Supply Chain Integration - Assignment Example

Supply Chain Integration Introduction The global economy is recovering from the severe impacts of the recent global recession. Marketers today consider the current business environment as a favourable situation to expand their businesses. However, the level of market competition in all business sectors is very high because the degree of competitive rivalry is being triggered by technological innovations. Today, operational success of a business is increasingly linked to the supply chain performance the firm, and therefore managements take great efforts to improve their supply chain activities. Management professionals opine that long-standing relationships with suppliers, customers, and employees are vital to establish an efficient supply chain. Strategic relationships or collaborated working with supply chain partners is possible only if there exists an integrated supply chain. Supply chain integration is considered to be key contributor to supply chain performance by practitioners and researchers (Prajogo & Olhager 2012). However, there is a counter-argument that supply chain integration does not have any notable impact on the overall supply chain performance. Although is a good volume of academic literature describing the integration process and its key challenge, only a few scholarly works have examined the actual impacts of integration on the performance. This paper is divided into two parts: Part A and Part B. The Part A will discuss the impacts of integration on supply chain performance. The second part of the paper (Part B) will analyze the Bahman Group case to identify the real-life effects of integration and to develop recommendations to improve performance. PART A Supply Chain Integration To what degree firms must integrate with their supply chain partners has been a hot topic for many years. In the business environment and research context, this concept is generally regarded as supply chain integration, and this strategy is essential to minimize certain risks. The concept of supply chain integration is currently considered to be an integral part of the supply chain management. According to Zhao and Huo et al (2011), supply chain integration (SCI) can be defined as “the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organization processes”. The authors add that the major goal of SCI is to enhance smooth and effective flow of products, services, information, capital, and decision so as to provide customers with maximum value at cheap costs and high speed (Ibid). Scholars opine that an integrated supply chain represents the association of suppliers and customers who combine their efforts to achieve the optimisation of their collective performance in the creation, distribution, and support of the final product. The integration greatly benefits the organization to effectively manage and coordinate the relevant resources of each participant involved in accordance with the needs of the supply chain and enhance the optimisation of the overall supply chain performance. The process of supply chain integration is not identical with supply chain partner collaboration (Baraniecka 2013). The writer continues that partnership is not a potential condition for driving integration in a supply chain. Baraniecka says that changing collaborators’ supply chain contacts from transactional contacts to partners contacts is a potential strategy to eliminate integration barriers (Ibid, p.45). Evidences suggest that integration activities can significantly contribute to supply chain excellence. An active and sincere involvement of the upper management is vital to establish an integrated supply chain. In addition, committed participation of sales, engineering, logistics, and purchasing personnel as well as the representatives of any other department that has an operational interest in the supply chain is also essential to support the integration process. An integrated supply chain necessitates flawless communication between the buyer and seller. There must be a strong communication between ordering and shipping points to ensure that the products being ordered are available for shipment. Interlinked computer infrastructure must be a key feature of an integrated supply chain. The seller’s computer system and the buyer’s computer system should be connected in a way so that buyers can easily track the current status of an order from the time it was issued. When a purchase order is processed by the seller, respective updates must be given to the buyer. When the product is shipped to the buyer, the transportation department/agency should keep both the seller and buyer informed of the current shipment status. In order to avoid confusions and operational conflicts, it is important to define the functional responsibilities of all departments specifically. For the integration process to be effective, every individual involved in the supply chain should be convinced that they have something to contribute to the overall supply chain efficiency. Benefits of Supply Chain Integration An integrated supply chain can benefit a business in several ways. Integration can assist organizations to provide a quality customer service in addition to meeting their sales and profit targets effectively. Information technologies such as enterprise resourcing planning (ERP) system constitute a core part of the integrated supply chains. Integration greatly helps the management to attain greater operational flexibility to respond quickly to events in the external market environment including competitors’ activities and changes in customer demand. An integrated supply chain is really a good source for gathering intelligence, which in turn would inform of what competitors are planning. Since integration also aids organizations to deal with inventory management efficiently, integrated supply chains would not be troubled by overstocked or understocked conditions. By avoiding