In: Accounting
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.
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.