As companies look for ways to streamline their operations and processes, the supply chain presents a significant area of opportunity.
Even the shortest source chains have several moving parts and, as a result, many tactics to increase efficiency. One strategy for optimizing source chains is to use vertical integration.
Vertical integration occurs when a company takes charge of the various stages of its chain of origin, from the purchase of raw materials to the delivery of the final product.
While vertical integration may seem like a natural step for most businesses, implementing it can be challenging. This article will cover the process of transitioning to a vertically incorporated source chain and how to do it if it’s the right strategy for your business.
Vertical integration occurs when a company becomes the owner of several or all parts of its home chain. For example, a store can simply get a fulfillment service and manage its own delivery operations to customers, which is known as downstream integration.
In contrast, a manufacturer could merge together with its raw material suppliers and manage its end-to-end production process, also known as backward integration.
Companies can also expand into backward and forward integrations, known as balanced integration, or consolidate their entire source chain internally.
Vertical integrations and horizontal integrations are two tactics for designing a company’s supply chain. While they involve acquisitions or mergers with other companies, vertical integration reaches other stages of the same chain of origin.
Companies will vertically integrate with components either before or after their role in the supply chain.
Horizontal integration, on the other hand, occurs when a company merges with another entity at the same point in the source chain. This is a company that promotes the same products, complementary lines, or some other similar offer.
This type of horizontal integration aims to expand the company’s and festival’s offer in the market.
The main advantages of vertical integration is to take control and avoid disruptions in the source chain. With all the demanding operational situations of the past few years, integrating more parts in-house provides greater visibility and communication.
Companies need to manage all stages of production, making them less vulnerable to issues such as source shortages and shipping delays, and with increased supply to accommodate any unforeseen incidents or changes in the market.
By streamlining the path from raw materials to manufacturing to final order delivery, vertical integration results in a self-sufficient setup and faster time to market.
With greater oversight of all their operations, businesses need to save money and produce higher quality products and services. It becomes less difficult to balance source and demand, creating competitive merit and expanding value for visitors in the long run.
5 Examples of Successful Vertical Integrations
Given the importance of vertical integration, there are several notable examples of corporations that have effectively implemented this strategy.
From its origins as an online marketplace for books, Amazon is now called “The Everything Store,” with home goods, groceries, workplace supplies, and many other products available on its e-commerce site.
Alongside product expansion, Amazon also brought the majority of its operations in-house. To start, the company vertically integrated its warehousing, distribution, fulfillment, and customer service functions.
It then built out supporting infrastructure by launching its web hosting and cloud computing divisions — services that are not only critical to its operations but ones that it also provides to other companies as part of Amazon’s expanding business portfolio.
Ikea, known for its furniture and other household items, got its start in furniture retail and mail order.
Over time, thanks to vertical integration with Swedwood (now renamed Ikea Industry), the company expanded its operations with a production and distribution branch.
To further take ownership of its value chain, Ikea introduced a strategy and maintainability initiative in 2014 to purchase forests around the world. Currently, the company owns more than 600,000 acres of forest land in Estonia, Latvia, Lithuania, Romania, and the United States. to maintain their products, many of which contain wooden elements.
McDonald’s wouldn’t be one of the largest fast-food chains in the world, selling at affordable prices, without vertical integration. Currently, the company controls almost every single component of its supply chain.
While most restaurants purchase bulk supplies from wholesalers, McDonalds grows its own vegetables and potatoes, processes its own meat, and mixes its own seasonings to ensure uniform taste and quality.
Beyond its menu items, McDonald’s is also known for its strength in real estate. The company owns 45% of the land and 70% of the buildings at all its sites around the world.
Luxottica is an Italian eyewear logo that set out from the beginning to create a vertically incorporated company.
Initially a small manufacturer of optical parts and semi-finished products, Luxottica temporarily expanded into making ready-to-use frames that it could distribute directly to retailers. In the 1980s, the company began its slow global expansion by acquiring standalone products. suppliers and enter into licensing agreements with popular luxury brands such as Giorgio Armani, Bulgari, Chanel and Prada.
Luxottica doubled down on its acquisition strategy with other brands that offered physical retail locations, including Oakley, Sunglass Hut, Cole National, and others.
Today, Luxottica enjoys large-scale operations globally, from products and production to logistics and retail.
