Type of Supply Chain-Which one is yours
Above Picture Might have cleared that what we are going to discuss today !!!!
Companies have generally pursued one of two types of supply chain management, called vertical integration and lateral (or horizontal) integration.
Vertical integration Vertical integration, or vertical supply chain management, refers to the practice of bringing the supply chain inside one organization.
An example is a paper company that owns its land and trees, replanting for future harvests, owns the related equipment it uses, and manages all of its product processing, palletizing, and shipping. (The company purchases only its chemicals from an outside source.) By bringing many supply chain activities in-house and putting them under corporate management,
vertical integration solves the problem of who will design, plan, execute, monitor, and control supply chain activities. A vertically integrated enterprise may grow from an entrepreneurial base by adding departments and layers of management to accommodate expansion, or it may be built through mergers and acquisitions to acquire more supply chain capabilities.
In an attempt to create a self-sufficient enterprise, Henry Ford owned iron ore mines, steel mills, and a fleet of ships as well as the manufacturing plants and showrooms that built and distributed the cars bearing his name.
The primary benefit of vertical integration is control. A department or wholly owned subsidiary with no independent presence in the marketplace can’t deal with competitors to sell its components or services at a higher price. Its operations are completely visible to the parent company (at least in theory) and can be synchronized with other company functions by directives from the top. Its schedules, workforce policies, locations, amounts produced—all aspects of its business—are controlled by the overarching management. While the vertical structure still persists in some companies, it is very challenging to be fully integrated end to end.
Another type of Supply chain
Lateral (horizontal) integration -It’s difficult for one corporation to garner the expertise needed to excel in all elements of the supply chain, and it increases their risk, so corporations around the globe have turned instead to outsourcing those aspects of their business in which they judge themselves to be least effective.
In this lateral integration, an organization specializes in its core competencies and relies on other specialists for the rest of the supply chain. Corporate ownership loses control of the outsourced activities and deals separately with members of the chain as suppliers or customers.
Each will focus on their core competencies, such as extraction or production, and do business with each other through discrete transactions or longer-term contracts.
For example, Philips, a manufacturer of light bulbs, uses third-party providers for some of its supply chain activities. Ford divested itself of the production of many components, as Chrysler Corporation shed its Mopar (motor parts) division and General Motors divested its component supplier as a separate organization, Delphi Corporation.
The same organizations might then expand laterally, for example, by investing in their competencies or merging with direct competitors.
Lateral integration has replaced vertical integration as the favoured approach to managing the myriad activities in the supply chain.
This horizontal approach is assumed in most supply chain illustrations, including the ones featured so far in this text. Lateral chains are now the way of the world and, therefore, the major focus of supply chain theory and application
Japan is always known for their Innovation .. So they come out with some composite format. Which they named ..KEIRETSU
“A form of cooperative relationship among companies in Japan where the companies largely remain legally and economically independent, even though they work closely in various ways such as financial backing. A member of a keiretsu generally owns a limited amount of stock in other member companies. A keiretsu generally forms around a bank and a trading company, but “distribution” (supply chain) keiretsu alliances have been formed of companies ranging from raw material suppliers to retailers”
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