Vertical Integration

A vertically integrated company is one where the company owns the raw materials, the means of production, and the entity that brings the product to market. For example a producer of fruit cocktail would be vertically integrated if it owned the orchards that grew the the fruit, the factory that processed the fruit into fruit cocktail, and the outlets that sold the fruit cocktail.

I used this example because I was part of a team that proposed research to a Milwaukee, WI, area producer of fruit cocktail. It was the country's largest producer of fruit cocktail at the time though its products were often sold under different labels. This happens a lot. Sargento Cheese used to sell cheese to Kraft and got marketed as a Kraft Cheese product where it really was made by Sargento Cheese. Sears uses different providers.

Anyway, this fruit cocktail producing company was at the time unique in the industry because it owned the fruit orchards that produced the fruit. All their competitors bought their fruit from privately owned orchards.

Whether you want your company to be vertically integrated or not is a decision you have to make. To help you make it sketch out the consumption chain and see if it would be better for you do handle each step or whether you should subcontract. The latter option is winning in a lot of companies because it's simpler, easier, and cheaper to use other companies. Look at Coase's Law.

Entrepreneurship is the life's blood of all my professional activities. It makes them go. And go read my mystery for free at wwww.kearneymusicschoolmurders.blogspot.com or buy it from Amazon.com more cheaply than you can print it out.