Chapter 13

Integration and collaboration

Student: Aya Wang

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Introduction
In todays world of international trade and
global competition, where increasingly supply
chains compete more so than individual firms
and products, integration and collaboration
have become key differentiators of high
performing supply chains.

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Core sections
Supply chain integration
Supply chain collaboration principles
Supply chain collaboration methods
Collaborative planning, forecasting and
replenishment (CPFR)
Vendor managed inventory (VMI)

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Learning objectives
Define the terms integration and collaboration in the
global SCM context
Explain how internal and external integration can be
achieved to benefit supply chain performance
Discuss collaborative working and partnerships
Elaborate on specific methods used to enable
collaboration
Offer a holistic perspective of SCM to provide an
understanding of how supply chains can gain greater
integration and collaboration in the future

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Supply chain integration
Integration is the alignment and interlinking of
business processes, and embodies various
communication channels and linkages within a supply
network
Collaboration is a relationship between supply
chain partners developed over a period of time

Integration should not be confused with collaboration,

and integration is possible without collaboration, but
it can be an enabler of collaboration
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 Distinctions between the primary
modes of integration

Integration with suppliers and customers

Integration with selected first tier Integration with selected first tier, and
customers or service providers increasingly second tier suppliers

Cross-functional integration
within a selected organization
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Internal integration
To integrate communications and information systems so as
to optimise their effectiveness and efficiency
Can be achieved by structuring the organisation and the
design and implementation of information systems
Non-value adding activity is minimised
Costs, lead-times, and functional silos are reduced
Service quality is improved
BPR and STS method are commonly used to analyse existing
organizational structures, eliminate non-value adding activities, and
implement new work structures let organization be optimally
aligned
ERP is key enabler of internal integration, often expose any
remaining non-value adding activities in the organization
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External integration
EDI is a key enabler of supply chain integration
It streamlines information sharing and processing
between supply chain partners
Effective and efficient organisational design is a
prerequisite
Keiretsu supply chain structure:
OEM work closely with their first tier suppliers to integrate
manufacturing, logistics and information processes; which
is passed upstream
This enables just-in-time line-side delivery at their assembly plants
A seamless lean supply chain is created
The supply chain is viewed as one extended operation
It was pioneered in Japanese banking

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Supply chain collaboration principles
While IT are enablers of supply chain integration,
optimal and uniform organizational structures are
fundamental to integrating factors in a supply chain
The key constraint of integration across multiple
echelons
The scale and complexity of global supply chains
Information sharing may not be benefit to all supply chain partners,
possibly exposing suppliers to their competitors
Supermarket retail is intensely competitive
Drives down consumer prices at the supermarket shelves
Squeeze their suppliers to operate with lower profit margins and
tighter delivery schedules
Competitively rather than collaboratively

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Supply chain collaboration principles
Collaboration is dependant on the provision of
mutual benefit, but it between suppliers is difficult
to achieve in supply chains
Hence trust becomes an issue

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The prisoners dilemma
You and a partner are suspected of committing a crime and
arrested. The police interview each of you separately. The police
detective offers you a deal: your sentence will be reduced if you
confess!

Here are your options:

If you confess but your partner doesnt: your partner gets the full 10-year
sentence for committing the crime, whilst you get a 2-year sentence for
collaborating.
If you dont confess but you partner does: the tables are turned! You get
the full 10-year sentence, whilst your partner gets the 2-year sentence.
If both of you confess: you each get a reduced sentence of 5 years.
If neither of you confess: you are both free people.

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The prisoners dilemma
The dilemma you face is do you trust your partner to
make the same decision as you?
The best strategy is based on trust,
and results in a win-win situation.

