Vertical Intergration

Vertical integration of Wal-Mart Name: Institution: Date: Vertical integration occurs when there is integration in the value chain, and includes forward integration to consumers and retailers or backward integration through suppliers (Hill & Jones, 2012). This diversification strategy is vital for companies as it enhances competition by reducing costs across the distribution channel. Wal-Mart has diversified by opening numerous kinds of stores to cater for different niche markets where most tend to be near distribution points. Furthermore, Wal-Mart has used vertical integration to influence the supply chain to its advantage. Wal-Mart has the benefit of controlling costs by eliminating long lists of suppliers which in turn reduces negotiation and shipping costs. Thus, there is no threat from suppliers and Wal-Mart is able to supply goods as they deem fit, without having to rely on other suppliers. Furthermore, the distribution chain of Wal-Mart also seeks to eliminate the power of suppliers, by directly controlling the level of distribution through strategic locations near distribution centers. Wal-Mart is also moving towards adopting direct purchasing from manufacturers by curtailing the services of most procurement companies, there ...