overstocked conditions, firms can eliminate unnecessary storage costs and product obsolescence whereas averting the understock of goods is vital to prevent losing customers to competitors. Integrated supply chains can assist retailers to easily adjust their inventory orders months in advance in response to anticipated changes in market demand so as to ensure the right level of stock in hand. Another advantage of integration is that it facilitates just-in-time production whereby firms can eliminate the difficulties associated with long distance transporting of finished goods. It is evident that greater operating flexibility and tight control over inventory management would assist organizations to maintain a lower cost structure, which in turn would result in higher profit margins. Businesses can remain competitive and grow their customer base by responding quickly to changes in the external market environment. One of the major benefits of supply chain integration is that it allows organizations to look into their suppliers’ operations also, and this collaborated working will help to cut down costs and drive margins. Management professionals indicate that well integrated supply chains can play the role of early warning systems so that firms can avoid unexpected financial losses or similar adverse situations to a great extent. Forecasting is another major advantage of supply chain integration. Integrated supply chains facilitate effective information sharing, which in turn would assist firms to exchange planning data and to deal with shipping and production schedules with greater efficiency. The increased efficiency in information sharing is also helpful for related companies/industries or supply chain partners. To illustrate, a construction company may share its forecasting information with a supply chain partner who engaged in the production of windows so as to ensure adequate supply of different related materials and thereby to create a favourable business environment. Finally, integration is a better way to reduce human involvement in the supply chain significantly and thereby trim down operating costs. Impact of Integration on Supply Chain Performance Academic literature has well documented the extensive effects of integration on supply chain performance. Most of the scholars opine that integrated supply chains can significantly improve the overall supply chain performance. According to Sims (2013), “An integrated supply chain allows manufacturers to look into business processes across multiple suppliers and across disparate platforms to follow materials and components wherever they are — expanding traditional supply chain management beyond tracking materials, information, and finances as they move from supplier to manufacturer”. Evidently, this move from the conventional practices would provide the supply chain management with a range of competitive capabilities that can optimise value chain efficiency. Through the integration process, the supply chain is transformed into a network of relationships among supply chain partners (Ibid). Evidences suggest that a well integrated supply chain can assist end-users to more efficiently and affordably manage manufacturing, inventory, and transaction costs. It is identified that integration is a potential strategy to eradicate redundancy of efforts and costs and thereby to improve service levels (Ibid). Through integrating their supply chains, organization can attain the ability to offer customers shorter lead times and reduced inventory costs. In many ways, an integrated supply chain can assist companies to point out where the process flow is affected by problems and hence take immediate actions to resolve the issues identified. Supply chain integration would assist firms to go beyond mere order fulfilment and gain deeper understanding of customer needs for customised products and services. This knowledge can assist the organizations to differentiate its offerings and improve net profits. In the words of Zailani and Rajagopal (2005), today’s e-businesses and supply chains are being integrated to add value to the organization’s competitive advantages and sustenance. Referring to some previous literatures, Zailani and Rajagopal assert that supply chain integration is a key strategy for many organizations to achieve operational improvements that are necessary to remain competitive and to survive stiff modern market competition (Ibid). Integrated supply chains greatly assist organizations to coordinate their manufacturing processes effectively across the supply chain in a way that most market rivals cannot very easily grasp. Internal and external integration of the supply chain can directly improve the supply chain performance (Ibid). The authors state that internal integration or system-wide system integration among internal functions is a key strategy determining the performance of the supply chain because this process contributes to supply chain efficiency in terms of productivity growth, quality, delivery, and flexibility (Ibid). Under a traditional supply chain system, managers are concerned with the functional areas of their own departments only, and therefore each function is bureaucratic in nature. Zailani and Rajagopal argue that this concept cannot contribute to a successful supply chain and they add that integration of internal function is essential to develop a cross-functional behaviour. In addition, internal integration is able to improve the company-customer relationship indirectly. The external integration addresses two concepts such as integration with suppliers and integration with customers. The external integration with suppliers indicates the degree to which the company works with its suppliers and considers them as an important component of the supply chain. This strategy is beneficial to increase the level of involvement and influence suppliers have in the management decisions and thereby ensure high level strategic