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Supply chain

  1. 1. Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,IMECS 2010, March 17 - 19, 2010, Hong Kong Supply Chain Integration: Definition and Challenges Hussain A.H Awad, Mohammad Othman Nassar Management (PLM), and e-procurement and e-marketplaces, Abstract—Ever Since the Council of Supply Chain as well as making them available over the Web to foster Management Professionals (CSCMP) Defined Supply Chain cooperation and collaboration across the entire value chain. Management and the Council of Logistics Management (CLM) In today’s dynamic business environment, many companies adopted the definition of logistics in 1984, the integration of a supply chain processes or activities became obligatory are expanding, merging, contracting, or otherwise definition. Many firms have extended their chain from redesigning their supply chain. Due to the rapid upstream and downstream to include other vendors, agents of advancements of technology such as pervasive or ubiquitous vendor, and customers. These firms have successfully wireless and internet networks, the basic supply chain is implemented the concept of supply chain integration with rapidly evolving into what is known as a Supply Chain spectacular results after they recognize and manage the Network. The supply chain network is a dynamic and integration challenges of supply chain. integrated system in which all firms integrated to increase the This research is a humble scientific attempt to shed more on the challenges and the obstacles that those companies faced value of every chain. Integration is a process of redefining during their success journey stand behind finding integration in and connecting parts of a whole in order to form a new one. their supply chain. By reviewing the available literature about In traditional supply chain integration, the definitions of parts the supply chain integration challenges we didn’t find a single are usually limited by the boundary of the enterprises: the source able to present all these challenges that may face the integration emphasizes connecting each enterprise with organization during its implementation of supply chain logistics and information communications. [8] integration. The main contributions for this paper are integrating all the of supply chain integration challenges in one In the 21st century, there have been a few changes in source. These contributions will be very helpful for the business environment that have contributed to the organizations that establish the integration in their supply chain development of supply chain networks. First, as an outcome of globalization and the proliferation of multi-national Index Terms— Supply chain integration, Challenges of companies, joint ventures, strategic alliances and business supply chain integration. partnerships, there were found to be significant success factors, following the earlier "Just-In-Time", "Lean I. INTRODUCTION Management" and "Agile Manufacturing" practices. Second, To succeed in the digital economy, organizations must technological changes, particularly the dramatic fall in manage the integration of business, technology, people, and information communication costs, which are a paramount processes not only within the enterprise but also across component of transaction costs, have led to changes in extended enterprises. Supply Chain Management (SCM) coordination among the members of the supply chain system facilitates inter-enterprise cooperation and network [25]. These factors create many challenges to the collaboration with suppliers, customers, and business integration of supply chain network. partners. Although this system can bring benefits and competitive advantage to organizations, the management and implementation of this system pose significant challenges to II. SUPPLY CHAIN INTEGRATION organizations. Process integration and redesign is important component SCM implementations. Integration involves not Companies searched for new business paradigms that only implementing ERP systems and ensuring they would led to competitive advantage. Just in Time (JIT), communicate or interface with legacy systems, but it also Supply chain Management (SCM), Theory of Constraints involves integrating ERP and SCM systems with Customer (TOC) and Total Quality Management (TQM) are Relationship Management (CRM), Product Lifecycle examples of strategies that helped companies to improve production processes, reduce costs and successfully compete in a variety of business environments. Every MIS Manuscript received December 28, 2009. This work was supported in part researcher should be familiar with the basic fact about by the University Of Banking and Financial Sciences. Supply Chain globalization and internet influence on SCM. In order to Integration Challenges. improve competitiveness, companies began realize the Hussain A.H. Awad Author is Assistant professor Faculty of information potential of information technology to dramatically system and technology, University of Banking and Financial Sciences, Amman/ Jordan (phone: 00962795134334; e-mail: transform their business. Instead of automating old, inefficient processes, companies began to reengineer Mohammad Othman Nassar Author is Assistant professor Faculty of business processes using technology as the enabler. This information system and technology, University of Banking and Financial led to emerge Supply chain management models. A supply Sciences, Amman/ Jordan (phone: 00962788780593; e-mail: chain consists of all stages involved, either directly orISBN: 978-988-17012-8-2 IMECS 2010ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
