PART 5—LOOKING TO THE FUTURE
Chapter 16—SUPPLY CHAIN PROCESS INTEGRATION AND A LOOK TOWARDS THE FUTURE
For those for whom
integration is not happening, the future is bleak and getting darker.[1]
There is a lot of
value that is “trapped” between the processes trading partners use to transact
business, and when companies work together, they can unlock that value and
share its benefits.[2]
LEARNING OBJECTIVES
After completing this chapter, you
should be able to:
- Discuss and
compare internal and external process integration.
- Discuss the
requirements for achieving process integration.
- Describe the
barriers to internal and external process integration, and what can be
done to overcome them.
- Understand
the importance of performance measurements in achieving internal and
external process integration.
- Understand
why it is important to align supply chain strategies with internal process
strategies.
- List and
describe the eight key supply chain processes, and how trading partners
integrate these processes.
- Discuss a number
of the latest trends in the areas of process management and process
integration.
CHAPTER OUTLINE
Introduction
Achieving Internal Process
Integration
Extending Integration to Supply
Chain Trading Partners
A Look at Trends and Developments
in Integration and Process Management
PROCESS MANAGEMENT IN ACTION—An Interview with Zack
Noshirwani, Vice President of Integrated Supply Chain for Raytheon
The Raytheon Company is a major defense
contractor; its major customer is the U.S. Department of Defense. Mr. Zack
Noshirwani, vice president of integrated supply chain, joined Raytheon in 2001, and prior to his
current post served as vice president for operations for both the Air/Missile
Defense Systems and for Integrated
Defense Systems. Previously, he worked in operations and supply chain capacities with Honeywell
Engines and Systems, Allied Systems, and Lockheed Martin Defense Systems.
Q: How is operating a supply chain different when the Department of
Defense is your major customer?
Noshirwani: We need to adapt to the changing customer first. The
focus within DOD has shifted from products to capabilities. And, second, they
have raised the awareness of mission assurance within the defense business
generally and the missile defense business, in particular. Within Raytheon,
Bill Swanson, our CEO, has said we are going to take mission assurance to the
next level across all our businesses. Putting that together, the challenge we
have is: How do you make our supply base aware of our new expectations; and,
what do mission assurance and our new business strategy mean to us? That change
forces us to look at the historical supply chain in a different set of
paradigms.
Q: What was the shift of objectives?
Noshirwani: We went from operating traditional purchasing and
supply chain organizations to what we today call an integrated supply chain.
With that, we intend to link our engineering groups and our performance
excellence groups with our supplier base as early as we can in the process when
building relationships with our suppliers. We need our suppliers to be an
extension of ourselves. The old routine, when dealing with our suppliers was
focused on costs, quality, and schedule. Lack of performance in these
categories generally provided a stressful exchange. That has changed. Now, it’s
going to be more collaborative. We’ll be working together so that we’re
building the right stuff on time, correct the first time. There can’t be three
iterations before we get it out the door.
Q: How do you do that? What is the task?
Noshirwani: One key thing: We used to be a very tactically oriented
organization; we’re now shifting to become more strategic. For example, we are
organizing more supplier conferences at which we can establish expectations
with our supply base. This past June, we had 67 of our key suppliers
participating in a supplier forum. The theme of the event, “Performance
Matters,” focused on how mission assurance is a key element. We are
communicating what mission assurance means to us and to our supplier base, to
make sure that their behaviors, our behaviors, and our relationships all
improve over time.
Q: Ideally, what would you like to get from your suppliers?
Noshirwani: When I look at my integrated supply chain of the future, I’m going to use a phrase:
a netted integrated supply chain.
What does that mean? As Raytheon
IDS works to become a Joint Battlespace Integrator, we will have expertise over
multiple domains. The challenge for our supply
chain organization, then, is to take the suppliers who are expert in
certain domains and knit them together to allow us to create solutions to
satisfy our customers’ needs and support our business vision.
Q: Does this mean that suppliers will be working with other
suppliers?
Noshirwani: In some cases, absolutely. Then the question is: How do
we broker them to partner with each other to bring us the best result?
Q: With this new business focus, what sort of measures do you use
to determine your success?
Noshirwani: Previously, the majority of our metrics were internally
focused on the supply chain. While we still have some metrics that are
internally focused, we now have an organizational perspective that measures the
value we provide to the business. These metrics are in the area of
effectiveness, efficiency, capability, and capacity. We’ve also now established
metrics that are linked directly to our business performance and to our
customer’s expectations. The key focus is: How do we create value for our
customers and our business?
Q: Now, what are those new metrics?
Noshirwani: One of them is cash-to-cash cycle—how quickly do we
collect cash from our customers? Another one is on-time performance to
contract. Do we deliver our hardware the way we said we would, when we said we
would, with mission assurance and quality levels that satisfy our customers?
And third—we have a strategy within Raytheon IDS that is linked around asking:
How do we improve our overall cycle time within our business?
Q: Why is that one crucial?
Noshirwani: If our customer is king, and if we need to jump through
hoops to come up with a satisfactory solution for that customer, then we need
to be very agile, very flexible. We will need to take on challenges we’ve have
never taken on before. To make that possible, flexibility within the supply
chain becomes very key.
Q: How would you characterize your supply chain effort?
Noshirwani: As I said, we’ve just reorganized our entire supply
chain around the Raytheon IDS vision and our customer’s expectations. That
supply chain has five major capabilities in it. One is what we call
collaborative solutions. That is a group of very talented, top-notch supply
chain experts who are engaged with our business development people early in the
process. We have supply chain professionals who are engaged in that process, to
help with the partnering suppliers, the supply selection process—who do we want
to partner with to win this proposal? So that’s one capability.
Q: You mentioned subcontracting. Is there a piece for that?
Noshirwani: Yes, that’s the next capability. With our business
shifting from a product-focused to capabilities-focused solutions, Subcontract
Management is a key part of our supply chain activity. Our strategy here has
been to add new skills, tools, and techniques to manage major subcontracts.
Today, we have close to $2 billion in subcontracts that we are managing.
Q: And finally?
Noshirwani: Finally, our Integrated Supply Chain organization
continues to support the products foundation for our business. Material
Acquisition, Planning & Product Management, and Integrated Logistics are
all key elements in supporting our manufacturing operations with the right
material at the right place at the right time and cost. The focus in these
areas is transformational change to increase the effectiveness and efficiency
of operations. Examples include all elements of e-procurement, reduction in
transactions, lean supply initiatives, and innovative materials handling and
flow techniques.
Q: That’s organizational. What about people? How do the people
you’re looking for today differ from five or ten years ago?
Noshirwani: Traditional supply chain professionals are still very
critical to the success of our organization. But, if I had a wish list and all
my wishes came true tomorrow, then I would want to hire professionals from this
day forward who have multi-disciplined experiences and expertise in program
management, project management, engineering, operations, and supply chain.
Integrating these key capabilities is critical to the success of our integrated
supply chain.
Q: How hard is it to find such people?
Noshirwani: It’s very hard to find such people. I might want to
hire the next five program managers that come my way, but a lot of other places
also want to hire them. The Defense Department is trying to hire those same
skills. Of course, if we see people with the skills we want available on the
street, we scrounge them up.
Q: If the people you want are at a premium, how do you meet your
need?
Noshirwani: Within our new supply chain, we have created and
communicated a career path for the future program managers of our business
through the supply chain organization. We have set up rotational assignments
that move people from engineering to business development to performance
excellence—all through the supply chain organization so we create multi-dimensional
people. We are sowing some of the seeds for tomorrow. At the same time, we are
taking some of the veterans of these functional areas and convincing them to
take a career path into integrated supply chain.
Q: Does this change much affect your IT requirements?
Noshirwani: The key IT task is connectivity. The most important
question in my mind is how do I connect my programs, engineering, performance
excellence, supply chain, and operations professionals to the best of my
ability? How do I share information across the board as fast as I can? Then,
how do I drive that connectivity into my supply base? That’s one thing that’s
required if we are to engage suppliers early in the process.
Q: Is it fair to say that the new standards you have from DOD will
ripple back through your organization?
Noshirwani: In my mind it has to—the DOD is our customer. We have
strong relationships with our DOD customers, built on our performance and
superior solutions we provide. New standards are another aspect of the dynamics
of this business. We know we need to listen and be responsive to our customer
needs, and provide solutions at ramp speed.
Q: A final question: How important to supply chain reengineering is
support from top management?
Noshirwani: My boss, IDS president Dan Smith, will say at every
meeting: If we can’t get our suppliers in line, and if we can’t change how we
do business internally, then we’re not going to get to where we need to be to.
Time is of the essence. It’s an absolute must happen.
Source:
Bernstein, M., “Raytheon Goes From Traditional Purchasing to an Integrated
Supply Chain,” World Trade, V. 18, No. 11, 2005, pp. 36–38. Used
with permission.
INTRODUCTION
Unfortunately, in too many
journal and magazine articles, books, and television programs these days,
supply chain process integration is dealt with solely in terms of information
system applications—in other words, simply connecting buyers and a suppliers
via the latest software application results in successful supply chain process
integration. Hopefully, readers of this text have begun to realize that the
latest enterprise software applications increase access to information and can
certainly add value to internal and external process integration, but they do
not allow companies to replace or leapfrog the necessary people-oriented
elements involved in supply chain management or process integration in general.
So, while Chapter 9 of the text, which dealt with information flows, and
several other chapters of the text have discussed or mentioned the use of
information systems when managing processes, this chapter seeks to guide the
reader towards a deeper understanding of successful supply chain process
integration, and the necessary steps and tools to get there.
Chapter 1 described the general idea
behind business process integration,
namely the sharing of ideas and information, coordination of process
activities, and collaboration on process design and implementation between
supply chain members, such that products and services are provided at the
desired levels of quality, speed, and cost along the supply chain—from raw
material suppliers to end-product consumers. Business research over the past 10
or 15 years has, for the most part, found a positive relationship between
process integration and firm performance.[3] In general terms,
successfully integrating key business processes among supply chain trading
partners is the essence of supply chain
management, and remains one of the biggest hurdles for all companies
implementing supply chain management practices. However, as described in the
two statements on the opening page of this chapter, there is much to be gained
through process integration.
This text has been divided along
the lines of the eight key processes involved in supply chain management—customer
relationship management, customer service management, demand management, order
fulfillment, manufacturing flow management, supplier relationship management,
product development and commercialization, and returns management. Successfully
managing supply chains requires the firm to first become internally integrated
in the relevant key business process areas, and then look to integrate these
processes with important trading partners. This requires breaking down barriers
to integration inside the firm, followed by establishing a high level of trust
and working experience with the firm’s trading partners, and involves the use
of appropriate technologies and performance measures to improve internal and
external integration capabilities. Process integration is thus something that
evolves over time within a firm’s workforce and its supply chains.
Successful process integration is
also something that can be difficult for firms to benchmark; rather, each firm
must develop its own unique set of integration capabilities. Different firms
have different employees, cultures, processes, products, suppliers, customers,
and technical capabilities; therefore their means to successful integration and
supply chain management may vary from their competitors, or other firms like
Texas-based computer manufacturer Dell and mega-retailer Wal-Mart who have
created reputations for possessing superior supply chain management
capabilities. In short, there is no “silver bullet” set of detailed practices
that will guarantee process integration or supply chain management success.
Managers must define and uncover the appropriate supply chain strategies for
their firms, align their own business strategies to those of their supply
chains, and then design operations practices that support the strategies. In a
multi-year study first launched in 2005 by MIT’s Center for Transportation and
Logistics, a number of successful companies are being studied with the
intention of identifying general attributes critical to successful supply chain
management. So far, they have found that companies need to adopt a
“competitively principled” strategic supply chain management framework, or in
other words, develop a set of tailored practices for their company that lead to success, based on their unique resources
and the required supply chain strategies.[4]
Because successful internal and
external process integration also requires the passage of time, most firms and
their supply chain trading partners are still heavily involved in their process
integration efforts. This is exacerbated by the seemingly continuous entry of
new competitors, new suppliers, new customers and customer requirements, and
new information and communication technologies to the marketplace.
