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204
Int. J. Services and Operations Management, Vol. 28, No. 2, 2017
A framework for evaluating the status of supply
chain integration
Rajendra Sahu
Indian Institute of Information Technology and Management,
Gwalior (Madhya Pradesh), India
Email: [email protected]
Anil Kumar*
School of Management (Marketing Analytics and Decision Science),
BML Munjal University,
Gurgaon (Haryana), India
Email: [email protected]
*Corresponding author
Manoj Kumar Dash
Behavioural Economics Experiments and Analytics Laboratory,
Indian Institute of Information Technology and Management,
Gwalior (Madhya Pradesh), India
Email: [email protected]
Abstract: Supply chain management (SCM) is among the most frequently
discussed topics in the corporate world today. Constant efforts are being made
to develop value-added processes that deliver innovative, high-quality, low-cost
products on time with greater responsiveness than ever before. Supply chain
integration plays an important role to achieve the same. Unfortunately, the
SCM concept has not been implemented in totality and there is a huge
disconnect between supplier and customer. Many issues need to be addressed to
integrate the supply chains of many industries. But the first step is the
recognition of the present status of integration so that false notions are removed
and fruitful work starts towards better integration and thus higher supply chain
(SC) profitability. The present work tries to find out the critical parameters
related to supply chain integration, which if addressed properly can provide
improvements in supply chain integration effectiveness. Thereafter, the study
after establishing the comprehensive list of information that flows through a
generic SC and identifying their impact on the SC cost. Finally, a framework
has been articulated to enable an organisation to identify its state of supply
chain integration.
Keywords: supply chain integration; SCI; information technology; electronic
data interchange; goal sharing; collaborative planning and forecasting.
Reference to this paper should be made as follows: Sahu, R., Kumar, A. and
Dash, M.K. (2017) ‘A framework for evaluating the status of supply chain
integration’, Int. J. Services and Operations Management, Vol. 28, No. 2,
pp.204–221.
Copyright © 2017 Inderscience Enterprises Ltd.
A framework for evaluating the status of supply chain integration
205
Biographical notes: Rajendra Sahu is a Professor in the Department of
Management Science at ABV-Indian Institute of Information Technology and
Management, Gwalior (MP), India. He received his PhD from IIT, Kharagpur
after completing his MSc (Engineering) and MIM. He has been associated with
the teaching profession for the past 20 years, and has been closely involved
with industrial consultancy projects, and as an external consultant for IIT,
Kharagpur. Management consultancy has been his forte. He has been
associated with prestigious projects in the past, and has also published about
90 papers in his areas of proficiency and interest. His primary areas of interest
are systems approach to management, business process management,
e-commerce, and IT enabled services. He is currently the Secretary of Systems
Dynamics Society of India.
Anil Kumar is a Faculty of Marketing Analytics and Decision Science in the
School of Management at BML Munjal University, Gurgaon, India. He
received his PhD in Management from Indian Institute of Information
Technology and Management, Gwalior. He received his MBA and MSc
(Mathematics) from Department of Mathematics (Kurukshetra University,
Kurukshetra) and Graduation in Mathematics-Hons from the same university.
He also qualified UGC-NET. He has published more than 27 research
papers/book chapters. His research interest includes marketing analytics,
multi-criteria decision making, fuzzy multi-criteria decision making, fuzzy
optimisation, multi-criteria decision making and fuzzy applications.
Manoj Kumar Dash is currently an Assistant Professor in the Department of
Management Science at ABV-Indian Institute of Information Technology and
Management, Gwalior (M.P), India. He received his MA, MPhil, PhD and
MBA in Marketing from Berhampur University, Berhampur (Orissa). He has
published more than 60 research papers in various journals of international and
national repute. He is the author of three books and edited five books. He was
involved as the Chair member in conducted International Conference of Arts
and Science held at Harvard University, Boston (USA). His areas of research
are: marketing science, consumer behaviour, behaviour economic, decision
making modelling, fuzzy multi-criteria optimisation, and marketing research.
