Supply Chain Management: Corporate Vision: Part III – Supply Chain Integration and Decision Making
Part III of our series, Supply Chain Management: Corporate Vision, cover the integration of the supply chain with enterprise performance management systems.
The integrated supply chain
The integration of the supply chain is realized by an Enterprise Resources Planning (ERP) system and the Internet. The purpose is to produce pertinent information for the enterprise performance management (EPM) methods and decision-making system. Supply-chain integration makes the chain agile by obtaining timely feedback from suppliers. Because all systems are hierarchical in nature, any system can be considered as a subsystem within a super-system.(i)
E-SC integration ensures operating the SC seamlessly as an extended enterprise. Integration implies that SC operations (e.g., product development, material sourcing, product manufacturing, assembly, packaging, delivery, inventory control and after-sales services, etc.) are synchronized with virtual enterprise planning. SC integration focuses more on information system integration rather than organizational integration. It is internet technologies that make CS integration practical, feasible and efficient. An e-SC is in fact an integrated virtual company. The e-business approach facilitates the market segmentation and customers tracking. It energizes the production planning based on personalized orders in real time and in large quantities. But this does not mean neglecting the internal elements of the organization.
The interaction of human resources with the supply chain remains the cornerstone of its success. Without the human element, change and improvement would slow or cease altogether. The same is true for the data analysis system (data about competition forces, costs, prices, macroeconomic data, modern trends). What is more important than collecting and storing data in huge quantity is to manage it efficiently and in coordination with the organization’s strategy.
Collecting and storing data is costly, so it is necessary to choose the most appropriate processes and systems and exploit them to produce a greater value than the cost of its management. An effective integration implies acquiring appropriate equipment for the design of new and innovative products. For the integration to be successful, executives at all levels must have a good understanding of the processes and tasks in order to set priorities and avoid conflicts of interest. Lack of integration will thwart the ability of multiple enterprises to work as a cohesive supply chain unit.(ii) The integrated e-supply chain management can be illustrated as follows:
Keys : Keys : EE : Extended Enterprise. A&FM : Accounting and Financial Management. AM : Asset Management. HRM : Human Resources Management. PM : Process Management : EPM : Enterprise Performance Management. Operating Management
Sources: Elaborated by authors.
Supply chain Costing
Executives across industries and at different levels in the supply chain have extended their “line of sight” to include their upstream and downstream trading partners’ costs of performing different activities. The supply chain costs are not only composed from the direct expenses and indirect expenses (commonly referred to as overhead) within the enterprise, but they expand these categories to also include the resource costs of trading partners.Measures spanning the entire supply chain do not exist, and logistics or other functional measures do not adequately reflect scope of supply chain management(iii).
Process costs encompass the cost of the activities comprising the process across all firms in the supply chain(iv). So, to evaluate the supply chain costs, managers must identify the cost object dimension (customer, supplier, product, distribution channel) and adopt the relevant cost drivers in order to avoid over-costing or under-costing of product or department. The identification of what cost information is needed and the selection of the appropriate tools for measuring, reporting, and analyzing supply chain costs are key challenges.(v)
Understanding cost behavior helps management accountants to better allocate costs to its cost object. Understanding cost behavior means understanding the complex interplay of the set of cost drivers at work at any given time. (vi)Activity-based costing (ABC) is the commonly accepted management accounting method that resolves the deficiencies from traditional indirect expense cost allocations.
Part IV in this series cover the 6 key elements of SC monitoring, what hurdles must be overcome to create an integrated SC and series Conclusion.
(i) ERIC T. G. WANG, JEFFREY C. F. TAI AND HSIAO-LAN WEI, A Virtual Integration Theory of improved supply-chain performance, Journal of Management Information Systems, Vol. 23, N°2, Fall, 2006, P44.
(ii) CHERI Speier, DIANE Mollenkopf and THEODORE P. Stank, The Role of Information Integration in Facilitating 21st Century Supply Chains: A Theory-Based Perspective, article, Transportation Journal, SPRING 2008, Vol. 47, N° 02, Published by: Penn State University Press, 2008, p25.
(iii) DOUGLAS M. LAMBERT & TERRANCE L. POHLEN, Supply Chain Metrics, Article, The International Journal of Logistics Management, Volume 12, Number 1, 2001, p05
(iv) COKINS Gary & collaborators, IBID, p37
(v) COKINS Gary & collaborators, IBID, p59
(vi) SHANK Jan and COLLEGE Dartmouth, ibid P55
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