Chapter 13 Integration and collaboration

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Chapter 13Integration and collaboration

• Student Aya Wang

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Introduction

• In todays 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, and
increasingly second tier suppliers
Integration with selected first tier customers or
service providers
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 prisoners 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 doesnt your
  partner gets the full 10-year sentence for
  committing the crime, whilst you get a 2-year
  sentence for collaborating.
• If you dont 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 prisoners 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)
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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
Type I and II have been implemented in supply
chains in various sectors
Type III and IV are more advanced and require
further research and development
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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.
• it retain functional reporting structures, that
  will cause conflict of purpose between, and
  duplication of the roles, of the functional
  managers and the process or product managers

Each department designs their own silo for their
own purposes, without due consideration of the
needs of other departments

• Individuals from each relevant function are
  located together with little or no need to
  operate outside of that team
• Currently best practice in organizational design
  is complete shift away from functional silos to a
  pure product or process organization structure