What if we Integrated Vertically? A Comprehensive Explanation

  

  Unfortunately, I missed my class presentation on a topic I had done my research for and was prepared to explain. Here I wish to lay out my information clearly, but the public speaking over the computer practice would've helped me a little. Despite that, I'd like to explain Vertical Integration and how we see it in today's communities and cultures.

  Definition:

    A company has full control and ownership over its all assets, to get overall control of the value of all of the companies said assets. While requiring a lot of upfront investment, which is seen as the main detriment to the strategy, this method of control is usually used for the benefit of companies.

Example: 

    My classmate who did her presentation used a great example which I will list here. Netflix is a company using vertical integration to a very clear degree. They begin as a DVD rental business before moving into online streaming of films and movies licensed from major studios. Then Netflix realized that by producing a lot of self-licensed original content their margins would increase, and hence Netflix originals began production leading into the modern Netflix we know.

Explanations:

The process of vertical integration occurs when companies take control of production steps involved with the creation of products and or services. Basically, this involves purchasing and taking control of the processes that were originally outsourced.  What happens is a companies supply chain or sales process starts with a new purchase of raw materials from a supplier and ends with directly selling the final product to the customer. By purchasing suppliers they reduce manufacturing costs. Companies can also invest in the "sales end" of the process by opening physical locations to provide services after-sales. Controlling the distribution of final products is another common strategy in vertical integration, giving them control over delivery.

Backward Integration: A company expands backward on the production path into manufacturing.

Forward Integration: Companies control direct distribution or supply of the products they sell

I quickly mentioned some pros in cons in my early explanations, but I'd like to list them on a more in-depth level.

Advantages of Vertical Integration:

• Decreased transportation costs and reduced delivery turnaround times
• Reduced disruptions on supply based on fewer suppliers failing because you own them
• Increased competitiveness because you're a more efficient company
• Lowers costs through all levels of production because of streamline company efficiency
• Improved sales based on being company owned brand

Disadvantages  of Vertical Integration:

• Companies could spiral and get too big becoming unmanageable 
• If suppliers have better expertise it's better to let them run the show.
• The cost of purchasing things like the suppliers and the manufactures can be expensive ventures.
• The increased amount of debt if borrowing needs for expenses. (Hopefully, you make that money back through integration though)

Conculsion+Final thoughts:

I designed this blorg to be strictly informative and comprehensive. It can be easily understood and followed through my organization, which I planned similarly to my presentation. Hopefully, this is a little of the best of both worlds. Vertical Integration is an interesting concept among corporations, and it's good to be informed about the process.

https://www.investopedia.com/terms/v/verticalintegration.asp

Video on this page^