Business Process Integration And Supply Chain Networks

Abstract

Given the dot-com collapse and the recent Enron bankruptcy, one might conclude that the promises of the so-called new economy have been overstated. Yet, in spite of the litany of failed Internet pure plays and Enron’s unexpected demise, the Internet has transformed the way the business is being conducted. Yes, the basics still matter and cost-cutting is appropriate, but today it must be achieved along with unprecedented business-model innovation and corporate agility.

Witness the way many traditional firms are still thriving and succeeding by transforming their core business architectures around the Net. The Internet is slashing the cost of sharing knowledge, collaborating, and meshing business processes among supply chain partners. Valued-added communities are replacing traditional vertically integrated industries. These value added communities are external networks that cover both company and supply chain processes, such as financial, marketing, accounting and human resources services. Smart companies are focusing on their core competencies and outsourcing the remainder of their non-essential processes.

The traditional vertically integrated corporation is no longer the most effective vehicle for value creation. Ford was the quintessential example of this. At one point, the company owned steamships, power plants, forests and virtually every other input critical to building an automobile. The vertically integrated structure worked well for auto manufacturers for a time to achieve scale economies and productivity. But these companies have squeezed out about as much productivity as they can.

In today’s networked economy, one company makes the car's wheels, another makes the engine, another makes the seats and another makes the body all of which flow through the value added community that the auto company created. In the end, the auto company and the consumer both benefit. The automobile consumers get a better quality product, delivered precisely when and how they want it, at a much better cost. The auto company can respond to customers far more quickly than ever before.

We strongly believe that the “glue” for building these networked communities is a business process orientation (BPO), a concept introduced in one of our earlier books, which serves as a powerful organizing principle for firms competing in the networked economy. BPO is not simply a new business fad, but an entirely new way of thinking or viewing an organization. Nor is BPO simply a new business operations strategy, but rather broad framework for organizing work and information flows that ultimately help an organization build superior customer value. Corporate survival in the Internet economy will depend both on the effectiveness of internal processes and their integration with supply chain customers. Supply chain management will serve as the coordinating mechanism for process integration among supply chain partners. Competitors can match individual processes or activities but can’t match the integration or “fit’ of these activities In this paper,we present empirical evidence showing that building a process-oriented organization results in improved business performance. We also propose that BPO can be successfully applied to supply chain networks and argue that value is created in the networked economy based on the alignment of supply chain processes.