Vertical Integration in Logistics and Supply Chain

This assignment delves into the concept of vertical integration within logistics and supply chain management. It defines different types of vertical integration, including backward, forward, and disintermediation, outlining their implications for businesses like United Parcel Service (UPS). The assignment further analyzes the advantages and disadvantages of vertical integration, considering its impact on costs, quality, flexibility, and legal repercussions. Finally, it explores diversification as an alternative growth strategy for UPS, highlighting how it can expand into new markets and business units.

Running head: STRATEGIC MANAGEMENT
Strategic Management
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Table of Contents
Vertical Integration..........................................................................................................................2
Stages of Value chain of UPS..........................................................................................................5
Types of Vertical integration...........................................................................................................7
Benefits of vertical Integration........................................................................................................7
Risks of Vertical Integration............................................................................................................8
References........................................................................................................................................9

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Introduction
Vertical Integration
Vertical integration is a corporate strategy of expansion where the company itself owns a
part of the supply chain. Generally, each participant of the supply chain contributes in making
different product or market related services in vertical integration those channels are owned by
the company. Any company expands its business operations in various steps of its production
process, like the manufacturer own its suppliers or distributors. Vertical integration helps the
companies decrease its costs and further bring improvement in its production efficiencies that
can be done by reducing the expenditure of transportation, turnaround time. Often relying on the
expertise and economies of scale of the different vendors is more beneficial rather than a vertical
integration. Vertical integration occurs in those companies where company has control over
various production and distribution steps that are involved in the process of production.
Companies of different industries they opt for vertical integration.
The vertical value chain
The conversions of the raw materials into finished goods are defined along the different stages of
the production (Harrigan 2015).

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(Traditional Value Chain of United Parcel Service: Harrigan, 2015)
The image above shows the various stages of production of production
The value chain of UPS can be represented in a similar way, the picture below shows the
value chain of parcel services that existed previously but the scenario has changed to a great
extent. The value chain of present day parcel service is more customer oriented because the
customers need timely delivery, their expectations have increased (Stevens and Johnson 2016).
UPS stands for United Parcel service, it provides parcel services as well as it is a supply
chain provider. It is an American company and its headquarter is in Sandy Springs Georgia. In
this study the value chain analysis of UPS India has been taken. It is well known for providing
RawmaterialsComponentsInetrmediateGoodsMarketingSalesAfterSalesServiceandSupport

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courier, freight and logistics services. The company operates in the courier industry all around
the world (Gereffi and Fernandez-Stark 2016).
(Modern Value Chain of United Parcel Service: Harrigan, 2015)
The picture below shows the value chain of modern day parcel services and that what
United Parcel Service is practicing. The stages of value chain are not like the traditional ones
rather now the value chain has few more stages, apart from the traditional, pickup, warehousing,
transportation and delivery (Christopher 2016).
PickupThereisverylessvisibilityintodeandfortheservicesLimitedinfleneceondemandWarehousingTrasportatioDelivery

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(Value Chain of United Parcel Service: Christopher, 2016)
In the modern parcel service value chain the stages are as follows
Stages of Value chain of UPS
Stage 1- Pick up- In the first stage the customers give their parcels to the company with
the address where they want the delivery to be done. They also give their address as address of
the sender. In this stage the order is taken by the parcel service, the pickup method of all the
companies are almost similar. A slight difference is there that some companies go the customers
address to pick up the parcels to be delivered while other companies do not provide this facility
and the client has to go the parcel office to give their parcels that they want to deliver.

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Stage 2- Ware housing -The second stage is warehousing, in this stage the parcels of every day
are collected and are sorted according to the address they are to be delivered. Those addresses
that fall in the same geographic location are placed together, this helps the delivery man to
provide quick delivery and save time. The warehousing time is not much just a day.
Stage 3- Payment- The next stage is payment, mostly the payment in parcel industry is taken
immediately, the clients now have the liberty to pay instantly, they can pay either in cash or
through credit or debit cards (Rothaermel 2015).
Stage 4- Web support/ e-commerce and platform provider- This is the most crucial stage for
the clients with the help of modern web support they can track their parcel, a parcel id is given to
the customers at the time of pickup this help both the sender and the recipient. Webb support
helps also acts as customer grievances. This stage is the result of the customer oriented
marketing that is mostly practiced by the companies these days. Having a website helps the
companies to promote and advertise their brand. It is basically a need to have websites because it
helps the companies to sustain in the competitive environment of modern day (Rothaermel
2015).
Stage 5- Marketing- This stage is very important for the company to increase their customer
base, create a good will in the market, create brand awareness, advertise and promote their
brands.
Stage 6- Delivery- This stage is the delivery stage where the recipient finally receives the parcel.
Timely delivery is the most important criteria for the customer satisfaction. If the recipient gets
the parcel in the time that was committed to him/her then the customer will be satisfied. He
would suggest the brand to other people and hence the customer base will be increased with the

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help of word f mouth advertising therefore the timely delivery of parcels are very important for
the service providers as well (Rothaermel 2015).
Types of Vertical integration
There are three types of vertical integration
Backward Vertical integration- It is the movement of the ownership of the activities upwards
toward the inputs originated in the value chain.
Forward Vertical Integration- It is the movement of ownership of the activities to the end
customer.
Disintermediation
It is a type of vertical integration where purchasing departments take over the role of wholesalers
to source products (Lahiri and Narayanan 2013).
Benefits of vertical Integration
Vertical integration helps in lowering the costs. It improves the quality. It helps in planning and
scheduling. It helps in making investments in specialized assets. It secures the critical supplies
and the distribution channel.
Risks of Vertical Integration
It increases the the costs. The quality can be reduced. The flexibility is reduced. It increases the
legal repercussions (Kohli 2017).
The other alternatives to vertical integration are diversification.

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For United parcel service, diversification is one of the most common and effective growth
strategies, in this strategy the business usually expand their business either they expand their
business into another country or start a new business unit or business line. There are many other
ways of diversification as well like the synergies, acquisition and mergers. UPS can expand to
other market as well, they can target other market as the growth strategy of their business.

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References
Amit, R. and Livnat, J., 2014. Diversification strategies, business cycles and economic
performance. Strategic Management Journal, 9(2), pp.99-110.
Christopher, M., 2016. Logistics & supply chain management. Pearson UK.
Gereffi, G. and Fernandez-Stark, K., 2016. Global value chain analysis: a primer.
Harrigan, K.R., 2015. Vertical integration and corporate strategy. Academy of Management
journal, 28(2), pp.397-425.
Kohli, R., 2017. Innovating to create IT-based new business opportunities at United Parcel
service. MIS Quarterly Executive, 6(4).
Lahiri, N. and Narayanan, S., 2013. Vertical integration, innovation, and alliance portfolio size:
Implications for firm performance. Strategic Management Journal, 34(9), pp.1042-1064.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Stevens, G.C. and Johnson, M., 2016. Integrating the supply chain… 25 years on. International
Journal of Physical Distribution & Logistics Management, 46(1), pp.19-42.