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Supply Chain Management (Vertically integrated supply chains (Issues with…

- - - - If we are part of a middle tier of a supply chain, we can choose to integrate upstream (to buy our suppliers) or to integrate downstream (to buy our distributors or customers)
        
        Upstream drivers
        
        Security of supply
        
        Reliability of supply
        
        Restriction to competitors of scarce materials
        
        Control of raw material costs
        
        Downstream drivers
        
        Control customers
        
        Guarantee of business
        
        Access to market data
        
        Customer knowledge
    - - We need to address how far upstream or downstream we integrate
      - Do we really want to own our raw materials producers or is component supply far enough?
      - Do we want to get involved in retail or is that someone elses competence
      - Narrow extent
        
        Only controlling few areas of the supply chain
      - Wide extent
        
        Controlling the whole supply chain
        
        Can be more desirable
        
        Allows for disintermediation - the removal of a supply chain tier through closer integration of the tiers either side
    - - We need to address how much capacity to have at each tier in the supply chain
      - Do we want to own enough capacity at one tier to meet all our needs or should we buy out some supply?
      - In seasonal market, the entire supply capacity will have to adjust
        
        Creates the questions as to whether one should design the supply chain with sufficient capacity to meet core demand and then outsource any variation
  - - - Ownership of the entire supply chain reduces market forces within that supply chain
      - If a supplier has guaranteed business they may become inefficient
    - - Usually very different in each tier
      - Upstream usually operates at a very large scale
      - Downstream typically tends to be on a smaller scale with smaller volumes
      - Typically tends to be a capacity mismatch
    - - Difficult to control if all tiers are owned
    - - Commodity items upstream compete on cost
      - Downstream competition is on differeitnation (qauilty
      - Vertically integrated supply chains find that different tiers have different competitive strengths
    - - If a supplier is not performing/noncompetitive a VI system are still stuck with this supplier - can change if you accept the cost of doing so
    - - The capacity will have to be reduced at the end supply as well as potentially along the whole supply chain
    - - Challanging to coordinate and contro the flow
      - Better to have decoupling points where you have buffers in between tiers - reduces efficiency
- - - - For each component or service the decision-makers should assess the extent to which the item contributes in some way to the overall competitive advantage of the business
    - - You should ask whether or not the component or service contributes to the performance of the final product or service
  - - - Ones that create competitive advantage and are critical to the end product or service. These would normally be made in-house
    - - Use proprietary technology and are not critical to the performance of the final product. They would normally be widely available from a range of low-cost suppliers. These can usually be outsourced
    - - Specialized and can contribute to competitive advantage. They are not critical but can be difficult to source reliably at low cost. The company has to decide whether it is more economical to make in-house or to outsource.
    - - Based on widely available technology but performance of the product depends on the performance of that technology. This type of item can be outsourced and there should be a range of potential suppliers willing to supply the item at a competitive price. However, it is important that the supplier is reliable and is willing to cooperate and develop a supply relationship because failure to deliver can lead to significant problems with product availability or performance.
- - - - Organisations recognize each other as partners, with limited coordination and planning. Often only one division or functional area
    - - Organisations progress beyond coordination to integration of activities. Multiple functions/departments involved in the partnership
    - - Organisations share a significant level of operational integration. No ‘end date’ to the relationship