Consequently, there are many new trends in process management and process
integration impacting supply chain management. Some of these trends and
developments will also be discussed in the final section of this chapter.
ACHIEVING INTERNAL PROCESS INTEGRATION
As a reminder, the
term process integration means coordinating and sharing information and
resources to jointly manage a process. Integration can occur both internally or
externally with respect to the firm, and reflects how harmoniously employees or
businesses work together to accomplish tasks. Developing communication,
information sharing, and collaboration capabilities among employees in
different units within an organization can be quite difficult, particularly
when departments are busy protecting turf and fighting for their share of tight
budgets and other firm resources. But this type of behavior, along with other
internal barriers, must change in organizations serious about process
integration.
In some
industries, process integration is the norm and has become necessary for
survival—take the automobile industry, for example. As described in Chapter 10,
Japanese auto manufacturer Toyota had become quite proficient at lean
principles by the 1980s, in part by creating opportunities for its employees to
integrate their efforts when designing and building new automobiles, and when
solving manufacturing and quality problems. As a result, Toyota has been able to provide higher
quality automobiles with shorter new model cycle times when compared to most of
their competitors. Consequently, Ford, GM, DaimlerChrysler, and other auto
manufacturers have been forced to follow suit to stay competitive. As of
mid-2006, Toyota
was trailing only GM as the world’s largest automaker and was easily the
world’s biggest in terms of profitability (approximately $20 billion per year).[5] In
fact by 2001, most North American automakers reported that they were practicing
internal integration of key processes, and working hard at forming
fully-integrated supply chains.[6]
To achieve internal process integration, firms
must first lay the groundwork necessary to begin process integration efforts.
This includes breaking down internal barriers to collaboration, connecting
departmental and unit information systems, and developing performance measures
that encourage teamwork and collaboration. When the firm’s employees are
comfortable working together and sharing ideas and information, then supply
chain management efforts and external process integration with trading partners
can begin to take place. Figure 16.1 depicts this integration model, and a
discussion of each of these topics follows.
Figure 16.1 The Supply Chain Process Integration Model
The Preparation Phase
To adequately
prepare the organization for external integration and supply chain management efforts
in general, managers must first create an internal environment where teamwork
and information sharing are encouraged and rewarded. To accomplish this,
existing barriers to collaboration must be removed, information systems within
the organization must be unified under one central database, and collaboration
performance measures must be designed, implemented, and periodically reviewed.
Breaking Down Internal Barriers
to Collaboration
Internal barriers to collaboration can
be classified as technological (information system software/hardware) barriers,
structural (management hierarchy, goals, procedures) barriers, and cultural
(employee values, norms, behavior) barriers. Chapter 9 discussed a number of
information system problems, including the purchasing of software applications
at different times or purchasing best-of-breed software solutions from
different vendors, both of which require integration middleware to tie the
systems together, or the use of web services and web portals to create
information sharing capabilities for the disparate applications. These could be
considered technological barriers to
collaboration. A few years ago Washington-based fashion retailer
Nordstrom’s online site, nordstrom.com, found itself unable to accept gift
cards purchased by customers at Nordstrom stores (it lacked a linkage process
to the Nordstrom bank’s mainframe required to validate and execute the
transaction). The company adapted quickly by using XML web services to integrate its systems and create a standard data
format that all of the company’s systems could understand.[7]
XML web services are becoming the basic platform for application integration.
Applications are constructed using multiple XML web services from various
sources that work together regardless of where they reside or how they were
implemented.
© 1996 Ted Goff, http://www.ted.goff.com
Structural barriers to collaboration
include the often slow, bureaucratic decision-making hierarchy in firms; poorly
designed pay systems and incentives; and ineffective administrative procedures
and policies. An incentive pay system that encourages groups of employees to
work against one another is a structural problem, for example. Steve Banker,
senior supply chain analyst at the ARC Advisory Group in Massachusetts advises companies to establish
compensation methods that reward teamwork. “If you tell people to work as a
team, to make it work, you need metrics that measure supply chain performance.
Then you have to tie punishments and rewards to those metrics.”[8]
Structural change involves a top-down
management approach, because the expertise and resources needed for
administrative improvements requires the involvement of middle and upper
management. When problems such as a lack of communication and teamwork are
acting as barriers to internal process integration, structural changes are
needed, and this requires upper and middle management to take the initiative to
propose and implement structural solutions. Structural change implementation
tactics can include employee education, instituting cross-training and process
teams, and manager/worker negotiations to achieve acceptance of the changes.
During the early
days of U.S.
professional baseball, hiring a hearing-impaired player on one team initially
caused a severe communication problem among the team’s players. The coach’s
solution was to implement a structural change—he taught the entire team a
version of sign language to improve communication. This creative solution
ultimately led to the widespread use of hand-signaling among baseball team
coaches and players.[9] More
recently, when the U.S. Congress mandated the restructuring of the Internal
Revenue Service (IRS), a number of structural changes were implemented to
improve customer service and protect taxpayer rights. For example the IRS Large
and Mid-Size Business Division was created to administer taxes for businesses
with over $10 million in assets. Lately, the IRS has adjusted managerial span
of control to better balance the number of employees reporting to managers,
eliminated management redundancy in some field offices, and adjusted the number
of its core industry groups from seven to five.[10]
Hospital
Corporation of America (HCA), a leading healthcare services provider based in Tennessee , designed an
organizational structure that groups everyone together to improve the
organization’s effectiveness. The equipment people include nurses and lab
technicians, and construction people include engineers and construction
professionals, for instance. Thus, diverse groups of people at HCA are working
together towards the same goals.[11]
At Iowa Health - Des Moines, consisting of three hospitals, a new staff
position was introduced called “master of the environment,” where employees are
cross-trained in all of the hospitality services, allowing them to better serve
patients and permitting them to float between departments and hospitals where
needed. This has improved patient satisfaction as well as employee
satisfaction.[12]
The third set of
barriers to internal process collaboration or integration can be much more
difficult to overcome, namely the often deeply-rooted cultural barriers to collaboration within the firm, which can
encourage employees to hoard information, hide operating problems, and shy away
from working together as a team to develop optimal solutions for the
organization. This is sometimes also referred to as the silo mentality, where workers act only in their own best
interests, and managers act only in their departments’ best interests.
An overall lack of trust can permeate this type of organization. Cultural
changes in the organization are required to reduce the silo mentality and
improve trust, or how employees think about their coworkers and the
organization. In these types of cases, the organization as a whole must undergo
change.
Training large
blocks of employees is perhaps the most frequently used tool for changing an
organization’s mindset, and the impetus for cultural change must come from top
management. Other activities used in managing cultural change include frequent
communications with all employees; management behaviors that are consistent
with desired values and beliefs; use of newsletters, intranets, kiosks, and
videos; resolving cultural differences as quickly as possible; and the
development of a cultural integration plan. Forest product company
Weyerhaeuser, headquartered in Washington ,
uses an arsenal of educational tools to help its employees get comfortable
working together under one company culture. It uses an interactive game to
convey the payoffs of aligning work styles, and has also created a DVD entitled
“All in One” to explain the homebuilding industry and the firm’s collaboration
strategies.[13]
When mergers
occur, cultural clashes can result in many problems for the newly formed
company, requiring managers to be proactive in building a new vision and
integrating cultures and values. When pharmaceutical companies Astra of Sweden
and Zeneca of the United
Kingdom merged in 1999, a senior executive
team approved a range of proposals to support the development of a new culture.
A key proposal was to create a global cross-functional leadership development
program, initially for the top 200 people in the company. This successful
program led to a more innovative learning environment and greater levels of
trust in different parts of the firm. Within three years, about 900 managers
had actually participated in the program.[14]
When California-based switch maker Cisco formally took control of optical
transport producer Cerent Corp., also of California ,
in 1999, the company mobilized a transition team to oversee every detail of
Cerent’s assimilation. As soon as Cisco took over, every new employee had a
title, boss, bonus plan, health plan, and a direct link to Cisco’s internal website.
Team members distributed basic information about the Cisco organization, its
vacation policy, and its benefits to employees. The aim was to reduce
uncertainty so employees could more quickly focus on their jobs.[15]
The Service Perspective feature describes the integration challenges posed by
the merger of U.S.
retailers Kmart and Sears.
SERVICE PERSPECTIVE—Sears Faces Massive Supply Chain
Integration Challenge
With nearly 40
supply chain systems between them, Sears and Kmart must decide which will best
support the combined concern’s 3,500 stores. The enormous IT integration
challenge will be even harder for the newly formed Sears Holding Corp. because,
industry experts contend, neither firm’s supply chain has been a model of
agility.
“This is a huge endeavor
they have to go through, and neither one is known for excellence in IT or
supply chain [management],” says Noha Tohamy, principal supply chain analyst
with market researcher Forrester Research Inc., in Cambridge , Massachusetts
To realize the
$500 million in operational efficiencies that Sears Holding executives promise,
analysts believe the retailer needs coherent IT and supply chain operations.
The recent Sears and Kmart marriage, however, creates a protracted supply chain
management chore. Streamlining the myriad applications is “a time-consuming and
arduous process” that will take Sears Holding “several years,” says Kim
Picciola, a retail analyst with Morningstar Inc., an investment research
company in Chicago .
Amid headlines
about cutting expenditures, brand names, and store locations, Sears Holding
publicly eschews talk about such issues. Since shareholders finalized Kmart’s
takeover of Sears on March
25, 2004 , corporate officials have added little to their initial
broad statements about improved efficiencies and cost savings. “The
organization is still taking shape,” says Chris Brathwaite, a Sears Holding
spokesperson in Hoffman Estates ,
Illinois
That hardly
surprises Dean Lane ,
chief executive of Varitools Inc., a software vendor in Sunnyvale , California
When they announced
the union, corporate officials pledged to generate $200 million in revenues
through cross-selling opportunities and by converting several Kmart stores to
the Sears name. Maximizing purchasing power from suppliers, enhancing supply
chain and administrative efficiencies, and divesting real estate assets will
help save another $300 million, the company stated in a press release
announcing Kmart’s planned $12.3 billion takeover of Sears. It’s unclear what
supply chain strategy will help the company attain such lofty goals. “It’s too
early to get into specifics,” says Brathwaite.
Sears Holding
inherits both organizations’ 37 supply chain solutions from a host of vendors,
including Manugistics Inc., i2 Technologies Inc., and Manhattan Associates
Inc., says Lee Holman, product development vice president at IHL Consulting
Group in Franklin , Tennessee
Observers want to
know which existing solutions the new retailer will adopt or jettison, and if
it will invest in new ones. Tohamy believes Sears Holding halted an evaluation
of new applications, such as in-store replenishment and merchandise
optimization packages, while it assesses each company’s operations. While such
an undertaking is necessary, Tohamy worries about the pace of review. “They
have to clean house, move as fast as possible, and show how they will create
additional flexibility and efficiencies in the supply chain,” she says.
First, however,
Sears Holding must determine its priorities, such as what and why it is, who
its customers are, how often they visit and how much they buy, and what it will
sell, says Paula Rosenblum, retail research director with Aberdeen Group Inc.,
a market research concern in Boston. Then the company must assess its business
processes, including how stores interact with suppliers and distribution
centers. “They need to figure all that out before investing in an
inventory-management application that costs $1 million that won’t provide any
benefit because it has no clean data to work from,” says Tohamy.
