A supply chain encompasses all the activities associated with moving goods from the raw materials stage

through to the end user. It involves various firms, from those that process raw materials, to the ones who deliver it, those involved in wholesaling and retailing and finally to the end-users who consume the product. It also involves organizations responsible for transporting, warehousing, processing information and materials handling. Supply chains involve various functions such as sourcing, procurement, production scheduling, manufacturing, order processing, inventory, management, warehousing and customer service. With these many firms and processes involve, how do organization manage it successfully? How do organizations improve supply chain performance? How can a supply chain be more effective and efficient?

SUPPLY CHAIN INTEGRATION Successful supply chain management requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration. Supply Chain Integration is the degree to which the firm can strategically collaborate with their supply chain partners and collaboratively manage the intra- and inter-organizational processes to achieve the effective and efficient flows of products and services, information, money and decisions.

Ellram and Cooper, 1990 states that, the level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link. Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link and various possible components that must receive managerial attention when managing supply relationships. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information.

IMPORTANCE OF SUPPLY CHAIN INTEGRATION

Supply chains can be managed in either an integrated or disintegrated manner. Integrated SCM focuses on managing relationships, information, and material flow across organizational borders to cut costs and enhance flow. Firms following the SCM approach look for ways to integrate their logistics, procurement, operations, and marketing functions with other supply chain members so that materials, information, component parts, and finished product flow seamlessly from point of origin to final customer at low unit cost and at high levels of service. SCM is predicated on partnership and cooperation; without these there would be no integration of effort. SCM may require the sharing of sensitive and proprietary information about consumers, actual demand, point-of-sale transactions, corporate strategic plans, and the like. It involves significant joint planning and communication, so it often uses teams of

personnel that cut across functional and firm boundaries to coordinate the movement of product to market. In other words, achieving the real potential of SCM requires integration not only among departments within the organization but also with external partners. It is absolutely critical to understand that SCM is both a boundary spanning and function spanning endeavor. The essence of the SCM philosophy is that waste reduction and enhanced supply chain performance come only when there is both intra-firm and interfirm functional integration, sharing, and cooperation. Thus, each firm within the supply chain must tear down the functional silos within its organization and foster true coordination and integration of marketing, production, procurement, sales, and logistics. Furthermore, actions, systems, and processes among all the supply chain participants must be integrated and coordinated. Firmwide integration is a necessary, but not sufficient condition for achieving the full potential benefits of SCM. Integration must be taken to a higher plane, so that functions and processes are coordinated across all the organizations in the supply chain.

This figure shows four perspectives of the SCM performance framework. The framework relates the goals of SCM to customer satisfaction, firm financial performance, and the ways in which firms continue to learn, innovate and grow.

Waste Reduction Firms practicing SCM seek to reduce waste throughout the supply chain by minimizing duplication, harmonizing operations and systems, and enhancing quality. With respect to duplication, firms at all levels in the supply chain often maintain inventories. Efficiencies can be gained for the chain as a whole if the inventories can be centralized and maintained by just a few firms at critical points in the distribution process. Similarly, demand planning can be assigned to that firm in the supply chain with the best understanding of customers and their ordering patterns. In disintegrated supply chains, personnel, information systems, order selection processes, and various logistics assets are often duplicated at every level, and the redundancies associated with these resources should be candidates for elimination. A second means to reduce waste is to harmonize operations and systems among supply chain members. Harmonization seeks to achieve uniformity and agreement of operations and systems among the firms. Rather than have two different pallet systems,

for example, it makes sense for all supply chain participants to use only one. In this way, they can use common equipment in handling and storing pallet loads and gain leverage for the entire supply chain in dealing with pallet vendors. Another example is for all supply chain entities to use the same system for tracking actual sales, so that all can work from this common software and database in planning production and logistics operations. Harmonized systems create information flow that is timely, relevant, and of high quality, which leads to the elimination of unnecessary activities and enhanced delivery of product to the ultimate customer. Finally, maintaining the quality of products, operations, and assets is essential to operating a supply chain that is predicated on waste reduction. Products that do not meet customer specifications will undermine the tight time requirements associated with just-in-time deliveries. Furthermore, substandard products that must be returned add additional costs to the logistics process. Equipment and facilities that marginally meet requirements may eventually damage product or slow down various processes within the system. Time Compression Another critical goal of SCM is the compression of order-to-delivery cycle time. When production and logistics processes are accomplished in less time, all entities in the supply chain are able to operate more efficiently, and a primary result is reduced inventories throughout the system. Time compression also enables supply chain partners more easily to observe and understand the cumulative effect of problems that occur anywhere in the chain and respond quickly. Reduced cycle time also speeds the cash-to-cash cycle for all chain members, thereby enhancing cash fiow and financial