  2. 2. Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,IMECS 2010, March 17 - 19, 2010, Hong Kong indirectly, in fulfilling a customer request. A supply chain III. CHALLENGES AND OBSTACLES OF SUPPLY includes manufacturer, supplier, transporters, warehouses, CHAIN INTEGRATION retailer, third-party logistic provider, and customer. The objective of supply chain management is to maximize the Supply chain management (SCM) executives face unique overall value generated rather than profit generated in a challenges, with respect to integrating supply chain- particular supply chain. [25] The American professional specific strategies with the overall corporate business association defined the SCM, "Supply chain management strategy. In recent years, given changing business realities encompasses the planning and management of all related to globalization, the supply chain has moved up on activities involved in sourcing and procurement, the chief executive officer’ s (CEO’s) list of priorities. But conversion, and all logistics management activities. its not always for the right reasons. In many cases, CEOs Importantly, it also includes coordination and only pay attention to the supply chain when they want to collaboration with channel partners, which can be cut costs or when something is wrong. Since the supply suppliers, intermediaries, third party service providers, chain essentially moves the lifeblood of the organization, and customers". [6] process efficiency on a global scale is essential to optimized business operations. The importance of global Throughout the 1980s and 1990s the concepts of integration to the Multi-National Company (MNC) lies in customer and supplier integrative relationships gained the differential advantage to be gained from the ability to renewed attention. Business in general began to develop exploit differences in capital and product markets, to extremely close relationships with selected clients, transfer learning and innovation throughout the firm, and sometimes termed strategic customers, and significantly manage uncertainty in the economic or political more emphasis was placed on improving working environment in different countries or regions. However, arrangements with suppliers. This trend with increased the general understanding of the business environment in collaboration throughout the SC could be explained as a most industries is that competition has increased and the result of three factors [1]: conditions under which business is made are more turbulent. [13]. • Manufacturing takes place in a global context where local markets are subject to global After extensive reading to the supply chain integration standards. challenges that the literature mentioned in different resources we found that the researches try to enumerate • Manufacturing systems are required to develop the challenges from one perspective [22, 24, 3, 16, 9, 11, and operate environmentally benign products and 17, 20, 18, 5, 2, 14, and others The researchers in the processes. previous direction discuss the challenges from three perspectives: • The business and organizational structures, within which manufacturing operates, are under • Technical perspective [22, 24, 3]. increasing stress. • Managerial perspective [17, 20, 18, 5, 2, 14, and The driver behind such collaboration was the desire to others]. extend the control and co-ordination of operations across the entire supply process, replacing both the market and • Relationships perspective [3, 16, 9, 11]. vertical integration as the means of managing the flow process [26]. Lee, H, and whang, S. defined integration as, We found that the previous direction did not include the “the quality of the state of collaboration that exists among following issues: departments that are required to achieve unity of effort by the demands of the environment”. While this definition • No paper was able to present all Supply Chain refers to integration internal to a firm or organization, our integration challenges. emphasis here goes beyond the firm and encompasses We are going to integrate all challenges in a single external entities that are players in a supply chain. [10] comprehensive source, we believe that this integration will Recent development in SCM offers the potential not just provide the following benefits: to cut cost but also to generate new revenues and high • Decrease the complexity of the challenges. profits. The remaining challenge is to link those novel approaches together to garner the competitive advantage • Priorities these challenges effectively. of a seamless flow of SC. Creating collaborative out side and cross-company processes to design product that meet • Better allocate resources for managing the market demand and can be quickly and efficiently challenges. produced. To design the SC, Four stages must focus on: the supply chain network, the internal supply chain (which • Introducing a comprehensive source that is manufacturing plants). Distribution systems, and the end contains all the challenges mentioned in the users, moving up and down the stages are the four flows: literature. material flow service flow information flow and fund flow. [26] Transaction Costs From inside the organization the decision to outsourceISBN: 978-988-17012-8-2 IMECS 2010ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
