Question

In: Operations Management

what are the advantages and disadvantages of vertical integration ?

what are the advantages and disadvantages of vertical integration ?

Solutions

Expert Solution

A company is known to be inclined towards vertical integration when more than one supply chain is handled by them, it increases the scope of their businesses which fetched better profits and growth for the company.

Advantages of vertical integration are:

- Economy of scale is achieved- The Company has to spend less to achieve the same amount of profit and this makes a lot of positive difference in the balance sheets of the company.

- Multiple sources of profits as middlemen are removed and the manufacturers can reach directly to the customer.

- Geographical expansion and many customers that were not served earlier are now tapped and it increases the overall revenues for the organization.

Disadvantages of vertical integration are:

- Possibility that the reputation of the company gets hit since many distributors are now selling but for the customers it is one company.

- Technology is constantly changing and hence it is very expensive for the company to cope up with the trends.

- The central control is distributed which at times is not a good sign for the company.


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