Vertical Integration is a strategy whereby a company owns or controls its suppliers, distributors, or retail locations to control its value or supply chain.
There are four phases of this supply chain: commodities, manufacturing, distribution and retail. When a company is vertically integrating when it is controlling two or more of these phases.
I knew what the concept of Vertical Integration was prior to doing this assignment but I did not know its official name. What I learned in completing my research is that essentially, vertical integration is cutting out the middleman, and making business quicker, and more efficient and direct.
There's two different types of vertical integration: forward integration and backward integration. Forward integration is when a company at the beginning of the supply chain controls stages farther along. An example of forward integration is when a manufacturer of electronic devices buys a chain of electronic retail stores. This may occur because a business realizes it can make more money by selling directly to the consumers.
Backward Integration is when a business at the end of the supply chain takes on activities "upstream." An example of backward integration is when a business, like a Burger King owns a potato company to make sure that it is has a consistent supply of French fries. Making a business move like this cuts out the middleman and make business quicker and more efficient.
Everything has its positives and negatives, its pros and cons. In my opinion the most significant benefit of vertical integration is the ability to avoid supply distribution. With this a vertically integrated business can control its own supply and not have to worry strikes and labor disputes. To me, this epitomizes the phrase, "if you want something done the right way do it yourself," and that's something I can respect. In my opinion, the most significant disadvantage of vertical integration is the inability for vertically integrated businesses to quickly respond to market trends. Trends fluctuate frequently so they inability to quickly respond to "what the people want" can hurt business.
The two websites I linked in the bottom of my post taught me so much about vertical integration and its importance. Many different businesses utilize vertical integration as it has many benefits. If anyone that comes across this post is interested in business or just enjoys learning new things, I recommend they educate themselves by visiting those two websites.
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