Supply Chain Integration - Essay Example

?Supply Chain Integration Question Explain why the use of tB2B type relationships and the internet appear to be the solution to many supply chain problems (include e-auctions). Taking business to business (tB2B) type relationships and the internet appear to be the solution to many supply chain problems because increasingly competition now relies on businesses’ ability to ensure that products and services are delivered on time and efficiently globally (Jespersen & Skjott-Larsen, 2005). Thus, successful competition hinges on the creation of trust and prolonged partnerships among diverse actors within the supply chain including customers, suppliers and all relevant business partners (Lan & Unhelkar, 2006). Invariably this means enhanced cooperation and coordination of a number of resources including technology, human capital and all supply chain related activities (Wisner, Tan, & Leong, 2011). Supply chain management therefore goes beyond the parameters of an individual business and includes information and knowledge relative to demand and supply from other businesses scattered around the globe (Simatupang; Wright & Sridharan, 2002). tB2B is therefore important because it enables supply chain actors and partners to coordinate information relative to the rate orders are fulfilled so as to correspond with its rate of consumption (Simatupang, et.al., 2002). For instance, Walmart conducts a supply chain management system in which point-of-sales (POS) information is shared (Simchi-Levi, Kaminsky & Simchi-Levi, 1999). By taking this approach, daily data relative to sales provides suppliers with the ability to distinguish between goods that are declining in demand and those that are increasing in demand so that they can make informed decisions about replenishment or discontinuance of goods in retail shops (Simatupang, et.al., 2002). It therefore follows that cooperation and coordination among businesses such as suppliers, distributors, “third-party logistics providers and retailer” is important for sustaining “the flexibility necessary to enable” businesses to “progressively improve logistics processes in response to rapidly changing market conditions” (Simatupang, et.al., 2002, p. 289). According to Graham and Hardaker (2000), the coordination of information for the common benefit of businesses in the supply chain is more effectively accomplished via the internet. The internet in supply chain integration is important for the sharing of information relative to supply and demand in a more timely manner and as such signifies the significance that information and knowledge has in the creation of “value” (Graham & Hardaker, 2000, p. 287). Graham and Hardaker (2000) maintain that the internet is useful for efficiently facilitating the means for adopting “an integrated approach throughout the supply chain” and allows for the more effective balancing of “autonomy and control” among the individual supply chain partners (p. 287). GE’s online business network is indicative of the significance of using the internet for integrating supply chain management (Graham & Hardaker, 2000). GE maintains an online trading process network which facilitates the transaction of approximately US$1 billion in business among over 1,400 suppliers located around the world. GE’s online trading process is a significant improvement on the prior process which involves prolonged “labour intensive contract biding and award processes” (Graham & Hardaker, 2000, p. 287). By using the internet, businesses are able to reach out to new markets by providing reduced costs for entrants, less “complexity with more flexibility” and more importantly offer a far more efficient method for doing business (Graham & Hardaker, 2000, p. 287). Another development in international business behaviour necessitating integrating the supply chain via the internet and via tB2B is the tendency to outsource and the formation of tactical partnerships among industries. These kinds of developments obviate the need for information and knowledge sharing relative to suppliers, consumers and companies which was previously jealously guarded by individual businesses. Graham and Hardaker (2000) inform that: Businesses today are finding themselves in an environment in which unprecedented information sharing among all participants is driving fundamental changes in the interactions, business practices, and operations of everyone involved (p. 287). The internet provides a forum by which supply chain integration is accomplished at minimal cost with optimal success (Lee & Whang, 2005). The internet permits partners in the supply chain to quickly ascertain and address customer demand (e-commerce); businesses to procure materials and handle storage, customs, payment, quality and recoding (e-procurement); and coordinate decisions and activities outside of actual transactions among supply chain actors (e-collaboration) (Lee & Whang, 2005). E-auctions in particular have emerged as a significant tool for facilitating e-procurement in supply chain integration and management (Subramanian & Shaw, 2002). E-auctions