Integrating the SC Members

There has to be an incentive for the members in a SC to work

together for the highest profit possible.

Individual vs the whole SC network profit

The foundation of SC

• The concept of partnership—based on TRUST.• Partnership among the members in a SC

– A mutual relationship– A competitive advantage– Who gets the benefit?

Profit sharing

• On a fair ground• Suppliers:

– From satisfy customers’ needs– To joint action to increase competition

• Buyers:– From cost-based selection– To provide mutual beneficial negotiation

• A win-win situation!

Abusing partnership

• Suppliers usually try hard to provide the best services• But buyers hardly do the same!

– Looking for even lower costs– Using other suppliers services for bargaining tools

to the existing suppliers– Transfer costs to less innovative suppliers– Resulting in a shaky partnership relationship

The cause for unsuccessful partnership

• Different business concept between the suppliers and the buyers– Lower costs but not higher profits– Buyers use quantity as their bargaining power– Suppliers are always defensive– No breakthrough in reducing costs

Successful partnership

• Mostly in retail business– Low profit margin forcing members to work togethe

r• A major characteristics-Use of EDI• Example: Benetton’s using barcoding and information

technology for fast and efficient integration• Resource sharing and joint planning

More examples

• Dana to Ford:– Information gathering and processing in 5-10 minut

es– No documents, POs or receipts– Database sharing

• P&G to Wal-Mart:– CRP– P&G expanding customer base for better shipping o

peration

Finding the implicit values in a SC

• Draw the information flowchart for order processing• Manufacturers, suppliers, and customers decide how

the transfer the actual consumption information using real-time system to reduce safety stock and assure delivery

• Redesign the flow chart to reduce inventory, improve replenishment plans ( can reduce maybe 3-week of inventory)

• Use electronic money transfer

Starting point in a company

• Prioritize goals• Sharing resources among functions in a company• Human resource integration and team work• Identify the “Suppliers” and “buyers” within the

organization• More than 40% of the process can be improved

Identify the strength of the company

• Identify the target to be improved upon

• Business process reengineering

• Finding the resources necessary to maintain the

strength

Using logistics as the catalyzer

• Delivery quality• JIT from inbound to outbound logistics• Combining core activities with the suppliers’ services• Fast cash transfer• Example: Ryder to Toyota

Considering from the whole network

• Inventory reduced by 40-60% (due majorly to reduction in safety stock)

• Inventory turn up from 5-7 times a year to 25-30 (due to less inventory)

• Delivery time reduced by 50-60% (due to EDI and elimination of non value-added activities)

• Increase sales and market share by 35-55% (due to joint customer response system and attracting customers)

Considering from the whole network

• Profit increased by 15-30% (due to improved process design and further cost reduction)

• Customer relationship improved by 20-40% (due to better communication and services to the customers)

Strategic decisions

• Who will survive?• Who will dominate the market?• Who can maintain a healthy growth?• Who has the same concept and strategy as ours?• Who has the management concept to support the

partnership?• Who can share the resources to promote mutual

benefits?• Who can share the rewards?