Supply chain integration
Supply chain integration
Introduction to Supply chain integration
Supply chain management revolves around the parties associated with the supply chain. These parties involve the suppliers, manufactures, warehouses, transportation agencies, sellers and stores. The efficient supply chain management is all about the efficient coordination of all these parties involved. In simple words, we can call this process as supply chain integration.
Definition of Supply chain integration
Supply chain integration is the process of coordinating the activities across the supply chain so as to improve the performance of the entire supply chain. This will be the coordination between the suppliers, manufactures, transportation agencies, warehouses, sellers and the customers.
Strategies involves in supply chain integration
As a part of supply chain integration, certain strategies are adopted for the effective integration among the entire supply chain. Those strategies are Push based Supply chain, Pull Based Supply chain, Push-Pull supply chain and demand driven strategies. Let’s check it out one by one.
Push Based Supply chain
Push based supply chain strategy is based on anticipated customer demand. Under this strategy products are produced on the basis of the forecasted demand. Basically the manufacturer foresees the future possible demand on the basis of the orders received from the sellers warehouses.
Bull-whip effect in push based supply chain
The bullwhip effect is caused by fluctuations in information supplied to firms further up the supply chain. Distorted information causes firms to forecast demand incorrectly. Thereby, many unnecessary costs are put upon each of the firms along the supply chain.
The bull-whip effect in supply chain leads to more emergency production changeovers, Excess inventories, problems with quality, increased raw materials costs, increased shipping costs and overtime expenses.
Sales promotion in push based supply strategy
A “push” promotional strategy makes use of a company’s sales force and trade promotion activities to create consumer demand for a product. The producer promotes the product to wholesalers, the wholesalers promote it to retailers, and the retailers promote it to consumers. A better example to show this strategy which was adopted by Samsung mobiles.
Push Based Supply chain
Pull based supply chain strategy is based on the customer demand. Under this strategy products are produced in coordination with the customer demand rather than the forecasted demand. Here the firm does not hold any inventory and only respond to specific orders.
Difficulties in Pull Based Supply Chain
Some of the difficulties faced by pull based supply chain is difficulty in implementation, high lead time, practical difficulties to react to customer information and high transportation costs.
Sales promotion in pull based supply strategy
A “pull” selling strategy is one that requires high spending on advertising and consumer promotion to build up consumer demand for a product in the initial stage.
If the strategy is successful, consumers will ask their retailers for the product, the retailers will ask the wholesalers, and the wholesalers will ask the producers. Multinational giant Pepsi adopted this strategy as their marketing or sales promotion purposes.
Push-Pull Supply chain
In a push pull supply chain strategy, some stages of the supply chain, typically the initial stage is operated in a push-based manner, while the remaining stages employ a pull based strategy the inter-phase between pull and push strategy is called push-pull boundary.
Implementing a push-pull strategy involves factors such as product complexity, manufacturing lead time and relationship between supplier and manufacturer. There are different ways to implement this strategy but, it varies from industry to industry. Let’s check some of the industries using these strategies.
Dell’s push pull strategy uses this strategy in between spare parts inventory and assembling level, there you can see the push pull boundary. What about a furniture industry.
As shown in the diagram we can see that furniture industry adopts the strategy between wood inventory level and production level, the marking between shows the push pull boundary.
Demand driven strategies
Customer demand continues to be unpredictable. To succeed, companies must respond with agility and speed to changes and new opportunities by sensing, anticipating, and shaping demand with extraordinary visibility and insight into demand signals across a global supply chain.
Framing a demand driven strategy requires integrating demand information into the supply chain planning process which involves; demand forecasting and demand shaping.
Demand forecast: involves use of historical demand data to develop long-term estimates of expected demand.
Demand shaping: involves firm has to determines the impact of various marketing plans such as promotion, pricing discounts, rebates, new product introduction, and product withdrawal on demand forecasts.