1
Introduction
Many researchers have explored the concepts, objectives, advantages and problems of
supply chain, SCM (Lambert et al., 1997, 1998; Handfield and Nichols, 1999; Mentzer,
2000; Stadtler and Kilger, 2002, Knolmayer et al., 2002; Bowersox et al., 2002; Chopra
and Meindel, 2004; Alimardani et al., 2014; Cao et al., 2015; Min, 2015; Eriksson, 2015;
Mavi, 2015; Erlinda et al., 2016) and logistics information management. Many have
equated the major problem in supply chain and logistics management to that of lack of
integration and proper information exchange across the supply chain (Bowersox and
Closs, 1996; Lambert et al., 1996; Bowersox et al., 1999; Lambert and Stock, 2001;
Eriksson, 2015; Mavi, 2015; Kazemi et al., 2015). The SCOR model (Stephens, 2001)
suggests that activities like collaborative planning across the supply chain are a major
ingredient to make the integration recipe a success. Thus, information sharing is just an
enabling activity for the much critical processes of organisational level integration like
vendor managed inventory (Holmström, 1998), and goal sharing. The researchers have
206
R. Sahu et al.
expended lots of effort in researching the different types of supply chain integration
(SCI), its benefits, barriers and solutions to these barriers (Lawrence and Lorsch, 1986;
Morash and Clinton, 1998; Lee, 2000; Murphy-Hoye, 2002; Ryan, 2003; Frizelle and
Efstathiou, 2003; Lardner et al., 2004, Chen and Themistocleous, 2004; Min, 2015;
Eriksson, 2015). The role and inadequacies of information technology (EDI, ERP,
electronic commerce, logistics information systems, RFID, etc.) in SCI has also been
investigated (Bardi et al., 1994; Handfield and Nichols, 1999; Alvarado and Kotzab,
2000; Grieger and Kotzab, 2002; Lewis and Talalayevsky, 2000; Moodley, 2002;
Kim and Narasimhan, 2002; Marquez, 2004; Gunasekaran and Ngai, 2004; Siau and
Tian, 2004; Cooper and Tracey, 2005; Eriksson, 2015; Mavi, 2015; Kazemi et al., 2015).
Experts have given various classifications for dimensions of SCI (Stevens, 1989;
Bowersox et al., 1999; Lee, 2000; Kumar and Dash, 2015) and other areas like
performance measurement, relationship management, strategy are also making a plan for
implementation of SCI (Bask and Juga, 2001).
In today’s global economy, what is needed is that supply chains rather than
organisations compete with each other. ‘Allied teams’ of suppliers, finished goods
producers, service providers, and retailers form an integrated SC, which creates and
deliver the very best product/service offerings possible and competes against other supply
chains. Good SCI plan plays very important role in the organisation (Cao et al., 2015;
Min, 2015). Therefore many issues need to be addressed to integrate the supply chains of
many industries, the first step being the recognition of the present status of integration so
that false notions are removed and fruitful work starts towards better integration and thus
higher supply chain profitability. Integration across SC is a major supply chain
management (SCM) issue in today’s business scenario. Lack of coordination occurs in a
supply chain due to following two reasons:
•
when each stage of the supply chain only optimises its local objective without
considering the impact on the complete chain, total supply chain profits become less
than what could be achieved through coordination
•
lack of coordination also results if information distortion occurs within the SC.
Lack of coordination has adverse impacts on supply chain costs due to increasing in
demand uncertainty, inventory costs, manufacturing costs, replenishment lead-time and
decreased responsiveness. Therefore, a proper understanding of the present status of
coordination is a major requirement for SCI. Many researchers have come up with
various dimensions on which the level of SCI can be measured (Alimardani et al., 2014;
Cao et al., 2015; Min, 2015; Eriksson, 2015; Mavi, 2015; Erlinda et al., 2016). Two
major dimensions, which have been stressed by all of them, are: level of information
integration and level of organisation integration. A common mistake, which most
organisations make while looking into their SCI level, is concentrating on just the
technological dimension. But just implementing ERP or automating the processes does
not mean that the organisation’s level of coordination with its supply chain partners is
high. What is equally important is the level of organisation orientation towards SC
coordination in terms of risk/reward sharing, resource sharing, culture sharing, etc. No
such framework has yet been proposed which takes into consideration both these
dimensions to arrive at the level of SCI for an organisation. This is the area, which this
paper targets and tries to come up with a solution for. This study aims at addressing the
integration issues in SCM. The primary objective of this paper is to find out the critical
A framework for evaluating the status of supply chain integration
207
parameters related to SCI, which if addresses properly can provide improvements in SCI
effectiveness. This has been achieved by developing a framework to study and analyse
the present status of the SCI across industries. Following are the key objectives on which
the paper is based:
•
to prioritise the supply chain tasks on the basis of their impact on the supply chain
cost of an organisation
•
to articulate a framework that will enable an organisation to identify its state of SCI
•
to validate the effectiveness of this framework by assessing the current status of SCI
for some case organisations via this framework.
