Value Chain
A smartphone manufacturer decides to buy a mining company to source its own lithium for batteries, it is engaging in this direction vertical integration along the value chain
What is backward vertical integration?
What is the main concept of a benefit vertical integration has?
Hint: It is the opposite of freedom
Make or Buy?
Starbucks sources its beans from three international suppliers. One supplier provides 70% of their total beans and has just been acquired by a direct competitor.
What is Making?
Supply chain vulnerability is severe when a competitor controls your primary input. Backward integration protects against deliberate supply disruption.
If a manufacturer of athletic shoes decides to stop selling through independent retailers and instead opens its own branded retails stores, it is executing this value chain strategy to move closer to the end consumer
What is forward vertical integration?
Risk: "Having a guaranteed internal buyer reduces an in-house supplier's incentive to do these two things"
What is lower costs and improve quality?
Make or Buy?:
McDonald's buys all of its burger buns from a local bakery. The bakery has just announced it is closing. The chain has no baking equipment or expertise. Buy. Bun production is not a core competency, capital investment is high, and the market has plenty of alternative suppliers. No strategic reason to integrate.
What is Buy?
Bun production is not a core competency, capital investment is high, and the market has plenty of alternative suppliers. No strategic reason to integrate.
After a legendary lecture where he successfully convinced the class that Michael Porter’s Five Forces are more important than oxygen, Professor Youkin notices a disturbing Threat of Substitutes: students are using AI to summarize his Capstone project requirements.
To crush the Bargaining Power of Buyers, he decides to execute a total value chain takeover. He stops using external websites to host his materials and instead builds a physical, velvet-roped "Youkin-Sanctum" in the middle of the quad. To access the final Capstone prompts, students must bypass a "Threat of New Entrants" (his TA in a gladiator suit), buy a $200 commemorative "Five Forces" goblet, and receive the data via a direct neural link. By seizing the retail experience and selling his "Academic Enlightenment" directly to the end-user, he has completed this move.
What is Forward Vertical Integration?
A primary benefit of vertical integration that helps a firm safeguard its operations by guaranteeing access to essential raw materials for production
What is securing critical supplies?
Make or Buy?:
After a particularly inspiring lecture on vertical integration, Professor Youkin decides to launch a luxury "PEST0-EL" food truck empire. He initially plans to make the trucks himself in his driveway using spare parts and sheer academic willpower. However, he quickly realizes that while he is an expert at "Curating the vibes" and "Cold-Calling the Dean," he is terrible at welding, and his prototype "Youkin-Mobile" has a door that "accidentally" blew up his neighbor's car. Meanwhile, Ford can sell him a fleet of professional trucks for half the price because they actually have factories and robots.
What is Buy?
"Buying" prevents the professor from becoming a permanent fixture on his neighbor's Ring camera for all the wrong reasons and ensures the "PESTO-EL" sauce is the only thing on fire—not the truck's engine.