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Integration Strategic Management

Vertical integration involves a company controlling its suppliers and distributors to enhance efficiency and reduce costs, with two types: backward and forward integration. IKEA exemplifies backward integration by purchasing forests for sustainable wood supply, and forward integration by managing its retail sales and distribution directly. Additionally, IKEA has horizontally diversified its product offerings beyond furniture to include home appliances, electronics, and textiles.

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Arjun Sreekumar
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88 views2 pages

Integration Strategic Management

Vertical integration involves a company controlling its suppliers and distributors to enhance efficiency and reduce costs, with two types: backward and forward integration. IKEA exemplifies backward integration by purchasing forests for sustainable wood supply, and forward integration by managing its retail sales and distribution directly. Additionally, IKEA has horizontally diversified its product offerings beyond furniture to include home appliances, electronics, and textiles.

Uploaded by

Arjun Sreekumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Vertical Integration

Vertical integration is when a company owns or controls its suppliers, distributors or retailers to control its
value chain. It gives the company more control over the processes and can lead to improving efficiencies
and reducing cost. Vertical Integration can be split into:

 Backward Integration
 Forward Integration

Backward integration is when a company moves back the value chain and owns/operates that area. For
example, a manufacturing company produces the components required for manufacturing on their own.

Forward Integration is when a company moves forward the value chain. i.e A manufacturing company
handling the sales and distribution of their manufactured products directly without any 3 rd parties.

Horizontal Integration/Diversification

Horizontal diversification means a company expanding its operations to offer a new and unrelated products
and services to the existing suppliers. Foe example a company which were used to manufacture pen and
pencils starts manufacturing notebooks can be said to be horizontally diversifies/integrated. It can happen
be either modifying the existing production line or by acquiring or merging with new companies.

IKEA
Backward Integration

IKEA has bought various forests to control and manage sustainable wood supply. Recently they purchased
10840 acres of protected land in Georgia to add to its sustainably managed forest portfolio. Ikea manages
these forests environment sustainably by taking care of rare species of trees and animals. Along with it they
meet their wood requirement from these forests.
Supply chain
Forward Integration
and Retail
Management

Horizontal Home
Integration/ Furniture
Appliances and Home Textiles
Manufaturing
Diversification Electronics

Acquired
Backward
Forests to
Integration control wood
supply

Forward Integration

The retail sales and distribution of furniture are owned by IKEA itself. IKEA has integrated the warehousing
part of the supply chain with the retailing part of a supply chain while shifting the responsibility of product
assembly towards the consumers. IKEA stores are massive warehouse where consumers walkthrough the
showrooms, gets great visualization experience and select the required products at the warehouse shelfs
which allow IKEA to lower the prices through a decrease of handling and transportation cost. And thus
reduces the overall price of products which gives them advantage over their competitors.

Horizontal Integration/Diversification

IKEA started as a furniture manufacturing company but they have diversified their products into different
areas. As of now apart from their main furniture manufacturing and supply, they are offering different
product lines like home appliances, home electronics, home textiles, lightings, gardening and plants, pet
accessories etc. All these can be identified as the horizontal diversification strategy of IKEA.

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