SCM COORDINATIONand

SCM INTEGRATION

Shiyaz K.MIII Semester MBA-FTSMS, CUSAT

What is a Supply Chain?

• The flow of materials, information ,products and services from raw material suppliers ,through factories and warehouses to end customers.

• Includes tasks such as purchasing, payment flow, materials handling, production planning and control , logistics and warehousing inventory control and distribution and delivery

• The role of SCM is to plan,

organize ,coordinate and control all the supply chain activities

SUPPLY CHAIN MANAGEMENT

• "SCM is the planning and coordination of activities, from procurement to production, through ... distribution" (Arunachalam, Sadeh, Eriksson, Finne and Janson 2003)

• “Coordination of business activities across organizational boundaries.”

• Primary objectives include cost reduction, service improvement, improved communication

SUPPLY CHAIN COORDINATION

• Supply chain coordination improves if all stages of the chain takes actions that together increase total supply chain profits

• It requires each stage of the supply chain to take into account the impact its actions have on other stages

NEED FOR COORDINATION

• Firms have intensified efforts to streamline operations and improve service to a diverse and demanding customer base

• To ensure that the supply chain is both efficient and responsive to dynamic market needs.

LACK OF COORDINATION

• Information moving between stages is delayed and distorted- distortion is exaggerated by product variety- complete information is not shared

Different stages having conflicting objectives

Coordination and Bullwhip effect

• Bullwhip effect : The bullwhip effect can be described as a series of events that leads to supplier demand variability up the supply chain

IMPACT OF BULLWHIP ON DIFFERENT PERFORMANCE

MEASURESPERFORMANCE MEASURE IMPACT OF BULLWHIP EFFECT

Manufacturing cost Increases

Inventory cost Increases

Replenishment lead time Increases

Transportation cost Increases

Shipping and receiving cost Increases

Level of product availibilty Decreases

Profitability Decreases

Obstacles to coordination in the supply chain

• Incentive obstacles• Information processing obstacles• Operational obstacles• Pricing obstacles• Behavioral obstacles

Incentive obstacles

• Local optimization within Functions or Stages of a Supply chain

• Sales force incentives

Information processing obstacles

• Forecasting based on orders and not

customer demand

• Lack of information sharing

Operational obstacles

• Ordering in Large Lots

• Large Replenishment Lead Times

• Rationing and Shortage Gaming

Pricing obstacles

• Lots Size Based Quantity Discounts

• Price Fluctuations

Behavioral obstacles

Each stage of supply chain views its actions locally and is unable to see the impact of its actions on other stages

Different stages react to current local situation rather than trying to identify the root causes

No stage in the supply chain learns from its actions over time

Lack of trust between supply chain partners causes them to be opportunistic at the expense of overall supply chain performance

ACHIEVEING COORDINATION IN PRACTICE

Quantify the bullwhip effect Get top management commitment for

coordination Devote resources to coordination Focus on communication with other

stages Try to achieve coordination in the entire

supply chain network Use technology to improve connectivity in the supply chain

Share the benefits of coordination equitably

MANAGERIAL LEVERS TO ATTAIN COORDINATION

–Aligning of goals and incentives– Improving information accuracy– Improving operational

performance–Designing pricing strategies to

stabilize orders–Building partnerships and trust

SCM INTEGRATION

• Degree to which the firm can strategically collaborate with their supply chain partners and collaboratively manage the intra- and inter-organization processes to achieve the effective and efficient flows of Product and services, Information, Money, and Decisions.

• With the objective of providing the maximum value to the customer at low cost and high speed.

• Integration is the alignment and interlinking of business processes, and embodies various communication channels and linkages within a supply network.

Components of SCM Integration

• Planning and control • Work structure • Organization structure • Product flow facility structure • Information flow facility structure • Management methods • Power and leadership structure • Risk and reward structure • Culture and attitude

IMPLEMENTING INTEGRATED SCM REQUIRES

Analyzing the whole supply chain.Starting by integrating internal functions

first.Integrating external suppliers through

partnerships

STAGES IN INTEGRATION

• Separate logistics are not given much attention or considered much important.

