Regienakash: MBA - 4th Module - Logistic and Supply Management

ASSIGNMENT QUESTION

Describe the different types of integration that supply management should become actively involved in.

Discuss the challenges focal organizations face as they attempt to integrate different activities and organizations across the supply chain. Explain how supply chain practitioners (managers) should deal with those challenges in order to ensure the success of the supply chain.

Executive Summary

Supply chain management, as the concept is now called, consists of the entire set of processes, procedure, the supporting institutions, and business practices that link buyers and sellers in a marketplace for effectively managing the flow of materials from suppliers to final customers.

Business renovation, the effective utilization of information technology and the role of business process modeling and simulation, are all vital in supply chain integration projects.

This paper shows different types of integration that supply management should become actively involved in and with the challenges faced by focal organization as they attempt to integrate different activities and organizations across the supply chain.

Table of Content

No	Description	Page
	Assignment Question	2
	Executive Summary	3
1.0	Introduction	5
2.0	What is supply chain integration means?	6
2.1	Elements to Supply chain management integration	6
2.2	Production	7
2.3	Supply and outsourcing	7
2.4	Inventory	7
2.5	Location	7
2.6	Transportation	8
2.7	Information and Technology	8
3.0	Benefit of Integration in supply chain	8
3.1	Forming partnership	9
3.2	Forecasting	9
3.3	On-Time Delivery and Inventory	9
3.4	Resilience	9
4.0	Business micro-environment challenges	10
4.1	Transaction Costs	11
4.2	Strategy and planning	11
4.3	Customer order management	11
4.4	Logistic management	11
4.5	Manage operation flexibility	12
4.6	Measure SC benefits	12
4.7	Setting up standards of trade	12
4.8	Procurement management	12
5.0	Business macro-environment challenges	13
5.1	Culture and Change	13
5.2	Supplier competence requirements	13
5.3	Globalization	14
6.0	Technical challenges	14
6.1	Data and information integration	14
6.2	Application Integration	14
6.3	Extranet adapting challenges	15
7.0	Conclusion	15
8.0	Reference	16

1.0 Introduction

To succeed in the digital economy, organizations must manage the integration of business, technology, people, and processes not only within the enterprise but also across extended enterprises. Supply Chain Management (SCM) system facilitates inter-enterprise cooperation and collaboration with suppliers, customers, and business partners.

A supply chain is the stream of processes of moving goods from the customer order through the raw materials stage, supply, production, and distribution of products to the customer. All organizations have supply chains of varying degrees, depending upon the size of the organization and the type of product manufactured. These networks obtain supplies and components, change these materials into finished products and then distribute them to the customer.

Managing the chain of events in this process is what is known as supply chain management. Effective management must take into account coordinating all the different pieces of this chain as quickly as possible without losing any of the quality or customer satisfaction, while still keeping costs down.

The first step is obtaining a customer order, followed by production, storage and distribution of products and supplies to the customer site. Customer satisfaction is paramount. Included in this supply chain process are customer orders, order processing, inventory, scheduling, transportation, storage, and customer service. A necessity in coordinating all these activities is the information service network.

Question 1

Describe the different types of integration that supply management should become actively involved in.

2.0 What is supply chain integration means?

When eBusiness is integrated with ERP, the whole extended system provides a vision of business processes that span multiple businesses and enterprises. In the most ideal case companies should be able to connect disparate platforms, applications and data formats across the value chain, including not only suppliers but customers as well. Furthermore, companies should retain the flexibility to change and add functions to applications as business needs evolve. Companies need to be able to adapt their ERP systems to the emerging world of eBusiness.

The major partners of the supply chain are the suppliers, the organization and the consumers and any other partners involved in the business transactions (like banks, middlemen, etc.). Supply chain refers to the complex network of relationships that organizations maintain with trading partners to procure manufacture and deliver products or services. Supply chain encompasses the facilities where raw materials, intermediate products and finished goods are acquired, transformed, stored and sold.

These facilities are connected by transportation links along which materials and products flow. Supply chain consists of many companies, individuals and institutions. Supply chain management is the coordination of material, information and financial flows between and among all the participants.