  3. 3. Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,IMECS 2010, March 17 - 19, 2010, Hong Kong business processes and create a supply chain outside of the organization is clearly one that requires an assessment of Manage operation flexibility where the boundary of the organization should reside. As A firm gains flexibility to quickly realign the such, an economic assessment is required of the various supply/demand mix to satisfy changing global demand. merits of integration versus market provision. Thus, the Switching costs and Coordination costs are a barrier to decision is based on a transaction costs approach where there operating flexibility. Switching costs can be reduced if all SC is an “examination of the comparative costs of planning, partners standardizing their products and processes globally adapting and monitoring task completion under alternative which is seams to be challenge. Coordination costs can be governance structures” [19]. The outsourcing decision is significant for global integration of cross-functional supply focused primarily on the management of recurrent chain processes. A well-structured global demand transactions; the key dimensions of this context are the forecasting and planning process is an important mechanism uncertainty and asset specificity germane to the transaction. for global coordination across functions. Regional Since these dimensions will vary, this creates a variety of representation to ensure all relevant input is considered is contexts and the result will be diversity within governance also important. A globally integrated process with regional structures. representation requires costly resources, information infrastructure, and travel. Globally integrated information Strategy and planning systems are critical to reduce the cost of communications and If supply chain management is to be considered an to make relevant information readily accessible or to reduce essential component of long-term business competitiveness, coordination costs. [5] it is sensible to consider how it relates to strategy theory and concepts. An effective supply chain must be able to cope with Setting up standards of trade uncertainty; it follows that it must also be flexible. Therefore, For SMEs and their suppliers, the high cost of technology supply chain management will be one of the organizational is exacerbated by the lack of a widely accepted international processes, or functions, that are a key to strategic success if electronic information standards governing the financial an organization is to achieve its mission in an adaptive and supply chain. The solution is a standard mechanism for changing environment [17]. communications protocols, rather than many standards.” Several organizations have made some headway towards Customer order management creating such standards, but there are no comprehensive and Customers are becoming more demanding. Their internally consistent open standards now, which is why expectations are evolving toward greater levels of service automating the supply chain is so costly. [14] and response with higher degrees of product and service customization. Value chain partners (suppliers, service Procurement management providers) integrated to provide differentiated customer A typical manufacturing company needs to procure segment product/service bundling and superior customer thousands of products from hundreds of suppliers; the service levels. Increased profitability (increased revenue and challenge here is how to manage the complexity of the reduced cost) is the top driver of customer order management procurement process, and establishing a strong procurement performance. This centered attention on profitability is infrastructure to execute on strategic supply initiatives, using probably resulting from the economic market conditions of an empowered organization structure, fully integrated to the the past few years, but may be a short-term view. Customer stakeholder and finance organization. More over, People responsiveness leads to customer retention and revenue training and development was the key challenge for growth. In the longer term view, concentration on procurement organizations, includes skill development; the customer-facing initiatives and improvements will be right recruiting and retention practices, and career paths in significant to profitability achievement. [20] other functions outside of procurement. That is, how to set up and how to manage global sourcing offices. [2] Logistic management The supply chain logistics problems facing multi-site Enterprise integration companies can be complex, involving multiple stakeholders Enterprise integration doesn’t happen naturally. It needs to and constraints across the entire enterprise. The more be planned, yet the planning cannot be precise, as business complex the supply chain, the more difficult it becomes for processes and facilitating technologies will change, creating companies to answer basic questions, such as which crude different needs and different potential solutions. The should they purchase and how should they transport it? reference architecture efforts mentioned define Which facilities should process it? What will the best product methodologies for building integrated architectures. The slate be? Which components should they buy and which problem of integration is exacerbated by the limits of human should they make? In many cases, different departments or cognition, by behavioral issues, by the difficulty of aligning divisions within a company trade, supply chain planning, the goals of individuals with organizational units, and by the operations and blending to name a few have a hand in these relentless need for faster change. [3]. decisions, but communication among these entities is not always clear or consistent, and each may optimize to their Application Integration own objectives without regard for others. The results can ERP systems achieve application integration because ERP drastically affect profitability. [18] vendor-developed applications that perform commonISBN: 978-988-17012-8-2 IMECS 2010ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
