For easy management of a business or an organization, it is important to integrate departments so as to create a less complex organization. Businesses which practice integration perform better than those which do not practice integration. Different departments, including the supply department integrate their functions with other departments so as to perform their duties at an optimal level. Organizational integration can be defined as when the external and internal factors of an organization work together successfully. In the past, businesses have not been performing well due to the lack of integration between the purchasing and logistics department. These two departments play a key role in every business and the managers need to find effective ways to integrate them so as to improve the performance of the business. Integration of purchasing and logistics has been linked to improved financial and functional performance of businesses.
A business that aligns the functions of purchasing and logistics has been seen to perform better, financially speaking, than those ones that do not. It is evident that integration has a positive effect on the financial performance of any business. High performing businesses have identified their success with the integration of purchasing and supplies departments. These businesses are able to perform well financially while incurring minimal operating costs thus increasing their profitability. Researchers of this topic have identified some best practices that have been linked to the success of businesses through purchasing and logistics integration. First, for the business to fully integrate the purchasing and supply departments, they need to equip their personnel with the right tools and information for the success of the business. The supply chain teams will perform better if they are given the right tools and information to work. A business that does not support its supply chain team will not perform well financially. The second best practice that improves the financial performance of a business is the supply chain organization that rewards its supply chain team for excellent performance. Rewarding employees is a great strategy for every business to motivate and boost the morale of the employees. An employee will perform better if they feel that their efforts are appreciated by the organization.
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The third best practice that the supply chain department needs to adopt to increase the financial performance of the business is to fully integrate the supply chain organization for it to work effectively. Organizational integration has been said to be one of the most challenging tasks for a business to achieve but once implemented it brings positive effects to the financial performance of the business. Once the organization has fully implemented integration, the business becomes functional and easy to manage. The last one, and an equally good practice is for the business to have an operating decision that depends on the customer value creation plus the total cost of ownership. These two lead to best overall total value of ownership as it will increase the financial performance of the business. Effective decision making in any organization has an impact on the performance of the organization. The business needs to have a framework in which they make important decisions and have an effective way of implementing them so as to increase the value of the business.
Based on the above four best practices that the supply chain department needs to adopt to increase the financial performance of the business, there are several improvements that could be made in order that business performance may be even further improved. First of all, the supply chain leaders need to set their expectations from the integration of purchasing and supply teams in analyzing decisions before making them. The leaders of this team need to put to table what they expect so that the team can know on the best approach to take to achieve the set goals. Secondly, the supply chain team leaders need to partner with the finance department so that they will know the cost of inventory, delivery, customer service and other costs incurred. This helps the team quantify the costs and know whether this integration is making losses or reducing the operating costs of the business. The supply chain team needs to integrate the purchasing and supply teams to a common ground for the benefit of the business. The business will not improve its performance if the two departments have different goals and are going in different directions. It is important for the leaders to align the goals and scorecards so that they can operate as one department. The supply chain leaders need to advocate for the total value ownership which is an effective tool to improve the financial performance of the organization. The leaders should encourage total value creation for the organization instead of goals set for individual departments. This ensures that the entire supply chain team is working in the same direction for the benefit of the business.
It is important for every business to align the purchasing and supply teams so as to improve the functionality and financial performance of the business. Organizations which have not adopted the integration of these two teams have been known to perform poorly. It is not always easy to integrate these two departments but once the integration has been achieved, the business is said to increase its profitability and its competitive advantage. In time and era, any business that does not practice purchasing and logistics integration, will not thrive because studies have linked great financial performance with integration. There are a set of four best practices that successful businesses have adopted to achieve their strong results. The business needs to successfully adopt the integration in the supply chain department. Secondly, the organization needs to reward its team for the excellent work they have done. Third, the leaders need to equip its team with the right tools and information to get the work done. Lastly, the supply chain leaders need to encourage the team to adopt an operating strategy based on the total value of ownership. Based on these four best practices, there are several improvements that entities need to adopt. Integration of purchasing and logistics has been linked to functional and financial performance of businesses.