Vertical Integration: an arrangement in which a company owns its supply chain; usually each member of the supply chain produces a different product or service, and the products combine to satisfy a common need
Vertical Integration is an interesting strategy in the manufacturing industry and has become simpler to achieve in recent times. The concept is pretty neat; if for example, you manufacture blue jeans and you want the advantages of being vertically integrated you also own the cotton farm, produce the die and sell to select retailers with contractual agreements. Market with the phrase “only sold at these fine retailers,” (this simple phrase gets me every time!) A manufacturer can even have their own employees and operators model the jeans. (Sexy…. kind of.) I found it interesting how many manufactures have become vertically integrated and learned that this concept has become much easier to achieve in the past 20 years because of the access to a global market.
Efficient communication is necessary in managing processes and marketing product. The ability to communicate efficiently and quickly makes a huge impact on the overall ability and success of the manufacturer. The internet via smartphones, tablets, social media and ecommerce has allowed companies to communicate and market globally. In fact, about a third of the world has Wi-Fi access. Online shopping has increased significantly; I learned that in the past 5 years over 5,000 consumers reported making at least 2 online purchases in a 3 month period.
Transporting raw materials from the supply chain has never been easier! Some vertically integrated manufacturers have expanded their capabilities and elements by managing their own transportation fleets while others have contracted major carriers to receive the best rates and service. Faster and less expensive transportation has allowed globalization to both small and large companies.
By owning the supply chain, a manufacturer has the opportunity to control the costs of production, eliminating waste and utilizing their resources efficiently. The manufacturer also has the ability to produce other related products using the same materials. Globalization allows companies to mine where the resources are located.
Access to a Global market offers opportunities to both small and large companies to vertically integrate. The ease of communication and popularity of ecommerce allows manufactures to easily sell product through their own sites or through contracted distributors keeping integrity and market value of the product. In addition, the manufacturer can count on improved transportation to receive the material and to ship the finished product to the consumer. Lastly, cost savings in manufacturing allows for higher profits and lower costs to the consumer. In case you didn’t get my reference above about the employees modeling the jeans- Pepsi had a great marketing campaign a while ago that had their truck drivers posing with 7-UP cans on the beach with an advertisement saying Sexy… kind of! Maybe, you had to be there!
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