performance throughout the system. Time compression means that information and products fiow smoothly and quickly, which permits all parties to respond to customers in a timely manner while maintaining minimal inventory. Flexible Response The third goal of SCM is to develop flexible response throughout the supply chain. Flexible response in order handling, including how orders are handled, product variety, order configuration, order size, and several other dimensions means that a customer's unique requirements can be met in a cost-effective manner. For example, a firm that responds flexibly can configure a shipment in almost any way (e.g., different pallet patterns or different product assortments) and do it quickly without problems for the customer. Flexibility also may mean customizing products in the warehouse to correspond to a customer's need for unique packaging and unitization. The key to flexibility is that individual customer needs are met in a way that the customer views as cost effective and the supply chain views as profitable. Unit Cost Reduction The final goal of SCM is to operate logistics in a manner that reduces cost per unit for the end customer. Costs are not minimized regardless of customer preference but in relation to the level of performance desired by the customer. It is necessary to assess carefully the balance between level of cost and the degree of service provided. The goal is to provide an appropriate value equation for the customer, which means that cost in some cases will be sacrificed for meaningful enhancements in service. Cost cutting is not an absolute, but the SCM approach is focused on driving costs to their lowest possible level for the level of service requested. For example, shipping product in cases

on pallets may be less expensive than creating unique store-ready displays; however, when the customer desires the more expensive alternative, the SCM goal is to offer the store-ready displays at the lowest possible cost. SCM principles drive down costs because they focus management attention on eliminating actions and activities that unnecessarily add cost, such as duplicate inventories, double and triple handling of product, unconsolidated shipments, and uncoordinated promotions and price deals. The Customer Benefits Perspective A supply chain that achieves the goals just discussed will ultimately create tangible benefits for customers throughout the supply chain. When the supply chain reduces waste, improves cycle time and flexible response, and minimizes costs, these benefits should flow through to customers." Thus, a key focus of the supply chain and its members is on monitoring the extent to which the customer is realizing these important benefits and on assessing the factors that may impede their realization. A supply chain's customer can be viewed in several dimensions, and it is important to focus on each. A producer of electronic radio parts views the radio manufacturer as an absolutely critical customer, but the auto manufacturer is equally if not more important, and ultimately the final buyer of the automobile must be satisfied. Thus, different demands, desires, and idiosyncrasies of customers all along the supply chain must be understood and managed effectively. The Financial Benefits Perspective When the goals of the supply chain partners are being achieved and the benefits are flowing through to customers, supply chain members should experience financial success. The most commonly reported benefits for firms that adopt SCM are lower

costs, which lead to higher profit margins, enhanced cash flow, revenue growth, and a higher rate of return on assets." Because activities are harmonized and unduplicated, the cost of transportation, order processing, order selection, warehousing, and inventory is usually reduced. A study to validate the correlation between supply chain integration and business success shows that best-practice SCM companies have a 45% total supply chain cost advantage over their median supply chain competitors." Cash flows in the supply chain are improved because the total cycle time from raw materials to finished product is reduced. In the study just cited, the leading firms have a cash-toorder cycle time exactly half that of the median company. Because SCM usually leads to better service, chain members often experience a significant growth in revenue. Companies participating in MIT's Integrated Supply Chain Management Program reported a 17% revenue increase as a result of SCM initiatives." SCM initiatives, by simultaneously reducing logistics assets and operating costs while increasing revenues, generally create a higher rate of return on assets employed in the supply chain. Improved returns are not automatic and do not necessarily come quickly, but the potential to improve ROA, for most entities in the chain, is significant. The SCM Improvement Perspective SCM improvement adds a dynamic element to the framework. It recognizes that firms must continually learn and innovate to ensure future profitability. In other words, the world class benchmarks of supply chain performance in 2005 will be different from those today. Firms continuously improve their ability to reduce waste, compress time, respond flexibly, and reduce unit costs in four ways. First, they can redesign the products and processes that span the supply chain in a manner that improves the value

delivered to customers. Second, they can more effectively leverage the human knowledge base contained within the supply chain by collaborating inter-organizationally to enhance the value delivered to customers. Third, they can continuously improve the management of supply chain information flows to ensure that all supply chain partners have access to the appropriate information to enable decision making that is accurate, timely, and supportive of customer needs. Finally, each supply chain needs to monitor the external marketplace to ensure that potential threats and/or substitutes do not emerge that redefine the way value is delivered to customers. After all, a supply chain's methods and pace of continuous improvement must always be evaluated relative to the competition.