The outline of the chapter is as follows. Section 2 reviews the background information
with the literature review of the previous studies. Section 3 presents the proposed
methodology for the study of the development of a Framework for evaluating the state of
SCI. Section 4 comprises a case study to show the applicability of the proposed model
and obtained results. Finally, recommendation and conclusion along with future
researches directions are provided in Section 5.
2
Literature review
The strategic importance of SCI has been discussed by many researchers and
practitioners (Frohlich, 2002); Frohlich and Westbrook, 2001) and they are agreed that
with the help of SCI, an organisation can manage it internal-external process well (Kumar
and Dash, 2015). For the improvement of the organisation globally, SCI helps a lot
(Rosenzweig, 2009). Researchers and practitioners in every domain are thinking that
proper implementation of SCI in an organisation can help in the speedy development of
that organisation, therefore, for practitioners’ point of view SCI can make an innovation
steps for them (Frohlich and Westbrook, 2001). In the literature, many studies discussed
SCI and it is important for an organisation growth (Kulp et al. (2004a). Frohlich and
Westbrook (2001) developed arcs of integration with a global sample of manufacturers
and examined that there is the strongest relationship with suppliers and customers for
organisation building. In the year of 2002, Frohlich discussed about the concept of
e-integration in the supply chain and explained that e-integration-based SCI with
upstream suppliers and downstream customers. He examined that there is the positive
relationship between an e-integration and performance. Kulp et al. (2004a) developed a
conceptual framework that relates information integration initiatives to manufacturer
profitability.
An organisation can be impacted by digitally enabled SCI capabilities (Rai et al.,
2006). They suggested that e-integration-based supply chain can help in the innovate
steps of an organisation and its growth. Silveira and Arkader (2007) explored the paths
by which the relationship between supplier and customers has been built. In the same
year, Devaraj et al. (2007) studied about the impact of implementation of internet-based
technology in the business and its impact on overall production of the organisation. Uses
of information technologies for SCM can promote organisational coordination and have a
positive impact on performance (Sanders, 2008). SCI has a relationship with new product
design, this relationship has been examined by Lau et al. (2010). After 251 manufacturers
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R. Sahu et al.
and the study output confirmed that, product co-development and organisational
coordination are crucial organisational processes within SCI (Cao and Zhang, 2011).
Prajogo and Olhager (2012) and Huo (2012) investigated that smooth SCI can build a
strong and long-term relationship with supplier and customers which can help an
organisation to create its image on the global platform.
Yunus and Tadisina (2016) examined firms’ internal and external drivers of SCI,
evaluate the impact of the integration on firm performance, and further investigate the
moderating role of organisational culture in strengthening the relationships between
firms’ drivers and SCI. This study confirmed the positive relationship between SCI and
firm performance. The results also indicated that internal driver, or specifically firms’
customer orientation (CO), triggered the initiation of SCI. Organisational culture, in
terms of external focus, positively influenced the relationship between CO and SCI. In
the same year, Wiengarten et al. (2016) explored that there is a relationship between risk
and risk management practices, therefore, SCI plays very important role for an
organisation growth and prosperity.
3
Research methodology
The research process encompassed of following steps to formulate and achieve the
objectives:
•
literature survey – understand the basic concepts of SC and SCM
•
study and analyse the architectures and unique features of supply chains for selected
manufacturing industries (Appendix)
•
identification of critical parameters which are significant to the problem of
coordination across supply chain
•
development of framework for evaluating the state of SCI in an organisation
•
validating the effectiveness of this framework.
3.1 Framework for evaluating the state of SCI
The proposed framework objectives are:
1
identifying the present state of SCI
2
identifying the areas, which need improvement in order to increase the level of
integration
3
identifying the priority of different supply chain tasks and associated data flow.
The proposed framework addresses the two major aspects of SCI identified earlier. These
are:
1
level of information integration
2
level of organisational integration.
A framework for evaluating the status of supply chain integration
209
The framework identifies three major phases in each of the above mentioned integration
types as low, medium and high integration stages. Table 1 presents the integration
migration path a company might follow while moving from a low IT integration phase to
a high IT integration phase.