are currently used regularly by a majority of industries as a procurement tool (Kumar & Chang 2007). E-auctions are perceived as an efficient cost saving tool for procurement as it increases access to putative suppliers and improves relations between purchasers and suppliers (Losch & Lambert, 2007). Essentially, supply chain management has been restructured to reflect supply chain integration as a result of advances in information technology which allows businesses to more effectively and with less costs use tools such as e-procurement, e-commerce, e-collaboration, e-auction, just-in-time (JIT) supply and production, interact with consumers and trade via wed tools (Losch & Lambert, 2007). Question 2: Identify what issues and/or barriers a company may encounter in trying to become part of this relationship. In a “hypothetical-deductive study” conducted by Forslund and Jonsson (2009) results indicated that the primary obstacles to forming tB2B relations and the use of the internet for suppliers in supply chain integration are issues relative to trust, diverse goals/priorities and poor communications (p. 77). Forslund and Jonsson’s (2009) study involved a survey conducted among 257 purchasers attached to 9 Swedish industries. Over all the study found that the obstacles in supply chain integration via supply chain partnerships and relationships among supply chain actors from different businesses were also related to operations. Operational tools encounter obstacles that undermine the integration of individual businesses’ supply chain processes (Forslund & Jonsson, 2009). Awad and Nassar (2010) conducted an extensive review of the literature and identified three main categories of obstacles to the forging of B2B relations and via the internet for integrating the supply chain. The three main categories of obstacles are: “business micro-environmental”, “business macro-environmental/relationships” and technical barriers to supply chain integration (Awad & Nassar, 2010, p. 52). Business micro-environmental challenges arise in the context of internal organizational concerns and primarily centre on “transaction costs” in terms of capital, human resources and internal management and marketing strategies (Awad & Nassar, 2010, p. 53). Firms invariably consider the commercial costs and benefits of where the parameters of the organization should stop. Firms will typically assess whether or not the cost involved in “planning, adapting and monitoring” supply chain integration are comparative to the benefits (Awad & Nassar, 2010, p. 53). The transaction costs invariably involve conflicting needs in terms of technology, and human capital competence and resources generally (Awad & Nassar, 2010). In the final analysis, business micro-environmental challenges inform that firms are reluctant to give up too much internal management flexibility which is typically traded off in tB2B and internet relations for supply chain integration. Thus convincing evidence of benefits over costs will be required to forge these kinds of relationships for supply chain integration. Business macro-environment barriers relate to issues emanating outside of the organization. In this regard, integrating supply chain value can be challenging as a result of cultural differences and change in terms of integrating values, beliefs and learned organizational behaviour. Decision makers are often confronted with “compatibility issues” in terms of integrating business processes, technology, operations, strategies and the “political/legal environment” (Awad & Nassar, 2010, p. 54). At the end of the day, the primary macro-environmental challenge to supply chain integration via tB2B and internet relationships is the ability to ensure that supply chain value and outcomes are consistent with internal business strategies. Inter-business coordination can be a challenge to this primary business objective. Technical obstacles to supply chain integration via tB2B and internet relationships relates to the: ...technical challenges that effect the supply chain integration from inside-outside the organization’s environment (Awad & Nassar, 2010, p. 54). Obviously, in order to effectively and efficiently integrate supply chain via internet and tB2B relations, it is essential that information is likewise integrated or shared between supply chain actors and/or partners (Awad & Nassar, 2010). Business are required to have a seamless connection to “customers, partners, and co-workers”, however, a majorty of businesses harvest and share information in diverse ways and this information needs to be formatted so that it is effectively transmitted and received since it impacts the “actions and performance of other members of the supply chain” (Awad & Nassar, 2010, p. 54). As Awad and Nassar (2010) explain: The meaning of all data items must be understood and the same data item must have the same definition across multiple applications both within and outside the firm. To make the integration process worth the effort, the data must be of high quality – timely, accurate and relevant (pp. 54-55). Accomplishing high quality data in a timely, accurate