Sears Holding must
also determine how to meld two different businesses, and if or to what degree
to consolidate supply chain operations. “I don’t see Kmart and Sears being able
to work off the same strategy,” says Steve Banker, supply chain management
service director with ARC Advisory Group Inc., a research concern in Dedham , Massachusetts
Banker recommends
integrating resources for the biggest bang. Both sell apparel, for example, so
Sears Holding could operate fewer warehouses and a set of common supply chain
systems. “The company could standardize on [Kmart’s] Manhattan [application] or on Sears’
third-party logistics providers,” Banker suggests. Conversely, Sears Holding
may need separate strategies to support different priorities. Sears, for
example, may require higher service levels to stores, which would require
warehouses to fill Sears’ orders faster. “That makes using a common
warehouse-management system tougher,” Banker says.
Tohamy disagrees.
“Managing two supply chains is a bad idea,” she says. “They want to exploit
economies of scale, especially in purchasing and sourcing.” Procurement,
particularly from overseas suppliers, should be a corporate priority, affirms
Rosenblum. The company must use its size “to design, develop, and source
products,” she says. “Neither one was all that great [at sourcing], and now
they have to become great because all they are [since the merger] is bigger.”
Having the right
product in stock at the right place seems “elementary,” Rosenblum adds. Long
lead times, ever-increasing customer choices, and competing with operational
leaders such as Wal-Mart Stores Inc., however, complicate things. Indeed, Sears
Holding must manage suppliers as Wal-Mart does, says John Melaniphy III,
executive vice president with Chicago-based retail consultancy Melaniphy &
Associates Inc. Some suppliers lose money on each item they sell to Wal-Mart
but rely on the retailing behemoth for volume sales. Other suppliers move
plants offshore to provide merchandise at prices that Wal-Mart demands.
“Suppliers are beaten up by Wal-Mart,” Melaniphy says. “Kmart and Sears have to
get as tough with their suppliers to compete.”
Sears Holding’s
supply chain venture will take time. Experts wonder, however, if it can ever
compete with Wal-Mart and other retailing rivals. “Realistically, it’s a
two-year process” to integrate existing systems or deploy new ones, says Lane
of Varitools.
Sorting out and implementing supply
chain systems is just the beginning, other analysts maintain. “They have 12 to
18 months to show significant progress,” asserts Alexi Sarnevitz, retail research
director with Boston-based market researcher AMR Research Inc. That means “not
just being competitive [with Wal-Mart and others]; they need to find their own
unique positioning.”
For sure, Sears
Holding’s newly appointed CIO, Karen Austin, has a grueling assignment. At the
same time, Holman notes that the ordeal of merging the two retailers’ IT
systems presents Austin
with a potential advantage as well. “This is a great opportunity to demonstrate
[her] talents,” he says. Mostly, experts agree, it’s an enormously complex
consolidation task. “It sounds like she inherited a mess,” says Banker.
Source:
Kay, E., “Sears Holding Corp. Faces Massive Supply Chain Integration
Challenge,” Frontline Solutions, V.
6, No. 5, 2005, pp. 14–15. Used with permission.
Integrating Internal Information
Systems
Today, information
systems can play a critical role in information use and visibility, and during
internal communications occurring between coworkers within an organization.
Emailing someone in the office down the hall, for instance, has become so
commonplace that office hallways have become deserted. If an organization’s
information technologies are largely disconnected, and if data elements are not
stored in a common database according to some standard format, then workers and
departments will not be able to share information, and internal process
integration can be significantly impacted.
As discussed in
detail in Chapter 9, the most common enabler of information system integration
today is the firm’s ERP system. In that chapter, the importance and
capabilities of ERP systems were described, along with various software
applications or modules that are used today. ERP systems provide a view of the
entire organization, enabling decision makers within each function to have
information regarding customer orders, manufacturing plans, work-in-process and
finished goods inventories, outbound goods in-transit, purchase orders, inbound
goods in-transit, purchased item inventories, and financial and accounting
information. ERP systems thus link business processes and facilitate
communication and information sharing between the firm’s departments. Since the
key business processes overlay each of the functional areas, the firm
eventually becomes process oriented rather than functionally oriented, once ERP
systems are deployed. This visibility of information across the organization
allows for much greater ease in internal process integration.
When assessing the
current integration status of key processes, firms should first develop an
understanding of their internal supply chain. Internal supply chains can
be complex, particularly if the firm has multiple divisions and organizational
structures around the globe. Managers should consider forming cross-functional,
multi-unit teams for setting process integration objectives and performance
measures. These cross-functional teams should adequately represent the firm’s
internal supply chain.
Once the firm has
a good overall understanding of its internal supply chain structure, it can
begin to assess the existing level of information access across its internal
supply chain. Does the firm have a single, company-wide ERP system, linking all
functional areas? Are all of the firm’s legacy
systems linked to their ERP system? How easy is it to extract the
information needed to make effective decisions? Are data warehouses being used to collect data from the various
divisions of the firm? Firms that are internally integrating key business
processes successfully are using global ERP systems and data warehouses to make
better, informed decisions. Data warehouses store information collected from
ERP and legacy systems in one location, such that users can extract information
from various functional areas as needed, analyze it, and use it to make decisions.
An enterprise-wide
ERP system allows the firm to use a common database from which to make product,
customer, and supplier decisions. Information is captured once, reducing data
input errors; information is available in real time, eliminating delays throughout
the organization as information is shared; and finally, information is visible
throughout the organization—all transactions taking place can be seen and
accessed by everyone on the system. As the firm moves away from unconnected
legacy systems and moves toward the fully integrated ERP system, as
organization-wide cross-functional teams are created to link key processes
throughout the firm, and as process performance is monitored and improved, the
firm will become more focused on managing its key supply chain processes in an
integrated fashion.
In a recent
survey, companies with mature business processes and best-in-class information
systems were found to have average net profit margins of 14 percent, compared
to 8 percent for other firms. The Spanish clothing company Zara illustrates how
information systems can greatly aid integration and lead to higher profits and
a competitive advantage. Zara owns its entire supply chain, from design, to
manufacturing, to distribution, to its retail outlets. Its retail stores
provide direct feedback regarding demand for its fashions using its advanced
information system infrastructure. This allows its designers to quickly
identify trends, leading to more new designs and styles. Zara is thus able to
bring these new designs and styles to market in just three to four weeks. Its
retail competitors often take months to do the same thing, causing them to miss
many market opportunities.[16]
Developing Performance Metrics
that Support Internal Integration
In order to assess
the level of integration occurring within the organization and encourage
continued integration activities, department managers and others should design
a family of performance metrics around desired collaboration activities.
Performance in these areas should be regularly monitored and improvement
initiatives undertaken when necessary. The old cliché, “what gets measured gets
done” certainly applies to the design and support of integration activities.
Table 16.1 lists a number of potential internal integration performance
measures.
Table 16.1 Internal
Integration Performance Measures
|
Work Groups
·
Number of
traditional and virtual work groups formed
·
Number of
cross-functional work-groups formed
·
Number of
workers participating in one or more work groups
·
Percentage of
work group objectives met
·
Number of
projects completed by work groups
·
Number of
jointly developed products or product improvements
·
Number of jointly developed
processes or process improvements
|
||
|
Information Systems
·
Number of ERP
application implementations and upgrades
·
Percent of
employees using ERP applications
·
Percent of
departments using ERP applications
|
||
|
Employees/Training
·
Hours of
team-based training sessions provided
·
Hours of
cross-training sessions provided
·
Hours of ERP
application training provided
·
Number of top
management discussions of collaboration in company newsletter
·
Employee trust
and satisfaction survey ratings
|
||
|
Reward Systems
·
Reward amounts
paid to work groups
·
Percent of work
groups earning rewards
·
Percent of
reward funds paid out to work groups
|
While Table 16.1
is by no means exhaustive, it should serve as an impetus for the design of
specific collaboration performance measures for department and top-level
managers. At a minimum, metrics should encourage the formation of work groups (defined here to mean two or more individuals working together on a common task
who generally have computers connected to a network that allow them to send
email to one another, share data files, and schedule meetings[17]), the integration of information system applications
utilizing a central database, employee training, and reward systems. To keep
the momentum going, efforts should also be undertaken to monitor the impact of
internal integration on the firm’s overall performance.
Recent research in
this area has shown that there is a direct and positive relationship between
internal integration and firm performance.[18]
When Illinois-based food manufacturer Quaker Foods and New York-based food and
beverage company PepsiCo merged in 2001, a major hurdle was to create internal
collaborations that supported their combined external supply chains. Karen
Alber, vice president of integration at Quaker Foods, was selected to spearhead
the effort. She did her job so well that she was later named one of “The 25
Most Influential Executives” in the industry. For example, Quaker was able to
cut its inventory levels within its Canadian operations by 60 percent and
paperwork by 77 percent.[19]
Use of work groups
or teams to integrate internal processes and improve firm performance has been
described by many as a top priority. Previous studies regarding total quality
management, quality circles, agile and lean manufacturing, and JIT have all
found team work to be one of the common elements among successful companies
employing these techniques.[20]
Further, group performance has been shown to be impacted by the group members’
abilities, their work environment, and their motivation. Maximizing the
performance of teams should thus make use of worker skills, their tools, their
shared goals and values, and their level of workplace comfort. This supports
the use of the other performance measures shown in Table 16.1.
Finally,
organizations should periodically assess not only the performances of their
integration efforts, but the metrics being used as well. As the firm’s internal
and external environment changes, so too its performance measures must change.
New employees, managers, and technologies will bring new skills to the
organization, and new competitors, customers, and suppliers will provide new
opportunities and requirements for the firm desiring to remain competitive.
This will create additional opportunities for new internal integration efforts.
The Active Internal Integration Phase
Firms that have
been proactively involved in creating internal integration opportunities and
practices will, at some point, reach a stage of development wherein internal
process integration is a normal operating condition. This describes firms in
the active internal integration phase,
the second phase shown in Figure 16.1. Integrated information systems will
provide information visibility throughout the global organization to users at
all functional levels; work groups will be common fixtures in the organization,
including personnel from different departments and in geographically dispersed
units as needs dictate. These groups will become successful at generating and
meeting project objectives, and in identifying new opportunities for
collaboration efforts. Automaker Ford Motor Company is on the cutting edge when
it comes to use of information and communication technologies to connect
workers within their many production facilities around the globe. Most
employees are furnished with company laptops, a secure ID, and an Internet
connection that allows virtual teams to communicate. It also allows access to
Ford email, mainframe systems, and instant messaging worldwide, from the office
or from home computers. And for some, it allows phone calls to be made using
Cisco’s Internet soft-phones. Additionally, Ford has constructed its own
digital fiber network, and planned to be able to deliver videoconferences
within North America by the end of 2006,
allowing it to hold virtual meetings.[21]
Firms that are
successful at internal integration have found that the key to building successful
teams is in finding people with the right personal chemistry who can quickly
develop trusting relationships. “Some of the worst teams I’ve ever seen have
been those where everybody was a potential CEO,” says David Nadler, CEO of the
Mercer Delta global consulting firm, who has worked with top companies and
their executives for over 30 years. Mutual trust is a fundamental element of a
winning team, which explains why so many “dream teams” in sports and other
areas have failed to accomplish much. For example, the U.S. baseball team assembled to compete in the
World Baseball Classic in 2006 included such baseball greats as Roger Clemens,
Derek Jeter, Alex Rodriguez, and Johnny Damon, yet they performed relatively
poorly, losing games to Mexico ,
South Korea , and Canada .
The 2004 U.S. Olympic
basketball team consisted entirely of NBA superstars, yet it finished third and
lost to Lithuania .
