What is Backward Integration?
Backward integration is a strategy used by a company to control the supply chain process by owning its suppliers. It involves a company acquiring or merging with its suppliers in order to gain more control over the production process. Through backward integration, a company is able to increase the efficiency of its production process, reduce costs, and ensure a steady supply of raw materials.
Benefits of Backward Integration
Backward integration can be beneficial for businesses in a variety of ways. Some of the key benefits of backward integration include:
- Reduced costs: By owning its suppliers, a company can reduce its costs by eliminating the need to pay suppliers for their services. This can significantly reduce a company’s overhead costs.
- Increased efficiency: Backward integration can also increase the efficiency of the production process by eliminating the need for a middleman. This can lead to faster production times and higher quality products.
- Less risk: By owning its suppliers, a company is less vulnerable to external factors that can disrupt the supply chain. This reduces the risk of production delays or other supply chain issues.
- Better control over process: By owning its suppliers, a company can have more control over the production process. This can help ensure that the company is producing a quality product that meets customer expectations.
Examples of backward integration
Backward integration is used by many companies in various industries. Some examples of companies that use backward integration include:
- Apple: Apple has used backward integration to gain control over its supply chain. It owns many of its suppliers and has even acquired some of them in order to gain more control over the production process.
- Walmart: Walmart has used backward integration to gain control over its supply chain. It owns many of its suppliers and has even acquired some of them in order to gain more control over the production process.
- McDonald’s: McDonald’s has used backward integration to gain control over its supply chain. It owns many of its suppliers and has even acquired some of them in order to gain more control over the production process.
- Amazon: Amazon has used backward integration to gain control over its supply chain. It owns many of its suppliers and has even acquired some of them in order to gain more control over the production process.
Backward integration can be a powerful strategy for companies that are looking to gain more control over their production process and reduce costs. By owning its suppliers, a company can gain more control over the production process and ensure a steady supply of raw materials.
References
- https://www.investopedia.com/terms/b/backward-integration.asp
- https://www.thebalancesmb.com/what-is-backward-integration-3576509
- https://www.forbes.com/sites/jaysondemers/2017/10/02/what-is-backward-integration-and-how-can-it-benefit-your-business/#7e7a1845b50c