Walmart Vertical Integration Essay

Vertical integration is defined by a strategy in which a company expands its operations either backward into industries that produce inputs for its core products or forward into industries that use, distribute or sell it products (Hill 180). Wal-Mart has used vertical integration to bring the company to the point that they are today. When they begin they were small stores that had very little purchasing power. The supplier are the ones that created the prices and the prices tended to by high. Most companies used wholesalers that would do the ordering of the products that were needed. The wholesaler would then delivery the products and even stock the selves. This would save Wal-Mart money because they didn’t have to pay employees to do this but it was still an expense. Sam Walton decided to open distribution centers that would sever stores in a 300 mile radius. This allowed Sam to cut out the wholesalers and then he could order directly from the manufacture. This saved Wal-Mart a lot of money and when they saved money they were able to offer their products even cheaper to customers. Eventually the suppliers weren’t in a position where they could demand high prices. Wal-Mart grew so much that they had the purchasing power over the suppliers because they were able to demand lower prices and large quantities. …show more content…
The advantage here for Wal-Mart is that they were about to gain control over their inputs and also the distribution channels. Vertical integration can have some disadvantages. If could potentially cost more if a company is full integration. Full integration means that they make the product from start to end. Wal-Mart will never have full integration because they purchase their supplies from several