In contrast, the 1980 U.S. Olympic hockey team was built explicitly by
considering the personal chemistries of only college players (not necessarily
the best players), and yet these amateurs beat the heavily favored Soviet team
to win the gold medal. In still another example, Jack Welch, the legendary
ex-CEO of the Connecticut-based global conglomerate GE, insisted that members
of their Corporate Executive Council meet away from the corporate offices, have
no prepared presentations, and wear informal clothing—he believed this allowed
more realistic conversations to occur, and trust to be formed within the
council membership.[22]
Organizations
proactively involved in internal integration create opportunities for more and
better collaborations between staff members. This may include designing
facilities conducive to better collaboration; allowing staff to cross-train one
another; creating opportunities to see other worker perspectives, make new
acquaintances, and see the big picture; holding ad-hoc brainstorming sessions
when challenging situations develop to encourage problem-solving skills and
teamwork to develop among personnel; and recognizing and celebrating
accomplishments when teams hit a milestone, by writing a story in the company
newsletter, hosting a luncheon for the team and other employees, or simply
putting up a commemorative plaque. The Aetna Information System facility in
Blue Bell, Pennsylvania, uses space more efficiently to enhance collaboration.
“What our clients are asking us to do is find a way to make a hallway or lobby
or gathering space do more than one thing,” says Carol Rickard, of Washington
D.C.–based Little Diversified, who oversaw the design of Aetna ’s
offices. “By increasing the width of a circulation hallway or space pocket, and
placing soft seating and a teaming table there, we’re able to maximize the use
of that space by creating an informal collaboration hub. We call it chair
ballet. People literally wheel themselves over to the table and are able to
meet.”[23]
Forward-thinking
leaders in the organization are at the heart of the development of a
collaborative culture. They understand how to put teams together to take
advantage of each member’s particular style and strengths; they provide for and
ensure that team members are sufficiently trained and equipped; they foster a
work environment conducive to trust and productivity; and they provide adequate
financial and time support. In a recent interview, William Donius, CEO of
Pulaski Bank of Missouri, a top-performing bank in terms of return on assets,
listed three things as most responsible for success at the bank—the recruitment
of the best and brightest people at all levels, the offering of products that
meet customer needs, and the creation of an environment where teamwork and
collaboration are valued.[24]
The Process Management in Action feature provides some interesting descriptions
of how some companies are encouraging teamwork skills at meetings in Las Vegas , Nevada
PROCESS MANAGEMENT IN ACTION—Teambuilding
the Las Vegas Way
Experienced meeting attendees can become immune to
the idea of “teambuilding.”
They’ve done it already, and it’s a real challenge to get them excited. So if
beach Olympics, ropes challenge courses, and build-your-own-survival-rafts
sound like a laundry list of your latest team-building efforts, get ready to
create some buzz in Las Vegas, Nevada.
With one look at
the astounding variety of diversions along the Las Vegas Strip, most meeting
participants are instantly chomping at the bit to delve into the excitement.
One of the best ways Sharon Geraci, president of Meeting & Incentive
Management, has found to give them a taste of the diverse menu is the “Test
Your Limits” teambuilding event.
She presents the
group with a collection of daring activities, each with a specific point value
attached to it. The team decides together which elements to tackle as a
personal driver takes them around town by limousine. Challenges could include
anything from going to the top of the Empire State Building at New York New
York to boarding (and riding, of course) one of the heart-pounding thrill rides
at the top of the Stratosphere Hotel’s tower. “It’s a really fun ice breaker,”
explains Geraci. “It’s all about seeing Las
Vegas and building camaraderie.”
Perhaps the
biggest surprise about spending quality time soaring is what you don’t get:
noise. Peace and quiet is a big part of what the Soaring Center Henderson .
Some people may have heard of a
Segway®, but few have actually taken a spin. That is precisely the
appeal of Segway polo as a teambuilding activity. “Nobody else is doing it, and
it’s a very fun, interactive event,” says Geoff Rhodes, director of creative
event services for Ritz-Carlton, Lake Las Vegas , who creates teambuilding programs that his
crew stages for groups throughout the Las
Vegas area. Segway polo allows participants to play
competitive polo without ever having to mount a horse, undergo formal coaching,
or train for competition. Geared to all fitness levels (and all sizes between
100 and 250 pounds), the game uses Segway® Human Transporters and
soft foam mallets and balls to play the traditional game. Rhodes ’
staff provides teams of 4 to 12 players with the battery-powered Segway Human
Transporters, polo equipment, helmets, lessons, and practice chukkers.
The newest track
in Vegas opened on April 10, 2006, and is offering thrill rides for visitors at
the north end of the Strip. General Motors’ “The Drive” offers two
professionally-designed driving courses—including a high-performance loop and
an off-road adventure over a dirt terrain. Groups can check out the performance
course, a half-mile paved route with jogs and turns that highlight both the
speed and handling control of pure sports car driving. Vehicles available to
unleash on the performance course include the Corvette, the Pontiac GTO, the
400-horsepower Cadillac CTS-V, and more. Participants who choose the off-road
course will be handed the keys to a Hummer or their choice of several Chevy,
GMC, or Cadillac trucks and select SUVs.
The food craze has
run rampant in Las Vegas ,
and groups have been clamoring to get into the kitchen. Enter Bellagio Resort
and its Tuscany Kitchen, designed specifically for culinary-based teambuilding
events. The 1,170-square-foot venue is the first of its kind in the city, an
intimate environment for 18 people that can be expanded for up to 60 people by
using two drop-down video screens that keep the back rows close to the action.
Bellagio’s award-winning chefs lead the fun during a program that can focus on
anything the group wants, from how to prepare a specific style of cuisine, such
as Japanese, Italian, or Chinese to setting up a friendly competition, a la the
Food Network’s popular Iron Chef.
Source:
West, E., “Take One for the Team,” Successful
Meetings, June 2006, pp. 22–23. Copyright © 2006 VNU Business Media, Inc.
Reprinted with permission.
The third and
final phase of the process integration model shown in Figure 16.1 is the active external integration phase. This
phase is discussed in detail in the following section.
EXTENDING INTEGRATION TO SUPPLY CHAIN
TRADING PARTNERS
In the most
advanced stage of the integration model, the firm’s abilities to integrate
internally have matured, creating successful process collaborations between
personnel throughout the firm. As the firm witnesses these successes and
realizes the value inherent in process integration, the desire to collaborate
and integrate processes with supply chain trading partners also grows.
Hopefully, during this maturation phase, the firm is discovering
high-performing suppliers, and is also becoming a valued supplier to its
customers. It is at this point that the firm is prepared to begin actively
managing its supply chain through use of external process integration.
Revisiting the ultimate goal of supply chain management—to provide end users
with the products and services they desire, at the right levels of price,
quality, and service—it follows that firms actively managing their supply
chains must become adept at internal process integration and extend the
boundaries of the firm through the integration of key processes among supply
chain trading partners. Once the firm has set in motion the activities to
achieve internal process integration, it can then turn its attention towards
external process integration.
External process
integration can be an extremely difficult task, even more so than internal
integration, since it requires, first and foremost, willing and competent
trading partners, mutual trust, and potentially a change in one or more
organizational cultures. However, the benefits of supply chain collaboration
and information sharing can be significant: reduced supply chain costs, greater
flexibility to respond to market changes, less supply chain safety stock,
higher quality levels, reduced time to market, and better utilization of
resources. Through the practice of collaboration, information sharing, and
process integration, supply chain management can become a core competitive strength
for the firm and its trading partners in the supply chain. The Global
Perspective feature profiles Metro Cash & Carry Vietnam, a good example of
a company capitalizing on its external integration opportunities with only
limited use of technology.
GLOBAL PERSPECTIVE—Metro Cash
& Carry Vietnam
Successful
collaborative relationships can be created using relatively simple but
effective practices. And they can be found in some unusual places. Consider the
case of Metro Cash & Carry Vietnam, which has developed
long-term collaborative relationships both with its local vegetable suppliers
and with a major hotel customer in Ho
Chi Minh City . These collaborative relationships
involve basic information-sharing and coordination practices, which have led to
more efficient produce distribution and more satisfied supply chain partners.
Metro Cash & Carry Vietnam is a German-owned
business-to-business grocery wholesaler specializing in services to hotels,
restaurants, and catering institutions. The company’s main strategy is to be
cheaper than its competitors in the traditional wholesale markets while also
focusing on food safety and customer satisfaction.
According to Metro
managers, the company’s success is closely linked to its strategy of building
long-term supply relationships, especially with local producers of fresh
vegetables. These relationships are based on trust. To gain that trust,
potential suppliers, for their part, must show that they can deliver
high-quality produce regularly and be responsive to fast-changing customer
demands. Metro looks for financially stable suppliers with proven experience in
vegetable production and a reputation for produce quality. Trust is built
mainly on results. Metro will start sourcing from potential suppliers little by
little to check the regularity of quality. This reliability is important. Fresh
produce buyers at Metro receive many offers from local suppliers, but a
supplier that consistently provides good quality and low price in a stable manner
throughout the year is difficult to find.
At the same time,
Metro also needs to acquire the trust of its suppliers. One way it does this is
through establishing secured payment in the supply contract. Although there is
a fixed delay in payment, which can go up to 30 days, the company rewards a
successful supply relationship by lowering the delay after a period of
satisfactory deliveries.
These trust-based
relationships rely on the exchange of transparent market information between
suppliers and Metro buyers. Metro’s individual fresh food buyers are
responsible for maintaining good interpersonal relationships with all regular
suppliers. This means not only communicating frequently with suppliers by
telephone and fax but also physically visiting suppliers several times each
month. Metro has even purchased fax machines for those suppliers that did not
have one. Although the communications may seem low tech, they have proven to be
very effective.
According to the
stakeholders themselves, the focus on communications and product quality has
had a positive impact on supply chain performance. From the viewpoint of the
suppliers, Metro’s focus on higher-quality vegetables brings them greater
stability in orders and prices. These suppliers also gain greater risk avoidance
through the company’s guarantee of payment. Finally, because reliable quality
produce is still relatively difficult to find in Vietnam , established Metro
suppliers that focus on quality have a certain power in negotiations with the
wholesaler. Trusting relationships are time-consuming to build and regular
suppliers are difficult to find in Vietnam . So once a supply
relationship is established, it is important for Metro to keep it because of
the investment made. Therefore, best-performing Metro suppliers can be assured
of a long-term commitment by the distributor.
Collaboration
doesn’t end with Metro’s suppliers; it extends to customers as well. The
company’s relationship with the New World Hotel, a five-star property in Ho Chi Minh City , offers
an excellent example. The two companies agreed in 2002 to experiment with a
strategic alliance whereby Metro
supplies most of the hotel’s needs. As a result, more than 97 percent of the
hotel’s purchases come from Metro.
The partnership is
based on strong collaboration and information sharing in order planning and
replenishment. Both companies have assigned a dedicated staff member to manage
this strategic alliance: a key-account manager at Metro and a procurement
manager at the hotel. The hotel purchasing manager can call the Metro
key-account manager at any time during working hours for an emergency delivery,
and Metro will deliver immediately, even during weekends. Furthermore, Metro
always sends a member of its sales staff to the New World Hotel to supervise
each delivery and assess its quality with the hotel’s staff.
The New World
Hotel orders three times a week on Monday, Wednesday, and Friday for delivery
on the following ordering day. This order cycle enables Metro to take its time
in preparing the goods and saves time for the hotel’s procurement staff.
Transportation
costs are minimized because it is cheaper to have one big truck transporting a
large order than having several trucks delivering from different suppliers.
Metro also extends credit to its privileged partner as the hotel’s payments are
made twice a month by bank transfer.
The relationship
depends on frequent communication between the Metro key-account sales manager
and the hotel procurement manager. The hotel procurement manager will call the Metro
key-account manager four times every week to assess the quality of each
delivery. Additionally, when market conditions lead to shortages, Metro staff
provides the hotel’s staff with advanced warning of changing supply factors.
This enables the hotel to implement alternative supply arrangements. As with
the supplier communication, the interaction between Metro and its customer is
personalized, simple, and highly effective.
Overall, the
personnel interviewed in the vegetable supply chains of Metro Cash & Carry
Vietnam successfully engage in collaboration, joint planning, and
information sharing to optimize their forecasting and product replenishment.
