Chapter 13
Integration and collaboration
Student: Aya Wang
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Introduction
In today’s world of international trade and
global competition, where increasingly supply
chains compete more so than individual firms
and products, integration and collaboration
have become key differentiators of high
performing supply chains.
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Core sections
•
•
•
•
Supply chain integration
Supply chain collaboration principles
Supply chain collaboration methods
Collaborative planning, forecasting and
replenishment (CPFR)
• Vendor managed inventory (VMI)
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Learning objectives
• Define the terms integration and collaboration in the
global SCM context
• Explain how internal and external integration can be
achieved to benefit supply chain performance
• Discuss collaborative working and partnerships
• Elaborate on specific methods used to enable
collaboration
• Offer a holistic perspective of SCM to provide an
understanding of how supply chains can gain greater
integration and collaboration in the future
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Supply chain integration
• Integration is the alignment and interlinking of
business processes, and embodies various
communication channels and linkages within a supply
network
• Collaboration is a relationship between supply
chain partners developed over a period of time
 Integration should not be confused with collaboration,
and integration is possible without collaboration, but
it can be an enabler of collaboration
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Distinctions between the primary
modes of integration
Integration with suppliers and customers
Integration with selected first tier
customers or service providers
Integration with selected first tier, and
increasingly second tier suppliers
Cross-functional integration
within a selected organization
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Internal integration
• To integrate communications and information systems so as
to optimise their effectiveness and efficiency
• Can be achieved by structuring the organisation and the
design and implementation of information systems
– Non-value adding activity is minimised
– Costs, lead-times, and functional silos are reduced
– Service quality is improved
• BPR and STS method are commonly used to analyse existing
organizational structures, eliminate non-value adding activities, and
implement new work structures →let organization be optimally
aligned
• ERP is key enabler of internal integration, often expose any
remaining non-value adding activities in the organization
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External integration
• EDI is a key enabler of supply chain integration
– It streamlines information sharing and processing
between supply chain partners
– Effective and efficient organisational design is a
prerequisite
 ‘Keiretsu’ supply chain structure:
– OEM work closely with their first tier suppliers to integrate
manufacturing, logistics and information processes; which
is passed upstream
•
•
•
•
This enables just-in-time line-side delivery at their assembly plants
A seamless lean supply chain is created
The supply chain is viewed as one extended operation
It was pioneered in Japanese banking
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Supply chain collaboration principles
• While IT are enablers of supply chain integration,
optimal and uniform organizational structures are
fundamental to integrating factors in a supply chain
• The key constraint of integration across multiple
echelons
– The scale and complexity of global supply chains
– Information sharing may not be benefit to all supply chain partners,
possibly exposing suppliers to their competitors
 Supermarket retail is intensely competitive
 Drives down consumer prices at the supermarket shelves
 Squeeze their suppliers to operate with lower profit margins and
tighter delivery schedules
 Competitively rather than collaboratively
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Supply chain collaboration principles
• Collaboration is dependant on the provision of
mutual benefit, but it between suppliers is difficult
to achieve in supply chains
• Hence trust becomes an issue
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The prisoner’s dilemma
You and a partner are suspected of committing a crime and
arrested. The police interview each of you separately. The police
detective offers you a deal: your sentence will be reduced if you
confess!
Here are your options:
If you confess but your partner doesn’t: your partner gets the full 10-year
sentence for committing the crime, whilst you get a 2-year sentence for
collaborating.
• If you don’t confess but you partner does: the tables are turned! You get
the full 10-year sentence, whilst your partner gets the 2-year sentence.
• If both of you confess: you each get a reduced sentence of 5 years.
• If neither of you confess: you are both free people.
•
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The prisoner’s dilemma
The dilemma you face is ‘do you trust your partner to
make the same decision as you?’
The best strategy is based on trust,
and results in a ‘win-win’ situation.
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The journey from open market
negotiations to collaboration
 A trust-based
win-win situation in a supply chain partnership
takes time
 Trust needs to be built up step-by-step, the journey towards
a collaborative supply chain can be long and arduous
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The two dimensions of collaboration
applied to transport management
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The combination of vertical and
horizontal collaboration can achieve..
