The Benefits and Challenges of Supply Chain Integration

Supply chain integration is defined as close alignment and coordination within a supply chain. According to the study The Impact of Supply Chain Integration on Performance: Evidence from the UK Food Sector, supply chain integration (SCI) provides numerous benefits such as reduced total costs of logistics, which then leads to the organization being more profitable.

Some barriers that often hinder companies from integrating their supply chain include:

  • Lack of trust among firms
  • Conflicting goals – firms have different objectives and goals they are trying to achieve and sometimes it can be difficult to align processes between firms
  • Risk
  • Costs
  • Unique culture

This study shows that integrating the supply is beneficial for the company and can be successful through proper transparent information sharing, including with customers. Although this study was done in the food industry, there is evidence that it can be successful in many other industries/sectors. However, too much integration can be a (sometimes) problematic strategy. Having heavy integration can be a barrier to having a dynamic and flexible supply chain. To combat this, companies need to try to predict and then get rid of potential issues with strong integration.

According to Challenges of Supply Chain Management in Brazil, if a supply chain is not integrated and managed, significant resources can be wasted. Research shows that improved integration leads to a stronger performance for the supply chain as a whole; the broadest integrations brought the highest performance.

One challenge of this between domestic and international markets is infrastructure; different countries have different levels of infrastructure. A lack of infrastructure and/or technology can be very problematic and be a huge barrier to integrating a supply chain. The sharing of information is vital in integrating a supply chain. If a US company is getting a part for car or some ingredient for food from a low-income, underdeveloped country with little technology, they are unable to communicate, thus, having an unsuccessful supply chain integration (or at least an integrated supply chain without that part).

Brazil, for example, has relatively poor infrastructure. The U.S. exports a lot of products to Brazil as its economy recovery and there is a consumer demand for higher-value products. The U.S. exports beef, organic products, and alcoholic beverages.

As talked about in my international marketing course, it is important to establish good relationships with suppliers and customers in markets you’re going into. If a company establishes a presence in a foreign country via joint ventures (the safest bet for most companies entering a foreign market), that company can and probably will use some of the partner’s resources and knowledge. Therefore, it is important to have transparency and shared information within your partners and supply chain to be successful. Also discussed with this, is that logistics is the largest single operating cost. Integrating your supply chain, as The Impact of Supply Chain Integration on Performance: Evidence from the UK Food Sector explained, can reduce logistics costs. A company decreasing its single greatest operating cost would be incredibly beneficial in the long-term by saving money and time.

How important and difficult do you think supply chain integration when a company has various parts of their supply chain in two or more countries?

 

References:

https://ac.els-cdn.com/S2351978917303918/1-s2.0-S2351978917303918-main.pdf?_tid=7b4999c8-c0fe-466f-8240-1cda4c9505ac&acdnat=1523928414_7ae0a0c4c68dac28c7707f1235ee91bf

https://www.theseus.fi/bitstream/handle/10024/136081/Karpova_Ekaterina.pdf?sequence=1&isAllowed=y

https://www.fas.usda.gov/data/us-agricultural-export-opportunities-brazil

5 thoughts on “The Benefits and Challenges of Supply Chain Integration

  • April 19, 2018 at 12:31 am
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    Brandon,
    As you said, it is hard to communicate to a country that has not advanced along as far as developed countries have, however I believe that it is beneficial to invest in those countries for supply chain integration. I think that the investment to allow communication between the company and its supply chain parts will outweigh the investing cost after some time has passed. Resources will get wasted, as no process is perfect, but the less waste there is the better off you are. So to take the time to integrate a company’s supply chain to lessen waste is a long term investment that will likely pay off in the future as long as it is done effectively.