2.1 Elements to Supply chain management integration

Key to the success of a supply chain is the speed in which these activities can be accomplished and the realization of that customer needs and customer satisfaction are the very important reasons for the network. Nevertheless, reduced inventories, lower operating costs, product availability and customer satisfaction are all benefits which grow out of effective supply chain management.

Strategic decisions associated with supply chain management deal with corporate policies, and look at overall design and supply chain structure. Operational decisions are those dealing with every day activities and problems of an organization. These decisions must take into account the strategic decisions already in place. Therefore, an organization must structure the supply chain through long-term analysis and at the same time focus on the day-to-day activities.

Moreover, market demands, customer service, transport considerations, and pricing constraints all must be understood in order to structure the supply chain effectively. These are all factors, which change constantly and sometimes unexpectedly, and an organization must realize this fact and be prepared to structure the supply chain accordingly.

Furthermore, structuring the supply chain requires an understanding of the demand patterns, service level requirements, distance considerations, cost elements and other related factors. It is easy to see that these factors are highly variable in nature and this variability needs to be considered during the supply chain analysis process. Moreover, the interplay of these complex considerations could have a significant bearing on the outcome of the supply chain analysis process.

There are six key elements to a supply chain:

2.2. Production

Strategic decisions regarding production focus on what customers want and what the market demands. This first stage in developing supply chain agility takes into consideration what and how many products to produce, and what, if any, parts or components should be produced at which plants or outsourced to capable suppliers. These strategic decisions regarding production must also focus on capacity, quality and volume of goods, keeping in mind that customer demand and satisfaction must be met. Operational decisions, on the other hand, focus on scheduling workloads, maintenance of equipment and meeting immediate client/market demands. Besides that, quality control and workload balancing are issues which need to be considered when making these decisions.

2.3. Supply and outsourcing

Next, an organization must determine what their facility or facilities are able to produce, both economically and efficiently, while keeping the quality high. But most companies cannot provide excellent performance with the manufacture of all components. Outsourcing is an excellent alternative to be considered for those products and components that cannot be produced effectively by an organization’s facilities. Companies must carefully select suppliers for raw materials. When choosing a supplier, focus should be on developing velocity, quality and flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic decisions should be made to determine the core capabilities of a facility and outsourcing partnerships should grow from these decisions.

2.4. Inventory

Further focus should be on inventory and how much product should be in-house. A delicate balance exists between too much inventory, which can cost anywhere between 20 and 40 percent of their value, and not enough inventory to meet market demands. This is a critical issue in effective supply chain management. Operational inventory decisions revolved around optimal levels of stock at each location to ensure customer satisfaction as the market demands fluctuate. Control policies must be looked at to determine correct levels of supplies at order and reorder points. These levels are critical to the day to day operation of organizations and to keep customer satisfaction levels high.

2.5. Location

Location decisions depend on market demands and determination of customer satisfaction. Strategic decisions must focus on the placement of production plants, distribution and stocking facilities, and placing them in prime locations to the market served. Once customer markets are determined, long-term commitment must be made to locate production and stocking facilities as close to the consumer as is practical. In industries where components are lightweight and market driven, facilities should be located close to the end-user. In heavier industries, careful consideration must be made to determine where plants should be located so as to be close to the raw material source. Decisions concerning location should also take into consideration tax and tariff issues, especially in inter-state and worldwide distribution.

2.6. Transportation

Strategic transportation decisions are closely related to inventory decisions as well as meeting customer demands. Using air transport obviously gets the product out quicker and to the customer expediently, but the costs are high as opposed to shipping by boat or rail. Yet using sea or rail often times means having higher levels of inventory in-house to meet quick demands by the customer. It is wise to keep in mind that since 30% of the cost of a product is encompassed by transportation, using the correct transport mode is a critical strategic decision. Above all, customer service levels must be met, and this often times determines the mode of transport used. Often times this may be an operational decision, but strategically, an organization must have transport modes in place to ensure a smooth distribution of goods.

