Certified Supply Chain Professional (CSCP) Practice Exam

What is a key benefit of vertical integration?

1. Cost reduction

2. Control over the supply chain

3. Increased market competition

4. Diversification of products

The correct answer is: Control over the supply chain

A key benefit of vertical integration is control over the supply chain. When a company vertically integrates, it expands its operations within its supply chain, either by acquiring suppliers or distributors. This gives the company greater oversight and influence over various stages of production and distribution. With increased control, the company can ensure quality, reduce lead times, and respond more swiftly to changes in demand or supply disruptions. Additionally, this control can lead to improved negotiation power and reduced dependence on external suppliers or logistics partners. The other options highlight benefits that may arise in different strategic contexts but do not specifically describe the primary advantage of vertical integration as clearly as the aspect of control. For example, cost reduction can be a result of vertical integration, but it is not the fundamental reason companies pursue this strategy. Similarly, while diversification of products and increased market competition can have value, they do not inherently relate to the core contractual benefits of managing a more integrated supply chain.