A supply chain is the network of vendors that companies maintain to manufacture and distribute their products. These suppliers enter into transactions with corporations to provide necessary raw materials and components to make the products. Many of them even perform other activities essential in transforming the raw materials into the final products. Each of these suppliers is a ‘’link’’ which increases the operating costs and time it takes to manufacture the products. Therefore, companies need to maintain efficient supply chains in the course of carrying out their business operations to:
- Eradicate resource wastage,
- Shorten production cycles, and
- Remain agile enough to respond quickly to ever-changing market scenarios.
What exactly is supply chain integration?
Supply chain integration means adopting business strategies by companies to forge a stronger working relationship with vendors constituting their supply chains. This collaboration between the organizations and their suppliers is instrumental in streamlining supply chain operations. The business plans involve implementing new practices, software solutions, and methodologies to automate business processes within the supply chains. The objectives are to:
- Boost response times for their ever-increasing customer demands,
- Minimize production costs by increasing internal efficiency,
- Reduce production development cycles,
- Ensure seamless data connectivity and resource sharing between the various stakeholders, and
- Improve the overall quality of all their products.
Generally, companies can implement any of the following two types of supply chain integration strategies depending on their business needs:
- Vertical integration
Under this strategy, the corporations acquire suppliers’ businesses occupying a critical place within their supply chain. To do so, the companies normally enter into a corporate merger with the vendors. It allows them to control access to the sources of raw materials and the centers for distributing their products. In the process, the companies can cater to a large targeted audience and dictate their pricing policy.
- Horizontal integration
This business strategy involves the companies buying their competitors’ businesses to dominate the market. This plan works successfully when the enterprises have a sound business model for conducting their supply chain operations. However, corporations need to attract more customers to generate higher profits through their economies of scale. Companies can normally achieve this objective via product diversification. Thus, over time, the enterprises become monopolies within the industry.
The advantages of implementing supply chain integration strategies for companies and their trading partners are as follows:
- Promotes greater cohesion among the companies and suppliers that form their supply chain,
- It makes the individual businesses more flexible to adapt to sudden market changes
- Improves the companies’ profit margins, and
- Increases business visibility of the companies’ supply chain operations through enhanced data connectivity
Supply chain integration allows companies to dominate the market by outperforming their competitors. These enterprises can even foster closer collaboration with the suppliers that make up their supply chain for mutual benefits. However, the strategies, software solutions, and methodologies the corporations choose should be following their customized needs. They should be carefully planned out and utilized with expert guidance and consultation for success in the future.