Vertically and Horizontally Integrated Supply Chains

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Introduction

Vertically and horizontally integrated supply chains are supply chain management strategies adopted by companies to take advantage of synergies in their value chain to achieve more profits and competitive advantage (Naslund & Willamson, 2010). Effective supply chains are critical to the success of organisations operating in global multifaceted environments as well as organisations seeking to achieve optimal efficiency and customer satisfaction (Lambert, 2008). An increasingly competitive and interconnected global environment means that successful performance depends on the collective decisions and actions of all members of a supply chain rather than that of a single member and competition is increasingly between supply chains rather than between individual firms (Naslund & Willamson, 2010). Hence, organisations are faced with the challenge of making decisions regarding appropriate supply chain strategies that will deliver their objectives based on their capabilities, needs and circumstances. Vertical and Horizontal supply chain integration are two such strategies that enable companies to manage their organisations and their relationships with other companies in the same supply chain/value chain (Hill & Jones, 2012). From a supply chain management perspective, vertical and horizontal integration aim to achieve cost savings, higher profits, greater efficiency and customer satisfaction by improving supply chain processes and performance through value-adding investment and activities that benefit all supply chain members (Stonebraker & Liao, 2003). For example, achieving cost reductions, improved performance and better target market access as a result of eliminating redundancies/duplications, lowering inventories, shorter lead times, greater control over supply and distribution, access to partner networks and lower fixed costs (Mentzer et al., 2008). This essay will discuss and analyse key similarities and differences between vertically and horizontally integrated supply chains, highlighting the key issues and the scope of organisational departments involved.

Supply Chain Management (SCM)

Simchi-Levi et al. (2008) defined SCM as integration strategies aimed at coordinating functions across suppliers, manufacturers, distributors and retailers to ensure that products and services are produced and distributed at the right volume, location and time with the aim of reducing operational costs, maximising profits and ensuring satisfaction across the supply chain.. Vertically and horizontally integrated supply chains are SCM strategies introduced in the early 1980s with roots in the logistics literature.

Supply Chain Integration Strategies

Supply chain integration strategies are network-based business models used by organisations to align strategic decisions and processes across the network from supplier/manufacturer end to the customer end in order to achieve competitive advantages, synergy and efficiency in their operations as well as to gain more control in the input and output of their operations (Hill & Jones, 2012). Network-based business models are organisational structures that allow companies to operate as interconnected configurations across its value chain usually consisting of partnerships, collaborations and optimised cross-organizational activities (Mentzer, 2008).

Vertical Integration

Vertical integration is a coordination strategy in which a company owns its supply chain by incorporating supplier and/or distributor supply chains in its operations strategy or by expanding its operations to perform activities traditionally performed by suppliers and distributors (Hill &

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