Supply Chain Integration – Krajewski – Summary and Important Points

12th Edition Operations Management

Learning Goals -Supply Chain Integration

Supply Chain Disruptions 

  • Identify the major causes of disruptions in a supply chain.

Subsystems of Integrated Supply Chain

New Service or Product Development Process
  • Describe the four major nested processes in the new service or product development process.
Supplier Relationship Process 
  • Explain the five major nested processes in the supplier relationship process and use total cost analysis and preference matrices to identify appropriate sources of supply.
Order Fulfillment Process
  • Identify the four major key nested processes in the order fulfillment process and use the expected value decision rule to determine the appropriate capacity of logistic resources.
Customer Relationship Process 
  • Define the three major nested processes in the customer relationship process.
Supply Chain Risk Management 
  • Explain how firms can mitigate the operational, financial, and security risks in a supply chain.

Chapter Contents – Important Points – Supply Chain Integration

Brief Note on Coral Princess Supply Chain

Supply chain integration is the effective  coordination of supply chain processes through the seamless flow of information up and down the  supply chain. Supply chain integration provides each member of the supply chain visibility into the capacities and inventories of other members of the supply chain to aid in planning and scheduling. It facilitates collaboration between firms in a supply chain. It is part of supply chain design and operation activities of  supply chain management and it helps in reducing the risks of supply disruption by pointing out likely trouble points quickly giving time to identify and activate alternate supply sources and paths.

Supply Chain Disruptions 
Causes of Supply Chain Disruptions
Supply Chain Dynamics
Integrated Supply Chains

Supply chains which are more complex and global and are exposed to both domestic and international disruptions. An inability to supply to agreed orders or to stock points occurs due to the failure of any supply chain partners to supply the goods or services as per plan. Supply chain disruptions could result in cost increases, loss of reputation, civil and criminal penalties, bankruptcy, lost customers, or reduced revenue, profit, and market share.

In earlier days, it was observed that in supply chains from retailer to the assembler or from assembler to component and raw material suppliers,  the variability in order quantities increase as one  proceeds upstream. This increase in variability is referred to as the bullwhip effect, which gets its name from the action of a bullwhip—the handle of the whip initiates the action; however, the tip of the whip experiences the wildest action.A firm contributes to the bullwhip effect in a supply chain if the variability of the orders to its suppliers exceeds the variability of the orders from its immediate customers. An objective of supply chain integration is to reduce bull whip effect to zero. Relatively stable safety stocks  reduce bull whip effect.

Integrated Supply Chain: The SCOR model focuses on a basic supply chain of  plan, source, make, deliver, and return processes, repeated again and again along the supply chain. The SCOR model also stresses that the design of an integrated supply chain is complex and requires a process view.  The process design insights must be applied to the new service or product development, supplier relationship, order fulfillment, and customer relationship processes of the supply chain within a firm and across the supply chain to increase coordination. As it is stated integration is effective coordination.

Read the summary of Supply Chain Coordination Chapter from Chopra and Meindl

Additive Manufacturing 
Supply Chain Implications of AM
Enablers of Adopting AM

Additive manufacturing is a disruptive technology for supply chains.

Supply Chain Implications of AM
1. Reduced material inputs:  Lockheed martin used 33 pounds of initial metal in the shape it used to produce a 1-pound final component.  Using AM, it used approximately 1-pound only to produce that component. Using AM, Lockheed Martin was also able to reduce the weight of a satellite.
(See for more details.)

2. Simplified production
3. Production and Supply Chain Flexibility
4. Decentralized, Distributed Production Networks

New Service or Product Development Process
Full Launch

Competitive priorities demand that managers plan and develop services and products that customers need and want. Development of new products and  services are essential to the long-term survival and growth of the firm. New product refers to both brand new products or major changes to existing  products. The new service or product development process is included as a process of importance in a firm’s supply chain because it defines the nature of the materials, services, and information flows the supply chain must support.

There are four key stages, in the new product development process: design, analysis, development, and full launch.

