Fashion Marketing: Contemporary Issues, Second edition - Pr School

Supply chain strategies, structures and relationships 47
networks (Gereffi, 1994). More recently demand chains and value nets (being
short for value networks) have been coined to describe supply chains.
Degree of vertical integration
A further way to explore the structure of supply chains is to examine the nature
of integration. Historically, it was assumed that each separate organization
linked in a chain from the start of the process through to the customer
(Williamson, 1971).
Hierarchy and governance are at the centre of this approach (Williamson,
1975). Historically, vertical integration was achieved through ownership and
control of the vertically integrated firms in the system. For example, primary
producers of wool or cotton would supply (secondary producers) textile mills
and they in turn supply clothing manufacturers who in turn supply (tertiary)
retail outlets and all these firms would be linked through ownership
of the vertical chain. The agricultural producer, the textile mill, the manufacturer
and the retailer all owned by a single entity. This governance structure
ensured control over the supply chain. Nowadays control is achieved in other
ways without the necessity of ownership of the vertical supply chain. For
example, market power of large retail organizations with significant market
shares can give retailers control over suppliers without recourse to ownership.
This is achieved in a number of ways:
1 Retail control of channels to market means that producers need to establish
their routes to market through building relationships with retailers able to
act as intermediaries between the producer and the final customer.
2 Suppliers must comply with retailer demands if they are to remain a supplier
in the longer term. For example, retailers measure supplier performance
against competitor suppliers on variables such as: on time deliveries,
complete deliveries, faults and service quality.
3 Suppliers often become reliant on their retail customers for routes to market.
One often reads press articles reporting the power relationships exerted
by retailers. For example, when a long established supplier to a retail organization
loses contracts or relationships breakdown it emphasizes the power
that modern retail organizations possess without the necessity of owning
the supplier organization.
4 The removal of ownership but the maintenance of control provides the retail
organization with greater flexibility to switch supplies without incurring
the high costs associated with divestment of assets (selling buildings, plant,
machinery and paying redundancy to the workforce). Supplier firms are
often made aware or left in little doubt of the nature of the highly competitive
market place they face when retailers negotiate supply contracts.
Thus benefits of control of the supplier network may be achieved without the
necessity to vertically integrate in the traditional economic sense of the term.
There are of course risks to this strategy especially if supplies or suppliers are