Backward and Forward Integration
Backward integration is a strategy where an organization expands its role in the supply chain through acquiring or merging with companies that supply materials it uses for production. A company can also set up its subsidiary as a means to control a large part of its supply chain. On the other hand, forward integration is a strategy that helps firms to a close relationship with customers by executing distribution functions. If the CEO of a beverage company such as Dr. Pepper Snapple asks me whether to use backward or forward integration, I can recommend that the firm use a backward integration strategy. The reason is that the beverage companies operate under a very competitive environment; therefore, the firm will require cheap and easy access to raw materials to build economies of scale. On the other side, forward integration can change the company into a monopoly.