which of the following is not a benefit of vertical integration? course hero

What are the advantages and disadvantages of vertical integration?

The advantages and disadvantages of vertical integration show it is a useful investment to make if the capital exists to make it. There are challenges that must be met to take full advantage of the benefits that vertical integration can provide.

Why is vertical integration important?

Vertical integration creates predictability because more information is available to the organization. There is more access to production inputs. Retail channels produce real-time information that isn’t filtered by third parties. Distribution requirements can be adjusted to promote specific items to unique demographics.

Why is quality assurance important in vertical integration?

When vertical integration is successful, it allows an organization to put more eyes on the quality of what is being produced. From the initial supply to the final sale, a better Q/A process within the system creates a value proposition that is more reliable.

What is forward vertical integration?

Forward vertical integration occurs when the company goes “forward” into their production cycle when assuming control. Distribution would be a form of forward integration.

How does economies of scale benefit businesses?

Economies of scale can provide businesses with numerous advantages, but only if they’re ready to adapt to the changes in their supply chain that occur. Here’s an example: when Haggen purchased grocery stores from Albertsons, 146 new locations in competitive, but unfamiliar locations expanded the brand’s footprint.

Is vertical integration a cheap investment?

It isn’t a cheap investment. Capital is required to make a vertical integration effort possible. Even if the integration occurs through partnerships, an investment into specific patents, processes, or proprietary data is often required as part of the deal.

Does vertical integration limit competition?

There may be unforeseen barriers when entering a new market. Vertical integration does limit competition, but only when the corporation focused on this process has access to the materials necessary to be competitive in the first place.

What types of companies benefit from vertical integration?

Any company that works with a supply chain can benefit from vertical integration. However, it's often quite costly to integrate vertically, so it is usually only an option for large corporations who have the capital to purchase other businesses. A few examples of industries in which vertical integration is common include:

What are the types of vertical integration?

There are two primary types of vertical integration—backward integration and forward integration:

How does vertical integration affect costs?

Vertical integration impacts costs for all stakeholders —which includes both the internal (parent company) and external (consumer) as explained below:

Why is vertical integration important?

Since these are complex, high-value items, it helps both the parent company and consumers to control costs and quality at every stage in the supply chain.

What is horizontal integration?

Horizontal integration: Horizontal integration is implemented when a parent company acquires a company at the same supply chain level as them in order to expand their operation. For example, a computer manufacturer might buy a competing brand and sell both products to consumers.

Why are vertically integrated companies better than other companies?

Vertically integrated companies can offer their products at a much lower price than companies that must pay every organization in their supply chain for their work. Lower prices often increase demand, leading to better brand recognition amongst consumers and higher profits for the parent company.

What is vertically integrated company?

When they do so, they often cut off competitors' access to certain materials or resources , giving the vertically integrated company larger control of the overall market.