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Vertical Integration in Transport and Logistics Research (Essay Sample)


Identify and describe one example of vertical integration in logistics (or in the transportation function). Include in your discussion, the firms involved, the rationale for integration, and actual results (if available).

Vertical Integration
Vertical integration refers to strategy used by business organizations with the main aim being reduction of cost of production, improvement of efficiency and reducing the turnaround time. Normally, this strategy is employed when a business organization seeks to have the various levels of production under one roof. Vertical integration can either be forward or backward. This means, a manufacturing could engage distribution (forward integration) or could also engage in production (backward production).
Vertical integration normally involves the merging of two separate businesses that are at varying stages in the production process. This is contrasted to horizontal integration where the merger in this case is for companies that are at the same level of production. Historically, mergers of vertical integration often took place with the sole aim of gaining control and access of otherwise scarce resources. Among the most common mergers of this nature were in the oil sector (Duval, 2014). Most companies that initially began as extraction and exploration companies for crude oil would later move further to engage in oil fineries and distribution. Companies like BP and Shell are now involved in virtually all of the oil production right from exploration and extraction to the very last step of distribution and retail selling.
Vertical Integration in Transport and Logistics
Majority of large firms in the transport industry as well as firms in the logistics sector have over time merged to provide services that are integrated in nature. These services have come in handy mainly for shippers especially with globalization where services for transport and logistics are on high demand.
One of the famous and classic examples of vertical integration was with the Carnegie Company that is known for manufacture of steel. The company began with the control of the all the mills that were making the steel. Later on, they would take control of the mines extraction of ore was done (Harrigan, 2013). They would further take control of the mine that supplies coal and also the transportation which was done by ship. This company also gained cases and control of railroads along which the coal was transported to the factory. The final aspect of vertical integration by Carnegie Company was the establishment of an institution that would teach the processes of making steel.
Some other examples include Bridgestone which has integrated backwards in recent years. They are now not just producers and sellers of tyres but also now produce rubber that is used in the tire manufacture (Harrigan, 2013). The main reason for this move they believe that in the future there will be such high demand for rubber that it may be hard to get it. This move was therefore done in or...
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