Moreover, they are doing so with a disarming degree of simplicity: Daily phone
calls between dedicated staff in the partner firms and joint planning of supply
and demand are enough to lead to the satisfactory delivery of such perishable
articles as fresh vegetables. Sophisticated technology certainly has a place in
the modern supply chain. But the Metro
Cash & Carry story
proves the enduring effectiveness of simple, straightforward communication.
Source:
Cadilhon, J. and A. Fearne, “Lessons in Collaboration: A Case Study from Vietnam
Returning once
again to Figure 16.1, external integration requires identifying supply chain
business strategies, translating these into key process requirements and
integration activities, developing trading partner relationships, identifying
information system requirements, and then designing external integration
performance measures for continued improvement purposes. Discussions of these
topics follow.
Identifying and Aligning Supply Chain Business Strategies
Management must
identify the basic supply chain strategies associated with each of their
products or services, and then align internal process strategies to support the
supply chain strategies. If, for example, an end product is competing based on
quality, then supply chain members should also be designing strategies
consistent with delivering high-quality parts, products, and services to their
immediate customers, until eventual delivery of the final product to the end
customer. The supply chain strategies should translate into internal functional
policies that include the types of parts and services purchased, the suppliers
used, the shop layout and manufacturing processes employed, the designs of the
products manufactured, the modes of transportation used, the warranty and
return services offered, the employee training methods used, the types of
information technologies used, and potentially the amount of outsourcing
employed. In each of these areas, policies should be geared towards supporting
the above-mentioned quality-oriented strategy of the supply chain.
Alternately, if
end products are competing primarily based on low cost, then strategies and
functional policies for intermediate products within each of the supply chain
participants must be consistently aimed at achieving low cost as parts,
components, and services are purchased, produced, and moved along the supply
chain. This may take the form of purchasing material in bulk to receive pricing
discounts, mass producing products to reduce unit costs, operating in a low
labor cost environment, and using the least costly modes of transportation. As
competition, technology, and customer requirements change, then management must
also adjust supply chain and internal strategies to remain competitive.
Identifying Key
Process Requirements, Integration Activities, and Partnership Opportunities
To align internal
strategies and policies with external supply chain strategies, managers need to
identify the important processes linking their firm and their supply chain
partners and establish process integration objectives to ensure that resources
and efforts are effectively deployed within each trading partner, to support
the overall end-product strategy. These key processes, along with the methods
used to integrate and jointly manage processes among supply chain partners,
will vary based on the internal structure of each firm, the prevailing economic
conditions in the marketplace, the degree that functional silos exist in any of the trading partners, the
information systems employed, and the nature of existing relationships within
the supply chain. In some cases, it may be best to start small and integrate
only one or two key processes with one trading partner, while with other
partners, more processes may be integrated. Table 16.2 lists the eight key
supply chain processes, as first mentioned in Chapter 1, along with some
potential integration elements associated with each process.
Table 16.2 External
Integration Elements for the Eight Key Supply Chain Processes*
|
Key Process
|
External Integration Elements
|
|
Customer relationship management
|
Determining
customer requirements; gathering feedback on new product development;
negotiating product/service agreements; developing agreements for sharing process
improvement costs/benefits.
|
|
Customer service management
|
Providing
information to customers; resolving product/delivery problems; gathering
customer service performance feedback.
|
|
Demand management
|
Sharing
point-of-sale, new market, production, and forecast information.
|
|
Order fulfillment
|
Determining
order sizes, distribution plans, and communication network requirements.
|
|
Manufacturing flow management
|
Determining
customer requirements changes; translating customer requirements changes into
supplier requirements changes.
|
|
Supplier relationship management
|
Negotiating product and
service agreements, developing or improving supplier capabilities, and then
monitoring supplier performance and improvement.
|
|
Product development and commercialization
|
Collaborating
on new product development teams; testing
new product prototypes; assessing the success of each new product.
|
|
Returns management
|
Developing environmental
compliance, substance disposal, and recycling agreements; composing adequate
operating and repair instructions; developing material disposition
guidelines.
|
*These processes are discussed in detail in Lambert, D.
M., M. C. Cooper, and J. D. Pagh, “Supply Chain Management: Implementation
Issues and Research Opportunities,” International Journal of Logistics
Management, V. 9, No. 2, 1998, pp. 1-19, and in Croxton, K. L., S. J.
Garcia-Dastugue, and D. M. Lambert, “The Supply Chain Management Processes,” International
Journal of Logistics Management, V. 12, No. 2, 2001, pp. 13–36.
As the textbook
has endeavored to illustrate throughout the textbook, there are eight
boundary-spanning processes that have generally been identified as the key
supply chain processes. Coordinating or integrating activities within these
processes between trading partners is what ultimately enables the supply chain
and its members to successfully compete. Activities and integration elements
within each of the key business processes must be based on the competitive
strategies identified for each product’s supply chain. A brief discussion of
the activity requirements and integration elements associated with each of
these key processes follows.
Customer Relationship Management
Process
The customer
relationship management process provides the firm with the structure for
developing and managing customer relationships. As discussed in Chapter 3, key
customers are identified, their needs are determined, and then products and
services are developed to meet their needs. Over time, relationships with these
key customers are solidified through the sharing of product and service
information, supply chain strategies, product development strategies, the
formation of cross-company teams to design and improve products and services,
the development of shared goals, and finally, improved performance and
profitability for the trading partners. Collaboration elements also include the
formation of product and service agreements to meet customer needs, decisions
regarding product packaging, transportation, and storage, and the development
of guidelines for sharing process improvement costs and benefits.
Customer Service Management
Process
The customer
service management process is what provides information to customers while
also providing ongoing management of any product and service agreements between
the firm and its customers. Information can be provided through a number of
communication channels, including websites, group interactions, information
system linkages, and printed media. Objectives and policies are developed to
ensure the timely distribution of products and services to customers, to
adequately respond to product and delivery failures and complaints, and to
utilize the most effective means of communication to coordinate successful
product, service, and information deliveries. The process also includes methods
for monitoring and reporting customer service performance, which allow firms to
understand the extent their management efforts are achieving the process
objectives. External integration elements include the gathering of customer
satisfaction feedback, the methods used for information dissemination, and the
adequate and long-term solutions to customer problems and complaints.
Demand Management Process
The demand
management process is what balances customer demand and the firm’s output
capabilities. Demand management activities include forecasting demand, and then
utilizing techniques to vary capacity and demand within the purchasing,
production, marketing, and distribution functions. Various forecasts can be
used, based on the time frame, the knowledge of the forecaster, the ability to
obtain customers’ point-of-sales
information, and the use of forecasting models contained in many ERP
systems. A number of effective techniques exist to smooth demand variabilities
and increase or decrease capacity when disparities exist between demand and
supply. Contingency plans must also be ready for use when demand management
techniques fail or when forecasts are inaccurate. Inter-company teams can thus
decide how best to share new market and future purchase requirements, point of
sale information, and planned production quantities. The creation of formal
collaborative planning, forecasting and replenishment (CPFR) agreements as
discussed in Chapter 5 is one way to share this type of information, and tends to
result in lower safety stocks throughout the supply chain. Integration
activities can then also include the use of forecasting techniques, purchasing
agreements, and order quantity decisions.
Order Fulfillment Process
The order
fulfillment process is the set of activities that allows the firm to fill
customer orders while providing the required levels of customer service at the
lowest possible delivered cost. Thus, the order fulfillment process must
internally integrate the firm’s marketing, production, and distribution plans
as well as allow customers to provide input in order to be effective. More
specifically, the firm’s distribution system must be designed to provide
adequate customer service levels, and the production system must be designed to
produce at the required output levels, while marketing plans and promotions
must consider the firm’s output and distribution capabilities. Related order
fulfillment issues are the location of suppliers; the modes of inbound and
outbound transportation used; the location of production facilities and
distribution centers; and the systems used for entering, processing,
communicating, picking, delivering, and documenting customer orders. The order
fulfillment process must integrate closely with customer relationship
management, customer service management, supplier relationship management,
returns management, and directly with key suppliers and customers to ensure
that customer requirements are being met, customer service levels are being
maintained, suppliers are helping to minimize order cycle times, and customers
are getting undamaged, high-quality products on time.
Manufacturing Flow
Management Process
The manufacturing
flow management process is the set of activities responsible for making the
actual product, establishing the manufacturing flexibility required to
adequately serve the markets, and designing the production system to meet cycle
time requirements. To be effective, manufacturing flow management activities
must be interfaced with the demand management and customer relationship
management processes, using customer requirements as inputs to the process. As
customers and their requirements change, so too must the supply chain and the
manufacturing flow processes change, to maintain overall competitiveness. Close
collaboration between the firm and its customers can quickly translate changing
customer requirements into new flow management solutions.
Manufacturing flow
characteristics also impact supplier requirements. For instance, as
manufacturing batch sizes and lead time requirements are reduced, supplier
deliveries must become smaller and more frequent, causing supplier interactions
and supplier relationships to potentially change. The importance of an adequate
material planning system connecting customers, the firm, and suppliers should
become evident here, as customer requirements must be translated into
production capabilities and then supplier requirements. As with other
processes, a good set of performance metrics should also be utilized to track
the capability of the manufacturing flow process to satisfy demand.
Supplier Relationship Management
Process
The supplier
relationship management process defines how the firm manages its
relationships with suppliers. As discussed in Chapter 12, firms in actively
managed supply chains seek out small numbers of the best performing suppliers
and establish ongoing, mutually beneficial, close relationships with these
suppliers in order to meet cost, quality, and/or customer service objectives
for key materials, components, and products. Integration activities in this
process include screening and selecting suppliers, negotiating product and
service agreements, developing or improving supplier capabilities, and then
monitoring supplier performance and improvement initiatives. Key suppliers most
likely have a cross-functional team to manage their progress towards meeting
the firm’s current and long-term requirements and establishing a record of
performance improvement over time. Supplier relationship management personnel routinely
communicate with production personnel to obtain feedback on supplier and
purchased item performance, and with marketing personnel to obtain customer
feedback. This information can then be passed along to suppliers during
periodic performance review meetings.
Product Development and
Commercialization Process
The product
development and commercialization process is responsible for developing new
products to meet changing customer requirements and then getting these products
to market quickly and efficiently. In actively managed supply chains, key
customers and suppliers are involved in the new product development process to
ensure that products conform to customers’ needs and that purchased items meet
manufacturing requirements. External integration activities in the product
development and commercialization process include the development of customer
feedback mechanisms; the formation of new product development teams that
include customer and supplier representatives; assessing and selecting new product
ideas based on supplier capabilities and advanced supplier component knowledge, resource requirements, customer needs, and fit with
existing infrastructure; designing and testing new product prototypes;
determining marketing channels and rolling out the products; and finally,
assessing the success of each new product. Successful new product development
hinges on the involvement of external customers and suppliers, and on the
internal integration of manufacturing, marketing, purchasing, and finance personnel.
Returns Management Process
The returns
management process, given little importance in some organizations, can be
extremely beneficial for supply chain management in terms of maintaining
acceptable levels of customer service and identifying product improvement
opportunities. Returns management activities include environmental compliance
with substance disposal and recycling, composing operating and repair
instructions, troubleshooting and warranty repairs, developing disposal
guidelines, designing an effective reverse logistics process, and collecting
returns data. Returns management personnel frequently interact with customers
and personnel from customer relationship management, product development and
commercialization, and supplier relationship management during the returns
process.
One of the goals
of returns management is to reduce returns. This is accomplished by
communicating return and repair information to product development personnel,
suppliers, and other potential contributors to any returns problems to guide
the improvement of future product designs. Transportation and distribution
services may also be included in the returns feedback communication loop.
Product recalls, typically initiated because of safety or quality problems,
involves informing customers and determining the most effective return, repair,
and/or replacement procedures. Other collaboration activities for the returns
management process include developing policies for disposing of hazardous
materials and recovering waste packaging across the supply chain.
