Supply Chain Management:
Integration vs. Non-Integration (E)
What makes a difference between companies with and without integrated supply chain. What is the competitive advantage of companies with integrated processes?
Posted: Oct 2011
Today everything is about integration within supply chain management. Partial solutions are falling behind, since partial solutions are bringing partial results. What is integration bringing to the company? Traditional companies are function oriented. This means that every department is taking care about own key performance indicators first. Functions used to care about other departments and customers as well, but the own department was first. This approach is no longer possible, because two reasons.
First reason is referring internal efficiency. The functional, or "silo thinking" is bringing efficiency level that is below optimal level. Functional thinking and actions in favor of department may bring saving to the one department, but cost to the other department. At the bottom line this may be cost for the company. For example, procurement is purchasing cheaper raw material, but this reduces production efficiency, due to frequent stoppages. Integrated supply chain management should promote end-to-end business philosophy, instead philosophy of function. End to end process should harmonize activities within the company that would increase overall efficiency.
The other reason is referring to the customer service. Functional thinking does not put customer to the first place. End-to-end process alignment should have the customer at the "end" of the process flow. This is the only way of achieving customer centricity that will bring sufficient competitive advantage. In return, the satisfied customer is returning with the increased level loyalty and willingness to buy company's product.
What change it requires to achieve this transformation? First change management is the change of the mindset. This is hard to do, since it requires the cultural change. This change can succeed only with the persistent top-down approach that should be based on showing the change by act. If the CEO is behaving customer centric, his function heads should do it as well, and they should cascade it down.
Following change is the process change. Restructuring the process change must be done along with technology change. The modern technologies and enterprise resource systems provide a firm base for integrated process management within whole supply chain. Only the full change in business technology, process design and cultural background can bring full integration of flow product, information and finances.
What is the value of having an integrated supply chain? Companies in the past didn't and even today, many don’t have an integrated supply chain system yet. So why should anyone take on this task? Isn't it a tremendous amount of effort and change? Yes, but the rewards far outweigh what companies have to put into the initiatives.
Non integrated companies have disconnected flow of product and information, limited ability to react to customer requests, unpredictable product delivery rate, limited visibility on shipment information and performance based on functional activities.
With an integrated supply chain, firms gain more of a customer service focus. They also reduce waste and become faster and more flexible, while maintaining the highest of quality standards. Overall, they are gaining advantage versus competition, and keep implementing continuous improvements to stay in that position. Probably these improvements are something that every organization needs.
Overview of Supply Chain Components
Historical Development of Supply Chain
Traditional and Modern View to Supply Chain
Supply Chain Activities
Demand and Supply Planning
Integrated Supply Chain
Integration vs. Non-Integration