SUPPLY CHAIN PROCESS INTEGRATION

THE SCM INTEGRATION MODEL

1. Identify Critical SC Trading Partners

2. Review & Establish SC strategies for

3. Align SC Strategies with key SC process objectives

4. Develop internal performance measures for key processes

5. Assess & Improve internal integration of key SC processes

6. Develop SC performance measures for key processes

7. Assess & Improve external process integration & performance

8. Extend process integration to 2nd tier supply chain partners and beyond

9. Reevaluate annually for as required

1\. Identify Critical SC Trading Partners

• Use trusted suppliers that provide a large share of the firm’s critical products and services

• Identifying primary trading partners allows the firm the concentrate on managing links with these companies

• Firms should map the network of primary trading partners

2\. Review & Establish SC strategies for

• Parts purchased & suppliers

• Manufacturing processes

• Design of the products manufactured

• Mode of transportation

3\. Align SC Strategies with key SC process objectives

Key processes and methods used to manage process links will vary among supply chain partners

Functional silos (departments whose only concern is about itself) may affect integration

A process is a set of activities designed to produce a product or service

The Eight Key Supply Chain Business Processes

1. Customer Relationship Management

2. Customer Service Management

3. Demand Management

4. Order Fulfillment

5. Manufacturing Flow Management

6. Supplier Relationship Management

7. Product Development and Commercialization

8. Returns Management

Customer Relationship Management

Identifying key customer segments, tailoring product and service agreements to meet their needs, measuring customer profitability and firm’s impact on customers.

Customer Service Management

Providing information to customers such as product availability, shipping dates and order status; and administering product and service agreements.

Demand Management

Balancing customer demand with the firm’s output capacity; forecasting demand and coordinating with production, purchasing and distribution.

Order Fulfillment

Meeting customer requirements by synchronizing the firm’s marketing, production and distribution plans.

Manufacturing Flow Management

Determining manufacturing process requirements to enable the right mix of flexibility and velocity to satisfy demand.

Supplier Relationship Management

Managing product and service agreements with suppliers; developing close working relationships with key suppliers.

Product Development and Commercialization

Developing new products frequently and getting them to market effectively; integrating suppliers and customers into the process to reduce time to market.

Returns Management

Managing used product disposition, product recalls, packaging requirements; and minimizing future returns

4\. Develop internal performance measures for key processes

Performance measures should be designed for each key processes and functional objectives

Performance should be continuously measured using metrics designed for each process

Firm can track progress toward meeting each objectives

5\. Assess & Improve internal integration of key SC processes

Coordination and collaboration internally and externally between firm trading partners 

Transition from functional silos to teamwork and cooperation across business functions 

Formation of cross-functional teams

ERP systems that link business processes and facilitate communication

6\. Develop SC performance measures for key processes

External performance measures should align with internal performance measures

Monitor links with trading partners in key SCM processes 

Design measures consistent with overall supply chain strategies

7\. Assess & Improve external process integration & performance

Share knowledge management solutions, such as forecast information, new products, expansion plans

Monitor performance metrics to identify lack of process integration and supply chain weaknesses

Knowledge management solutions enable real-time collaboration and flow of information between supply chain partners 

What is SOP?

An integrated process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans with the management of the supply chain

SOP is performed at least once a month and is reviewed by management at an aggregate (product family) level. Reconcile all supply, demand, and new product plans at both the detail and aggregate levels and tie to the business plan 

Purpose of SOP

On a monthly basis align relevant Sales Marketing and SC developments (forecast, assortment, market options) with key decision moments (cost, pricing, introductions, capacity,...) to respond to demand and supply variations and risks

The level of subject review is covering relevant deviations and developments in the business, short term as as well as long term, resulting in financial or operational adaptations to the plan

The work is prepared and/or executed outside he SOP platform to provide the right information for appropriate decision making 

Key integrated steps

• Sales forecast report: Annual sales, backlog, inventory

• Demand planning: Translate demand in net requirements

• Supply planning: Review production capacity and ability

• Pre SOP meeting: Resolve issues, recommendations and alternative plans

• Execute SOP meeting: Single company wide plan

The four pillars of SOP

1. Establish the SOP function in the organizational structure

• Neutral position between sales and production

• Sponsorship/representation on a senior management level

2. Design and implement SOP processes

• Do accountable, consult, inform matrix

• Business processes/flow shemes

• Communication structure/meeting

3. Embed SOP processes

• Functional description

• KPI’s and bonus schemes

4. Technical facilitation/SC transparency

ICT application & IT system

1\.3. When would Operational Obstacles occur?

• Ordering in large lots

• Large replenishment lead times

• Rationing and shortage gaming

1\.4. Behavioral Obstacles

Silo Mentality

Failing to see the big picture and acting only in regard to a single department within the firm or a single firm within the supply chain.

Lack of visibility

The inability to easily share or retrieve trading partner information in real

time, as desired by the supply chain participants.

Lack of trust

Unwillingness to work together or share information because of the fear that

the other party will take advantage of them or use the information unethically.

