A supplier is a person who provides goods and services while a distributor a distributor is the person who buys goods from the supplier and resells them on a contractual basis. Logistics involve the planning, implementation, and control of the procurement and transfer of goods from one place to the other in the supply chain. They can either be inbound, outbound, internal or external. Inbound logistics entail the reception, storage, and distribution of goods and services into the business. Outbound logistics, on the other hand, involve the reception, storage, and distribution of goods outside the business. Supply chain integration occurs when two or more companies in the supply chain come together, and it can either be vertical or horizontal. Vertical logistics involve the working together of companies at different levels of the supply chain while horizontal logistics entail the working together of companies at the same levels of the supply chain.
Vertical relationships can be in the form of mergers and integrations (Christopher, 2016). Vertical integrations occur when a firm integrates companies that produce goods and services that they use in their manufacturing and supply chains. Vertical mergers, on the other hand, involve the coming together of companies in a similar industry supply chain but operating at different stages (Corbett, Fransoo, Tan & Bouchery, 2017). For instance, a manufacturer and a supplier dealing in similar goods or services can come together to benefit from the economies of scale related to big organizations under one parent company. Vertical integrations can further be subdivided into backward integrations and forward integrations (Christopher, 2016). A backward integration occurs when a supplier integrates a company that produces an input product while a forward integration occurs when the supplier acquires the distributors who are at a different level of the supply chain to eliminate the middleman between them and the consumers. Forward integration is aimed at increasing the supplier’s control in the supply chain as they cut costs and increase their profitability. Horizontal relationships, on the other hand, involve the acquisition of businesses of similar or competitors' businesses (Corbett et.al. 2017). Suppliers opt for horizontal relationships when they seek to grow and expand their operations, when the competitors lag behind in terms of expertise and when they feel that greater economies of scale can be attained through an expanded operation.
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The two types of relationships differ in various ways (Christopher, 2016). The vertical relationships involve players in different levels of the supply chain while the horizontal relationships involve the acquisition of a competitor into a company’s operations. Horizontal integrations are aimed at market expansion and entry into new markets while the major purpose of vertical integrations is to reduce costs and increase the firm’s profitability by strengthening the supply chain (Corbett et.al. 2017). The aftermath of a horizontal integration is the elimination of competition while the vertical integration is the cutting down of costs. The vertical integration has a higher capital requirement to set up while a horizontal integration requires less capital to operate. Also, the chain of command is well defined in the vertical integration with a top-bottom control while it is not as well defined in the horizontal integration since the different sectors play different roles in the supply chain (Christopher, 2016). Additionally, the vertically integrated companies are self-sufficient since they control different parts of the supply chain while the horizontally integrated companies are not self-sufficient since it involves merging of companies in the same industry.
In sum, vertical and horizontal relationships in the supply chain entail the acquisition of firms operating in the same and different industries respectively. The vertically integrated companies have a bigger market share, a clear chain of command and are more costly to merge. The horizontal integrations, on the other hand, require less capital, have a less formal chain of command and have higher self-sufficiency levels. Below is a sample graphic showing the relationship in the supply chain.
Supplier-distributor relationship
Source: handshake.com
References
Christopher, M. (2016). Logistics and supply chain management . Harlow: Financial Times/Prentice Hall.
Corbett, C. J., Fransoo, J. C., Tan, T., & Bouchery, Y. (2017). Sustainable supply chains: a research-based textbook on operations and strategy . Cham: Springer.
