Internal Supply Chain Management

KPB1923-SUPPLY CHAIN MANAGEMENT

Prepared for: Dr Marco Tieman Prepared by: Esther Mingel (KBA15026) Page 1

EXECUTIVE SUMMARY

Effective supply chain process has become paramount in today’s organization, not

only it ensuring the overall successful supply chain management but also to increase the

organizational performance and to gain competitive advantage. In order for the

organization to compete successfully, there is a need for an effective integration and

collaboration of three macro processes in the supply chain activities which are the Supplier

Relationship Management (SRM), Internal Supply Chain Management (ISCM) and Customer

Relationship Management (CRM). Seeing that the competition is no longer between

organization, but rather among the supply chains, thus Chopra and Meindl (2016)

highlighted that the organization structure of an organization has a strong influence on the

success or failure of the integration effort. Over the time, the terminology of supply chain

management has undergone tremendous changes; where it can never focus only on

decreasing the overhead cost but rather it forces every single bu siness units to become

more innovative in fulfilling the customer’s demand and satisfaction whilst realizing the

importance of Information System (IS) for supply chain activities. Savvy and innovative

companies like Zara, Dell continuously realizing the importance to stay innovative in

improving their supply chain. The question is that how do an organization approach the

supply chain integration today? Integration is all about the collaboration of both internal

and external supply chain; whereby ideally Internal Supply Chain Management (ISCM) will

fulfill the customer’s demand which falls under the Customer Relationship Management

(CRM) and involve in the strategic planning, demand planning, supply planning, decision

making and inventory management whilst Supplier Relationship Management (SRM)

covers the supplier management; ranging from payment terms, pricing, delivery terms,

design and supply collaboration.As Internal Supply Chain Management (ISCM) will be

discussed further, there is a need for understanding that the goal is to improve the cost and

performance through a more strategic relationships. In fact, supply chain output is all about

the MIX match of time, place, products or services proposition where it is contradict to most

believe that the output is the physical product only. Thus, an organization needs to

continuously improve their customer service, minimize and overcome the risks and

challenges in the internal supply chain management, especially their internal supply chain

integration.



Table of Content:

Page:

1. Internal supply chain concepts 3-6

2. Current internal supply chain practices 6-7

3. Future perspectives 7

4. References 8

Figure:

Page:

Figure 1: Supply Chain Management Framework Elements and Key Decisions (from: Chopra, Sunil, and Peter Meindl. Supply Chain

Management (6th Edition). Edinburgh Gate: Pearson, 2016)

3

Figure 2: Typical Supply Chain

(from: Tian, R. (2009). Internal logistics as a part of supply

chain: case: Nokia-China, Dongguang Branch. )

4

Figure 3: Supply Chain Macro Processes

(from: Chopra, Sunil, and Peter Meindl. Supply Chain Management (6th Edition). Edinburgh Gate: Pearson, 2016)

5



1. Internal Supply Chain Concepts:

It is not alien anymore that because of the stiff competition between

supply chains, organizations are doing their best to improve the buyer-supplier

relationship, even a partnership, sourcing management, as well to optimizing the

use of information technology to manage the supply chain

operations.Subsequently, supply chain management definition is to be revisited.

In the past, as per the theory of Industrial Dynamics, the concept of supply

chain management was a bit unclear but the concept starts to develop in terms of

its function and logistics are part of it. Interestingly enough, according to

(Lambert, 2001), as per the Council of Logistics Management (CLM) in the year

1980, supply chain management was viewed as logistics. Secondly, some

modification of the definition of logistics; where logistics are part of supply chain

process including the information-sharing, storage and warehousing, as a service

provider, as it involve in transmitting the information from the point of origin to

the point of consumption.

According to (Bala, 2014), supply chain management develops a process to meet

the customer’s demands. An organization that are optimizing their supply chain

management will emphasize on the supply chain coordination, integration and

improving the relationships. Importantly, supply chain management is the

backbone of company’s direction, where it integrates both material and the

information. In managing a supply chain, three important inter-related elements

are the supply chain network structure, the supply chain business processes, and

the supply chain components as explained in Figure 1.

Figure 1: Supply Chain Management Framework Elements and Key Decisions

Supply Chain Business

Process

Supply Chain Management

Components

Supply Chain Network

Structure

(2) What process should be linked with each of

these supply chain members?

(3)What level of integration and

management should be applied for each

process link?

(1)Who are the key supply chain member

with whom to link processes?



It has been said that supply chain management consists of several functions

including sourcing, purchasing, inventory management, warehouse management,

operation’s supervision to the distribution of products to the customers (John,

2011) whilst (Tian, 2009) firstly stated that supply chain management manages all

internal and external business activities. Secondly, relates the supply chain

management as also the logistics management in terms of efficient and effective

logistics.