2.7. Information and Technology

Effective supply chain management requires obtaining information from the point of end-use, and linking information resources throughout the chain for speed of exchange. Overwhelming paper flow and disparate computer systems are unacceptable in today's competitive world. Fostering innovation requires good organization of information. Linking computers through networks and the internet, and streamlining the information flow, consolidates knowledge and facilitates velocity of products. Account management software, product configurators, enterprise resource planning systems, and global communications are key components of effective supply chain management strategy.

3.0 Benefit of Integration in supply chain

3.1 Forming partnership

A supply chain cannot be integrated overnight. The process usually evolves levels of integration that grow deeper over time. Even in the early stages of the process there are benefits. The first benefit of integrating a supply chain is forming partnerships. What were purely sourcing and customer relationships are converted into partnerships. This increases levels of trust. Added trust among supply chain partners solidifies ties leading to consistent performance and more predictable sourcing. Former rivals may even become partners.

3.2 Forecasting

The supply chain achieves greater integration by sharing more information. In addition to real-time tracking, companies along the supply chain begin to exchange planning data. The deeper, more valuable information helps companies plan and execute inventory management, shipping, and production schedules with the goal of increasing efficiency. For example, a building company might share forecasting information with a supply chain partner that produces windows to ensure there is adequate supply for a new housing development.

3.3 On-Time Delivery and Inventory

Increased on-time delivery and lower inventory requirements are key benefits of an integrated supply chain. In a study of supply chain management by the Center for Advanced Purchasing Studies, some companies that moved to an integrated supply chain reported doubled inventory turns, had 50 percent improvements in on-time delivery and experienced a 50 percent increase in sales supported by 35 percent lower inventory. In addition, customer service improved and customer loyalty increased due to better on-time delivery.

3.4 Resilience

There are often unpredictable challenges that confront businesses. Having an integrated supply chain provides a layer of resilience when facing chaotic circumstances. By having true partners along the supply chain, a company can quickly adapt to changing circumstances without prolonged production or delivery gaps. MIT's Center for Transportation & Logistics points out that an integrated supply chain achieves resilience by increasing flexibility. For example, companies could cross train employees along the supply chain in to respond quickly to a shutdown at one point along the chain.

Question 2

4.0 Business micro-environment challenges

This part of challenges related to the challenges that effect the supply chain integration from inside the organization's environment.

4.1 Transaction Costs

The decision to outsource business processes and create a supply chain outside the organization requires an assessment of where the boundary of the organization should reside. As such, an economic assessment is required of the various merits of integration versus market provision, thus, the decision is based on a transaction costs approach where there is an “examination of the comparative costs of planning, adapting and monitoring task completion under alternative governance structures”. The outsourcing decision is focused primarily on the management of recurrent transactions; the key dimensions of

this context are the uncertainty and asset specificity germane to the transaction. Since these dimensions will vary, this creates a variety of contexts and the result will be diversity within governance structures.

4.2 Strategy and planning

SCM is an essential component of long-term business competitiveness, so it is sensible to

consider how SCM relates to strategy theory and concepts. An effective supply chain must be able to cope with uncertainty; it follows that it must also be flexible. Therefore,

supply chain management will be one of the organizational processes, or functions, that are a key to strategic success if the organizations look for achieving its mission in an

adaptive and changing environment.

4.3 Customer order management

Customers are becoming more demanding; their expectations are evolving toward

greater levels of service and response with higher degrees of product and service customization. Value chain partners (suppliers, service providers) integrated to provide

differentiated customer segment product/service bundling and superior customer service levels. Increased profitability is the top driver of customer order management performance.

This centered attention on profitability is probably resulting from the economic market conditions of the past few years, but may be a short-term view. Customer responsiveness leads to customer retention and revenue growth. In the longer term view, concentration on customer-facing initiatives and improvements will be significant to profitability achievement.

