The Value An Integrated Supply Chain Management Solution Can Provide
In a post-coronavirus-world, С-level executives seek new ways to boost their internal operations to drive the bottom line. Almost 80% of businesses with highly efficient supply chains generate more revenues than the average ones. What’s the key to their success?
Forward-thinking companies take advantage of integrated supply chain solutions and digitalization by adopting innovative technologies to upgrade the traditional supply chain management system (SCMS) or even completely replace older technologies. Let’s find out what supply chain integration is and how to disrupt the existing logistics effectively.
What Is Supply Chain Integration?
The SCM process usually incorporates techniques, rules, and practices to run the entire supply chain efficiently. Meanwhile, supply chain integration (SCI) stands for a comprehensive business objective that combines all the links in the chain (such as suppliers, manufacturers, and end-customers), building a tight collaboration between the parties.
While all supply chains are somewhat integrated, there are differences between traditional and integrated SCs. The traditional supply chains can be characterized as follows:
- Conflicting relationships between suppliers and customers
- Low interest in common sharing of profits and risks
- Minimal focus on achievements in the long run
- Less attention to value-added products and more regard to price and delivery
- Poor communications between allies of the SC
Outdated supply chains seem to have some disadvantages, and integrated supply chains (ISC), on the contrary, have exceptional privileges:
- A tight collaboration between parties, including OEMs (original equipment manufacturers), customers, and suppliers
- Focus on long-running success and realizing the importance of each participant
- Tier 1 companies support SCI by aiding low-tier firms
- Advanced management skills to get the most out of the existing business capabilities
- ISC concentrates on gaining more revenues and minimizing risks for all allies
Therefore, an integrated supply chain’s key feature is the close cooperation of all parties and their immediate readiness for disruptions in the business environment, helping businesses to stay competitive.
Horizontally Integrated vs. Vertically Integrated Supply Chain
A vertically integrated supply chain is when the company owns all the components needed to have the end-to-end supply chain in place, from the manufacturing of raw materials to creating a final product. A horizontally integrated supply chain works with many disparate suppliers who deliver the required components to the manufacturer for creating a final product.
Purpose of Horizontal and Vertical Integration
A company with horizontal integration (HI) aims to control competitor’s business while developing and expanding its geography so that its market share grows together with cost savings thanks to the production increase. This strategy suits those organizations that want to fortify the business, improve product quality, and dominate the market.
A company with vertical integration (VI) aims to get better access to the end-users of its competitor’s products and strives to have guaranteed access to supplies when purchasing a company-supplier. Many businesses utilize a vertical integration approach to cut costs, increase productivity, and dominate the industry.
Key Differences Between Horizontal and Vertical Integration:
- Horizontal integration refers to the interaction of two or more companies with almost identical operations in terms of product and manufacturing. Vertical integration implies merging two or more companies that operate at diverse levels of the supply chain.
- A horizontally integrated supply chain cannot operate autonomously in the value chain, while vertical integration helps the firm gain synergy and independence.
- Horizontal integration helps businesses to rule the market, while vertical integration aids in dominating the entire industry.
One of the most notable examples of horizontal integration was Facebook’s purchase of Instagram eight years ago for US$1 billion. Or one more case, when Disney acquired Pixar in 2006 for US$7.4 billion.
A vivid example of vertical integration is Amazon’s purchase of Whole Foods in 2007. Meanwhile, Apple represents another vertical integration business model as it has gained control over the production and distribution of its products from the very beginning. Apple not only sells smartphones and hardware products but develops appropriate software.
Modern Supply Chains Challenges
Since the supply chains gradually turn into digital functions, many companies are struggling to keep pace with transformation. The fact is that 91% of businesses don’t cope with the existing SCM challenges.
As businesses adapt their strategies and operations to satisfy consumer fluctuating needs and behaviors, they constantly face new challenges. Let’s have a look at the major ones.
The Lack of Visibility Across the Supply Chain
Profit margins leave much to be desired as expenses grow across the supply chain network. The rising costs majorly depend on the lack of visibility, which leads to operational inefficiencies and additional expenses. Other factors influencing the rise of costs include:
- Rising fuel prices for transporting goods, be it sea, land, or air.
- Rising cost of raw materials and therefore rising cost of an end-product.
- Costly human workforce from both sides, suppliers, and manufacturers.
- Complicated cross-border SC leading to higher fees for warehousing, transportation, and product management.
The Gartner report states that supply chain leaders can improve performance by implementing solutions for real-time transportation visibility and get immediate insights across the value chain.
Keeping Up With Demand as Supply Chains Become More Complicated
Customers got many opportunities to buy the goods, from the online websites to retailers and dropshipping stores working via social media. The supply chains have to adapt to the variety of market channels:
- Online shops selling directly to end-users need quick transportation and local logistics.
- Traditional physical stores and wholesalers require big storehouses near cities and proper inventory management to the supply sufficiency.
- Giant e-commerce platforms like eBay require accurate compliance with their terms and conditions and a clear vision of options to fulfill orders.
- Dropshipping stores need fine-tuning of the cross-border logistics to ensure customers get their parcels on time.
