Supply Chain Integration

Time Was…

Back in the early part of 2021, I wrote a couple of articles reporting on the importance of developing strong ‘horizontal’ networks and efficient working supply chains. Andy Gear of Modul Systems helped me with the first article on successful Supplier Integration and later, I spoke about our successful integration and the relationship with our friends at CoolKit. As we embark on 2022, I thought it might be interesting to take a look at how supplier integration in the automotive LCV supply and conversion market is evolving, and the pressures this puts on end users in appointing potential suppliers.

Firstly though, here’s just a quick recap on what supply integration is really about.

Time was when suppliers of goods strived to keep everything in house believing that investment in machinery and semi-skilled labour all within one ‘building’ would generate competitive advantage largely through economies of scale. The 80’s and 90’s witnessed a revolution where organisations realised that developing the unique in-house specialisms needed to remain competitive was unrealistic. Organisations turned to third party relationships. However, this introduced new problems. Yes, the intelligence was there but difficulties in supply integration led to issues such as production delays and final product quality issues. As an example, the aircraft manufacturer Boeing recognised the need for external supply integration in the late 70’s/early 80’s. They turned to outsourced supply which, in the 1990’s, led to the introduction of its new Dreamliner aircraft being delayed by three years – the cause being poor supply integration. Boeing did not correct these issues until they realised that it wasn’t enough to solve a set of problems by outsourcing without considering the ‘total solution’. In short, Boeing needed to change its view of itself. Boeing was no longer a manufacturer of aircraft – it became the dominant player in supply integration by becoming an ‘integrator’ or ‘facilitator’.

Within the UK’s automotive supply chain, procurement and fleet managers of large organisations have to deal with enforced supply chains. The nature of the LCV supply model means that end user management and procurement teams rely largely on supply integration models which are out of their control. It is fair to say that there is an expectancy that the integration exists regardless of the players within the supply chain – and in the automotive market it largely does exist amongst the major players. Of course, in all supply chains there is the dominant player and organisations are right to engage with the dominant player to determine the goals and objectives that need to be met for the successful supply of goods. End users can, of course, independently perform due diligence across all the players in the supply chain (or focus on what particular area or function), often through a tender process, but this only really looks at the internal capabilities of that particular organisation.

For example, an end user organisation looking for an LCV equipped with cooling equipment, racking, specialist lighting, and bespoke vehicle branding may ‘go to tender’ to select the individual suppliers, but how much attention is given to a supplier organisation’s ability to integrate across the supply chain? The answer is usually ‘not much’. Case study and testimonials may indicate that the supplier has successfully integrated in the past, but the actual systems in place to facilitate this integration is largely misunderstood. The norm is for the end user to rely upon one organisation in the supply chain to be the dominant player. Responsibility is then given to this organisation to meet the set goals. But what happens if a particular supplier within the organisations supply chain has an issue – perhaps a quality problem? Does the end user organisation step in and try to remedy the situation, or should the dominant organisation be allowed the opportunity to remedy the situation? If the supplier is removed from the chain, the remaining suppliers now have to set up and integrate with a new supplier. Is this good practice? Or is it better to resolve the quality issue with the existing supplier leaving the proven current supply chain integration intact. Clearly the latter. This is easily done against agreed SLA’s.

Competitive advantage through value creation is at the driver for effective collaboration. In other words, it is the process of working with strategic partners to deliver specific business opportunities that collectively increase competitive advantage for the customer. Collaboration requires all supply chain organisations to work together to define the roles each will play in delivering the customer’s specific objectives. Because collaboration can be a difficult and, in some cases, a contentious process, meaningful relationships based on trust and respect amongst the individual suppliers involved is critical. Strong relationships enable constructive debate on defining and refining supply chain processes and goals. Once work on an initiative has begun, supply chain partners must continue to assess goals and objectives to ensure mutual alignment is maintained. Supply chain partners must also consider the unique difficulties faced by different members of the supply chain and perhaps be willing to be supportive in communicating the potential problem areas. Ultimately, the overriding aim of the collaboration process is to maintain focus on the specific goals set by the customer that justify the supply chain partners’ engagement.

End user due diligence should focus on collaboration feedback and case studies from the dominant and chosen supply partner. Dominant partners will not jeopardise supply chain objectives through attempted integration with partners not capable of adapting to a complex supply chain environment.

Next time: Supply Chain Process Creation & Management