chapter 8 integrating the supply chain

Chapter 8Chapter 8

Integrating the Integrating the supply chainsupply chain

ContentContent

Integration in the supply chain

Efficient consumer response

Collaborative planning, forecasting and replenishment

Managing supply chain relationships

A framework for managing the supply chain

Integration in the supply Integration in the supply chainchain

1111How can we integrate internally, externally and electronically?

Key issueKey issue

• What is Supply Chain IWhat is Supply Chain Integrationntegration• the degree to which the firm can the degree to which the firm can

strategically collaboratestrategically collaborate with their supply with their supply chain partners and collaboratively chain partners and collaboratively managemanage the intra- and inter-organization the intra- and inter-organization processes to achieve the effective and processes to achieve the effective and efficient flows ofefficient flows of

• Product and servicesProduct and services• Information Information • MoneyMoney• DecisionsDecisions

• With the objective of With the objective of providing the maximum providing the maximum

value to the customer at low cost and high speedvalue to the customer at low cost and high speed

Integration in the supply Integration in the supply chainchain

Measures of integrationMeasures of integration– Access to planning systemAccess to planning system– Sharing production plansSharing production plans– Joint EDI access / networksJoint EDI access / networks– Knowledge of inventory mix / levelsKnowledge of inventory mix / levels– Packaging customizationPackaging customization– Delivery frequenciesDelivery frequencies– Common logistical equipment / Common logistical equipment /

containerscontainers– Common use of third-party logisticsCommon use of third-party logistics

Integration in the supply Integration in the supply chainchain

Internal integration: function to Internal integration: function to functionfunction

Integration in the supply Integration in the supply chainchain

PurchasingPurchasing ProductionProduction DistributionDistribution

Low price

Unreliable delivery and low quality

High productivity of machine and labor

High batch size

Poor available distribution

Keep warehousing operation smooth

Post-manufacturing operation being

resisted

Additional complexity of customizing

products

Inter-company collaboration: a manual Inter-company collaboration: a manual approachapproach

Integration in the supply Integration in the supply chainchain

Strategic Collaboration

Decision FlowDecision Flow

RA

W M

AT

ER

IAL

S

EN

D C

US

TO

ME

RS

Information & Knowledge Flow

Products & Services Flow

Financial Flow

Decision FlowDecision Flow

Enterprise

A

Enterprise

BInformation & Knowledge Flow

Products & Services Flow

Financial Flow

Integration in the supply Integration in the supply chainchain

Electronic collaborationElectronic collaboration

TransactionalThe electronic execution of

transactionInformation sharing

The electronic sharing or exchange of informationCollaboration planningStrategic, tactical and operational exchange

Electronic Electronic collaborationcollaboration

Integration in the supply Integration in the supply chainchain

Information Information flow in flow in apparel apparel

supply chainsupply chain

ContentContent

Integration in the supply chain

Efficient consumer response

Collaborative planning, forecasting and replenishment

Managing supply chain relationships

A framework for managing the supply chain

Efficient consumer Efficient consumer responseresponse Key issueKey issue

1111How can collaboration be extended across the supply chain to focus on meeting consumer demand?

Efficient consumer Efficient consumer responseresponse Category managementCategory management

Establish infrastructu

re

Optimize introduction

s

Optimize assortments

Optimize promotions

Integrated suppliers

Synchronized

production

Continuous replenishme

nt

Automated store

ordering

Category manageme

nt

Product replenishme

nt

Reliable operations

Cross-docking

EDI EFT

Item coding and

database maintenanc

e

ABCEnabling

technologies

Con

tinu

ou

s re

ple

nis

hm

en

tC

on

tinu

ou

s re

ple

nis

hm

en

t

Enabling technologiesEnabling technologies– Scanning dataScanning data– Data warehousingData warehousing– Data miningData mining

The data includeThe data include– Demand / consumption / sales informationDemand / consumption / sales information– Cash flowCash flow– Stocks of finished goods / work in progressStocks of finished goods / work in progress– Delivery and output statusDelivery and output status

Efficient consumer Efficient consumer responseresponse

Efficient consumer Efficient consumer responseresponse

Category Category managementmanagement

Continuous Continuous replenishmentreplenishment

Enabling Enabling technologiestechnologies

RequireRequired d

capabilitcapabilityy

Account managementDemand managementMultifunctional selling teamsPrice list restructuringEffective and customized promotions

Joint Joint inventory inventory managementmanagementCross-dock Cross-dock operationsoperationsContinuous Continuous replenishmentreplenishmentEffective Effective logistics and logistics and product flowsproduct flowsQuick Quick responseresponse

Effective Effective information information sharingsharingAutomated Automated order order generationgenerationBar-coding Bar-coding and the use and the use of other of other scanning scanning technologytechnology

ContentContent

Integration in the supply chain

Efficient consumer response

Collaborative planning, forecasting and replenishment

Managing supply chain relationships

A framework for managing the supply chain

Collaborative planning, Collaborative planning, forecasting and forecasting and replenishmentreplenishment Key issueKey issue

1111How can collaboration be extended to strategic as to well as operational levels?