Table 1
IT integration migration path
Supply chain
integration using
Transaction and
warehouse
management
systems
Low
integration
MRP II systems
Legacy systems
Medium
integration
ERP systems
1 Intra-company
2 Rigid interfaces
High
integration
ERP and supply chain
planning (SCP) systems
1 Inter-company
integration
Value:
mechanisation of
existing processes
2 Flexible interfaces
Value: process
improvement
Communication
systems,
internet/extranet
E-mail/fax/phone
Internet/extranet
only used for
limited purposes
Few EDI/internet
links to
customers/suppliers
Extranet – on
experimental stage
Extensive use of
EDI/internet/XML links
within supply chain;
sharing of network
resources
Bar-coding and
inventory visibility
Only bar-coding of
finished products
More extensive
bar-coding
Bar-coding, RFID, from
entry to dispatch
Track-and-trace
systems
Not used, done
manually
Some automation
for tracking inside
the organisation
Track-and-trace throughout
the SC
Electronic POS
(point-of-sale) data
capture
Not used
Automated email
updates and
confirmations
Key suppliers and
customers connected
through extranet
Vendor managed
inventory (VMI)
Not used
Experimental stage
with one or more
Strategic suppliers have
access to production plans,
etc.
Table 2 depicts the organisational integration migration path a company might follow in
moving from a low organisational integration to high organisational integration phase.
Thus the framework basically uses a three-point scale (low/medium/high) to rate the
state of SCI in a particular organisation. The framework will also help the organisations
to prioritise the various information flows that occur within a supply chain. The
information flows were identified via extensive literature survey of various supply chains.
They were then catalogued under seven supply chain tasks. They can be rated on two
parameters namely: first, frequency of information: This was defined as the number of
times a particular data is transferred over the supply chain, and second complexity of
information: This was defined by the number of times a data is reentered in the supply
chain, number of customer-supplier pairs that transmit/receive this data, number of other
activities involved and amount of manual intervention needed, and how standardised that
data is for different partners in supply chain.
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R. Sahu et al.
Table 2
Organisational integration migration path
Organisation
characteristics
Low
integration
Medium
integration
High
integration
Orientation
Functional orientation
Internal integration
Process-oriented
Status of
logistics/SCM in
the organisation
Logistics not
considered a core
competence-fragmented
logistics functions
Logistics
considered a critical
activity – logistics
activities integrated
under one function
Logistics/SCM
considered a core
competence
Risk/reward
sharing
Low tolerance for loss,
Limited willingness to
help others gain
Some tolerance for
short term loss,
willingness to help
the other gain
High tolerance for
short term loss, desire
to help other party gain
shown by profit
sharing
Communication
across the
supply chain
Few contacts points,
Communication on adhoc basis
Regular contact at
top/senior levels,
communication
somewhat routinised
and scheduled
Multiple contact points
at all levels, balanced
two-way regular
communication
Formal lateral
organisations
No teams across the
supply chain
Cross-functional
teams in some areas
key account
Managers
Teams across the
supply chain-regular
interaction
Goal formation
Organisation goals are
kept a secret and not
communicated to
partners
Goals are formulated
in isolation but
shared across the
supply chain
Goals are formulated
in collaboration with
supply chain partners
to increase supply
chain profitability
Performance
measurement
Measurement of delivery
service and inventory
levels in some parts of
the supply chain
Measurement of
order lead time,
logistics costs and
service levels Joint
measurement in
some interfaces
Measurement of
performance of supply
chain processes
performance data
shared across the
supply chain
An information flow task’s overall impact on supply chain cost was calculated as:
Impacton cost =
( Frequency rating
* 0.4 + Complexity rating * 0.6 ) .
A higher weighting has been given to complexity because the survey indicated that
respondents place more importance to complexity rather than frequency. They feel a high
frequency high complexity task is easy to automate than a high complexity one. The
impact was then categorised as follows:
{Impact on cost} – Rating
{1–2.5} – low, {2.5–3.5} – medium, {3.5–5} – high. Thus the high priority information
flows can easily be identified. The priority of the supply chain task was determined as
follows:
A framework for evaluating the status of supply chain integration
211
The priority of the supply chain task i
= [SUM (impact ofall information types under task i )]
/ Number ofinformation types exchanged for task i .
They were then ranked on a scale of 1–7 with highest priority task having the ranking 1.
