Backward integration
Backward integration extends an organisation’s activities towards earlier stages of its supply chain, such as producing inputs previously bought from suppliers. It can occur through acquisition or internal development. Potential benefits include supply security, coordination and access to supplier margins, but these must be weighed against investment, reduced flexibility and the difficulty of operating a different business.
Worked example
A bakery buys a flour mill to secure flour supplies. This is backward integration because milling occurs before baking in the supply chain. Buying a chain of retail bakeries would instead move towards customers.
Common mistake
Acquiring a distributor is normally forward integration. Classify the direction relative to the acquiring organisation’s existing activities.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBL | Direct | September 2026–June 2027 |