White Paper on the Integrated Supply Chain

The integrated supply chain is an evolving concept focusing on merging a buyers requirements directly into a suppliers production schedule. The objective is no less than to ensure the timely deliver of a properly configured product, to the right place, at the right time. Many see the challenge of an integrated supply chain as a software challenge. However, it is becoming clear that further development of the integrated supply chain concept requires both the buyer and supplier to develop, with rigor, their respective internal processes before attempting to create an integrated supply chain. Why?because only appropriate business processes, in place and operating effectively, can assure the right information is provided by the buyer to the seller. Effective business processes make the integrated supply chain work. Clearly defined and enforced business processes will allow the integrated supply chain to work. Without effective processes in place, the integrated supply chain will failpossibly spectacularly. This point becomes painfully clear by posing a couple of simple questions. If the buyer doesnt know its own schedule how can the supplier meet the schedule? If the buyer cannot tell the supplier the design is frozen, how can the supplier produce a conforming product? If the test and acceptance criteria are undefined, how can the supplier assure acceptance of the product manufactured? It quickly becomes apparent that the challenge of successfully creating an integrated supply chain system resides primarily with the buyer. The buyer is creating the demand the seller is trying to satisfy. If key participants in the buyers organization disagree on what the seller is to deliver, the integrated supply chain will become an integrated claims chain. This would be a clearly undesirable outcome from both the buyers and sellers perspective though probably less problematic for the seller. And who are those key participants in the buyers organization whose activities will impact the integrated supply chain? How about Business Development Production considering the activities performed by Contract Admin Engineering the departments and functions shown in Table 1. Finance Quality
Subcontract Admin Purchasing Legal Risk Management Program Management Cost and Price Analysis
Table 1 Business Departments and Functions

Testing and Acceptance Scheduling and Planning Data Requirements Design Configuration Control

It does not take a great deal of imagination to see that unclear requirements provided by any one of these departments will greatly reduce the likelihood the seller will produce a conforming product. The intent of the integrated supply chain concept is to generate benefits for both the buyer and the seller. The benefits ideally include:

Eliminating non-value added activities in the buy-sell relationship; Minimizing inventory investments at all levels within the supply chain;
Aerospace Industries Association of America, Inc.

1000 Wilson Boulevard, Suite 1700 Arlington, VA 22209-3901 (703)358-1000 www.aia-aerospace.org

Ensuring the right part, is at the right place, at the right time, in the right configuration thereby eliminating assembly, wait, and rework time; Allowing sellers to schedule work using the buyers actual requirements; Facilitating the implementation of lean manufacturing concepts; and Moving selected responsibilities down the value chain

An important issue now is identifying some of the major impediments to successful implementation of an integrated supply chain. Then develop some approaches for overcoming them. Some of the obvious impediments include: Designing new terms and conditions for agreements that clearly identify what constitutes authorization for a seller to begin work; Clarifying the authority of departments that previously were not directly involved in the buying process but now will play a role in the integrated supply chain (e.g., the buyers production scheduler); Developing equitable adjustment procedures to help ensure both the buyer and the seller are protected from unauthorized but seemingly authentic authorizations to proceed; and Ensuring the buyers orders to the seller are coordinated with the buyers production scheduling and planning.

All too often buyers place orders relying on a production plan. However, in many organizations the planners change the production plan almost at will. The ability of the buyer, seller, and their respective production planners to coordinate requirements successfully will rely largely on a constantly updated integrated production schedule. There can be no integrated supply chain without an integrated master schedule accessible to both the buyer and the seller. It follows that the departments contained in Table 1 must have a way of providing their input into a products requirements and agree on the final specification for the product, specifications the seller will rely on, meets their approval before sending any requirements to the buyers to production scheduling department. There is no payoff for either party if the buyers production schedulers endlessly change the master schedule because of ill-defined requirements released to the seller. Some of the major prime contractors are trying to implement integrated supply chain practices incrementally by: Encouraging the use of common supply chain management processes; Involving the seller early in the process of defining what the seller will do for the prime contractor; Creating an environment aimed at fostering collaboration and standardization; Continuously reviewing how processes are working with the goal of assessing what works and improving the processes to improve their fairness, effectiveness, and efficiency;

Offering suppliers opportunities in other areas the prime contractor is working in to assist the seller in seeing the value of working with the prime contractor to develop integrated supply chain processes; Requiring buyers to use common supplier management processes to help ensure the seller has a consistent view of the buyer; and Assisting sellers implement six sigma programs within their respective organizations.

Obviously, everyone has a stake in the game. But, arguably the buyer has more to gain than the seller. Indeed the stated reason for pursuing an integrated supply chain is to achieve savings in the cost of processing orders, quality, design, testing, and more. So, how can the seller help the buyer achieve their goals and still maintain a profitable business. The following list may provide some guidance for both the buyer and the seller. Understand the buyers requirements and how to meet themdevelop the necessary processes; test them; tweak them; then deploy them; Get process design inputs from the people doing the tasks (e.g., order entry, production scheduling, routing, and so on); Understand strategies to receive compensation for additional workthink outside the proverbial box; and Put YOUR processes in placethe prime will appreciate it.

This last point is particularly important. If a seller does not have well conceived and implemented business processes, the buyer has no alternative but to help the seller put processes in place or seek a new supplier. Moreover, it is likely that many sellers will be doing business with many buyers. It will be prohibitively expensive for a seller to establish separate process for each buyer. A seller can largely mitigate this problem having sound business practices in place and operating. So what can the buyer and seller expect from an integrated supply chain consisting of wellconceived and executed business processes? How about the following: Repeatable, controlled events throughout the supply chain; Less time and cost devoted to figuring out what to do ; Allows process users and overseers to: Access a common data base eliminating disagreements over what data is correct; and Know where things really are within a process and where an order stands at any point in the process (including administrative processes); Know how long it takes to complete each task within a process to identify improvement opportunities; and Have the information necessary to maintain a legitimate integrated schedule.

So there are two sets of action itemsone for the buyer and one for the seller. The entertaining part is that the sets of action items are the same. Develop well thought out business processes so the benefits suggested by the integrated supply chain concept can be realized.

Some Random Thoughts: Why Business Processes are Critical Business processes focus attention on the business objectivenot on a specific tool or system; Simplifies and formalizes day to day interactions within the organization and with others outside of the organization; and Provides process users with relevant data, set in the context of the business process, to achieve the business objective

A Few Risk Mitigation Ideas Draft new agreements that incorporate protections for both parties involved in the integrated supply chain; Realize that not all requirements can be bought using an integrated supply chain management process (if it doesnt make sense dont do it); The seller MUST ensure there is a clear understanding of what constitutes direction and how the buyer will be contractual bound; Integration into the buyers business processes should be carefully consideredit may not be in the sellers best interest; Be wary if the buyer is reluctant to share informationany type of information; Ensure your business processes are fine tuned; Go home and REALLY see where you are; and Prioritize development of business processes and automated workflow tools.

Realize this initiative will probably not go away so the only practical alternative is to get ready, find new customers, or do work free. Have fun and enjoy the benefits your company will derive from deploying rational supply chain business processes. It can work to the benefit of all.