Overview of Vertical Integration
Vertical integration is the ownership of the supply chain of a company or organization. The members of the supply chain work towards the fulfilment of a common goal, which is, catering to the needs, demands and requirements of the clients and the customers. Application of effective management techniques result in the assemblage of different supply chains under one corporation(McCormack and Johnson, 2016). Vertical integration assists the staffs to secure the market transactions. Non-compliance with the competitive policies acts as obstacle in the market transactions. The method of vertical integration is effective in terms of averting the instances of incomplete contracts, depriving the buyers and sellers of quality goods and services.
There are three types of vertical integration: backward, forward and balance. The backward vertical integration is also known as the upstream processes. Forward vertical integration is the downstream operations. The balanced form of vertical integration involves both the downstream and the upstream operations(Prajogo, Oke and Olhager, 2016).Backward vertical integration occurs when a company or organization exerts authority over the subsidiary products. Forward vertical integration occurs when the companies and organizations governs the transactions with the distributors and retailers.
According to the case study of Johnstons of Elgin, vertical integration is reflected in the cotton mill, which is the only mill dealing with the process of receiving the raw materials and sending the finished products to the desired location(Ralston et al., 2015). Mention can be made of Richard Branson’s Virgin Records, where backward integration is practiced. Virgin, through its financial assistance, safeguarded Branson from encountering the instances of debt. Expansion in the fields of talent management and record production enhanced the profit margin. Along with this, example can be cited of Vanderkooi, who, through his own organic feed business took the revenue of the Nutriva Group to $10 million in the project of 2011. The major drive behind this was a strategically planned vertical integration and vision to transform the family dairy into a healthy living business(Carter, Rogers and Choi, 2015).
Supply chain can be defined as the flow of materials, goods and information between the buyers and the suppliers. From the perspective of the customers, supply chain is the teamwork exposed for providing value for the investments. In the modern business context, many software are used for enhancing the productivity in the business. The process of supply chain undergoes various stages: customers, retailers, wholesale/distributors, manufacturers and raw material suppliers. The main aim of supply chain is maximizing the profitability(Christopher, 2016).
Supply chain operations and network extend beyond domestic boundaries to the global markets. As a matter of specification, the process starts from receiving the raw materials and ends at the buyer’s end. The agents in between are the 3PL freight forwarder, transporters, shipping lines, airlines, various governmental agencies, custom departments and financial institutions. Interactions between all of these personnel completes the supply chain cycle. Strategic planning for supply chain management helps in increasing the efficiencies(Bode and Wagner, 2015). The basic process of the supply chain management is explained through the following flow chart:
Types of Vertical Integration
Figure: Supply chain process
The supply chain process can be explained through Cycle View and Push/Pull View. Cycle view of supply chain includes the following: customer order cycle, replenishment cycle, manufacturing cycle and procurement cycle. Pull view is the response to the customer orders whereas the push view deals with that of the processes executed in anticipation of the order placed by the clients and thee customers (Ramanathan and Gunasekaran, 2014).
According to the case study of Johnstons, the supply chain process starts from receiving the raw wools, the major component for the production of the cashmere shawls. Skilled and efficient manufacturers from the knitting industry were hired for the production process. As a sequential step, the finished shawls were imported to the local and the foreign retailers. The final step is levying the customers with the requested orders (Monczka et al. 2015).
The employees within the workplace as employed for the completion of the essential business process. These processes range from completing the file work to monitoring the transportation of goods from the company to the factories and retailers. The business process revolves around supply chains for fulfilling the needs, demands and requirements of the clients. Within this, two of the essential processes are downstream and upstream. The upstream process involves the primary steps of searching and extracting the essential requirements for the production (Mangan, Lalwani and Lalwani, 2016). This stage involves research regarding the effective processing of the acquired raw material. For example, in the petroleum industry, upstream activities indicate tracing the underwater oil reserves. This stage also involves the interactions between the suppliers and the manufacturers.
