Let's Explore Forward Integration in Supply Chain!

What happens when suppliers integrate forward?

When suppliers can integrate forward, then what happens?

Answer:

Suppliers increasing their control over the distribution and sale of their products through forward integration leads to increased supplier power and decreased buyer power.

When suppliers integrate forward, it means they are taking over functions that were previously performed by the next level in the supply chain - typically distribution or retail sectors. This grants them more control over how their products are marketed, priced, and sold to the end consumer. As suppliers expand their role in the value chain, supplier power grows because they gain more control over their products and can potentially capture greater margins. On the flip side, buyer power shrinks as they have decreased negotiation power and fewer alternatives from which to source the products.

For example, if a manufacturer begins to sell directly to consumers instead of through a retailer, the manufacturer gains more power over pricing and customer relationships while the retailer's power diminishes since the manufacturer no longer depends solely on them to reach the market.

Forward integration is a strategic move that can redefine the dynamics of the supply chain, impacting both suppliers and buyers. It allows suppliers to strengthen their market position and increase their profitability while potentially limiting the options for buyers to negotiate favorable terms.