Surviving Supply Chain Integration Strategies for Small Manufacturers (2000) / Chapter Skim
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3 Supply Chain Integration
3 Supply Chain Integration
Pages 24-33
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From page 24... ...
This chapter describes the changing nature of supply chains and efforts to optimize their performance. In the past, OEMs typically drove down the cost of purchased materials through aggressive negotiations, imposing terms and conditions that minimized supplier profitability and often left suppliers in a weakened condition.
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From page 26... ...
These initiatives reduced variations and uncertainties in demand, thereby reducing the need for surge production capacities and large inventories. Thus, by evolving their primary supply chain focus from marketing to production, inventories, and logistics in response to changing business requirements, P&G was able to reduce costs, meet customer demand, and build strong, coordinated relationships with retail partners and customers.
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From page 27... ...
One objective of increasing integration is focusing and coordinating the relevant resources of each participant on the needs of the supply chain to optimize the overall performance of the chain. The integration process requires the disciplined application of management skills, processes, and technologies to couple key functions and capabilities of the chain and take advantage of the available business opportunities.
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From page 28... ...
These increased demands on OEMs for improvements in product design, manufacturing, cost, distribution, and support are being imposed, in turn, on their supply chains. Case Study: Dell Computer and Fujitsu America Dell Computer Corporation's success in the past few years and its growth relative to the rest of the PC industry made daily headlines throughout the 1990s.
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From page 29... ...
Dell competes with many capable and, in some cases, lower cost competitors, has virtually no proprietary technology, and must deal with exceedingly robust suppliers, including Intel and Microsoft. The heart of Dell's success is its integrated supply chain, which has enabled rapid product design, fabrication, and assembly, as well as direct shipment to customers.
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From page 30... ...
. This enables Dell to be highly selective in its capital investments and to focus on activities that create the most value for customers and shareholders · selection of partners who are best in their respective fields, inviting them to become intimate parts of the business, and holding them to the same exacting quality and performance standards as in-house segments of the business · use of a minimum number of suppliers, to whom Dell is highly loyal as long as they maintain their leadership in technology, quality, cost, and delivery · use of the Internet, not just as an add-on to the business, but as an integral part of a strategy to eliminate boundaries between companies and promote effective integration · less emphasis on guarding intellectual assets and more emphasis on using assets rapidly before they become technologically obsolete By using a highly integrated supply chain, Dell has enjoyed many of the advantages of vertical integration while simultaneously benefiting from the investments, innovation, efficiencies, and specialization of highly focused suppliers.
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From page 31... ...
Some of the major costs are listed below: · time devoted to managing, training, and support · effort devoted to becoming a better customer · investment in supply chain integration software and compatible information systems throughout the chain · opportunity costs (i.e., investments in supply chain integration may necessitate foregoing other business opportunities) · risks of production stoppages Because the extent of interconnectedness and interdependency makes highly integrated chains increasingly vulnerable to disruptions, the risk
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From page 32... ...
Automakers, for example, who are under constant pressure to reduce costs, have tightened their supply chains to the point that they typically have less than a one-day supply of parts at final assembly facilities. Thus, a breakdown anywhere in the supply chain has the potential of bringing production to a halt (e.g., strikes at two GM parts plants in 1998 resulted in the shutdown of virtually all assembly operations within days, and flooding in 1999 at a single supplier in North Carolina reduced operations at seven DaimlerChrysler and three GM assembly plants to half-shifts due to shortages of a single part)
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From page 33... ...
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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