Downstream process involves the actual production, which ultimately results in the finished product. The main characteristics of this stage are selling the orders to the clients, who differ according to the types of the finished product. Direct contact with the customers helps in gaining their feedback for improving the standards and quality of the product (Vendrell et al., 2017). Example can be cited of oil and gas industry, where downstream activities relate to the transformation of crude oil into other products and selling them to the clients and the customers.
For many years, Johnston Company dealt with production of menswear, quality of which lasted long. In order to customize the product base, the company used its own label for expanding the business into women ‘swear. This expansion upgraded the quality of the clothes, indicating the effective handling of the competition with the contemporary brands. In the case study of Johnston, the designing process is executed by adhering to a cycle. Working on the new designs and colouring ideas of cashmere begins in February. June is set as the deadline for the manufacturers in terms of reviewing the proposed designs of cashmere. This review ends in August. The manufactured cashmeres are handed over to the retailers after one year for selling them to the customers. For the cashmeres produced for the fashion houses and the retailers, the design cycle is shorter and flexible. As these customers were demanding enough, there was delay in the process of adopting the changes. Reference can be cited of Burberry, which increased their seasons from two to four. This plan provided them with adequate time for completing the upstream and downstream process in an efficient and effective manner (Formentini and Taticchi, 2016).
Supply Chain Process and Mechanism
Strategies act as a central doctrine for the companies and organizations in terms of systematizing the business activities. Strategies improve the focus of the staffs towards the business. Involving the stakeholders and shareholders, in preparing the strategies, helps in gaining awareness into its appropriateness with that of the proposed goals and objectives. All these aspects prove true for all of the business aspects including the logistic operations. Strategic planning in the logistic operations proves beneficial in executing the upstream and downstream activities (Laari et al., 2016).
There are specific approaches towards carrying out the allocated tasks and responsibilities. Consciousness and willingness towards preparation of the strategies, is one of the essential components of the behaviour of the staffs. In terms of supply chain, lean and agile strategies are two kinds of approach for carrying out the upstream and downstream activities. Lean approach deals with reduction of the cost price and wastes. Here, the focus is on the streamline activities. The supplier is in charge of communicating with the other departments for handling the contracts. A common price is shared between the company and the associate agencies (Ganesh, Raghunathan and Rajendran, 2014). One of the strengths of the lean approach is the elimination of the aspects, which do not preserve the value for the customers. This approach is beneficial, as the staffs look for ways and means to enhance the core organization values through waste reduction process.
Forecasting is done for estimating the additional resources, which is needed for fulfilling the needs, demands and requirements of the clients and the customers. Here, focus is placed on the need basis for averting unnecessary exploitation of the resources. This approach is fruitful for the companies and organizations, as the market requirements do not vary to a large extent (Arora, Arora and Sivakumar, 2016). Typical example in this direction is the companies dealing with the production of toiletries.
On the other hand, agile strategies shed light on the aspect of adaptability. Adaptability towards the market situation enhances the brand image of the companies and organizations intending to alter their position within the competitive ambience of the market. Most of the companies and organizations adopt agile strategies for effective handling of the outsourcing, logistics and sales. Specifically, this approach is assistance towards coping up with the varying market scenarios. One of the typical features of the agile supply chain system is observation towards the market demands. In this process, short term goals are fruitful in terms of responding to the changes, which takes place in the market (Alftan et al., 2015). One of the essential features in this is this approach is the response according to the demands of the clients and the customers. Example can be cited of the fashion wear companies, which intends to achieve rapid solutions for adjusting with the changing needs of the customers.
In the agile supply chain strategy, the orders are limited, although they effectively cater to the needs, demands and requirements of the customers. In case of the suppliers failing to complete the orders, this type of strategy assists the staffs to achieve flexibility in the downstream and upstream activities. One of the biggest strengths of this strategy is the quick access to the new and innovative marketing opportunities (Mani et al., 2016).
Upstream and Downstream Processes in Production
According to the case study of Johnston, enhancement of the core values compensated the collapse in the productivity of the textile industry in Scotland. This reflected the use of the lean strategy, as enhancement of the value assisted in reducing the waste levels. Typical evidence of this lies in 2007, when the textile industry encountered a sales turnover of 1 billion Euro. This excluded the export sales of 390 million Euro. Inability of the staffs to cope up with the increased demands contradicts the agile strategy in the case of the textile industry.
