Vertical integration is the term for when a company buys out their manufacturer or other aspect of the distribution chain. So why would a business owner introduce vertical integration into their business plan? Two main reasons exist. We explain them as follows.
Having the ability to control all or most of the sections of a distribution channel allows business owners to monitor and control production more closely. This also includes control over the cost of manufacturing, so often vertical integration can make production a lot cheaper. The company can cut out the wholesaler, lowering expenditures immensely. Transportation expenses are removed in vertical integration as well, in order to regulate costs.
One important bonus that vertical integration can give to a company is access to new things. The company can explore new specialty products that the distributor may not have cared to test out. This can help create an edge against competitors. The business will also obtain newly acquired access to other aspects of the distribution channel.