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PART 5LOOKING TO THE FUTURE

Chapter 16SUPPLY CHAIN PROCESS INTEGRATION AND A LOOK


TOWARDS THE FUTURE
For those for whom integration is not happening, the future is bleak and getting darker.
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There is a lot of value that is trapped between the processes trading partners use to
transact business, and when companies work together, they can unlock that value and
share its benefits.
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LEARNING OB1ECTIVES
After completing this chapter, you should be able to:
Discuss and compare internal and external process integration.
Discuss the requirements for achieving process integration.
Describe the barriers to internal and external process integration, and what can be
done to overcome them.
nderstand the importance of performance measurements in achieving internal
and external process integration.
nderstand why it is important to align supply chain strategies with internal
process strategies.
!ist and describe the eight "ey supply chain processes, and how trading partners
integrate these processes.
Discuss a number of the latest trends in the areas of process management and
process integration.
CHAPTER OUTLINE
#ntroduction
Achieving #nternal $rocess #ntegration
%xtending #ntegration to &upply 'hain (rading $artners
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2 ) $art *+!oo"ing to the ,uture
A !oo" at (rends and Developments in #ntegration and $rocess -anagement
PROCESS MANAGEMENT IN ACTIONAn Interview with Zack Noshirwani,
Vice President of Integrated Supply Chain for Raytheon
(he .aytheon 'ompany is a ma/or defense contractor0 its ma/or customer is the
.&. Department of Defense. -r. 1ac" 2oshirwani, vice president of integrated supply
chain, /oined .aytheon in 2331, and prior to his current post served as vice president for
operations for both the Air4-issile Defense &ystems and for #ntegrated Defense &ystems.
$reviously, he wor"ed in operations and supply chain capacities with 5oneywell %ngines
and &ystems, Allied &ystems, and !oc"heed -artin Defense &ystems.
Q: 5ow is operating a supply chain different when the Department of Defense is your
ma/or customer6
Noshirwani: 7e need to adapt to the changing customer first. (he focus within D8D has
shifted from products to capabilities. And, second, they have raised the awareness of
mission assurance within the defense business generally and the missile defense business,
in particular. 7ithin .aytheon, 9ill &wanson, our '%8, has said we are going to ta"e
mission assurance to the next level across all our businesses. $utting that together, the
challenge we have is: 5ow do you ma"e our supply base aware of our new expectations0
and, what do mission assurance and our new business strategy mean to us6 (hat change
forces us to loo" at the historical supply chain in a different set of paradigms.
Q: 7hat was the shift of ob/ectives6
Noshirwani: 7e went from operating traditional purchasing and supply chain
organi:ations to what we today call an integrated supply chain. 7ith that, we intend to
lin" our engineering groups and our performance excellence groups with our supplier
base as early as we can in the process when building relationships with our suppliers. 7e
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <
need our suppliers to be an extension of ourselves. (he old routine, when dealing with
our suppliers was focused on costs, quality, and schedule. !ac" of performance in these
categories generally provided a stressful exchange. (hat has changed. 2ow, it=s going to
be more collaborative. 7e=ll be wor"ing together so that we=re building the right stuff on
time, correct the first time. (here can=t be three iterations before we get it out the door.
Q: 5ow do you do that6 7hat is the tas"6
Noshirwani: 8ne "ey thing: 7e used to be a very tactically oriented organi:ation0 we=re
now shifting to become more strategic. ,or example, we are organi:ing more supplier
conferences at which we can establish expectations with our supply base. (his past >une,
we had ;? of our "ey suppliers participating in a supplier forum. (he theme of the event,
@$erformance -atters,A focused on how mission assurance is a "ey element. 7e are
communicating what mission assurance means to us and to our supplier base, to ma"e
sure that their behaviors, our behaviors, and our relationships all improve over time.
Q: #deally, what would you li"e to get from your suppliers6
Noshirwani: 7hen # loo" at my integrated supply chain of the future, #=m going to use a
phrase: a netted integrated supply chain. 7hat does that mean6 As .aytheon #D& wor"s
to become a >oint 9attlespace #ntegrator, we will have expertise over multiple domains.
(he challenge for our supply chain organi:ation, then, is to ta"e the suppliers who are
expert in certain domains and "nit them together to allow us to create solutions to satisfy
our customers= needs and support our business vision.
Q: Does this mean that suppliers will be wor"ing with other suppliers6
Noshirwani: #n some cases, absolutely. (hen the question is: 5ow do we bro"er them to
partner with each other to bring us the best result6
B ) $art *+!oo"ing to the ,uture
Q: 7ith this new business focus, what sort of measures do you use to determine your
success6
Noshirwani: $reviously, the ma/ority of our metrics were internally focused on the
supply chain. 7hile we still have some metrics that are internally focused, we now have
an organi:ational perspective that measures the value we provide to the business. (hese
metrics are in the area of effectiveness, efficiency, capability, and capacity. 7e=ve also
now established metrics that are lin"ed directly to our business performance and to our
customer=s expectations. (he "ey focus is: 5ow do we create value for our customers and
our business6
Q: 2ow, what are those new metrics6
Noshirwani: 8ne of them is cashCtoCcash cycle+how quic"ly do we collect cash from
our customers6 Another one is onCtime performance to contract. Do we deliver our
hardware the way we said we would, when we said we would, with mission assurance
and quality levels that satisfy our customers6 And third+we have a strategy within
.aytheon #D& that is lin"ed around as"ing: 5ow do we improve our overall cycle time
within our business6
Q: 7hy is that one crucial6
Noshirwani: #f our customer is "ing, and if we need to /ump through hoops to come up
with a satisfactory solution for that customer, then we need to be very agile, very flexible.
7e will need to ta"e on challenges we=ve have never ta"en on before. (o ma"e that
possible, flexibility within the supply chain becomes very "ey.
Q: 5ow would you characteri:e your supply chain effort6
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) *
Noshirwani: As # said, we=ve /ust reorgani:ed our entire supply chain around the
.aytheon #D& vision and our customer=s expectations. (hat supply chain has five ma/or
capabilities in it. 8ne is what we call collaborative solutions. (hat is a group of very
talented, topCnotch supply chain experts who are engaged with our business development
people early in the process. 7e have supply chain professionals who are engaged in that
process, to help with the partnering suppliers, the supply selection process+who do we
want to partner with to win this proposal6 &o that=s one capability.
Q: Dou mentioned subcontracting. #s there a piece for that6
Noshirwani: Des, that=s the next capability. 7ith our business shifting from a productC
focused to capabilitiesCfocused solutions, &ubcontract -anagement is a "ey part of our
supply chain activity. 8ur strategy here has been to add new s"ills, tools, and techniques
to manage ma/or subcontracts. (oday, we have close to E2 billion in subcontracts that we
are managing.
Q: And finally6
Noshirwani: ,inally, our #ntegrated &upply 'hain organi:ation continues to support the
products foundation for our business. -aterial Acquisition, $lanning F $roduct
-anagement, and #ntegrated !ogistics are all "ey elements in supporting our
manufacturing operations with the right material at the right place at the right time and
cost. (he focus in these areas is transformational change to increase the effectiveness and
efficiency of operations. %xamples include all elements of eCprocurement, reduction in
transactions, lean supply initiatives, and innovative materials handling and flow
techniques.
; ) $art *+!oo"ing to the ,uture
Q: (hat=s organi:ational. 7hat about people6 5ow do the people you=re loo"ing for
today differ from five or ten years ago6
Noshirwani: (raditional supply chain professionals are still very critical to the success of
our organi:ation. 9ut, if # had a wish list and all my wishes came true tomorrow, then #
would want to hire professionals from this day forward who have multiCdisciplined
experiences and expertise in program management, pro/ect management, engineering,
operations, and supply chain. #ntegrating these "ey capabilities is critical to the success of
our integrated supply chain.
Q: 5ow hard is it to find such people6
Noshirwani: #t=s very hard to find such people. # might want to hire the next five
program managers that come my way, but a lot of other places also want to hire them.
(he Defense Department is trying to hire those same s"ills. 8f course, if we see people
with the s"ills we want available on the street, we scrounge them up.
Q: #f the people you want are at a premium, how do you meet your need6
Noshirwani: 7ithin our new supply chain, we have created and communicated a career
path for the future program managers of our business through the supply chain
organi:ation. 7e have set up rotational assignments that move people from engineering
to business development to performance excellence+all through the supply chain
organi:ation so we create multiCdimensional people. 7e are sowing some of the seeds for
tomorrow. At the same time, we are ta"ing some of the veterans of these functional areas
and convincing them to ta"e a career path into integrated supply chain.
Q: Does this change much affect your #( requirements6
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ?
Noshirwani: (he "ey #( tas" is connectivity. (he most important question in my mind is
how do # connect my programs, engineering, performance excellence, supply chain, and
operations professionals to the best of my ability6 5ow do # share information across the
board as fast as # can6 (hen, how do # drive that connectivity into my supply base6 (hat=s
one thing that=s required if we are to engage suppliers early in the process.
Q: #s it fair to say that the new standards you have from D8D will ripple bac" through
your organi:ation6
Noshirwani: #n my mind it has to+the D8D is our customer. 7e have strong
relationships with our D8D customers, built on our performance and superior solutions
we provide. 2ew standards are another aspect of the dynamics of this business. 7e "now
we need to listen and be responsive to our customer needs, and provide solutions at ramp
speed.
Q: A final question: 5ow important to supply chain reengineering is support from top
management6
Noshirwani: -y boss, #D& president Dan &mith, will say at every meeting: #f we can=t
get our suppliers in line, and if we can=t change how we do business internally, then
we=re not going to get to where we need to be to. (ime is of the essence. #t=s an absolute
must happen.
&ource: 9ernstein, -., @.aytheon Goes ,rom (raditional $urchasing to an #ntegrated &upply 'hain,A
World Trade, H. 1I, 2o. 11, 233*, pp. <;J<I. sed with permission.
INTRODUCTION
nfortunately, in too many /ournal and maga:ine articles, boo"s, and television
programs these days, supply chain process integration is dealt with solely in terms of
I ) $art *+!oo"ing to the ,uture
information system applications+in other words, simply connecting buyers and a
suppliers via the latest software application results in successful supply chain process
integration. 5opefully, readers of this text have begun to reali:e that the latest enterprise
software applications increase access to information and can certainly add value to
internal and external process integration, but they do not allow companies to replace or
leapfrog the necessary peopleCoriented elements involved in supply chain management or
process integration in general. &o, while 'hapter K of the text, which dealt with
information flows, and several other chapters of the text have discussed or mentioned the
use of information systems when managing processes, this chapter see"s to guide the
reader towards a deeper understanding of successful supply chain process integration, and
the necessary steps and tools to get there.
'hapter 1 described the general idea behind business process integration,
namely the sharing of ideas and information, coordination of process activities, and
collaboration on process design and implementation between supply chain members,
such that products and services are provided at the desired levels of quality, speed, and
cost along the supply chain+from raw material suppliers to endCproduct consumers.
9usiness research over the past 13 or 1* years has, for the most part, found a positive
relationship between process integration and firm performance.
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#n general terms,
successfully integrating "ey business processes among supply chain trading partners is
the essence of supply chain management, and remains one of the biggest hurdles for all
companies implementing supply chain management practices. 5owever, as described in
the two statements on the opening page of this chapter, there is much to be gained
through process integration.
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) K
(his text has been divided along the lines of the eight "ey processes involved in
supply chain management+customer relationship management, customer service
management, demand management, order fulfillment, manufacturing flow management,
supplier relationship management, product development and commerciali:ation, and
returns management. &uccessfully managing supply chains requires the firm to first
become internally integrated in the relevant "ey business process areas, and then loo" to
integrate these processes with important trading partners. (his requires brea"ing down
barriers to integration inside the firm, followed by establishing a high level of trust and
wor"ing experience with the firm=s trading partners, and involves the use of appropriate
technologies and performance measures to improve internal and external integration
capabilities. $rocess integration is thus something that evolves over time within a firm=s
wor"force and its supply chains.
&uccessful process integration is also something that can be difficult for firms to
benchmar"0 rather, each firm must develop its own unique set of integration capabilities.
Different firms have different employees, cultures, processes, products, suppliers,
customers, and technical capabilities0 therefore their means to successful integration and
supply chain management may vary from their competitors, or other firms li"e (exasC
based computer manufacturer Dell and megaCretailer 7alC-art who have created
reputations for possessing superior supply chain management capabilities. #n short, there
is no @silver bulletA set of detailed practices that will guarantee process integration or
supply chain management success. -anagers must define and uncover the appropriate
supply chain strategies for their firms, align their own business strategies to those of their
supply chains, and then design operations practices that support the strategies. #n a multiC
13 ) $art *+!oo"ing to the ,uture
year study first launched in 233* by -#(=s 'enter for (ransportation and !ogistics, a
number of successful companies are being studied with the intention of identifying
general attributes critical to successful supply chain management. &o far, they have found
that companies need to adopt a @competitively principledA strategic supply chain
management framewor", or in other words, develop a set of tailored practices for their
company that lead to success, based on their unique resources and the required supply
chain strategies.
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9ecause successful internal and external process integration also requires the
passage of time, most firms and their supply chain trading partners are still heavily
involved in their process integration efforts. (his is exacerbated by the seemingly
continuous entry of new competitors, new suppliers, new customers and customer
requirements, and new information and communication technologies to the mar"etplace.
'onsequently, there are many new trends in process management and process integration
impacting supply chain management. &ome of these trends and developments will also be
discussed in the final section of this chapter.
ACHIEVING INTERNAL PROCESS INTEGRATION
As a reminder, the term process integration means coordinating and sharing
information and resources to /ointly manage a process. #ntegration can occur both
internally or externally with respect to the firm, and reflects how harmoniously
employees or businesses wor" together to accomplish tas"s. Developing communication,
information sharing, and collaboration capabilities among employees in different units
within an organi:ation can be quite difficult, particularly when departments are busy
protecting turf and fighting for their share of tight budgets and other firm resources. 9ut
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 11
this type of behavior, along with other internal barriers, must change in organi:ations
serious about process integration.