• Reduce
– Inventory-carrying costs
– Unproductive waiting time
– Empty running times
• Adopting collaborative methods such as joint
planning and technology sharing can improve lead
time performance
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Supply chain collaboration methods
• Suppliers competing for the same orders creates
supply chain inefficiencies
– This will inevitably drive down their prices, promise unrealistic
lead-times and lose their focus on product and service quality
• Supply base rationalisation: periodically a key
focus of such organisations
– E.g. in 2002 Nissan cut its supply base by half to reduce complexity
and costs
– A response to market pressures
– It is easier for an OEM to work with a few selected suppliers, than to
work with many suppliers.
– Suppliers who are not directly competing against each other for
individual orders are more likely to collaborate
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Supply chain collaboration methods
• Supplier development can enable improved integration and
also collaboration (e.g. Keiretsu)
– Shift suppliers’ mindsets from thinking competitively to
collaboratively
– Enables integrated order processing application for aggregated
procurement
• Aggregated procurement:
– Rather than individual suppliers tendering for particular orders, specific
suppliers are selected by a supplier selection software package based on
their capabilities
– Each supplier gains a share of the total orders based on their ability to
deliver the order on time and to specification
– Consequently, the overall supply base incrementally improves,
reducing the likelihood of future rationalization.
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Collaborative planning, forecasting and
replenishment (CPFR)
• Scale and complexity are
significant constraints
• Fundamentally, it is difficult to
forge close partnerships with
many partners
• Hence some CPFR solutions
will have greater scope and depth
than others
Figure 13.10 The CPFR process
(adapted from Cassivi, 2006) 18
Three modes of CPFR
 Basic CPFR: a limited number of business processes
integrated between a limited number of supply chain
partners
 Developed CPFR: will typically involve a greater
number of data exchanges between two partners,
and may extend to suppliers taking responsibility for
replenishment on behalf of their customer
 Advanced CPFR goes beyond data exchanges to
synchronise forecasting information systems and
coordinate planning and replenishment processes
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The transition to an advanced CPFR
• A long-term relationship to have built up
• Considerable constraints
– Time, complexity, scale and the substantial financial
investment required
 For large-scale multinational organization
– The benefits of CPFR outweigh the initial investment
 For organizations without the same economies of
scale
– The development is obviously more difficult to achieve
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Vendor Managed Inventory (VMI)
• A holistic view of inventory levels is taken
throughout the supply chain with a single point of
control for all inventory management
• The vendor manages stock replenishment at their
facilities to enable a customer to effectively
eliminate an echelon in the supply chain
• Upstream demand visibility is improved to reduce
the impact of demand fluctuations
• Hence VMI can enable supply to more accurately
and precisely meet demand
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Vendor Managed Inventory (VMI)
Figure 13.11 A simplifi ed VMI scenario (adapted from
Matthias et al., 2005)
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Vendor Managed Inventory (VMI)
By providing improved supply and demand information
visibility via centralized control, VMI can specifically..
• Reduce the impact of the following sources of the
bullwhip effect:
– Price variation
– customers over-ordering due to stock shortages
(i.e. Houlihan effect)
– Demand signal processing (i.e. Forrester effect)
– Order batching(i.e. Burbidge effect)
→in Chapter 7
• As with CPFR, significant investment in developing an
appropriate collaborative relationship is a prerequisite to
operating VMI
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Types of vendor managed inventory in
supply chains
Table 13.1 Types of Vendor Managed Inventory in Supply Chains
Configuration
Type 0
Type I
Type II
Type III
Type IV
Description of collaborative or vendor managed
functions
Type I and II have been
Traditional supply chain
implemented in supply
TypeinIII
and IV
are more
chains
various
sectors
Replenishment only
advanced and require
Replenishment and forecasting
further research and
development
Replenishment, forecasting and
customer inventory management
Replenishment, forecasting,
customer inventory management
and distribution planning
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Thanks for your attention!
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Selected generic organisation structures
• Improved integration between dedicated
teams in each department, communication and
information processing between departments id
streamlined.
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department
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their structures, that
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• Currently best practice in organizational
design is complete shift away from functional
silos to a pure product or process organization
structure
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