Vertical Integration

Posted in Operations and Supply Chain Terms, Total Reads: 242
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Definition: Vertical Integration

Vertical Integration is an integration method in which a company includes/expands to different stages of production/business especially in the areas of distribution and supply chain so as to gain more control over the market it operates in. 

Vertical Integration ensures that the systematic growth of company's operations giving end to end solution to the customer. It helps streamlining business process as per the company, lesser dependency of third party service providers and gives more control to the company.

Types

1. Forward : Expands into business towards the customer delivery in the value chain

2. Backward : Expands into businesses into production/manufacturing/product creation etc


Advantages

1. It helps in cost savings

2. Better Control over processes

3. Better equipped against competition

4. Quicker Turnaround time


Disdavantages

1. Monopolization of the market which is never good

2. The entire operational burden can fall on the company in the recessionary times which would have otherwise been handled by a third party


Example

ABC company is an e-commerce portal which sells various products online. It had partnership with logistics company XYZ to deliver the products to end users. If ABC either acquires XYZ or starts its own logistic arm to deliver the products. This would be called Forward Vertical Integration.

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