Enterprise Integration and Supply Chain Management: A Strategic Perspective

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CHAPTER 5

Enterprise Integration and Supply Chain
Management A Strategic Perspective
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Learning Objectives

• After completing this chapter, you should be able
  to
• Define supply chain management.
• Explain the consequences of not sharing
  information, and describe some of the information
  that can be shared in a supply chain.
• Define Digital Loyalty Networks and CPFR.
• Discuss various options in supply chain
  structure.
• Compare in sourcing, outsourcing, and vertical
  integration.
• Compare responsive supply chains to efficient
  supply chains.
• Describe some supply chain strategies.
• Discuss the impact of e-commerce on supply chain
  management.
• Explain how ERP facilitates e-commerce.
• Describe some supply chain performance measures
  and use the Strategic Profit Model.
• Discuss global issues in supply chain management.
• Explain the four principles of supply chain
  management

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Introduction

• Supply chain encompasses all activities
  associated with the flow and transfer of goods
  and services, from raw material extraction
  through use by the final consumer.
• All of those different companies, as well as you
  as the consumer, are part of the supply chain.
• The manufacturer purchased component parts from
  various tier 1 suppliers, such as companies that
  make plastic parts.
• Those Tier 1 suppliers may have also purchased
  materials from tier 2 suppliers, such as
  companies that produce the chemicals for making
  plastic.

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Introduction -- Continued

• Those tier 2 suppliers could have also purchased
  the raw materials to make those chemicals from
  tier 3 suppliers
• The supply chain includes the companies that move
  these items, such as trucking companies,
  railroads, and shipping companies, as well as
  warehouses or distribution centers. They are
  called logistics.
• Reserve Logistics is a activity that helps to
  return defective products to the manufacturer for
  repair or replacement

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Overview of Supply Chain Management

• Several factors have emerged that now require
  companies to use supply chain management as part
  of their competitive strategy.
• 1-Globalization
• 2-Increased competition
• 3-Information technology
• 4-Shorter product life cycles

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Overview of Supply Chain Management -- Continued

• Globalization has led to new markets, but at the
  same time it increases the competition.
• One way of winning market share is introducing
  new products, leading to shorter product life
  cycles.
• One way to be more competitive is through supply
  chain management.

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Information Sharing in the Supply Chain

• Traditionally, information has been shared only
  between adjacent supply chain pairs, and that
  information has been very limited.
• This limited approach to information sharing
  leads to bullwhip effect.
• To reduce the bullwhip effect, supply chains use
  a hub and spoke approach to sharing information.

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Electronic Data Interchange

• EDI connects the databases of different
  companies.
• Traditionally, EDI allowed companies utilizing
  material requirements planning (MRP) to inform
  suppliers of upcoming orders by providing them
  with access to the database of planned orders.
• EDI is a means of sharing information among all
  members of a supply chain.
• Shared databases can ensure that all supply chain
  members have access to the same information,
  providing visibility to everyone.

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Forecast Accuracy

• One problem with sharing information is that some
  of that information may not be accurate.
• By sharing forecast information, risk can be
  spread across the entire supply chain rather than
  being borne by the retailer.
• Information sharing can also lead to improved
  forecast accuracy.
• Simply realizing that forecasts will always be
  inaccurate can lead to improving supply chain
  management

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Forecast Accuracy -- Continued

• Wal-Mart is one company that has used EDI to
  improve forecast accuracy.
• Vendors can use Wal-Marts satellite network
  system to directly access real-time,
  point-of-sale (POS) data.
• This up-to-the-minute information can improve
  forecasts by spotting trends the moment they
  occur.

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Digital Loyalty Networks

• The term Digital Loyalty Networks describes
  links between a companys supply chain and its
  customer management operations.
• The idea is to customize the supply chain to meet
  the needs of a companys most important customers
  or market segments.
• By sharing information, the supply chain, the
  customer management operations, and the customer
  can all benefit through improved service and
  reduced costs.

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Collaborative Planning Forecasting and
Replenishment (CPFR)

• Members of the supply chain may make assumptions
  about future actions of other supply chain
  members.
• CPFR seeks to minimize this guessing game through
  collaboration among supply chain partners.
• CPFR requires that all supply chain parties be
  committed to the plans developed jointly.
• Once a plan is developed, suppliers can begin
  production knowing that their customers in the
  supply chain have committed to those orders.

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Supply Chain Structure

• The upstream side of the supply chain also
  production planning and purchasing, which are
  part of the internal supply chain.
• Also it includes logistics, which is responsible
  for moving materials between supply chain
  members.
• The downstream side, supply chain partners are
  divided into echelons.
• Echelon 1 includes organizations, such as
  distributors, importers, or exporters, that
  receive the product directly from the
  organization.
• Echelon 2 might include retailers, dealers, or
  even final consumers.

