BENEFITS OF INTEGRATION

The most sought-after benefit, or return on investment, in supply chain integration is the cost savings that result from reductions in inventory. Inventories can be reduced by increasing the speed at which materials move through the supply chain and by reducing safety stocks. For example, if the costs of maintaining inventory are approximately 1 percent per month and if an integrated supply chain can reduce inventory levels by 30 percent, the savings, shared among the participants, can be substantial.

Another common benefit of supply chain integration is a reduction in transaction costs. If information sharing can reduce the number of transactions and if electronic systems can reduce the cost of each transaction from the $150 cost of a traditional transaction, each participant can realize substantial savings (LaLonde, 1997).

Reductions in supplier redundancy can reduce product costs by increasing production levels at remaining suppliers and reducing the costs of managing the supply chain. Although this can also increase investment and management burdens on suppliers, the delegation of responsibility and authority to entities closer to the action can result in improved decision making, as long as good communications are maintained throughout the chain.

Other potential benefits of supply chain integration are listed below:

  • reduced friction, fewer barriers, and less waste of resources on procedures that do not add value

  • increased functional and procedural synergy between participants

  • faster response to changing market demands

  • lower cost manufacturing operations

  • lower capital investment in excess manufacturing capacity

  • shorter product realization cycles and lower product development costs

  • increased competitiveness and profitability



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