Question

Integration refers to acquiring capabilities at the front of the supply chain, whereas integration refers to acquiring capabilities toward the back end of the supply chain.

a. Vertical; horizontal
b. upward; downward
c. forward; backwards
d. backward; forward

choose the correct answer

Answer 1

Backward integration refers to acquiring capabilities at the front of the supply chain, whereas forward integration refers to acquiring capabilities toward the back end of the supply chain.

Backward integration is a type of vertical integration in which a company tries to increase ownership over companies that were once its suppliers. Companies follow backward integration when it is expected to improve efficiency and cost savings. One example of backward integration can be a chocolate company, when moves up the supply chain to purchase a cocoa farm. Here, a chocolate company a retail supplier is purchasing one of its manufacturers thus clearing out the "middle man", and hampering competition.

Forward Integration is a form of vertical integration whereby business activities are expanded to have control of the direct distribution or supply of a company's products. A company conducts this type of integration by moving down the supply chain. One example of forward integration is when a farmer sells his crops at a local store without moving to a distribution center. To make a forward integration successful, a company needs to have control over other companies that were once its customers.