Forward Vertical Integration

• What is Vertical Integration?

  Vertical integration is a strategy that allows a company to streamline its operations by taking direct ownership of various stages of its production process rather than relying on external contractors or suppliers.
• What does streamline mean?

  Make (an organisation or system) more efficient and effective by employing faster or simpler working methods.
• What is meant by forward vertical integration?

  Occurs when a vendor (a person or company offering something for sale, especially a trader in the street) attempts to acquire a company further along the supply chain (i.e. acquire a retailer).
• What are the benefits of forward vertical integration?

  • Giving companies a competitive advantage in their industries
  • Reducing manufacturing costs e.g. lower transportation costs
  • Increasing profits
  • Increasing efficiency
  • Decreasing delays in distribution
  • Increasing control over distribution
• What are the drawbacks of forward vertical integration?

  • If additional activities aren’t managed appropriately, they will result in increased costs.
  • Due to a lack of competition, product quality and efficiency may suffer.
  • Increased bureaucracy and large investments may limit flexibility.
• What does bureaucracy mean?

  A complex organisation that has multilayered systems and processes/procedures.