Which of the following organizational design choices is an example of vertical integration?

Which of the following organizational design choices is an example of vertical integration?
A . Contracting with a third-party logistics provider
B . Producing components used internally
C . Externally staffing a customer service center
D . Awarding a one-time trade show contract

View Answer

Answer: B

Explanation:

Vertical integration refers to the process where a company expands its operations into different stages of production within the same industry.

Here’s a detailed breakdown:

Definition of Vertical Integration: This involves a company controlling multiple stages of the supply chain, from raw materials to the finished product. Examples of Vertical Integration:

Producing Components Internally: This is a classic example where a company manufactures the components or raw materials it needs for its products, rather than relying on external suppliers. This enhances control over the production process, quality, and costs.

Backward Integration: When a company takes over suppliers to control the raw material or component supply.

Forward Integration: When a company takes over distributors or retailers to control the distribution of its products.

Benefits of Vertical Integration: Improved coordination, increased control over the supply chain, reduced dependency on suppliers, potential cost savings, and better quality control.

Reference: Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press. Harrigan, K. R. (1984). Formulating Vertical Integration Strategies. Academy of Management Review, 9(4), 638-652.