1. Supply Chain Management Lecture 10 – Integration
Alexa Kirkaldy

2. Lecture 10 - Learning Objectives
On completion you will be able to:
Explain the need for aligning processes and collaborating between organisations in the supply chain
Explain what activities can be tackled collaboratively
Discuss the ‘arcs of integration’ model
Explain what is involved in JITII, Efficient Consumer Response (ECR) and Collaborative planning, forecasting and replenishment (CPFR)

3. Supply Chain Integration
To establish and seamlessly coordinate the processes for planning, sourcing, manufacturing, distributing and returning products across the supply chain…
… in a manner that competitors cannot easily match.

4. Purchasing
Materials
Control
Production
Sales
Distribution
Management
Manufacturing
STAGE 1: BASELINE
STAGE 2 FUNCTIONAL INTEGRATION
STAGE 3:INTERNAL INTEGRATION
STAGE 4:EXTERNAL INTEGRATION
Suppliers
Internal Supply
Chain
Customers
Stevens (1989)

5. What is Supply Chain Integration?
Access to planning systems (sharing of forecasts)
Sharing production plans
Joint EDI (Electronic Data Interchange) access/networks (or extranet)
Knowledge of inventory mix/levels
Packaging customisation
Delivery frequencies
Common logistical equipment/containers
Common use of 3rd party logistics
From Frohlick & Westbrook, 2001, cited in Harrison & van Hoek (2005)
Sharing of risks?

6. Activities improved by integration and collaboration
Forecasting
Designing products and operations
Capacity planning
Inventory management
ERP and scheduling
JIT and Lean

7. Kirby (2003, p.68) cited in Harrison and van Hoek (2005, p.220)
Internal Integration
For some reason alliance professionals find it easier to create alliances with their major competitors than other divisions in their own companies. We don’t deal with our own internal integration. How can we integrate externally if we can’t integrate internally?
Why might this be?
Kirby (2003, p.68) cited in Harrison and van Hoek (2005, p.220)

8. Extensive Integration
Arcs of Integration
Narrow Arc of Integration
Broad Arc
of Integration
Extensive Integration
No Integration
Extensive
Integration
Suppliers
Manufacturer
Customer
Source: Frohlich and Westbrook (2001) Arcs of Integration: An international study of supply chain strategies, Journal of Operations Management Vol. 19, pp

9. Arcs of Integration Inward-facing Arc Periphery-facing Arc
None
Extensive
Suppliers
Customer
Manufacturer
Inward-facing Arc
None
Extensive
Suppliers
Customer
Manufacturer
Periphery-facing Arc
None
Extensive
Suppliers
Customer
Manufacturer
Outward-facing Arc
None
Extensive
Suppliers
Customer
Manufacturer
Supplier-facing Arc
None
Extensive
Suppliers
Customer
Manufacturer
Customer-facing Arc
Source: Frohlich and Westbrook (2001)

10. Poor supply chain integration
What trading partners
need……….
What trading partners
typically receive…..
Accurate & timely forecasts
Visibility of events (e.g. promotions etc…)
Orders from retailers at a lead-time that allows them to limit their risk
Efficient order process with orders in line with forecasted quantities
Shared targets to understand performance
Ad-hoc forecasts/Intake plans that are inaccurate
Rushed orders to satisfy demand from promos or planning inaccuracy
No “true” commitment until -1 to -2 weeks out
‘Soft commitments’ that don’t match forecast or order quantities
Performance measured based on “this week’s issue”
Supply Chain
“ Mismatch” leads to inefficiency.
A ‘lose-lose’ situation, with both organizations losing competitive advantage

11. The integration challenge
One SKU to One Retailer Chain, weekly order volume

12. The Forrester Effect
Order variability is amplified up the supply chain; upstream echelons face higher variability. 12

13. Coping with the Forrester Effect
Lead Times
Quick Response
Push vs. Pull Strategy
Cross Docking
EDI / E-business
Reduce Variability and Uncertainty
POS
Sharing Information
Every-day low pricing (EDLP) -remove promotions
Alliance / Partnership Arrangements
Vendor managed inventory
On-site vendor representatives

14. Inter-Company Integration– Manual JIT II Bose Corporation
JITII eliminates the buyer and salesman from the customer-supplier relationship
A supplier employee works on the customer’s site
placing orders on their firm using the customer’s systems
Taking part in production planning
Benefits of JIT II according to Sherwin Greenblatt of Bose, 1993;
50% improvement at Bose in the transport measures of ‘on time’, ‘damage’ and ‘shortages’
26% increase in equipment utilization by a Bose supplier of custom plastic parts, G&F Industries
6% saving in material cost at APV Corporation
$1.9 million inventory reduction at AT&T in one location

15. Electronic Integration
Collaborative planning
Shared information on new product planning, demand forecasting, replenishment planning
Information sharing
Read only sharing of product spec.s, inventory, shipments for independent planning
Transactional
Automation of business transactions such as purchase orders, invoices, payments .