3.2 Validation of the framework
Questionnaires were floated amongst organisations in three case industries namely
automobile, pharmaceutical and electronics. They were addressed to key persons who
play an important part in SC coordination in these organisations. The responses were
analysed on the basis of key parameters of the hypothetical framework developed earlier.
This analysis of the data collected via the questionnaire helped to validate the
effectiveness of the developed framework in assessing the level of SCI for an industry.
A total of 90 questionnaires were floated. The target organisations included dealers,
distributors, apart from OEM manufacturers, as the aim was to get a holistic view of
supply chain rather than a biased opinion of a single member of the chain. We received
around 47 responses in total. Seven partially filled responses were received which have
not been considered for the analysis so as to avoid discrepancy in results. Out of the
40 valid responses 17 pertained to automotive industry, 13 were got from pharmaceutical
industry and 10 from electronics industry.
Figure 1
Distribution of responses by industry types (see online version for colours)
10
Automotive
17
Pharmace utical
13
Ele ctronics
The validation of the framework was done by its application on three case organisations.
4
Application of framework to the case organisations
For fitting of the analysed data to the developed framework, three sets of organisations
were taken from the sample set. Each of these three sets is composed of three
organisations belonging to three stages of a supply chain. Table 3 defines each of these
three organisation sets.
Now the developed framework was applied to each of the three focal manufacturers.
Table 4 depicts the ranking of supply chain tasks for different cases. Efforts can thus be
now more focused on efficiently managing the information flows pertaining to these
tasks.
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R. Sahu et al.
Table 3
The three case supply chain sets
Supply chain
Supplier
Focal manufacturer
Customer
SC-A
Tyre manufacturing
company
Passenger car
manufacturer
Car dealer
SC-P
Fine chemicals,
solvents, drug
intermediates, basic
chemicals and allied
products; regional
SME
Manufacturer of drug
and nutritional
healthcare items,
large multinational
company
Distributor, division
of medium sized
pharmaceutical/drug
distributor
SC-E
Plastic moulded
parts, regional SME
Manufacturer of
high-end audio and
video equipment
Exclusive
distributor/dealer of
audio
Table 4
Important supply chain tasks for case industries
Supply chain task
SC-A
SC-P
SC-E
Analysing partner information
6
6
3
Managing product information
5
4
5
Order management
4
5
6
Inventory management
2
3
2
Manufacturing information management
3
1
4
Marketing information management
7
2
7
Service and support management
1
7
1
Note: 1 represents highest priority and 7 represents lowest priority.
For comparison between organisations’ status of SC integration, the responses were first
fed into the framework developed. Table 5 illustrates the level of organisation orientation
each focal manufacturer has towards SCI with its stated supply chain partners. Table 5
illustrates the level of organisation orientation each focal manufacturer has towards SCI
with its stated supply chain partners and also illustrates the level of information
technology orientation each focal manufacturer has towards SCI with its stated supply
chain partners. These were compared with the levels defined in the framework and for
each parameter in the two tables the level (low/medium/high) of integration was
determined for each case organisation.
They were then assigned values: high = 3, medium = 2, low = 1. The total score
organisation orientation score and IT orientation score was calculated for each case by
summing up individual ratings. The final score was obtained as:
Total score = Organisation orientation score + IT orientation score
The score were divided into membership sets to decipher the status of SCI:
{1–20} = low; {20–35} = medium; {35–42} = high.