Oil and fuel corporations are known to use horizontal and vertical integration strategies, with ExxonMobil being a prominent example in the sector.
ExxonMobil is an incorporated oil company that operates in every link of the oil and gas supply chain. In addition to generating a large amount of petroleum products, adding fuel, jet fuel, and man-made petrochemicals, the company also manages its refineries and logistics to ship its products. .
ExxonMobil is a fully integrated company that manages an upstream division, which handles all extraction and production, as well as its downstream division, to refine, retail, and market its final products.
With so many examples of vertical integration across industries, it seems that the business strategy works for many operations. However, it’s important to first determine whether cutting out the middleman and controlling your entire manufacturing process can deliver the expected benefits.
For example, corporations operating in industries with few suppliers may temporarily gain market strength by obtaining an infrequent detail of the source chain. Similarly, giant corporations that plan to expand geographically can take advantage of a form of vertical integration that acquires brands or distribution centers in new areas.
Backward integration is also recommended for premium or luxury companies where there is a need to protect proprietary processes or when more oversight is needed for higher-quality goods.
Companies that cater to a cost-conscious visitor base could possibly also expand into new markets by integrating more of their production and operating at lower production costs. Products with low profit margins are less difficult to maintain if a company has more on its portfolio. distribution and delivery. Acquiring retail channels is another smart option for businesses to be able to deal with consumers directly without paying commissions or garage fees.
Ultimately, the ideal setup for a company to vertically integrate is one that has a transparent view of its business and its supply chain.
Vertical integration is a dangerous, resource-intensive and difficult to reverse style of business. In fact, many companies run the risk of wasting money in the process of expanding and even jeopardizing their core business by focusing on other spaces in the home chain.
Synergies require abundant paints to align with existing processes and systems, which can increase organizational complexity and a company’s core competencies.
Like any other business, vertical integration requires significant capital and commitment from all teams. In addition, as new technologies and trends have an effect on supply chains, corporations will need to continue to invest in expanding their operations.
Unless you’re leveraging the amount to achieve economies of scale, it would arguably be more cost-effective to continue outsourcing to third parties.
If your company is exploring expansion opportunities, vertical integration presents a logical expansion of your source chain. It also promises greater operational control and less dependence on external factors.
However, vertical integrations are similar to any other merger or acquisition. They require due diligence, consolidated efforts, and a clear strategic plan on how the integration will roll out.
Companies with software that provides source chain visibility can analyze the prospects for vertical integration and can more easily adapt to any adjustments in operations.
This article was originally published in the QuickBooks Resource Center and distributed through MediaFeed. org.
There are about five million Hispanic businesses in the United States, making them the fastest-growing segment of U. S. small businesses, according to the U. S. Small Business Administration (SBA). However, despite those lofty numbers, Hispanic and Latino commercial homeowners face demanding situations in accessing capital and, as a result, fail to grow their businesses effectively.
Fortunately, a number of organizations and government agencies in the U.S. are stepping up to address this unmet need, offering loans, grants, and other financing options to Hispanic and other minority entrepreneurs. These minority business loans may have lower interest rates and be easier to qualify for than some traditional loans. Here are 18 financing options that are worth checking out.
(More information: Personal loan calculator)
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To qualify as a Hispanic-owned business, more than 50% of the company must be owned by people of Mexican, Puerto Rican, Cuban, or other Hispanic origin. Currently, nearly one in four businesses are Hispanic-owned.
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A minority business loan is a small business loan designed to offer financing functions to underserved communities. While minorities can’t apply for any business loans, minority business loans are likely to offer more competitive rates and have less stringent qualification requirements.
Minority groups in the United States include African Americans, Asian Americans, Hispanic Americans, and Native Americans. Women are also minorities for many types of loans.
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The following lenders offer different types of small business loans to Hispanic and minority entrepreneurs and were chosen based on our analysis of search volume.
Acción is a not-for-profit monetary institution that invests in underserved communities and provides cheap lending opportunities to Hispanic- and minority-owned businesses. The Action Opportunity Fund offers loans ranging from $5,000 to $100,000 and can be implemented temporarily and seamlessly online.