  4. 4. Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,IMECS 2010, March 17 - 19, 2010, Hong Kong business functions are united through a common database within supply chains, this will involve the replacement of (also providing data integration – one of the selling points of existing governance structures and will challenge existing ERP systems.) The integration of the functional applications supply chain behaviors associated with traditional bid-buy implies also that integration at the next layer, business relations. [16] processes, is achieved. However a major issue with ERP systems is that they fail to bridge the gap between the Supplier competence requirements application and process layers in a flexible fashion. To reach If customers are moving to fewer suppliers, and investing the application integration firms must break down complex in strategically important supply chain relations, then SME processing; to cope with application integration they must suppliers that cannot make themselves attractive purely support interactive process. Finally Applications must through economies of scale and scope must increase their integrate with the business processes [24] asset specificity and decrease uncertainty. This requires the supplier to invest in activities that are alien to traditional Extranet adapting challenges bid-buy supplier interactions. Thus, it will require suppliers There are several issues to consider while adopting to respond to the changing context and develop stronger extranet as a facility of SC integration. A firm must be relational and organizational competences. Since those issues committed to using the system, as phone, fax, and written of quality and performance are the baseline measure for the record, (instead relying on the automated supply chain customer-supplier interaction, any existing competences system) and it influences the firms processes as well. [22] must support the achievement of this standard. Thereafter, it • Costs of implementation. is the capabilities that create differentiation that will be a key. • Loss of Trust. [9] • Unable to Adapt to Change. • Losing the Inimitability of Product. Globalization • Unnecessary Liability. The forces of globalization and commoditization in • Lack of Security. today’s business world are unstoppable. Globalization and • Uneven Partner benefit. commoditization have created a challenge for companies that are as tough as it is clear: How to cut costs and grow • Increased Independences. simultaneously? During the industrial revolution, companies • Keeping Up With the change in Expectations. looked for new markets, new sources of raw material and new sources of labor. The revolution was fueled by globalization and companies thrived by taking advantage of Business process integration economies of scale. Senior executives now understand that Processes must be coordinated between all the firms in the they can’t just focus on supply chain operations to create value chain to achieve improved performance and service. efficiencies. The challenge is to integrate supply chain This form of external process integration, which is called execution with the overall corporate business strategy, and to value chain coordination, is the focus of modern supply chain use the supply chain as a catalyst for business transformation management. The E-commerce helps organizations to be able or business reinvention. [11]. to connect its internal processes with its stakeholder. The challenge in business process improvement is the processes Data and information integration must be coordinate between all firms in the vale chain to Information integration refers to the sharing of information achieve improve performance and service. Integrated must among members of the supply chain. The ability to happen between decision making and business process layers seamlessly connect with customers, partners, and co-workers which is occurs whenever human operator (or software is vital for success; yet most enterprises store and exchange agent) makes a decision that change the flow of work through data in dissimilar formats, such as databases, EDI systems, a process. Business process integration hurt by compatibility text files, and, increasingly, XML-based applications. The challenges in a technical, operational, strategic, and ability to map between these different formats is political/legal environment. [3] mission-critical. This includes any type of data that could influence the actions and performance of other members of Culture and Change the supply chain. [10] The meaning of all data items must be “The pattern of beliefs, values and learned ways of coping understood