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Posted on : Thursday 2nd July 2020 02:49 PM

Horizontal and Vertical Integration in Industry 4.0

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The phrases “horizontal integration” and “vertical integration” are well known from a number of contexts. From the operational perspective, a horizontally integrated company focuses its techniques around its core competencies and establishes partnerships to build out an end-to-end value chain. A vertically integrated company, on the other hand, keeps as much of its value chain in-house as it can—from product development to manufacturing, marketing, sales, and distribution.


In the world of business growth strategy, horizontal integration is about the acquisition of companies that address the same customer base with different but complementary products or services. In doing this, the acquiring company can expand market share, diversify their product offerings, and etc. A vertical growth strategy, on the other hand, involves acquiring companies that bring new capabilities to the table in order to decrease manufacturing costs, protect access to essential supplies, interact faster to new market opportunities, and more.


When it is about production, horizontal integration has come to refer to well-integrated processes at the production-floor level equally, while vertical integration means that the production floor is tightly coordinated with higher-level business processes such as procurement and quality control.


In this article we look into how Industry 4.0 has even more increased the significance of horizontal and vertical integration, making them the very backbone on which the Smart Factory is built.


Horizontal/Vertical Integration As the Backbone of Industry 4.0


When it comes to horizontal integration, Industry 4.0 envisions connected networks of cyber-physical and enterprise systems that teach unrivaled levels of automation, flexibility, and operating effectiveness into production processes. This horizontal integration takes place at several levels:

•             On the production floor: Always-connected machines and production units each grow to be an object with well-defined properties within the production network. They frequently communicate their performance status and, together, respond autonomously to dynamic production requirements. The greatest objective is that smart production floors will be able to cost-effectively produce bunch sizes of one as well as minimize costly downtime through predictive maintenance.

•             Across multiple production facilities: If an enterprise has distributed production facilities, Industry 4.0 boost horizontal integration across plant-level Manufacturing Execution Systems (MES). In this example, production facility data (inventory levels, unexpected delays, and so on) are shared seamlessly all over the whole enterprise and, where possible, production tasks are moved automatically among facilities in order to respond swiftly and efficiently to production variables.

•             Across the entire supply chain: Industry 4.0 proposes data transparency and high levels of automated collaboration over the upstream supply and logistics chain that provisions the production processes themselves in addition to the downstream chain that gives the finished products to market. Third-party suppliers and service providers must certanly be securely but strongly incorporated horizontally into the enterprise’s production and logistics control systems.


Vertical integration in Industry 4.0 endeavors to tie together all logical layers inside the organization from the field layer (i.e., the production floor) up through R&D, quality assurance, product management, IT, sales and marketing, et cetera. Data flows freely and transparently up and down these layers to ensure both strategic and tactical decisions can be data-driven. The vertically integrated Industry 4.0 enterprise obtains a crucial competitive edge by being able to respond appropriately and with agility to changing market signals and new opportunities.


The Challenges of Horizontal/Vertical Integration in Industry 4.0


The horizontal and vertical integration aspirations of Industry 4.0 are quite clear and very easy to understand. But, as is often the case in life in general, the difficulties to acquiring this vision are considerable.


Breaking Down Silos


Industry 4.0 levels of horizontal and vertical integration necessitate breaking down data and knowledge silos, which has never been an easy task. It starts with the production floor itself, where equipment and production units from diversified vendors provide varying levels of automation are equipped with a wide selection of sensors and use different communications protocols. In short, they often try not to “speak the same language,” and a meta-network needs to be established that resolves these communications disparities.


Data Security and Privacy


Horizontal integration in Industry 4.0 necessitate the sharing of data outside the organization with suppliers, subcontractors, partners, and, often times, customers at the same time. This level of transparency is extremely empowering in the case of production agility and flexibility, but it raises the challenge of making sure that the data of all stakeholders are kept secure and available solely on a need-to-know basis.


Scaling IT Systems and Infrastructure  


Industry 4.0 considerably grows the volume and velocity of data being collected and analyzed in order to support enhanced levels of horizontal and vertical integration. Quite often, IT systems and infrastructure will have to undergo a fundamental change in order to support the enterprise’s journey towards digital transformation. Industry 4.0 implementations are usually a compelling catalyst for moving enterprise databases and workloads to the cloud, where they are quickly accessible to a wide range of stakeholders.


Strong Orchestration


As the organization’s IT systems and production processes become more integrated and more complex, enterprises will need to acquire strong orchestration platforms that can provide end-to-end visibility and actionable insights across diverse, distributed systems and entities. These platforms typically aggregate structured and unstructured data from diverse existing enterprise systems in order to extract domain-specific actionable insights and should provide end-to-end product-analytics solutions for both manufacturing companies and their suppliers.


Industry 4.0 envelops cutting-edge data analytics, machine learning, and artificial intelligence technologies so to streamline and customize manufacturing processes. At its very core is the vision of horizontally integrating production processes themselves so that they can be self-learning, self-healing, and agile. For Industry 4.0 horizontal integration also means producing a seamless, data-centric, collaborative network across the organization’s entire supply chain. Vertical integration does the same thing for the organization’s own business units, ensuring an unprecedented level of alignment between production processes and core business activities such as ICT, sales, marketing, logistics, engineering, and more.


The measurable results of such integration include lower production costs and the enhanced ability to cost-effectively manufacture small customized batches—all without detracting from the highest quality standards.


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