For each of the
eight key supply chain processes identified, objectives and policies should be
co-developed between supply chain members to achieve the overall supply chain
strategies. Additionally, consistent objectives within each functional area of
the firm for each process help to integrate the processes internally, as well
as focus efforts and firm resources on supporting the supply chain strategy.
Internal process integration, trading partner relationships, and external process
integration are thus all interrelated. As internal integration efforts get
underway, the need for external integration becomes apparent. This, over time,
creates the need for close working relationships among supply chain members.
For instance, if
the supply chain strategy is to compete using low-cost objectives, the customer
relationship management process might be to find cheaper delivery alternatives
that still meet customer requirements, develop vendor-managed inventory
capabilities with suppliers, and to automate the customer order process while
communicating the new order process to customers. Production objectives might
be to develop bulk packaging solutions consistent with customer order
quantities and distribution systems used, to increase mass production
capabilities, and to identify the lowest total cost manufacturing sites for
specific products. Purchasing objectives might be to identify the least
expensive materials and components that also meet specifications, and develop
other cost-saving ideas for purchased items with input from suppliers. Firms
should similarly progress through each of the key processes using teams of
employees, customers, and suppliers to develop process objectives and policies.
Identifying Supply Chain Information System Requirements and
Capabilities
As soon as
external integration efforts are underway, it will likely become apparent that
information and communications systems need to change to accommodate the need
to share information and discuss problems as they arise, both with internal
staff members and external trading partner employees. While the topic of
information flow management was addressed in detail in Chapter 9, external
integration efforts require trading partners to easily and quickly translate
information from their own departments’ systems to those of their partners.
Does the firm have a single, company-wide ERP system that can easily be linked
to its key suppliers’ and customers’ information systems? Do any of the trading
partners have legacy systems
that require middleware to communicate with other firms’ enterprise or legacy
systems? How can point-of-sales information be shared? What are the information
system requirements along the supply chain, and who will pay for the system
upgrades? These are external integration elements that all trading partners
will have to consider. Firms that are successfully integrating key business
processes externally are using global ERP systems, data warehouses, Internet
portals and other web-based applications to make better, informed,
collaborative decisions with their supply chain partners.
Globally linked,
supply chain–accessible ERP systems allow trading partners to share information
from company-wide databases to make joint product, customer, and supplier
decisions. Information is captured once and made visible to all users, reducing
data input errors. Information is available in real time, eliminating delays
throughout the organizations as information is shared. As firms move away from
legacy systems and toward fully integrated ERP systems, as cross-functional
trading partner teams are created to link key processes to supply chain
strategies, and as firms become more adept at internal process integration,
firms will also become more focused on achieving supply chain objectives,
resulting in benefits for all trading partners.
Information visibility, or the way
information is communicated and made available to various constituents, plays
an extremely important role in external process integration. Today, connecting buyers
and suppliers via virtual linkages is the way supply chains are becoming
integrated.[25] Supply
chain communication technologies provide support for a number of issues,
including handling the flows of goods between companies, negotiating and
executing contracts, managing supply and demand between partners, making and
executing orders, and handling financial settlements, all with a high level of
security. Shirley Cooper, supply chain procurement director at UK-based
Computacenter, Europe ’s leading provider of IT
infrastructure services, believes that future collaboration success lies in
implementing new technology. “If you have joined-up (integrated) IT you can get
a steal on the marketplace. We are looking at how we can get our suppliers in a
virtual warehousing space so I don’t have to hold stock. I can look into their
systems to say, ‘you’ve got it, and I’ll have it at that price’,” she said.[26]
Today’s web-based
collaborative infrastructures can accommodate an array of communication
applications using existing systems and ERP applications. For instance,
California-based provider of web conferencing services WebEx Communication’s
WebOffice application, Microsoft’s Sharepoint® application, and
Florida-based software firm Citrix Systems’ GoToMeeting™ application are just a
few of the literally hundreds of software applications enabling businesses to
communicate and share data both internally and externally. For example, BDT, a
German manufacturer of paper handling components, found that its many legacy
systems were impeding its ability to collaborate effectively with its customers
and suppliers. R&D staff, for instance, needed to be able to collaborate
frequently with customers in the design process, and suppliers needed
visibility into parts inventories on a real-time basis to avoid work stoppages.
BDT decided to deploy an online collaboration and document management solution
from Microsoft’s SharePoint, which provided each customer and supplier with
secure collaboration and information access with BDT. The system ultimately
reduced administrative labor and supplier management time by over 2,000 hours
per year, enabling system payback in less than five months.[27]
Collaboration
software application suppliers are busy lumping together everything from Voice
over Internet protocol (VoIP), email, instant messaging, web conferencing,
document sharing, and web portals to help customers integrate processes.
Information systems giant IBM’s collaboration software allows customers to
integrate their ERP data across business processes, combining Lotus Notes®
tasks, scorecards, dashboards, e-forms, document and content management,
instant messaging, team rooms, and presence awareness.[28]
In the education arena, Arizona State University
hosts a web portal that allows all Arizona
kindergarten through 12th grade students to interact with the state’s math
teachers. The e-Commerce Perspective feature profiles this collaborative
effort.
E-COMMERCE PERSPECTIVE—An IDEAL Education
When
three-year-old Elias Hinojosa goes to kindergarten in Tucson , Arizona Arizona
State University
From kindergarten
through 12th grade, Hinojosa will head to the Integrated Data to Enhance Arizona ’s Learning
(IDEAL) portal for math and reading practice tests, supplemental online
courses, interactive learning exercises, and state-required advanced-placement
tests. He’ll also turn to IDEAL for learning materials, coursework, and video
resources his teachers have placed there to supplement their classroom
presentations.
Ultimately,
Hinojosa and as many as 1 million other students will have access to the IDEAL
portal, enabled with the open source uPortal software. For now, 300,000
students are authorized to log on to IDEAL to check out sample tests;
coursework is not yet available but will be soon.
In addition to the
students, the state’s 60,000 K-12 teachers have access to the portal, not only
to provide supplemental coursework but also for links to student demographics,
improvement guidelines, grades, and benchmarks. Teachers manage coursework on
IDEAL through Sakai ,
an open source course management and collaboration application.
The focus of this
innovative educational initiative is to use technology to enable lifelong
learning, says Sam DiGangi, assistant vice provost for IT at Arizona State
University (ASU), in Tempe .
“IDEAL is not just access to a Web site, but accounts that will stay with
students through their schooling and, conceivably their entire career,” he
says.
ASU is building
the IDEAL network per a contract with the Arizona Department of Education,
which has invested $5 million in the network. ASU contributes technical and
staffing resources. The university is phasing in access on a rolling basis,
with all students expected to have authority to use the portal by August 2006.
With more than 1
million potential users, IDEAL necessitates a heavy-duty storage infrastructure.
“The biggest challenge is managing the authentication and authorization of
students and teachers,” says Jack Hsu, director of IS and network management at
ASU. “We have 350,000 users authenticated and authorized, but have over 1
million overall users to authorize.” To authenticate portal visitors, ASU uses
the open source Central Authentication Service, developed at Yale University
ASU keeps costs in
check for the IDEAL network by using technologies such as iSCSI and open source
software. “Everything in this project is open source, so that in itself is a
huge cost savings, not just in initial but in ongoing costs,” Hsu says, noting
that ASU has been running Linux for three to four years. “Then we used iSCSI,
which really makes our costs go down. All the Fibre Channel expenses add up.
We’ve saved a few hundred thousand right there.”
So for Hinojosa,
if all goes as planned, a lifelong relationship with IDEAL is in the future (or
at least as long as his parents stay in Arizona ).
Source:
Connor, D., “An IDEAL Education,” Network
World, V. 22, No. 46, 2005, pp. 54–56. Used with permission from Network World, http://nww.com.
As internal
integration capabilities and relationships and information sharing competencies
with trading partners mature, firms should begin to notice that additional
external integration opportunities are occurring. To maximize the value of
these integration efforts, firms should consider developing external
integration performance measures to track performance and guide future
improvement efforts. This topic follows.
Developing External Integration Performance Measures
As was discussed
earlier in the chapter when assessing internal integration performance, the
firm should also develop external performance measures to monitor its
collaboration activities with trading partners in the eight key supply chain
process areas. Ideally, a team composed of members from the firm and several
primary trading partners should be created to design these measures to be consistent
with overall supply chain strategies. Subsequently, these measures can be
employed by each of the trading partners to monitor their respective
collaboration activities in key process areas.
Using a low-cost
supply chain strategy example, trading partners would monitor a number of
cost-oriented performance measures that could be used by individual firms and
that also might be averaged across all of the supply chain members for each of
the key supply chain processes. For the customer relationship management
process, integration performance measurement examples might include the number
of CRM initiatives implemented, the percentage of customers hitting a certain
profitability level, the number of customer contacts made, and the percentage
of collaborative groups that include key customers. Similar sorts of measures
could thus be developed for the other key processes. Obviously, these measures
can vary widely by industry, supply chain, company, product type, and strategy
employed. At California-based Solectron Corp., a provider of electronics
manufacturing services, involving supply chain trading partners is an important
part of measuring and improving performance. “Our goal is to drive lean through
the supply chain processes, on the factory floor and through our supply base.
We want much more visibility between our factory and our supplier’s factory,”
says James Molzon, vice president of customer fulfillment at Solectron. With
lean principles in place, a factory has much faster response times, Molzon observes.
“Customer feedback is an important benchmarking tool within the high-tech
industry as well,” adds Molzon. “We do subjective and quantitative customer
satisfaction surveys, with more and more emphasis on quantitative assessments.”[29]
Improving
External Process Integration and Supply Chain Performance
Eventually, as
supply chain members become more adept at supply chain process integration,
poor-performing suppliers and high-cost customers are replaced by better ones,
and long-term trusting alliances are established among the firms that remain.
Building, maintaining, and strengthening these relationships is accomplished
through use of external process integration and continued performance
monitoring coupled with problem-solving efforts. As process integration
improves among supply chain partners, so too does overall supply chain
performance.
Supply chain
trading partners must concentrate on collaborating and sharing information such
as sales and forecast information, along with information on new products,
expansion plans, new processes, and new marketing campaigns, in order to
maximize profits for the entire supply chain membership. Focusing on building
external process integration linkages will enable firms to better share and
take advantage of this information. The teams formed to design and organize
process integration performance measures should be viewed as a key resource for
the supply chain. These teams can determine or consider supply chain process
objectives and the corresponding integration activities and work groups that
must occur to achieve the objectives. Integration performance metrics can then
be designed for each of the processes, followed by monitoring to identify any
lack of process integration and potential supply chain weaknesses. Thus, firms
should periodically jointly assess their levels of process performance and
integration and collaborate on methods to improve both.
In many
industries, supply chain management–related costs can account for about 70
percent of total firm operating costs and as much as half of a company’s
assets. Additionally, improving supply chain efficiency is viewed by many
companies as about the only remaining way to significantly reduce costs. Given
these statements, it becomes easy to appreciate the important roles played by
external process integration along with integration performance assessments.
Peter Surtees, European logistics director at Kimberly-Clark, a global consumer
goods provider, stated “For manufacturers, the need for collaboration, even
between competitors, has never been greater—as the pressure on the physical
costs of distribution is now unsustainable.”[30]
The remainder of the chapter closes out the text by providing a discussion of
the latest trends and developments in integration and process management.
A LOOK AT TRENDS AND DEVELOPMENTS IN INTEGRATION AND PROCESS MANAGEMENT
As the push
towards “world class” supply chain management continues, driven by the desire
to reduce costs while improving quality and customer service, new trends are
emerging in areas such as use of technologies, human resource management, and
global trade. Some of the more advanced and active practitioners of supply
chain management are already making use of these latest developments, while
others are taking a wait-and-see approach. Generally speaking, companies
providing the best products and services at the most competitive prices while
achieving high levels of customer satisfaction will ultimately prove to be the
most successful in the marketplace. And one of the most effective ways to
ensure this is through the practice of supply chain management. Central to the
practice of supply chain management is the integration of key business
processes. Thus, some of the current trends and developments in process
management and integration are discussed here.