partnership suppliers in the long term. Undoubtedly, long-term relationships with suppliers would assist organizations to eliminate supplier switching costs and to enjoy credit facilities. The situation ultimately leads to enhanced supply chain performance. By closely working with suppliers, companies can identify the changes in the external market environment in advance. Similarly, the external integration with customers may benefit the management to improve the company-customer relationship, a major factor influencing the supply chain performance. Under an integrated supply chain, companies would perceive customers as a crucial component of the supply chain, and hence promote customer involvement in the company’s decisions. The long-standing relationships with customers would aid the organization to form more informed supply chain decisions. Follow-up with customers must be a crucial part of the operations of an integrated supply chain (Zailani & Rajagopal). The follow up represents the level of communication between the company and customers whereby customers give suggestions to the company regarding the outputs to be delivered. According to the writers, regular follow-ups with customers increase the level of customer satisfaction, which in turn directly improves the company-customer relationship in the supply chain (Ibid). Referring to a research conducted by Dumke (2012), internal integration of supply chain can influence both business and operational performance whereas customer integration is directly linked to operational performance. The author found that although supplier integration is not linked to either business performance or operational performance, the interaction of supplier and customer integration can influence operational performance. Many authors argue that high level integrative practices can have a positive effect on corporate and supply chain performance. Some recent empirical works provide a set of convincing evidences to prove the relationship between integration and performance. However, some other supply chain management literatures suggest that business conditions can play a great role in determining the efficiency of supply chain integration and thereby supply chain performance. Researchers like Vaart, Gimenez, and Donk (n.d.) say that there are three different dimensions such as practices, patterns, and attitudes under the integration construct and these dimensions are greatly correlated. They are identified as three distinct elements in the supply chain integration. The level of integration with respect to specific business conditions may impact the supply chain performance (Ibid). The authors make it clear that a high level integration is needed only when complex business conditions like increased uncertainty in demand, high variety, and small batches exist. In other words, a high level integration would result in improved supply chain performance only under such circumstances. In contrast to this, when simple business conditions such as low uncertainty, low variety, and large batches exist, a low level integration is suggestible to achieve better supply chain performance (Ibid). The authors particularly emphasise the significance of the communication between partners and integrative practices so as to maximise the efficiency of supply chain performance. They add that the relationship between integration and supply chain performance is significantly influenced by factors such as uncertainty in demand or technology. The essence of their study is that integration has more notable impacts on the performance improvement in supply chains with a high level uncertainty compared to those with a low level uncertainty (Ibid). Integrated supply chains can contribute to improved on-time delivery to the end customers, and the situation in turn would guarantee greater level of customer satisfaction. Integration may promote formation of partnerships in the supply chain, and hence this approach would add value to supply chain efficiency. In an integrated supply chain, sourcing and customer relationships will be transformed into partnerships thus increasing the level of trust. This enhanced trust can lead to a steady performance and predictable sourcing. In the view of Stevens (2007), supply chain integration is a better strategy to maintain an effective balance between cost and service and which in turn is inevitable to make the business attractive to customers. Integration keeps every supply chain partner connected through a system of networks, and this situation really benefits the organization to improve its supply chain performance by making well informed decisions and responding immediately to unexpected changes in market environment. It is interesting to see that a few researchers like Fabbe-Costes and Jahre oppose the general perception that supply chain integration improves the performance. The writers indicate that unlike the business world/management professionals assume, only a very few papers have been written on the relationship between integration and performance. They point that most of the studies that support the view that integration contributes to improved supply chain performance suffer from weak measures either in terms of SCI or performance or both. Fabbe-Costes and Jahre also argue that the number of papers that are used as an evidence to support a positive relationship between integration and performance is very limited. Another claim of the authors is that many previous academic literatures used the same references to make their points (Ibid). Despite such criticisms by a few researchers, the modern business world still strongly believes that high level integration can greatly assist firms to optimise their value chain activities and improve overall supply chain performance. Hence, today top level managements spend a considerable amount of their money and time on establishing a well integrated supply chain which is capable of promoting