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Vertical Integration It’s a business strategy where the organizations would be keen to integrate the business functions which were dependent on suppliers to 1. Improve the quality 2. Optimize cost 3. Gain control of the market power and market share 4. Expand its reach to the end customers/ consumers Vertical Integration is of the following types Backward Integration: In this strategy, Company A integrates the upstream processes in the supply chain function, this helps them to gain more control over the inventory, and procurement of raw materials all the way to the manufacturing of the raw materials. 1. Reliance Industries is a classic example of Backward Integration as they were originally in the textile industry from which they entered precursor chemicals, plastics, petrochemicals, petroleum refining and finally oil and gas exploration and production. 2. UK Supermarket chain Tesco took over the Booker Group which was the UK’s leading Food Wholesaler. This gave Tesco additional access to become a major supplier to competing small retailers, serving 125,000 independent convenience stores as well as 468,000 restaurants and pubs Forward Integration: In this strategy, Company A integrates the downstream processes in the supply chain. This will give them an extended reach to take control of the distribution, sales and post-sales services of their product/ service. 1. Telecom giant Airtel is to acquire ~97% stake in the Beetel Teletech a company that manufactures landlines and cordless phones 2. Dell successfully manages the sales and distribution of their products without support from any partners as it gives full control over owning the services to its customers and consumers Balanced Integration: In this strategy, the company decides to pick up both the upstream and downstream activities in the supply chain. This enables it to be in a strong position to source raw materials, design, develop, manufacture and manage the post-sales 1. Apple is a classic example of balanced integration as it has tight control over sourcing the raw materials, manufacturing chips, opening its retail stores and managing post-sales service 2. D Mart is another successful organization that had successfully implemented the balanced integration as it helped them to gain a significant market share in the hypermarket chain Impact on Business Excellence Strategy The business excellence strategy will have to be realigned to consider vertical integration. The company that performs the Vertical Integration will have an upper hand in defining, formulating, implementing and governing the business excellence roadmap for the combined organization. Below are the key priorities in such instances 1. Define and achieve economies of scale, expand foot print 2. Relook at the Cost structure as some of the fixed costs will now be variable costs, greater scope for implementing cost avoidance/ saving projects 3. Cross-skilling of resources and redeployment of resources 4. Consolidation of Tools, inventories and platform Improve Employee and Customer Satisfaction levels

Methodology Vertical Integration Concept: Vertical integration approach is taken by companies to integrate one or two production processes or steps into their own business, instead of relying on external suppliers for those particular requirements. A business can achieve this by acquiring or taking direct control for some of their own suppliers, distributors, or retail locations rather than outsourcing them as external service providers, also it can be done by merging two or more companies which are serving different function in same supply chain. Types: Mainly there are two types of vertical integration, one is Forward Integration, when a company takes ownership of downstream process or further along the supply chain like sales or distribution of finished goods. And another is Backward integration, it is when a company acquires an upstream process which is prior to it along the supply chain, for example a fast-food restaurant takes control to some of the agricultural production that supplies ingredients for cooking foods. Purpose / Advantages 1. To have greater control on supply chain thus fewer disruptions and lower lead time 2. Company can identify possible disruptions in advance also can have more visibility 3. To lower the manufacturing costs by optimizing operations in all verticals based on need 4. Direct control on processes ensured better quality control in each stage as per requirement 5. Lower transportation costs, less turnaround times if the entire process is managed in-house. Example In my earlier organization of paper and paperboards manufacturing, brown Kraft paper core pipe was one of the major raw materials, there were few suppliers for core pipes, one local & two from other states. We were facing issues like size variation, moisture content and also on higher lead time for core pipes. Hence it was decided to develop the local supplier with training and guidance in terms of variation reduction, later company acquired that core pipe cutting facility, also upgraded the machines, and deputed 2 resources. Which has lead to eliminate size variation issue also stock out scenarios. This was one backward integration. It was also planned to relocate that facility inside the main plant to reduce the fixed cost further also making logistics and transportation simpler & more cost effective. Impact on Business Excellence strategy A successful vertical integration means company the one acquiring, must manage multiple challenges, some of them for which company resources may not be expert as it was not in original core competencies. Also, it increases business complexity as some new processes gets added in existing operations. To deal with these challenges, business excellence strategy must be aligned to get the full potential benefit and the new process must be thoroughly investigated to integrate those operations with existing processes and ongoing systems, it will also help to get upstream or downstream profits. On the other hand, the business, one getting acquired, may raise good capital if the assets were not getting utilized fully or not making profitable business. Also, the business will get more exposure with the modern tools and techniques used in parent organization, and expertise to make the processes more effective like improving quality considering actual customer requirement.