and relevant manner can be difficult with different firms having different priorities, cultures, learned behaviour, competencies and political environments can be an issue. In the final analysis, the collective difficulties for achieving supply chain integration via the forging of internet and/or tB2B relations relate to costs, trust, technical, cultural, human/capital resources, business strategies and the general commercial complexities that distinguish one business from the other and invariably impact what information is important and what actions should be taken based on the information received. Invariably, a partner in the supply chain may perceive or interpret information as essentially unimportant and as such may fail to pass that information onto another partner in a timely or accurate manner although that information may be entirely important to other partners in the supply chain. Question 3: Engineering Limited: 1st Tier Supplier and the Goal of Integrating the Supply Chain. As the first tier supplier, Engineering Limited needs to remain cognizant of the fact that the supply chain is made up of manufacturers, suppliers, central businesses and consumers. In this regard, the supply chain involves production, distribution, supplies and sales. In integrating the supply chain, the primary objectives are to ensure efficient and effective information sharing among all units of the supply chain. As a first tier supplier, we must remain aware of the fact that demand variations increase as this information moves upward in the supply chain. When demand information is inaccurate it can create the bullwhip effect which can be detrimental to all layers of the supply chain (Chen, Drezner, Ryan & Simchi-Levi, 2000). In this regard, the bullwhip effect is a term used to refer to ineffective and inefficient supply chain management and integration (Lee, Padmanabhan & Whang, 1997). Essentially the consequences of ineffective and inefficient supply chain management and integration is the actual bullwhip effect (Croson & Donohue, 2006). Even in businesses where demand is seemingly easy to predict, firms may incur significant costs ensuring that production and supplies correspond with demand information or reality (Fisher, Hammond, Obermeyer & Raman, 1997). Dolgui and Proth (2010) caution that when information relative to demand is inaccurate or becomes distorted in the supply chain in its flow upward, there are typically three measurable consequences: “amplification”, “oscillation” and “phase-lay” (p. 119). Oscillation takes place when demand is decidedly not stable. Amplification takes place when demand variability increases as it moves upward in the supply chain. Phase-lag takes place, when order peak upward in the supply chain (Dolgui & Proth, 2010). The bullwhip effect occurs when communication relative to demand is varied and distorted within the supply chain. Information sharing is therefore very important for all suppliers, including first tier suppliers in the supply chain for countering or taming the potential for or the actual bullwhip effect. As Wu and Katok (2006) warn, even in circumstances where supply chain partners are entirely competent, demand variables can only be minimized where information and knowledge is shared and communicated accurately and in a timely manner. It therefore follows that when one considers the causes and consequences of the bullwhip effect, the need for integration of the supply chain is spearheaded by capitalizing on the importance of information and knowledge sharing in order for the bullwhip effect to be tamed or minimized if not eliminated altogether. As a first tier supplier, our ability to ensure that demand information is shared and communicated accurately as it travels upward in the supply chain is entirely limited. As Martinez & Perez (2005) inform, first tier suppliers in the automotive industry are typically involved in designing car parts although automotive businesses assist suppliers in the manufacturing and technological processes. Thus, as a first tier supplier, Engineering Limited is highly dependent on other partners in the supply chain for ensuring reliable and timely delivery of supplies (Narashimhan & Jayaram, 1998). It therefore follows that as a first tier supplier in the automobile supply chain, Engineering Limited will have to rely on information emanating from second tier suppliers and other suppliers and distributors within the supply chain. Our forecasting and predictions relative to demands will depend on the efficient management of the supply chain (Octovio, Carranza, Felipe and Villegas, 2006). Our primary focus and difficulty will be in ensuring that predictions relative to demand increases are based on accurate information and that our levels of production are consistent with predicted demands. We will therefore confront the problem that is common to all industries: avoiding the difficulties that follow from running out of supplies. The primary difficulties confronted by Engineering Limited will be the inaccurate or inefficient flow of information and knowledge which invariably results in