decision making, delivering high value to end customers, and reducing supply chain costs. PART B Supply Chain Case Study Impact of supply chain integration on the performance of Bahman group is a supply chain case written by Fateme Moshkdanian and Ali Molahosseini (2007) and published in the Interdisciplinary Journal of Contemporary Research Business. As the title indicates, this study analyses how the integration influenced the supply chain performance of the Bahman group. Bahman Group is a vehicle manufacturer based in Iran, and the company operates under the license by Mazda. The company was founded by Amanollah Sarbaz and his son, and it is headquartered at Tehran. Currently, the organization manufactures versions of Mazda trucks, Mazda B-Series pickups, and Mazda 323 and Mazda 3. Bahman Group is the holding company of Mehr-e-Eqtesad Financial Group, Bahman Investment Company, Kharazmi Investment Company, and Ghadir Investment Company. Moshkdanian and Molahosseini used extensive methods to analyse the impact of supply chain integration on the performance of Bahman Group. The researchers mainly used the questionnaire method to collect data necessary for conducting this study (Moshkdanian & Molahosseini 2013). As part of the data collection, questionnaires were distributed among the personnel of supply chain, information technology, purchasing and logistics, and customer service department of the Bahman Group. The authors did not rely on any sampling method because of the great availability of population and ease data collection. They calculated Cronbach’s alpha coefficients for each criterion provided in the Table 1. Since all the coefficients calculated are above 70%, it can be assumed that the questionnaire used had accepted reliability. Among the 120 questionnaires distributed, only 75 were usable. In other words, 62.5% of the participants adequately responded to questions. In this 62.5 percent, 32 respondents (42.6%) were from the Supply Chain and Procurement and the remaining 43 were (57.3%) from the customer service and IT sectors. 62 valid respondents (82.7%) were male and 13 respondents (17.3%) were female. Questions included in this data collection survey were taken from the study of Prajogo & Olhager (2012), and a seven point Likert scale was the basis to assess each item. The variables of long-term relationship were graded between 1 (strongly disagree) and 7 (strongly agree) for information technology, information sharing, and logistics integration. In order to assess the level of operational performances, measures such as the quality of production, delivery, flexibility, and cost were considered. In this data collection survey, the participants were asked to respond in comparison to the major rivals in the automotive industry. In terms of performance, the measurement scale included points from 1 (weakest in the industry) to 7 (strongest in the industry). Measurements Cronbach’s Alpha Logistic integration 0/79 Information technology 0/80 Information sharing 0/724 Long term relationship 0/73 Operational performance 0/924 Table 1 (Source: Moshkdanian & Molahosseini 2013) The researchers used several theoretical frameworks such as confirmatory factor analysis to measure the validity of all variable used in this study. They also examined and ensured the unidimensionality and convergent validity of the measures used so to improve the accuracy of findings. In addition, this research work employed path analysis technique to assess the hypotheses and the universality of the model. From the study, the authors obtained some valuable results to describe the relationship between integration and performance. They identified that the integration of the Bahman Group’s logistics was positively linked to the firm’s operational performance. The information technology capabilities between the Bahman Group and its suppliers were positively influenced by the logistics integration. Similarly, information sharing between the Bahman Group and its suppliers notably improved the logistics integration. They found that the long term relationship with suppliers assisted the organization to strengthen its information technology operations with suppliers. In addition, the long term supplier relationships also benefited the firm to improve information sharing with suppliers. The case of the Bahman Group indicates that there is a positive connection between long term supplier relationships, information integration, logistics information, and operational performance. The case also illustrates the need of integrating material flow in support with information integration. The Bahman Group’s material flows from suppliers will be facilitated by information flows from customers. In other words, the company’s demand chain would be able to strengthen its supply chain performance under an integrated supply chain system. Supply chain integration and the resulted long term supply chain relationships helped the organization to foster collaborative behaviours, which in turn enhanced information sharing and integration. The Bahman case study particularly reveals the point that it is not possible to achieve information integration unless the scope of supply chain partnerships is extended beyond trading or transactional relationships through supply chain integration. From the experience of Bahman Group, supply chain integration promotes long-term relationships between supply chain partners, which in turn indirectly improve the firm’s operational performance. It was identified that information technology and information are crucial to achieve successful logistic integration. Hence, the Bahman Group gives specific emphasis to its IT capacities and information sharing so as to improve the performance efficiency achieve through integration. The case of Bahman Group underlines the theoretical view that supply chain integration is a significant contributor to supply chain performance. The two key flows including material