SCM COORDINATION

and
SCM INTEGRATION

Shiyaz K.M
III Semester MBA-FT
SMS, CUSAT
 What is a Supply Chain?
• The flow of materials, information ,products and
services from raw material suppliers ,through
factories and warehouses to end customers.
• Includes tasks such as purchasing, payment flow,
materials handling, production planning and control ,
logistics and warehousing inventory control and
distribution and delivery
• The role of SCM is to plan, organize ,coordinate
and control all the supply chain activities
 SUPPLY CHAIN MANAGEMENT
• "SCM is the planning and coordination of
activities, from procurement to production,
through ... distribution" (Arunachalam, Sadeh,
Eriksson, Finne and Janson 2003)
• “Coordination of business activities across
organizational boundaries.”
• Primary objectives include cost reduction,
service improvement, improved communication
SUPPLY CHAIN COORDINATION
• Supply chain coordination improves if
all stages of the chain takes actions
that together increase total supply
chain profits
• It requires each stage of the supply
chain to take into account the impact
its actions have on other stages
 NEED FOR COORDINATION
• Firms have intensified efforts to
streamline operations and improve
service to a diverse and demanding
customer base
• To ensure that the supply chain is
both efficient and responsive to
dynamic market needs.
 LACK OF COORDINATION
• Information moving between stages
is delayed and distorted
- distortion is exaggerated by
product variety
- complete information is not shared
 Different stages having conflicting
objectives
 Coordination and Bullwhip effect
• Bullwhip effect : The bullwhip
effect can be described as a
series of events that leads to
supplier demand variability up
the supply chain
 IMPACT OF BULLWHIP ON
DIFFERENT PERFORMANCE
MEASURES
PERFORMANCE MEASURE IMPACT OF BULLWHIP EFFECT
Manufacturing cost Increases
Inventory cost Increases
Replenishment lead time Increases
Transportation cost Increases
Shipping and receiving cost Increases
Level of product availibilty Decreases
Profitability Decreases
Obstacles to coordination in the supply
chain
• Incentive obstacles
• Information processing obstacles
• Operational obstacles
• Pricing obstacles
• Behavioral obstacles
 Incentive obstacles
• Local optimization within Functions
or Stages of a Supply chain

• Sales force incentives

 Information processing obstacles

• Forecasting based on orders and not

customer demand

• Lack of information sharing

 Operational obstacles
• Ordering in Large Lots

• Large Replenishment Lead Times

• Rationing and Shortage Gaming

 Pricing obstacles
• Lots Size Based Quantity Discounts

• Price Fluctuations
 Behavioral obstacles
Each stage of supply chain views its actions
locally and is unable to see the impact of its
actions on other stages
Different stages react to current local situation
rather than trying to identify the root causes
No stage in the supply chain learns from its
actions over time
Lack of trust between supply chain partners
causes them to be opportunistic at the expense
of overall supply chain performance
ACHIEVEING COORDINATION IN
PRACTICE
 Quantify the bullwhip effect
 Get top management commitment for coordination
 Devote resources to coordination
 Focus on communication with other stages
 Try to achieve coordination in the entire supply
chain network
 Use technology to improve connectivity in the
supply chain
 Share the benefits of coordination equitably
 MANAGERIAL LEVERS TO
ATTAIN COORDINATION
– Aligning of goals and incentives
– Improving information accuracy
– Improving operational performance
– Designing pricing strategies to
stabilize orders
– Building partnerships and trust
 SCM INTEGRATION
• Degree to which the firm can
strategically collaborate with their supply
chain partners and collaboratively
manage the intra- and inter-organization
processes to achieve the effective and
efficient flows of Product and services,
Information, Money, and Decisions.
• With the objective of providing the
maximum value to the customer at low
cost and high speed.
• Integration is the alignment and
 Components of SCM Integration
• Planning and control
• Work structure
• Organization structure
• Product flow facility structure
• Information flow facility structure
• Management methods
• Power and leadership structure
• Risk and reward structure
• Culture and attitude
 IMPLEMENTING INTEGRATED SCM
REQUIRES

