Successful Logistics and SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers, and attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration.
Logistics and SCM business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper, operating an integrated supply chain requires continuous information flows, which in turn assist to achieve the best product flows. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business.
Integration by Function
Many companies approach integration on a function-by-function basis, focusing first on functions for which integration offers the highest returns. Although the focus differs from industry to industry, inventories, procurement, inbound logistics, manufacturing operations, and distribution of products and services are the functions most frequently integrated. All-inclusive approaches encompass functions ranging from raw materials extraction through manufacturing and distribution to the customer and back. A ”closed loop” approach includes asset stripping and the rework or recycling of products returned by customers.
A well-integrated supply chain must be open to “functional shiftability” (i.e., the assignment of functional responsibility to members of the supply chain best positioned to perform those functions at the lowest overall cost or in the shortest cycle time). Realignment of such activities within the supply chain should be reflected in a commensurate shift in benefits and risks.
Integration by Process
The effort required to identify key functional activities and their interrelationships has caused many companies to change from integrating and managing supply chains by functions to integrating and managing them by process (process management). These companies typically use a business process architecture to analyze processes and supply chain relationships in successive levels of detail. Viewing the supply chain as a set of integrated process capabilities rather than as separate corporations and functions can provide critical insights that can be used to improve performance. In this way, complex activities can be coordinated to great advantage between functions and redundant or non-value-added activities, such as administrative or multiple entries, can be eliminated.
Integration is most beneficial when it occurs across multiple processes that have significant effects on supply chain performance, such as information technology, marketing, and finance. Integration across multiple processes can enable customization of the supply chain according to delivery channels, manufacturing requirements, or market segments.