Sustainability is the concept, which deals with the aspect of using the resources in judicious manner for conserving the resources for the future generation. The concept is perceived from the parameters of environment, economic and social. The other parameters in this are cultural, technological and political. According to the paradoxical connotations, sustainability is catering to the needs of the customers without compromising the requirements of the future generations (Huo, Flynn and Zhao, 2017). In 2005 World Summit on Social Development, three goals of sustainable development was identified: economic development, social development and environmental protection.
According to the management definition, sustainability has three branches: environment, needs of the present and the future generations and the economy. The collaboration of the three branches reduces depletion of the resources and enhancing economic viability. Sustainable management is important in terms of controlling the exploitation of the resources (Ali et al., 2017). This is applicable in all of the business activities, including the supply chain. According to the recent business scenario, sustainability is highly needed in the supply chain management. This is in terms of enhancing the profitability and achieving competitive advantage over the contemporary brands. Increase in the operational costs and rise in the demand for eco-friendly products disrupts the balance between the supply and demand.
Most of the companies are focused towards the assessment of self-sustainability. This approach reflects the initiatives towards preserving the resources for the future generation, enhancing the parameter of corporate social responsibility. Action plans have helped the companies and organizations in implementing strategies and developing the infrastructure (Vanpoucke, Vereecke and Muylle, 2017). The major drive behind this is teamwork, which systematizes the upstream and downstream activities. In other sense, teamwork relates with partnerships with the suppliers, distributors and environmental agencies. Partnership with the environmental agencies is vital in terms of reducing the environmental degradation through the alternative modes of transportation. This approach assists in sustaining the cost and preserves the ecological diversity.
There are three levels of sustainability: Getting the basics right; Learning to think sustainably and the science of sustainability. The first tier informs the companies and organizations about the basics related to sustaining the resources for the future generation. Typical examples of this include switching off the lights and the systems when not in use, recycling paper among others. The second tier reflects the realization of the staffs about bringing sustainability into the supply chain operations (Wang and Shin, 2015). This is due to the assessment of impact created due to their businesses. Typical components of this tier are managing the interactions with the suppliers, introducing innovative design in the products, being rational in the production process and optimizing the distribution of the products. The third tier involves setting benchmarks for regulating the supply chain operations. This assessment enhances awareness about current strategic supply chain network. The companies and organizations undertake this assessment when they encounter dire consequences in terms of harsh governmental regulations (Arora, Arora and Sivakumar, 2016).
Agile and Lean Logistics Strategies
The plan of emerging as a design led company proved fatal for Johnston Company. This is due to the lack of appropriate channels, which could connect the staffs to the specific tastes and preferences of the customers. This can be considered as the misutilization of the grasping the basic idea of sustainability. A significant number of cashmere was re-designed in order to meet the request of the clients, which indicates lack of sustainable downstream operations. Moreover, mention can be made of the delay in dying the yarns, which destroyed its quality, shelf life, making it a waste.
Conclusion
Supply chain indicates the business mechanisms of the companies and organizations. Following an integrated structure is crucial in terms of reaching to the product to its destined place. Application of vertical integration enables the staffs to carry out the upstream and downstream activities efficiently. Effective management techniques prove beneficial in ensuring that the finished product reaches to the clients and the customers according to their orders. Sustainability is an important issue, which the staffs need to remember in terms of keeping enough for the future generations.
The identification of the workers needs to be verified by the managers in terms of ensuring the safety and security of the organizational property. Screening devices can be installed in the entrance and exit points. This is also applicable in the lines, through which the products pass for reaching the finishing point. Effective and flexible managers need to be posted in the lines, so that the defective products can be detected at once and sent for modifications. The wasted products should not be thrown away. They can be transformed into new products or renovated for the attracting the clients and the customers. In this way, sustainable development can be achieved. Training would be important in terms of making the staffs realize about the importance of sustainable supply chain process.
References
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