Thursday, April 15, 2010

Integrated Supply Chains (Part 1)

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A few weeks back, I was invited to GSU for a lecture on integrated supply chains. I did not think much of it till I started preparing for my lecture. What exactly is an integrated supply chain? Is it a supply chain that is automated? Supply chain with integrated processes? Will a supply chain qualify to be called integrated if it shared its demand with its suppliers? Can a supply chain that has deployed a single version of master data be called integrated? What about a supply chain that does not have a single source of master data, but does provide a consistent analytical environment to consolidate and report its performance metrics? Do companies that have a Chief Supply Chain Officer have integrated supply chains?

To truly understand the complexity, let us review a few more scenarios:

  • In May 2009, Wall Street Journal reported Best Buy in an article saying that, “it could have sold more electronics equipment in three months ended Feb. 28, but its suppliers deep cuts made it difficult to keep shelves stocked”. Does that show a broken supply chain for the electronics industry? The quoted article also shows how the electronics supply chains typically spread over the globe and consist of several echelons of independent vendors who must work together to make sure the shelves at Best Buy are stocked with what the consumer wants. It goes on to say, “…when economic crisis struck, tech companies up and down the line contracted as sharply as possible in hopes of being the ones to survive, and “forced to guess at demand for their products in a plummeting market, everyone hit the brakes, hard. An examination of the electronics supply chain -- from retailers all the way back to makers of factory machinery -- shows that, at almost every stage, companies were flying blind as they cut”.

Clearly that shows a broken supply chain across an industry that boasts of some of the best companies quoted regularly in Top 25 supply chains by AMR. Best Buy, Apple, Dell, IBM, HP, Nokia, Samsung, Sony – all appear in AMR’s Top 25 supply chains for 2009. So what gives? If they are the leading supply chain companies, then why the trouble with Best Buy as reported by WSJ?

  • Sears Holdings annual report for 2009 reports that, on January 31, 2009: Sears Holdings operated 39 domestic supply chain distribution centers, of which, 11 support Kmart locations, 24 support Sears stores and four support both Sears and Kmart stores. This is after five years of the companies’ merger in 2004. The story is no different for most retailers with multi-channel operations where most of the retailers have failed to consolidate supply chain assets for their online and store channels. Can they claim they have an integrated supply chain? Home Depot, Wal-mart, Macy’s all have fulfillment operations for their online retailing that do not fully leverage their store supply chains.
  • What about companies that have automated processes, but use different systems across geographies, across business functions, across lines of assortments? The world’s largest home improvement retailer recently deployed SAP for demand forecasting & replenishment for their Canadian operations, but continues to use their legacy systems for the US operations, they have separate demand forecasting systems for replenishment, price optimization, and promotions planning; and separate systems for online & store assortments –- can such an assortment of systems for a single supply chain process lead to an integrated supply chain?

These scenarios bring forth an important concept, that the question of integrated supply chain must have a well defined context. It must be asked within a well-defined scope of partners and processes, even business units. As the supply chains can theoretically extend through almost infinite tiers of suppliers and buyers, where should one put the boundary? What about the processes within the four walls? Should supply chain processes integrate with merchandising? What about finance? Should they integrate across business units? Without such a boundary constraining the supply chain, how can one determine the extent of integration? But, isn’t any such boundary arbitrary and therefore questionable?

Is your supply chain integrated? What would you say?

In part 2, let us explore the subject further and review a possible way to think about what an integrated supply chain may mean and how to build one.

Want to know more about supply chain processes? How they work and what they afford? Check out my book on Enterprise Supply Chain Management at Amazon. You will find every supply chain function described in simple language that makes sense, as well as see its relationship to other functions.

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