Why Manufacturers Should Embrace Supply Chain Integration in 2023

The global COVID-19 crisis had significant impacts on the global supply chains we rely on to move materials and completed products around the world. And, even though the worst days of the pandemic are now behind us, supply chain recovery has been slower than expected.

What’s more, subsequent geopolitical events such as the Russian invasion of Ukraine and the UK’s exit from the European Union (Brexit) have compounded these difficulties by adding extra complexity to any supply chain which has links in the affected countries.

This means 2023 is the year when manufacturers and all other stakeholders in these supply chains must seek to establish new practices and processes which will make them better able to operate in this increasingly challenging environment and more resilient in the face of future disruptive events.

Supply Chain Integration

The National Academies of Sciences, Engineering, and Medicine defines supply chain integration as, "an association of customers and suppliers who, using management techniques, work together to optimize their collective performance in the creation, distribution, and support of an end product.”

Integrated supply chains bring all stakeholders together – raw materials procurement, product design, manufacturing, warehousing, and distribution – and synchronize their operations in a manner which promotes product traceability and communication. This promotes resilience as disruptions can be identified earlier meaning up-chain links can respond with agility and act on previously agreed upon contingencies.

Supply chain integration is typically achieved through the acquisition or merging of other companies, meaning that more of the supply chain is operating as a single entity, and/or the development of an increased number of business lines which act in various stage of the chain. These strategies are typically applied through one of two methods:

• Horizontal integration: the acquisition or development of capabilities in the same link of the supply chain. An example of horizontal integration would be a car manufacturer that acquires a regional competitor to expand its market and have more control over prices.
• Vertical integration: the acquisition or merger process involving several levels within the supply chain. In other words, vertical integration entails purchasing another business or developing in-house capabilities within the company to expand the scope of its services. For example, a manufacturer may merge with a logistics company which offers them greater insight into and control over what happens with products once they leave the factory.

Resilience and Robustness

2022 research published in the Journal of Global Operations and Strategic Sourcing examined the relationship between supply chain integration and firm performance during the COVID-19 crisis, and the mediating role of resilience and robustness.

The results of the research heavily suggested that supply chain integration is highly effective as an underlying mechanism which can facilitate the development of resilience and robustness as two dynamic capabilities during global crises such as the coronavirus pandemic.

"The results support the positive effect of three SCI dimensions of internal, product and process integration on operational and financial performance during the coronavirus pandemic,” report the research authors, Rosa Hendijani, and Mahdis Norouzi. "Furthermore, internal and process integration have positive effects on resilience. Internal, product and process integration have positive effects on robustness. In addition, resilience mediates the effects of internal and product integration on both operational and financial performance, whereas robustness mediates the effect of internal and product integration on financial performance.”

Barriers

Supply chain integration is not without its challenges and there are several factors which can act as barriers to achieving it. A lack of IT solutions and knowledge, poor working relationships with other links in the chain, communication issues, prohibitive costs, conflicting goals, and difficulties achieving leadership buy-in can all contribute to difficulties achieving supply chain integration.

Of all of these, leadership buy-in may be the most critical. As we discussed in a previous article in this series, enthusiasm and resource availability for these kinds of initiatives tends to trickle down from the top – i.e., if your leaders are on board, everyone will be on board. Therefore, making the case to the c-suite should be your top priority.

"Building a superior supply chain within an organization requires all its stakeholders to work together efficiently,” writes GEP. "Gone are the days when organizations had no choice but to rely on one-way communication and lag in handling supply chain operations. Businesses now must achieve supply chain integration where all parties are integrated into a single communication system.”

Final Thoughts

Supply chain integration is essential for those manufacturers which wish to be more resilient and robust in the face of future crises. It seems highly likely that more challenges are on the horizon for our industry, so acting now is far preferrable to a wait and see approach.

Supply chain integration is certain to be part of the conversation at Connected Manufacturing Forum 2023, being held in June at the Westin Buckhead Atlanta.

Download the agenda today for more information and insights.