Vertical conflict is a reference to relationships in conflict between two or more different hierarchical players of a distribution channel.
For example, a typical supply chain might consist of:
- Raw materials producer
A dispute between a retailer and the wholesale would be an example of vertical conflict.
This could occur because the products have deteriorated in quality after passing through the wholesaler. It could be that the retailer has little money left to make as the wholesaler is taking too high of a margin. It might even be that the retailer found out that the wholesaler is selling the same products to a competitor at better prices.
At times, vertical conflicts can be strategic.
This means that conflicts are created for the strategic objectives of a particular company.
For example, a retailer might intentionally purchase all the stock carried by a wholesaler so that a competitor is unable to carry them in any quantity.
What ever the source of distrust is, such conflicts between different tiered member of the distribution chain is termed as a vertical conflict.
A bottleneck within the distribution channel can affect all players.
For instance, a dispute between the raw materials producer and manufacturer can mean a lack of products for the wholesaler. Retailers would suffer from inventory shortage as well. Consumers who are willing to purchase the products would then be unable to buy them.
This is opportunity cost for all members of a channel.
Marketing objectives can also often be the cause of vertical conflict.
If a retailer has spent a great deal of their marketing budget on promoting a certain event or festival, it would understandably require wholesalers to deliver the products before the promotion period commences.
However a lack of raw materials can mean that the manufacturer would not be able to produce as much product as requested.
This can lead to loss of sales by the retailer. Ending up with the wholesaler getting an earful. However, this might not be the fault of the wholesale as they had already advised the retailer to delay the promotion period.
Sometimes, because the wholesaler refuses to participate in the promotion where prices are slashed, they choose not to supply the retailer.
Leading to more conflict.
Big retailers can often command a lot of influence in how conflicts are resolved because they ultimately bring in the sales that feed the whole supply channel.
A hypermarket for example, might mediate a disagreement between a manufacturer and wholesaler. And if problems cannot be resolved, they might even work out solutions and demand that the conflicting parties follow the suggested solutions.
Because vertical conflict can occur often as different companies have their own interest to protect, huge retailers often choose to go the route of building their own supply chain so that the supply of products are not compromised due to vertical conflict.
Starbucks for example, have their own coffee plantations so that they can apply quality control and ensure a constant stream of supply of coffee beans.
Horizontal conflict refers to conflicts of players at the same hierarchical level, which is usually between competitors.