For this reason, the notion of internal supply chain comprises of purchasing,

production and distribution flow, as it composed of networks of supply and

demand as per the Figure 2.

Figure 2: Typical Supply Chain

Thirdly, the internal supply chain management refers to the activities of

management itself that is planning, organizing, control and coordination of the

supply chain. It is very important to achieve the integration and coordination in the

entire supply chain network. Chopra and Meindl (2016) identify seven suggestions

to achieve coordination: quantify the bullwhip effect, getting the top management’s

commitment for coordination, allocate the resources, communication with other

stages of a supply chain, optimizing the technology to improve visibility of

information and sharing the benefits of coordination equally. Hence, the internal

supply chain integration makes use of the flow in supply-demand with the goal to

turn the supply-demand flow into more flexible, efficient and effective. There are

four main facets in internal supply chain integration; information integration,

decision making integration, financial integration and the operations of this

integration.

Within the supply chain management literature, internal supply chain process is

Supplier Customer Purchasing Production Distribution

Internal Supply Chain



not just about a process occurring from marketing to distribution, for example

(Chen & Paulraj, 2004) cited that the understanding of internal supply chain

management also emphasize on the strategic issues, supplier involvement and the

role of buyer-supplier relationship and it’s consequences. Secondly, (Tian, 2009)

summarized internal supply chain management key concept as the whole idea of

processes involved internally in the firm which includes; planning, organizing,

controlling as well as coordinating in the logistics, information-flow and

throughout the business process stages. Thus, the absence of internal supply chain

integration incorporates all the activities to enhance the efficiency of the supply

chain. For example, Chopra and Meindl (2016) summarized the internal supply

chain management processes include the planning of internal production, storage

capacity, preparation of demand and supply plans and fulfillment of the actual

orders as per the Figure 3.

Figure 3: Supply Chain Macro Processes

SRM

ISCM

CRM

The present study by (Carter, Monczka, Robert, & Ragatz, Gary, 2009) therefore

proposes the antecedents of supply chain integration are the alignment,common

objective, goals across the firm; information-flow through a two-way

communication of by the sharing of data from a common system.Essentially,

numerous of studies have addressed the imperative role of firm’s business

strategy; for example, the correlation between supply chain strategies and its’

business strategies. Thus, strategic planning decision includes the common vision

and objectives, the right people, good control systems, excellent facilitation of

Supplier Customer Firm

Source

Negotiate

Buy

Design

Collaboration

Supply

Collaboration

Strategic Planning

Demand Planning

Supply Planning

Fulfillment

Field Service

Market

Price

Sell

Call Center

Order Management



supply chain alignment are essential for firm to be competitive which requires the

involvement of the management and the members of supply chains.

As pointed out by Chopra and Meindl (2016), in Figure (3), internal supply chain

management is conceptualized into five dimensions. Therefore, planning of

demand and supply can be seen for instance, in an operational process whereby

typically the planning will be kicked off from drafting of a production schedule in

order to estimate and allocate resources that will be used. Next, from the schedule,

procurement activity will took place for a decision making and to build a

relationship to sustain customer, loyalty and to add value to a product. Supported

by a study done by (Chen & Paulraj, 2004)indicated that more purchasing is

playing a crucial role in a strategic purchasing and aligned with the business

strategies element; for instance, managing the buyer-supplier relationship.

Subsequently, an effective communication is essential in this relationship to

achieve a common goal, maximize the profit, andto add value to both the firm and

the suppliers.

Many studies shows that demand and supply planning and the order fulfillment,

include the aspects of demand forecasting while taking the capabilities of

procurement, manufacturing and distribution into consideration. (Croxton,

Lambert, García-Dastugue, & Rogers, 2002) reveals that a good demand

management process is about being proactive in anticipate demand; where two

primary considerations in developing this process are; (1) understand how to

reduce the demand variability and thus to foresee any future demand

interruptions, whilst understand the benefits of having the right and long term

relationship with suppliers and (2) understand that the forecasting requires every

member in the supply chain to actively participate. Subsequently, an excellent

demand forecasting can leads to a more cost effective firm. In additional, the

concept of forecasting as including, forecasting timeframe of a firm, forecasting

procedures, where different forecasting process is used to cater different needs;

for instance to forecast upon a new product, or to forecast for any members in the

supply chain. Last but not least, is to do the field service for instance, scheduling

service call. In the nutshell, as per the Figure (3), ISCM aims to fulfill the demand

that generates from CRM and hence the SRM is where the order fulfillment and the

field service to integrate in the forecasting of demand; demand planning.