and information enhance such relationships. Integration of both material and information flows between supply chain partners can have a positive impact on the firm’s supply chain efficiency and performance. The Bahaman case makes it clear that the indirect effect of long term supplier-relationships on performance is enhanced through information integration and logistics integration. Another finding of this study is that high level information integration has a significant positive effect on material integration, which in turn notably promotes operational performance. Finally, strategic supplier relationships achieved through supply chain integration can also have a positive influence on performance. Recommendations The Bahaman case discussion reveals the significance of supply chain integration for improving the overall supply chain performance of an automotive company. The case particularly emphasises the importance of information sharing and integration in enhancing the influence of long-term supplier relationships on performance. Therefore, it is recommendable for the Bahman Group to focus more on its IT infrastructure and capabilities to establish a strong IT network. Implementation of a latest version of an ERP system may improve its supply chain efficiency. Recruiting highly experienced IT professionals is a potential suggestion for the Bahman Group to improve its IT workforce strength. More importantly, the company must be up to date with latest software updates and other advancements with regard to IT. Similarly, it is advisable for the organization to give particular focus to improving the relationship with their suppliers and customers. Promoting long-term supplier relationships can assist the organization to gather crucial market information in advance and proactively respond to future changes in market demand. Strategic supplier relationships would also benefit the company to achieve greater cost efficiency and to obtain a competitive edge over other players in the automotive industry. In the same way, long-term customer relationships may assist the Bahman Group to gain great advantages in terms of mouth-to-mouth publicity, which is one of the most powerful tools of product/service promotion. When promoting the supply chain integration, it is advisable for the Bahman Group to ensure the active support of its employees in achieving the change. Conclusion From the Part A, it is clear that supply chain integration is a process whereby a manufacturer strategically collaborates with the supply chain partners. Active participation of all departments of the organization is inevitable to establish a well integrated supply chain. Supply chain integration assists organizations to improve their operational flexibility, inventory management, and profit margins. Well integrated supply chains can perform the roles of an early warning system, and thereby help the company to be prepared to face challenges. Integration is a potential strategy to eliminate redundancy of efforts and costs and to deliver better quality services to the end-users. The concept of supply chain integration can greatly benefit organization to provide their customer with shorter lead times and reduced inventory costs. An integrated supply chain is helpful for firms to coordinate their manufacturing processes efficiently across the supply chain and to improve their overall supply chain activities. Business conditions can play a significant role in determining the impact of integration on supply chain performance. Integration can facilitate on-time delivery of goods and services, which is a key factor influencing the level of supply chain efficiency. Supply chain integration is a great way to establish an effective balance between cost and service and to add value to overall supply chain performance. The case of the Bahman Group discussed in the Part B reflects that the integration can positively influence the supply chain performance due to several reasons. The Part B also finds that long-term supplier relationships can indirectly influence the firm’s operational performance. References Baraniecka M (2013) Managing Towards Supply Chain Maturity: Business Process Outsourcing and Offshoring. NY: Palgrave Macmillan. Dumke D (2012) The Impact of Supply Chain Integration on Performance. Supply Chain Risk Management. Available at: http://scrmblog.com/review/the-impact-of-supply-chain-integration-on-performance Fabbe-Costes N & Jahre M (2007) Supply chain integration improves performance: the Emperor’s new suit? International Journal of Physical Distribution & Logistics Management 37 (10): 835-855. Moshkdanian F & Molahosseini A (May 2013) Impact of supply chain integration on the performance of Bahman group. Interdisciplinary Journal of Contemporary Research in Business 5 (1): 184-192. Prajogo D & Olhager J (January 2012) Supply chain integration and performance: The effects of long-term relationships, information technology and sharing, and logistics integration. International Journal of Production Economics. 514–522. Sims D (July 23rd, 2013) Integrated Supply Chains Maximize Efficiencies and Savings. Available at: http://news.thomasnet.com/IMT/2013/07/23/integrated-supply-chains-maximize-efficiencies-and-savings/ Stevens GC (2007) Integrating the supply chain. Emerald Backfiles. Available at: http://cc.sjtu.edu.cn/G2S/eWebEditor/uploadfile/20130422113932110.pdf Vaart TV, Gimenez C & Donk DP (n.d.) Supply chain integration and performance: The impact of business conditions. Available at: http://www.rug.nl/staff/d.p.van.donk/euroma2006vaartgimenezdonk.pdf Zailani S & Rajagopal P (2005) Supply chain integration and performance: US versus East Asian companies. Supply Chain Management: An International Journal 10 (5): 379–393. Zhao X, Huo B et al. (2011) Effect of Customer Power on Supply Chain Integration and Performance. IGI Global. 191-192. Available at: http://www.irma-international.org/viewtitle/48471/ Read More