Saturday, July 12, 2014

Wider Supply Chain Integration Leads to Performance Advantages

Supply chain management and integration has important functions for businesses that desire to create higher levels of financial performance. Since all companies work with related companies in either formal or informal linkages, such as suppliers and distributors, it is important to ensure information is transferred effectively between entities to enhance operations on both sides. Research by Kannan & Keah (2010) show how companies that integrate their supply chains to a wider extent develop a number of advantages. 

Supply chain management entails businesses associated with the development, building, distributing, and returning of products/services. It has been defined as the “cross functional integration within the firm and across the network of firms that comprise the supply chain” (Lambert, 2004). The management of supply chain has come to mean better integration with the supply chain elements to produce value. 

Integration is the creation of inter-firm linkages. Sharing information, building stronger ways to coordinate resources and collaborating on mutual goals creates efficiencies. These efficiencies may lead to cheaper processes, faster movement of products, or better attainment of resources. The functioning of the supply chain has a direct effect on the success of the organization.

There are reasons why some firms seek narrow integration versus wider integration. The factors leading to higher levels of performance can be difficult to understand and master. Significant research, resources and time are invested into the supply chain to create higher levels of efficiencies. Being too wide in orientation can lead to lack of focus and goal confusion. 

The researchers found that by moving beyond first tear suppliers offered significant savings and performance improvements that result in faster product development times, higher sales and strengthened quality. The second tier suppliers have a significant impact on how the whole system functions as an entity. Those companies that fail to consider information from second tier suppliers have a lack of context in which to understand supply chain information putting them at a disadvantage. 

Kannan, V. & Keah, C. (2010). Supply chain integration: cluster analysis of the impact of span of integration. Supply Chain Management, 15 (3). 

Lambert, D. (2004), Supply Chain Management: Processes, Partnerships, Performance. Supply Chain Management Institute, Sarasota, FL.

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