A framework for evaluating the status of supply chain integration
Table 5
213
Status of IT integration in case organisations
SCI using
organisation
characteristics
SC-A
SC-P
SC-E
• Full internal
integration
• Functional
integration exists
• Early stage of
external integration
• External integration
with key suppliers at
early stage
• Internal integration
just started
• Process improvement
teams across SC for
key processes
Status of
logistics/SCM
in the
organisation
• Logistics considered
critical
• Logistics not
considered critical,
fragmented logistics
function
• Logistics considered
a core competence
Risk/reward
sharing
• Profit sharing with
some suppliers in
case of
unexceptionally good
profits
• Profit Sharing with
some suppliers in
order to motivate
them to maintain
good quality supplies
• Willingness to help
suppliers gain, but
not in terms of
sharing profits
• Some tolerance for
short-term loss
• No tolerance for
short-term loss
• Multiple contact
points all
management levels
• Regular contact
points with
distributors
• Work together to
refine parts and
components,
• Very few regular
contact points
• Key suppliers
participate in
design-teams
• Key account
managers for
customer interface
Orientation
Communicatio
n across the
supply chain
Formal lateral
organisations
• Decentralised and
integrated logistics
function
• Goals formulated in
isolation but shared
with partner
organisations
• Multiple contact
points with key
suppliers
• Key suppliers
member of design
teams
• Cross organisational
teams for some tasks
• Regular supplier
contacts at multiple
points
Collaborative
goal formation
• High tolerance for
short-term loss
• Not practiced
• Few suppliers
incorporated in goal
formulation process
• Occasional supplier
performance
evaluation
• Performance
measures shared with
some suppliers
• Any schedule
changes
Performance
measurement
• Supplier performance
• Warranty, quality
information and the
vendor performance
ratings are available
online
• Performance data not
shared
214
5
R. Sahu et al.
Recommendations and conclusions
After looking at Figure 4, it can easily be deciphered that the status of SCI is highest for
automotive case, and lowest for pharmaceutical case.
Figure 2
Organisation orientation towards SCI of case organisations (see online version
for colours)
Score for Organization Orientation
tow ards SCI
SC-E
SC-P
1
SC-A
0
10
20
30
S c or e - >
Figure 3
IT orientation towards SCI of case organisations (see online version for colours)
Score for IT Orientation tow ards SCI
SC-E
SC-P
1
SC-A
0
5
10
15
20
S c or e - >
Figure 4
Total orientation towards SCI for case organisations (see online version for colours)
Total Score for Orientation towards SCI
SC-E
SC-P
1
0
10
20
30
Score ->
40
SC-A
A framework for evaluating the status of supply chain integration
215
Focal manufacturer of SC-A needs to take initiatives like collaborative goal formulation
with SC partners, moving on to process-oriented approach, increase contact points with
SC partners, and espouse the use of technologies like VMI, XML and RFID on a higher
scale in order to keep up with competition. The company must also think about adapting
application service provider (ASP) model to host ERP and CRM applications for all its
dealers. This will help propagate use of these technologies across its supply chain as
dealers and sub-tier suppliers are averted to investing so much on these technologies.
The focal manufacturer of SC-P is diagnosed to be in a state of medium-level
integration. Even though it has taken some technology initiatives like ERP and RFID, its
overall orientation towards SCI is very low as compared to other two cases, which have a
neck-to-neck competition. Moreover most technology deployments are not so many
internal moves as they are forced, like RFID implementation forced by a world major
distributor.
The company first needs to give greater consideration to logistics function and, at
least, give it a critical position in organisation’s functions if not making it a core
competence directly. Plus, it needs to begin the integration process on logistics across its
SC as well as the internal integration of its different organisation units. It must establish
regular contact point at senior levels with its partners and, at least, share some of its goals
with its suppliers to enable joint performance measurement on some interfaces and
achieve overall SC profitability. It may also work towards outsourcing of all non-critical
tasks as far as it is legally and technologically possible. Henceforth, it may work towards
adapting VMI to increase SC efficiency. The company has deployed ERP system at only
one of its laboratories. Some major technological moves are needed, like extending the
ERP to laboratories and manufacturing units at other sites, establishing online links to
connect its key suppliers and customers and adapt EDI extensively to progress to next
level of SCI.
SC-E emerges to be in a state of high integration level by just crossing the threshold
level assigned for this state. But this may be attributed more to its high organisation
orientation. It lacks behind in many IT initiatives. It needs to establish online links and
extend ERP system to inter-company; take initiatives for an SCP system, adopt RFID
technology, and move VMI and XML on from the test phase to fully functional phase. It
also needs to take initiatives towards sharing of network resources. From the
organisational point of view, it needs to involve more supply chain partners in goal
formulation process, extend teams across the supply chain and focus on overall
supply chain profitability by making and sharing performance measures across the supply
chain.
Integration across the supply chain is a major SCM issue in today’s business scenario.
Lack of coordination increases demand uncertainty, inventory costs, manufacturing costs,
replenishment lead-time, and transportation cost and decreases responsiveness.
Organisations first need to identify what is their present status of SCI. They can achieve
this using the framework developed in this thesis. Appropriate steps need to be taken then
to fill the identified gaps, in order to increase the level of SCI to increase overall supply
chain profitability.