1. Current Internal Supply Chain Practices

As today’s organization is moving from competing amongst the organization to

competing amongst supply chains, to be competitive in the market requires

practices as such; (1) using the Inter-Organizational System (IOS) not only to store



and trace the information data, but it is widely use to mediate the buyer-supplier

relationship, (2) creating alliances with key suppliers to maximize the cost.

Subsequently, an effective alliance management program with key suppliers

include to provide a mechanism to ensure that the relationship stays healthy,

create a platform for problem resolution, develop continuous improvement goals

with the objective of achieving value for both parties and to ensure that

performance measurement objectives are achieved, (3) strategic sourcing, in the

sense that no longer a firm is depending only on the purchasing department, but

rather every business unit in a firm such as accounting, engineering, production

provide their feedbacks and to contribute actively in the decision making process,

thus this way it will be more beneficial to the organization, (4) optimizing

company-owned inventory which also means to not hold inventories for too long

as the overall idea of efficient supply chain is to reduce the cost of overhea d by

efficient warehousing system and efficient planning and forecasting, (5) risk

mitigation, is as crucial in any firm to frequently reviewing, keep updated,

monitoring their supply chain policies and procedures to ensure compliance.

Business will runs smoothly when risks are in controlled. For instance, sourcing

decision process, the firm has the responsibility to identify the risk elements a nd

its probability of occurring and assessing the cost impact, last but not least, (6)

green supply chain, or reducing the supply chain’s carbon footprint. It is

conceptualized into green procurement, green manufacture, green distribution,

and green logistics. Green supply chain aims to educate every business firm of their

supply chain to eliminate or minimize waste such as chemical, solid wastes or

emissions (Ninlawan et al., 2010). Some examples of efforts are, create awareness

to 3Rs, using the energy efficient technology, green packaging for warehousing,

procurement, logistics, go paperless as well as collaborate with green partners.

2. Future Perspectives

Supply chain management is about a journey, not a destination. Interestingly, a

research on supply chain management versus supply chain orientation caught my

attention. As per (Mentzer et al., 2001) the argument was the antecedents of

supply chain management are the factors that enhance or impede the

implementation of supply chain orientation. Firstly, the supply chain orientation is

defined as tactical activities in managing the various flows in a supply chain, in

which it is applied if the management is involved throughout the entire supply

chain processes. Further explained in this study, stated that with the practice of

Just-In-Time delivery for instance in the supply chain, it is not sufficient unless it is



coordinated with a strategic and systemic orientation. Thus the question is how

does supply chain management change with regards to different type of

companies; it’s philosophies and culture as such; trust, top management support,

commitment, and organizational compatibility.

References:

Bala, K. (2014). Supply Chain Management : Some Issues and Challenges - A Review. International Journal of Current Engineering and Technology E-ISSN, 4(2), 946–953.

Carter, P. L., Monczka, Robert, M., & Ragatz, Gary, L. (2009). Supply Chain Integration:

Challenges and Good Practices. CAPS: Center for Strategic Supply Research.

Chen, I. J., & Paulraj, A. (2004). Understanding supply chain management: critical research and a theoretical framework. International Journal of Production Research,

42(1), 131–163. http://doi.org/10.1080/00207540310001602865

Chopra, Sunil, and Peter Meindl. Supply Chain Management (6th Edition). Edinburgh Gate: Pearson, 2016

Croxton, K. L., Lambert, D. M., García-Dastugue, S. J., & Rogers, D. S. (2002). The demand management process. The International Journal of Logistics Management , 13(2), 51–66. http://doi.org/10.1108/09574090210806423

John, A. (2011). Retail Supply Chain : Challenges and Prospects, (February).

Lambert, D. M. (2001). Supply Chain Management. The International Journal of Logistics

Management, 8(1), 13–36.

Mentzer, J. J. T., Dewitt, W., Keebler, J. J. S., Min, S., Nix, N. W., Smith, C. D., & Zacharia, Z. G. (2001). Defining supply chain management. Journal of Business …, 22(2), 1–25.

http://doi.org/10.1002/j.2158-1592.2001.tb00001.x

Ninlawan, C., Seksan, P., Tossapol, K., Pilada, W., C, N., P, S., … W, P. (2010). The Implementation of Green Supply Chain Management Practices in Electronics Industry. Proceeding of the International MultiConference of Engineers and



Computer Scientists IMECS 2010, March 17-19, 2010, III.

Tian, R. (2009). Internal logistics as a part of supply chain: case: Nokia-China, Dongguang Branch. Retrieved from

http://publications.theseus.fi/handle/10024/3577