Vertical Integration of the Supply Chain

Kevin Meyer over at Evolving Excellence had a post earlier this week about about how some companies getting involved in vertical integration of their supply chains.  This gets back to the basics that Henry Ford started in the earlier 20th Century.  Henry Ford was very interested in creating a vertically integrated supply chain that he controlled.  He owned the forestry area to the lumber mills to the assembly that used the wood.  He controlled the entire supply chain.  Because of this he was able to use the waste in the lumber mills to create new and different products which generated more revenue.  Henry Ford saw that he could get a better product to his customer faster when he controlled the supply chain.

While this may not mean companies are bringing manufacturing back to the U.S., it does have the same principles as bring the “on-shoring” movement.  It is about getting the supply chain closer to the customer and having better control over it so the company can reduce lead time, waste, and cost.   The more integrated the supply chain is, the more important it becomes to have it location regionally where transportation isn’t a large factor in lead time.

Imagine if the fresh produce (tomatoes, lettuce) you bought at your grocery store was grown in Asia and shipped by boat over to the U.S.  I know that is on the extreme end.  So where do you buy your fresh produce?  My wife and I don’t buy much, if any, from Walmart anymore.  Why?  Because, it doesn’t really seem that fresh.  Walmart has contracts with farmers all around the country and it takes a lot of time to get through their supply chain.  We buy our produce from the local/regional chain, because they have contracts with local/regional farmers so it gets through the supply chain and to the store shelf quicker.  An even better way is to buy directly from the farmer at the farmer’s market.  That is just about as fresh as it gets, because the farmer picks it and that week brings the produce to the market to sell.  Typically, it isn’t any older than a week.

I, for one, am glad to see some companies start to get more vertically integrated.