Supplying the supply chain — Case for an Integrated supply chain
At a very broad level any supply chain function can be broken down into 4 major areas:
- Planning
- Procurement
- Storage
- Logistics
But if we dig a bit deeper, we will observe that a supply chain is much more than planning, procurement, etc. There are several other finer things that make up these 4 areas. Some of them are — quality control of both inbound raw materials and outbound goods, packaging of the finished goods, and ensuring proper storage (welcome WMS!) to just name a few.
For a company to succeed it needs 4 key components:
1. Product innovations
2. A proper Transportation Management System
3. A resilient supply chain
4. An agile and well defined financial and operational planning
In today’s time where the business environment is changing and evolving rapidly, working in these 4 areas in silos isn’t enough to sustain the entire business. The planning team must ensure that proper budgeting is done so that newer innovations are encouraged and that the products are easily delivered to the targeted customers without any major challenges in the supply chain process. Thus all 4 areas must come together to ensure the longevity of the organization and so that the profits break the invisible asymptote and are always at the top end of that S-curve.
Need for reimagining the supply chain
There has been a paradigm shift in the way supply chains operate in recent times thanks to COVID (the ever-present culprit), changing consumer demands, growth in omnichannel commerce, increasing focus on sustainability, etc. There are several factors that fuel this need to reimagine the supply chain. Some of them are:
1. The focus of the companies is now shifting from a short-term cost reduction method to optimizing the total cost so as to derive the maximum value from the investment
2. Instead of making decisions that are reactive in nature, organizations are spending more time first deep-diving into the problem and identifying the root cause. To do so it requires data from multiple areas/ functions and having a central component that can provide that data is much more convenient than reaching out to multiple departments.
3. Earlier, capacity, and performance of the supply chain were taken for granted in business decisions as the focus was more on the product and selling volumes. But with competition increasing and the threat of substitution being relatively high for the majority of the products, the supply chain is becoming the competitive advantage that can help them make or break the game.
Goals of integrated supply chain
The major goal of an integrated supply chain is to deliver a uniform customer experience both internal and external through a responsive, scalable, and collaborative supply chain ecosystem. Several other goals are:
1. An agile and a responsive supply chain leveraging collaborative ecosystems
2. Availability of desired product mix across multi-source, multi-location, multi-modal network
3. Digitally enabled to accelerate the decision-making process
4. Improved responsiveness to demand with higher service levels and faster turnaround times
5. Real-time visibility of value drivers and KPIs with actionable insights
Advantages of Integrated supply chain
- Cost: One of the top factors that companies look for when making any changes in their systems is cost. The cost here is the transactional cost. This cannot be avoided among subsidiaries, partners, and vendors. For e.g.: If supplier X provides material to say 5 departments in a company, the company cannot bargain with the supplier for lower prices. However, had there been an intermediary from the company side buying the raw material of all the 5 departments together, in that scenario the company will have higher bargaining power and can then argues for reduced prices.
2. Quality control: With an integrated supply chain there is just one regulatory authority to ensure the quality of the incoming goods. This authority can either accept a good or reject it based on whether it passes the set standards. This is easier than having multiple authorities looking after the quality, as then each authority can define its own standard, and sometimes there may be a conflict between 2 standards.
3. Increased revenue: With authority in place looking after its supply chain and related functions, a company can concentrate its entire focus on its product and marketing strategies. It is now assured that its supply chain needs are in good hands and will not be stuck in any major challenge.
Challenges and disadvantages
Of course, no innovation comes without its challenges and disadvantages. Hence, there are certain challenges with an integrated supply chain as well. Some of them are:
1. Regulatory issues with suppliers: With an integrated chain, there is one authority looking at the regulation esp. on the supplier side. However, not every supplier is required to comply with every regulation or norm. Adopting a generic approach, a company may needlessly force all its suppliers to adhere to similar standards.
2. Dearth of compliant suppliers/ vendors: In case a supplier the terms of the integrated chain do not suit the business priorities of a supplier, they may choose not to renew their contract with the company. This would hamper the production of the departments that were dependent on those suppliers. The hardest hit would be the ones who were willing to agree with the terms of the suppliers.
Resources:
1. https://supplychaingamechanger.com/the-importance-of-integrated-supply-chain-management/
2. https://www.inspirage.com/2016/09/top-4-benefits-integrated-supply-chain/