Chapter 13 4th ed

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Chapter 13
SUPPLY CHAIN
PROCESS
INTEGRATION
Prepared by Cynthia Wisner, MBA
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.
LEARNING OBJECTIVES
You should be able to:
 Discuss the overall importance of process integration in supply chain
management
 Describe the advantages of, and obstacles to process integration
 Understand the important issues of internal and external process
integration
 Understand the role played by information systems in creating
information visibility along the supply chain
 Describe the various processes requiring integration along the supply
chain
 Understand the various causes of the bullwhip effect and how they
impact process integration
 Discuss the various issues associated with supply chain risk and
security
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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CHAPTER OUTLINE
• Introduction
• The Supply Chain Management Integration
Model
• Obstacles to Process Integration along the
Supply Chain
• Managing Supply Chain Risk and Security
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Introduction
 Firms in the supply chain must integrate
processes to create value for the services and
products provided to end customers.
 Process integration means sharing information
and coordinating resources to jointly manage a
process or processes.
 The benefits of collaboration and information
sharing between trading partners can be
significant.
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The SCM Integration Model
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The SCM Integration Model
(Continued)
1. Identify Critical SC Trading Partners


Sell & deliver products to final customers
Identifying primary trading partners allows the firm to concentrate
on managing links with these companies
2. Review & Establish SC Strategies for:



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Parts purchased & suppliers
Manufacturing processes
Design of the products manufactured
Mode of transportation
Warranty & return services
Outsourcing
Sustainability
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The SCM Integration Model
(Continued)
3. Align SC Strategies w/Key SC Process
Objectives
Lambert et al. identified 8 key SC processes:
1.
2.
3.
4.
5.
6.
7.
8.
Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development & commercialization
Returns management
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
1. Customer Relationship
Management
 Tailoring product and service agreements to
meet customer needs
 Measuring customer profitability and firm’s
impact on customers
 Monitor the impact of customer relationship
management (CRM) efforts in terms of both
the financial impact and customer satisfaction
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
2. Customer Service Management
 Providing information to customers such as
product availability, shipping dates and order
status
 Administering product and service
agreements
 Monitoring and reporting customer service
performance
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
3. Demand Management
 Balancing customer demand with the firm’s
output capacity
 Forecasting demand and coordinating with
production, purchasing and distribution
 Increase the accuracy of forecasts
 To track the success of various demand
management activity implementations
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
4. Order Fulfillment




Meeting customer requirements by
synchronizing the firm’s marketing, production
and distribution plans
Location of suppliers, production facilities and
distribution centers
Modes of inbound and outbound
transportation used
System used for entering, processing,
communicating, picking, delivering and
documenting customer orders
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
5. Manufacturing Flow Management
 Determining manufacturing process
requirements to enable the right mix of
flexibility and velocity to satisfy demand
 A good set of performance metrics to track the
capability of the manufacturing flow process to
satisfy demand
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
6. Supplier Relationship Management





Screening and selecting suppliers
Developing close working relationships with key
suppliers
Negotiating product and service agreements
Managing suppliers
Monitoring supplier performance and
improvement.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
7. Product Development and
Commercialization
 Selecting new product ideas
 Developing new products and getting them to
market quickly and effectively
 Assessing the success of each new product
 Developing customer feedback mechanisms
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
Eight Key Supply Chain Business Processes (Continued)
8. Returns Management
 Managing used product disposition, product
recalls, and packaging requirements
 Environmental compliance with substance
disposal and recycling
 Collecting returns data
 Minimizing future returns
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
4. Develop Internal Performance Measures for
Key Processes



Performance should be continuously measured
Create a consistent emphasis on the overall supply
chain strategy
Firm is able to track progress in each key processes.
5. Assess & Improve Internal Integration of Key
SC Processes




Formation of cross-functional teams
Management support & resources
ERP system
Develop an understanding of the internal supply chain
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
6. Develop SC Performance Measures for Key
Processes


Monitor links w/trading partners in key SCM processes.
Trading partners should monitor measures across member firms
for each of the SC processes.
7. Assess & Improve External Process
Integration & Performance



Build, maintain & strengthen relationships
Share knowledge management solutions, such as forecast
information, new products, & expansion plans.
knowledge management solutions enable real-time collaboration
and flow of information between supply chain partners
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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The SCM Integration Model
(Continued)
8. Extend Process Integration to 2nd Tier SC
Partners


Integrate process to 2nd-tier partners & beyond
Radio-frequency identification (RFID) tag- relays product’s
location as it moves through the supply chain. Passive RFID tags
don’t contain internal power. Active RFID tags use battery power
& are very expensive.
9. Reevaluate the Integration Model Annually


