Vertical Integration Evaluator
PROAnalyze make-or-buy decisions using transaction cost economics, assess supply chain integration opportunities, and build implementation roadmaps with ROI projections.
Example Usage
I’m a CFO at a mid-sized electronics company. We currently source circuit boards from three external suppliers, but lead times are unpredictable (8-12 weeks variance), and suppliers recently raised prices 15%. Circuit boards represent 35% of our product cost and are critical to our product differentiation. Our engineers have some circuit design expertise internally. We have $40 million available for capital investment over 3 years. Should we integrate backward to acquire one of our suppliers, or negotiate longer-term contracts with current suppliers? Analyze the trade-offs using transaction cost economics principles, and help us decide.
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Suggested Customization
| Description | Default | Your Value |
|---|---|---|
| Degree to which investments are specific to the relationship (1-10 scale) | 5 | |
| Percentage of supply chain stage to vertically integrate (0-100%) | 50 | |
| Relative negotiating strength of suppliers (1-10 scale, 10 = supplier dominates) | 5 | |
| Environmental volatility affecting price/demand stability (1-10 scale) | 5 | |
| Existing in-house capability to manage integrated operations (1-10) | 6 | |
| Available capital budget for integration investment in millions | 50 | |
| Organizational overhead factor (1.0 = no overhead, 1.5+ = severe) | 1.3 |
Research Sources
This skill was built using research from these authoritative sources:
- When and When Not to Vertically Integrate McKinsey framework identifying four criteria for vertical integration decisions and warning against spurious reasons
- Antecedents of Vertical Integration: Transaction Cost Economics and Resource-Based Explanations Comprehensive theoretical framework combining transaction cost economics and resource-based view
- Vertical (Dis-)Integration and Firm Performance: A Management Paradigm Revisited Empirical study of 434 German manufacturing firms showing inverted U-shaped relationship between integration and performance
- Vertical Integration by the Transaction Costs Perspective Detailed analysis of transaction cost theory applied to vertical integration decisions
- Supply Chain Vertical Integration: Risks, Rewards & Key Strategies Practical guide covering assessment methods, efficiency enhancement, and implementation strategies
- Bringing It In House: Vertical Integration vs. Outsourcing Comparative analysis of integration advantages versus outsourcing benefits
- What Is Vertical Integration? Comprehensive overview covering benefits and drawbacks of vertical integration
- Vertical Integration Explained: How it Works (+ Examples) Detailed explanation with practical examples of backward and forward integration
- How to Assess, Plan, and Execute Vertical Integration Strategy Step-by-step practical guide for value chain analysis and implementation