VERTICALLY INTEGRATED Meaning and
Definition
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Vertically integrated is a term used in business and economics to describe a type of organization or industry structure where a single company or entity controls and manages multiple stages of the supply chain within its operations. This means that instead of relying on external suppliers or outsourcing certain processes, a vertically integrated company combines and oversees various steps of production, distribution, and sales under one umbrella.
Typically, in a vertically integrated model, the entire production process is streamlined, starting from the sourcing of raw materials to the manufacturing, assembly, and distribution of finished goods. This allows the company to have full control and coordination over the entire value chain, resulting in increased efficiency and effectiveness in its operations. It also enables better coordination between different stages or departments, leading to smoother communication, reduced costs, and improved overall performance.
Vertical integration can take different forms, such as forward integration, where a company expands downstream and takes control of its distribution and retail channels, or backward integration, when a company acquires suppliers or starts producing its own raw materials. By implementing a vertically integrated approach, organizations can ensure greater control, responsiveness, and economies of scale, leading to potential competitive advantages in terms of cost, quality, and speed.
However, it's important to note that vertical integration is not suitable for every industry or organization. It requires significant investments, strategic planning, and expertise to successfully manage the entire supply chain, and there are also potential risks, such as limited flexibility and dependence on internal resources.
Etymology of VERTICALLY INTEGRATED
The word "vertically integrated" is derived from the combination of the words "vertical" and "integrated".
The term "vertical" originates from the Latin word "vertex", meaning "the highest point" or "the top". It is related to the Latin word "vertō", which means "to turn" or "to change direction". In English, "vertical" refers to something that is in an upright position or aligned with the top and bottom.
The word "integrated" comes from the Latin word "integrāre", meaning "to make whole" or "to renew". It is derived from the Latin adjective "integer", which translates to "complete" or "whole". In English, "integrated" is used to describe the process of combining or incorporating separate parts into a unified whole.