4.4 Logistic management

The supply chain logistics problems facing multi-site companies can be complex,

involving multiple stakeholders and constraints across the entire enterprise. The more complex the supply chain, the more difficult it becomes for companies to answer basic

questions, such as which crude should they purchase and how should they transport it? Which facilities should process it? What will the best product slate be? Which components should they buy and which should they make? In many cases, different departments or divisions within a company trade, supply chain planning, operations and blending to name a few have a hand in these decisions, but communication

among these entities is not always clear or consistent, and each may optimize to their own objectives without regard for others. The results can drastically affect profitability

4.5 Manage operation flexibility

A firm gains flexibility to quickly realign the supply/demand mix to satisfy changing

global demand. Switching costs and Coordination costs are a barrier to operating flexibility. Switching costs can be reduced if all SC partners standardizing their products and processes globally which is seems to be challenge.

Coordination costs can be significant for global integration of cross-functional supply chain processes. A well-structured global demand forecasting and planning process is an

important mechanism for global coordination across functions. Regional representation to ensure all relevant input is considered important. A globally integrated process with regional representation requires costly resources, information infrastructure, and travel. Globally integrated information systems are critical to reduce the cost of communications and to make relevant information readily accessible or to reduce coordination costs.

4.6 Measure SC benefits

Another problem is that the companies often tend to optimize their own performance,

while doing this; companies disregarding the benefits of the SC as a whole (local instead of global optimization). The maximum efficiency of each chain however does not

necessarily lead to global optimization. In addition, human factors should also be taken into consideration since the decision-makers at various points along the SC do not

usually have a whole view to the SC due to the lack of information or their personal hindrances.

4.7 Setting up standards of trade

For Small and Medium Enterprises (SME) and their suppliers, the high cost of technology is exacerbated by the lack of a widely accepted international electronic information standards governing the financial supply chain. The solution is a standard mechanism

for communications protocols, rather than many standards.

Several organizations have made some headway towards creating such standards, but there are no comprehensive and internally consistent open standards now, which is why

automating the supply chain is so costly.

4.8 Procurement management

A typical manufacturing company needs to procure thousands of products from

hundreds of suppliers; the challenge here is how to manage the complexity of the procurement process, and establishing a strong procurement infrastructure to execute on strategic supply initiatives, using an empowered organization structure, fully integrated to the stakeholder and finance organization.

Moreover, People training and development was the key challenge for procurement organizations, includes skill development; the right recruiting and retention practices, and career paths in other functions outside of procurement. That is, how to set up and how to manage global sourcing offices. Enterprise integration: Enterprise integration doesn’t

happen naturally, it needs to be planned, yet the planning cannot be precise, as business processes and facilitating technologies will change, creating different needs and

different potential solutions.

The reference architecture efforts mentioned define methodologies for building

integrated architectures. The problem of integration is exacerbated by the limits of human cognition, by behavioral issues, by the difficulty of aligning the goals of individuals

with organizational units, and by the relentless need for faster changes.

5.0 Business macro-environment challenges

This part of challenges related to the challenges that effect the supply chain integration from outside the organization's environment. Business process integration: Processes must be coordinated between all the firms in the value chain to achieve improved performance and service. This form of external process integration, which is called value chain

coordination, is the focus of modern supply chain management. The E-commerce helps organizations to be able to connect its internal processes with its stakeholders.

The challenge in business process improvement is that the processes must be coordinated between all firms in the value chain to achieve improvement in performance and service.

Integration must happen between decision making and business process layers which occur whenever human operator (or software agent) makes a decision that change the

flow of work through a process. Decision makers must care about the compatibility issues; business process integration effected by compatibility challenges in a technical,

operational, strategic, and political/legal environment.

5.1 Culture and Change

“The pattern of beliefs, values and learned ways of coping with experience that have developed during the course of an organization's history, and which tend to be manifested in its material arrangements and in the behavior of its members”. This definition of culture

clearly foregrounds the cumulative effects of history and experience which have important practical outcomes that are manifest in employee behaviors. This is important for supply

chain integration, since the accumulated history of relationships and experience, within and between organizations, will provide part of the context within which the inter-organizational activities are enacted. If there is a drive to closer relations within supply chains, this will involve the replacement of existing governance structures and will challenge existing supply chain behaviors associated with traditional bid-buy relations.

