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Chapter 4
and causes a huge upsurge in demand) can also result in shortages. For example, the
Amazon Kindle quickly sold out after the famous talk-show host Oprah Winfrey claimed it
was one of her favorite items.
By contrast, if the participants in the supply chain are part of an integrated process,
information about the increased customer demand can be passed quickly through the
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supply chain, so each link in the chain can react quickly to the change.

EDI and ERP
The development of supply chain strategies does not necessarily require an ERP system.
Before ERP systems were available, companies could be linked with customers and
suppliers through electronic data interchange (EDI) systems. Recall from Chapter 2 that
EDI is the computer-to-computer exchange of standard business documents (such as
purchase orders) between two companies. A well-developed ERP system, however, can
facilitate supply chain management because the needed production planning and
purchasing systems are already in place. In addition, the integration of accounting data in
the ERP system (described in the next chapter) allows management to evaluate changes in
the market and make decisions about how those changes should affect the production
plan. With an ERP system, sharing production plans along the supply chain can occur in
real time. Using the Internet can make this communication even faster and cheaper than
using private EDI networks.

ANOTHER LOOK

Complexities of Supply Chain Management
Over the last few decades, a number of industry trends have focused on making supply
chains more efficient and effective. The first of these started in the 1980s when
techniques developed at the Toyota Motor Company, now commonly referred to as lean
manufacturing, started to be accepted and copied by companies around the world. The
main idea embodied in lean manufacturing—or the Toyota Production System (TPS)—is
that waste must be eliminated. While that seems obvious, the TPS identified inventory
resulting from “overproduction” as waste. Much of industrial practice, especially in the
United States, was focused on the idea that efficiency should be measured by having
each machine produce to its maximum capacity. The TPS approach was that a company
should produce exactly what is required when it is required. The TPS emphasized “pull”
systems, where customer demand triggers production, rather than “push” systems,
where planning methods like MRP are frequently used to push material through the
supply chain to the customer in anticipation of demand.
A second important trend has been a decrease in vertical integration of companies.
Vertical integration means the extent to which a company produces the components
and assemblies used in the products it manufactures. In the auto industry, vertical
integration reached its peak with Henry Ford and the River Rouge manufacturing
complex, where iron ore was deposited at one end of the facility and finished cars rolled
out the other. In the 1920s and 1930s, Ford owned iron ore mines and ore freighters,
rubber plantations, and a host of businesses and industries that supplied its automobile
assembly plants. The goal was to achieve high quality and low costs. Today, efficiency
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