put its strategic emphasis on product design and downstream services. To this end they decided to outsource most of its manufacturing operations to Taiwan but retain the design and also vertically integrated downstream channels. Another example is the Benetton Group which is a leading edge garment supply chain in the world. It has the presence in over 120 countries. Its core business is fashion apparel. But, 80% of its manufacturing operation is outsourced to thousands of independent small manufactures. This helped the B,enetton group to reduce its manufacturing cost, synchronise the supply chain capacity with the fluctuated market demand, and alleviate the bullwhip effects.
From an OEM perspective the supply chain is less vertically integrated if more operations are outsourced. Similarly, less outsourcing means higher level of verticalintegration. Across most of the manufacturing industries around world, the recent decades have seen a clearly increased level of outsource:d activities, and thus the reduced extent of vertical integration for most of the supply chains. This is largely due to the continuous growth of global market volatility which drives the supply chains to become more flexible and agile, and the less vertically integrated supply chain offers precisely that flexibility.
Another closely related concept in supply chain architecture design is called 'offshoring'. Offshoring is defined as moving the on-shore operations to offshore locations in order 1to take the advantages of local resources, and to reduce operating cost or create market presence. However offshoring doe:s not necessarily mean outsourcing, especially when the ownership of the off-shored operation remains unchanged. There has been no outsourcing taken place. The inter-connection of the two concepts can be illustrated in figure 5.