Supply Chain Integration Explained: A Detailed Guide

by Vector | Dec 7, 2021 8:39:30 AM

What is supply chain integration? It incorporates all the processes, operations, and data involved with the creation, fabrication, shipment, sales, and service of a product into one system.

We know that integration in the broader sense means to bring a multitude of things together into a cohesive unit. Integration is also related the the word integral, meaning "necessary to make something whole or complete; essential or fundamental." Today, let's build a deeper understanding of this integral supply chain concept of integration.

Six Degrees of Supply Chain Integration

For starters, let's not forget that the supply chain is a series of links. Think of each link in the supply chain as a specialist. Manufacturers, lower-tier suppliers, 3PLs, carriers, intermodal freight, ocean freight, air freight, OTR truckers, drayage truckers. It goes on and on.

But each area of specialty has its own supply chain featuring linked specialists. In addition, some specialists just focus on the linking. In summary, should we play Six Degrees of Kevin Bacon? You get the idea—everything's connected.

That said, there was an era when a company tried to do everything itself. This was the era of monopolies and perfect vertical integration. For example, I grew up hearing stories about how John Deere used to have a foundry on one end of their factory. And out the other end rolled new tractors. That implied John Deere made every part and component on that tractor under one roof, down to the raw metal.

Now, Deere and Company outsources almost everything. On one end of the factory is a loading dock. Parts and components ship in from around the country and globe. They all meet at the assembly line, and out the other end rolls a new tractor.

This model is very common, regardless of industry. In essence, businesses now focus on core competencies and outsource the rest. But as a result, supply chain integration is more important than ever. Sure, John Deere still has employees serving many different groups, specialists, and operations. Ideally, those are integrated through John Deere's system.

An Integrated, Holistic Approach to Supply Chains

But a company like John Deere also relies on the integration at each of its suppliers. Beyond that, modern enterprises take a more holistic approach to integrating their entire supply chain. This is why supply chain visibility, control towers, and digital twins have become popular. In other words, in the wake of the post-pandemic supply chain crisis, we've turned to technology to integrate our supply chains more efficiently and more effectively.

  • What does integrated supply chain management look like?
  • How does it operate on a micro and macro level?
  • What are the building blocks of supply chain integration technology?

We'll explore those questions and more today. Let's go!

What's the Goal of Supply Chain Integration?

The goal of the integrated supply chain is easy to summarize. Supply chain integration means improved visibility. Greater agility. More network collaboration. And comprehensive risk management.

Put another way, supply chain integration creates a shared ecosystem. Trading partners agree to become integrated into a certain supply chain ecosystem. This in turn means they share a certain degree of information, in real time. This end-to-end information exchange enables better support of the supply chain overall. Specifically, integration leads to faster response times to unexpected changes.

As we know, every supply chain is at risk from abnormalities. We often say, "No news is good news." In short, it's a demand peak or valley that creates an issue. Or a weather disruption. A sociopolitical or economic upheaval. A pandemic. Any one of these conditions can result in what we colloquially call a logistical nightmare.

In response, as noted previously, we turned to technological tools. Tech helps us navigate complex waters. So let's take a brief look at broad-scale integration.

Macro-Level Supply Chain Integration

In general, the supply chain industry has shifted focus from efficiency above all else. Now the focus has turned to resilience. The industry wants to create more agile supply chains. This isn't something businesses came to on their own. One could argue we spent the past few decades perfecting the leanest, most efficient supply chains globalization could provide.

But the post-pandemic era taught us some hard lessons. Put another way, hyper-efficient supply chains tend to be brittle. Thus the shift toward resilience and agility is simply a matter of risk mitigation.

Increased digitization will bring forth a more resilient supply chain. We're talking about the first step toward harnessing the power of technology.

For example, internet of things (IoT) devices, digital twins, control towers, and blockchain technology. Taken together, we're talking about the digital technologies that provide supply chain visibility. Digitization facilitates the raw data that feeds this digital appetite. The premise is that these technologies will ultimately integrate the entire global supply chain ecosystem. Our tech will adhere to global standards. With less red tape, the entire global machine will become streamlined.

That said, this isn't a zero-sum game. Integration can also benefit organizations internally on a micro level. In addition, stand-alone supply chains can also benefit from increased integration.

Micro-Level Supply Chain Integration

Integration of the entire global supply chain may be years in the future. It also may never happen at all. In reality, there are a few very large hurdles to clear before integration can occur on a macro level.

First and foremost, there's a strong aversion in most businesses to oversharing data. I get it. We fight tooth and nail for every ounce of competitive advantage we enjoy.

Put another way, when asked to share data, we're afraid we're giving away the secret sauce. For example, I've seen people have physical revulsions when asked for open-book costing. The internal conversation goes like this: "Did you just ask me to share my costs? Why—so you can cut my margins? That's not how capitalism works!"

On the other hand, suppliers can thrive when they have a good, accurate order forecast. For instance, a forecast allows a supplier to order or lock in more raw material stock. This in turn supports and bolsters the raw material supplier and its supply chain.

At the end of the day, as long as we can get there on price, everyone in an integrated supply chain is happier with a forecast.

So, where does the onus lie? Who's in charge of driving the integration?

It has to start at the top. It has to come from leadership.

In my opinion, we shouldn't expect lower-tier suppliers of any supply chain to shoulder the risk burden of integration without certain contractual assurances.

At the same time, everyone in the supply chain can benefit from system upgrades in preparation for what's coming next.

The Future of Supply Chain Integration: An Example of Dual Sourcing

Here's an example of how to achieve better supply chain integration. A common challenge at original equipment manufacturers (OEMs) is the problem of dual sourcing.

Dual sourcing simply means your company uses two suppliers. In the past, dual sourcing was considered redundant or wasteful. But the tone has changed in the supply chain world. Now, dual sourcing is the primary way we are building resilience back into our supply chains.

Maintaining two sources of supply for key components may still seem costly. But only if we're shortsighted. On the other hand, single-sourced supply chains are brittle. Having a single source poses an existential threat. But even knowing that, there's still pushback to dual sourcing. Why?

I've peeled this issue back with customers who actively want to dual source but still run into challenges. Discussing the heart of the matter revealed this response: "The system doesn't like it."

I find this to be good news. We'll have to bootstrap some manual paperwork processes for awhile. But that one supply chain will be firmed up with dual sourcing. And in time, a better system will replace the current one. I imagine the market will demand new systems that feature digitization-powered features that can easily integrate multiple supply chains.

Integrated Supply Chains Will Lead to Better Problems

You'll know the future has arrived when we're no longer making business decisions because of slow systems. The true aim of integration is to get past system issues and misplaced concern about secret sauces. In summary, the impact of macro and micro supply chain integration is integral to the future health of the global economy—and its participants.

This post was written by Brian Deines. Brian believes that every day is a referendum on a brand’s relevance, and he’s excited to bring that kind of thinking to the world of modern manufacturing and logistics. He deploys a full-stack of business development, sales, and marketing tools built through years of work in the logistics, packaging, and tier-1 part supply industries serving a customer base comprised of Fortune 1000 OEMs.

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