CPFR ModelCPFR Model1.1. Develop front-end agreementDevelop front-end agreement2.2. Create joint business plansCreate joint business plans3.3. Create individual sales forecastsCreate individual sales forecasts4.4. Identify exceptions to sales forecastsIdentify exceptions to sales forecasts5.5. Resolve / collaborate on exception Resolve / collaborate on exception

itemsitems6.6. Create order forecastCreate order forecast7.7. Identify exceptions to order forecastIdentify exceptions to order forecast8.8. Resolve / collaborate on exception Resolve / collaborate on exception

itemsitems9.9. Generate ordersGenerate orders

Collaborative planning, Collaborative planning, forecasting and forecasting and replenishmentreplenishment

Planning

Forecasting

replenishment

BuyerBuyer

SellerSeller

Goal : Link buyer and Seller Goal : Link buyer and Seller ElectronicallyElectronically

Wal-mart’s CPFR Wal-mart’s CPFR ProcessProcess

GENERATE ORDER

FRONT END AGREEMENT

JOINT BUSINESS PLAN

CollaborativeCollaborativePlanningPlanning

CREATE SALES FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

CollaborativeCollaborativeForecastingForecasting

CREATE ORDER FORECAST

IDENTIFY EXCEPTIONS

RESOLVE EXCEPTIONS

CollaborativeCollaborativeReplenishmentReplenishment

Wal-Mart’s CPFR Wal-Mart’s CPFR ProgramProgram CPFR has “blurred the lines between CPFR has “blurred the lines between

supplier and customer”supplier and customer” Suppliers buy into their program because Suppliers buy into their program because

they have to to work with Wal-Mart, but they have to to work with Wal-Mart, but more importantly, because Wal-Mart’s more importantly, because Wal-Mart’s Systems provide increased profits for Systems provide increased profits for Wal-Mart and their suppliersWal-Mart and their suppliers

Wal-Mart “teaches” their suppliers how to Wal-Mart “teaches” their suppliers how to minimize shipping, inventory and other minimize shipping, inventory and other costs by showing them their own model.costs by showing them their own model.

ContentContent

Integration in the supply chain

Efficient consumer response

Collaborative planning, forecasting and replenishment

Managing supply chain relationships

A framework for managing the supply chain

Managing supply chain Managing supply chain relationshipsrelationships

Key issueKey issue

1111How can broader-based relationships be formed between trading partners in the supply chain?

Creating closer relationshipsCreating closer relationships

Managing supply chain Managing supply chain relationshipsrelationships

Bow tie

R&D

LogisticsInformation system

Marketing

Operations

Arm’s length transaction

Information system

Marketing

OperationsInformation system

Partnership

Information system

R&D

Logistics

Diamond

supplier customer supplier customer

Factors in forming supply chain Factors in forming supply chain relationshipsrelationships– The order winnerThe order winner– The method making sourcing decisionsThe method making sourcing decisions– The nature of electronic collaborationThe nature of electronic collaboration– The attitude to capacity planningThe attitude to capacity planning– Call-off requirementsCall-off requirements– Price negotiationsPrice negotiations– Managing product qualityManaging product quality– Managing research and developmentManaging research and development– The level of pressureThe level of pressure

Managing supply chain Managing supply chain relationshipsrelationships

ContentContent

Integration in the supply chain

Efficient consumer response

Collaborative planning, forecasting and replenishment

Managing supply chain relationships

A framework for managing the supply chain

A framework for A framework for managing the supply managing the supply chainchain Key issueKey issue

1111What are the management implications of integrating the supply chain?

A framework for A framework for managing the supply managing the supply chainchain

1Develop a supply

chain strategy

2Gather supply

chain information

3Develop effective partnerships and

alliances

4Pilot new supply chain solutions

5Organize for supply chain performance

6Develop

measurement system for supply chain performance

Develop a supply chain strategyDevelop a supply chain strategy– Customer service requirementsCustomer service requirements– Plant and distribution center network Plant and distribution center network

designdesign– Inventory managementInventory management– Outsourcing and third-party logistics Outsourcing and third-party logistics

relationshipsrelationships– Business processesBusiness processes– Organizational design and training Organizational design and training

requirementsrequirements– Performance metrics and goalsPerformance metrics and goals

A framework for A framework for managing the supply managing the supply chainchain

Pilot new supply chain solutionsPilot new supply chain solutions– Successful supply chain improvement Successful supply chain improvement

includingincluding Involvement of key stakeholders, suppliers, Involvement of key stakeholders, suppliers,

customers and employeescustomers and employees Selection of scope and environment, focusing Selection of scope and environment, focusing

on avoiding riskon avoiding risk Identification of the key questions that the Identification of the key questions that the

pilot must answerpilot must answer

A framework for A framework for managing the supply managing the supply chainchain

Develop measurement systems Develop measurement systems for supply chain performancefor supply chain performance– On time in full, outboundOn time in full, outbound– On time in full, inboundOn time in full, inbound– Internal defect ratesInternal defect rates– New product introduction rateNew product introduction rate– Cost reductionCost reduction– Stock turnsStock turns– Order to delivery lead timeOrder to delivery lead time– Fiscal flexibilityFiscal flexibility

A framework for A framework for managing the supply managing the supply chainchain