Finance & Accounting

What is an Integrated Supply Chain?

Integrated supply chain means a process where, from procurement of raw materials to production, quality control to packaging, distribution or supply to final delivery is streamlined and inseparable. It is a holistic collection of various processes, which may be under complete control of one company or multiple partners shall come together to have collective control over the integrated approach. It has various benefits, which is why most companies have switched to this management.

How Companies Integrate Supply Chains?

There are various levels of integration of supply chain. Generally, the first step in integration will be to select specific vendors to provide specific inputs, and draft an agreement for them to provide a set amount of inputs during the year at a set cost. It would ensure that the company has the materials it needs to produce its expected output during the year.

A higher level will be to integrate the companies more closely. An even higher level is called vertical integration, where the supply chain of a company is owned by the company.

Various technologies to enhance Integrated Supply Chain Management

There are certain cutting edge technologies that can enhance the management of integrated supply chain. Some of them are as follows:

• Artificial Intelligence (AI):

AI can collect data across the entire supply chain through sensor technologies with Industrial Internet of Things (IIoT) and robotics. It tracks various things in the supply chain, such as weather patterns, shipments. It also enhances traceability, agility and supplier communications.

• Robotic Process Automation:

RPA^[1] enables organizations to manage routine back-office tasks like monitoring inventory, data entry and order processing. It almost nullifies the possibility of human error and tracks these tasks 24*7 in real-time. It allows stakeholders to focus on highly important tasks to enhance overall productivity.

• Blockchain:

This technology is gaining momentum in supply chain management as it ensures greater transparency and visibility within the supply chain transactions. It addresses the issue of complicated record keeping and lowers the overall cost of moving items within the supply chain. With blockchain technology in the supply chain, it becomes easier for manufacturers, suppliers, distributors to share information and avoid delays along the chain.

Benefits of Integrated Supply Chain

• Enhanced revenues

With Integrated supply chain, a company can focus on assets that would allow the organization to reap more rewards. There are various facets of business that can have more pronounced impact on the revenues and thus should be optimized as much as possible. It allows companies to prioritize the specialized assets that will improve their products, increase market share or enhance operating profits.

• Reduce costs

Further, it always reduces costs, especially transactional costs, which can’t be avoided among subsidiaries, partners or vendors. With a centralized or integrated supply chain management, the company essentially avoids frills that can otherwise delay the process and can also incur unnecessary costs.

• Quality control

Supply chain integration also helps in ensuring quality. If there is a concerted attempt to ensure a stringent compliance check, it is tough to approve or pass along faulty products. There is only one authority that oversees compliance throughout the process.

• Stand out in the competition

With financial advantages, stricter compliance as well as better products, a company would be able to fight its competition and emerge as the winner with management of supply chain integration.

Disadvantages of Integrated Supply Chain

• Adhering to various regulations

Integration of all suppliers would pose challenges to a business trying to manage every internal and external supply. Not every supplier is required to comply with every regulation or norm. A company with a generic approach may needlessly force all its suppliers to adhere to the similar standards.

• Complications

The management of Supply chain integration may lead to a complicated scenario where resources are shared and wasted unnecessarily. Not every supplier needs every system. Every supplier and department needs to operate as per its own strengths.

• Shortage of compliant suppliers or vendors

There could be a shortage of suppliers or vendors that wouldn’t wish to renew contracts in case the terms of supply chain integration don’t suit their business priorities. This may impact the procurement and supply costs as those willing to comply with the new norms may have a huge rate.

• Fear of system collapse

There could be a collapse in the checks and balances in case of any lapse in the inspections or compliance checks. An error somewhere can bring the whole system to its feet.

Conclusion

A company can reap long term rewards if the integrated supply chain is effective and efficient. Therefore the company’s approach is critical. Usage of advanced technologies can enhance the management of integrated supply chain.

Read our article:Objectives and Functions of Supply Chain Management