Design: The  corporate product strategy of the firm defines the facilities and flow requirements for the firm’s supply chain. The corporate strategy specifies the products and the segments of the  markets in which the firm wishes to compete. In the design stage, ideas for new offerings are proposed. These ideas specify how the customer connects with the service or manufacturing firm, the benefits and outcomes for the customer.  Proposals also specify how the new offering will be produced and delivered—an important consideration for the supply chain. These proposals indicate the  choice of raw materials, degree of modularity in the design, the nature of the logistical services needed to get the service or product to market. The inputs of many designers, engineers, suppliers, supply chain managers, and potential customers in this stage can avoid costly mistakes.
Analysis: The second stage, analysis, involves a critical review of the new offering  to make sure that it fits the corporate strategy in product terms and production process terms.  It is compatible with regulatory standards, presents an acceptable market return and risk by satisfying  the needs of the intended customers. The resource and skill requirements for the new offering must be examined from the perspective of the resource and core capabilities of the firm and its supply chain and the need to acquire additional resources.  If the analysis concludes that the new offering has good market potential and that the firm has existing capability or the potential to acquire it, the  authorization is given to proceed to the next stage.
Development: The third stage, development, brings more specificity to the new offering. The engineers is extended to embodiment, prototypes and detailed engineers and process plans.  Once the process plan is specified and the capability of the processes verified, the new product marketing program can be initiated designed. 

Full Launch: The final stage, full launch, involves the coordination of many internal processes as well as those both upstream and downstream in the supply chain. Promotions for the new offering must be initiated, sales personnel briefed, distribution processes activated, and old services or products that the new offering is to replace withdrawn.  Flexibility in the supply chain is a desirable attribute during the ramp-up period. A post launch review should compare the competitive offering of the supply chain to its competitive capabilities and market priorities, to signal a need to finetune  the original product idea and the supply chain activities. The review should be based on input or feedback from customers.

(Detailed notes on product development process. Product design and Development, Production Technology and Process Planning are included in September Industrial Engineering Revision Plan.) 

Supplier Relationship Process 
Design Collaboration
Managerial Practice
The Consequences of Power in an Automotive Supply Chain
Information Exchange

The supplier relationship process focuses on the interaction of the firm with upstream suppliers,
and includes five major nested processes: (1) sourcing, (2) design collaboration, (3) negotiation, (4) buying,  and (5) information exchange.

In  many firms, these processes are the organizational responsibility of the purchasing department, which  decides the suppliers to use, negotiates contracts, maintains information flows.

Sourcing: The sourcing process is involved in the selection, certification, and evaluation of suppliers.  A starting point for selecting suppliers is to perform a total cost analysis. There are four key costs:  Material costs,  Freight costs. Inventory costs and Administrative costs. While total cost is an important consideration, other performance dimensions like the quality of a supplier’s materials and processes,  lead times and on-time delivery performance are also to be considered in selection decision.

Supplier Certification programs verify that potential suppliers have the capability to provide the services or materials the buying firm requires. ISO 9001:2008 is one such program;

Design Collaboration: The process focuses on jointly designing new services or products with key suppliers. It facilitates early involvement of suppliers in the concurrent engineering of the new service/product development.  This process seeks to eliminate costly delays and mistakes incurred by ignoring the information available with suppliers.

Negotiation: The negotiation process focuses on obtaining an effective contract that meets the price, quality, and delivery requirements of the supply chain from each partner.

Cooperative Orientation The cooperative orientation emphasizes that the buyer and the seller are partners, each helping the other as much as possible. A cooperative orientation means long-term commitment, joint work on quality and service or product designs, and support by the buyer of the
supplier’s managerial, technological, and capacity development.

Buying: The buying process relates to the actual procurement of the service or material from the supplier. This process includes the creation, approval and  management of purchase orders.

Read Summary of Sourcing Decisions Chapter – Chopra and Meindl

Order Fulfillment Process
Customer Demand Planning
Supply Planning

The order fulfillment process produces and delivers the service or product to the firm’s customers.
Four key nested processes are in it: (1) customer demand planning, (2) supply planning, (3) produc tion, and (4) logistics.

Customer Demand Planning:

The customer demand planning (CDP)  is a planning process that involved sales teams (and customers) and uses past data to develop demand forecasts as input to  production and inventory planning, and revenue planning. Forecasts help to make planning decisions on staffing levels, purchasing commitments.
Supply Planning: The supply planning process takes the demand forecasts produced by the customer demand planning process, the customer service levels and inventory targets provided by inventory management, and the resources provided by sales and operations planning to generate a plan for supply chain to meet the demand. Supply plans at both the aggregate and detailed levels are to be made.
Production: The production process executes the supply plan to produce the service or product. Nonetheless, the production process must be integrated with the processes that supply the inputs, establish the demands, and deliver the product to the customers. The best firms tightly link their production process to suppliers as well as customers.
Logistics: A key aspect of order fulfillment is the logistics process, which delivers the product or service to the customer. Five important decisions in  logistics processes are: (1) degree of ownership, (2) facility location, (3) mode selection, (4) capacity level, and (5) amount of cross-docking. Warehouses and transport equipment are part of the facilities in logistic process.

Mode Selection. The five basic modes of transportation are (1) truck, (2) train, (3) ship, (4) pipeline,
and (5) airplane.