16. Supply Chain Integration Tactics
Integrating the forward physical flow
JIT / Mass-customisation & postponement
Distribution strategies (3rd & 4th Party Logistics / Cross-docking)
Cross docking - collected from suppliers and taken to transhipment centre. Sort & combine for delivery to the customer, without passing into a store.
Backward coordination of information
Sharing data from planning and control systems
Electronic Data Interchange (EDI) / E-business
Holistic Strategies
Partnerships
Efficient Consumer Response (ECR)
Collaborative Planning, Forecasting and Replenishment (CPFR)

17. Efficient Consumer Response
Established now as a grocery industry initiative but origins in work by Kurt Salmon Associates in US for apparel in 1993
Designed to integrate and rationalise via collaboration:
Product assortment
Promotion
New product development
Replenishment
Targets non value adding costs in the supply chain
Refer to case study – ECR in the UK ( Procter and Gamble

18. ECR Improvement Categories
Harrison A. & van Hoek R., Logistics Management and Strategy, 2005, p.226

19. Collaborative planning, forecasting and replenishment (CPFR)
Originated in 1995 by Wal-Mart, Warner-Lambert, Benchmarking Partners, SAP and Manugistics
Goal to develop a model to collaboratively forecast and replenish inventory
In 1998 Voluntary Inter-industry Commerce Standards Committee (VICS) (who developed bar codes and EDI standards for retail) got involved – see
Requires
joint forecasting by customer & supplier
Extensive support from Internet-based products
Refer to case study on trials in the UK grocery sector

20. 9 Step CPFR Model Develop the front end agreement
Create joint business plans
Create individual sales forecasts
Identify exceptions to sales forecasts
Resolve / collaborate on exception items
Create order forecast
Identify exceptions to order forecasts
Generate orders
Harrison and Van Hoek, 2011

21. Scope of CPFR … CPFR Upstream Downstream Supplier Manufacturer
Customer
POS
Sales Forecast
CPFR
Order Forecast
VMI, CRP
Efficient Replenishment
Efficient Replenishment
Category Management
Reliable Operations
Supplier Managed Inventory
Integrated Suppliers
Enabling Technologies

22. Unexpected Production changes
CPFR requires….
…organizations to align and integrate their internal supply chains as well as synchronize with their trading partners
Manufacturers
Customers
Suppliers
Collaborative
Processes
Collaborative
Processes
Excess
Inventory
and Stock Outs
Excess
Inventory
Rush orders
to Suppliers
Unexpected Production changes
Excess inventory
Obsoles- cence
Stock Outs/
Lost Sales
Supply Chain challenges

23. The VICS CPFR model (2004) Monitor exception conditions
Calculate key metrics
Share product and market insights
Adjust plans and processes for continuously improved results
Establish the ground rules for the collaborative relationship (Front End Agreement and Joint Business Plan)
Determine product mix and placement
Develop event plans for the planning period
Place orders, prepare and deliver shipments
Receive and stock products on retail shelves
Record sales transactions and make payments
Project consumer (point-of-sale) demand (Sales Forecast)
Calculate order and shipment requirements over the planning horizon

24. Source: Christopher, 4th Edition, 2011
CPFR Benefits – Nestle UK
Improved availability of product to consumer – increase sales
Total service improved, total costs reduced, capacity can be reduced as fewer uncertainties
Processes integrated across organisations
Information communicated quickly, more structured format, transparent, real time
Audit trail to show when amendments were made
Data in process can be used for analysis, monitoring and evaluation
Process can be completed in a quicker time scale, lower total cost
Trading partners are more committed to shared plans and objectives.
Source: Christopher, 4th Edition, 2011

25. Lecture 10, Key Points & Tips
Integration in the supply chain can be classified in 5 ways Inward-facing; Periphery-facing, Supplier-facing, Customer-facing and Outward-facing.
Benefits can be obtained from simply improving collaboration and integration within the organisation and this should be the starting point before integrating externally. However, internal integration is often more difficult because of company politics and problems measuring and achieving cost reductions without redundancies.
Outward-facing integration achieves the greatest benefits.
JIT2 aims to achieve inter-company collaboration manually by using a supplier-in-plant at the customer’s premise removing the buyer and salesman.

26. Lecture 10, Key Points
Electronic integration can be undertaken in three ways by transactional transmission of fixed-format documents, information sharing or collaborative planning.
ECR is an industry-wide initiative popular in retailing and fast moving consumer goods that integrates and rationalises product ranges, new product introductions, promotions and replenishment across the supply chain.
CPFR is aimed at ‘making inventory management more efficient and cost-effective, while improving customer service and leveraging technology to significantly improve profitability’. By planning collaboratively replenishment of products is more timely and accurate. Based on Harrison A. & van Hoek R., Logistics Management and Strategy, 2005, pp

27. For next Friday Read the case studies
ECR in the UK – 2 questions
CPFR in the grocery sector – 3 questions
Possible oral presentation questions
What functions are integrated in this supply chain, which could be?
What evidence is there that collaborative planning, forecasting and replenishment is taking place in this supply chain?