and the same data item must have the same with experience that have developed during the course of an definition across multiple applications both within and organizations history, and which tend to be manifested in its outside the firm. To make the integration process worth the material arrangements and in the behavior of its members” effort, the data must be of high quality - timely, accurate and [1]. This definition of culture clearly foregrounds the relevant. [3] cumulative effects of history and experience which have important practical outcomes that are manifest in employee behaviors. This is important for supply chain integration, since the accumulated history of relationships and IV. CONCLUSION experience, within and between organizations, will provide part of the context within which the inter-organizational It was necessary to review the literature on the supply activities are enacted. If there is a drive to closer relations chain integration challenges; this necessitated an exploration of the nature of the SC network, the benefits of SCISBN: 978-988-17012-8-2 IMECS 2010ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
  5. 5. Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,IMECS 2010, March 17 - 19, 2010, Hong Kong integration. At the same time, it was important to explore the [11] Hewlett-Packard L.P. Real time supply chain, HP challenges and obstacles of SC network integration. All of research department, (2004). (rebort No. this was done with the aim of satisfying the primary purpose 5982-9437EN), available URL of the study which was the integration the SC integration challenges. [12] J, Kussman. The supply chain and business Through our research we didn’t find a relation between the transformation, (2005). IBM global business service business domain and the kind of challenges. This assumption research, 15(2), (pp: 10-13), URL: came as a result of studying the literatures about supply chain, integration challenges such as [15,5,18,26], the researchers retrieved in may, 2008 [13] J, Morten.. Managerial Challenges within Networks: didn’t relate any kind of challenges to any business domain; (2003). Emphasizing the Paradox of Network they study many cases from different industries and conclude Participation, The Aarhus School of Business, 9(3), same result. Proving or disproving the existence of this 372-375. relation between the business domain and the kind of [14] L, Bass, P, Clements, and R ,Kazman. Software challenges is beyond the scope of this research and it is Architecture in Practice, 2nd ed, (2003). Reading, MA: considered as a future research for us. Addison-Wesley Longman. (pp 143-150) [15] L, Phillip, M, Ropert. Supply Chain Integration : challenges and good Practisies. (2009). CAPS research, Institute of supply management, 0-945968-75-2 REFERENCES [16] M, Karkkainen, and T , Ala-risku,. Facilitating the integration of SMEs to supply networks with lean IT solution, Helsinki University, Finland, (2003). the [1] A ,Brown. Organizational Culture. 2nd edition. 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The economics of organization: the 4(2)28. available UAE university, transaction cost approach, (1981)American Journal of Sociology, 87(3), (pp.548-577). [4] A, Macpherson,. Corporate Directions in Supply Chain [20] P ,Boxall. Strategic Human Resource Management: the Management: Implications for SME Competences and beginning of a new theoretical sophistication?, Human Inter-Organisational Relations, (2001). Manchester Resource Management Journal, 2(3), (1991), (pp.60-79). Metropolitan University Business School Working [21] P, Paigude. Collaborative supply chain solution, CX Paper Series, WPS022, July, ISSN 1471-857X, (pp: persistent systems Inc, (2005). USA, 33(20), (pp: 142-52) 14-22), URL:, retrieved in [5] B, Lesley, Flexibility of virtual agencies attracts senior march 2008 people and offers significant cost advantage, (2007). [22] Pender. The 5 keys to supply chain success, (2001). CIO Pharmaceutical Marketing Europe, 86(6), 585. magazine July 15(l), 12. September/October [23] R , Deep. Supply chain challenges, opportunities, [6] CSCMP.. the definition of Supply chain American Shipper association, (2005). Zaffran LLC, management1984, retrieved on line from URL : http:// The McKinsey Quarterly, 1(1), (pp: 13). [24] R, Peter. The Seven Hidden Challenges of Application hain+management+definitions&zoom_per_page=10&z Integration, (2000). Scribe Software Corporation. oom_cat=-1&zoom _and=1&zoom_sort=0 [25] S, Chopra, and P, Meindl. Supply Chain Management, [7] E, Stanley, M, Gregory, and M, Mathew. Benchmarking Upper Saddle River, NJ, (2001). Prentice-Hall, Inc.(pp information integration in supply chain management: 33-37) (2005). A multi-channel approach, (pp: 47-51), URL: [26] T, Larsen,. Challenges of integration : a european case study, American consortium on European studies, -0117.pdf, retrieved in may, 2008. (2003). Washington, DC 2003(6)121, available [8] G, Juanqiong, M, Tingting, L, Jingjing. A Research on Supply Chain Integration Strategy Based on Virtual Value Net, (2007). Springer Boston, (pp 887-891) [9] H, Kelly,. Meeting the supply chain challenges.(pp 68-71), (2007). New York: McGuffie [10] H, Lee, and S, whang, E-business and supply chain integration, Stanford university, (2001). global supply chain management forum, SGSCMF-W2 20 (pp 17-26)ISBN: 978-988-17012-8-2 IMECS 2010ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)