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Supply Chain Integration: Definition and Challenges

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Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,
IMECS 2010, March 17 - 19, 2010, Hong Kong

Supply Chain Integration:

Definition and Challenges
Hussain A.H Awad, Mohammad Othman Nassar

Management (PLM), and e-procurement and e-marketplaces,

Abstract—Ever Since the Council of Supply Chain as well as making them available over the Web to foster
Management Professionals (CSCMP) Defined Supply Chain cooperation and collaboration across the entire value chain.
Management and the Council of Logistics Management (CLM) In today’s dynamic business environment, many companies
adopted the definition of logistics in 1984, the integration of a
supply chain processes or activities became obligatory
are expanding, merging, contracting, or otherwise
definition. Many firms have extended their chain from redesigning their supply chain. Due to the rapid
upstream and downstream to include other vendors, agents of advancements of technology such as pervasive or ubiquitous
vendor, and customers. These firms have successfully wireless and internet networks, the basic supply chain is
implemented the concept of supply chain integration with rapidly evolving into what is known as a Supply Chain
spectacular results after they recognize and manage the Network. The supply chain network is a dynamic and
integration challenges of supply chain.
integrated system in which all firms integrated to increase the
This research is a humble scientific attempt to shed more on
the challenges and the obstacles that those companies faced value of every chain. Integration is a process of redefining
during their success journey stand behind finding integration in and connecting parts of a whole in order to form a new one.
their supply chain. By reviewing the available literature about In traditional supply chain integration, the definitions of parts
the supply chain integration challenges we didn’t find a single are usually limited by the boundary of the enterprises: the
source able to present all these challenges that may face the integration emphasizes connecting each enterprise with
organization during its implementation of supply chain logistics and information communications. [8]
integration. The main contributions for this paper are
integrating all the of supply chain integration challenges in one In the 21st century, there have been a few changes in
source. These contributions will be very helpful for the business environment that have contributed to the
organizations that establish the integration in their supply chain development of supply chain networks. First, as an outcome
of globalization and the proliferation of multi-national
Index Terms— Supply chain integration, Challenges of companies, joint ventures, strategic alliances and business
supply chain integration. partnerships, there were found to be significant success
factors, following the earlier "Just-In-Time", "Lean
I. INTRODUCTION Management" and "Agile Manufacturing" practices. Second,
To succeed in the digital economy, organizations must technological changes, particularly the dramatic fall in
manage the integration of business, technology, people, and information communication costs, which are a paramount
processes not only within the enterprise but also across component of transaction costs, have led to changes in
extended enterprises. Supply Chain Management (SCM) coordination among the members of the supply chain
system facilitates inter-enterprise cooperation and network [25]. These factors create many challenges to the
collaboration with suppliers, customers, and business integration of supply chain network.
partners. Although this system can bring benefits and
competitive advantage to organizations, the management and
implementation of this system pose significant challenges to II. SUPPLY CHAIN INTEGRATION
organizations. Process integration and redesign is important
component SCM implementations. Integration involves not Companies searched for new business paradigms that
only implementing ERP systems and ensuring they would led to competitive advantage. Just in Time (JIT),
communicate or interface with legacy systems, but it also Supply chain Management (SCM), Theory of Constraints
involves integrating ERP and SCM systems with Customer (TOC) and Total Quality Management (TQM) are
Relationship Management (CRM), Product Lifecycle examples of strategies that helped companies to improve
production processes, reduce costs and successfully
compete in a variety of business environments. Every MIS
Manuscript received December 28, 2009. This work was supported in part researcher should be familiar with the basic fact about
by the University Of Banking and Financial Sciences. Supply Chain globalization and internet influence on SCM. In order to
Integration Challenges. improve competitiveness, companies began realize the
Hussain A.H. Awad Author is Assistant professor Faculty of information
potential of information technology to dramatically
system and technology, University of Banking and Financial Sciences,
Amman/ Jordan (phone: 00962795134334; e-mail: transform their business. Instead of automating old,
[email protected]). inefficient processes, companies began to reengineer
Mohammad Othman Nassar Author is Assistant professor Faculty of business processes using technology as the enabler. This
information system and technology, University of Banking and Financial led to emerge Supply chain management models. A supply
Sciences, Amman/ Jordan (phone: 00962788780593; e-mail:
[email protected]). chain consists of all stages involved, either directly or