#n some industries, process integration is the norm and has become necessary for
survival+ta"e the automobile industry, for example. As described in 'hapter 13,
>apanese auto manufacturer (oyota had become quite proficient at lean principles by the
1KI3s, in part by creating opportunities for its employees to integrate their efforts when
designing and building new automobiles, and when solving manufacturing and quality
problems. As a result, (oyota has been able to provide higher quality automobiles with
shorter new model cycle times when compared to most of their competitors.
'onsequently, ,ord, G-, Daimler'hrysler, and other auto manufacturers have been
forced to follow suit to stay competitive. As of midC233;, (oyota was trailing only G-
as the world=s largest automa"er and was easily the world=s biggest in terms of
profitability Lapproximately E23 billion per yearM.
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#n fact by 2331, most 2orth American
automa"ers reported that they were practicing internal integration of "ey processes, and
wor"ing hard at forming fullyCintegrated supply chains.
;
(o achieve internal process integration, firms must first lay the groundwor"
necessary to begin process integration efforts. (his includes brea"ing down internal
barriers to collaboration, connecting departmental and unit information systems, and
developing performance measures that encourage teamwor" and collaboration. 7hen the
firm=s employees are comfortable wor"ing together and sharing ideas and information,
then supply chain management efforts and external process integration with trading
partners can begin to ta"e place. ,igure 1;.1 depicts this integration model, and a
discussion of each of these topics follows.
12 ) $art *+!oo"ing to the ,uture
Figure 16.1 The Supply Chain Process Integration Model
The Preparation Phase
(o adequately prepare the organi:ation for external integration and supply chain
management efforts in general, managers must first create an internal environment where
teamwor" and information sharing are encouraged and rewarded. (o accomplish this,
existing barriers to collaboration must be removed, information systems within the
organi:ation must be unified under one central database, and collaboration performance
measures must be designed, implemented, and periodically reviewed.
9rea"ing Down #nternal 9arriers to 'ollaboration
Internal barriers to collaboration can be classified as technological
Linformation system software4hardwareM barriers, structural Lmanagement hierarchy,
goals, proceduresM barriers, and cultural Lemployee values, norms, behaviorM barriers.
'hapter K discussed a number of information system problems, including the purchasing
of software applications at different times or purchasing bestCofCbreed software solutions
from different vendors, both of which require integration middleware to tie the systems
9rea"ing down barriers ,orming intraorgani:ational teams #dentifying supply chain
to collaboration business strategies
'onnecting all information 'ommunicating and sharing #dentifying "ey business
systems information enterpriseCwide process requirements,
integration elements, and
Developing collaboration Achieving collaboration ob/ectives partnership opportunities
performance measures
Developing new collaboration #dentifying supply chain
opportunities information system
requirements
Developing external integration
performance measures
Preparation Phase
Active Internal Integration Active External Integration
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 1<
together, or the use of web services and web portals to create information sharing
capabilities for the disparate applications. (hese could be considered technological
barriers to collaboration. A few years ago 7ashingtonCbased fashion retailer
2ordstrom=s online site, nordstrom.com, found itself unable to accept gift cards
purchased by customers at 2ordstrom stores Lit lac"ed a lin"age process to the 2ordstrom
ban"=s mainframe required to validate and execute the transactionM. (he company
adapted quic"ly by using XML web services to integrate its systems and create a
standard data format that all of the company=s systems could understand.
?
N-! web
services are becoming the basic platform for application integration. Applications are
constructed using multiple N-! web services from various sources that wor" together
regardless of where they reside or how they were implemented.
O 1KK; (ed Goff, http:44www.ted.goff.com
1B ) $art *+!oo"ing to the ,uture
Structural barriers to collaboration include the often slow, bureaucratic
decisionCma"ing hierarchy in firms0 poorly designed pay systems and incentives0 and
ineffective administrative procedures and policies. An incentive pay system that
encourages groups of employees to wor" against one another is a structural problem, for
example. &teve 9an"er, senior supply chain analyst at the A.' Advisory Group in
-assachusetts advises companies to establish compensation methods that reward
teamwor". @#f you tell people to wor" as a team, to ma"e it wor", you need metrics that
measure supply chain performance. (hen you have to tie punishments and rewards to
those metrics.A
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&tructural change involves a top-down management approach, because
the expertise and resources needed for administrative improvements requires the
involvement of middle and upper management. 7hen problems such as a lac" of
communication and teamwor" are acting as barriers to internal process integration,
structural changes are needed, and this requires upper and middle management to ta"e the
initiative to propose and implement structural solutions. &tructural change
implementation tactics can include employee education, instituting crossCtraining and
process teams, and manager4wor"er negotiations to achieve acceptance of the changes.
During the early days of .&. professional baseball, hiring a hearingCimpaired
player on one team initially caused a severe communication problem among the team=s
players. (he coach=s solution was to implement a structural change+he taught the entire
team a version of sign language to improve communication. (his creative solution
ultimately led to the widespread use of handCsignaling among baseball team coaches and
players.
K
-ore recently, when the .&. 'ongress mandated the restructuring of the
#nternal .evenue &ervice L#.&M, a number of structural changes were implemented to
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 1*
improve customer service and protect taxpayer rights. ,or example the #.& !arge and
-idC&i:e 9usiness Division was created to administer taxes for businesses with over E13
million in assets. !ately, the #.& has ad/usted managerial span of control to better
balance the number of employees reporting to managers, eliminated management
redundancy in some field offices, and ad/usted the number of its core industry groups
from seven to five.
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5ospital 'orporation of America L5'AM, a leading healthcare services provider
based in (ennessee, designed an organi:ational structure that groups everyone together to
improve the organi:ation=s effectiveness. (he equipment people include nurses and lab
technicians, and construction people include engineers and construction professionals, for
instance. (hus, diverse groups of people at 5'A are wor"ing together towards the same
goals.
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At #owa 5ealth C Des -oines, consisting of three hospitals, a new staff position
was introduced called @master of the environment,A where employees are crossCtrained in
all of the hospitality services, allowing them to better serve patients and permitting them
to float between departments and hospitals where needed. (his has improved patient
satisfaction as well as employee satisfaction.
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(he third set of barriers to internal process collaboration or integration can be
much more difficult to overcome, namely the often deeplyCrooted cultural barriers to
collaboration within the firm, which can encourage employees to hoard information,
hide operating problems, and shy away from wor"ing together as a team to develop
optimal solutions for the organi:ation. (his is sometimes also referred to as the silo
mentality, where wor"ers act only in their own best interests, and managers act only in
their departments= best interests. An overall lac" of trust can permeate this type of
1; ) $art *+!oo"ing to the ,uture
organi:ation. 'ultural changes in the organi:ation are required to reduce the silo
mentality and improve trust, or how employees thin" about their cowor"ers and the
organi:ation. #n these types of cases, the organi:ation as a whole must undergo change.
(raining large bloc"s of employees is perhaps the most frequently used tool for
changing an organi:ation=s mindset, and the impetus for cultural change must come from
top management. 8ther activities used in managing cultural change include frequent
communications with all employees0 management behaviors that are consistent with
desired values and beliefs0 use of newsletters, intranets, "ios"s, and videos0 resolving
cultural differences as quic"ly as possible0 and the development of a cultural integration
plan. ,orest product company 7eyerhaeuser, headquartered in 7ashington, uses an
arsenal of educational tools to help its employees get comfortable wor"ing together under
one company culture. #t uses an interactive game to convey the payoffs of aligning wor"
styles, and has also created a DHD entitled @All in 8neA to explain the homebuilding
industry and the firm=s collaboration strategies.
1<
7hen mergers occur, cultural clashes can result in many problems for the newly
formed company, requiring managers to be proactive in building a new vision and
integrating cultures and values. 7hen pharmaceutical companies Astra of &weden and
1eneca of the nited Pingdom merged in 1KKK, a senior executive team approved a
range of proposals to support the development of a new culture. A "ey proposal was to
create a global crossCfunctional leadership development program, initially for the top 233
people in the company. (his successful program led to a more innovative learning
environment and greater levels of trust in different parts of the firm. 7ithin three years,
about K33 managers had actually participated in the program.
1B
7hen 'aliforniaCbased
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 1?
switch ma"er 'isco formally too" control of optical transport producer 'erent 'orp., also
of 'alifornia, in 1KKK, the company mobili:ed a transition team to oversee every detail of
'erent=s assimilation. As soon as 'isco too" over, every new employee had a title, boss,
bonus plan, health plan, and a direct lin" to 'isco=s internal website. (eam members
distributed basic information about the 'isco organi:ation, its vacation policy, and its
benefits to employees. (he aim was to reduce uncertainty so employees could more
quic"ly focus on their /obs.
1*
(he &ervice $erspective feature describes the integration
challenges posed by the merger of .&. retailers Pmart and &ears.
SERVICE PERSPECTIVESears Faces Massive Supply Chain Integration
Challenge
7ith nearly B3 supply chain systems between them, &ears and Pmart must decide
which will best support the combined concern=s <,*33 stores. (he enormous #(
integration challenge will be even harder for the newly formed &ears 5olding 'orp.
because, industry experts contend, neither firm=s supply chain has been a model of
agility.
@(his is a huge endeavor they have to go through, and neither one is "nown for
excellence in #( or supply chain QmanagementR,A says 2oha (ohamy, principal supply
chain analyst with mar"et researcher ,orrester .esearch #nc., in 'ambridge,
-assachusetts.
(o reali:e the E*33 million in operational efficiencies that &ears 5olding
executives promise, analysts believe the retailer needs coherent #( and supply chain
operations. (he recent &ears and Pmart marriage, however, creates a protracted supply
chain management chore. &treamlining the myriad applications is @a timeCconsuming and
1I ) $art *+!oo"ing to the ,uture
arduous processA that will ta"e &ears 5olding @several years,A says Pim $icciola, a retail
analyst with -orningstar #nc., an investment research company in 'hicago.
Amid headlines about cutting expenditures, brand names, and store locations,
&ears 5olding publicly eschews tal" about such issues. &ince shareholders finali:ed
Pmart=s ta"eover of &ears on -arch 2*, 233B, corporate officials have added little to
their initial broad statements about improved efficiencies and cost savings. @(he
organi:ation is still ta"ing shape,A says 'hris 9rathwaite, a &ears 5olding spo"esperson
in 5offman %states, #llinois. @# don=t thin" there=s any definitive description of Qsupply
chainR strategy at this point.A
(hat hardly surprises Dean !ane, chief executive of Haritools #nc., a software
vendor in &unnyvale, 'alifornia. @#( is almost always an afterthought Qafter a mergerR,A
says !ane, a veteran of several companies= merger and acquisition activities.
7hen they announced the union, corporate officials pledged to generate E233
million in revenues through crossCselling opportunities and by converting several Pmart
stores to the &ears name. -aximi:ing purchasing power from suppliers, enhancing
supply chain and administrative efficiencies, and divesting real estate assets will help
save another E<33 million, the company stated in a press release announcing Pmart=s
planned E12.< billion ta"eover of &ears. #t=s unclear what supply chain strategy will help
the company attain such lofty goals. @#t=s too early to get into specifics,A says 9rathwaite.
&ears 5olding inherits both organi:ations= <? supply chain solutions from a host
of vendors, including -anugistics #nc., i2 (echnologies #nc., and -anhattan Associates
#nc., says !ee 5olman, product development vice president at #5! 'onsulting Group in
,ran"lin, (ennessee. According to 5olman, Pmart operates three inventory management,
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 1K
three merchandise planning, and four logistics management systems. &ears runs two
inventory management, three logistics management, and four merchandise planning
solutions. Despite some commonality, the companies use the solutions differently.
'ustomers, says 5olman, can find merchandise on &ears= shelves, but @you can=t say that
about Pmart.A
8bservers want to "now which existing solutions the new retailer will adopt or
/ettison, and if it will invest in new ones. (ohamy believes &ears 5olding halted an
evaluation of new applications, such as inCstore replenishment and merchandise
optimi:ation pac"ages, while it assesses each company=s operations. 7hile such an
underta"ing is necessary, (ohamy worries about the pace of review. @(hey have to clean
house, move as fast as possible, and show how they will create additional flexibility and
efficiencies in the supply chain,A she says.
,irst, however, &ears 5olding must determine its priorities, such as what and why
it is, who its customers are, how often they visit and how much they buy, and what it will
sell, says $aula .osenblum, retail research director with Aberdeen Group #nc., a mar"et
research concern in 9oston. (hen the company must assess its business processes,
including how stores interact with suppliers and distribution centers. @(hey need to figure
all that out before investing in an inventoryCmanagement application that costs E1 million
that won=t provide any benefit because it has no clean data to wor" from,A says (ohamy.
&ears 5olding must also determine how to meld two different businesses, and if
or to what degree to consolidate supply chain operations. @# don=t see Pmart and &ears
being able to wor" off the same strategy,A says &teve 9an"er, supply chain management
23 ) $art *+!oo"ing to the ,uture
service director with A.' Advisory Group #nc., a research concern in Dedham,
-assachusetts. @8ne=s a department store and one=s a discount mass merchandiser.A
9an"er recommends integrating resources for the biggest bang. 9oth sell apparel,
for example, so &ears 5olding could operate fewer warehouses and a set of common
supply chain systems. @(he company could standardi:e on QPmart=sR -anhattan
QapplicationR or on &ears= thirdCparty logistics providers,A 9an"er suggests. 'onversely,
&ears 5olding may need separate strategies to support different priorities. &ears, for
example, may require higher service levels to stores, which would require warehouses to
fill &ears= orders faster. @(hat ma"es using a common warehouseCmanagement system
tougher,A 9an"er says.
(ohamy disagrees. @-anaging two supply chains is a bad idea,A she says. @(hey
want to exploit economies of scale, especially in purchasing and sourcing.A $rocurement,
particularly from overseas suppliers, should be a corporate priority, affirms .osenblum.
(he company must use its si:e @to design, develop, and source products,A she says.