New Uses of Technology
Some of the most
exciting and certainly the most rapidly changing developments have to do with
the application of technologies to process management and supply chain
management. A few of these new uses of technology are reviewed here.
Global Data Synchronization
Global data synchronization (GDS) is a
term that refers to automated direct product data exchange between supply chain
partners. Organizations like the non-profit GS1 Hong Kong serve as a registry where
global retailers can look up a Hong Kong-manufactured product and find the full
range of product details, as well as initiate an order. Many other local and
regional databases such as GS1 are linked by global exchange services such as
Maryland-based Data Pool Manager. Global electronic product identification
standards have now been adopted to allow companies from all over the world to
communicate product information and purchase orders in this fashion. At the
time of this writing, GDS initiatives are also occurring in Canada , the United
Kingdom , the European Union, the United States , and Australia .
Companies connect
via GDS to reduce stockouts, new product time to market, and logistics costs,
while providing faster flow of accurate information, which also improves
merchandising and fulfillment decisions. Externally, fast and accurate
information flow improves collaboration with transportation providers, giving
them more accurate cargo information. Data synchronization also fosters closer
ties between suppliers and buyers. “More cooperation on developing joint trade
promotion campaigns will enable both sides to reduce the number of missed
opportunities and set more competitive prices,” says Steve Kiefer, vice
president of industry and product marketing at e-commerce software provider
Global Exchange Services, headquartered in Maryland .[31]
Open-Source Communities and
Collaborative Environments
Thanks to the
Internet and open-source software, workers in every profession with the use of
a computer are busy establishing online open-source
communities to share ideas and exchange data and information. One of the
world’s largest open-source communities is SourceForge.net, with millions of
registered users collaborating on hundreds of thousands of projects. This collaboration
model is swiftly being adopted by workers worldwide to generate more innovative
solutions to a variety of problems. Users can very quickly mobilize information
on any topic, project, or problem in any field. Techno-futurist Ray Kurzweil,
developer of many artificial intelligence products and patents, calls this
moment in time not just a technological revolution, but a “singularity” in the
history of humankind. With open
collaboration, workers will be able to add significant value to their work,
earning additional compensation above what other non-collaborators might expect
to receive. The end result will be participatory R&D, benefiting from the
unique competencies of rank-and-file employees across their own organizations,
their trading partners’ organizations, and all other organizations where
workers are willing to share knowledge.
The irony is that
managers typically would reject the notion of employees sharing in-house
experiences and knowledge with their counterparts in other organizations, including
competitors—if it weren’t already rapidly spreading throughout the
industrialized world. Many of these open collaborations, though, have the full
support of management. For example, Maryland-based defense contractor
Lockheed-Martin’s contract with the U.S. Department of Defense to develop a new
generation of stealth aircraft involves 80 suppliers, operating in 187
locations, who rely on groupware to collaborate with each other and with the
75-member Aeronautics Tech Group, who coordinate the project with the four U.S
armed services, the U.K. Defense Ministry, and eight other allied military
groups. Primary work groups will thus be made up of workers from various
disciplines and from multiple employers, bound together by a common project
goal.[32]
Open source
communities are a form of collaborative
environment (CE), which simply refers to two or more individuals
communicating to accomplish a shared objective. These days, CEs are constructed
from a range of computer and communication technologies, including instant
messaging, email, chat rooms, Internet telephones, mobile communicators,
cybercafés, and web conferences. These forms of geographically dispersed
collaborations are occurring in part due to the widespread use of the Internet,
reduced travel budgets, threats of terrorism, and health fears such as the SARS
epidemic. Unfortunately, in a recent study of business executives, only 38
percent reported that their firms had a formal plan for using collaborative
technologies. Additionally, even when these technologies are used, executives
generally admitted that there was no consideration given as to how this type of
communication could improve business processes.[33]
RFID Tags
While radio frequency identification (RFID)
tags have already been put into use over the past few years to track products,
cases, and pallets as they move along the supply chain, the jury is still out
regarding their ability to replace bar codes on products and pallets. Many,
though, swear by their use and insist it is only a matter of time until
companies realize the full potential of RFID in the supply chain. Spending on
RFID tags is projected to hit $4.2 billion in 2009, more than double what it
was in 2005.
Discount retailer
Wal-Mart is perhaps the biggest supporter of the use of RFID. It is beginning
to require suppliers to use RFID tags on many items and pallets of goods
shipped to its distribution centers. Its ultimate goal is to use RFID across
its supply chain to speed inventory to store floors and to eliminate stockouts.
By the end of 2005, Wal-Mart store tag-readers had already read over 58 million
tags. Global consumer goods manufacturer Kimberly-Clark Corp. has also been
moving ahead rapidly with its RFID deployment. The company currently ships
hundreds of items to Wal-Mart and Target in RFID-tagged cases and pallets, and
overseas to retailers Metro Group and Tesco. Its RFID research lab has become
one of the few testing centers in North America
accredited by RFID standards groups for consumer goods and retail.
One of the current
problems associated with RFID is integrating RFID data into an ERP system. Data
formatting issues and software incompatibilities make it hard to import data
directly. RFID tag readers can also misread tags, causing data errors. “We have
a heck of a time with the amount of middleware, trying to get one to talk with
another,” says IS director Ed Mathews of Wisconsin-based bicycle and scooter
manufacturer Pacific Cycle. They must dedicate one person to literally sort
through the 70,000 weekly records it receives from 50 RFID-tagged products it
sends to retailers, searching for errors that include duplicate data caused
from multiple reads generated when a pallet of tagged bicycles gets stalled
near a tag reader at a distribution center. Other problems with RFID include
tags that don’t transmit signals at all or signals that are strong enough, the
fact that metal reflects signals and water absorbs them, tag readers
interfering with one another, tag prices that can range from 10 to 30 cents
each, and tags that are too large to fit on some products such as pill bottles.
Still, Wal-Mart executives and others insist that RFID problems are being
solved and the technology is catching on faster than bar code labels (it took
ten years before bar codes were universally accepted).[34]
Wireless Access to Enterprise
Firms desiring
workers to remain in contact with company systems while out of the office are
deploying Wi-Fi networks to achieve
mobile access. For example, industrial chemical supplier Eastman Chemical Company
uses Wi-Fi at its Kingsport ,
Tennessee Columbus , Ohio
Automated Business Processes
The use of
software to perform a function and replace a manually-performed one, can reduce
time, cost, and errors for the organization. In many cases, off-the-shelf
software can solve a basic problem, but more and more, companies are turning to
software designers to design a solution for a unique set of parameters that can
meet a specific need. Delaware-based Counterpoint Software, Inc. (CSI) develops
business management software solutions mostly for the insurance industry. A CSI
representative meets with company personnel, interviews them, and evaluates
their hardware and software situation. They can develop a custom agency
management system to meet the needs of each client, consisting of claims
tracking, reporting, accounting, quoting, and policy issuance modules.[37]
There are numerous
software products available that help companies build web-based applications.
One of the most comprehensive software products, NXJ 10.5, is available from
California-based Unify Corp. NXJ is an enterprise application development suite
used for automating business processes, and allows users to build most any
transaction-based business application requiring end-user interactions. NXJ
includes a process designer module, a reporting module, and a web-services
design module. Corporate Express, a French office supply company, wanted to
implement web-based automation for its supply chain management, fulfillment,
delivery, and transportation scheduling processes. The goal was to increase
customer satisfaction, order delivery accuracy, and sales force efficiency
while reducing call center expenses. It selected Unify to design the
applications, using its existing business application development staff. The
initial version of the field sales automation system application was designed
in just three days. Each sales representative was able to have “anytime, anywhere”
access to customer setup, order management and entry, price lookup, and sales
message retrieval. With the new NXJ-based system, Corporate Express eliminated
300 inbound calls per day to its call center and significantly enhanced the
call center processes. The Unify web application provides sales representatives
with real-time quotations while onsite with the customer. Because the
application is linked to Corporate Express’s ERP system, price quotes are based
on current contracts, calculated and quoted in real time, making them more
accurate.[38]
Also referred to
as smart BPM systems, or automated decision systems, these
automated systems are being deployed frequently for a variety of processes in
many industries. These are rules-based expert systems, often involving
statistical analysis of data, and they typically make decisions in real time
after weighing all the data and rules for a particular customer or situation.
In banking, real-time mortgages and lending decisions are commonly made using
automated decision systems. North Carolina-based on-line lending service
LendingTree.com uses automated decision making to decide which of its
participating banks are most likely to issue a mortgage to a customer, and to
offer several mortgage deals within a few minutes to potential customers.[39]
Human Resource Management Developments
As alluded to
earlier in this chapter, firms have to somehow find ways to break down barriers
to internal integration, and in many cases this involves use of innovative
human resource management (HRM) practices. In fact, research conducted by
Professors Casey Ichniowski and Kathryn Shaw studied the relationship between
innovative HRM practices and business performance. They found that there were
“systems” of innovative practices that were more effective in raising firm
performance than the more traditional approaches to HRM. The most successful
firms were found to incorporate innovation across seven different areas:
employee screening, pay-for-performance plans, work teams, employment security
guarantees, labor–management communications, job definitions, and ongoing
training in skills and problem solving.[40]
The U.S.
steel industry is a great example of an industry containing both innovative and
traditional forms of human resource management. North Carolina steel manufacturer Nucor
Steel, for instance, has some innovative ideas regarding HRM. Employees earn a
fairly low base salary, but then can earn large bonuses based on productivity.
As a result, Nucor’s employees straighten 35 to 40 tons of steel per hour per
employee, compared to 10 tons per hour per employee for the industry. Managers
can also earn big bonuses, based on return on assets and weekly crew
production. Senior officers earn bonuses based on return on shareholder equity.
Additionally, no one has been laid off in over 28 years. Employees can voice
their concerns in crew meetings, department meetings, shop dinners, and
surveys. If they feel they have been treated unfairly, there is an appeals
process whereby their voices will be heard.[41]
Innovative and well-designed HRM practices such as the ones outlined here can
contribute greatly to the creation of a collaborative and supportive work
environment. As a result, these collaborative work environments will enable the
firm to more quickly and effectively integrate processes both internally and
externally.
Collaborative New Product and
Process Development
One specific
innovative form of HRM is termed collaborative
new product and process development (NPPD). Ideally, collaborative NPPD encourages
representatives from all key trading partners to act as full partners on
design-build-support teams. The teams are responsible for developing a total
system of design requirements for both the product and its associated
processes. Projects involve bi-directional communications from both team and
non-team members, all of whom have access to a common design database.
Collaboration spans all disciplines, functions, divisions, projects, and target
markets to gather and use expert knowledge and make effective business plans.
