What is Supply Chain Integration?

What is the integration of the supply chain and its importance? We will show its definition, model, process, example and how to do the supply chain integration.

What is Supply Chain Integration?

The integration of supply chain has been around since 1989 and its simple definition can be found as below,
"Integration of supply chain is how everyone in the team and 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 the 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 integration model or framework as below,

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

- External Integration: each company in the same supply chain joins hands and work together to achieve the same goal to satisfy the customer service and customer's requirements. Lean manufacturing is a good example of successful external integration.

Examples of Supply Chain Integration

In order to understand more about the integration, we will cover 3 works worth mentioning as below,

- Extended Enterprise: this term appeared in 1993 in the article called "Strategic Control in the Extended Enterprise" which was the result 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, the 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 an 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 it used an information system and a closer relationship with trading partners to create the new distribution channel called "Direct Model". They simplified inventory management practices a lot.

- Super Efficient Company: Michael Hammer (2001) explained in "Supply Efficient Company" 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.

Supply Chain Integration in Practice

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

1. It's not just a technology project: The 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 expectations can happen in any form of relationship. The clearly defined performance measure (as in six sigma program) 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 international 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.

Supply Chain Integration References

- Stevens, G. C. (1989). Integrating the supply chain. International Journal of Physical Distribution & Materials Management, 19(8), 3-8.

- Konsynski, B. R. (1993). Strategic control in the extended enterprise. IBM systems journal, 32(1), 111-142.

- Dell, M. (1998). The power of virtual integration: an interview with Dell Computer's Michael Dell. Interview by Joan Magretta. Harvard business review, 76(2), 73-84.

- Hammer, M. (2001). The superefficient company. Harvard business review, 79(8), 82-93.

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Last review and update: December 11, 2021
All contents are written by Ben Benjabutr unless marked as [Guest Commentary]

About the Author and Editor:
Ben Benjabutr is the author and editor of SupplyChainOpz. He holds an M.Sc. in Logistics Management with 10+ years of experience in supply chain management. You can contact him via e-mail.