@2either one was all that great Qat sourcingR, and now they have to become great because
all they are Qsince the mergerR is bigger.A
5aving the right product in stoc" at the right place seems @elementary,A
.osenblum adds. !ong lead times, everCincreasing customer choices, and competing with
operational leaders such as 7alC-art &tores #nc., however, complicate things. #ndeed,
&ears 5olding must manage suppliers as 7alC-art does, says >ohn -elaniphy ###,
executive vice president with 'hicagoCbased retail consultancy -elaniphy F Associates
#nc. &ome suppliers lose money on each item they sell to 7alC-art but rely on the
retailing behemoth for volume sales. 8ther suppliers move plants offshore to provide
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 21
merchandise at prices that 7alC-art demands. @&uppliers are beaten up by 7alC-art,A
-elaniphy says. @Pmart and &ears have to get as tough with their suppliers to compete.A
&ears 5olding=s supply chain venture will ta"e time. %xperts wonder, however, if
it can ever compete with 7alC-art and other retailing rivals. @.ealistically, it=s a twoC
year processA to integrate existing systems or deploy new ones, says !ane of Haritools.
&orting out and implementing supply chain systems is /ust the beginning, other analysts
maintain. @(hey have 12 to 1I months to show significant progress,A asserts Alexi
&arnevit:, retail research director with 9ostonCbased mar"et researcher A-. .esearch
#nc. (hat means @not /ust being competitive Qwith 7alC-art and othersR0 they need to
find their own unique positioning.A
,or sure, &ears 5olding=s newly appointed '#8, Paren Austin, has a grueling
assignment. At the same time, 5olman notes that the ordeal of merging the two retailers=
#( systems presents Austin with a potential advantage as well. @(his is a great
opportunity to demonstrate QherR talents,A he says. -ostly, experts agree, it=s an
enormously complex consolidation tas". @#t sounds li"e she inherited a mess,A says
9an"er.
&ource: Pay, %., @&ears 5olding 'orp. ,aces -assive &upply 'hain #ntegration 'hallenge,A
Frontline Solutions, H. ;, 2o. *, 233*, pp. 1BJ1*. sed with permission.
#ntegrating #nternal #nformation &ystems
(oday, information systems can play a critical role in information use and
visibility, and during internal communications occurring between cowor"ers within an
organi:ation. %mailing someone in the office down the hall, for instance, has become so
commonplace that office hallways have become deserted. #f an organi:ation=s
information technologies are largely disconnected, and if data elements are not stored in a
22 ) $art *+!oo"ing to the ,uture
common database according to some standard format, then wor"ers and departments will
not be able to share information, and internal process integration can be significantly
impacted.
As discussed in detail in 'hapter K, the most common enabler of information
system integration today is the firm=s %.$ system. #n that chapter, the importance and
capabilities of %.$ systems were described, along with various software applications or
modules that are used today. %.$ systems provide a view of the entire organi:ation,
enabling decision ma"ers within each function to have information regarding customer
orders, manufacturing plans, wor"CinCprocess and finished goods inventories, outbound
goods inCtransit, purchase orders, inbound goods inCtransit, purchased item inventories,
and financial and accounting information. %.$ systems thus lin" business processes and
facilitate communication and information sharing between the firm=s departments. &ince
the "ey business processes overlay each of the functional areas, the firm eventually
becomes process oriented rather than functionally oriented, once %.$ systems are
deployed. (his visibility of information across the organi:ation allows for much greater
ease in internal process integration.
7hen assessing the current integration status of "ey processes, firms should first
develop an understanding of their internal supply chain. #nternal supply chains can be
complex, particularly if the firm has multiple divisions and organi:ational structures
around the globe. -anagers should consider forming crossCfunctional, multiCunit teams
for setting process integration ob/ectives and performance measures. (hese crossC
functional teams should adequately represent the firm=s internal supply chain.
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 2<
8nce the firm has a good overall understanding of its internal supply chain
structure, it can begin to assess the existing level of information access across its internal
supply chain. Does the firm have a single, companyCwide %.$ system, lin"ing all
functional areas6 Are all of the firm=s legacy systems lin"ed to their %.$ system6 5ow
easy is it to extract the information needed to ma"e effective decisions6 Are data
warehouses being used to collect data from the various divisions of the firm6 ,irms that
are internally integrating "ey business processes successfully are using global %.$
systems and data warehouses to ma"e better, informed decisions. Data warehouses store
information collected from %.$ and legacy systems in one location, such that users can
extract information from various functional areas as needed, analy:e it, and use it to ma"e
decisions.
An enterpriseCwide %.$ system allows the firm to use a common database from
which to ma"e product, customer, and supplier decisions. #nformation is captured once,
reducing data input errors0 information is available in real time, eliminating delays
throughout the organi:ation as information is shared0 and finally, information is visible
throughout the organi:ation+all transactions ta"ing place can be seen and accessed by
everyone on the system. As the firm moves away from unconnected legacy systems and
moves toward the fully integrated %.$ system, as organi:ationCwide crossCfunctional
teams are created to lin" "ey processes throughout the firm, and as process performance
is monitored and improved, the firm will become more focused on managing its "ey
supply chain processes in an integrated fashion.
#n a recent survey, companies with mature business processes and bestCinCclass
information systems were found to have average net profit margins of 1B percent,
2B ) $art *+!oo"ing to the ,uture
compared to I percent for other firms. (he &panish clothing company 1ara illustrates
how information systems can greatly aid integration and lead to higher profits and a
competitive advantage. 1ara owns its entire supply chain, from design, to manufacturing,
to distribution, to its retail outlets. #ts retail stores provide direct feedbac" regarding
demand for its fashions using its advanced information system infrastructure. (his allows
its designers to quic"ly identify trends, leading to more new designs and styles. 1ara is
thus able to bring these new designs and styles to mar"et in /ust three to four wee"s. #ts
retail competitors often ta"e months to do the same thing, causing them to miss many
mar"et opportunities.
1;
Developing $erformance -etrics that &upport #nternal #ntegration
#n order to assess the level of integration occurring within the organi:ation and
encourage continued integration activities, department managers and others should design
a family of performance metrics around desired collaboration activities. $erformance in
these areas should be regularly monitored and improvement initiatives underta"en when
necessary. (he old clichS, @what gets measured gets doneA certainly applies to the design
and support of integration activities. (able 1;.1 lists a number of potential internal
integration performance measures.
Table 16.1 Internal Integration Performance Measures
Work Groups
2umber of traditional and virtual wor" groups
formed
2umber of crossCfunctional wor"Cgroups
formed
2umber of wor"ers participating in one or more
wor" groups
$ercentage of wor" group ob/ectives met
2umber of pro/ects completed by wor" groups
2umber of /ointly developed products or
product improvements
2umber of /ointly developed processes or
ontinued
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 2*
process improvements
Information Systems
2umber of %.$ application implementations
and upgrades
$ercent of employees using %.$ applications
$ercent of departments using %.$ applications
Employees/Training
5ours of teamCbased training sessions provided
5ours of crossCtraining sessions provided
5ours of %.$ application training provided
2umber of top management discussions of
collaboration in company newsletter
%mployee trust and satisfaction survey ratings
Reward Systems
.eward amounts paid to wor" groups
$ercent of wor" groups earning rewards
$ercent of reward funds paid out to wor" groups
7hile (able 1;.1 is by no means exhaustive, it should serve as an impetus for the
design of specific collaboration performance measures for department and topClevel
managers. At a minimum, metrics should encourage the formation of work groups
Ldefined here to mean two or more individuals wor"ing together on a common tas" who
generally have computers connected to a networ" that allow them to send email to one
another, share data files, and schedule meetings
1?
M, the integration of information system
applications utili:ing a central database, employee training, and reward systems. (o "eep
the momentum going, efforts should also be underta"en to monitor the impact of internal
integration on the firm=s overall performance.
.ecent research in this area has shown that there is a direct and positive
relationship between internal integration and firm performance.
1I
7hen #llinoisCbased
food manufacturer Tua"er ,oods and 2ew Dor"Cbased food and beverage company
$epsi'o merged in 2331, a ma/or hurdle was to create internal collaborations that
supported their combined external supply chains. Paren Alber, vice president of
integration at Tua"er ,oods, was selected to spearhead the effort. &he did her /ob so well
2; ) $art *+!oo"ing to the ,uture
that she was later named one of @(he 2* -ost #nfluential %xecutivesA in the industry. ,or
example, Tua"er was able to cut its inventory levels within its 'anadian operations by ;3
percent and paperwor" by ?? percent.
1K
se of wor" groups or teams to integrate internal processes and improve firm
performance has been described by many as a top priority. $revious studies regarding
total quality management, quality circles, agile and lean manufacturing, and >#( have all
found team wor" to be one of the common elements among successful companies
employing these techniques.
23
,urther, group performance has been shown to be impacted
by the group members= abilities, their wor" environment, and their motivation.
-aximi:ing the performance of teams should thus ma"e use of wor"er s"ills, their tools,
their shared goals and values, and their level of wor"place comfort. (his supports the use
of the other performance measures shown in (able 1;.1.
,inally, organi:ations should periodically assess not only the performances of
their integration efforts, but the metrics being used as well. As the firm=s internal and
external environment changes, so too its performance measures must change. 2ew
employees, managers, and technologies will bring new s"ills to the organi:ation, and new
competitors, customers, and suppliers will provide new opportunities and requirements
for the firm desiring to remain competitive. (his will create additional opportunities for
new internal integration efforts.
The Active Internal Integration Phase
,irms that have been proactively involved in creating internal integration
opportunities and practices will, at some point, reach a stage of development wherein
internal process integration is a normal operating condition. (his describes firms in the
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 2?
active internal integration phase, the second phase shown in ,igure 1;.1. #ntegrated
information systems will provide information visibility throughout the global
organi:ation to users at all functional levels0 wor" groups will be common fixtures in the
organi:ation, including personnel from different departments and in geographically
dispersed units as needs dictate. (hese groups will become successful at generating and
meeting pro/ect ob/ectives, and in identifying new opportunities for collaboration efforts.
Automa"er ,ord -otor 'ompany is on the cutting edge when it comes to use of
information and communication technologies to connect wor"ers within their many
production facilities around the globe. -ost employees are furnished with company
laptops, a secure #D, and an #nternet connection that allows virtual teams to
communicate. #t also allows access to ,ord email, mainframe systems, and instant
messaging worldwide, from the office or from home computers. And for some, it allows
phone calls to be made using 'isco=s #nternet softCphones. Additionally, ,ord has
constructed its own digital fiber networ", and planned to be able to deliver
videoconferences within 2orth America by the end of 233;, allowing it to hold virtual
meetings.
21

,irms that are successful at internal integration have found that the "ey to
building successful teams is in finding people with the right personal chemistry who can
quic"ly develop trusting relationships. @&ome of the worst teams #=ve ever seen have
been those where everybody was a potential '%8,A says David 2adler, '%8 of the
-ercer Delta global consulting firm, who has wor"ed with top companies and their
executives for over <3 years. -utual trust is a fundamental element of a winning team,
which explains why so many @dream teamsA in sports and other areas have failed to
2I ) $art *+!oo"ing to the ,uture
accomplish much. ,or example, the .&. baseball team assembled to compete in the
7orld 9aseball 'lassic in 233; included such baseball greats as .oger 'lemens, Dere"
>eter, Alex .odrigue:, and >ohnny Damon, yet they performed relatively poorly, losing
games to -exico, &outh Porea, and 'anada. (he 233B .&. 8lympic bas"etball team
consisted entirely of 29A superstars, yet it finished third and lost to !ithuania. #n
contrast, the 1KI3 .&. 8lympic hoc"ey team was built explicitly by considering the
personal chemistries of only college players Lnot necessarily the best playersM, and yet
these amateurs beat the heavily favored &oviet team to win the gold medal. #n still
another example, >ac" 7elch, the legendary exC'%8 of the 'onnecticutCbased global
conglomerate G%, insisted that members of their 'orporate %xecutive 'ouncil meet away
from the corporate offices, have no prepared presentations, and wear informal clothing+
he believed this allowed more realistic conversations to occur, and trust to be formed
within the council membership.
22
8rgani:ations proactively involved in internal integration create opportunities for
more and better collaborations between staff members. (his may include designing
facilities conducive to better collaboration0 allowing staff to crossCtrain one another0
creating opportunities to see other wor"er perspectives, ma"e new acquaintances, and see
the big picture0 holding adChoc brainstorming sessions when challenging situations
develop to encourage problemCsolving s"ills and teamwor" to develop among personnel0
and recogni:ing and celebrating accomplishments when teams hit a milestone, by writing
a story in the company newsletter, hosting a luncheon for the team and other employees,
or simply putting up a commemorative plaque. (he Aetna #nformation &ystem facility in
9lue 9ell, $ennsylvania, uses space more efficiently to enhance collaboration. @7hat our
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) 2K
clients are as"ing us to do is find a way to ma"e a hallway or lobby or gathering space do
more than one thing,A says 'arol .ic"ard, of 7ashington D.'.Jbased !ittle Diversified,
who oversaw the design of Aetna=s offices. @9y increasing the width of a circulation
hallway or space poc"et, and placing soft seating and a teaming table there, we=re able to
maximi:e the use of that space by creating an informal collaboration hub. 7e call it chair
ballet. $eople literally wheel themselves over to the table and are able to meet.A
2<
,orwardCthin"ing leaders in the organi:ation are at the heart of the development
of a collaborative culture. (hey understand how to put teams together to ta"e advantage
of each member=s particular style and strengths0 they provide for and ensure that team
members are sufficiently trained and equipped0 they foster a wor" environment
conducive to trust and productivity0 and they provide adequate financial and time
support. #n a recent interview, 7illiam Donius, '%8 of $ulas"i 9an" of -issouri, a topC
performing ban" in terms of return on assets, listed three things as most responsible for
success at the ban"+the recruitment of the best and brightest people at all levels, the
offering of products that meet customer needs, and the creation of an environment where
teamwor" and collaboration are valued.
2B
(he $rocess -anagement in Action feature
provides some interesting descriptions of how some companies are encouraging
teamwor" s"ills at meetings in !as Hegas, 2evada.
PROCESS MANAGEMENT IN ACTIONTeambuilding the Las Vegas Way
%xperienced meeting attendees can become immune to the idea of
@teambuilding.A (hey=ve done it already, and it=s a real challenge to get them excited. &o
if beach 8lympics, ropes challenge courses, and buildCyourCownCsurvivalCrafts sound li"e
<3 ) $art *+!oo"ing to the ,uture
a laundry list of your latest teamCbuilding efforts, get ready to create some bu:: in !as
Hegas, 2evada.
