Backward Integration

CIOP online sessions are conducted in a well-organized manner. The online sessions are conducted on Saturdays, between 7:00 PM and 10:00 PM (Indian Standard Time). There will be two breaks during the session. First break at 8:00 PM for 15 minutes and the second break at 9:00 PM for 10 minutes. The participants will join the program through the link sent to them well in advance and they get reminder notifications. First reminder a day before the session and the second reminder one-hour before the session. The participants will be able to see the presentation and the writings of the faculty at the same time. The faculty delivers the program through a smart board and the participants will be able to access both the presentation used by the faculty and his notes at the ends of the session through Fhyzics’ Learning Management System (LMS).

Backward integration is basically a procedure by which a firm merges or acquisitions of other companies that provide raw materials required in the production of its final product. This practice is pursued by most firms in an effort to reduce their total costs related to establishing and running a production facility. In the procurement of raw materials, firms can either 

purchase the raw materials directly from producers or they can hire the services of third-party procurement firms. Although firms have the option to purchase materials directly, this practice is considered less desirable as it involves higher risks and requires considerable financial backing. The lower volume of purchases made through this channel reduces the amount of cash flow generated during the period of lean manufacturing.

Lean manufacturing aims at reducing waste, improving efficiencies in production processes, and preventing interruptions in deliveries. To achieve positive returns on investment (ROI) for back-linkage, firms reduce their dependence on external suppliers by eliminating the costs incurred by hiring suppliers on their own. Lean purchases do not always lead to reduction of supplier costs but this is only a temporary benefit that tends to diminish as the volume of goods manufactured increases. Some firms also experience partial loss due to the change in suppliers as they can no longer afford the raw material costs. Thus, if there are multiple vendors for a particular product, such an act introduces a degree of instability and delays the process of production.

The aim of forward integration or procurement is to reduce costs associated with sourcing. Firms that adopt this methodology face significant obstacles especially in terms of maintaining a strong and consistent relationship with their suppliers. Backward integration in manufacturing involves the purchase of goods from suppliers that are either too small or too large. For instance, buying products from countries where labor is much cheaper than in the United States may require substantial investments. Thus, if a firm decides to purchase these products, it will be required to put in a large amount of cash as a form of venture capital.

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