incorrect demand forecasting, which incurs inappropriate lead-times, supply shortages and price variations (Lee, Padmanabhan and Whang, 1997). A primary concern is the bullwhip effect which incurs both preventative and corrective costs which can take the business by surprise. There is the increasing danger of excessive inventories, incorrect product/supply predictions, insufficient competencies, dissatisfied consumers as customer services lag when there is a backlog in orders because supplies are unavailable, production and suppliers are not prepared and thus there are costs involved in addressing these issues (Lee et.al., 1997). Torres and Maltz (2010) warn that attempts to defray the cost of inaccurate demand information and poor integration of the supply chain management, have incurred firms an operational cost of between 13 and 25 per cent. It therefore follows that effectively managing and integrating the supply chain is imperative for all supply tiers in the supply chain (Torres & Maltz, 2010). There are a number of strategies for incorporating effective supply chain management and integration for the sharing of accurate and relevant information and knowledge within the supply chain. Sucky (2008) recommends Vendor Managed Inventory (VMI), collecting and sharing Point of Sale (POS) information, using Electronic Data Interchange (EDI), and the reduction of price fluctuation for effective and efficient supply chain management and integration. The extent to which POS, VMI, EDI and price fluctuations are successful depends on the various supply chain actors willingness to commit to and coordinate strategies for integrating the supply chain. Cultural differences in organizations and difficulties with preparedness relative to organizational change may create obstacles for the effective implementation of VMI, EDI, POS and price fluctuations (Sucky, 2008). Regardless, VMI is an important tool for supply chain integration and management. VMI was popularised during the 1980s by firms such as K-Mart, Wal-Mart and Proctor and Gamble who uses VMI for managing their respective supply chains (Southard & Swenseth, 2008). VMI is used for managing supplies and inventory within a supply chain (Southard & Swenseth, 2008) and can therefore be important for Engineering Limited. This would involve the appointment of a VMI management team who would make decisions with respect to the appropriate levels of “inventory replenishment” and the “timing” for replenishing inventories (Southard & Swenseth, 2008, p. 277). This is obviously important for all suppliers since one of the main obstacles to supply chain management in terms of integration is designating the correct methods for integrating efforts for avoiding over supplies or under supplies in terms of inventory. However, there are no guarantees for successful integration via VMI management tools. Even so, the literature reports that VMI is especially advantageous to suppliers who are farther downstream as with Engineering Limited, a first tier supplier (Cachon & Fisher, 1997; Clark & Hammond, 1997; Fraza, 1998). For the most part, we are more concerned with reducing costs and ensuring that customer services are conducted in a way that is satisfactory to both supplier and consumer. Waller, Johnson & Davis (1999) inform that VMI will be beneficial in this regard to at least one tier of the supply chain and usually at the lower echelons of the supply chain. Moreover, Centinkaya and Lee (2000) maintain that VMI has the potential to safeguard against increased cost attached to conducting inventory and stocking out issues and at the same time allows for inventory and transportation decisions to be synchronized. Fox (1996) also maintains that VMI as a supply chain management and integration tool has the ability to safeguard against the incidents of inaccurate demand forecasting and may significantly reduce inventory gaps. Ultimately, VMI is more accurately characterised as a supply chain management and integration tool used for ensuring that the customer indirectly ascertains inventory levels emanating from the firms that purchasing is conducted from (Spychalska, 2010). In other words, by virtue of VMI, inventory is managed or replenished depending on information relative to consumer demands. However, for Engineering Limited, a first tier supplier, this information is channelled via suppliers further up in the supply chain. Thus as a first tier supplier, Engineering Limited’s ability to ensure that accurate information and knowledge via VMI is channelled via the supply chain is restrained as it must depend on the commitment and interpretation of other suppliers and cultural and organizational learned behaviour may influence how this information is interpreted or perceived as relevant. EDI is a supply chain management tool that is used for allows for order processing and information processing between supply chain partners via electronic means (Hill & Scudder, 2002). This is an important instrument for a first tier supplier like Engineering Limited. As Spyschalska (2010) reports, the most important advantage involved in implementing