7ith one loo" at the astounding variety of diversions along the !as Hegas &trip,
most meeting participants are instantly chomping at the bit to delve into the excitement.
8ne of the best ways &haron Geraci, president of -eeting F #ncentive -anagement, has
found to give them a taste of the diverse menu is the @(est Dour !imitsA teambuilding
event.
&he presents the group with a collection of daring activities, each with a specific
point value attached to it. (he team decides together which elements to tac"le as a
personal driver ta"es them around town by limousine. 'hallenges could include anything
from going to the top of the %mpire &tate 9uilding at 2ew Dor" 2ew Dor" to boarding
Land riding, of courseM one of the heartCpounding thrill rides at the top of the &tratosphere
5otel=s tower. @#t=s a really fun ice brea"er,A explains Geraci. @#t=s all about seeing !as
Hegas and building camaraderie.A
$erhaps the biggest surprise about spending quality time soaring is what you don=t
get: noise. $eace and quiet is a big part of what the &oaring 'enter is all about, but the
rare thrill of mastering the desert=s air currents in a tiny, engineless plane is the real draw.
@7e can do loops and wingCovers, and if they want to ta"e the controls, we=ll put them in
the front of the plane,A says instructor and center owner -i"e 5enderson, who is sure to
cater the flight to the individual rider. ,or teambuilding, many groups choose the
company=s ride on the popular The !ma"ing #ace reality television show. #t includes a
fiveChour soaring4A(H adventure for up to <3, where the participants divide their time
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <1
riding above and below each other+and for the bravest of the group, there=s a s"ydiving
option. @(hey /ust thin" it=s the coolest thing in the world,A says 5enderson.
&ome people may have heard of a &egway
U
, but few have actually ta"en a spin. (hat is
precisely the appeal of &egway polo as a teambuilding activity. @2obody else is doing it,
and it=s a very fun, interactive event,A says Geoff .hodes, director of creative event
services for .it:C'arlton, !a"e !as Hegas, who creates teambuilding programs that his
crew stages for groups throughout the !as Hegas area. &egway polo allows participants to
play competitive polo without ever having to mount a horse, undergo formal coaching, or
train for competition. Geared to all fitness levels Land all si:es between 133 and 2*3
poundsM, the game uses &egway
U
5uman (ransporters and soft foam mallets and balls to
play the traditional game. .hodes= staff provides teams of B to 12 players with the
batteryCpowered &egway 5uman (ransporters, polo equipment, helmets, lessons, and
practice chu""ers.
(he newest trac" in Hegas opened on April 13, 233;, and is offering thrill rides
for visitors at the north end of the &trip. General -otors= @(he DriveA offers two
professionallyCdesigned driving courses+including a highCperformance loop and an offC
road adventure over a dirt terrain. Groups can chec" out the performance course, a halfC
mile paved route with /ogs and turns that highlight both the speed and handling control of
pure sports car driving. Hehicles available to unleash on the performance course include
the 'orvette, the $ontiac G(8, the B33Chorsepower 'adillac '(&CH, and more.
$articipants who choose the offCroad course will be handed the "eys to a 5ummer or their
choice of several 'hevy, G-', or 'adillac truc"s and select &Hs.
<2 ) $art *+!oo"ing to the ,uture
(he food cra:e has run rampant in !as Hegas, and groups have been clamoring to
get into the "itchen. %nter 9ellagio .esort and its (uscany Pitchen, designed specifically
for culinaryCbased teambuilding events. (he 1,1?3CsquareCfoot venue is the first of its
"ind in the city, an intimate environment for 1I people that can be expanded for up to ;3
people by using two dropCdown video screens that "eep the bac" rows close to the action.
9ellagio=s awardCwinning chefs lead the fun during a program that can focus on anything
the group wants, from how to prepare a specific style of cuisine, such as >apanese, #talian,
or 'hinese to setting up a friendly competition, a la the ,ood 2etwor"=s popular #ron
'hef.
&ource: 7est, %., @(a"e 8ne for the (eam,A Successful $eetings, >une 233;, pp. 22J2<. 'opyright O 233;
H2 9usiness -edia, #nc. .eprinted with permission.
(he third and final phase of the process integration model shown in ,igure 1;.1 is
the active external integration phase. (his phase is discussed in detail in the following
section.
EXTENDING INTEGRATION TO SUPPLY CHAIN TRADING PARTNERS
#n the most advanced stage of the integration model, the firm=s abilities to
integrate internally have matured, creating successful process collaborations between
personnel throughout the firm. As the firm witnesses these successes and reali:es the
value inherent in process integration, the desire to collaborate and integrate processes
with supply chain trading partners also grows. 5opefully, during this maturation phase,
the firm is discovering highCperforming suppliers, and is also becoming a valued supplier
to its customers. #t is at this point that the firm is prepared to begin actively managing its
supply chain through use of external process integration. .evisiting the ultimate goal of
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <<
supply chain management+to provide end users with the products and services they
desire, at the right levels of price, quality, and service+it follows that firms actively
managing their supply chains must become adept at internal process integration and
extend the boundaries of the firm through the integration of "ey processes among supply
chain trading partners. 8nce the firm has set in motion the activities to achieve internal
process integration, it can then turn its attention towards external process integration.
%xternal process integration can be an extremely difficult tas", even more so than
internal integration, since it requires, first and foremost, willing and competent trading
partners, mutual trust, and potentially a change in one or more organi:ational cultures.
5owever, the benefits of supply chain collaboration and information sharing can be
significant: reduced supply chain costs, greater flexibility to respond to mar"et changes,
less supply chain safety stoc", higher quality levels, reduced time to mar"et, and better
utili:ation of resources. (hrough the practice of collaboration, information sharing, and
process integration, supply chain management can become a core competitive strength
for the firm and its trading partners in the supply chain. (he Global $erspective feature
profiles -etro 'ash F 'arry Hietnam, a good example of a company capitali:ing on its
external integration opportunities with only limited use of technology.
GLOBAL PERSPECTIVEMetro Cash & Carry Vietnam: Keeping Collaboration
Simple
&uccessful collaborative relationships can be created using relatively simple but
effective practices. And they can be found in some unusual places. 'onsider the case of
-etro 'ash F 'arry Hietnam, which has developed longCterm collaborative relationships
<B ) $art *+!oo"ing to the ,uture
both with its local vegetable suppliers and with a ma/or hotel customer in 5o 'hi -inh
'ity. (hese collaborative relationships involve basic informationCsharing and
coordination practices, which have led to more efficient produce distribution and more
satisfied supply chain partners.
-etro 'ash F 'arry Hietnam is a GermanCowned businessCtoCbusiness grocery
wholesaler speciali:ing in services to hotels, restaurants, and catering institutions. (he
company=s main strategy is to be cheaper than its competitors in the traditional wholesale
mar"ets while also focusing on food safety and customer satisfaction.
According to -etro managers, the company=s success is closely lin"ed to its
strategy of building longCterm supply relationships, especially with local producers of
fresh vegetables. (hese relationships are based on trust. (o gain that trust, potential
suppliers, for their part, must show that they can deliver highCquality produce regularly
and be responsive to fastCchanging customer demands. -etro loo"s for financially stable
suppliers with proven experience in vegetable production and a reputation for produce
quality. (rust is built mainly on results. -etro will start sourcing from potential suppliers
little by little to chec" the regularity of quality. (his reliability is important. ,resh
produce buyers at -etro receive many offers from local suppliers, but a supplier that
consistently provides good quality and low price in a stable manner throughout the year is
difficult to find.
At the same time, -etro also needs to acquire the trust of its suppliers. 8ne way it
does this is through establishing secured payment in the supply contract. Although there
is a fixed delay in payment, which can go up to <3 days, the company rewards a
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <*
successful supply relationship by lowering the delay after a period of satisfactory
deliveries.
(hese trustCbased relationships rely on the exchange of transparent mar"et
information between suppliers and -etro buyers. -etro=s individual fresh food buyers
are responsible for maintaining good interpersonal relationships with all regular
suppliers. (his means not only communicating frequently with suppliers by telephone
and fax but also physically visiting suppliers several times each month. -etro has even
purchased fax machines for those suppliers that did not have one. Although the
communications may seem low tech, they have proven to be very effective.
According to the sta"eholders themselves, the focus on communications and
product quality has had a positive impact on supply chain performance. ,rom the
viewpoint of the suppliers, -etro=s focus on higherCquality vegetables brings them
greater stability in orders and prices. (hese suppliers also gain greater ris" avoidance
through the company=s guarantee of payment. ,inally, because reliable quality produce is
still relatively difficult to find in Hietnam, established -etro suppliers that focus on
quality have a certain power in negotiations with the wholesaler. (rusting relationships
are timeCconsuming to build and regular suppliers are difficult to find in Hietnam. &o
once a supply relationship is established, it is important for -etro to "eep it because of
the investment made. (herefore, bestCperforming -etro suppliers can be assured of a
longCterm commitment by the distributor.
'ollaboration doesn=t end with -etro=s suppliers0 it extends to customers as well.
(he company=s relationship with the 2ew 7orld 5otel, a fiveCstar property in 5o 'hi
-inh 'ity, offers an excellent example. (he two companies agreed in 2332 to experiment
<; ) $art *+!oo"ing to the ,uture
with a strategic alliance whereby -etro supplies most of the hotel=s needs. As a result,
more than K? percent of the hotel=s purchases come from -etro.
(he partnership is based on strong collaboration and information sharing in order
planning and replenishment. 9oth companies have assigned a dedicated staff member to
manage this strategic alliance: a "eyCaccount manager at -etro and a procurement
manager at the hotel. (he hotel purchasing manager can call the -etro "eyCaccount
manager at any time during wor"ing hours for an emergency delivery, and -etro will
deliver immediately, even during wee"ends. ,urthermore, -etro always sends a member
of its sales staff to the 2ew 7orld 5otel to supervise each delivery and assess its quality
with the hotel=s staff.
(he 2ew 7orld 5otel orders three times a wee" on -onday, 7ednesday, and
,riday for delivery on the following ordering day. (his order cycle enables -etro to ta"e
its time in preparing the goods and saves time for the hotel=s procurement staff.
(ransportation costs are minimi:ed because it is cheaper to have one big truc"
transporting a large order than having several truc"s delivering from different suppliers.
-etro also extends credit to its privileged partner as the hotel=s payments are made twice
a month by ban" transfer.
(he relationship depends on frequent communication between the -etro "eyC
account sales manager and the hotel procurement manager. (he hotel procurement
manager will call the -etro "eyCaccount manager four times every wee" to assess the
quality of each delivery. Additionally, when mar"et conditions lead to shortages, -etro
staff provides the hotel=s staff with advanced warning of changing supply factors. (his
enables the hotel to implement alternative supply arrangements. As with the supplier
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <?
communication, the interaction between -etro and its customer is personali:ed, simple,
and highly effective.
8verall, the personnel interviewed in the vegetable supply chains of -etro 'ash
F 'arry Hietnam successfully engage in collaboration, /oint planning, and information
sharing to optimi:e their forecasting and product replenishment. -oreover, they are
doing so with a disarming degree of simplicity: Daily phone calls between dedicated staff
in the partner firms and /oint planning of supply and demand are enough to lead to the
satisfactory delivery of such perishable articles as fresh vegetables. &ophisticated
technology certainly has a place in the modern supply chain. 9ut the -etro 'ash F 'arry
story proves the enduring effectiveness of simple, straightforward communication.
&ource: 'adilhon, >. and A. ,earne, @!essons in 'ollaboration: A 'ase &tudy from Hietnam,A Supply
hain $anagement #eview, H. K, 2o. B, 233*, pp. 11J12. .eprinted with permission from Supply hain
$anagement #eview, copyright O 233*.
.eturning once again to ,igure 1;.1, external integration requires identifying
supply chain business strategies, translating these into "ey process requirements and
integration activities, developing trading partner relationships, identifying information
system requirements, and then designing external integration performance measures for
continued improvement purposes. Discussions of these topics follow.
Identifying and Aligning Supply Chain Business Strategies
-anagement must identify the basic supply chain strategies associated with each
of their products or services, and then align internal process strategies to support the
supply chain strategies. #f, for example, an end product is competing based on quality,
then supply chain members should also be designing strategies consistent with delivering
highCquality parts, products, and services to their immediate customers, until eventual
<I ) $art *+!oo"ing to the ,uture
delivery of the final product to the end customer. (he supply chain strategies should
translate into internal functional policies that include the types of parts and services
purchased, the suppliers used, the shop layout and manufacturing processes employed,
the designs of the products manufactured, the modes of transportation used, the warranty
and return services offered, the employee training methods used, the types of information
technologies used, and potentially the amount of outsourcing employed. #n each of these
areas, policies should be geared towards supporting the aboveCmentioned qualityCoriented
strategy of the supply chain.
Alternately, if end products are competing primarily based on low cost, then
strategies and functional policies for intermediate products within each of the supply
chain participants must be consistently aimed at achieving low cost as parts, components,
and services are purchased, produced, and moved along the supply chain. (his may ta"e
the form of purchasing material in bul" to receive pricing discounts, mass producing
products to reduce unit costs, operating in a low labor cost environment, and using the
least costly modes of transportation. As competition, technology, and customer
requirements change, then management must also ad/ust supply chain and internal
strategies to remain competitive.
Identifying Key Process Requirements, Integration Activities, and Partnership
Opportunities
(o align internal strategies and policies with external supply chain strategies,
managers need to identify the important processes lin"ing their firm and their supply
chain partners and establish process integration ob/ectives to ensure that resources and
efforts are effectively deployed within each trading partner, to support the overall endC
product strategy. (hese "ey processes, along with the methods used to integrate and
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) <K
/ointly manage processes among supply chain partners, will vary based on the internal
structure of each firm, the prevailing economic conditions in the mar"etplace, the degree
that functional silos exist in any of the trading partners, the information systems
employed, and the nature of existing relationships within the supply chain. #n some cases,
it may be best to start small and integrate only one or two "ey processes with one trading
partner, while with other partners, more processes may be integrated. (able 1;.2 lists the
eight "ey supply chain processes, as first mentioned in 'hapter 1, along with some
potential integration elements associated with each process.
