Whether you’re manufacturing computer chips or chocolate chips, you rely on a group of suppliers to create the products of your business, and then you sell those products to specific customers. In this respect, your company, your suppliers, your customers (and their customers) form the different “links” of a supply chain. Moreover, the better you can integrate these links together, the more productive, cost-effective and competitive your business will be.
That’s where supply chain integration strategies come into play: Supply chain integration is the process of bringing your supply chain partners together — either through mergers and acquisitions or clearly-defined agreements — so you, your suppliers and your customers can function like a single, tightly running machine (instead of a mix of disparate and disorganized parts).
To help you along your path to supply chain integration, we’ve highlighted the most essential steps for integrating your supply chain like this:
DEFINE YOUR SUPPLY CHAIN INTEGRATION GOALS
It’s important to clearly define the reasons why you want the supply chain integration. Do you need to reduce purchase costs, align your business objectives with your partners, acquire a business to increase your market dominance or speed up delivery times and delivery reliability? The integration goals you define in this step should guide your entire supply chain integration process.
WHAT ARE THE KEY ROLES OF YOUR BUSINESS IN THE SUPPLY CHAIN?
What are the roles, tasks, jobs and services that your business does best? Which ones does it lack the skills, competency or ability to perform efficiently? Continue to in-source the activities and jobs your business does well, and consider out-sourcing the activities and jobs your business doesn’t perform well through supply chain partners or supply chain acquisitions.
ANALYZE THE LOGISTICS OF YOUR CURRENT SUPPLY CHAIN
It’s important to analyze the design and logistics of your current supply chain. How does information flow between your business and the different links of your supply chain? How and how quickly does cash flow between you and these partners? Identify bottlenecks, communication barriers, slow suppliers, overpriced suppliers and other problems that interfere with the efficiency and profitability of your business.
DECIDE IF YOU NEED HORIZONTAL INTEGRATION, VERTICAL INTEGRATION OR BOTH
Depending on the results of Steps 1-3 above, you’ll need to decide whether your supply chain integration goals are best achieved through horizontal integration, vertical integration or both:
Horizontal integration: The process of integrating your business processes with an organization on the same level of the supply chain as yours. Imagine your company builds hard drives for laptops, and you can see the advantage of integrating your firm with another hard drive manufacturer. A horizontal integration could involve your firm purchasing the other firm to eliminate competition and immediately expand its customer base, or it could involve a partnership where each firm agrees to focus on a specific market segment or geographical region.
Vertical integration: The process of integrating different levels of your supply chain. Going back to the hard drive manufacturer example, imagine you need a specific widget to build your hard drive, but your current widget manufacturer is too expensive or always late on shipments. A vertical integration could involve your business purchasing or developing a partnership with a widget manufacturer for greater integration and efficiency to ensure a fair widget price and timely delivery.
DEFINE THE PARAMETERS OF YOUR SUPPLY CHAIN INTEGRATION
The final stage in supply chain integration involves the process of defining the parameters or depth of your integration. Smartsheet offers the following four levels of integration. These integration models go from the least amount of integration to the highest:
Baseline: A baseline integration offers the least level of integration. This model maintains siloed information within each department or “supply chain link,” and the different supply chain links work on their specific roles independently without direct information sharing—either as separate companies or as siloed departments within a single company.
Functional Integration: All information is shared equally across the supply chain— whether the information and communication are shared between different departments of a company or between two different partnered organizations. The goal of the information sharing is to improve supply-chain efficiency.
Internal Integration: Information is shared across all departments and organizations that make up the supply chain. However, each department or organization functions as separate, independently acting unit.
External Integration: This is the highest level of integration. The model involves a consortium of departments or companies that make up a supply chain. These organizations integrate their information, business goals and operations to function as if they were a single, unified business without competing with each other.
ACHIEVE YOUR SUPPLY CHAIN INTEGRATION GOALS WITH TAYLORED SERVICES
Taylored Services is a fully integrated 3PL provider specializing in wholesale, retail and direct-to-consumer unit fulfillment. The company operates 1.5 million square feet of warehouse and distribution space within close proximity to the Gateway Ports of Los Angeles / Long Beach and Newark, NJ.
Working with a full-service, integrated logistics provider like Taylored Services not only helps e-commerce businesses of all sizes to service customers more efficiently but also allows such businesses to scale when needed without significant investment.
Jeremy Hillpot’s background in consumer-investor fraud litigation provides a unique perspective on a vast array of topics, including event production, website technology, investments, startups, cryptocurrencies and the law. Contact Jeremy at legalwritingFINRA.com or jhillpot@legalwritingFINRA.com.