Question

Which of the following is an example of backward integration? Select one: a. A manufacturer purchasing wholesalers. b. A wholesaler purchasing channel members above it. c. A wholesaler purchasing retailers. d. A manufacturer purchasing retailers.

Answer 1

Solution :

Backward Intergration : It is a form of vertical intergration of two or more companies at different places of a supply chain. The flow of supply chain is usually as below

1. Delivery of raw materials from a supplier to a manufacturer.

2. Manufacturer sells goods and sells to Wholesaler.

3. Wholesaler sells goods to retailer.

4. Retailer sells goods to final customer

Howerver,a backward integration, occurs when a company initiates a vertical integration by moving backward in its industry's chain. Companies go for backward integration when it is expected to improve the operating margins and efficiencies and also a considerable cost reduction.

In the given quesrtions options a,c and d are examples of forward intergration which involves purchase or control of its distributors in the supply chain.

Option b is the correct answer for backward integration, where a wholesaler purchases channel members above it.