Table 16.2 External Integration Elements for the Eight Key Supply Chain
Processes`
Key Process External Integration Elements
'ustomer relationship
management
Determining customer requirements0 gathering feedbac" on new
product development0 negotiating product4service agreements0
developing agreements for sharing process improvement
costs4benefits.
'ustomer service management
$roviding information to customers0 resolving product4delivery
problems0 gathering customer service performance feedbac".
Demand management
&haring pointCofCsale, new mar"et, production, and forecast
information.
8rder fulfillment
Determining order si:es, distribution plans, and communication
networ" requirements.
-anufacturing flow
management
Determining customer requirements changes0 translating
customer requirements changes into supplier requirements
changes.
&upplier relationship
management
2egotiating product and service agreements, developing or
improving supplier capabilities, and then monitoring supplier
performance and improvement.
$roduct development and
commerciali:ation
'ollaborating on new product development teams0 testing new
product prototypes0 assessing the success of each new product.
.eturns management
Developing environmental compliance, substance disposal, and
recycling agreements0 composing adequate operating and repair
instructions0 developing material disposition guidelines.
V(hese processes are discussed in detail in !ambert, D. -., -. '. 'ooper, and >. D. $agh, @&upply 'hain
-anagement: #mplementation #ssues and .esearch 8pportunities,A %nternational &ournal of 'ogistics
$anagement, H. K, 2o. 2, 1KKI, pp. 1C1K, and in 'roxton, P. !., &. >. GarciaCDastugue, and D. -.
!ambert, @(he &upply 'hain -anagement $rocesses,A %nternational &ournal of 'ogistics $anagement, H.
12, 2o. 2, 2331, pp. 1<J<;.
B3 ) $art *+!oo"ing to the ,uture
As the textboo" has endeavored to illustrate throughout the textboo", there are
eight boundaryCspanning processes that have generally been identified as the "ey supply
chain processes. 'oordinating or integrating activities within these processes between
trading partners is what ultimately enables the supply chain and its members to
successfully compete. Activities and integration elements within each of the "ey business
processes must be based on the competitive strategies identified for each product=s supply
chain. A brief discussion of the activity requirements and integration elements associated
with each of these "ey processes follows.
'ustomer .elationship -anagement $rocess
(he customer relationship management process provides the firm with the
structure for developing and managing customer relationships. As discussed in 'hapter <,
"ey customers are identified, their needs are determined, and then products and services
are developed to meet their needs. 8ver time, relationships with these "ey customers are
solidified through the sharing of product and service information, supply chain strategies,
product development strategies, the formation of crossCcompany teams to design and
improve products and services, the development of shared goals, and finally, improved
performance and profitability for the trading partners. 'ollaboration elements also
include the formation of product and service agreements to meet customer needs,
decisions regarding product pac"aging, transportation, and storage, and the development
of guidelines for sharing process improvement costs and benefits.
'ustomer &ervice -anagement $rocess
(he customer service management process is what provides information to
customers while also providing ongoing management of any product and service
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) B1
agreements between the firm and its customers. #nformation can be provided through a
number of communication channels, including websites, group interactions, information
system lin"ages, and printed media. 8b/ectives and policies are developed to ensure the
timely distribution of products and services to customers, to adequately respond to
product and delivery failures and complaints, and to utili:e the most effective means of
communication to coordinate successful product, service, and information deliveries. (he
process also includes methods for monitoring and reporting customer service
performance, which allow firms to understand the extent their management efforts are
achieving the process ob/ectives. %xternal integration elements include the gathering of
customer satisfaction feedbac", the methods used for information dissemination, and the
adequate and longCterm solutions to customer problems and complaints.
Demand -anagement $rocess
(he demand management process is what balances customer demand and the
firm=s output capabilities. Demand management activities include forecasting demand,
and then utili:ing techniques to vary capacity and demand within the purchasing,
production, mar"eting, and distribution functions. Harious forecasts can be used, based
on the time frame, the "nowledge of the forecaster, the ability to obtain customers= pointC
ofCsales information, and the use of forecasting models contained in many %.$ systems.
A number of effective techniques exist to smooth demand variabilities and increase or
decrease capacity when disparities exist between demand and supply. 'ontingency plans
must also be ready for use when demand management techniques fail or when forecasts
are inaccurate. #nterCcompany teams can thus decide how best to share new mar"et and
future purchase requirements, point of sale information, and planned production
B2 ) $art *+!oo"ing to the ,uture
quantities. (he creation of formal collaborative planning, forecasting and replenishment
L'$,.M agreements as discussed in 'hapter * is one way to share this type of
information, and tends to result in lower safety stoc"s throughout the supply chain.
#ntegration activities can then also include the use of forecasting techniques, purchasing
agreements, and order quantity decisions.
8rder ,ulfillment $rocess
(he order fulfillment process is the set of activities that allows the firm to fill
customer orders while providing the required levels of customer service at the lowest
possible delivered cost. (hus, the order fulfillment process must internally integrate the
firm=s mar"eting, production, and distribution plans as well as allow customers to provide
input in order to be effective. -ore specifically, the firm=s distribution system must be
designed to provide adequate customer service levels, and the production system must be
designed to produce at the required output levels, while mar"eting plans and promotions
must consider the firm=s output and distribution capabilities. .elated order fulfillment
issues are the location of suppliers0 the modes of inbound and outbound transportation
used0 the location of production facilities and distribution centers0 and the systems used
for entering, processing, communicating, pic"ing, delivering, and documenting customer
orders. (he order fulfillment process must integrate closely with customer relationship
management, customer service management, supplier relationship management, returns
management, and directly with "ey suppliers and customers to ensure that customer
requirements are being met, customer service levels are being maintained, suppliers are
helping to minimi:e order cycle times, and customers are getting undamaged, highC
quality products on time.
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) B<
-anufacturing ,low -anagement $rocess
(he manufacturing flow management process is the set of activities responsible
for ma"ing the actual product, establishing the manufacturing flexibility required to
adequately serve the mar"ets, and designing the production system to meet cycle time
requirements. (o be effective, manufacturing flow management activities must be
interfaced with the demand management and customer relationship management
processes, using customer requirements as inputs to the process. As customers and their
requirements change, so too must the supply chain and the manufacturing flow processes
change, to maintain overall competitiveness. 'lose collaboration between the firm and its
customers can quic"ly translate changing customer requirements into new flow
management solutions.
-anufacturing flow characteristics also impact supplier requirements. ,or
instance, as manufacturing batch si:es and lead time requirements are reduced, supplier
deliveries must become smaller and more frequent, causing supplier interactions and
supplier relationships to potentially change. (he importance of an adequate material
planning system connecting customers, the firm, and suppliers should become evident
here, as customer requirements must be translated into production capabilities and then
supplier requirements. As with other processes, a good set of performance metrics should
also be utili:ed to trac" the capability of the manufacturing flow process to satisfy
demand.
&upplier .elationship -anagement $rocess
(he supplier relationship management process defines how the firm manages
its relationships with suppliers. As discussed in 'hapter 12, firms in actively managed
BB ) $art *+!oo"ing to the ,uture
supply chains see" out small numbers of the best performing suppliers and establish
ongoing, mutually beneficial, close relationships with these suppliers in order to meet
cost, quality, and4or customer service ob/ectives for "ey materials, components, and
products. #ntegration activities in this process include screening and selecting suppliers,
negotiating product and service agreements, developing or improving supplier
capabilities, and then monitoring supplier performance and improvement initiatives. Pey
suppliers most li"ely have a crossCfunctional team to manage their progress towards
meeting the firm=s current and longCterm requirements and establishing a record of
performance improvement over time. &upplier relationship management personnel
routinely communicate with production personnel to obtain feedbac" on supplier and
purchased item performance, and with mar"eting personnel to obtain customer feedbac".
(his information can then be passed along to suppliers during periodic performance
review meetings.
$roduct Development and 'ommerciali:ation $rocess
(he product development and commercialization process is responsible for
developing new products to meet changing customer requirements and then getting these
products to mar"et quic"ly and efficiently. #n actively managed supply chains, "ey
customers and suppliers are involved in the new product development process to ensure
that products conform to customers= needs and that purchased items meet manufacturing
requirements. %xternal integration activities in the product development and
commerciali:ation process include the development of customer feedbac" mechanisms0
the formation of new product development teams that include customer and supplier
representatives0 assessing and selecting new product ideas based on supplier capabilities
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) B*
and advanced supplier component "nowledge, resource requirements, customer needs,
and fit with existing infrastructure0 designing and testing new product prototypes0
determining mar"eting channels and rolling out the products0 and finally, assessing the
success of each new product. &uccessful new product development hinges on the
involvement of external customers and suppliers, and on the internal integration of
manufacturing, mar"eting, purchasing, and finance personnel.
.eturns -anagement $rocess
(he returns management process, given little importance in some organi:ations,
can be extremely beneficial for supply chain management in terms of maintaining
acceptable levels of customer service and identifying product improvement opportunities.
.eturns management activities include environmental compliance with substance
disposal and recycling, composing operating and repair instructions, troubleshooting and
warranty repairs, developing disposal guidelines, designing an effective reverse logistics
process, and collecting returns data. .eturns management personnel frequently interact
with customers and personnel from customer relationship management, product
development and commerciali:ation, and supplier relationship management during the
returns process.
8ne of the goals of returns management is to reduce returns. (his is accomplished
by communicating return and repair information to product development personnel,
suppliers, and other potential contributors to any returns problems to guide the
improvement of future product designs. (ransportation and distribution services may also
be included in the returns feedbac" communication loop. $roduct recalls, typically
initiated because of safety or quality problems, involves informing customers and
B; ) $art *+!oo"ing to the ,uture
determining the most effective return, repair, and4or replacement procedures. 8ther
collaboration activities for the returns management process include developing policies
for disposing of ha:ardous materials and recovering waste pac"aging across the supply
chain.
,or each of the eight "ey supply chain processes identified, ob/ectives and
policies should be coCdeveloped between supply chain members to achieve the overall
supply chain strategies. Additionally, consistent ob/ectives within each functional area of
the firm for each process help to integrate the processes internally, as well as focus efforts
and firm resources on supporting the supply chain strategy. #nternal process integration,
trading partner relationships, and external process integration are thus all interrelated. As
internal integration efforts get underway, the need for external integration becomes
apparent. (his, over time, creates the need for close wor"ing relationships among supply
chain members.
,or instance, if the supply chain strategy is to compete using lowCcost ob/ectives,
the customer relationship management process might be to find cheaper delivery
alternatives that still meet customer requirements, develop vendorCmanaged inventory
capabilities with suppliers, and to automate the customer order process while
communicating the new order process to customers. $roduction ob/ectives might be to
develop bul" pac"aging solutions consistent with customer order quantities and
distribution systems used, to increase mass production capabilities, and to identify the
lowest total cost manufacturing sites for specific products. $urchasing ob/ectives might
be to identify the least expensive materials and components that also meet specifications,
and develop other costCsaving ideas for purchased items with input from suppliers. ,irms
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) B?
should similarly progress through each of the "ey processes using teams of employees,
customers, and suppliers to develop process ob/ectives and policies.
Identifying Supply Chain Information System Requirements and Capabilities
As soon as external integration efforts are underway, it will li"ely become
apparent that information and communications systems need to change to accommodate
the need to share information and discuss problems as they arise, both with internal staff
members and external trading partner employees. 7hile the topic of information flow
management was addressed in detail in 'hapter K, external integration efforts require
trading partners to easily and quic"ly translate information from their own departments=
systems to those of their partners. Does the firm have a single, companyCwide %.$
system that can easily be lin"ed to its "ey suppliers= and customers= information systems6
Do any of the trading partners have legacy systems that require middleware to
communicate with other firms= enterprise or legacy systems6 5ow can pointCofCsales
information be shared6 7hat are the information system requirements along the supply
chain, and who will pay for the system upgrades6 (hese are external integration elements
that all trading partners will have to consider. ,irms that are successfully integrating "ey
business processes externally are using global %.$ systems, data warehouses, #nternet
portals and other webCbased applications to ma"e better, informed, collaborative
decisions with their supply chain partners.
Globally lin"ed, supply chainJaccessible %.$ systems allow trading partners to
share information from companyCwide databases to ma"e /oint product, customer, and
supplier decisions. #nformation is captured once and made visible to all users, reducing
data input errors. #nformation is available in real time, eliminating delays throughout the
BI ) $art *+!oo"ing to the ,uture
organi:ations as information is shared. As firms move away from legacy systems and
toward fully integrated %.$ systems, as crossCfunctional trading partner teams are
created to lin" "ey processes to supply chain strategies, and as firms become more adept
at internal process integration, firms will also become more focused on achieving supply
chain ob/ectives, resulting in benefits for all trading partners.
Information visibility, or the way information is communicated and made
available to various constituents, plays an extremely important role in external process
integration. (oday, connecting buyers and suppliers via virtual lin"ages is the way supply
chains are becoming integrated.
2*
&upply chain communication technologies provide
support for a number of issues, including handling the flows of goods between
companies, negotiating and executing contracts, managing supply and demand between
partners, ma"ing and executing orders, and handling financial settlements, all with a high
level of security. &hirley 'ooper, supply chain procurement director at PCbased
'omputacenter, %urope=s leading provider of #( infrastructure services, believes that
future collaboration success lies in implementing new technology. @#f you have /oinedCup
LintegratedM #( you can get a steal on the mar"etplace. 7e are loo"ing at how we can get
our suppliers in a virtual warehousing space so # don=t have to hold stoc". # can loo" into
their systems to say, Wyou=ve got it, and #=ll have it at that price=,A she said.