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Supply Chain Structure

• Many Suppliers versus Few Suppliers
• By using many suppliers, a company can often take
  advantage of competition among those suppliers to
  meet the companys demands for cost, quality and
  delivery.
• If one supplier goes out of business or is unable
  to provide the good or service , it is a simple
  matter to use another supplier.
• Having one supplier ensure the long-term
  partnership arrangements.
• It helps them to get greater integration of the
  supply chain.

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Supply Chain Structure

• Insourcing versus Outsourcing
• If those goods and services are provided by the
  organization itself, they are insourced.
• Goods and services obtained from outside
  suppliers are outsourced.
• One basic reason companies decide to outsource is
  that the goods or services can be obtained less
  expensively from outside suppliers.

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Supply Chain Structure

• Vertical Integration
• If a company owns its suppliers, it is called
  backward vertical integration.
• If companies own the distribution systems and
  retail outlets that sell their products, then
  that is forward vertical integration.
• Both integration help the companies to get a
  close coordination with suppliers.

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Vertical Supply Chain Structure
Advantages Disadvantages
Better coordination Higher overhead
Lower cost Mismatch of business types
Greater control over supply Lack of flexibility
Utilize excess capacity Capacity mismatch
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Virtual Organizations

• Outsourcing is gaining in popularity because of
  cost advantages and the opportunities for greater
  coordination.
• This system has even led to virtual
  corporations, that exist only as an
  administrative shell, with all other functions
  outsourced.
• One virtual corporation is Mr. Coffee Concepts,
  which provides in-room coffeemakers for hotel
  chains, such as Marriott .

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Disintermediation

• An intermediary is a business entity that exists
  between two other parts of the supply chain.
• Disintermediation is a process to achieve
  efficiencies in the supply chain by eliminating
  some intermediaries.
• Travelocity is one company that has succeeded by
  utilizing the Internet to provide travelers with
  easily accessible information from airlines,
  hotels, and car rental companies.

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Types of Supply Chains

• Responsive Supply Chains respond quickly as
  new products are introduced and as demand
  changes.
• Efficient Supply Chains focus on operating
  efficiently to minimize costs.

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Types of Supply Chains -- Continued

• Exhibit 5.5
• Responsive vs. Efficient Supply Chains

Responsive Supply chain for innovative product Efficient Supply chains for functional products
Closely integrated in production planning and control, quality management, service, after-sales support. Track work-in-process and finished goods inventory. Share more information. Use system wide measures of end-use-customer satisfaction. Suppliers are evaluated based on product development time, geographic proximity, lead time, and cycle time. Use traditional criteria for evaluating suppliers. Place high value on integrity, commitment, reliability, and consistency. Value suppliers for ability to provide cost savings, reduce downtime, and reduce inventory.
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Supply Chain Strategies

• Quick Response Programs
• Vendor Managed Inventory (VMI)
• Efficient Consumer Response
• Postponement
• Revenue Sharing
• Cross Docking

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Exhibit 5.6 Revenue Sharing Example
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E-Commerce

• The Internet is now an important part of the
  supply chain management and communication
  strategy for many companies.
• That particular aspect of the Internet,
  transactions between businesses and consumers, is
  referred to as B2C (business to consumer)
• B2C transactions over the Internet are dwarfed by
  the much larger volume of B2B (business to
  business) transactions.

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B2C

• It is now possible to buy nearly anything over
  the Internet.
• Customers can be given a much wider choice than
  would be possible in a traditional retail
  establishment.
• The customer takes care of the order entry
  process by entering his or her own credit card
  number, address, measurements, and so forth.

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B2B

• B2B (business-to-business) transactions account
  for more than 80 percent of all transactions on
  the Internet.
• Different types of B2B
• 1-Exchanges
• 2-MRO Hubs
• 3-Yield Managers

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Enterprise Resource Planning (ERP)

• The idea behind ERP is to allow access to one
  anothers databases or, ideally, the use of one
  common database.
• The advantage of that approach is that anyone
  anywhere within the organization has access to
  all information .
• Microsoft expected to save 18 million annually
  by using ERP to replace 33 different financial
  tracking systems.

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Performance Measurement
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Strategic Profit Model
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Global Issues in Supply Chain Management

• Operating in todays global economy, companies
  have increased opportunities and challenges for
  managing their supply chains.
• Decisions about supply chains must focus on the
  type of product and a companys competitive
  strategy.
• Maintaining control over the supply chain can
  also be an important global issue.

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Principles of Supply Chain Management

• Build a competitive infrastructure
• Leverage the worldwide logistics network
• Synchronize supply to demand
• Measure performance globally