Part 1 of this blog series set the historical background for the supply chain management (SCM) evolution and presented the advantages and shortcomings of vertical vs. horizontal integration. The analysis then moved onto the generally embattled retail sector, where a select group of innovative retailers has found a “happy medium” approach to stay well above the fray. Retailers such as PetSmart Inc., Aéropostale Inc., Coach Inc., Trader Joe’s, Walgreens, and Target have realized the need to become serious product innovators and not just merchants of national product brands or sellers of their own knockoffs.

Kurt Salmon Associated (KSA), the leading global management consulting firm specializing in the retail and consumer goods industries, dubbed this strategy “Act Vertical” in its seminal research study. The firm presented the highlights of the study at the National Retail Federation (NRF) Annual Convention & EXPO 2009 (also known as the “Retail Big Show“) in January 2009 in New York City. The accompanying slide deck can be downloaded here.

The gist of the matter is that these avant-garde merchants no longer see the division of labor between suppliers and retailers as the customary one of “they invent and make it, and we sell it.” In fact, the retailers control (without owning per se) every piece of the value chain, from creating new product concepts to getting finished goods into the hands of consumers. Read the rest of this entry »

In over a decade of covering the enterprise application space, I’ve repeatedly lauded and advised vertical focus (i.e., someone’s proven expertise in some particular industry and market segment), but not that much vertical integration per se. My beliefs were recently confirmed by what I learned while pursuing my APICS CSCP (Certified Supply Chain Professional) title.

Namely, Module One of the APICS CSCP Learning System, entitled “Supply Chain Management Fundamentals” teaches that companies have generally pursued one of the following two types of supply chain management (SCM): either vertical or lateral (also known as horizontal) integration. Vertical (supply chain) integration refers to the practice of bringing the entire supply chain inside a single organization.

In fact, vertical integration, or the ownership of many or all the parts of a supply chain, has been around longer than the term “supply chain.” By bringing many supply chain activities in-house and putting them under centralized corporate management, vertical integration solves the problem of who will design, plan, execute, monitor, and control supply chain activities. Read the rest of this entry »