Supply Chain Integration Benefits

Integrated Supply Chains share vital information to reduce costs such as shipping.

Integrated supply chains can benefit the major supply chain participants -- suppliers, manufacturers, distributors and customers. Benefits include increasing loyalty among partners, reduced inventory, improved on-time delivery and increased flexibility to deal with disruptions. Improved customer satisfaction and loyalty is a byproduct of an integrated supply chain because the end customers experience improved on-time delivery.

Initial Benefits

A supply chain cannot be integrated overnight. The process usually evolves levels of integration that grow deeper over time. Even in the early stages of the process there are benefits. The first benefit of integrating a supply chain is forming partnerships. What were purely sourcing and customer relationships are converted into partnerships. This increases levels of trust. Added trust among supply chain partners solidifies ties leading to consistent performance and more predictable sourcing. Former rivals may even become partners.

Forecasting

The supply chain achieves greater integration by sharing more information. In addition to real-time tracking, companies along the supply chain begin to exchange planning data. The deeper, more valuable information helps companies plan and execute inventory management, shipping, and production schedules with the goal of increasing efficiency. For example, a building company might share forecasting information with a supply chain partner that produces windows to ensure there is adequate supply for a new housing development.

On-Time Delivery and Inventory

Increased on-time delivery and lower inventory requirements are key benefits of an integrated supply chain. In a study of supply chain management by the Center for Advanced Purchasing Studies, some companies that moved to an integrated supply chain reported doubled inventory turns, had 50 percent improvements in on-time delivery and experienced a 50 percent increase in sales supported by 35 percent lower inventory. In addition, customer service improved and customer loyalty increased due to better on-time delivery.

Resilience

There are often unpredictable challenges that confront businesses. Having an integrated supply chain provides a layer of resilience when facing chaotic circumstances. By having true partners along the supply chain, a company can quickly adapt to changing circumstances without prolonged production or delivery gaps. MIT's Center for Transportation & Logistics points out that an integrated supply chain achieves resilience by increasing flexibility. For example, companies could cross train employees along the supply chain in to respond quickly to a shutdown at one point along the chain.

References

• University of Pittsburgh Chemical & Petroleum Engineering; Achieving World-Class Supply Chain Alignment: Benefits, Barriers, and Bridges; Stanley E. Fawcett, et al.; 2001
• "Harvard Business Review"; Building a Resilient Supply Chain; Yossi Sheffi; October 2005
• "Interfaces"; Supply Chain Management: Technology, Globalization and Policy at a Crossroads; M. Eric Johnson; May-June 2006
• Bain Consulting: Supply Chain Management

Resources

• California Space Authority: Supply Chain Resource Guide