Vertical Integration - demystifying an organisation's reach


An organisation may have strategic alliance with a number of partners along the supply chain.
This arrangement calls for great efforts on part of the partners to sustain the relationship over a long period of time.

However, since the partners, the organisations, have their independent identities and are usually free to break the partnership if it is not mutually beneficial any more.

In business, it's profit and growth that

matters first for the survival of any orgnisation. It implies that though the strategic alliances play a great role in the competitiveness of the supply chain there is always an element of risk for the very survival of the chain.

Virtual integration, as opposed to the Strategic alliance is acquiring and merging with the organisation of many other organisations that fall on the path of the supply chain.

The immediate benefit of Virtual integration is the least or no chance of a partner walking away from the chain as the organisatioanal entities falling in the supply chain path are all the same and one organisation.  

The most common arrangement thus is an organisation buying other organisations in the supply chain. This increases the level of vertical integration. For example, if an organisation owns basic suppliers and does most of the value additions itself and also distributes the end products to the customers itself then it will be called a vertically integrated organisation.

Many orgnisations have  their captive mines for getting the raw materials , have their own transport system to carry the raw materials to their operation units where they convert or add value through operations and then despatch  the final products to reach their customers. If organisation owns up a lot on its supply side it has backward or upstream integration and if the organisation owns up a lot of distribution network it downstream or forward integration.

Vertical integration is  supposed to be the best way of getting different part of the supply chain to work together.


Cooperation--Strategic alliances--Vertical Integration


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