Supply chains in business entail the entire network of businesses which are interconnected and aimed at providing a certain good or service to the end customers. It incorporates all the units from suppliers of inputs, transporters, processors, distributors, wholesalers and retailers. Supply chain management entails managing the overall movement as well as storage of inputs, inventories and final products from origin to consumption. Supply chain management is an important part of business management as it accounts for the largest portion of the entire business operations and there is need to ensure that the chain is as efficient as possible for improved performance.
Any attempt to optimize performance in the business requires that supply chain functions are integrated. Integrated supply chain is an emerging concept which emphasizes combining the requirements of the buyer with the production schedules of the supplier. This assimilation is aimed at guaranteeing that delivery of products to customers is done in the right time and place and that the product is properly configured to fit customer requirements (Integrated Supply Chain Management, 2010, par6).
Supply chain management falls in three levels: operational level, tactical level and strategic level. At the strategic level of supply chain management, the entire network of supply chain is defined. This includes defining the transportation routes to be used, which suppliers to be engaged in the process, the facilities to be used in production, the different levels of production to be engaged as well as any warehousing needs required. At this level, the major overriding decisions are made by top management. The tactical level involves technocrats who develop specific production schedules and plans so as to meet anticipated demands. This is mainly done by mid level managers. Execution of the plans and schedules developed at the tactical level is done at the operational level (Beamon, 1998, par4).
Integration is being touted as one of the most critical solutions towards the achievement of an efficient supply system in organizations. The production schedule of one firm is developed in line with the suppliers’ ability to meet the input requirements and also in consideration of the customer needs. The overall effect is the minimization of the costs of handling the goods at the different stages (Magableh, and Mason, 2009, p27).
However, implementation of this integration process is made difficult mainly by the dynamics of the enterprise. Unexpected occurrences complicate the integration. Production facilities may fail, employees may fall ill, inputs may not arrive as expected in terms of time or quantities and a host of other hitches are likely to happen. This may significantly water down the effectiveness of the integrated system. At times, the problem can be handled internally meaning that the hitch may not necessarily disrupt the system. However, others are external to the firm and may require adjustments across the supply chain (Integrated Supply Chain Management, 2010, par32).
Successfully developing an integrated supply chain requires that the business entities involved develop efficient internal processes prior to integration. This is necessitated by the fact that the integration has to be based on right decisions which can only be generated by businesses with efficient internal processes. This is made clear by the fact that there is no way the supplier can know the buyer’s schedule if the buyer’s themselves do not understand their own schedules. Consequently, clear test and acceptance criteria need to be developed to give assurances to suppliers of the acceptability of their products.
Integrated supply chains handle problems at the tactical as well as operational levels. It has a set of intelligent and cooperating agents handling one or several functions in the supply chain and constantly communicating their decisions amongst themselves to form what is referred to as Logistical Execution System.
The benefits of an integrated supply chain are immense. More importantly, the benefits accrue for both the supplier and the buyer though experts argue that the buyer has more to gain than the seller in the form of reduced costs of order processing, holding costs, and quality of inputs as well as design. Simply put, they are assured of what to receive and at what particular time (Magableh, and Mason, 2009, par9).
In order for the seller to help the buyer achieve their goals and still be profitable, he/she should follow some principles. First, the seller should seek to comprehensively understand the needs of the buyer in order to develop requisite processes and test them before applying them. In addition, the seller should obtain design inputs from those handling the different tasks (Gilmore, 2008, par5).
They should also come up with ways to enable them generate extra compensation for any additional tasks performed. This helps broaden the revenue base hence improve on their financial status. Finally, the seller must develop impeccable internal processes. This is informed by two important facts. First, if the buyer is realizes that the seller has no proper processes, he/she may opt to either help or find a new seller a situation which would lead to loss of revenues for the seller. In addition, since it is likely that there are many sellers dealing with many buyers, it is cost effective to develop sound business practices applicable to many buyers rather that developing separate processes for different buyers.
Integrated supply chains confer great benefits to both the suppliers and the buyers mainly due to the emphasis on well developed and executed internal processes. The most important benefit is that events throughout the supply chain are adequately controlled and repeated to standardization at the established level. This enables the supplier to maintain consistently high standards while the buyer is guaranteed of continually high quality (Integrated Supply Chain Management, 2010, par8).
Secondly, much less resources are used in subsequent periods trying to figure out what should be done at what time. The cost implications of such kind of rather automatic systems can be very helpful to the seller as minimal costs are used up in decision making. It also offers opportunities to identify areas which can be improved for even further efficiency.
The integrated supply chain allows sharing of information hence eliminating chances of conflict and more importantly tracing the status of specific orders in terms of the stages they are in. This promotes transparency and accountability in the entire supply chain improving on the entire businesses integrity.
In conclusion, it is clear that integrated supply chains offer extra benefits to firms in terms of reduced costs, better organization and efficiency in delivery. Again, the sharing of information enhances trust between suppliers and buyers. The overall effect is an improved relationship among trading partners leading to long term commitments which significantly reduce business risk by guaranteeing returns for suppliers.
Beamon, M. (1998). Supply Chain Design and Analysis: Models and Methods. International Journal of Production Economics.Vol. 55(3).
Gilmore, D. (2008). Integrated Supply Chain Organization. Web.
Integrated Supply Chain Management (2010). Enterprise Integration Laboratory. Web.
Magableh, G. and Mason, S. (2009). An integrated supply chain model with dynamic flow and replenishment requirements. Journal of Simulation. Vol4 (8).