Vertical Integration Revisited: Gaining Ground Again. Is it Right for You?

Vertical integration, used to be more popular, marketers bought from manufacturers or importers, sold through wholesale lines into the retail market. Traditional, safe and allowing every business to focus on its market entry point. It is fragmented but everyone is doing what they do best.

With the onslaught of outsourcing over the past years, with cheaper labor available offshore in India, China and all over the world, vertical integration slowed down as the trend went in the other direction, outsourcing offshore or even onshore. In fact, many prime requirements traditionally handled by various components of the supply chain were fragmented further, for example with parts being made elsewhere and assembled by the manufacturer who used to make it all and now outsources parts to be made in China, or telephone customer support work to India. This was the next wave and presumably the way to go.

Now we are all experiencing a changing business environment: downsizing, cost-cutting, profit pinching. Now we see a different consumer attitude with changing habits and with very demanding requirements. Now we see that the customer experience rules and this means delivering a quality service or product at a good value.

Now in order to deliver what the customer requires we see more vertical integration as the marketer cannot control what is being manufactured and delivered on time for value with adequate quality as the marketers report is now necessary to compete and remain in business.

In other words, small business is learning that in order to deliver the winning customer experience that is being demanded, and in order to deliver fair pricing that is considered a good value small business is learning that it must vertically integrate both upward and downwards from manufacturing to wholesale distribution to retail and now including on line direct sales to the consumer, in order to deliver the full customer experience required to compete effectively and own your market share.

In order to have goods and services delivered on time exactly as the customers want it, with a fair price and high quality, they can no longer allow the supply chain to dictate what and when and for how much the product will be supplied at. Now the manufacturer, wholesaler and retailer are unified through vertical integration so they can deliver the total customer experience that will win and retain market share.

There are many obvious examples of larger business doing this. Starbucks buys its beans, roast them and packages them distributed them through the wholesale market, retails through their own coffee shops and on line as well. They also sell product which is customer made for their needs, not quite traditional vertical integration, and more of a remnant of outsourcing, but still closer to its control.

Think it through, it is not always an option for every business, and there is an investment in cash and time required, but vertical integration may be the way to survive in today's changing market.