Successful supply chain management involves working across multiple functions, processes and firms to bring value to the end consumer. Integrating all components of a supply chain in a way that allows all parties to work together is of the utmost importance in light of changing market conditions.
A team of faculty members in the Department of Supply Chain Management in the Broad College of Business at Michigan State University has been investigating what’s on the mind of supply chain executives across various global firms. The research team wants to understand how supply chains remain competitive today and in the future.
The project, Beyond the Horizon, is funded through APICS, the leading association for supply chain and operations management professionals, and MSU’s McConnell Chair in Business Administration. MSU Professor Judith Whipple, PhD, presented insights from the research at the 2016 MODEX Supply Chain Education Summit in Atlanta, GA. She discussed the initiatives that companies have focused on in order to build an integrated supply chain.
The Research Team conducted in-depth interviews with more than 100 executives from over 50 organizations in North America, Europe, Africa and Asia. The interviews focused on strategic initiatives being undertaken, as well as capabilities that firms were focusing on to solve today’s challenges and take advantage of tomorrow’s opportunities.
Whipple discussed why it’s important for firms to integrate internal and external supply chain activities to bring value to consumers, maximize efficiencies and respond to changes in the marketplace.
Q. Why is supply chain integration important?
The hallmark of supply chain management is the ability to work across functions and processes within a firm and across multiple firms in order to bring value to customers and the end consumer. Internally, the goal is to integrate supply activities (e.g., procurement, manufacturing, logistics) with demand activities (e.g., sales, product development and launch, customer support) to avoid decisions that could increase costs unnecessarily or result in disappointed customers.
Externally, the goal is to collaborate with suppliers and customers to respond to dynamically changing conditions that may influence resource availability, demand fluctuation and a myriad other factors that could result in a failure in the marketplace.
Q. What types of initiatives are firms undertaking to improve internal integration?
One of the initiatives that was discussed in the Beyond the Horizon research is improving the balance between supply and demand sides of a firm, which have different objectives and goals. The supply side of the firm is often more focused on efficiently managing resources (e.g., plant capacity, purchasing costs, inventory), while the demand side of the firm is often more focused on effectively satisfying customers (e.g., offering a variety of products, customization to individual customer requirements, the level of service provided). Without achieving some balance, firms often end up with excessive inventory of products customers didn’t want while not having enough inventory of popular products. This results in lower customer service, missed revenue opportunities and lower profit margins.
Improving supply-and-demand balancing can occur when firms change their organizational structures and/or processes. In one example from the research, a firm created a centralized command center that helped facilitate the communication and collaboration across different regions and manufacturing plants in order to better manage global demand forecasting and supply management. Another company created cross-functional teams that aligned the demand and supply sides by working with large customers to understand their needs and liaison that information back to the supply chain group to ensure those needs could be met. Several firms discussed efforts to improve internal processes, such as Sales and Operations Planning (S&OP), as a means for balancing supply and demand.
Q. What types of initiatives are firms undertaking to improve integration with suppliers (external integration)?
One of the main initiatives firms are undertaking to work better with suppliers is to rethink the value suppliers provide to the buying firm. Traditionally, value was predominantly thought of as coming from delivering cost reductions. Certainly, cost will always be an important consideration, but, in many cases, value extends beyond that. Value can also come from partnering with suppliers to co-create an innovative product or service that can differentiate both firms in the marketplace. As one executive indicated in the research, "Buying standardized parts from our suppliers will not differentiate our products from our competitors."
Co-creation generally means that suppliers must be involved early in the design phase of a product. Not only does this impact cost and quality, but suppliers are able to bring their expertise to the table. Further, it means that buying firms must be more intentional in understanding how their needs will change in the next few years and how suppliers (current and future) need to be developed to ensure supplier capabilities match the future direction of the firm. Again, this highlights the importance of internal integration. Without internal integration, firms have difficulty understanding future demand and may not have the supply capabilities needed.
Q. What types of initiatives are firms undertaking to improve integration with customers (external integration)?
The firms in the research were very focused on better understanding their customer base and offering differentiated service through more deliberate segmentation strategies. Once segmented, firms can focus more specifically on customers who are not only more profitable, but also where the value proposition matches the firm’s competencies. As one executive noted, "If the value proposition doesn’t fit what it’s going to take to be able to serve a customer appropriately, we need to take that investment and put it somewhere else where we can have an impact." Further, this approach focuses the firm on providing the service that will keep those top customers coming back. That often means moving from a product-selling approach to a solutions-selling approach.