Accion offers two types of small business loans — the Southern Opportunity and Resilience (SOAR) Fund and the Small Business Progress Loan. SOAR is geared toward those in the south and southeast who experienced economic hardship from the COVID-19 pandemic and have been in business since September 2019 or earlier. The Small Business Progress Loan, on the other hand, is open to all minority-owned businesses and women entrepreneurs, and is partnered with American Express.
Acción also offers online resources, events, and networking opportunities (in Spanish and English) for minority business owners to educate themselves and grow their businesses.
(Read more: Housing Affordability Calculator)
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The Community Development Financial Institutions Fund (CDFI Fund), a component of the U. S. Treasury, is a component of the U. S. Treasury. The U. S. Department of Homeland Security provides budgets to businesses and organizations that don’t serve Americans and communities. Minority business owners can contact local banks and nonprofit teams that have won the CDFI budget to discuss and apply for them. Cheap business loans.
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The owners of Camino Financial were inspired to start their lending business in order to help people like their mother, who lost her Mexican restaurant business when they were children. To that end, they offer simple and affordable loans to small businesses who find it difficult to borrow through banks. They offer bad credit loans, secured and unsecured loans, microloans, and working capital loans up to $35,000. To qualify, your business must have been in operation for at least nine months and generate annual sales of $30,000 or $2,500 a month.
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The U. S. Small Business AdministrationThe U. S. Affordable Homeland Security (SBA) offers several financing systems that can help minority-owned businesses get the financing they need. Here are two systems you may want to check to find a Hispanic small business loan:
The SBA microcredit program is administered through an intermediary network of nonprofit network lenders, rather than traditional banks. Through those lenders, the SBA aims to succeed in low-income communities and minority-owned businesses that traditional lenders overlook. These loans come with low interest rates and a six-year term. And the loan amount can be up to $50,000.
The SBA Community Advantage Loan Program provides up to $350,000 in capital and is specifically designed to meet the desires of commercial homeowners in underserved communities. To qualify for an SBA Community Advantage Loan, commercial property owners will need to have smart credit and a falsified business plan. However, the company’s balance sheet and insurance amount will not determine eligibility.
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By offering crowdfunding loans at 0% interest, the nonprofit Kiva works to remove barriers to capital faced by marketers in underserved communities. To apply, you want to market your Hispanic business to the network of 1. 9 million individual lenders. These lenders may then decide to lend your business up to $15,000 and you will have up to 3 years to pay them off.
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CDC Small Business Finance is a nonprofit whose mission is to provide access to affordable and responsible capital to underserved entrepreneurs, including minority, veteran, and hispanic business owners. CDC offers loan amounts of $20,000 to $350,000 with five- to 10-year terms. They also offer SBA 504 commercial real estate loans of $250,000 to $40 million.If you are looking for advice to rebuild your credit, develop your business strategy, or manage financial reports, you’ll appreciate having access to small business advisors through CDC.
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Grameen America works to achieve racial and gender equity by offering microloans of up to $2,000 to female and minority business owners. As part of its program, borrowers can open free savings accounts at advertising banks and generate a private loan as they pay. of their microloans. Grameen also offers education and assistance to women who need to start a business and escape poverty.
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The Latino Economic Development Center (LEDC) offers Hispanic small business loans of $500 to $250,000 that can be used to purchase equipment, expand a business, hire staff, or purchase inventory. The three types of loans offered by the LEDC are as follows:
LEDC also offers free business counseling and credit building services, as well as a directory of Latino-owned small businesses.
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The National Association of Latino and Community Asset Builders (NALCAB) funds a network of more than two hundred nonprofit organizations serving diverse Latino communities across the United States. From NALCAB, these partner organizations offer loans, grants, job training and to Hispanics. .
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Hispanic small business loans are the only way your business can get financing. There are also grants for minority businesses that can provide capital that you don’t have to pay back. These grants are submitted through federal and local government agencies, businesses, and nonprofits.
Grants. gov is the largest database of federal grant opportunities. Although the maximum grants are not specifically aimed at Hispanic small business owners, awards are given to all types of entrepreneurs, especially those focused on fitness care, U. S. advocacy, and more. and environmental coverage.
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digitalundivided’s BREAKTHROUGH program (powered through JPMorgan Chase’s Advancing Black Pathways) awards $5,000 grants to Black and Hispanic women in the Dallas, Texas area. DigitalUndivided also provides education and resources to help businesses perceive their customers, find funding, and the right business model.