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Continuous, process industries
R&D → Clinical Trials → Approval →
Production → S&D
Repetitive assembly lines (modular
assembly); platform concept (the
vehicle’s basic mechanical structure)
• Earlier linear (concept design -product
design -product engineering –
component -sourcing – final assembly)
• Now concurrent engineering
Number of SKUs
Type of customer
Production
systems
New product
development
process
3
4
5
6
Large (80–300), It is complex to focus
on sales behaviour of each SKU and
define some set of general rules for
forecasting
Mass market
Low for end product, high for
components and accessories
Mass market for common models; Few
individual customers for customised
high end models
Medium
High
(1,000s of components, parts and
accessories)
Pharmaceutical
Complexity of
product
Bulk
2
Automotive
Discrete
Type of product
1
Attributes
PC
Collaborative design to reduce time-tomarket
However EMS outsourcing has created
new barriers between manufacturing and
design
Assembled
Many individual customers each with
her own unique requirements forcing
mass customisation
Low for end product, high for
components and peripherals
High
(1,000s of parts and peripherals –
internal and external – that must be
designed to be compatible with other
hardware and software drivers
Discrete
A framework for evaluating the status of supply chain integration
Appendix
Comparative study of supply chain for selected industries
219
8
7
Supply chain
model
Vertically Integrated
Decentralised manufacturing led by
OEM
EMS provider operated
OEMs focusing on services, such as
advertising and product development, in
which they possess a clear competitive
advantage
High – drug companies prefer to
produce their own chemical raw
materials and additives and bulk drugs
for
in-house consumption
• Technological capabilities not
available widely
• Patents are important to boost brand
image and charge premium
• Legal risk involved in outsourcing –
adherence to medical standards is
important
c Level of
vertical
integration
OEMs are becoming less vertically
integrated; Tier 1 suppliers are becoming
more vertically integrated and becoming
system integrators (combining related
components into a single product) to
provide increased value to the OEM
High
(OEMs are restructuring to cut costs and
speed vehicle development by
increasingly focusing on parts and
services in which they possess a clear
competitive advantage)
b Amount of
Outsourcing
• High
• (Dell created a new phenomenon
through its direct selling strategy)
High
• Low
• Speed of delivery is important and so
people prefer to buy from medical
stores/hospitals/doctors rather than on
internet
• Stringent regulations ban direct
marketing to end-customers
• Medium
• (Most people still buy cars through
dealers and distributors rather than
through internet)
a Level if
disintermediati
on
High
• Complex network of relationships
between customers and suppliers
PC
Low
High
• Decision making for the products is
made by multiple players
• A number of channels exist between
drug company and final customer
Pharmaceutical
High
• Complex network of relationships
between customers and suppliers
Automotive
Complexity of
supply chain
Attributes
220
R. Sahu et al.
Comparative study of supply chain for selected industries (continued)
•
•
•
•
•
•
•
•
•
• Geographic diversity
a Demographic characteristics of a
region
b Life expectancy of a region
c Climatic/weather characteristics of
a region
d Penetration of Insurance and
healthcare facilities in a region
• Life cycle phase of the drug
• Therapeutic segment
• Campaign period and penetration
(briefing of doctors, sample
distributions, doctors’ conferences
and other marketing activities)
• Seasonal variations
• Formulation type
• Potential side effects
• Regulations and patents
• Doctor network
• Dealer network
• Competency of MRs
• New drug/relaunch
• Economic conditions
Life cycle phase
Population density
Average family size of a region
Geographic location and connectivity
via roadways (isolation factor, etc.)
Climatic zone and weather conditions
Road conditions
Dealership network and service
centres (accessibility of after sales
service)
Per capita income and
savings/economic conditions
Financial and legal structure (e.g.,
interest rates over loans)
Vehicle model and version
Colour of the vehicle
Other characteristic specifications
Price of the vehicle
•
•
•
•
Factors affecting
demand
10
Pharmaceutical
Make-to stock, Increase in R&D
spending
Automotive
Make to stock for common models;
configure to order for high end
customised models
Manufacturing
strategies
9
Attributes
PC
• Literacy rate of a region (number of
academic institutions, etc.)
• Demographic Characteristics of a
region, population
• Work conditions of a region
• Model and version of the PC
• Dealership network and service
centres
• Per capita income/economic
conditions
BTO, CTO and mass Customisation
A framework for evaluating the status of supply chain integration
Comparative study of supply chain for selected industries (continued)
221
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