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The journey from open market
negotiations to collaboration
A trust-based win-win situation in a supply chain partnership
takes time
Trust needs to be built up step-by-step, the journey towards
a collaborative supply chain can be long and arduous

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The two dimensions of collaboration
applied to transport management

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The combination of vertical and
horizontal collaboration can achieve..
Reduce
Inventory-carrying costs
Unproductive waiting time
Empty running times
Adopting collaborative methods such as joint
planning and technology sharing can improve lead
time performance

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Supply chain collaboration methods
Suppliers competing for the same orders creates
supply chain inefficiencies
This will inevitably drive down their prices, promise unrealistic
lead-times and lose their focus on product and service quality
Supply base rationalisation: periodically a key
focus of such organisations
E.g. in 2002 Nissan cut its supply base by half to reduce complexity
and costs
A response to market pressures
It is easier for an OEM to work with a few selected suppliers, than to
work with many suppliers.
Suppliers who are not directly competing against each other for
individual orders are more likely to collaborate

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Supply chain collaboration methods
Supplier development can enable improved integration and
also collaboration (e.g. Keiretsu)
Shift suppliers mindsets from thinking competitively to
collaboratively
Enables integrated order processing application for aggregated
procurement
Aggregated procurement:
Rather than individual suppliers tendering for particular orders, specific
suppliers are selected by a supplier selection software package based on
their capabilities
Each supplier gains a share of the total orders based on their ability to
deliver the order on time and to specification
Consequently, the overall supply base incrementally improves,
reducing the likelihood of future rationalization.
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Collaborative planning, forecasting and
replenishment (CPFR)
Scale and complexity are
significant constraints
Fundamentally, it is difficult to
forge close partnerships with
many partners
Hence some CPFR solutions
will have greater scope and depth
than others

Figure 13.10 The CPFR process

(adapted from Cassivi, 2006) 18
Three modes of CPFR
Basic CPFR: a limited number of business processes
integrated between a limited number of supply chain
partners
Developed CPFR: will typically involve a greater
number of data exchanges between two partners,
and may extend to suppliers taking responsibility for
replenishment on behalf of their customer
Advanced CPFR goes beyond data exchanges to
synchronise forecasting information systems and
coordinate planning and replenishment processes
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The transition to an advanced CPFR
A long-term relationship to have built up
Considerable constraints
Time, complexity, scale and the substantial financial
investment required
For large-scale multinational organization
The benefits of CPFR outweigh the initial investment
For organizations without the same economies of
scale
The development is obviously more difficult to achieve

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Vendor Managed Inventory (VMI)
A holistic view of inventory levels is taken
throughout the supply chain with a single point of
control for all inventory management
The vendor manages stock replenishment at their
facilities to enable a customer to effectively
eliminate an echelon in the supply chain
Upstream demand visibility is improved to reduce
the impact of demand fluctuations
Hence VMI can enable supply to more accurately
and precisely meet demand

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Vendor Managed Inventory (VMI)

Figure 13.11 A simplifi ed VMI scenario (adapted from

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Matthias et al., 2005)
 Vendor Managed Inventory (VMI)
By providing improved supply and demand information
visibility via centralized control, VMI can specifically..
Reduce the impact of the following sources of the
bullwhip effect:
Price variation
customers over-ordering due to stock shortages
(i.e. Houlihan effect)
Demand signal processing (i.e. Forrester effect)
Order batching(i.e. Burbidge effect)
in Chapter 7
As with CPFR, significant investment in developing an
appropriate collaborative relationship is a prerequisite to
operating VMI

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Types of vendor managed inventory in
supply chains
Table 13.1 Types of Vendor Managed Inventory in Supply Chains

Configuration Description of collaborative or vendor managed

functions
Type I and II have been
Type 0 Traditional supply chain implemented in supply
Type I Replenishment only TypeinIII
chains and IV
various are more
sectors
advanced and require
Type II Replenishment and forecasting further research and
development
Type III Replenishment, forecasting and
customer inventory management

Type IV Replenishment, forecasting,

customer inventory management
and distribution planning
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Thanks for your attention!

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 Selected generic organisation structures
Improved integration between dedicated
teams in each department, communication and
information processing between departments id
streamlined.
Each department
it retain designs
functional their structures, that
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Currently best practice in organizational
design is complete shift away from functional
silos to a pure product or process organization
structure

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