Certified Supply Chain Professional (CSCP) Practice Exam

What practice does vertical integration involve?

1. Outsourcing supply chain functions

2. Bringing supply chain operations internally

3. Joint ventures with suppliers

4. Collaborating with competitors

The correct answer is: Bringing supply chain operations internally

Vertical integration involves consolidating supply chain operations by moving them internally within the organization. This means that a company takes control of more stages of its supply chain, whether by acquiring or merging with suppliers or by developing internal capabilities to produce goods or services that were previously sourced externally. By doing so, a company can enhance efficiency, reduce costs, and gain greater control over its production processes, leading to improved coordination and innovation. This practice contrasts with outsourcing, where functions are contracted out to third-party providers, or with joint ventures and collaborations, which maintain some level of external partnership rather than fully integrating operations. In summary, vertical integration focuses on strengthening a company's position within its own supply chain by managing more stages of production in-house.