Supply chain leaders must deal with various supply chains, partners, and other 3rd-party companies to drive customer satisfaction rates, no matter how they place orders and receive their packages.
The Need for Agile Supply Chain And Keeping Quality Standards
Modern businesses try to innovate their supply chains as consumers become more and more demanding. They want the products of excellent quality and as soon as possible. Several factors are necessitating the agility of supply chains:
- High-quality products must be delivered to consumers on time.
- Raw materials and finished goods must satisfy the safety and local compliance requirements.
- The sustainability of supply chain operations becomes more critical to environment-friendly consumers.
It’s evident that the success of today’s company directly correlates with meeting and exceeding consumer demands of quality, sufficiency, and price. Supply chain leaders have to keep up with those needs.
Combating Emerging Problems Due To Growing Complexity
The already mentioned complexity, sustainable demands, financial pressures, and trade conflicts greatly impact the supply chain. Also, the following circumstances can cause some serious problems:
- Participants of SC, from sourcing partners to end-customers, are scattered around the world, still requiring accurate management.
- Isolated data sources and insufficient visibility result in poor reporting, inadequate BI, and decision-making.
- Regulations, compliance, and quality supervision require strict agreements and controls within the supply chains.
Supply chain leaders have to focus on emergency planning to lessen risks and cope with the occurring issues.
The ever-rising obstacles in the supply chain are too hard to resolve immediately. Therefore, responsible managers need to realize all major issues within their companies, understand the importance of digital supply chain transformation, and build robust reporting and management tools to fix problems promptly.
The Benefits of Supply Chain Integration
Partnering with an integrated supply chain solutions provider presents a company with a vast array of benefits – from improving the current logistics capabilities, building a fully-scalable platform, to expanding available resources for effective management of value chain operations. To dive deeper, find out what is the potential value of SCI:
Achieving Better Collaboration And More Visibility
As we already mentioned, an integrated supply chain refers to combining as many aspects as possible to establish a robust collaboration between parties. The final goal remains to cut costs and waste, increase productivity, and supply chain resilience while keeping up with sustainability standards. Instead of allowing disparate enterprise departments to operate separately, an integrated supply chain strives to set centralized management to ensure company-wide transparency.
According to a survey made by the industry-leading computing technology company, 82% of companies managed to improve deliveries’ timeliness by cooperating across the enterprise. They were able to streamline the manufacturing of new products, supplies, and other operations.
The same research reveals that businesses who adopted cloud increased their visibility and found customer satisfaction grew by 35%. Without transparency, companies face difficulties when dealing with disruptions. That’s why it’s crucial to align and consolidate your supply chain in order to streamline business processes and allow teams across the company to collaborate seamlessly.
Increasing Revenues And Profit Margin
When a supply chain operates without any flaw, companies keep the revenue stream steady or even start to earn more, leading to higher profit margins. Companies can achieve such effectiveness by creating an innovative supply chain backed by cloud-enabled SCM, enterprise performance management (EPM), and product lifecycle management (PLM) solutions. These tools can help businesses create and deliver products speedier and thus gain more revenues.
However, companies driven by a desire to adopt as many techs as possible should carefully develop their business strategies and know their goals not to waste massive investments and valuable resources.
A recent report states that big IT projects usually overrun the budget by 45 percent and have release delays by 7 percent. Moreover, they get 56 percent less value than awaited at the start.
Meeting and Exceeding Customer Demand
The ability to surpass customer expectations is closely associated with improved visibility. Without insights provided by an integrated supply chain, it is challenging to match supply with the growing demand.
Modern integrated logistics is supported by advanced technologies such as AI, ML, Blockchain, IoT, that offer vast amounts of precious data to supply chain leaders. In turn, they utilize specifically designed software to analyze the data and generate reports about customer behavior, preferences, refund reasons, and more. All this information may help the account managers have a bigger picture of the end-users and increase their satisfaction rate.
Achieving More Flexibility
Flexibility is another benefit of ISC, allowing businesses to respond to fluctuations in demand and disruptions in the business environment, such as rivals’ actions. By gathering data through the supply chain, companies become aware of the market trends, better plan their core strategies, and more accurately develop contingency planning. SCM’s flexibility is also an excellent way to manage cash flow without missing out on opportunities to grow the business.
Reducing Waste and Becoming More Environment-Friendly
Running a sustainable supply chain is a challenging task, but it’s possible within ISC. The total waste can be reduced because departments are no longer doing the same job twice or are trying to implement unnecessary processes. For example, in a traditional supply chain, two departments may each potentially possess LTL (less-than-full truckload) shipping sent out as scheduled. Sending out two LTLs rather than just one FTL (full truckload) is costly. The situation is different within an integrated environment where diverse departments collaborate and bundle deliveries, use practical and optimized routes, eliminate waste, and avoid useless and costly activities.
How an Integrated Supply Chain Solution Can Help
Companies that are ready to implement new digital instruments for integrating supply chain processes should realize the full spectrum of functions they can provide. First of all, this ISC platform generates real-time reports for the flow of the products across the entire network. It is aimed to improve SCM, enable accurate procurement and demand planning, boost inventory, and transportation management.
