Briefly describe the disadvantages of the traditional management model of vertical integration and explain what is supply chain management

Disadvantages of vertical integration:

1, increase the burden of investment

Whether it is to invest in a new factory, or for the holding of other companies, it is necessary for enterprises to raise the necessary funds for themselves. First of all, the enterprise must spend human and material resources to try to raise the required funds in the financial market. Secondly, once the funds are in place, the project construction cycle (assuming a new factory) begins. In order to complete the capital construction task as soon as possible, the enterprise also spends energy to engage in the supervision of project implementation, which in turn consumes a lot of corporate resources.

2, bear the risk of losing market timing

For some new projects, as there is a certain construction cycle, there is often the day the project is completed, that is, when the project is dismantled phenomenon. Market opportunities have long passed away in your project construction process. Such examples in our country a lot. From the choice of investment direction, the decision-makers at the time of the decision may be correct, but is because of the time spent on the basic construction of the production system is too long, such as the production system is completed and put into operation, the market situation may have long changed, missed the best time to enter the market and make the enterprise suffered losses. Therefore, the longer the project construction cycle, the higher the risk borne by the enterprise.

3, forcing enterprises to engage in business activities in which they do not specialize

"Vertical integration" management mode of the enterprise is actually "big", "small" replica. As a result, the auxiliary management work did not catch up, the key business can not play a core role, not only so that the enterprise has lost the competitive characteristics, but also increased the cost of enterprise products.

4, in each business area are directly facing many competitors

Adopting the "vertical integration" management model, another problem for the enterprise is that it must directly compete with different competitors in different business areas.

5. Increased industry risk

If the industry is in a downturn, a vertically integrated company will not only suffer losses in the end-user market, but also in the vertically developed markets. In the past, there has been such an example, a monosodium glutamate factory in order to ensure the supply of raw materials, white built a factory of auxiliary materials. But then the MSG market is saturated, most of the MSG produced by the plant has no sales. As a result, not only the MSG factory suffered losses, and its supporting auxiliary materials factory is also struggling.

Supply Chain Management:

This refers to the process of optimizing the supply chain operation to meet all the processes of the supply chain from purchasing to meeting the final customers at the lowest cost, which is included in the MBA, EMBA and other management education.

Supply chain management is the coordination of internal and external resources to **** the same to meet consumer demand, when we look at the links in the supply chain as a virtual enterprise alliance, and any one enterprise as a virtual enterprise alliance of a department, the alliance's internal management is supply chain management. Only the composition of the alliance is dynamic, according to the market needs at any time in the change.

Effective supply chain management can help achieve four goals:

Shorten cash turnaround time; reduce risk to the organization; grow profitably; and provide predictable revenue.

Seven principles of supply chain management:

Segmentation of customer segments according to the characteristics of the services required by the customer; design of the enterprise's logistic network according to the needs of the customer and the profitability of the enterprise; listening to the market demand information, designing products closer to the customer; time delay; strategic identification of the source of goods and sourcing to establish a win-win cooperation with the supplier; establishment of information systems throughout the supply chain; establishment of performance assessment of the entire supply chain area; and establishment of the supply chain. information system; establish performance appraisal guidelines for the entire supply chain, and so on.