2;
(oday=s webCbased collaborative infrastructures can accommodate an array of
communication applications using existing systems and %.$ applications. ,or instance,
'aliforniaCbased provider of web conferencing services 7eb%x 'ommunication=s
7eb8ffice application, -icrosoft=s &harepoint
U
application, and ,loridaCbased software
firm 'itrix &ystems= Go(o-eetingX application are /ust a few of the literally hundreds
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) BK
of software applications enabling businesses to communicate and share data both
internally and externally. ,or example, 9D(, a German manufacturer of paper handling
components, found that its many legacy systems were impeding its ability to collaborate
effectively with its customers and suppliers. .FD staff, for instance, needed to be able to
collaborate frequently with customers in the design process, and suppliers needed
visibility into parts inventories on a realCtime basis to avoid wor" stoppages. 9D(
decided to deploy an online collaboration and document management solution from
-icrosoft=s &hare$oint, which provided each customer and supplier with secure
collaboration and information access with 9D(. (he system ultimately reduced
administrative labor and supplier management time by over 2,333 hours per year,
enabling system paybac" in less than five months.
2?

'ollaboration software application suppliers are busy lumping together everything
from Hoice over #nternet protocol LHo#$M, email, instant messaging, web conferencing,
document sharing, and web portals to help customers integrate processes. #nformation
systems giant #9-=s collaboration software allows customers to integrate their %.$ data
across business processes, combining !otus 2otes
U
tas"s, scorecards, dashboards, eC
forms, document and content management, instant messaging, team rooms, and presence
awareness.
2I
#n the education arena, Ari:ona &tate niversity hosts a web portal that
allows all Ari:ona "indergarten through 12th grade students to interact with the state=s
math teachers. (he eC'ommerce $erspective feature profiles this collaborative effort.
*3 ) $art *+!oo"ing to the ,uture
E-COMMERCE PERSPECTIVEAn IDEAL Education
7hen threeCyearCold %lias 5ino/osa goes to "indergarten in (ucson, Ari:ona,
he=ll have more than crayons, paper, and paste at his disposal. 5e=ll also have access to a
host of interactive educational tools, than"s to a stateCsponsored web portal built and
managed by Ari:ona &tate niversity.
,rom "indergarten through 12th grade, 5ino/osa will head to the #ntegrated Data
to %nhance Ari:ona=s !earning L#D%A!M portal for math and reading practice tests,
supplemental online courses, interactive learning exercises, and stateCrequired advancedC
placement tests. 5e=ll also turn to #D%A! for learning materials, coursewor", and video
resources his teachers have placed there to supplement their classroom presentations.
ltimately, 5ino/osa and as many as 1 million other students will have access to
the #D%A! portal, enabled with the open source u$ortal software. ,or now, <33,333
students are authori:ed to log on to #D%A! to chec" out sample tests0 coursewor" is not
yet available but will be soon.
#n addition to the students, the state=s ;3,333 PC12 teachers have access to the
portal, not only to provide supplemental coursewor" but also for lin"s to student
demographics, improvement guidelines, grades, and benchmar"s. (eachers manage
coursewor" on #D%A! through &a"ai, an open source course management and
collaboration application.
(he focus of this innovative educational initiative is to use technology to enable
lifelong learning, says &am DiGangi, assistant vice provost for #( at Ari:ona &tate
niversity LA&M, in (empe. @#D%A! is not /ust access to a 7eb site, but accounts that
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) *1
will stay with students through their schooling and, conceivably their entire career,A he
says.
A& is building the #D%A! networ" per a contract with the Ari:ona Department
of %ducation, which has invested E* million in the networ". A& contributes technical
and staffing resources. (he university is phasing in access on a rolling basis, with all
students expected to have authority to use the portal by August 233;.
7ith more than 1 million potential users, #D%A! necessitates a heavyCduty
storage infrastructure. @(he biggest challenge is managing the authentication and
authori:ation of students and teachers,A says >ac" 5su, director of #& and networ"
management at A&. @7e have <*3,333 users authenticated and authori:ed, but have
over 1 million overall users to authori:e.A (o authenticate portal visitors, A& uses the
open source 'entral Authentication &ervice, developed at Dale niversity.
A& "eeps costs in chec" for the #D%A! networ" by using technologies such as
i&'&# and open source software. @%verything in this pro/ect is open source, so that in
itself is a huge cost savings, not /ust in initial but in ongoing costs,A 5su says, noting that
A& has been running !inux for three to four years. @(hen we used i&'&#, which really
ma"es our costs go down. All the ,ibre 'hannel expenses add up. 7e=ve saved a few
hundred thousand right there.A
&o for 5ino/osa, if all goes as planned, a lifelong relationship with #D%A! is in
the future Lor at least as long as his parents stay in Ari:onaM.
&ource: 'onnor, D., @An #D%A! %ducation,A (etwork World, H. 22, 2o. B;, 233*, pp. *BJ*;. sed with
permission from (etwork World, http:44nww.com.
*2 ) $art *+!oo"ing to the ,uture
As internal integration capabilities and relationships and information sharing
competencies with trading partners mature, firms should begin to notice that additional
external integration opportunities are occurring. (o maximi:e the value of these
integration efforts, firms should consider developing external integration performance
measures to trac" performance and guide future improvement efforts. (his topic follows.
Developing External Integration Performance Measures
As was discussed earlier in the chapter when assessing internal integration
performance, the firm should also develop external performance measures to monitor its
collaboration activities with trading partners in the eight "ey supply chain process areas.
#deally, a team composed of members from the firm and several primary trading partners
should be created to design these measures to be consistent with overall supply chain
strategies. &ubsequently, these measures can be employed by each of the trading partners
to monitor their respective collaboration activities in "ey process areas.
sing a lowCcost supply chain strategy example, trading partners would monitor a
number of costCoriented performance measures that could be used by individual firms and
that also might be averaged across all of the supply chain members for each of the "ey
supply chain processes. ,or the customer relationship management process, integration
performance measurement examples might include the number of '.- initiatives
implemented, the percentage of customers hitting a certain profitability level, the number
of customer contacts made, and the percentage of collaborative groups that include "ey
customers. &imilar sorts of measures could thus be developed for the other "ey processes.
8bviously, these measures can vary widely by industry, supply chain, company, product
type, and strategy employed. At 'aliforniaCbased &olectron 'orp., a provider of
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) *<
electronics manufacturing services, involving supply chain trading partners is an
important part of measuring and improving performance. @8ur goal is to drive lean
through the supply chain processes, on the factory floor and through our supply base. 7e
want much more visibility between our factory and our supplier=s factory,A says >ames
-ol:on, vice president of customer fulfillment at &olectron. 7ith lean principles in
place, a factory has much faster response times, -ol:on observes. @'ustomer feedbac" is
an important benchmar"ing tool within the highCtech industry as well,A adds -ol:on.
@7e do sub/ective and quantitative customer satisfaction surveys, with more and more
emphasis on quantitative assessments.A
2K
#mproving %xternal $rocess #ntegration and &upply 'hain $erformance
%ventually, as supply chain members become more adept at supply chain process
integration, poorCperforming suppliers and highCcost customers are replaced by better
ones, and longCterm trusting alliances are established among the firms that remain.
9uilding, maintaining, and strengthening these relationships is accomplished through use
of external process integration and continued performance monitoring coupled with
problemCsolving efforts. As process integration improves among supply chain partners,
so too does overall supply chain performance.
&upply chain trading partners must concentrate on collaborating and sharing
information such as sales and forecast information, along with information on new
products, expansion plans, new processes, and new mar"eting campaigns, in order to
maximi:e profits for the entire supply chain membership. ,ocusing on building external
process integration lin"ages will enable firms to better share and ta"e advantage of this
information. (he teams formed to design and organi:e process integration performance
*B ) $art *+!oo"ing to the ,uture
measures should be viewed as a "ey resource for the supply chain. (hese teams can
determine or consider supply chain process ob/ectives and the corresponding integration
activities and wor" groups that must occur to achieve the ob/ectives. #ntegration
performance metrics can then be designed for each of the processes, followed by
monitoring to identify any lac" of process integration and potential supply chain
wea"nesses. (hus, firms should periodically /ointly assess their levels of process
performance and integration and collaborate on methods to improve both.
#n many industries, supply chain managementJrelated costs can account for about
?3 percent of total firm operating costs and as much as half of a company=s assets.
Additionally, improving supply chain efficiency is viewed by many companies as about
the only remaining way to significantly reduce costs. Given these statements, it becomes
easy to appreciate the important roles played by external process integration along with
integration performance assessments. $eter &urtees, %uropean logistics director at
PimberlyC'lar", a global consumer goods provider, stated @,or manufacturers, the need
for collaboration, even between competitors, has never been greater+as the pressure on
the physical costs of distribution is now unsustainable.A
<3
(he remainder of the chapter
closes out the text by providing a discussion of the latest trends and developments in
integration and process management.
A LOOK AT TRENDS AND DEVELOPMENTS IN INTEGRATION AND
PROCESS MANAGEMENT
As the push towards @world classA supply chain management continues, driven by
the desire to reduce costs while improving quality and customer service, new trends are
emerging in areas such as use of technologies, human resource management, and global
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) **
trade. &ome of the more advanced and active practitioners of supply chain management
are already ma"ing use of these latest developments, while others are ta"ing a waitCandC
see approach. Generally spea"ing, companies providing the best products and services at
the most competitive prices while achieving high levels of customer satisfaction will
ultimately prove to be the most successful in the mar"etplace. And one of the most
effective ways to ensure this is through the practice of supply chain management. 'entral
to the practice of supply chain management is the integration of "ey business processes.
(hus, some of the current trends and developments in process management and
integration are discussed here.
New Uses of Technology
&ome of the most exciting and certainly the most rapidly changing developments
have to do with the application of technologies to process management and supply chain
management. A few of these new uses of technology are reviewed here.
Global Data &ynchroni:ation
Global data synchronization LGD&M is a term that refers to automated direct
product data exchange between supply chain partners. 8rgani:ations li"e the nonCprofit
G&1 5ong Pong serve as a registry where global retailers can loo" up a 5ong PongC
manufactured product and find the full range of product details, as well as initiate an
order. -any other local and regional databases such as G&1 are lin"ed by global
exchange services such as -arylandCbased Data $ool -anager. Global electronic product
identification standards have now been adopted to allow companies from all over the
world to communicate product information and purchase orders in this fashion. At the
*; ) $art *+!oo"ing to the ,uture
time of this writing, GD& initiatives are also occurring in 'anada, the nited Pingdom,
the %uropean nion, the nited &tates, and Australia.
'ompanies connect via GD& to reduce stoc"outs, new product time to mar"et,
and logistics costs, while providing faster flow of accurate information, which also
improves merchandising and fulfillment decisions. %xternally, fast and accurate
information flow improves collaboration with transportation providers, giving them more
accurate cargo information. Data synchroni:ation also fosters closer ties between
suppliers and buyers. @-ore cooperation on developing /oint trade promotion campaigns
will enable both sides to reduce the number of missed opportunities and set more
competitive prices,A says &teve Piefer, vice president of industry and product mar"eting
at eCcommerce software provider Global %xchange &ervices, headquartered in
-aryland.
<1
8penC&ource 'ommunities and 'ollaborative %nvironments
(han"s to the #nternet and openCsource software, wor"ers in every profession with
the use of a computer are busy establishing online open-source communities to share
ideas and exchange data and information. 8ne of the world=s largest openCsource
communities is &ource,orge.net, with millions of registered users collaborating on
hundreds of thousands of pro/ects. (his collaboration model is swiftly being adopted by
wor"ers worldwide to generate more innovative solutions to a variety of problems. sers
can very quic"ly mobili:e information on any topic, pro/ect, or problem in any field.
(echnoCfuturist .ay Pur:weil, developer of many artificial intelligence products and
patents, calls this moment in time not /ust a technological revolution, but a @singularityA
in the history of human"ind. 7ith open collaboration, wor"ers will be able to add
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) *?
significant value to their wor", earning additional compensation above what other nonC
collaborators might expect to receive. (he end result will be participatory .FD,
benefiting from the unique competencies of ran"CandCfile employees across their own
organi:ations, their trading partners= organi:ations, and all other organi:ations where
wor"ers are willing to share "nowledge.
(he irony is that managers typically would re/ect the notion of employees sharing
inChouse experiences and "nowledge with their counterparts in other organi:ations,
including competitors+if it weren=t already rapidly spreading throughout the
industriali:ed world. -any of these open collaborations, though, have the full support of
management. ,or example, -arylandCbased defense contractor !oc"heedC-artin=s
contract with the .&. Department of Defense to develop a new generation of stealth
aircraft involves I3 suppliers, operating in 1I? locations, who rely on groupware to
collaborate with each other and with the ?*Cmember Aeronautics (ech Group, who
coordinate the pro/ect with the four .& armed services, the .P. Defense -inistry, and
eight other allied military groups. $rimary wor" groups will thus be made up of wor"ers
from various disciplines and from multiple employers, bound together by a common
pro/ect goal.
<2
8pen source communities are a form of collaborative environment L'%M, which
simply refers to two or more individuals communicating to accomplish a shared
ob/ective. (hese days, '%s are constructed from a range of computer and communication
technologies, including instant messaging, email, chat rooms, #nternet telephones, mobile
communicators, cybercafSs, and web conferences. (hese forms of geographically
dispersed collaborations are occurring in part due to the widespread use of the #nternet,
*I ) $art *+!oo"ing to the ,uture
reduced travel budgets, threats of terrorism, and health fears such as the &A.& epidemic.
nfortunately, in a recent study of business executives, only <I percent reported that
their firms had a formal plan for using collaborative technologies. Additionally, even
when these technologies are used, executives generally admitted that there was no
consideration given as to how this type of communication could improve business
processes.
<<
.,#D (ags
7hile radio frequency identification L.,#DM tags have already been put into use
over the past few years to trac" products, cases, and pallets as they move along the supply
chain, the /ury is still out regarding their ability to replace bar codes on products and
pallets. -any, though, swear by their use and insist it is only a matter of time until
companies reali:e the full potential of .,#D in the supply chain. &pending on .,#D tags
is pro/ected to hit EB.2 billion in 233K, more than double what it was in 233*.
Discount retailer 7alC-art is perhaps the biggest supporter of the use of .,#D. #t
is beginning to require suppliers to use .,#D tags on many items and pallets of goods
shipped to its distribution centers. #ts ultimate goal is to use .,#D across its supply chain
to speed inventory to store floors and to eliminate stoc"outs. 9y the end of 233*, 7alC
-art store tagCreaders had already read over *I million tags. Global consumer goods
manufacturer PimberlyC'lar" 'orp. has also been moving ahead rapidly with its .,#D
deployment. (he company currently ships hundreds of items to 7alC-art and (arget in
.,#DCtagged cases and pallets, and overseas to retailers -etro Group and (esco. #ts
.,#D research lab has become one of the few testing centers in 2orth America accredited
by .,#D standards groups for consumer goods and retail.