5.2 Supplier competence requirements

If customers are moving to fewer suppliers, and investing in strategically important supply chain relations, then SME suppliers that cannot make themselves attractive purely through economies of scale and scope must increase their asset specificity and decrease uncertainty. This requires the supplier to invest in activities that are alien to traditional bid-buy supplier interactions.

Thus, it will require suppliers to respond to the hanging context and develop stronger relational and organizational competences. Since those issues of quality and performance are the baseline measure for the customer-supplier interaction, any existing competences

must support the achievement of this standard. Thereafter, it is the capabilities that create differentiation that will be a key.

5.3 Globalization

The forces of globalization and commoditization in today’s business world are unstoppable. Globalization and commoditization have created a challenge

for companies, which it's How to cut costs and grow simultaneously. During the industrial revolution, companies looked for new markets, new sources of raw material and new

sources of labor. The revolution was fueled by globalization and companies thrived by taking advantage of economies of scale. Senior executives now understand that they can’t just focus on supply chain operations to create efficiencies. The challenge is to integrate supply chain execution with the overall corporate business strategy, and to use the supply

chain as a catalyst for business transformation or business reinvention.

6.0 Technical challenges

This part of challenges related to the technical challenges that effect the supply chain integration from inside-outside the organization's environment.

6.1 Data and information integration

Information integration refers to the sharing of information among members of the

supply chain. The ability to seamlessly connect with customers, partners, and co-workers is vital for success; yet most enterprises store and exchange data in dissimilar formats, such as databases, Electronic Data Interchange (EDI) systems, text files, and, increasingly, XML-based applications. The ability to map between these different formats is mission-critical. This includes any type of data that could influence the actions and performance of other members of the supply chain. The meaning of all data items must be understood and the same data item must have the same definition across multiple applications both within

and outside the firm. To make the integration process worth the effort, the data must be of high quality - timely, accurate and relevant.

6.2 Application Integration

ERP systems achieve application integration because ERP vendor-developed applications that perform common business functions are united through a common database (also providing data integration – one of the selling points of ERP systems.) The integration of the functional applications also implies that integration at the next layer, business processes, is achieved. However a major issue with ERP systems is that they fail to bridge the gap between the application and process layers in a flexible fashion. To reach the application integration firms must break down complex processing; to cope with application integration they must support interactive process. Finally applications must integrate with the business processes

6.3 Extranet adapting challenges

There are several issues to consider while adopting extranet as a facility of SC integration. A firm must be committed to using the system, as phone, fax, and written record, (instead relying on the automated supply chain system) and it influences the firm's processes as well. Issues that we should consider while adapting the extranet include; costs of implementation, loss of trust, unable to adapt to change, losing the inimitability of

Product, unnecessary liability, lack of security, uneven partner benefit, increased independences, and keeping up with the change in expectations.

7.0 Conclusion

Basically supply chain management is the flow of moving goods from one destination to another destination with cost effective and timely delivery accordance to the business needs and gives the profit to the organization.Supply Chain Management is important because of relationship between all parties; Supplier-->Manufacturer-->Wholesaler-->Retailer. If every party join hand and work together, it will create cost savings and time to market reduction and everyone will enjoy the benefit.

THE END

8.0 References

a) elements of SCM retrieved from

http://rockfordconsulting.com/supply-chain-management.htm

b) SCM definition retrieved from

http://aei.pitt.edu/8962/1/2002.1.pdf

c) challenges retrieved from http://www.iaeng.org/publication/IMECS2010/IMECS2010_pp405-409.pdf

d) integration in supply chain retrieved from http://futurestartup.com/2012/05/16/integration-in-supply-chain-perspectives-and-considerations/

e) benefits of SCM retrieved from http://www.wwwood.net/pdf/Integrating%20the%20Supply%20Chain.pdf

f) benefits of SCM retrieved from

http://www.ehow.com/info_8007430_supply-chain-integration-benefits.html

g) challenges retrieved from