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In Forward integration a company expands its operations to control its products' direct distribution or supply. In Backward integration a company takes control of its supply chain by acquiring or establishing operations that produce raw materials.
- Overview
- What is forward integration?
- What is backward integration?
- What is vertical integration?
- Forward integration vs. backward integration
Learning about how countries control their share of the market can be an interesting way to develop your professional skill set. If you want to learn more about how companies control their supply chain while also increasing their market cap, then understanding forward and background integration can be helpful. These two techniques allow companies t...
Forward integration is a process in which a company gains ownership of parts of the supply chain that occur after their handling of the product. The supply chain consists of five parts: raw materials, intermediate goods, manufacturing, marketing and sales and after-sale service. When a company wants to perform forward integration, they either buy o...
Like forward integration, backward integration is another form of vertical integration. This process also concerns the supply chain of a product, but it's the reverse of forward integration. In backward integration, a company that handles a good seeks to buy or partner with the company that handles the product at an early stage of production.For ex...
Both forward integration and backward integration are types of vertical integration, so before exploring the differences between these two concepts, it's useful to learn about vertical integration. Vertical integration is the process where a company tries to control as much of the supply chain as possible so that they have fewer dependencies on oth...
Integration
One of the main differences between forward and backward integration is the method in which the company performs the integration. A company can only perform forward integration if there is a step in the supply chain that occurs after they have handled the product. For example, a retail store that sells the finished product to a consumer can not perform forward integration because there is no step in the supply chain after they sell the product.Backward integration is the reverse of this concept. Any company that harvests raw materials isn't able to perform backward integration because they're the starting point of the supply chain. For backward integration to work, the company trying to integrate needs to be far enough in the supply chain that they can gain an interest in the companies that are handling the product before they do.
Stage in the manufacturing process
The stage in which a company handles the product is one of the other key differences between these two types of vertical integration. A company that handles the product at an early stage has fewer opportunities for backward integration, but may be able to perform both forward and backward integration. By integrating from both sides of the supply chain, companies are able to gain control over the entire process. Share: Twitter LinkedIn Facebook Email
Backward integration and forward integration are two integration strategies that offer distinct advantages and disadvantages. Backward integration provides greater control over the supply chain, cost savings, competitive advantage, and flexibility.
Forward Integration: Provides direct control over how products are marketed, sold, and serviced. This direct interaction with customers helps in gathering valuable market insights, fostering brand loyalty, and ensuring consistent customer service. Backward Integration: Provides control over the sourcing and production of raw materials or ...
Apr 19, 2024 · What is Backward Integration? Backward integration is the process by which companies acquire a segment (or segments) of their downstream supply chain - i.e. it acquires the companies behind it in the supply chain, hence the term ‘backward integration’.
- kison@dealroom.net
- CEO And Founder of Dealroom
Mar 25, 2021 · In short, backward integration involves buying part of the supply chain that occurs prior to the company's manufacturing process, while forward integration involves...
People also ask
What is the difference between forward integration and backward integration?
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What is backward integration in supply chain management?
What is a backward integration example?
What is backward integration in M&A?
Jun 2, 2023 · In this article, find out what is forward integration and how it works. We also show you a forward integration example and compare the differences between backward and forward integration so you get the full picture.
