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The last decade has brought a dramatic shift in the nature of competition for most companies.
Technological advances, particularly in information technology, coupled with globalization,
the rise of complexity and shrinking time horizons are driving order-of-magnitude changes in
the competitive demands on strategic management of business and on the management of
supply chains.
These competitive pressures have a strong direct effect on supply chain strategy and
integration. Integrating activities both within and beyond organizational boundaries has
become and will continue to be a major challenge for supply chain executives. Integration
efforts now extend beyond traditional product-process design and functional integration to
focus on extra-organizational links with customers and suppliers. The object is to produce
"supply chain-enhanced" products and services.
Our examination of supply chain integration focuses on two key issues--alignment and
linkage--both inside an organization and across organizations.
1. Alignment refers to common vision, goals, purpose and objectives across organizations,
functions and processes in the supply chain. Alignment ensures that there is consistency in
the direction and objectives as these plans and decisions are made.
2. Linkage refers to the communication and sharing of information needed for planning and
decision-making, and the interaction of people involved in planning and decision-making.
Linkage ensures that the information necessary for decision-making is available, and that
different functions and entities in the supply chain are working with the same data as
decisions are made.
3. Supply chain alignment and linkage do not happen in a vacuum. Supply chain management
is a part of the broader management of an enterprise, and it must support the broader business
strategy of the enterprise.
4. Business Strategy defines how the firm intends to compete in the markets or market
segments it pursues. Broadly speaking, a firm can compete on low cost or through
differentiation. Supply chains can contribute significantly to both sets of goals. However,
different business strategies are likely to be best supported by different supply chains and
supply chain management decisions. A business strategy based on speed of innovation and
fast time to market would require a different network of suppliers, a different manufacturing
infrastructure and a different distribution infrastructure than a strategy based on low costs. It
is therefore critical that the strategies pursued and the decisions made by the supply chain
group be consistent and aligned with the overall strategy of the enterprise.
Supply Chain Strategy Planning Decisions relate to coordinating supply chain management
decisions with business strategy, product/service design decisions and with designing the
physical supply chain. The right infrastructure, in terms of technology, people, control
systems, relationships, policies and procedures are critical in facilitating alignment and
linkage.
Our research identified four critical supply chain strategy areas:
1. Supply Chain Strategy and Vision, which defines the role supply chain management will
and roles and responsibilities and, as such, largely shape the ways people will interact and
relate to each other in an enterprise. The wrong organizational structure can exclude key
stakeholders and key resources from important decisions and inhibit the collaboration needed
to achieve alignment and linkage. Working within the organization structure, the skills and
capabilities of people are critical to successfully integrating a supply chain.
Metrics and reward systems are critical factors in driving behavior within an organization and
among organizations. Regardless of the "strategies" or "philosophies" around supply chain
integration that are voiced by top management, it is the metrics and rewards to which people
respond. Customer-centric metrics that are aligned and consistent across different functional
groups and across organizations in the supply chain will encourage behavior that leads to
aligned and consistent decisions.
Challenges to Supply Chain Integration: Based on the case studies completed as part of this
project, we conclude that well integrated supply chains are not ubiquitous at this time. There
are certainly many success stories and many pockets of excellent supply chain integration.
There are also many cases of failures and breakdowns in integration. Through our research,
we have identified 14 key challenges organizations must meet to achieve true supply chain
integration.
1. Establish a vision of how financial and non-financial results will improve with supply
chain integration.
2. Develop people, culture and an organization that supports the supply chain vision.
3. Develop customer-centric metrics.
4. Develop multiple supply chains to meet the needs of different customer and market
segments.
5. Establish the correct positioning of work on a global basis.
6. Incorporate supply chain consideration into product and service design decisions.
7. Maintain sourcing as a first-level priority.
8. Stay focused and consistent in relationships with customers and suppliers.
9. Create an effective Sales and Operations process.
10. Develop valid and reliable databases, data and information.
11. Develop the capabilities and analytic tools required to make effective decisions in an
increasingly complex and risky environment.
12. Build trust within and across organizations in the supply chain.
13. Find ways to share risk equitably among supply chain partners.
14. Find ways to share rewards equitably among supply chain partners.
This research does not provide all of the answers to overcoming these challenges to
integrating your supply chains or even a comprehensive approach for doing so. But in the full
report you will find strategies and good practices developed by our focus companies to meet
these challenges and to push ahead in integrating supply chains.