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) *K
8ne of the current problems associated with .,#D is integrating .,#D data into
an %.$ system. Data formatting issues and software incompatibilities ma"e it hard to
import data directly. .,#D tag readers can also misread tags, causing data errors. @7e
have a hec" of a time with the amount of middleware, trying to get one to tal" with
another,A says #& director %d -athews of 7isconsinCbased bicycle and scooter
manufacturer $acific 'ycle. (hey must dedicate one person to literally sort through the
?3,333 wee"ly records it receives from *3 .,#DCtagged products it sends to retailers,
searching for errors that include duplicate data caused from multiple reads generated
when a pallet of tagged bicycles gets stalled near a tag reader at a distribution center.
8ther problems with .,#D include tags that don=t transmit signals at all or signals that
are strong enough, the fact that metal reflects signals and water absorbs them, tag readers
interfering with one another, tag prices that can range from 13 to <3 cents each, and tags
that are too large to fit on some products such as pill bottles. &till, 7alC-art executives
and others insist that .,#D problems are being solved and the technology is catching on
faster than bar code labels Lit too" ten years before bar codes were universally
acceptedM.
<B
7ireless Access to %nterprise Applications
,irms desiring wor"ers to remain in contact with company systems while out of
the office are deploying Wi-Fi networks to achieve mobile access. ,or example,
industrial chemical supplier %astman 'hemical 'ompany uses 7iC,i at its Pingsport,
(ennessee facility so warehouse wor"ers can trac" inventory on $DAs while engineers
monitor chemical mixtures from their laptops.
<*
.on Ghani, an executive at &afelite 'orp.
of 'olumbus, 8hio, an auto glass company, believes the time is right for wireless
;3 ) $art *+!oo"ing to the ,uture
technologies. #t has recently given wireless devices to its field technicians and will have
provided 9lac"9erryX devices to most of its field wor"ers by the end of 233;. @#t=s the
number one pro/ect on my agenda,A he says. (echnicians at &afelite can remotely cloc" in
and out, get wor" orders, and issue status reports in real time. Ghani explains, @(he
number one goal Qof wirelessR is to become more efficient and effective in serving our
customer.A #n fact, a omputerworld $aga"ine survey of executiveClevel #( professionals
identified wireless technology as one of the top pro/ect priorities for 233;, second only to
security initiatives.
<;
Automated 9usiness $rocesses
(he use of software to perform a function and replace a manuallyCperformed one,
can reduce time, cost, and errors for the organi:ation. #n many cases, offCtheCshelf
software can solve a basic problem, but more and more, companies are turning to
software designers to design a solution for a unique set of parameters that can meet a
specific need. DelawareCbased 'ounterpoint &oftware, #nc. L'&#M develops business
management software solutions mostly for the insurance industry. A '&# representative
meets with company personnel, interviews them, and evaluates their hardware and
software situation. (hey can develop a custom agency management system to meet the
needs of each client, consisting of claims trac"ing, reporting, accounting, quoting, and
policy issuance modules.
<?
(here are numerous software products available that help companies build webC
based applications. 8ne of the most comprehensive software products, 2N> 13.*, is
available from 'aliforniaCbased nify 'orp. 2N> is an enterprise application
development suite used for automating business processes, and allows users to build most
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ;1
any transactionCbased business application requiring endCuser interactions. 2N> includes
a process designer module, a reporting module, and a webCservices design module.
'orporate %xpress, a ,rench office supply company, wanted to implement webCbased
automation for its supply chain management, fulfillment, delivery, and transportation
scheduling processes. (he goal was to increase customer satisfaction, order delivery
accuracy, and sales force efficiency while reducing call center expenses. #t selected nify
to design the applications, using its existing business application development staff. (he
initial version of the field sales automation system application was designed in /ust three
days. %ach sales representative was able to have @anytime, anywhereA access to customer
setup, order management and entry, price loo"up, and sales message retrieval. 7ith the
new 2N>Cbased system, 'orporate %xpress eliminated <33 inbound calls per day to its
call center and significantly enhanced the call center processes. (he nify web
application provides sales representatives with realCtime quotations while onsite with the
customer. 9ecause the application is lin"ed to 'orporate %xpress=s %.$ system, price
quotes are based on current contracts, calculated and quoted in real time, ma"ing them
more accurate.
<I

Also referred to as smart BPM systems, or automated decision systems, these
automated systems are being deployed frequently for a variety of processes in many
industries. (hese are rulesCbased expert systems, often involving statistical analysis of
data, and they typically ma"e decisions in real time after weighing all the data and rules
for a particular customer or situation. #n ban"ing, realCtime mortgages and lending
decisions are commonly made using automated decision systems. 2orth 'arolinaCbased
onCline lending service !ending(ree.com uses automated decision ma"ing to decide
;2 ) $art *+!oo"ing to the ,uture
which of its participating ban"s are most li"ely to issue a mortgage to a customer, and to
offer several mortgage deals within a few minutes to potential customers.
<K

Human Resource Management Developments
As alluded to earlier in this chapter, firms have to somehow find ways to brea"
down barriers to internal integration, and in many cases this involves use of innovative
human resource management L5.-M practices. #n fact, research conducted by $rofessors
'asey #chniows"i and Pathryn &haw studied the relationship between innovative 5.-
practices and business performance. (hey found that there were @systemsA of innovative
practices that were more effective in raising firm performance than the more traditional
approaches to 5.-. (he most successful firms were found to incorporate innovation
across seven different areas: employee screening, payCforCperformance plans, wor"
teams, employment security guarantees, laborJmanagement communications, /ob
definitions, and ongoing training in s"ills and problem solving.
B3

(he .&. steel industry is a great example of an industry containing both
innovative and traditional forms of human resource management. 2orth 'arolina steel
manufacturer 2ucor &teel, for instance, has some innovative ideas regarding 5.-.
%mployees earn a fairly low base salary, but then can earn large bonuses based on
productivity. As a result, 2ucor=s employees straighten <* to B3 tons of steel per hour per
employee, compared to 13 tons per hour per employee for the industry. -anagers can
also earn big bonuses, based on return on assets and wee"ly crew production. &enior
officers earn bonuses based on return on shareholder equity. Additionally, no one has
been laid off in over 2I years. %mployees can voice their concerns in crew meetings,
department meetings, shop dinners, and surveys. #f they feel they have been treated
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ;<
unfairly, there is an appeals process whereby their voices will be heard.
B1
#nnovative and
wellCdesigned 5.- practices such as the ones outlined here can contribute greatly to the
creation of a collaborative and supportive wor" environment. As a result, these
collaborative wor" environments will enable the firm to more quic"ly and effectively
integrate processes both internally and externally.
'ollaborative 2ew $roduct and $rocess Development
8ne specific innovative form of 5.- is termed collaborative new product and
process development L2$$DM. #deally, collaborative 2$$D encourages representatives
from all "ey trading partners to act as full partners on designCbuildCsupport teams. (he
teams are responsible for developing a total system of design requirements for both the
product and its associated processes. $ro/ects involve biCdirectional communications
from both team and nonCteam members, all of whom have access to a common design
database. 'ollaboration spans all disciplines, functions, divisions, pro/ects, and target
mar"ets to gather and use expert "nowledge and ma"e effective business plans. (oday,
these collaborative 2$$D teams are using the openCsource communities described earlier
to communicate and share information. &everal studies of collaborative 2$$D have
found benefits in terms of reduced proposal and development cycle times, reduced new
product introduction time, reduced nonCvalueCadded wor", reduced scrap and rewor"s,
and increased design reuse.
B2
Global Trade Issues
#n a 233* interview, -ar" 'olumbo, vice president for strategic mar"eting for
global pac"age delivery service ,ed%x, thought the largest impact to supply chain
management over the following ten years would be the continued liberali:ation of global
;B ) $art *+!oo"ing to the ,uture
trade. ,ewer trade tariffs and regulations will open up free trade to many more countries,
creating a larger supply base with more access to raw materials, and new mar"ets. (o
remain competitive, even smaller firms are now considering foreign purchases of parts,
supplies, and even new products that can be licensed. 'ompanies li"e ,ed%x will be
needed to help identify trading partners, transport and store goods, get items through
customs, and finally deliver the purchased items. ,ed%x is building its largest ever
logistics hub in Guang:hou, 'hina, since this is where most of the new manufacturing
facilities are being built.
#n a recent study of 'hinese and .&. manufacturing companies, 'hinese plants
were found to have embraced process integration to a greater degree than their .&.
counterparts. After a closer loo", it was found that most of the 'hinese facilities studied
were /oint ventures and foreignCowned facilities. (hese plants were newer and more
modern than the traditional 'hinese manufacturers, and their "ey customer was often
their parent or partner firm. (here is still a need, though, for outsourcing partners for
many 'hinese manufacturers in the areas of pac"aging, customer service, and
purchasing.
B<

#ndia is also having a ma/or impact on global trade, due to the rapid increase of
"nowledge wor"ers there and the low wages they are receiving. (hese wor"ers are
causing #ndia to become a much larger consumer of goods.
BB
A number of global
organi:ations are opening facilities in #ndia to ma"e use of these highly s"illed wor"ers.
,or instance, at the end of 233*, '%8 9ill Gates of -icrosoft announced that the
company would invest over E1.? billion in #ndia over the following four years for its own
.FD facilities.
B*
#t is li"ely that these types of arrangements will also lead to process
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ;*
integration opportunities with #ndian service companies. (he many software development
engineers in #ndia are also having an impact on service firms located outside #ndia that
are doing applications development and systems integration pro/ects. #ndian #( firms
such as (ata 'onsultancy &ervices and #nfosys are capturing an everCgrowing segment of
this mar"et. As of 233B, B* percent of these types of firms worldwide were in #ndia. %ven
small businesses li"e '$A firms in the .&. are now integrating with chartered #ndian
accountants who can do the boo""eeping and simple tax preparation chores, leaving the
.&. wor"ers more time to do higherCvalue activities li"e tax planning.
B;
Another reason world trade is li"ely to increase is the overall increase in prices
paid for most components and materials. #n a survey of .&. manufacturers, materials
costs rose more than ; percent from 233B to 233*, while mar"et forces "ept sales prices
level or even lower for the same time period. 'ost reduction and competitive pressures
have thus spurred more global outsourcing efforts to produce products more quic"ly and
cheaply. #n the pharmaceutical industry, for example, drug companies might ta"e years to
develop and test new products, only to find that profit margins are greatly reduced as
other competitor products enter the mar"et.
B?
Environmental Concerns
(oday, environmental, health, and safety L%5&M excellence means much more
than achieving a @greenA supply chain. %5& professionals are collaborating on crossC
functional supply chain management teams to improve customer retention, revenue
generation, cost reduction, and asset utili:ation along the supply chain. %5& leaders,
historically responsible for regulatory compliance, are now routinely involved in
directing supply chain firms= corporate social responsibility programs. %5& has become
;; ) $art *+!oo"ing to the ,uture
important in today=s global economy for several reasons+environmental regulations are
continuously growing due to the general understanding of why environmental issues
matter0 manufacturers are expected to ta"e responsibility for product disposal at the end
of a product=s life0 companies routinely outsource chemical management, ha:ardous
product handling, and waste disposal0 and the current concerns about energy consumption
and greenhouse gas emissions. (hus, %5& personnel are needed when products and
processes are designed, when companies develop environmental compliance plans, when
reverse logistics strategies are developed, when potential outsourcing partners are
identified, and when customers expect environmental performance to be part of a product
or service.
'ompanies such as #ntel, ,ed%x, Dow 'hemical, and -otorola commonly
integrate %5& managers into crossCfunctional teams that guide supply chain business
processes. ,or example, as part of a &ix &igma pro/ect at #llinoisCbased wireless and
broadband communications equipment manufacturer -otorola, %5& personnel led an
effort to reduce palletCrelated in/uries. (he %5& team discovered that pallets coming from
suppliers often didn=t conform to specifications. (he team developed a solution for
standardi:ed pac"aging and pallets, which dramatically reduced the number of pallets
handled, stored, and disposed0 maximi:ed the pac"aging density to reduce transportation
costs0 and reduced in/ury occurrences and costs. #n 233B alone, the plan saved over E*
million.
BI
Outsourcing Business Processes
7ith continued demands for cost reduction and quality and service improvement,
firms are also frequently turning to business process outsourcing L9$8M or the
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ;?
outsourcing of an entire function or capability, allowing more resources to be placed in
core competency areas. 7ithin the human resources management area, for example, the
training function is one area being outsourced. #ndustry experts predict that by 231*, half
of all company trainers will wor" for outsourced services. Due to costCcutting measures
and a reali:ation that training can perhaps be delivered more effectively by external
training services, the number of companies outsourcing training is rapidly increasing.
@(he number of requests for proposals has tripled in the last 12 months,A said Doug
5arward, '%8 of (he %xceleration Group, a 2orth 'arolina training consulting firm.
(raining 9$8 can thus help companies to avoid large training facility capital
expenditures, receive highCquality and relatively lowCcost training services, ta"e
advantage of global training opportunities, and vary training levels as the si:e of the firm
dictates.
BK
#n general, though, 9$8 needs to be conducted with great care. &ome companies
are getting very close to outsourcing their core capabilities in search of cost reductions,
and instead are finding that external services can eventually be more expensive, create a
loss of focus and integration, and can lose customers for the company. A recent study in
Germany, for example, found that the internal costs of providing information technology
services were frequently much lower than they were at the outsource companies. !ac" of
an internal #( function also led to a lac" of integration between company strategies and
#( strategies. ,inally, the use of overseas suppliers can create concerns regarding cultural
differences, political stability, and infrastructure capabilities, leading to increased ris"
associated with 9$8 providers from developing economies.