Today, these collaborative NPPD teams are using the open-source communities
described earlier to communicate and share information. Several studies of
collaborative NPPD have found benefits in terms of reduced proposal and development
cycle times, reduced new product introduction time, reduced non-value-added
work, reduced scrap and reworks, and increased design reuse.[42]
Global Trade Issues
In a 2005
interview, Mark Columbo, vice president for strategic marketing for global
package delivery service FedEx, thought the largest impact to supply chain
management over the following ten years would be the continued liberalization
of global trade. Fewer trade tariffs and regulations will open up free trade to
many more countries, creating a larger supply base with more access to raw
materials, and new markets. To remain competitive, even smaller firms are now
considering foreign purchases of parts, supplies, and even new products that
can be licensed. Companies like FedEx will be needed to help identify trading
partners, transport and store goods, get items through customs, and finally
deliver the purchased items. FedEx is building its largest ever logistics hub
in Guangzhou , China
In a recent study
of Chinese and U.S.
manufacturing companies, Chinese plants were found to have embraced process
integration to a greater degree than their U.S. counterparts. After a closer
look, it was found that most of the Chinese facilities studied were joint
ventures and foreign-owned facilities. These plants were newer and more modern
than the traditional Chinese manufacturers, and their key customer was often
their parent or partner firm. There is still a need, though, for outsourcing
partners for many Chinese manufacturers in the areas of packaging, customer
service, and purchasing.[43]
Another reason
world trade is likely to increase is the overall increase in prices paid for
most components and materials. In a survey of U.S. manufacturers, materials costs
rose more than 6 percent from 2004 to 2005, while market forces kept sales
prices level or even lower for the same time period. Cost reduction and
competitive pressures have thus spurred more global outsourcing efforts to
produce products more quickly and cheaply. In the pharmaceutical industry, for
example, drug companies might take years to develop and test new products, only
to find that profit margins are greatly reduced as other competitor products
enter the market.[47]
Environmental Concerns
Today, environmental, health, and safety (EHS) excellence means much more than
achieving a “green” supply chain. EHS professionals are collaborating on
cross-functional supply chain management teams to improve customer retention,
revenue generation, cost reduction, and asset utilization along the supply
chain. EHS leaders, historically responsible for regulatory compliance, are now
routinely involved in directing supply chain firms’ corporate social
responsibility programs. EHS has become important in today’s global economy for
several reasons—environmental regulations are continuously growing due to the
general understanding of why environmental issues matter; manufacturers are
expected to take responsibility for product disposal at the end of a product’s
life; companies routinely outsource chemical management, hazardous product
handling, and waste disposal; and the current concerns about energy consumption
and greenhouse gas emissions. Thus, EHS personnel are needed when products and
processes are designed, when companies develop environmental compliance plans,
when reverse logistics strategies are developed, when potential outsourcing
partners are identified, and when customers expect environmental performance to
be part of a product or service.
Companies such as
Intel, FedEx, Dow Chemical, and Motorola commonly integrate EHS managers into
cross-functional teams that guide supply chain business processes. For example,
as part of a Six Sigma project at Illinois-based wireless and broadband
communications equipment manufacturer Motorola, EHS personnel led an effort to
reduce pallet-related injuries. The EHS team discovered that pallets coming
from suppliers often didn’t conform to specifications. The team developed a
solution for standardized packaging and pallets, which dramatically reduced the
number of pallets handled, stored, and disposed; maximized the packaging
density to reduce transportation costs; and reduced injury occurrences and
costs. In 2004 alone, the plan saved over $5 million.[48]
Outsourcing Business Processes
With continued
demands for cost reduction and quality and service improvement, firms are also
frequently turning to business process
outsourcing (BPO) or the outsourcing of an entire function or capability,
allowing more resources to be placed in core competency areas. Within the human
resources management area, for example, the training function is one area being
outsourced. Industry experts predict that by 2015, half of all company trainers
will work for outsourced services. Due to cost-cutting measures and a
realization that training can perhaps be delivered more effectively by external
training services, the number of companies outsourcing training is rapidly
increasing. “The number of requests for proposals has tripled in the last 12 months,”
said Doug Harward, CEO of The Exceleration Group, a North Carolina training consulting firm.
Training BPO can thus help companies to avoid large training facility capital
expenditures, receive high-quality and relatively low-cost training services,
take advantage of global training opportunities, and vary training levels as
the size of the firm dictates.[49]
In general,
though, BPO needs to be conducted with great care. Some companies are getting
very close to outsourcing their core capabilities in search of cost reductions,
and instead are finding that external services can eventually be more
expensive, create a loss of focus and integration, and can lose customers for
the company. A recent study in Germany ,
for example, found that the internal costs of providing information technology
services were frequently much lower than they were at the outsource companies.
Lack of an internal IT function also led to a lack of integration between
company strategies and IT strategies. Finally, the use of overseas suppliers
can create concerns regarding cultural differences, political stability, and
infrastructure capabilities, leading to increased risk associated with BPO
providers from developing economies.[50]
SUMMARY
There is a growing
recognition that supply chain process integration creates significant
opportunities for trading partners to achieve high levels of competitiveness
and financial returns; however, this entails sharing information and requires
cultural change in many cases. Supply chain partners must first achieve
internal process integration, which means breaking down integration barriers
that include the silo mentality, the firm’s culture, and trust issues. When
firms have become proficient at internal process integration, they can turn
their attention outward to external process integration, or collaborating with
trading partners. To improve, firms must also develop performance metrics to
assess both internal and external integration efforts. Many issues impact
process integration, including new uses of technology, global trade, and
process outsourcing.
KEY TERMS
active internal integration phase
automated decision systems
business process integration
collaborative environment
collaborative new product and process development
cultural barriers to collaboration
customer relationship management process
customer service management process
data warehouses
demand management process
environmental, health, and safety excellence
global data synchronization
information visibility
internal barriers to collaboration
internal process integration
internal supply chain
key business process integration
key supply chain processes
manufacturing flow management process
open collaboration
open-source communities
order fulfillment process
process integration
product development and commercialization process
radio frequency identification
returns management process
silo mentality
smart BPM systems
structural barriers to collaboration
supplier relationship management process
technological barriers to collaboration
top-down management approach
Wi-Fi networks
work groups
XML web services
DISCUSSION QUESTIONS
1.
Define “process integration” and discuss why it might
be difficult to achieve.
2.
How does internal process integration differ from
external process integration?
3.
What activities are necessary for achieving internal
process integration?
4.
Describe the activities that occur during the internal
integration preparation phase. Why is this important?
5.
What are the three types of internal integration
barriers? Discuss each one.
6.
What is the most common strategy used to overcome
technological barriers to internal integration?
7.
What are some of the issues to consider as the firm
integrates its various information systems?
8.
Why is it important to develop a set of internal
integration performance metrics?
9.
Why is the use of teams so important in achieving
internal integration?
10.
At what point is the firm ready to work on achieving
external process integration?
11.
What is the key element in building successful teams?
12.
What is meant by the term chair ballet, as it was used in the section of the chapter
describing Aetna ’s offices, and why might this
be a good thing to do?
13.
Why might achieving external integration be so
difficult?
14.
What are the general requirements for achieving
external process integration?
15.
Why do you think it is important to align internal
functional strategies with supply chain strategies?
16.
Describe some integration activities for each of the
eight key supply chain processes for:
a.
an upscale hotel
b.
a clothing retailer
c.
an automobile manufacturer
17.
Shirley Cooper, supply chain procurement director at
UK-based Computacenter, Europe ’s leading
provider of IT infrastructure services, believes that future collaboration
success lies in implementing new technology. Provide arguments supporting this
statement, and arguments refuting this statement.
18.
Why is it important to measure external integration
performance?
19.
Why does techno-futurist Ray Kurzweil, developer of
many artificial intelligence products and patents, call this moment in time not
just a technological revolution, but a “singularity” in the history of
humankind?
20.
What is an open collaborative environment, and how is
it formed?
21.
What is RFID, and what are its
advantages/disadvantages?
22.
What are smart business process management systems used
for?
23.
Describe the relationship between collaborative new
product design and development and process integration.
24.
What impact will the liberalization of global trade
have on supply chain management?
25.
Environmental health and safety issues play an
important role in supply chain process management. Describe why.
26.
Why can the outsourcing of business processes be risky
from a supply chain management perspective?
INTERNET
QUESTIONS
1.
Report
on some of the definitions and software applications found when searching on
the term integration middleware.
2.
Look up
one of the following products and describe how it works:
a.
WebEx’s WebOffice application
b.
Microsoft’s Sharepoint application
c.
Citrix Systems’ GoToMeeting application
3.
Go to http://sourceforge.net, register as a
user, and then go to a discussion group of interest to you and report on your
group experiences.
INFOTRAC QUESTIONS
Access
http://www.infotrac-thomsonlearning.com to answer the following questions:
1.
Write a term paper on the topic of corporate culture
and its impact on supply chain management. Include discussions of how several
firms have developed cultural change programs.
2.
Write a report on Jack Welch and General Electric,
focusing on how the company’s culture was impacted by Jack Welch and how that
impacted its dealings with its trading partners.
3.
Report on some of the latest issues in collaboration
software or other new uses of technology for process integration or
collaboration.
REFERENCES
Croxton,
K., S. Garcia-Dastugue, and D. Lambert, “The Supply Chain Management Processes,”
The International Journal of Logistics
Management, V. 12, No. 2, 2001, pp. 13–36.
Daft,
R., and D. Marcic (1998), Understanding
Management, Harcourt Brace & Company, Orlando , FL.
Wisner,
J., G. Leong, and K. Tan (2005), “Principles of Supply Chain Management: A
Balanced Approach,” South-Western, Mason ,
OH
ENDNOTES
[1] Quote
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[2] Quote
from Bob Noe, CEO, 1Sync, in Berthiaume, D., “Collaboration: Is It Finally
Catching on in the Supply Chain?” Chain
Store Age, V. 82, No. 2, 2006, p. 52.
[3] Barki,
H. and A. Pinsonneault, “A Model of Organizational Integration, Implementation
Effort, and Performance,” Organization
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[4] Lapide,
L., “MIT’s SC2020 Project: The Essence of Excellence,” Supply Chain Management Review, V. 10, No. 3, 2006, pp. 18–24.
[5] Little,
M., “Toyota
Moves to Become No. 1 Car Maker in the World,” Epoch Times, April 11, 2006, available at
http://www.theepochtimes.com/news.
[6]
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Industries, V. 181, No. 11, 2001, pp. 8–12.
[7]
Muscarella, G., M. Krishnan, and H. Ault, “Business Advantages Flow with XML,” Optimize, November 2003, pp. 86–89.
[8] Cooke,
J., “Bringing Down the Barriers,” Logistics Management, V. 38, No. 7,
1999, pp. 105–107.
[9] Messmer,
M. and L. Kahn, “Managing Conflict,” Business
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[10] Nolan,
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[11] Monroe,
L., “Do the Right Thing,” Buildings,
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[12] Chyna,
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[13] Huff,
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[14] Hyde,
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[15] Miller,
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[16]
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[18]
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[19]
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[20] See,
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[21] Link,
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[22] Colvin,
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[23] Warski,
P., “Meeting in the Hallway,” Buildings,
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[24] Hymes,
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[25] Ince,
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[26] Clarke,
E., “Getting Buyers on Board,” Supply
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[27]
Internal Microsoft document, “Manufacturer Realizes 385 Percent
Return-On-Investment with Web-based Collaboration,” available at
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[28] Preston , R., “We Must Live Collaboration, Not Just Expect
It,” InformationWeek, May 15, 2006,
p. 76.
[29]
Richardson, H., “How Do You Know Your Supply Chain Works?” V. 46,. No. 6, 2005,
pp. 30–32.
[30] See
note 26 above.
[31] Mark,
K., “Dairy Farm Automates Collaboration,” Chain
Store Age, May 2006, p. 22A.
[32] Snyder,
D., “Extra-Preneurship: Reinventing Enterprise
for the Information Age,” The Futurist,
V. 39, No. 4, 2005, pp. 47–53.
[33]
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[34]
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[35] Radjou,
N., “The X Internet Invigorates Supply Chains,” Industrial Management, V. 46, No. 1, 2004, pp. 13–17.
[36] Pratt,
M. and M. Hamblen, “What’s Next: Wireless,” Computerworld,
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[37] Scotto,
R., “Counterpoint Software, Inc.,” Rough
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[38]
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[39] Davenport , T., “Decision
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[40] Ichniowski,
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[41]
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[42] Swink,
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[43] Maurer,
J., “Competitive Advantages of China
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[44]
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[45] Clancy,
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[46]
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[47] Katz,
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[48] Fiksel,
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[49] Tyler,
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[50] Barnes,
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