Understanding Changes in Supply Chain

As a consumer, the best thing about improvements/developments in the market is that there are multiple offerings to choose from. Each consumer segment/market has a different attribute that appeals to them.

In the food industry, any little variation/addition to the menu attracts more customers. Similarly, in the technology industry, Apple leads the market with its technological innovation due to the user experience it offers.

This puts an increased pressure on providers as they constantly battle to keep up with innovation from the competition. Continuing on the Apple example, they arguably have the best camera clarity, user experience, and ease of usage. The secret to their success is Apple’s smart thinking- They stuck to their expertise which lies in design, technological advancement and marketing. It is common knowledge that Iphones are manufactured and assembled in east and southeast Asia where the labor force is abundant and inexpensive.

The key take away from the above is that companies need to invest and develop their nucleus strength and outsource non-core functions. The world is developing at an aggressive pace and it is practically impossible to ensure all departments function at the highest output rate and incorporate the latest technological developments while remaining agile to the competition.

Before the industrial revolution and even till the early 2000s, under vertical integration, all functions of the company were handled internally- For example, a paper company would grow its own trees, replant for future harvest, owns and manages its equipment, treats pulp, manufactures the paper and handles delivery to end customer.

As the industry developed, the concept of lateral integration was introduced. In lateral integration, a company brings together different entities with expertise in a particular function. Each entity operates independently but in coordination with each other to achieve the final end goal. Under this model, a farmer will handle planting and harvesting trees; an asset owner will provide equipment to transport trees to the manufacturing facility. The principle company retains manufacturing, as it’s their core function.

Once manufactured, the principal company outsources the delivery of the finished products to end customers. This way, the principal company focuses just on its strength. As the market has multiple service providers, multiple farmers are competing to provide raw material which reduces costs and improves customer service to the principle company.

Under lateral integration, the principle company is paying for service only and is not required to maintain/manage a function- This saves them a lot of hassle, money, time and effort.

Contributor: Ansaar Khan 

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About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.