ISBN: 978-988-17012-8-2 IMECS 2010

ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,
IMECS 2010, March 17 - 19, 2010, Hong Kong

indirectly, in fulfilling a customer request. A supply chain III. CHALLENGES AND OBSTACLES OF SUPPLY
includes manufacturer, supplier, transporters, warehouses, CHAIN INTEGRATION
retailer, third-party logistic provider, and customer. The
objective of supply chain management is to maximize the Supply chain management (SCM) executives face unique
overall value generated rather than profit generated in a challenges, with respect to integrating supply chain-
particular supply chain. [25] The American professional specific strategies with the overall corporate business
association defined the SCM, "Supply chain management strategy. In recent years, given changing business realities
encompasses the planning and management of all related to globalization, the supply chain has moved up on
activities involved in sourcing and procurement, the chief executive officer’ s (CEO’s) list of priorities. But
conversion, and all logistics management activities. it's not always for the right reasons. In many cases, CEOs
Importantly, it also includes coordination and only pay attention to the supply chain when they want to
collaboration with channel partners, which can be cut costs or when something is wrong. Since the supply
suppliers, intermediaries, third party service providers, chain essentially moves the lifeblood of the organization,
and customers". [6] process efficiency on a global scale is essential to
optimized business operations. The importance of global
Throughout the 1980's and 1990's the concepts of integration to the Multi-National Company (MNC) lies in
customer and supplier integrative relationships gained the differential advantage to be gained from the ability to
renewed attention. Business in general began to develop exploit differences in capital and product markets, to
extremely close relationships with selected clients, transfer learning and innovation throughout the firm, and
sometimes termed strategic customers, and significantly manage uncertainty in the economic or political
more emphasis was placed on improving working environment in different countries or regions. However,
arrangements with suppliers. This trend with increased the general understanding of the business environment in
collaboration throughout the SC could be explained as a most industries is that competition has increased and the
result of three factors [1]: conditions under which business is made are more
turbulent. [13].
• Manufacturing takes place in a global context
where local markets are subject to global After extensive reading to the supply chain integration
standards. challenges that the literature mentioned in different
resources we found that the researches try to enumerate
• Manufacturing systems are required to develop the challenges from one perspective [22, 24, 3, 16, 9, 11,
and operate environmentally benign products and 17, 20, 18, 5, 2, 14, and others The researchers in the
processes. previous direction discuss the challenges from three
perspectives:
• The business and organizational structures,
within which manufacturing operates, are under • Technical perspective [22, 24, 3].
increasing stress.
• Managerial perspective [17, 20, 18, 5, 2, 14, and
The driver behind such collaboration was the desire to others].
extend the control and co-ordination of operations across
the entire supply process, replacing both the market and • Relationships perspective [3, 16, 9, 11].
vertical integration as the means of managing the flow
process [26]. Lee, H, and whang, S. defined integration as, We found that the previous direction did not include the
“the quality of the state of collaboration that exists among following issues:
departments that are required to achieve unity of effort by
the demands of the environment”. While this definition • No paper was able to present all Supply Chain
refers to integration internal to a firm or organization, our integration challenges.
emphasis here goes beyond the firm and encompasses
We are going to integrate all challenges in a single
external entities that are players in a supply chain. [10]
comprehensive source, we believe that this integration will
Recent development in SCM offers the potential not just provide the following benefits:
to cut cost but also to generate new revenues and high
• Decrease the complexity of the challenges.
profits. The remaining challenge is to link those novel
approaches together to garner the competitive advantage • Priorities these challenges effectively.
of a seamless flow of SC. Creating collaborative out side
and cross-company processes to design product that meet • Better allocate resources for managing
the market demand and can be quickly and efficiently challenges.
produced. To design the SC, Four stages must focus on:
the supply chain network, the internal supply chain (which • Introducing a comprehensive source that
is manufacturing plants). Distribution systems, and the end contains all the challenges mentioned in the
users, moving up and down the stages are the four flows: literature.
material flow service flow information flow and fund
flow. [26]
Transaction Costs
From inside the organization the decision to outsource