• Recognising that the separate activities of logistics are important for the success of the organization.

• Making improvements in the separate functions, making sure that each is as efficient as possible.

• Internal integration – recognizing the benefits of internal co-operation and combining the separate functions into one.

STAGES IN INTEGRATION (cont..)

• Developing logistics strategy, to set the long-term direction of logistics.

• Benchmarking – comparing logistics’ performance with other organizations, learning from their experiences, identifying areas that need improvement and finding ways of achieving this.

• Continuous improvement – accepting that further changes are inevitable and always searching for better ways of organizing logistics.

INTEGRATION ALONG THE SUPPLY CHAIN

• Three levels of integration. (a) first has logistics as separate activities within

an organization; (b) second has internal integration to bring them

together into a single function; (c) third has external integration, where

organizations look beyond their own operations and integrate more of supply chain.

BENEFITS OF INTEGRATION

• Genuine co-operation between all parts of the supply chain, with shared information and resources.

• Lower costs – due to balanced operations, lower stocks, less expediting, economies of scale, elimination of activities that waste time or do not add value, and so on.

• Improved performance – due to more accurate forecasts, better planning, higher productivity of resources, rational priorities, and so on.

• Improved material flow, with co-ordination giving faster and more reliable movements.

BENEFITS OF INTEGRATION (cont..)

• Better customer service, with shorter lead times, faster deliveries and more customization.

• More flexibility, with organizations reacting faster to changing conditions.

• Standardised procedures, becoming routine and well-practiced with less duplication of effort, information, planning, and so on.

• Reliable quality and fewer inspections, with integrated quality management programmes.

MEASURES OF INTEGRATION

• Access to planning system• Sharing production plans• Joint EDI access / networks• Knowledge of inventory mix / levels• Packaging customization• Delivery frequencies• Common logistical equipment / containers• Common use of third-party logistics

• Internal integration: function to function

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 approach

INTEGRATION IN THE SUPPLY INTEGRATION IN THE SUPPLY CHAINCHAIN

Strategic CollaborationDecision FlowDecision Flow

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D C

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Information & Knowledge Flow

Products & Services Flow

Financial FlowDecision FlowDecision Flow

Enterprise

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Enterprise

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Products & Services Flow

Financial Flow

ACHIEVING INTEGRATION

Co-operation and Conflict• Organizations have to recognize that it is in their

won long-term interest to replace conflict by agreement.

• Need s a major change of culture• Suppliers need co-ordination• Organizations need loyality• Should not be concerned with self objectives,

rather work jointly.• Most imporatnt thing is co-operation.

DIFFERENT TYPES OF CO-OPERATION

If an organization has a good experience with a supplier, it will continue to use them and over some period will develop a valuable working relationship.

Sometimes the co-operation is more positive, such as small companies making joint purchases to get the same quantity discounts a slarger companies; EDI links to share information; combining loads to reduce transportation costs agreed package sizes to ease material handling, lists of preffered suppliers, and so on.

The two different types of co-operations are:• Strategic Alliances• Vertical Integration

STRATEGIC ALLIANCES

• Organizations working closely together at all levels.• Senior managers and everyone in the organizations

supporting the alliance.• Shared business culture, goals and objectives.• Openness and mutual trust.• Long-term commitment.• Shared information, expertise, planning and

systems.

STRATEGIC ALLIANCES (continued..)

• Flexibility and willingness to solve shared problems.

• Continuous improvements in all aspects of operations.

• Joint development of products and processes.• Guaranteed reliable and high quality goods

and services.• Agreement on costs and profits to give fair and

competitive pricing.• Increasing business between partners.

VERTICAL INTEGRATION

• a measure of how much of the supply chain is owned by the manufacturer– Backward integration – acquisition or control of

sources of raw material and component parts– Forward integration – acquisition or control of its

distribution channels

• related to levels of insourcing and outsourcing

THANK YOU