2\. Approaches to improve SC integration

2\.1. Aligning goals and incentives

2\.2. Improving information visibility and accuracy

2\.3. Improving operations to Synchronize Supply and Demand

2\.4. Building strategic partnerships and trust

2\.1. Aligning goals and incentives

Aligning goals across the SC

Aligning incentives across functions

The pricing for integration

From sell-in to Sell-through sales force incentives altering

===> Maximize total SC profits

2\.2. Improving information visibility and accuracy

Sharing customer demand data

Implementing collaborative forecasting and planning 

Designing single-stage control of replenishment

2\.3. Improving operations to Synchronize Supply and Demand

Rationing based on past sales & sharing information to limit gaming

2\.4. Building strategic partnerships and trust

Sharing of accurate information that is trusted by every stage —-> better matching of supply and demand throughout SC

A better relationship —> lower the transaction costs between SC stages

Belief & culture: benefits of any improvement in coordination are being shared equitably.

SUPPLY CHAIN RISK

Any probabilistic event happens outside or inside the SC that either intentionally or unintentionally disrupts the flow of goods, information, or money, in either supply, manufacturing, or demand process, leading to a reduction in the economic, social and environmental performance of the supply chain

Perspective 1: Risk typology based on the characteristics of risks

• Exogenous risks: disruptions from outside SC: natural disasters and political turmoil

• Endogenous risks: disruptions from inside SC: internal operational failure in the planning, sourcing, making and delivering of products or services to customers

• Intentional risks: disruptions deliberately perpetuated to gain personal advantages and disrupt SC performance, whereas unintentional risks occur accidentally without the same underlying motivation

Perspective 2: Risk typology based on the location of risks

The location of risks: located in different structures and flows across SC

Risk affecting SC structures:

• Supply-side risks: supplier downtime & quality problem,adverse relationship with suppliers due to cultural differences, suppliers insolvency and spare parts discontinuity

• Manufacturing-side risks: subpar realization in operation planning. & demand-supply mismatches

• Demand-side risk: deviation in demand volume and deviation of shipping requests from customers that require either delayed or expedited shipment

Perspective 2: Risk typology based on the location of risks

Happen in 3 types of flows across supply chain 

• Risk disrupting flows of money: exchange rate fluctuations, trade credit risk and rating, and payment time variability

• Risk disrupting flows of goods: forward-process blockage and reverse-process blockage in the remanufacturing model, supply chain disintermediation, port disruption, geographical traits, and poor transport infrastructure

• Risk disrupting flow of information: sequential decision-making under uncertainty, incomprehension of supply and demand

Perspective 3: Risk typology based on the impact of risks

Social risks - disruption that prevent the establishment of honorable and equitable actions for supply chain parties and society. 

Ex: labor working conditions, company ethics, unfair wages

Environmental risk - disruptions that jeopardize the the interaction of the supply chain with the environment by which causing permanent destruction.

Ex: waste treatment problems, climate condition, and environmentally related scandals within the supply chain

SUPPLY CHAIN RESILIENCE

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Refers to the supply chain’s capacity to absorb stress, recover critical functionality, and thrive in altered circumstances

Benefits SUPPLY CHAIN RESILIENCE

Companies that invest in SCR turn disruption —> a competitive advantage. Gross profit growth of resilience leaders outpaced that of laggard by up to 55%

Without resilience capabilities, companies are exposed to inevitable supply chain disruptions. SCR —> minimize cost, lost revenue in times of crisis and support accelerated growth in times of expansion 

Early investments in resilience —> deliver immediate benefits fund the journey. 

Ex: deploying inventory more efficiently with better demand visibility & improving procurement with better upstream visibility for sourcing

SUPPLY CHAIN SECURITY

Concept

Refer to both physical security relating to products and cyber security for software and services 

Very greatly from group to group, and many different organizations involved 

Complete SC security strategies require following risk management principles and cyber-defense in depth

Supply chain are increasingly complex global networks comprise of large and growing volumes of third party partner who need access to data and assurances they can control who sees that data 

Every touchpoint adds an element of risk that needs to be assessed, managed and mitigated

Common supply chain security concerns

**Data protection:** secure data exchange involves trusting the other sources: 3rd parties or an e-commerce website

**Data locality:** critical data exists at all tiers of the supply chain, and should be located, classified and protected 

**Data visibility & governance:** multi-enterprise business networks=facilitate the exchange of data; control over the data, the ability to decide who share it with and what each permissioned party can see

**Fraud prevention:** every point at which data is exchanged between parties or shifted within systems presents an opportunity to be tampered

**Third party risk:** SC often relies on tiers of suppliers to deliver finished goods —> each of these external parties can expose organizations to new risks

Manage SC security

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1\. Basic initiatives 

2\. Reactive initiatives

3\. Proactive initiatives

4\. Advanced initiatives

1. Basic initiatives

• Use of security badges and guards

• Conducting background checks on applicants

• Using anti-virus software and passwords

• Shipment tracking  technologies

2. Reactive initiatives

• Implement security system in response to attacks/emergencies

3. Proactive initiatives

• Creating an executive-level position such as director of corporate security

• Develop formal and comprehensive approach for assessing the firm’s exposure to security risks

• Use of cyber-intrusion detection systems

• Development of freight security plans in collaboration with 3PLS

• Active participation of employees in industry security associations and conferences

4. 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 SC to security disruptions

• Use of emergency control center to manage responses to unexpected SC disruptions