EDIs is the fact that EDI can significantly cut back on lead times that are established during the process of orders downstream in the supply chain. EDI is therefore important for shaping and directing the intrinsic relationships involved in supply chain integration and management. The requisite relationships are those between firms, suppliers and customers (Hill & Scudder, 2002). However, as a first tier supplier, Engineering Limited has a very limited relationship with end consumers and must rely on information generated from firms. In other words, Engineering Limited cannot avoid the problems associated with inventory supplies which are predicated on consumer demands without the benefit of a cooperative and cohesive relationship with firms. First Engineering Limited must therefore develop trust and confidence in firms and work together with firms who must in turn work together with suppliers and customers for integrating and coordinating activities and transactions in the supply chain for guaranteeing that goods and products are produced and supplied to the ultimate consumer in a satisfactory timeframe and in a satisfactory condition (Hill & Scudder, 2002). It therefore goes without saying that Engineering Limited can benefit from EDI in that it provides an effective method for exchanging and sharing information and knowledge within the supply chain within a firm and between firms. As Hill and Scudder (2002) explain, EDI enables the “systematic integration by allowing more efficient and automatic information flow” (p. 375). Unfortunately, Engineering Limited has limited information to share and must rely on the decimation of information from firms and other members of the supply chain who have direct information on customers. Therefore while Engineering Limited may be highly motivated to ensure that supply chain management is integrated among firms, it is not in an ideal position to ensure that integration is reliable and effective. The problem for Engineering Limited is more pronounced at POS. However, POS as a tool for integrating supply chain information and management can be entirely useful for Engineering Limited. As a supply chain information integration and management tool, POS amalgamates important information relative to the purchasing behaviour of consumers, something that Engineering Limited would not automatically have in its possession but for integration of the supply chain. As Croson and Donohue ((2003) inform, information amassed via the POS instrument is made available to all suppliers/manufacturers putting the latter in a position to ensure the more efficient forecasting of inventory and to ensure more timely production. Once again, the main issue for Engineering Limited as a first tier supplier, is the ability to orchestrate a POS supply chain integrative tool. Engineering Limited does not have direct access to customer purchasing behaviour and must depend on other firms’ willingness to implement POS supply chain integrative tools. Fluctuations in prices can cause inventory deficits or inventory excesses and thus incur significant cost for all suppliers including first tier suppliers such as Engineering Limited. Price fluctuations usually result in consumers purchasing more than they normally According to rational choice theory consumers will be motivated to purchase more often or in greater quantities when prices are offered at lower rates and will purchase less often or in smaller quantities when products are offered at higher prices. Since these purchasing habits in these kinds of price fluctuation circumstances do not realistically reflect consumer needs this can give rise to inventory capacity and supply problems (Fransoo & Wouters, 2000). What occurs is that demand variations increase as this information moves upstream in the supply chain and when lead times occur, either high inventory or low inventory can occur for suppliers at all echelons of the supply chain (Fransoo & Wouters, 2000). Many supply chain management practices in respond is to offer the same prices or low prices daily and (Fransoo & Wouters, 2000). Again, much depends on the entire supply chain partners’ willingness to offer low or sustained pricing strategies. If Engineering Limited takes this approach all alone, it would suffer a profitability and inventory crises. In the final analysis, supply chain integration appears to be the only method by which firms can ensure that supply chain management is operated at minimal costs and at optimal benefits for all tiers of the supply chain. This is because accurate and reliable information is necessary for safeguarding against the problems associated with the bullwhip effect in terms of over or under production of goods. Engineering Limited as a first tier supplier must depend on information and knowledge relative to consumer purchasing behaviour from upward in the supply chain. Although this puts Engineering at a disadvantage in ensuring supply chain integration, it certainly serves as a motivating factor for ensuring integration of supply chain information management. 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