Trading partners should revisit the integration model annually for
changes within supply chains (ex. new suppliers entering market,
foreign markets opening).
Assess the impact of changes on integration efforts.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to Process
Integration (PI) Along the
SC Mentality
 The Silo




“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
 Managers must educate suppliers and customers
regarding the overall impact of their actions on the SC
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
 Lack of Supply Chain Visibility
 Information visibility is particularly important in
global supply chains
 Without visibility, extra time must be spent to
update data causing higher inventory cost and
longer response times
 Becoming easier with use of cloud-based
communication platforms
 RFID technology promises to add real-time
information visibility to supply chains.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
 Lack of Trust – Successful process integration
requires trust and trust is earned over time
Collaboration & trust are based on –
 Start small – small scale
 Look inward – establish trust internally
 Gather ‘round & meet face-to-face
 Go for the win-win – optimize business for all members
 Do not give away the store: Some information should
remain proprietary
 Just do it: Simple start - sharing information.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
Lack of Knowledge
 In the past few years technology has caught up,
enabling process integration across extended supply
chains
 Firms successfully managing their supply chains
must spend significant time influencing & increasing
the capabilities of themselves & their partners.
 Training of supply chain partner employees is also
known as collaborative education, and can result in
more successful supply chains
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
22
Obstacles to PI Along the
SC
(Continued)
Activities Causing the Bullwhip Effect
 Forecasts & their corresponding orders along the
supply chain can become amplified and accumulate,
causing the bullwhip effect
 Variations in demand lead to problems in capacity
planning, inventory control, workforce & production
scheduling resulting in reduced customer service,
increased safety stock, and higher SC costs
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
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
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
Bullwhip Effect - Order Batching
 Order batching occurs when sales reps fill end-ofperiod sales quotas, or when buyers spend end-ofyear budgets
 Solution is to 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
• Can use automated order systems to order more frequently
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Obstacles to PI Along the
SC
(Continued)
Bullwhip Effect - Price Fluctuations
 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)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
26
Obstacles to PI Along the
SC
(Continued)
Bullwhip Effect - Rationing & Shortage
Gaming
 Rationing- When demand exceeds the availability,
supplier provides partial supply to customers, who
also tend to inflate orders.
 Shortage gaming- When production capacity equals
demand, demand then drops, as the buyers try to
unload 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.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Supply Chain
Risk & Security
Managing Supply Chain Risk
 Increase safety stocks also known as stockpiling and
forward buying (stopgap alternative)
 Identify backup suppliers & logistics services for
emergency sourcing (can create ill will with current
suppliers)
 Diversify the supply base geographically (exposes
additional political, customs and exchange rate risks)
 Utilize a supply chain IT system
 Develop a formal risk management program
(identifies potential disruptions)
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
28
Managing Supply Chain
Risk & Security
(Continued)
Managing Supply Chain Security –
 Reducing the risk of intentionally created disruptions in
supply chain operations
 A supply chain is only as secure as its weakest link
 Security management collaboration should include, for
example, contractual requirements for secure systems
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Supply Chain Risk &
Security
(Continued)
Supply Chain Security System Response
Level of Security
System Response
Description
Basic initiatives
Physical security; personnel security; standard risk
assessment; computing security; continuity plan; freight
protection.
Reactive initiatives
Larger security organization; C-TPAT compliance;
supply base analysis; supply continuity plan; limited
training.
Proactive initiatives Dir. of security; personnel with military or gov’t.
experience; formal security risk assessment; adv
computing security; participation in security groups.
Advanced
initiatives
Customer/supplier collaboration; learning from the past;
formal security strategy; SC drills, simulations,
emergency control center.
Table 13.4
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Supply Chain
Risk & Security
(Continued)
Basic Initiatives
 Consider use of security badges and guards,
conducting background checks on applicants, using
anti-virus software and passwords, and using
shipment tracking technologies
Reactive Initiatives
 C-TPAT refers to a partnership whereby companies
agree to improve security in their supply chain in
return for “fast lane” border crossings at both the
Canadian and Mexican borders.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Managing Supply Chain
Risk & Security
(Continued)
Proactive Initiatives
 Creating an executive-level position such as director
of corporate security
 Hiring of former military, intelligence, or law
enforcement personnel with security management
experience
Advanced Initiatives
 Full collaboration with key suppliers and customers
in developing quick recovery and continuity plans
for supply chain disruptions
 Train participants to test the resilience of the supply
chain to security disruptions
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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