In comparison, the tiered stable network has more control over its suppliers and distributors' operations than the dynamic network. An unexpected misunderstanding in the dynamic network may result in unrecoverable product defects. Along with it, there is higher risk in operational cost contml and quality standard. However, the dynamic network is much more flexible than stable network in that it can quickly form a new network in the supply market to cater for the changed demand both in volume and in variety. It also has a be1tter ability to upgrade technology and foster innovative processes. Which network configuration is better? It all depends on the objectives and desired characteristics of the network in the business context.
3.3Extent of Vertical Integration
Much of the supply chain design is determined by the 1extent of vertical integration. Vertical integration is defined as the single ownership of consecutive activities along the supply chain. It must not be confused with the concept of supply chain integration. A well integrated supply chain may not have a large extent of vertical integration (see definition of supply chain integration in section 2.3). If an OEM does not have ownership of its suppliers and customers, it is regarded as having a narrow span of vertical integration. On the other hand if it owns a number of tiers of suppliers and customers, it is regarded as having a large extent of vertical integratio.n. Obviously it could also be a forward integrated one or backward integrated one as shown in figure 4.
The Extent of Vertical lnteoration