Problems with Fragmented Logistics

Warehousing Physical Distribution

Procurement
Stock Control Outward Transport
Inward Transport
Materials Handling Returns
Picking
Receiving
Consolidating

Suppliers Operations Customers

Communications
 Fragmented Logistics and Supply Chains - Disadvantages

• Setting conflicting objectives

• Duplicate efforts and reduced productivity
• Worse communication
• Reduced coordination
• Unresponsiveness
• Increased uncertainty and delays
• Increased variability
• More difficult planning
• Unnecessary buffers between parts
• Obscuring important information
• Uncertain
 Effects of Integration
• The overall performance of the system is important
• The separate activities need not be working optimally to get the best overall
performance
• There are trade-offs between the different activities
Steps in Integration
• Stage 1 – separate logistics activities are not given much attention
• Stage 2 – recognition that separate activities are important
• Stage 3 – making improvements to the separate functions
• Stage 4 – realizing the benefits of internal cooperation
• Stage 5 – developing a logistics strategy
• Stage 6 – benchmarking to compare logistics performance
• Stage 7 – continuous improvement
 Difficulties of Achieving Integration
• Finding a sponsor
• Changing practices
• Organization
• Cultural change
• Rewards
• Information systems
• Hoarding of resources
 Three Levels of Logistics Integration
1. Separate functions within an organization

Suppliers Operations Customers

2. Integration within the organization

Suppliers Operations Customers

3. Integration along the supply chain

Suppliers Operations Customers

Bullwhip Effect
 Benefits of External Integration
• Common objectives for all parts of the supply chain
• Shared information
• Improved material flow
• Lower costs
• Better customer service
• Improved broader performance
• More flexibility
• Standardized procedures
• Replenishment and movements triggered by actual demands rather than forecasts
Obstacles to Integration
• Incentive
• Information processing
• Operational
• Pricing
• Behavior
 Customer Relationship Management (CRM)
Supplier Relationship Management (SRM)

Suppliers Organization Customers

Internal Transaction
SRM CRM
Management
Information System

Three Types of Activity

• Support systems
• Direct communication
• Analysis of customer and sales data
 Sharing Information
• Electronic Data Interchange
• Point of Sales
• Supply Chain Visibility
• Collaborative Planning, Forecasting and Replenishment (CPFR)
Strategic Alliances

A strategic alliance is a formal, long-term relationship between two or more

organizations to pursue a set of agreed goals, or achieve a specified business need.
 Spectrum of Relationships for Cooperation

Informal Formal Minority Joint Vertical

Adversarial Contractual
Cooperation Alliance Investment Venture Integration

Arm’s Medium-term
Relationship Unspecified Long-term contract
Length contract

Information
Little More Full
Sharing

Trade with Much Less Little

Competitors

Culture Different Coming Together Shared

 Forming Alliances
• Stage 1 – defining the scope of a relationship
• Stage 2 – identify potential partners and assess their performance
• Stage 3 – compares suppliers, selects the best, and negotiate contracts

Three Key Elements of Alliances

• Drivers – reasons for forming partnerships
• Facilitators – supportive corporate factors
• Components – joint activities and operations
 Joint Venture
Vertical Integration

Suppliers Organization Customers

Types of Vertical Parts owned by
Integration the organization

Little

Backward

Forward

High