy, a range of actions are required by channel partner organizations, including: appointing a process owner; aligning culture with strategic response; reengineering critical business processes; measuring performance; developing and training the workforce; communicating and demonstrating senior management commitment; involving stakeholders and gaining commitment to change; implementing a system to track benefits; communicating with all stakeholders; and Creating an integration map [11].The integration of supply chain processes can provide an effective means by which costs can be reduced and customer service levels improved [12]. Effective supply chain management (SCM) has become a potentially valuable way of securing competitive advantage and improving organizational performance since competition is no longer between organizations, but among supply chains [13]. Supply chain management (SCM) is a well-established discipline that involves the coordination of an organizations internal planning, manufacturing, and procurement efforts with those of its external partners (i.e. suppliers, retailers, etc.)[14].A warehouse may also be called a distribution center; Warehouse management is the process of coordinating the incoming goods, the subsequent storage and tracking of the goods, and finally, the distribution of the goods to their proper destinations [15]. The fields Supply Chain Management (SCM) and Total Quality Management (TQM) are immensely deliberated among the researchers and academia since 1980s. Both topics had their emergence from the requirements of serving the needs of customers with high aspirations. TQM emanated with the contributions of quality gurus during 1950s [16]. Supply chains cannot tolerate even 24 hours of disruption. So if you lose your place in the supply chain because of wild behavior you could lose a lot. It would be like pouring cement down one of your oil wells[17]. The Integrated Supply Chain Management (ISCM) project addresses coordination problems at the tactical and operational levels. It is composed of a set of cooperating, intelligent agents, each per-forming one or more supply chain functions, and coordinating their decisions with other agents -this is called a Logistical Execution System (LES)[18]. In the course of time, the most considerable benefits to businesses with advanced SCM capabilities will be radically improved customer responsiveness, developed customer service and satisfaction, increased flexibility for changing market conditions, improved customer retention and more effective marketing [19]. Firms within a supply chain routinely communicate with each other. This form of inter organizational communication can occur in many ways, from the postal transfer of paper invoices and purchase orders to sophisticated information technology (IT) that links two companies databases[20].

3.0. ILLUSTRATIONS

3.1. Figures And Photographs

Fig. 1 ISCM Implementation Steps.3.2. Tables

Table 1. Taxonomy of coordination modes in a supply chain.AuthorType of coordinationWhen used

Thompson, 1967Galbraith, 1970Coordination byStandardizationEstablishing routines and rules for stable or repetitivesituations, generalized interdependence. Requires least communication and low decision making effort.

Thompson, 1967Galbraith, 1970Coordination byPlanningSetting targets and schedules to govern the actions in Interdependent units. Should be used in more dynamic situations than standardization with sequential Interdependence. Requires intermediate effort.

Thompson, 1967MutualadjustmentInvolves new information transmission during theprocess or action, reciprocal interdependence, demands more effort.

Van de Ven andDelbecq, 1976Team increases.arrangementNeeded when interdependence increases.

Table 2. Types of coordination [9].4.0. CONCLUSION

Supply chain management (SCM) is defined as the integration of key business processes from end user through original suppliers providing products, services and information that add value for customers and other stakeholders. Coordination aims at achieving global optimization within a defined supply chain network. Supply Chain Integration is the use of technology to underpin the coordination of these business functions.

5.0. REFERENCES

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