MGT300 Logistics Management : Vertical Integration

Strategies used by the Johnston to business made its profitable in the challenging marketplace

Sales, inventory and operations planning:

A collaborative and clever plan lowers the inventory, minimizes the back orders, and many more. Sales, inventory and operations planning is very crucial for the business. These planning results in increasing the efficiency of the business and ultimately serves the interest of the supply chain management (Aslam and Amos 2010).

Promoting and protecting the flow:

Success among the procurement, replenishment and demand forecast can be built only with the sync among these all (Ballou, 2007). 

Supply chain talent:

Today in the world success of the business is depends upon good understanding, strong influence and deep analytical skills (Stump and Badurdeen, 2012).

Put value over price:

Providing value over price will be better for long running of the business, same used by Johnston in its business of textile. Emphasis on value will results in achieving the goal of the business in long term (Supply chain quarterly, 2018).   

Vertical integration:

As it is stated in the case that Johnston had vertical integration, vertical integration is the arrangement in which supply chain process of the company is owned by its own. In vertical integration all the subsidiaries of the company produces different parts of the products, which meets or satisfy the common need. Under this case study Johnston had vertical integration; they conducted all of their functions starting from raw material to finished goods. Vertical integration of supply chain management eliminates the delaying of raw material and other work in progress goods required for production of finished goods (Christopher, 2016). 

Vertical integration is of three types:

Backward vertical integration

Forward vertical integration

Balanced vertical integration

Backward integration

 Backward vertical integration is the integration in which, various subsidiaries of the company produces inputs required for production of products. Example, a textile industry uses inputs like fabrics, cotton and thread and many more, when all these inputs are produced by its subsidiaries then it is vertical integration. There is no need to acquire the raw material from other companies or firms (Nelson, 2013).

Forward integration

 Forward integration is the integration when a particular company controls its supply chain system i.e. distribution cycle. Distribution cycle comprises of wholesaler, retailer, customers, jobber and many more.

Balanced vertical integration: It is the integration that comprises of both of the integration i.e. forward as well as backward vertical integration (Waters, 2009).

Driving efficiencies and Supply Chain mechanism:

Supply chain mechanism of the company comprises of multiple agencies, buyers, suppliers, customers, transporters and many more.

Flow of materials from one place to another is the cycle of import and export. Through import and export raw material reaches to the point of consumption from the point of origination. Import and export of goods can be possible only with the interaction of various parties like, government, agencies and many more. Efficient parties of the supply chain process led to the efficiency in the overall operations of the business (Cohen and Roussel 2013).

Upstream and downstream production process:

Upstream production: Upstream production process is the process under which actual production does not take place, it focuses only on extracting the raw material or we can say the upstream is that part of the production process which is related to the extraction of something i.e. acquiring of raw material for the further process of production, in case of textile industry fabrics, threads and many more things are the raw material for the production of the branded clothes (Lambert, 2008).

Downstream production process: Downstream production process is the process which is related to the processing of material collected through upstream process of production. Downstream stage of the production processes the raw material into finished product. Downstream process has direct contact with the customers or buyers.

First stage is the upstream process where work is related to the collection of raw material, then comes the upstream process which includes the conversion of raw material into the finished goods. In case of textile industry threads, wool, cotton, silk all are converted into fabrics with the combine process of upstream and downstream production process (Jüttner, Christopher and Godsell, 2010).

Mr Sugden reviewed the following aspects of its business and took action accordingly:

1. They reviewed their supply chain processes, and then critically took the decision.
2. They used process mapping to identify the opportunities in the market, and reduced the non-productive hours of the workers, and also removed the all hurdles of the business
3. Market is fashion oriented, so to be in the market they introduced cross functional approaches that resulted in efficient decision making
4. They also made improvements in reducing the time consumed between order and delivery of the goods.
5. They implemented enterprise planning system that helps in reducing the time consumed unnecessarily at various steps.

All these decisions of the Johnston improved the profitability of the company, and made the company stand in this challenging world.

Agile and lean strategies:

Agile: Agile supply chain is the type of chain that put emphasis on flexibility and receptiveness (Qrunfleh and Tarafdar 2013). This is the modern supply chain; this chain considers the demand of the customers, their preferences. Johnston follows the agile supply chain, they focused more on quality rather than cost (Benefield, 2009).

Lean supply chain: Lean supply chain is the traditional form of supply chain. This chain focuses on reducing the cost of the product. This supply chain focuses on reliability and predictability. (LTX, 2018).

Recommendations:

Supply chain management (SCM) is a very crucial part of the business. Along with traditional concept of improving performance, supply chain also enhances the efficiency, quality control, collaboration and cooperation (HCL, 2018).  

So improve the supply chain management system of the business, Johnston also had to keep the following two points into consideration:

Supply chain coordination: In fashion industry supply chain coordination is the most important topic. Supply chain management system of the business is the joint efforts of the supply chain members (Soosay, Hyland and Ferrer, 2008). Vendor management inventory helps in achieving the coordination. Along with vendor management inventory incentive alignment contract also improves the supply chain management of the business (Garcia Reyes and Giachetti, 2010).

Use of information system: Use of information system in the supply chain management process is very nowadays. Information technology has very significant effect on the operations and implementation of the strategies of the business (Lu, 2012). Radio frequency topic is very important in fashion industry; it is very popular among the retailers like, Marks and Spencer. Use of artificial neural network is very important as it yields positive results in sales forecasting of fashion industry (Gil, Gangopadhyay, Zhou, Gordon, Nayak and Click Acquisitions Inc, 2010).

Conclusion

This case study explains the concept of vertical integration, upstream and downstream production process, used by the Johnston Company of Scotland to make its business efficient. Smooth flow of business can only be possible with the efficient supply chain management of the company. Johnston timely identified the opportunities and made changes accordingly that led to the profitability of the business in this challenging market place. Various strategies were also used by the company to reduce its cost and optimally utilize its resources.

References

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Christopher, M. (2016). Logistics & supply chain management. Pearson UK.

Christopher, M., (2016) Logistics & supply chain management. Pearson UK.

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Gil, R., Gangopadhyay, D., Zhou, J., Gordon, S. and Nayak, S., Click Acquisitions Inc, (2010) Supply chain management. U.S. Patent 7,761,319.

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Lambert, D.M., (2008) Supply chain management: processes, partnerships, performance. Supply Chain Management Inst.

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Lu, Y., (2012) Approach for Information Systems Semantic Interoperability in Supply Chain Environment (Doctoral dissertation, Zhejiang University).

Nelson, R.R., (2013) National Innovation Systems: It is. In Regional Innovation And Global (pp. 19-34). Routledge.

Qrunfleh, S. and Tarafdar, M. (2013) Lean and agile supply chain strategies and supply chain responsiveness: the role of strategic supplier partnership and postponement. Supply Chain Management: An International Journal, 18(6), pp.571-582.

Soosay, C.A., Hyland, P.W. and Ferrer, M. (2008) Supply chain collaboration: capabilities for continuous innovation. Supply Chain Management: An International Journal, 13(2), pp.160-169.

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