What is Vertical Integration?
Vertical integration is how many steps of the supply chain that our company does.
For example, let's look at a bakery. The bakery buys natural gas for heat, flour and water for ingredients and then sells bread.
This is not very vertically integrated. If the bakery starts growing wheat and making flour, it becomes more vertically integrated.
Example 1: The Bakery
The bakery is one store. It does $500,000 in annual sales.
The operation of the bakery:
Purchases: Natural gas, water, flour, salt, yeast, baking sheets, plastic bags.
Sells: Bread
This bakery is horizontally integrated because it is very specialized.
The degree to which your company is vertically integrated depends on costs and volumes. Low volume businesses cannot become vertically integrated. However, large companies can become as vertically integrated as they wish.
