What Is Integrated Supply Chain Management?

Truck loaded with cargo
Truck loaded with cargo (Image: Digital Vision./Photodisc/Getty Images)

Integrated supply chain management refers to an enterprise resource planning approach to SCM. A business facilitates relationships with all of its suppliers and manages all distribution and logistics activities through a centralized system rather than having multiple systems within the organization. Concentrated professional expertise and cost efficiency are core benefits of SCM, but developing collaboration is an obstacle.

Supply Chain Management Basics

Supply chain management is a coordinated system of managing the transportation and logistics activities in a manufacturing, wholesale or retail business. The primary purpose of SCM is to optimize efficiency in supply chain distribution activities. Historically, each supply chain member took a concentrated view of its role in moving goods to the next stage. With an SCM approach, all chain members collaborate with the end goal of delivering the best value to consumers.

Best Practices

A primary benefit of integrated SCM is that your top professionals in this area coordinate all supply chain activities. This centralized approach leads more streamlined and efficient activities, as well as implementation of industry best practices in supply chain functions. Development of supplier relationships, acquisition of goods, storage, logistics and transportation are among the primary activities managed in an integrated supply chain. Rather than each division or department in the company overseeing its own activities, the integrated team communicates with leaders in each area to manage these activities. Relationships with vendors normally are stronger with integrated SCM as well.

Cost Efficiency

Another major advantage of an integrated system is cost efficiency. In some cases, suppliers treat multiple buyers in the same company as separate buying entities. This treatment limits your ability as a business to save on bulk buying. With an integrated system, you are one buyer purchasing larger volumes of goods, which enables you to get lower prices. The company also is able to have a smaller, dedicated staff in its SCM function than it likely would if it were paying people in all divisions or departments to manage activities.

Integration Drawbacks

Despite clear benefits to companies that integrate supply chains, there are concerns and drawbacks. Building any type of ERP system in a company that doesn't have a collaborative culture is difficult. Division and department leaders often are leery of sharing processes and resources. Also, integration requires a strong technology infrastructure and the sharing of critical company data with trusted suppliers. Such sharing exposes the company to suppliers that don't treat inventory data and company operations information confidential.

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