The supply chain process starts with the sourcing and delivery of raw materials to the manufacturer’s warehouse and ends when the final product gets to the end consumer. In a country with an emerging middle-class, a high-quality product for less is crucial to the Indian consumer. “Vertical integration is for India, in that the consumer is provided with the best possible product for the lowest-conceivable cost,” Andreas says. One of the major advantages of vertical integration is that a company increases its efficiency.

IT plays a fundamental role in automating complex problems by introducing user-friendly solutions. Company can take control over their supply chain network together with distribution channel. In the case of the competition lack, there will not be an increase backward integration example in india in innovation, and as a result, the quality of products will also decrease too. The company might also become less efficient in the process, and then there will be losses all over. This can also increase the burden which is already there in your company.

Backward integration is done to derive additional benefits for a company in the supply stage of the company, wherein they integrate with their suppliers to reduce the cost. This is an important lesson that has been missed in the past by even the best of companies like IBM. IBM failed to take control of its supply chain allowing its suppliers like Intel and Windows to prop up its competition with innovations subsidized by IBM. However, RIL being RIL has not been content to rest on its laurels in the petrochemical sector.

We are here to tell you that when there is a major supplier that is supplying to the business in question, there might be someone else in the line too. The entire process of manufacturing will go through a phase of improvement with the help of backward integration, which is important. We can say that it is one of the most important business strategies that people can use these days because it helps the company in addressing the bottom line of it. The companies often tend to use the process of backward integration with the help of some assistance from other companies, but some companies have decided to take the step on their own.

Company

We wouldn’t really know because not much progress was made on the proposal. There is a Chinese company which manufactures and assembles Iphone named Foxconn and then the finished product is sold by Apple. Suppose if Foxconn does the work of Apple i.e. if it starts selling Iphone without distributing it to Apple. Meanwhile it will be able to sell Iphone directly to the customer, manufacturing it and directly selling it to customer. If used correctly, the strategy can produce the best results for the company as well as the people working in it by reducing several costs and providing other benefits.

Peloton acquired Tonic Fitness Technology, a Taiwanese manufacturing organization, in October 2019. In December 2020, Peloton acquired Precor, a workout machine manufacturer. The mid-sized Hyderabad-based company is a USFDA approved manufacturing facility for active pharmaceutical ingredients . It is also engaged in the production of formulations and has a CRO. In some instances, two adjacent value-creating activities are so integral to one another that vertical integration seems to most logical thing to do. A case in point is the value creation achieved in reducing iron ore into molten metal and its subsequent conversion into steel.

Difference between Backward and Forward Integration:

Along with that, producing costs and distribution costs will also be decreased. Indeed, the vertically integrated model has worked well for Quantified Commerce. Within the last three to four years, the company grew 100%-300% per year. By acquiring a company operating a level before it in the supply chain, companies remove the middlemen involved and cut the markup costs.

So whenever companies want to control their distribution process they acquire distribution or sales companies. Now you must be looking for the advantages of strategies used by companies. Of course, here are all advantages behind backwards vertical integration. If a furniture manufacturing company wants to expand its company then they can acquire a wood supply company so that the firm has enough sources of wood to make furniture. Backward integration and forward integration both are the two types of vertical integration. In these two types of methods, companies either can choose backward vertical strategy or can choose the forward vertical strategy.

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When asked to name India’s leading business house, Reliance Industries Limited would be right at the top of most people’s lists. Founded as Reliance Group by innovators Dhirubhai Ambani and Champaklal Damani in 1960, RIL is right alongside companies like HUL and Tata when it comes to shaping and impacting India’s growth story. The mission is to provide “Best On The Go” training services across those industries To Create, Develop, Train tomorrows Industry leaders. In due course, there are high chances that the flexibility will get reduced owing to previous investments upstream and also downstream. US FDA approved facility gives us an additional production site. Therefore RA Pharma’s forte in API capabilities strengthens Micro Lab’s operation.

• For example, lack of supplier competition can reduce efficiency and thus result in higher costs.
• The backward integration method will result in many benefits to the company such as cost savings, increased revenues, and improved efficiency in the production process.
• The company will also be able to secure the position when it comes to the supply of the materials as well.
• Implementing backward integration can result in inefficiencies.

Consequently high supply and usage of raw material will reflect a premium brand. Different companies always integrate backward to create differentiation of the products from their competitors in the industry. Since the company has some control over the chain of supply, the company will be able to control the production of certain materials as well as the amount of production too. These companies always pursue the path of backward integration when they need to improve the efficiency of the company and also ensure cost savings. This is to provide better results for the success of the company. So, backward integration is the purchase or production of some key segments or parts of their supply chain.

But just understanding Vertical Integration without learning about its counterpart strategy — Horizontal Integration — would be like solving a puzzle with a missing piece. So, to help you develop a holistic understanding, I will first run you through Vertical & Horizontal integration https://1investing.in/ briefly before explaining Backward Integration. In this situation, where it monitors both the strategies similarly, it expands the overall market and captures the whole world. Forward means move forward, as the supply system has two parts one is backwards and another one is forward.

Since the company would effectively control the raw material supply, it would be less incentivized to spend on research and development. Like we saw in Carnegie Steel’s case, Backward Integration gives companies increased control over the supply chain, reducing dependency on third-party suppliers. The reduction in dependency gives companies increased control over the quality of raw materials used in production and tighter control over the quantity and delivery of the raw materials.

How Acquisitions Drive the Business Strategy of New York Times

Forward integration is the best strategy to take control of the overall distribution channel. As you can see IKEA use this technique for better consumer visualisation. The supercharge 3d visualisation will impact on the overall business. When the customer will be satisfied with their services, IKEA will be more profitable.

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By this, they will have a larger control on the quality of raw material used in production. It will ensure that the Company receives adequate supplies as and when required without worrying about raw materials being sold to the competitor or not produced /manufactured by the suppliers. One of the significant drawbacks of backward integration is that it can lead to unintended inefficiencies with the company and also the overall market as a result of it. In some cases, after acquiring the supplier of raw materials in the production process, the company could limit competition, turning lethargic and preventing innovation.

It’s said that vertical integration helps companies trim the fat and keep more revenue within the business instead of paying outside sources. We spoke to Quantified Commerce, a vertically integrated company that builds digitally native beauty brands in India, about how vertical integration helps companies succeed and consumers save. One of the many reasons companies integrate backward is to gain the upper hand over competitors.

Hyderabad is the bulk drug capital of the country, known for competitive costs. Clearly, there is no one-size-fits-all in strategic management. Jeff Bezos started online book shop way back in 1995, which only deals in selling others publisher book online.Later from 2009 they decided to create their own publishing house. It is for sure, going to make the production process more hassle-free and profit-driven.