Vertical Integration, a way to increase communication in the Supply Chain.
As we could see the other day in class, a supply chain is about the flow; about communication. The better communication between the steps in the supply chain the lower the costs. The problem is that too much communication also increases some risks. Should we let our suppliers know what the customers are demanding? Should we let them know how much the customers are paying for the product?
Communication is an advantage and also a disadvantage, that´s why some companies, like Gildan, have decided to vertical integrate. In a vertical integration a company controls more than one step of the supply chain; sometimes the whole supply chain. So they can communicate with no risk.
Gildan is a manufacturer of T-shirts, fleece, sport shirts, underwear, socks, hosiery and shapewear. They have many other brands under Gildan, so they sell their products through different brand names. They have an exclusive U.S sock licence to distribute them. And also licences to distribute abroad. They sell their products in 2 principal markets; printwear and retail markets. And they distribute their products in the US, Canada, Europe, Asia and Latin America.
They own all the facilities where the products are made and they sell them; distribute them. So they can control almost every stage of the production process. The first step is spinning US cotton into yarn, then textile production, after that sewing and finally distribution. In the article is mentioned how this vertical integration allows them to uncover efficiencies while ensuring safe and health work environments for its employees. They have invested billions of dollars in new technology and innovation and sustainable solutions in their operations. At the moment, the own over 25 manufacturing facilities.
This company is a perfect example of a vertical integration that has been able to decrease costs and increase efficiency by communication. As I have already mentioned, communication is the key to decrease costs in the supply chain. But in order to communicate there has to be some kind of trust; and, if a single company owns the whole supply chain there will be trust.
So, do you think that vertical integration is the only solution to eliminate the communication issue or there is another way to communicate without risks? Could be possible to trust our suppliers, retailers… if they do not work for the same company as us; if they do not have the same goals? How could we improve communication of the company doesn´t have the budget to vertical integrate?
https://3blmedia.com/News/Greater-Supply-Chain-Transparency-through-Vertical-Integration-Infographic
Gildan’s Vertically-Integrated Approach to Making Apparel Better
http://www.genuinegildan.com/en/company/company-overview/
While vertical integration works well in this case, I do not think it is a viable solution in all cases. For example, some companies may be way too big that they need outside suppliers. Or some companies might want to simply avoid the hassle of being responsible for every step of the supply chain. In today’s world, with globalization, the Internet, etc., communication is becoming easier. So, since all companies have access to different ways of communication, I do not think the only solution to the supply chain is vertical integration. Rather, the answer is to effectively use the different channels of communication.
I definitely think that Gilden has made the right decision by choosing to take control of the supply chain, and I say this because of the specific operations and products Gilden is producing. Gilden produces clothing and accessories such as t-shirts, socks, or shorts just as you mentioned. All these items require the same process of production, and similar labor. This continuity in processes is what makes it easy to control the whole supply chain—whether it be ordering the materials necessary for production itself. For example, Gilden’s products have the same raw materials which include: recycled polyester and cotton, which allow the flow of their inventory to move much faster. A continuous process, such as one that Gilden would follow, has clearly ordered steps and high standardization, so therefore it is easier for one company to manage the whole supply chain. With that being said, not all manufacturing firms can follow this same supply chain design. For companies with complex processes, including specific high-technology specially made by another company, it would be impossible to own the whole supply chain and not outsource. Additionally, the decision between make or buy can save companies money depending on which cost is lower. I say this to argue that although communication is key in increasing a firm’s efficiency, controlling the whole supply chain would not even be possible for some firms.
http://www.genuinegildan.com/en/product/raw-material/
As we saw during the project in class, the groups that chose to talk to each other definitely found a lot more success in cutting costs then the groups that followed the rules. For the most part in modern day supply chains, companies are unable to have an open level of communication with each step of the supply chain because they are run by different companies, and the proprietary information that each step in the SC has cannot become public knowledge. I like that you found a company that through vertical integration has been able to create an efficient way of opening a productive level of communication by instead of specializing in one step of the supply chain, Gildan runs them all. The problem with this being a viable solution to the communication problem in supply chains is that it takes a company with millions of dollars of assets to execute. For companies that don’t have less assets, a solution would be to create strong relationships with other companies in the supply chain process so that you can have more open communication with them. A company in Richmond called Convergent coffee has perfected this by buying their coco beans from the same distributor since their company started. They have never ordered beans from another company and they have spent years nurturing their relationship with their distributor that now they are able to tell them exactly how many orders they have and how much they are going to need to buy. Company relationships stem from relationships of their employees, and a less expensive way then running each step of a company within one company, is to build strong relationships with companies that specialize in each step.
Gildan is buying American Apparel’s brand and certain manufacturing equipment. The company also plans to separately buy inventory from American Apparel while it integrates the brand within its printwear business. This strategy appears to have worked fro Gildan. A move like acquiring American Apparel is both a vertical and horizontal as they compete on some levels in terms of product offerings. Moves like this one are not always viable because antitrust laws and FTC authority. The benefits of vertical integration come from the greater capacity it gives organizations to control access to inputs. Companies now have access to additional production inputs and can control the cost, quality and delivery times of those inputs.