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Integration: The new mantra

Rakesh Singh

INDIAN firms have realised that adopting the supply-chain as a strategic competitive advantage tool has early payoffs. But it is unfortunate that much of this effort is not effectively directed or fully understood. The result is a growing gap betwe en firms that truly understand and implement the concept of effective, forward-looking supply chain management and those that simply follow the trend, and withdraw after initials gains.

Among firms that do better, information technology plays an important role. They realise that early efforts cannot be maximised without the technology that accurately links supply with demand. But this is not as easy a process as it so unds. If the supply chain really is the mechanism of fulfilling demand, then an uninhibited flow of information across the supply chain is mandatory.

Why then do firms fail to capitalise on the use of information technologies? What inhibits this seamless flow of information across the supply-chain? What lessons can be taken from those firms that have been able to use IT successfully to add value and create a sustainable value chain?

Optimisation requires reliable electronic data interchange across the entire system; a single bottleneck impeding information transfer puts the entire network at a disadvantage. When firms begin to consolidate their early efforts on the suppl y chain, they begin to realise that there are several limitations and constraints present in the organisation. What are these limitations?

An increasing number of companies are beginning to look at their operations in terms of a pipeline that manages the flow of materials from the source to the ultimate consumer. Though not entirely new, the pipeline idea is perceived as an a nalytical concept that transcends the internal political boundary of the firm and achieves a quantum leap in functional integration and operational effectiveness. The question is, does this truly happen?

Most businesses throughout the world organise their people and manage their activities through functional groupings -- sales, marketing, manufacturing, finance, distribution, and so forth. A primary goal of this function is to develop an efficien t way to execute their work. The people in these functions become experts and seek to achieve superior performance in their functions. Today, this is termed as functional excellence.

Functional excellence is typically measured by higher sales, lower transportation costs, lower inventories, or better control of operations.

But these pursuits for functional excellence have become the biggest hurdle for the firms to move to more advanced levels of supply chain gains. Functional excellence was all right when demand was certain and the customer lived in the sellers ' market. As markets became dynamic, characterised by demand uncertainty, significant seasonality, short product life cycles, or high competitive intensity, functional excellence was a hurdle.

These practices of business excellence have created invisible walls within the political boundaries. Each department tries to compete with the other -- the internal competition leads to a situation of oneupmanship. This affects the flow of in formation and material through the organisation. In a volatile and dynamic environment, the need of the hour is to manage demand by planning supply to reduce inventory, both inbound and outbound.

There is a need to share the information that each department has. For instance, the marketing and sales department needs to pass on its knowledge to purchase and manufacturing as well as the supply chain. This will only happen if each depart ment has the overall business objectives of the company in mind, rather than its own performance.

Which means that cross-functional trust and faith are necessary. But often, there is a lack of trust among these departments. Finally, even though departments do better individually, business suffers.

Here is a case in point: In an agro-chemical firm for which I did a study of its supply chain, I found that there was a complete absence of this trust between functional areas. The supply chain department was insensitive to the demand of the sales fo rce for a product and went on feeding wrong information about the availability of the product. The sales force went ahead promoting the product. When its supply was outsourced from a European country it was clear that there was shortage of this chemical worldwide.

The net result was wastage of money, time, and loss of market. What was surprising here was that this very chemical was available in another region where demand for the product had declined the previous season. The trust and sha ring of information would have increased the velocity of product movement, and would have reduced inventory in one place and shortages in another.

Therefore, companies that organise for functional integration will almost certainly outperform those that organise for functional excellence. But how should a company bring about this functional integration? There is no silver bullet answer for ways to achieve functional integration. Rather, one must address all aspect of a company's operations, as follows:

1. Manage the process, not the function.

2. Align measurement systems with overall goals.

3. Use integrating mechanisms such as the sales and operations planning meeting, cross-functional teams and the team problem solving approaches.

Work to develop a culture that encourages teaming and cross-functional collaboration. This can be accomplished through a variety of initiatives including mission/value statements, recognition of teaming efforts, and designing career p aths to involve multi-functional assignments.

All these will lead to creating a useful information technology architecture. Firms, which have done this first, have been successful in integrating information technology with their organisational design and hence reap value and dic tate the industry structure.

The author is Assistant Professor, Business Economics,

Narsee Monjee Institute of Management Studies, Mumbai.