  • April 18, 2018 at 8:55 pm
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    Brandon,

    It is interesting that you bring up the supplies that can be lost due to poor supply chain management. This is a very relevant problem to the everyday processes of real-life businesses. When talking about the food industry, they have very sensitive supply chain strategies, because they must make sure their food does not spoil before they are able to sell it. I have attached an article here at the bottom discussing the implications of having high holding costs from Investopedia. They can be detrimental to a business if not handled correctly. Even if you are not in the food industry, you can still have these expensive holding costs. There is a lot that goes into having a high inventory, and the storage of inventory can be just as expensive. Integrating your supply chain is a costly activity to do. However, in the long run, the benefits you reap from an integrated supply chain will outweigh those costs.

    https://www.investopedia.com/terms/h/holding-costs.asp

  • April 18, 2018 at 5:48 pm
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    Brandon,
    It is not easy to think of companies supply chains as a whole. Investigating companies that have been on the market for a while now, I found that one that has been working very hard to transform its supply chain has been Johnson&Johnson’s.
    A company that has been in the market for over a century, it is safe to say that Johnson & Johnson’s has improved and changed its supply chain multiple times over the years. These last few years the company has moved to an integrated supply chain, going away from what used to be a decentralized approach to supply chain. They have aligned their organization to create an organized and effective global enterprise that is closely aligned with other business units.
    In order to do this, Johnson & Johnson’s has standardized their quality systems, operational improvement methodologies, procurement, IT systems and their approach to talent. This has provided huge benefits and improvements around their quality, costs and customer satisfaction. Also, they have built their processes around their customers needs, which, according to them, will give them a head advantage over their competition on the long run.
    For now, it is safe to say that they are one of the top competitors in their industry and they will probably remain to be for a long time.

    https://www.jnj.com/innovation/how-johnson-johnsons-supply-chain-made-strides-in-2016

  • April 18, 2018 at 2:24 pm
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    Brandon,

    Thank you for your insightful post examining the benefits and challenges of supply chain integration. When you discussed challenges in international markets, it made me think about the current volatility of U.S. trade policy and whether that may play a factor in companies choosing suppliers and logistics strategies. Donald Trump has made various statements about differing strategies for tariffs on Chinese imported goods. This has hurt some electronics companies that are producing in China, as well as hurting the overall U.S. stock market.

    ZTE corporation makes 43% of its revenue overseas and its stock price has fallen due to uncertainty over the future of trade policy and its supply chain going forward.

    https://www.wsj.com/articles/todays-top-supply-chain-and-logistics-news-from-wsj-1524047111

    Ultimately once a company chooses locations for each part of their supply chain, there is not much flexibility. When choosing location, companies can produce break-even analyses to see which location is more profitable. However there are more factors to consider than just profit. Politics, government, economy, trade policy, environment and labor are all incredibly important factors that need to be considered when choosing location. While it is hard to plan for the future, companies need to factor in that many of these factors could be subject to change. Technology will likely be further utilized in the future to help correct any inefficiencies.

  • April 18, 2018 at 1:55 pm
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    Brandon,

    Your post provided a great overview of supply chain integration. As I was reading I agree that many of the relevant topics of integrating/developing supply chains in emerging markets were also covered in our international marketing class with Dr. Lascu.

    MIT has a great resource for learning more about his if you’re interested. MIT’s Center for Transportation and Logistics (CTL) has a ton of information on Supply Chain Innovation in Emerging Markets. Although supply chains in the United States and other developed countries are far from perfect, they are certainly ahead of those in EM’s such as India, South Africa, or Mexico. This presents an attractive opportunity for firms interested in reaching the nearly 40% of the world that resides in an EM (MIT CTL).

    In regards to infrastructure, the CTL homepage contained a framework that is worth sharing because it helped expand my understanding of infrastructural issues that firms might face. It’s easy to think of infrastructure as “physical,” but the MIT site mentions that firms and mangers need to consider the financial and communication infrastructure in EMs as much as they consider physical infrastructure.

    Words: 186

    Link: https://ctl.mit.edu/research/past-projects/supply-chain-innovation-emerging-markets

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