ISBN: 978-988-17012-8-2 IMECS 2010

ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,
IMECS 2010, March 17 - 19, 2010, Hong Kong

business processes and create a supply chain outside of the

organization is clearly one that requires an assessment of Manage operation flexibility
where the boundary of the organization should reside. As A firm gains flexibility to quickly realign the
such, an economic assessment is required of the various supply/demand mix to satisfy changing global demand.
merits of integration versus market provision. Thus, the Switching costs and Coordination costs are a barrier to
decision is based on a transaction costs approach where there operating flexibility. Switching costs can be reduced if all SC
is an “examination of the comparative costs of planning, partners standardizing their products and processes globally
adapting and monitoring task completion under alternative which is seams to be challenge. Coordination costs can be
governance structures” [19]. The outsourcing decision is significant for global integration of cross-functional supply
focused primarily on the management of recurrent chain processes. A well-structured global demand
transactions; the key dimensions of this context are the forecasting and planning process is an important mechanism
uncertainty and asset specificity germane to the transaction. for global coordination across functions. Regional
Since these dimensions will vary, this creates a variety of representation to ensure all relevant input is considered is
contexts and the result will be diversity within governance also important. A globally integrated process with regional
structures. representation requires costly resources, information
infrastructure, and travel. Globally integrated information
Strategy and planning systems are critical to reduce the cost of communications and
If supply chain management is to be considered an to make relevant information readily accessible or to reduce
essential component of long-term business competitiveness, coordination costs. [5]
it is sensible to consider how it relates to strategy theory and
concepts. An effective supply chain must be able to cope with Setting up standards of trade
uncertainty; it follows that it must also be flexible. Therefore, For SMEs and their suppliers, the high cost of technology
supply chain management will be one of the organizational is exacerbated by the lack of a widely accepted international
processes, or functions, that are a key to strategic success if electronic information standards governing the financial
an organization is to achieve its mission in an adaptive and supply chain. The solution is a standard mechanism for
changing environment [17]. communications protocols, rather than many standards.”
Several organizations have made some headway towards
Customer order management creating such standards, but there are no comprehensive and
Customers are becoming more demanding. Their internally consistent open standards now, which is why
expectations are evolving toward greater levels of service automating the supply chain is so costly. [14]
and response with higher degrees of product and service
customization. Value chain partners (suppliers, service Procurement management
providers) integrated to provide differentiated customer A typical manufacturing company needs to procure
segment product/service bundling and superior customer thousands of products from hundreds of suppliers; the
service levels. Increased profitability (increased revenue and challenge here is how to manage the complexity of the
reduced cost) is the top driver of customer order management procurement process, and establishing a strong procurement
performance. This centered attention on profitability is infrastructure to execute on strategic supply initiatives, using
probably resulting from the economic market conditions of an empowered organization structure, fully integrated to the
the past few years, but may be a short-term view. Customer stakeholder and finance organization. More over, People
responsiveness leads to customer retention and revenue training and development was the key challenge for
growth. In the longer term view, concentration on procurement organizations, includes skill development; the
customer-facing initiatives and improvements will be right recruiting and retention practices, and career paths in
significant to profitability achievement. [20] other functions outside of procurement. That is, how to set up
and how to manage global sourcing offices. [2]
Logistic management
The supply chain logistics problems facing multi-site Enterprise integration
companies can be complex, involving multiple stakeholders Enterprise integration doesn’t happen naturally. It needs to
and constraints across the entire enterprise. The more be planned, yet the planning cannot be precise, as business
complex the supply chain, the more difficult it becomes for processes and facilitating technologies will change, creating
companies to answer basic questions, such as which crude different needs and different potential solutions. The
should they purchase and how should they transport it? reference architecture efforts mentioned define
Which facilities should process it? What will the best product methodologies for building integrated architectures. The
slate be? Which components should they buy and which problem of integration is exacerbated by the limits of human
should they make? In many cases, different departments or cognition, by behavioral issues, by the difficulty of aligning
divisions within a company trade, supply chain planning, the goals of individuals with organizational units, and by the
operations and blending to name a few have a hand in these relentless need for faster change. [3].
decisions, but communication among these entities is not
always clear or consistent, and each may optimize to their Application Integration
own objectives without regard for others. The results can ERP systems achieve application integration because ERP
drastically affect profitability. [18] vendor-developed applications that perform common