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The National Association of the Self-Employed (NASE) works to provide resources to all self-employed people, including Hispanic business owners. They will offer $4,000 expansion grants, which can be used for a variety of business expenses, adding marketing, advertising, hiring employees, and expanding facilities.
Besides access to grants, becoming a NASE member allows you to connect with experts who can advise you on subjects like finance, healthcare, strategy, law, and marketing. NASE membership also gives you access to discounts on healthcare, software, tax filing, and business travel.
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Hispanic businesses located in rural areas that have fewer than 50 workers and less than $1 million in gross profits would likely apply for a USDA Rural Progression Grant. The grants vary in duration and can be used for a variety of projects that contribute to business progression in rural areas, adding training, technical assistance, acquisition or progression of land, structure or renovation of structures, purchase of equipment and control of pollutants.
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The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) systems are government grants from five other federal government agencies. These competitive grants are aimed at generation and science and offer up to $1 million in capital (split into two phases). ) to qualified small enterprises.
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You may be able to find funding for your Hispanic small business through Candid.org’s Foundation Directory Online, which contains information on over 240,000 grantmakers in the U.S. Access to the directory requires buying a monthly subscription, but you can cancel at any time.
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Comcast RISE, which stands for Representation, Investment, Strength, and Empowerment, is a grant designed for businesses that were hit hardest by COVID-19. The grant is worth $5,000 and is given to small business owners hoping to expand and recover from the effects of the pandemic. Awards go to those looking to uplift their communities with a focus on diversity, inclusion, and community investment.
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The SIA Scotch Whisky Entrepreneurship Fund provides $10,000 in grants to small businesses owned by other people of color in the food and beverage industry. Created through Hispanic entrepreneur Carin Luna-Ostaseskis, one of SIA’s goals is to provide funding, mentorship, and networking to small businesses. business.
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If you are an entrepreneur, apply for the Amber Scholarship, named after Amber Wigdahl, who died at the age of 19 and was never able to achieve her business dreams. Each month, at least $30,000 in cash is donated from the Amber Scholarship. The application only takes a few minutes and the winners are announced until the 23rd of the following month.
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In addition to grants and loans, some organizations would possibly provide technical assistance, training, workshops, and networking opportunities for Hispanic businesses. Below are a few you should check out.
With a focus on assisting Black female and Latinx business owners, digitalundivided offers virtual training and a fellowship program for entrepreneurs. It also offers a pre-accelerator program for tech-enabled startup founders who have already begun to build their startup, are pre-revenue, and need assistance in developing their business model, marketing, and strategy.
The Minority Business Development Agency is an advocate for Hispanic and other minority-owned businesses, and offers research, conferences, and resources to help entrepreneurs. Its Enterprising Women of Color Initiative is aimed to help minority women succeed in business through various offerings.
The U. S. Hispanic Chamber of Commerce actively promotes the economic growth, development and interests of Hispanic businesses. Members have access to business opportunities and resources to help them grow. Additionally, members are indexed in the Chamber’s online directory of Hispanic businesses.
SCORE is a national organization that connects business owners to free mentors to help them learn and grow their companies. SCORE also offers free workshops and a robust online database of useful business content.
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Looking for — and applying for — a Hispanic business loan can feel like an overwhelming task. Here are some ways to simplify the process.
Before applying for a small business loan, it’s a good idea to take a look at your credit profile and business financials, as this will give you an idea of what type of loan you might qualify for. If you have excellent credit, solid revenue, and have been in business at least two years, you may be able to qualify for a long-term, low interest loan from a bank or SBA lender. If not, you may want to look into financing offered by lenders and grantmakers listed above, as well as online lenders (who often have less strict qualification requirements for loans).
To the amount of loan you want to start or grow your Hispanic business, think about how you want to use a loan budget, then create a detailed budget for your project, adding a small margin to account for unforeseen expenses.
If you haven’t pitched your business yet, think about what might be the most productive environment to do so. You may need to explore the most productive metropolises for minority-owned businesses, as they may have established communities and resources for Hispanic business owners. To you.
No matter what type of investment you decide to pursue, you will most likely want to provide a lot of information about your business so that you can apply. This includes:
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