Vertical integration is a strategy used by a company to gain control over its suppliers or distributors in order to increase the firm’s power in the marketplace, reduce transaction costs and secure supplies or distribution channels.
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The practice of combining some or all of the sequential operations of the supply chain between the sourcing of raw materials and sale of the final product. Vertical integration can be pursued as a strategy through the acquisition of suppliers, wholesalers, and retailers to increase control and reliability. It can also be achieved when a company gains strong control over suppliers or distributors, usually by exercising purchasing power.