Vertical Integration Vs. Corp.: The Third Way Sourcing Process

Traditional sourcing of production to third party suppliers has the benefit of being more cost efficient and the VF choses between a numbers of suppliers in different locations based on labor and transportation costs, tariffs and trade quotas. Suppliers functioned on razor-thin margins, which made them invest little in new technology and productivity improvement of the product process. If they were to encounter technical issues or problems, they generally added more labor or scheduled overtime.

Vertical Integration Sourcing:
With vertical integration sourcing the process is fully owned and operated by the VF Corp. This mode of sourcing had a proven track record of producing high quality products, very efficient and reliable. However, this sourcing is capital intensive due high cost of the fixed proprietary assets and constant developing new technologies to maintain the competitive advantage. The short lead time for the concept - to - market process lead time was a major competitive advantage for the company. The company ability to efficiently assess the demand for its products and then speedily replenish increases revenue and brand loyalty as in the Jeanswear brands.
Third Way Sourcing
The Third Way sourcing approach was designed to be a hybrid between vertical integration and traditional sourcing strategies.
The mode would make supply chain more efficient by building a true partnership with their suppliers, transfer knowledge of internal technical and supply chain efficiencies eliminate the reliance on short term contracts. Good quality and reliability, cost and lead time reduce driven down by supplier’s willingness to participate in third way sourcing. The drawn for this type of sourcing, suppliers revealing intellectual proprietary information with VF’s competitors, other suppliers or trading on it
themselves.