Supply chain integration is the process of coordinating and connecting all stages of the supply chain to enhance efficiency and streamline operations. It involves integrating all the activities from procuring the product to its final delivery.
Customer expectations have evolved over the years. Now, 90% of customers want to customize their delivery experience to how they decide when they will receive their ordered product. They want to know their delivery status every time they place an order.
These things make the supply chain more complex and challenging for a business to manage. Hence, a business must opt for efficient supply chain integration to succeed in this competitive world. Research says that Companies switching to integrated supply chain management have achieved 25% more productivity.
What is supply chain integration​?
Coordinating and connecting at every step of the supply chain for an efficient process is called supply chain integration. Supply chain integration incorporates all the activities and processes moving the goods from suppliers to customers.
A supply chain is a process where various stakeholders are involved in creating and distributing the product. They include suppliers, distributors, manufacturers, shippers, and many more. All of them should seamlessly connect to reduce overall costs and increase brand value in the market.
Supply chain integration can strengthen the relationships between the stakeholders and enhance the transparency and visibility of the products. This helps a business to make better decisions and drive profitability.
Key Elements Of Supply Chain Integration
There are three key elements of supply chain integration. Each of these elements plays a vital role in effective supply chain integration.
1. Communication
All the stakeholders involved in the supply chain management, such as suppliers, distributors, and warehouse staff, should communicate well with each other. It allows to make quick changes in products or strategies when market demand changes suddenly. It can be possible either through direct communication or integrated computer systems.
2. Customers
The focus should be on the customer’s requirements and what they are willing to pay for it. The lead organization should keep close contact with the customer and then be aware of all the stakeholders regarding it. This helps to make a better product or customize it according to the customer’s requirements.
3. Collaboration
Supply chain integration involves a good relationship with all the stakeholders involved in the supply chain.
Different Types of Integration in Supply Chain Management
There are usually two types of integration in supply chain management. We are listing them below.
1. Vertical Integration
It involves a strategy of moving either backward in the supply chain or forward in the distributor chain. Here, a firm controls various stages of the supply chain like manufacturing, production, or sales.
Let’s discuss this with an example. A clothing company has to depend on the suppliers of fabric every time. Any delay in supplying fabric can disrupt the entire supply chain. In such cases if it buys a fabric supplier then supply chain operations will go smoothly. This is called backward vertical integration.
If the clothing opens its retail stores and starts selling its fabric, it is called forward vertical integration.
The advantages of vertical integration are as follows.
- Better Control Of the Supply Chain: It owns multiple stages of the supply chain. Hence, it can control production efficiently and deliver products in a timely manner.
- Reduces Costs : The company does not have to invest money in intermediaries.
- Better Quality Control: The business implements strict quality checks at every stage of production. It leads to better product quality and enhances customer satisfaction.
- Innovation: The company can innovate by producing new products as it does not depend on any third party to supply raw materials or finished goods.
2. Horizontal Integration
Horizontal integration involves a partnership with another company in the same industry, or that is at the same stage of the supply chain. A company can increase its market share or play a dominant role when it merges with another company in the same industry.
The benefits of horizontal integration are as follows.
- Reduces Cost: Merging with another company enables to sharing of resources and infrastructure. Thus, it reduces the cost of a business.
- Access To New Markets: Businesses can easily access new markets or customer segments by merging with another company in the same industry.
- Improves Bargaining Power: Merging with another company improves bargaining power with suppliers and distributors.
3. Cross-Functional Integration
Cross-functional integration means integrating various functions of the supply chain management system into a single system. The functions include procurement, inventory management, warehousing and logistics.
A unified system can lead to better decision-making and increased efficiency of the entire supply chain network of the business.
Best Integrated Supply Chain Strategies
1. Implement Advance Technology
A business should leverage advanced technology like AI machine learning to optimize supply chain operations. It can even reduce costs and enhance product visibility.
Warehouses can use robotics and automation to speed up the picking and packaging. This can make order fulfillment faster and enhance customer satisfaction.
Smart sensors can track temperature in real-time and prevent spoilage. The usage of AI can forecast product demand and improve inventory planning. It can prevent problems like stock out and overstocking issues.
2. Build Strong Relationships With Suppliers
A business should develop strong relationships with reliable suppliers so that they can provide raw materials on time. You can use technology like ERP systems and cloud platforms for seamless collaborations. Long-term contracts with suppliers can reduce risks and lower costs.
3. Adopt Just In Time Inventory management
Just-in-time inventory management involves receiving goods from the suppliers only when required. This strategy can reduce warehouse costs and avoid problems like overstocking and out-of-stock issues.
Disadvantages of Supply Chain Integration
1. High Implementation Costs
Adopting new and advanced technology will surely enhance the efficiency of the entire supply chain operations. However, adopting such technologies requires high initial investment, which is not possible for small and medium enterprises.
2. Resistance To Change
Businesses will experience internal resistance while adopting integrated supply chain management services. Many employees and stakeholders may resist adopting new technology and processes.
Again, it is quite important to properly train the employees and enhance their skills regarding various technologies. If the company cannot train them, it can negatively impact the supply chain operations.
3. Complexities In Coordination
There are so many moving parts while managing the supply chain of a business. Effective coordination may be challenging between the suppliers, manufacturing, and shipping processes.
Advantages Of Integrated Supply Chain Services
1. Enhanced Visibility
Integrated supply chain services can increase product visibility and improve communication between various departments like suppliers, warehouses, inventory management, and distributors. This leads to better decision-making and enhances productivity.
2. Reduces Cost
Integrated supply chain management can present overstocking problems in a warehouse. Again, adopting AI can do better route planning and warehouse management. Thus, integrated supply chain management services reduce both the warehouse and transportation costs of the business.
3. ​Flexibility
Market conditions are constantly changing because of consumer demand or technological advancements. An integrated supply chain management can quickly respond to market changes and minimize risks.
4. Increase Customer Satisfaction
Integrating supply chain services can do ecommerce fulfillment faster and enhance customer satisfaction.
Conclusion
A well-integrated supply chain is essential for the success of a business. It lowers costs and can lead to better decision-making in a company. However, a company has to leverage advanced technology and collaborate with reliable suppliers to enhance customer satisfaction and drive profitability in the rapidly evolving global economy.
AAJ Supply Chain Management
