Tuesday, April 20, 2010

Integrated Supply Chains (Part 2)

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What is an integrated supply chain? We asked this question in Part 1 of this discussion and also presented a few real world scenarios showing that this is not as simple a question to answer as it may seem. A simplistic view of an integrated supply chain would be a supply chain enabled through automated and integrated processes which support the several supply chain processes that a firm needs. But the scenarios we reviewed in Part 1 of the discussion makes that simplistic view much harder to apply in real-world situations.

So how do you build an integrated supply chain? The answer lies in three parts:

  • Know your (Enterprise) Supply Chain: Do you know what constitutes your enterprise’s supply chain? Have you defined the scope of business functions for the supply chain of your firm? An AMR survey (Supply Chain Gets a Promotion by Kevin O’Marah) found that in 2009, 15% of the survey respondents had their supply chain reporting to their head of manufacturing. If your view of the supply chain is not integrated, then chances are that the supply chain is not integrated either. The scope must clearly identify the business processes, business units, and the organization that constitutes the enterprise’s supply chain. This is not quite as simple to define. This is not a theoretical discussion, but a true refection of your firm’s view of supply chain. Most companies consider logistics as part of supply chain, what about manufacturing, demand forecasting, purchasing, sourcing? Do you have an single organization view of this scope? Do you have an organization that reflects this view? Do you have different chiefs for manufacturing and logistics reporting directly to your CFO, or do you have a CSCO? What is the executive support for supply chain? Is the executive view of the scope of supply chain aligned with the organizational view and the process view? Establishing a clear scope of supply chain processes and organizational boundaries helps in defining what should be integrated. image
  • Know Your Extended Supply Chain: Do you know your extended supply chain? All firms have partners, vendors, carriers, customers, service providers, and so on. Do you know which ones of these partners are most critical to your supply chain? Which vendors, customers, carriers, logistics providers can cause major disruptions? What is the risk of such disruption? Do you have hosted supply chain systems – how does the business continuity depend on this partner’s ability to provide service? What is the level of collaboration with the critical partners? What is shared – demand and supply projections? What about stocking & shipping capacity requirements? Labor requirements? Identifying the extended supply chain through critical partners and their activities help identify supply chain functions where lack of collaboration can affect your firm in substantial ways even though the ownership of these functions lies outside the direct control of your business. To design an integrated supply chain, these processes must be integrated with firm’s own internal processes to effectively address demand and supply variability and supply chain risks.
  • Create Control Across the Extended Supply Chain: Do you have visibility and control across your extended supply chain? Once the above two questions of functional scope have been answered – the third and last question concludes the discussion towards designing an integrated supply chain. Having visibility is required, but not sufficient. Having control means that collaborative relationships have been clearly defined and evolved through a combination of fairness, trust, and contractual obligations. It is simpler said than done, because developing such relationships takes time. But that is what is required to develop a supply chain that would be truly integrated!

In a future discussion, we will review the traditional and emerging scope of the supply chain processes. It has evolved and expended in the last decade though most of the firms continue to view this in its most constrained logistics or manufacturing centered view. The AMR survey quoted above (Supply Chain Gets a Promotion by Kevin O’Marah) found that in 2009, 15% of the survey respondents had their supply chain reporting to their head of manufacturing. In 2009, 51% of respondents said supply chain reports to the president/CEO/GM, who owns overall P&L responsibility though this percentage rose to 62% in 2010. While the integrated view is evolving, 62% is still a long ways to go! I subscribe to the extended view of supply chain functions and have discussed this in my book on supply chain management.

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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