Vertically and horizontally integrated supply chains

Effective supply chains are critical to the success of organisations operating in global multifaceted environments as well as organisations seeking to achieve optimal efficiency and customer satisfaction Lambert, Hence, organisations are faced with the challenge of making decisions regarding appropriate supply chain strategies that will deliver their objectives based on their capabilities, needs and circumstances. This essay will discuss and analyse key similarities and differences between vertically and horizontally integrated supply chains, highlighting the key issues and the scope of organisational departments involved.

Vertically and horizontally integrated supply chains

Key Differences Between Horizontal and Vertical Integration

Forward Integration BREAKING DOWN 'Horizontal Integration' Horizontal integration is a competitive strategy that can create economies of scale, increase market power over distributors and suppliers, increase product differentiation and help businesses expand their market or enter new markets.

By merging two businesses, they may be able to produce more revenue than they would have been able to do independently.

Vertically and horizontally integrated supply chains

However, when horizontal mergers succeed, it is often at the expense of consumers, especially if they reduce competition. If horizontal mergers within the same industry concentrate market share among a small number of companies, it creates an oligopoly. If one company ends up with a dominant market share, it has a monopoly.

This is why horizontal mergers are heavily scrutinized under antitrust laws.

Vertically and horizontally integrated supply chains

Advantages of Horizontal Integration Companies engage in horizontal integration to benefit from synergies. Or there may be economies of scope, which make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own.

Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product. Synergies can also be realized by combining products or markets.

Horizontal integration is often driven by marketing imperatives. A retail business that sells clothes may decide to also offer accessories, or might merge with a similar business in another country to gain a foothold there and avoid having to build a distribution network from scratch.

The other two forces, the power of suppliers and customers, drive vertical integration. Disadvantages of Horizontal Integration Like any merger, horizontal integration does not always yield the synergies and added value that was expected. It can even result in negative synergies which reduce the overall value of the business, if the larger firm becomes too unwieldy and inflexible to manage, or if the merged firms experience problems caused by vastly different leadership styles and company cultures.

And if a merger threatens competitors, it could attract the attention of the Federal Trade Commission.To understand integrated supply chains, it’s first important to grasp just what a supply chain is. A supply chain is a collection of suppliers required to create one specific product for a company.

Each supplier is a “link” in the chain that adds time and monetary costs. A: When a company wishes to grow through a horizontal integration, it is looking to acquire a similar company in the same may be seeking to increase its size, diversify its product.

To understand integrated values chain, one needs to understand the difference between vertical integration and horizontal integration and between a supply vs value chain. Vertical integration is said when a company has its own production lines at each entity of the supply chain all aimed to produce.

Introduction Vertically and horizontally integrated supply chains are supply chain management strategies adopted by companies to take advantage of synergies in their value chain to achieve more profits and competitive advantage (Naslund & Willamson, ). Expanding your company horizontally means acquiring, or merging with, companies that do the same thing you do.

Integrating vertically means controlling more of your supply chain, either by owning. When most competitors in an industry are vertically integrated, it can be difficult for nonintegrated players to enter.

Potential entrants may have to enter all stages to compete. This increases capital costs and the minimum efficient scale of operations, thus raising barriers to entry.

Vertical Integration