Cross-Docking. Low-cost operations and delivery speed can be enhanced with a technique called cross-docking, which is the packing of products on incoming shipments so that they can be easily sorted at intermediate warehouses for outgoing shipments based on their final destinations and despatched without being stored in inventory at the warehouse. The cross dock warehouse becomes a short-term staging area for organizing efficient shipments to customers. 

Customer Relationship Process 
Order Placement
Customer Service

The purpose of the customer relationship process, which supports customer relationship management (CRM) programs, is to identify, attract, and build relationships with customers and to facilitate the transmission and tracking of orders. Key nested processes include the marketing, order placement, and customer service processes.

Marketing: The marketing process  determines the customers to target, how to target them, what services or products to offer and how to price them, and how to manage promotional campaigns. There are now e-commerce technologies  to facilitate the mar keting process.
Order Placement: The order placement process involves the activities required to execute a sale, register the specifics of the order request, confirm the acceptance of the order, and track the progress of the order until it is completed. Traditionally sales force personnel used to take orders. Some firms used mail order also.  The Internet enables firms to reengineer their order placement process to benefit both the customer and the firm.
Customer Service: The customer service process helps customers with answers to questions regarding the service or product, resolves problems, and, in general, provides information to assist customers. It is an important point of contact between the firm and its customers, who may judge the firm on the basis of their  experiences with this process.

Supply Chain Risk Management 
Operational Risks
Financial Risks
Security Risks
Performance Measures

Supply chain risk management focuses on managing the risks posed by any factor or event that can materially disrupt a supply chain.

Operational Risks
Operational risks are threats to the effective flow of materials, services, and products in a supply chain. The following options reduce the risk for operational disruptions and also minimize the bullwhip effect in supply chains.
▪ Strategic alignment— make sure that all partners adhere to priorities
▪ Upstream/downstream supply chain integration—working closely with customers and suppliers in
CDP and  improve information flows.
▪ Visibility— To facilitate visibility at all levels in the supply chain, point of-sale (POS) data, which records actual customer purchases of the final service or product, can be shared with all suppliers.
Flexibility and redundancy—develop the right level of flexibility and redundancy across the supply
chain to be able to absorb disruptions. .
▪ Short replenishment lead times allow the firm to react quickly to a change in demand levels.
▪ Small order lot sizes—working on ways to reduce the costs associated with ordering, transporting and receiving inventory throughout the supply chain will reduce order lot sizes and  the amount of fluctuation in the size of orders.
▪ Rationing short supplies—suppliers can ration short supplies to customers on the basis of their past sales, rather than their current orders.
▪ Everyday low pricing (EDLP)—promotional or discount pricing encourages spikes in demand.
▪ Cooperation and trustworthiness—increases compliance to supply chain priorities.

Financial risks are threats to the financial flows in a supply chain, such as prices, costs, and profits.  When commitment to supply are made at a certain price at the time of booking the order, factors outside of the control of firms  may threaten the profitability of the firm. The approach to protect against financial risks is called hedging, which is a supply chain risk management strategy used in limiting or offsetting the probability of loss from fluctuations in the prices of commodities or currencies. Hedging is a transfer of risk through insurance policies or through markets for hedging for futures or options. Operations  across facilities in different regions of the world tend to decrease the risk to the supply chain due to country risks and exchange rate risks. 

Security risks are threats to a supply chain that could potentially damage facilities, or operations; destroy the integrity of a business; and jeopardize its continuation. The actions to neutralize the threats are required. A supply chain is secure when it can fend off unauthorized acts that are designed to cause intentional harm or damage to the supply chain and the materials (human and otherwise) that flow through its processes.

It is important to monitor the performance of supply chains to see where improvements can be made and also to measure the impact of disruptions. Supply chain managers monitor performance by measuring costs, time, quality, and environmental impact of the supply chain.

Learning Goals in Review

Video Case Sourcing Strategy at Starwood
Case Wolf Motors

Ninth Edition – Chapter 10 Supply Chain Integration

PART III: MANAGING SUPPLY CHAINS – Krajewski 12 Edition Chapters

12. Supply Chain Design

13. Supply Chain Logistic Networks

14. Supply Chain Integration

15. Supply Chain Sustainability

Supply Chain Management: Chopra and Meindl’s Book Chapters – Important Points

Top Global Companies for Supply Chain Excellence – Supply Chain Strategies and Initiatives

Index to Summaries of all Chapters of Krajewski’s Book

Operations Management – Krajewski – 12th Edition – Chapter Summaries – Important Points

Updated on 31 August 2019,  29 August 2019, 24 July 2017