ISBN: 978-988-17012-8-2 IMECS 2010

ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,
IMECS 2010, March 17 - 19, 2010, Hong Kong

business functions are united through a common database within supply chains, this will involve the replacement of
(also providing data integration – one of the selling points of existing governance structures and will challenge existing
ERP systems.) The integration of the functional applications supply chain behaviors associated with traditional bid-buy
implies also that integration at the next layer, business relations. [16]
processes, is achieved. However a major issue with ERP
systems is that they fail to bridge the gap between the Supplier competence requirements
application and process layers in a flexible fashion. To reach If customers are moving to fewer suppliers, and investing
the application integration firms must break down complex in strategically important supply chain relations, then SME
processing; to cope with application integration they must suppliers that cannot make themselves attractive purely
support interactive process. Finally Applications must through economies of scale and scope must increase their
integrate with the business processes [24] asset specificity and decrease uncertainty. This requires the
supplier to invest in activities that are alien to traditional
Extranet adapting challenges bid-buy supplier interactions. Thus, it will require suppliers
There are several issues to consider while adopting to respond to the changing context and develop stronger
extranet as a facility of SC integration. A firm must be relational and organizational competences. Since those issues
committed to using the system, as phone, fax, and written of quality and performance are the baseline measure for the
record, (instead relying on the automated supply chain customer-supplier interaction, any existing competences
system) and it influences the firm's processes as well. [22] must support the achievement of this standard. Thereafter, it
• Costs of implementation. is the capabilities that create differentiation that will be a key.
• Loss of Trust. [9]
• Unable to Adapt to Change.
• Losing the Inimitability of Product. Globalization
• Unnecessary Liability. The forces of globalization and commoditization in
• Lack of Security. today’s business world are unstoppable. Globalization and
• Uneven Partner benefit. commoditization have created a challenge for companies that
are as tough as it is clear: How to cut costs and grow
• Increased Independences.
simultaneously? During the industrial revolution, companies
• Keeping Up With the change in Expectations.
looked for new markets, new sources of raw material and
new sources of labor. The revolution was fueled by
globalization and companies thrived by taking advantage of
Business process integration
economies of scale. Senior executives now understand that
Processes must be coordinated between all the firms in the
they can’t just focus on supply chain operations to create
value chain to achieve improved performance and service.
efficiencies. The challenge is to integrate supply chain
This form of external process integration, which is called
execution with the overall corporate business strategy, and to
value chain coordination, is the focus of modern supply chain
use the supply chain as a catalyst for business transformation
management. The E-commerce helps organizations to be able
or business reinvention. [11].
to connect its internal processes with its stakeholder. The
challenge in business process improvement is the processes
Data and information integration
must be coordinate between all firms in the vale chain to
Information integration refers to the sharing of information
achieve improve performance and service. Integrated must
among members of the supply chain. The ability to
happen between decision making and business process layers
seamlessly connect with customers, partners, and co-workers
which is occurs whenever human operator (or software
is vital for success; yet most enterprises store and exchange
agent) makes a decision that change the flow of work through
data in dissimilar formats, such as databases, EDI systems,
a process. Business process integration hurt by compatibility
text files, and, increasingly, XML-based applications. The
challenges in a technical, operational, strategic, and
ability to map between these different formats is
political/legal environment. [3]
mission-critical. This includes any type of data that could
influence the actions and performance of other members of
Culture and Change
the supply chain. [10] The meaning of all data items must be
“The pattern of beliefs, values and learned ways of coping
understood and the same data item must have the same
with experience that have developed during the course of an
definition across multiple applications both within and
organization's history, and which tend to be manifested in its
outside the firm. To make the integration process worth the
material arrangements and in the behavior of its members”
effort, the data must be of high quality - timely, accurate and
[1]. This definition of culture clearly foregrounds the
relevant. [3]
cumulative effects of history and experience which have
important practical outcomes that are manifest in employee
behaviors. This is important for supply chain integration,
since the accumulated history of relationships and
IV. CONCLUSION
experience, within and between organizations, will provide
part of the context within which the inter-organizational It was necessary to review the literature on the supply
activities are enacted. If there is a drive to closer relations chain integration challenges; this necessitated an exploration
of the nature of the SC network, the benefits of SC

ISBN: 978-988-17012-8-2 IMECS 2010

ISSN: 2078-0958 (Print); ISSN: 2078-0966 (Online)
Proceedings of the International MultiConference of Engineers and Computer Scientists 2010 Vol I,
IMECS 2010, March 17 - 19, 2010, Hong Kong

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