Business Models
Vertical Integration
Also Known As Vertical Consolidation
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Vertical integration is a corporate strategy in which a company brings multiple stages of its own supply chain, from raw materials to distribution, under single ownership rather than relying on external suppliers or buyers. It is used to secure input supplies, control quality and capture margin that would otherwise go to outside vendors. The Ford River Rouge complex of the 1920s, which began making much of its own steel rather than buying it from suppliers, is a classic historical example.
Facts
Partially Attested
Origin YearMarks the Ford River Rouge Complex, the source's own cited example of a company vertically integrating raw-material and component production into one operation. Vertical integration as a general strategy is far older and already practiced by Andrew Carnegie and John D. Rockefeller in the 1870s-1890s (both linked to this entity by associated-with edges); this year marks a commonly cited early industrial-era example, not a claim that the strategy itself began then. Core MechanismA firm owns its upstream suppliers, its downstream buyers, or both, so that it internalizes transactions that would otherwise cross a market interface between separate companies. 1 Cross-Tradition Connections
Associated With
Carnegie Steel controlled not only the mills where steel was manufactured but the mines where coal and iron ore were extracted, the textbook example of vertical integration.
Vertical integration was the main business approach of Ford and other 1920s car companies, minimizing costs by integrating the production of cars and car parts.
The two strategies are defined as an explicit contrast pair by the source article itself: same production stage, expanded in scale, versus different production stages, brought under one roof.
Standard Oil is the article's own historical example of the strategy: by 1890 it controlled 88 percent of refined oil flows in the United States.
Contains
Sources
1. Wikipedia, Vertical Integration
WikipediaHistorical Context sectionQuote, Historical Context section
the Ford River Rouge complex began making much of its own steel rather than buying it from suppliers
1. Wikipedia, Vertical Integration
WikipediaLead sectionQuote, Lead section
Vertical integration, also referred to as vertical consolidation, is an arrangement in which the supply chain of a company is integrated and owned by that company.
1. Wikipedia, Vertical Integration
WikipediaStandard Oil sectionQuote, Standard Oil section
In 1890, Standard Oil controlled 88 percent of the refined oil flows in the United States.
1. Wikipedia, Vertical Integration
WikipediaSteel and oil section, Carnegie SteelQuote, Steel and oil section, Carnegie Steel
Carnegie Steel is an example of America's initial approach to vertical integration, with the business controlling not only the mills where steel was manufactured, but mines where coal and iron ore was extracted.
1. Wikipedia, Vertical Integration
WikipediaDefinition sectionQuote, Definition section
an arrangement in which the supply chain of a company is integrated and owned by that company
1. Wikipedia, Vertical Integration
WikipediaAssociated With: Ford Motor Company, Automotive section, 1920s FordQuote, Associated With: Ford Motor Company, Automotive section, 1920s Ford
It was the main business approach of Ford and other car companies in the 1920s, who sought to use curated designs by Ford engineers, while minimizing costs by integrating the production of cars and car parts.
Wikipedia, Horizontal Integration
WikipediaAssociated With: Horizontal Integration, Lead sectionQuote, Associated With: Horizontal Integration, Lead section
It stands in explicit contrast to vertical integration, which instead spans different stages of production, and can raise antitrust concerns about monopoly pricing.
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