Supply Chain Integration: Definition, Model and Examples

What is supply chain integration and its importance? We will explain its definition, model, process and examples how supply chain integration can be done.

What is Supply Chain Integration?
Supply chain integration has been around as early as 1989 and its simple definition can be found as below,
"Supply Chain Integration is how everyone in the company and its trading partners work in sync to achieve the same business objectives via integrated business process and information sharing"

Supply Chain Integration Model
Graham C. Stevens, who was a senior managing consultant at Peat Marwick McLintock in London published the article called "Integrating the Supply Chain" in International Journal of Physical Distribution & Logistics Management. According to him, companies that manage the supply chain as one entity would get ahead of the ones who don't. He also suggested a 4-stage supply chain integration model or framework as below,

Supply Chain Integration Model

- Baseline: each department in the same company manages supply chain issues separately. At this stage, "Functional Silo" is a major problem. Functional Silo is the way each function works on their own objectives.

- Functional Integration: each department in the same company works together to reduce costs.

- Internal Supply Chain Integration: each department is now connected via the same IT infrastructure to increase the efficiency. At this stage, "Corporate Silo" is the major issue. Corporate Silo is the way each company works on their own agenda.

External Supply Chain Integration: each company in the same supply chain joins hands and work together to achieve the same goal to satisfy customer's requirements.

Examples of Supply Chain Integration
In order to understand more about the supply chain integration, we will cover 3 works worth mentioning as below,

Examples of Supply Chain Integration

- Extended Enterprise: this term appeared in 1993 in the article called "Strategic Control in the Extended Enterprise" which was the results of 40 companies who implemented the information system. The result of this study was that, when companies embarked on the information system initiatives, organization boundaries become blurred, inter-firm relationship got stronger and this change helped to create the new marketing and distribution channel structure.

- Virtual Integration: in 1998, Harvard Business Review conducted the interview with Michael Dell and published the article called "The Power of Virtual Integration". Dell has become the first example of true "Extended Enterprise" because they used information system and closer relationship with trading partners to create the new distribution channel called "Direct Model".

- Super Efficient Company: Michael Hammer (2001) explained that, the true challenge was to streamline the process you share with other companies. In this article, he explained how real companies incorporated the reengineering concept to improve integration.

Integrating the Supply Chain
Based on the literature survey, we identify 7 elements that can help to improve both internal and external supply chain integration as below,

Supply Chain Integration

1. It's not just technology project
Supply chain integration is not just about linking different ERP system together. The concept is more profound and requires the right mindset.

2. Segment customers and anticipate changing needs
This is how Dell how has mastered the virtual integration by paying lots of attention to the final customer.

3. Relocate work
In the beginning, Dell knew very well that they couldn't compete with IBM or HP so they thought they should focus on the core competency and let the other companies did what they did best.

4. No activity should be done more than once
Michael Hammer suggested that, by eliminating duplicated activities between companies, they could get the business results quickly and could maintain momentum.

5. The entire process should be managed in one database
Technically, it doesn't have to be in one database. But the point is to share the same versions of all information to all trading partners so people can make an accurate decision quickly.

6. Trading partners should agree on the same metrics
Unrealistic expectation can happen in any form of relationship. Clearly defined performance measure is the best thing to prevent the inter-company conflicts.

7. Encourage face-to-face contact
This is the only collaboration lesson that can't be found in scholarly articles. Real business people like Dell realized that you can't underestimate the power of face-to-face meetings because it helps a lot with the idea generation.

Related Article: 7 Factors of Solid Supply Chain Network Design