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Exploring Vertical Integration In The Supply Chain

Published by :Forbes

29th Dec 2022

Supply Chain

In a vertical integration strategy, a business controls multiple stages of the supply chain involved in its production process. As a result, third-party dependencies are reduced. Vertical integration in the supply chain can range from a level of zero integration where an already finished product is purchased for on-selling, to a full integration where the business has no dependency on any third party for any of its production process at all. An example of a fully integrated model can be a robotics and automation solutions company which manufactures or controls the sourcing of all the robots, software, other automation systems, racking structures, etc. involved in deploying an automation solution, and has the capability to install and commission the automation solution as well. An example of a zero-integration business can be a channel partner who merely on-sells robots procured from a robot manufacturer. Vertical integration, among other benefits, ensures higher quality products and services for the end-customer, as it takes ownership of multiple stages of its production process in the supply chain.

As opposed to vertical integration, horizontal integration strategy involves acquisition of competitors or similar businesses for expanding market share. This adds an existing market share for the business for increased profitability at an accelerated pace.

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