Therefore, we identify four core functions of an integrated supply chain solution:
Supply Chain Planning – Modern SCM requires a profound, technology-driven approach for performing accurate supply chain planning. With the help of the latest ISC solution, supply chain managers can consolidate engineering and logistic processes to eliminate complexity and reduce costs. With a trusted outsourcing custom software provider, a company can utilize the designed ISC software for continuous supply chain assessment, while staying flexible and ready for emerging business needs.
Transportation Management – An integrated supply chain solution combines all transportation activities in one place – TMS (transportation management system) that drives full visibility and ensures accurate accountability. Researches show that companies can save freight costs by up to 8% using TMS. Also, proper accounting within TMS enables the shipper to cut the freight bills up to 95%.
Warehouse & Inventory Management – 30% of supply chain leaders communicate the need to react to customer demands in a faster, more accurate way to ensure better order fulfillment. This can be achieved by adopting an integrated supply chain solution that is able to employ Big Data for gathering valuable insights and building robust analytics. ISC platform can keep track of activities in physical warehouses, analyze storages and workforce. Also, it manages the availability of stock and the number of raw materials. This feature contributes to more precise demand and contingency planning.
Global Logistics – With fully scalable ISC software, supply chain leaders can expand business capacity entering a new respective field, while meeting the challenges of global trade. By leveraging custom supply chain software, managers can use valuable knowledge and reach the required products anywhere and whenever needed most efficiently. Namely, the ISC platform enables employees to identify potential suppliers and collaborate with them to maintain a reliable vendor relationship.
Technologies That Can Accelerate Supply Chain Integration
Thanks to the digital revolution and the advances brought about by supply chain 4.0, there is a wide range of tools available to help companies create or enhance their integrated supply chains.
Robotic Process Automation (RPA) — RPA can be used in both directions – designing physical robots and robotized software. RPA software is especially helpful in modern SCM. The ISC software bots can be used to perform monotonous, routine back-office duties, including data entry, inventory tracking, and order fulfillment. The RPA-based tools minimize human error, can work round the clock, and keep a track of a vast spectrum of tasks in real time. This results in more freedom for employees and giving them the opportunity to execute core business tasks, improving their effectiveness.
Blockchain or DLT — Many have claimed blockchain as one of the main technologies capable of influencing the global business landscape. Supply chain leaders can take advantage of the distributed ledger technology (DLT) to keep a record of all transactions securely and establish safe relationships with vendors worldwide.
Extended Reality Tools — Tools supported by virtual reality (VR) technologies can radically change the current approach to supply chain management. For example, those new interactive instruments can help increase design productivity and proficiency, enhance data visualization and supply chain planning, and expand labor collaboration.
International teams can speed up the process and product design using VR applications by cooperating on a project at a time, regardless of geographic location. Using VR to design a factory line, employees can simultaneously work on a new design and learn how it will operate. Using 3D capabilities, supply chain managers can visualize complex data and employ it for planning functions.
Artificial Intelligence (AI) — In the next four years over 60% of G2000 companies will exploit AI platforms to encourage digital transformation throughout the supply chain, achieving a 20% productivity increase. No wonder, because the value AI brings to organizations is the collection of data from all the links in the chain, allowing managers to monitor everything from weather conditions to parcels quality during shipping. Finally, AI combined with IoT provides better agility, visibility, and improved communication with suppliers.
5G Networks — Compared to its forerunners, 5G is a much more advanced technology offering more speed for data processing. Supply chains can become faster and more resilient thanks to 5G. For example, using a 5G network businesses can boost their real-time visibility tools and IoT capabilities, minimizing latency and downtimes.
Digital Supply Chain Twin — A digital supply chain twin (DSCT) technology is a computer representation of a real-world SC that gathers data from the entire network in real time, provides advanced analytics, and applies to the physical world across the SC full lifecycle. It is used to boost the SCM performance and is expected to dramatically change the way supply chains are operated today.
For instance, a famous tire company Bridgestone is using digital twin technology to enhance its products by adding more safety and reduce disruptions on the road. Therefore, Bridgestone incorporated the real-time tire sensor data simulated with actionable predictions. This can help in making safety systems more advanced and reliable.
Summary: Integrating Supply Chain With Dedicated IT Provider
Keeping in mind all the information, company executives should think over creating a suitable integrated supply chain strategy. Integrated supply chain solutions providers like Innovecs can help businesses implement solutions to enhance supply chain operations. A reputable outsourcing software company can alleviate the time-consuming and complicated task of digital supply chain transformation by analyzing the market and addressing the major supply chain challenges. Partnership with an IT provider can allow business executives to get a robust software solution integrated on time and on budget.
Integrated supply chain solutions can help:
- Enhance supply chain visibility
- Foster collaboration among all allies in the network
- Boost customer satisfaction rates
- Optimize major supply chain operations
- Bring more revenues and increase profit margins
- Achieve more flexibility
- Improve emergency and demand planning
The list of benefits may vary from company to company, but many organizations already see the true value and have a significant competitive advantage. For those ready to embark on this journey, Innovecs experts can help create and implement fully integrated solutions that will improve your business effectiveness and accelerate revenue stream.