*3
;I ) $art *+!oo"ing to the ,uture
SUMMARY
(here is a growing recognition that supply chain process integration creates
significant opportunities for trading partners to achieve high levels of competitiveness
and financial returns0 however, this entails sharing information and requires cultural
change in many cases. &upply chain partners must first achieve internal process
integration, which means brea"ing down integration barriers that include the silo
mentality, the firm=s culture, and trust issues. 7hen firms have become proficient at
internal process integration, they can turn their attention outward to external process
integration, or collaborating with trading partners. (o improve, firms must also develop
performance metrics to assess both internal and external integration efforts. -any issues
impact process integration, including new uses of technology, global trade, and process
outsourcing.
KEY TERMS
active internal integration phase
automated decision systems
business process integration
collaborative environment
collaborative new product and process development
cultural barriers to collaboration
customer relationship management process
customer service management process
data warehouses
demand management process
environmental, health, and safety excellence
global data synchroni:ation
information visibility
internal barriers to collaboration
internal process integration
internal supply chain
"ey business process integration
"ey supply chain processes
manufacturing flow management process
open collaboration
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ;K
openCsource communities
order fulfillment process
process integration
product development and commerciali:ation process
radio frequency identification
returns management process
silo mentality
smart 9$- systems
structural barriers to collaboration
supplier relationship management process
technological barriers to collaboration
topCdown management approach
7iC,i networ"s
wor" groups
N-! web services
DISCUSSION QUESTIONS
1. Define @process integrationA and discuss why it might be difficult to achieve.
2. 5ow does internal process integration differ from external process integration6
<. 7hat activities are necessary for achieving internal process integration6
B. Describe the activities that occur during the internal integration preparation phase.
7hy is this important6
*. 7hat are the three types of internal integration barriers6 Discuss each one.
;. 7hat is the most common strategy used to overcome technological barriers to
internal integration6
?. 7hat are some of the issues to consider as the firm integrates its various
information systems6
I. 7hy is it important to develop a set of internal integration performance metrics6
K. 7hy is the use of teams so important in achieving internal integration6
13. At what point is the firm ready to wor" on achieving external process integration6
11. 7hat is the "ey element in building successful teams6
12. 7hat is meant by the term chair ballet, as it was used in the section of the chapter
describing Aetna=s offices, and why might this be a good thing to do6
1<. 7hy might achieving external integration be so difficult6
1B. 7hat are the general requirements for achieving external process integration6
1*. 7hy do you thin" it is important to align internal functional strategies with supply
chain strategies6
?3 ) $art *+!oo"ing to the ,uture
1;. Describe some integration activities for each of the eight "ey supply chain
processes for:
a. an upscale hotel
b. a clothing retailer
c. an automobile manufacturer
1?. &hirley 'ooper, supply chain procurement director at PCbased 'omputacenter,
%urope=s leading provider of #( infrastructure services, believes that future
collaboration success lies in implementing new technology. $rovide arguments
supporting this statement, and arguments refuting this statement.
1I. 7hy is it important to measure external integration performance6
1K. 7hy does technoCfuturist .ay Pur:weil, developer of many artificial intelligence
products and patents, call this moment in time not /ust a technological revolution,
but a @singularityA in the history of human"ind6
23. 7hat is an open collaborative environment, and how is it formed6
21. 7hat is .,#D, and what are its advantages4disadvantages6
22. 7hat are smart business process management systems used for6
2<. Describe the relationship between collaborative new product design and
development and process integration.
2B. 7hat impact will the liberali:ation of global trade have on supply chain
management6
2*. %nvironmental health and safety issues play an important role in supply chain
process management. Describe why.
2;. 7hy can the outsourcing of business processes be ris"y from a supply chain
management perspective6
INTERNET QUESTIONS
1. .eport on some of the definitions and software applications found when searching
on the term integration middleware.
2. !oo" up one of the following products and describe how it wor"s:
a. 7eb%x=s 7eb8ffice application
b. -icrosoft=s &harepoint application
'hapter 1;+&upply 'hain $rocess #ntegration and a !oo" (owards the ,uture ) ?1
c. 'itrix &ystems= Go(o-eeting application
<. Go to http:44sourceforge.net, register as a user, and then go to a discussion group of
interest to you and report on your group experiences.
INFOTRAC QUESTIONS
Access http:44www.infotracCthomsonlearning.com to answer the following questions:
1. 7rite a term paper on the topic of corporate culture and its impact on supply chain
management. #nclude discussions of how several firms have developed cultural
change programs.
2. 7rite a report on >ac" 7elch and General %lectric, focusing on how the company=s
culture was impacted by >ac" 7elch and how that impacted its dealings with its
trading partners.
<. .eport on some of the latest issues in collaboration software or other new uses of
technology for process integration or collaboration.
REFERENCES
'roxton, P., &. GarciaCDastugue, and D. !ambert, @(he &upply 'hain -anagement
$rocesses,A The %nternational &ournal of 'ogistics $anagement, H. 12, 2o. 2, 2331,
pp. 1<J<;.
Daft, .., and D. -arcic L1KKIM, )nderstanding $anagement, 5arcourt 9race F
'ompany, 8rlando, ,!.
7isner, >., G. !eong, and P. (an L233*M, @*rinciples of Supply hain $anagement+ !
,alanced !pproach,A &outhC7estern, -ason, 85.
ENDNOTES
1
Tuote from >oe Andras"i, president and '%8, Holuntary #nterC#ndustry 'ommerce &tandards Association, in 9erthiaume,
D., @'ollaboration: #s #t ,inally 'atching on in the &upply 'hain6A hain Store !ge, H. I2, 2o. 2, 233;, p. *2.
2
Tuote from 9ob 2oe, '%8, 1&ync, in 9erthiaume, D., @'ollaboration: #s #t ,inally 'atching on in the &upply 'hain6A
hain Store !ge, H. I2, 2o. 2, 233;, p. *2.
<
9ar"i, 5. and A. $insonneault, @A -odel of 8rgani:ational #ntegration, #mplementation %ffort, and $erformance,A
-rgani"ation Science, H. 1;, 2o. 2, 233*, pp. 1;*J1I3.
B
!apide, !., @-#(=s &'2323 $ro/ect: (he %ssence of %xcellence,A Supply hain $anagement #eview, H. 13, 2o. <, 233;,
pp. 1IJ2B.
*
!ittle, -., @(oyota -oves to 9ecome 2o. 1 'ar -a"er in the 7orld,A .poch Times, April 11, 233;, available at
http:44www.theepochtimes.com4news.
;
@&hifting the &upply 'hain into 5igh Gear,A !utomotive %ndustries, H. 1I1, 2o. 11, 2331, pp. IJ12.
?
-uscarella, G., -. Prishnan, and 5. Ault, @9usiness Advantages ,low with N-!,A -ptimi"e, 2ovember 233<, pp. I;JIK.
I
'oo"e, >., @9ringing Down the 9arriers,A 'ogistics $anagement, H. <I, 2o. ?, 1KKK, pp. 13*J13?.
K
-essmer, -. and !. Pahn, @-anaging 'onflict,A ,usiness redit, H. 13I, 2o. B, 233;, pp. *2J*<.
13
2olan, D., @!-&9 .ealigns Pey -anagement $ersonnel for Greater %fficiency,A The Ta/ !dvisor, H. <?, 2o. B, 233;,
pp. 2BBJ2B;.
11
-onroe, !., @Do the .ight (hing,A ,uildings, H. KI, 2o. 11, 233B, pp. <IJB2.
12
'hyna, >., @#ntegrating $atient &ervice,A 0ealthcare ./ecutive, H. 23, 2o. ;, 233*, pp. *3J*1.
1<
5uff, '., @(earing Down 7or"force 7alls,A Workforce $anagement, H. I*, 2o. K, 233;, p. <B.
1B
5yde, A. and >. $aterson, @!eadership Development as a Hehicle for 'hange During -erger,A &ournal of hange
$anagement, H. 2, 2o. <, 2332, pp. 2;;J2?1.
1*
-iller, .., @5ow 'ulture Affects -ergers and Acquisitions,A %ndustrial $anagement, H. B2, 2o. *, 2333, pp. 22J2;.
1;
5einrich, '. and D. &imchiC!evi, @Do #( #nvestments .eally $ay 8ff6A Supply hain $anagement #eview, H. K, 2o. B,
233*, pp. 22J2I.
1?
http:44www.bitpipe.com4tlist47or"groups.html.
1I
&anders, 2. and .. $remus, @-odeling the .elationship 9etween ,irm #( 'apability, 'ollaboration, and $erformance,A
&ournal of ,usiness 'ogistics, H. 2;, 2o. 1, 233*, pp. 1J2<.
1K
9ernstein, -., @(he 7orld (rade -aga:ine: ,abulous *3 $lus 8ne,A World Trade, H. 1?, 2o. I, 233B, pp. 1BJ22.
23
&ee, for instance, 'ast"a, $., D. 9amber, >. &harp, and $. 9elohoube", @,actors Affecting &uccessful #mplementation of
5igh $erformance (eams,A Team *erformance $anagement, H. ?, 2o. ?4I, 2331, pp. 12<J1<B.
21
!in", A. and $. ,ilias, @(he %xpert 8pinion: An #nterview with Alan 5uberty, 'onsultant to ,ord -otor 'ompany=s
Hirtual (eams $ro/ects, 1KIIJ233*,A &ournal of 1lobal %nformation Technology, H. K, 2o. 1, 233;, pp. ;2+;I.
22
'olvin, G., @7hy Dream (eams ,ail,A Fortune, H. 1*<, 2o. 11, 233;, pp. I?JK2.
2<
7ars"i, $., @-eeting in the 5allway,A ,uildings, H. KK, 2o. 12, 233*, pp. ;;J;?.
2B
5ymes, A., @,irstC.ate !eadership Guides A'9 9usiness $artners= &uccess,A ommunity ,anker, H. 12, 2o. B, 233<, pp.
*2J*<.
2*
#nce, >. ,., @'atching p with &'-=s Hision,A )pside, H. 1B, 2o. ;, 2332, pp. *3J*B.
2;
'lar"e, %., @Getting 9uyers on 9oard,A Supply $anagement, H. 13, 2o. 21, 233*, pp. 2;J2?.
2?
#nternal -icrosoft document, @-anufacturer .eali:es <I* $ercent .eturnC8nC#nvestment with 7ebCbased
'ollaboration,A available at http:44www.download.microsoft.com4documents4customerevidence.
2I
$reston, .., @7e -ust !ive 'ollaboration, 2ot >ust %xpect #t,A %nformationWeek, -ay 1*, 233;, p. ?;.
2K
.ichardson, 5., @5ow Do Dou Pnow Dour &upply 'hain 7or"s6A H. B;,. 2o. ;, 233*, pp. <3J<2.
<3
&ee note 2; above.
<1
-ar", P., @Dairy ,arm Automates 'ollaboration,A hain Store !ge, -ay 233;, p. 22A.
<2
&nyder, D., @%xtraC$reneurship: .einventing %nterprise for the #nformation Age,A The Futurist, H. <K, 2o. B, 233*, pp.
B?J*<.
<<
,ontaine, -., &. $arise, and D. -iller, @'ollaborative %nvironments: An %ffective (ool for (ransforming 9usiness
$rocesses,A %vey ,usiness &ournal -nline, -ay4>une 233B, p. 1.
<B
&ullivan, !., @(he !ittle 'hip (hat 'ouldn=t LDetM,A %nformationWeek, 8ctober 13, 233*, pp. <BJ<I.
<*
.ad/ou, 2., @(he N #nternet #nvigorates &upply 'hains,A %ndustrial $anagement, H. B;, 2o. 1, 233B, pp. 1<J1?.
<;
$ratt, -. and -. 5amblen, @7hat=s 2ext: 7ireless,A omputerworld, H. B3, 2o. 1, 233;, pp. 22J2<.
<?
&cotto, .., @'ounterpoint &oftware, #nc.,A #ough (otes, H. 1B?, 2o. K, 233B, p. A;B.
<I
-ore/on, -., @nify has Designs on 9uilding 7eb Apps,A #(, August <3, 233B, 2o. 1113, p. *B. #nformation was also
obtained from http:44www.unify.com4customers4successstories.
<K
Davenport, (., @Decision %volution: Automated &ystems are 5elping 9usinesses -a"e Decisions -ore $roductively and
'onsistently,A %-, H. 1I, 2o. 1, 233B, p. 1.
B3
#chniows"i, '. and P. &haw, Y9eyond #ncentive $ay: #nsidersZ %stimates of the Halue of 'omplementary 5uman
.esource -anagement $ractices,Y &ournal of .conomic *erspectives, H. 1?, 2o. 1, 233<, pp. 1**C1I3.
B1
Andresen, P. and 9. Pleiner, @%ffective 5uman .esource -anagement in the &teel #ndustry,A $anagement #esearch, H.
2I, 2o. 11412, pp. <2JB<.
B2
&win", -., @9uilding 'ollaborative #nnovation 'apability,A #esearch Technology $anagement, H. BK, 2o. 2, 233;, pp.
<?JB?.
B<
-aurer, >., @'ompetitive Advantages of 'hina Go 9eyond !abor,A World Trade, H. 1I, 2o. K, 233*, pp. 2;J2?.
BB
9ernstein, -., @(o &atisfy 'ustomer Demand for Tuality, &upply 'hains -ust be ,ast and Agile,A World Trade, H. 1I,
2o. 13, 233*, pp. *IJ;3.
B*
'lancy, 5., @,or the .ecord: 5its and -isses,A #(, December 2;, 233*, 2o. 11??, p. 21.
B;
&ubba"rishna, &., @#ndia=s #mpact on the Global 'onsulting #ndustry,A onsulting to $anagement, H. 1;, 2o. B, 233*, pp.
?JK.
B?
Pat:, >., @Drifting Apart,A %ndustry Week, H. 2**, 2o. B, 233;, pp. 21J2B.
BI
,i"sel, >., D. !ambert, !. Artman, >. 5arris, and 5. &hare, @(he 2ew &upply 'hain %dge,A Supply hain $anagement
#eview, H. I, 2o. *, 233B, p. *3.
BK
(yler, P., @'arve 8ut (raining6A 0#$aga"ine, H. BK, 2o. 2, 233B, pp. *2J*?.
*3
9arnes, $., @Good Going,A Financial $anagement, 8ctober 233B, pp. <1J<2.