Sustainability and vertical integrated business models – a contradiction? No, not at all. It can be even the total opposite, especially nowadays when big retailers tend to manage or own their whole supply chain in order to provide transparency about their sustainable approaches. This supply chain power is called a vertical business model. Companies that are vertically integrated either own or control their suppliers, distributors, and sales channels such as wholesalers, retail stores, and digital selling channels.
A retailer typically integrates backwards and thus, buys or owns production processes that were previously outsourced. Highly vertical integrated retailers often have their own in-house manufacturing units, design, and store and have their own mono-brand retail stores.
The trend toward conscious buying
Yes, vertical integrated retailers may have used their power over the supply chain to produce and deliver fast fashion for convenient prices. But besides that, they realized that sustainability is key today for a constant success and long-lasting customer retention. By owning or controlling supply chain processes, they have been using this power as an advantage to impact the processes in a positive way for some years now.
One example is the use of recycled materials or recycled waste to produce apparel that is sustainable. Retailers try to reach full traceability of the supply chain and aim to use more and more materials that are recycled or forest and animal friendly. They do this by adding recycle bins in their retail stores, avoiding plastic bags, and introducing their own sustainable collections. Moreover, using sustainable electricity or giving consumers transparency on fabric origins, production unit locations, and fair salary and working conditions are one of the approaches that those retailers provide. The reason: consumers tend to put the quality and sustainability of products over the simple fact of owning or consuming that product. Consumers are buying more consciously than ever before.
Challenges faced by vertical integrated businesses
Nevertheless, the advantageous power over supply chain activities can cause challenges at the same time – especially when it comes to business planning. The acquisition of new units or processes can result in silo planning due to system breaks in planning processes where a complex and fragmented IT system landscape exists. This may result in a disconnect between financial plans and business operations, limited flexibility in “what-if” situations, and a siloed view of the value chain, such as fragmented inventory views and no real-time visibility into demand and history sales. These challenges can cause high costs and inefficient processes. They can also lead to difficulties in aligning product assortments with each other, offering different assortments in different countries based on sales KPIs, selling effectively and profitably into different sales channels, and reacting quickly to different market demands.
Thus, connected IT systems, processes, and insights are key to ensuring that sustainability is part of the business planning and strategy. In summary, providing sustainability along the whole supply chain with recycled material usage, sustainable collections, and production sites with adequate working and salary conditions, together with the aim of a high inventory turnover and profit, needs solid and aligned financial, demand, and supply planning.
How can SAP help?
Teams from SAP Services and Support are trusted advisors and support planning optimization in vertical integrated businesses.
With the aid of SAP services and the integration of the SAP Integrated Business Planning for Supply Chain (SAP IBP for Supply Chain) solution and the SAP Customer Activity Repository application, vertical integrated retailers are enabled at first to optimize their demand planning. This occurs by combining a top-down planning approach based on historical data, a bottom-up planning approach based on current sales data, and real-time inventory information – generating real-time visibility into demand and history sales. On top of that, retailers can align that optimized demand plan with the supply plan, which provides information about factory and vendor capacities, raw material requirements, confirmed resources, and certain production methods, such as staining with ecological and sustainable chemicals. Those insights can then be aligned with the financial and resource plans.
Integrated planning enables vertical integrated retailers to not only produce the mentioned sustainable apparel and improve working conditions, but also to supply products to locations with higher demands. This saves costs on transportation and avoids redistribution and scrapping, which are major sustainable impacts for a company.
When it comes to the implementation, integration, and adoption of SAP IBP for Supply Chain and SAP Customer Activity Repository, our solution experts and business consultants know the SAP solutions best. These resources will be an accelerator for business transformation of vertical integrated retailers on their way to becoming intelligent enterprises.
“Our SAP Services and Support teams help vertical integrated retailers to build their success as an intelligent enterprise. We support those businesses to make their supply chains sustainable providing not only a great impact on humanity and the environment, but also ensuring business continuity and leveraging their business profits at the same time - which both is nowadays more crucial than ever.” Guido Schlief, Senior Vice President and Head of Services Middle and Eastern Europe, SAP
Sustainability is a "must-have" for retailers
Sustainability should be a key element in business planning for the whole supply chain, from production through transportation to the consumer’s door. The power of real-time insights on demand, inventory, and supply capacities leverages integrated planning capabilities. Businesses can simply plan and provide material supplies from different origins, align assortment placements, quickly adopt productions, and tweak financial and resource plans as well as channel sales in different global or local markets. The ability to have the right product, in the right place, and at the right time in a very flexible way is key to maximizing a company’s efficiency and profitability. With SAP IBP for Supply Chain, SAP Customer Activity Repository, and SAP Services and Support, vertical integrated retailers can be empowered to meet the growing conscious buying behavior.
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