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What is the measure of how much supply chain is owned or operated by the manufacturer?
Vertical integration measures how much of the supply chain is owned or controlled by the manufacturer.
In Operations and Supply Chain Management, vertical integration refers to the degree to which a firm performs activities upstream (suppliers) or downstream (distribution, retail) rather than relying on external partners. A highly vertically integrated company may own raw material sources, manufacturing plants, distribution centers, and even retail outlets.
Vertical integration affects:
Cost structure
Control over quality
Lead times
Supply reliability
Strategic flexibility
The other options are not standard measures:
Horizontal integration refers to acquiring competitors at the same stage
''Insource'' and ''outsource integration'' are not formal OM terms
Operations strategy evaluates vertical integration carefully because while it increases control, it also:
Requires high capital investment
Reduces flexibility
Increases managerial complexity
Thus, vertical integration directly quantifies how much of the supply chain the manufacturer owns or operates.