Analyzin
g the whole supply chain.
Starting
by integrating internal functions first.
Integrati
ng external suppliers through partnerships
 STAGES IN INTEGRATION
• Separate logistics are not given much attention or
considered much important.
• Recognising that the separate activities of logistics
are important for the success of the organization.
• Making improvements in the separate functions,
making sure that each is as efficient as possible.
• Internal integration – recognizing the benefits of
internal co-operation and combining the separate
functions into one.
 STAGES IN INTEGRATION
(cont..)
• Developing logistics strategy, to set the long-term
direction of logistics.
• Benchmarking – comparing logistics’ performance
with other organizations, learning from their
experiences, identifying areas that need
improvement and finding ways of achieving this.
• Continuous improvement – accepting that further
changes are inevitable and always searching for
better ways of organizing logistics.
 INTEGRATION ALONG THE
SUPPLY CHAIN
• Three levels of integration.
(a) first has logistics as separate activities within
an organization;
(b) second has internal integration to bring them
together into a single function;
(c) third has external integration, where
organizations look beyond their own operations and
integrate more of supply chain.
 BENEFITS OF INTEGRATION
• Genuine co-operation between all parts of the supply
chain, with shared information and resources.
• Lower costs – due to balanced operations, lower
stocks, less expediting, economies of scale,
elimination of activities that waste time or do not add
value, and so on.
• Improved performance – due to more accurate
forecasts, better planning, higher productivity of
resources, rational priorities, and so on.
• Improved material flow, with co-ordination giving
faster and more reliable movements.
 BENEFITS OF INTEGRATION
(cont..)
• Better customer service, with shorter lead times,
faster deliveries and more customization.
• More flexibility, with organizations reacting faster to
changing conditions.
• Standardised procedures, becoming routine and well-
practiced with less duplication of effort, information,
planning, and so on.
• Reliable quality and fewer inspections, with integrated
quality management programmes.
 MEASURES OF INTEGRATION

• Access to planning system

• Sharing production plans
• Joint EDI access / networks
• Knowledge of inventory mix / levels
• Packaging customization
• Delivery frequencies
• Common logistical equipment / containers
• Common use of third-party logistics
 INTEGRATION IN THE SUPPLY
CHAIN
• Internal integration: function to
function
Purchasing Production Distribution
High productivity
of machine and Keep warehousing
labor operation smooth
Low price
Post-manufacturing
High batch size operation being
Unreliable delivery resisted
and low quality
Additional
Poor available complexity of
distribution customizing
products
 INTEGRATION IN THE SUPPLY
CHAIN
Inter-company collaboration: a manual
approach Strategic
Collaboration
Decision Flow
Products & Services Flow
Enterprise Information & Knowledge Flow Enterprise
A B
Financial Flow

END CUSTOMERS
RAW MATERIALS

Products & Services Flow

Information & Knowledge Flow

Financial Flow
Decision Flow
 ACHIEVING INTEGRATION
Co-operation and Conflict
• Organizations have to recognize that it is in their
won long-term interest to replace conflict by
agreement.
• Need s a major change of culture
• Suppliers need co-ordination
• Organizations need loyality
• Should not be concerned with self objectives, rather
work jointly.
• Most imporatnt thing is co-operation.
 DIFFERENT TYPES OF CO-
OPERATION
If an organization has a good experience with a supplier,
it will continue to use them and over some period will
develop a valuable working relationship.
Sometimes the co-operation is more positive, such as
small companies making joint purchases to get the same
quantity discounts a slarger companies; EDI links to
share information; combining loads to reduce
transportation costs agreed package sizes to ease
material handling, lists of preffered suppliers, and so on.
The two different types of co-operations are:
• Strategic Alliances
• Vertical Integration
 STRATEGIC ALLIANCES
• Organizations working closely together at all levels.
• Senior managers and everyone in the organizations
supporting the alliance.
• Shared business culture, goals and objectives.
• Openness and mutual trust.
• Long-term commitment.
• Shared information, expertise, planning and
systems.
 STRATEGIC ALLIANCES
(continued..)
• Flexibility and willingness to solve shared problems.
• Continuous improvements in all aspects of operations.
• Joint development of products and processes.
• Guaranteed reliable and high quality goods and services.
• Agreement on costs and profits to give fair and competitive
pricing.
• Increasing business between partners.
 VERTICAL INTEGRATION
• a measure of how much of the supply
chain is owned by the manufacturer
– Backward integration – acquisition or control of
sources of raw material and component parts
– Forward integration – acquisition or control of its
distribution channels
• related to levels of insourcing and
outsourcing
THANK YOU