Economic Impact of Inadequate Infrastructure for Supply Chain Integration
The emergence of low-cost communications and information processing has made it possible for firms to revolutionize the way they operate internally, especially in distributing information throughout their organizations. Through the use of Manufacturing and Enterprise Requirements Planning (MRP and ERP) systems, they can operate with lower levels of inventory, can respond more quickly to changes in customer requirements, and can eliminate or outsource costly accounting functions. However, companies have made much less progress in improving the efficiency of communications between their facilities and those of their suppliers and customers, along what is known as their supply chain. A lack of universally accepted and implemented standards for the format and content of messages that flow between supply chain partners reduces the potential for inventory and expense savings, as well as leading to duplication of effort, maintenance of redundant systems, and investment in non-ideal information processes. In this study, we examine the current state of supply chain integration (SCI), estimate the economic impact of inadequate integration, and identify opportunities for governmental organizations to provide critical standards infrastructures that will improve the efficiency of supply chain communications. We estimate the total annual costs of inadequacies in supply chain infrastructures to be in excess of $5 billion for the automotive industry, and almost $3.9 billion for the electronics industry. These figures represent about 1.2% of the value of shipments in each industry.