Vertical integration

Production depth (or depth of production ) is in the business administration at enterprises a cost effect size that the share of in-house production in the production process of goods reflects.

General

Production is the production of goods using production factors , depth denotes the vertical expansion of production, to what extent intermediate goods such as semi-finished or intermediate products are obtained from the market ( external production ) or are produced in-house. The more in-house production a company does, the greater its vertical range of manufacture. It begins with the prefabrication of production material. For example, an automobile manufacturer usually produces its own chassis , bodywork and engines . He reduces his vertical range of manufacture if he outsources engine production to another company and increases it if he insourcing by producing intermediate goods himself. Complete in-house production (= production depth of 100%) is rare; the car manufacturer would have to produce car electronics , car glass or car tires himself.

detection

The vertical range of manufacture is calculated as follows:

{\ displaystyle {\ text {vertical integration in percent}} = {\ frac {\ text {in-house production}} {\ text {in-house production + external production}}} \ cdot 100 \, \%}

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The higher the proportion of external production and outsourcing, the lower the vertical range of manufacture and vice versa. In companies with a high level of vertical integration, there are usually several production stages. A vertical range of manufacture of 0% means that the company neither carries out its own production nor the refinement of products, nor is it a subcontractor, i.e. that it concentrates solely on trading . A vertical range of manufacture of 100% would mean that the company manufactures products completely independently without any external procurement of components or raw materials , e.g. For example, if an entire value chain is mapped in a single company , from ore over several production stages to a camshaft or a saucepan.

Porsche, for example, has a vertical range of manufacture that is around 20% for the 911 and Boxster sports car models, 10% for the Cayenne and around 15% for the Panamera model released in 2009 . A company with a comparatively high level of vertical integration, on the other hand, is Volkswagen AG , which among other things has its own foundry at the Hanover plant with around 1,300 employees.

Differentiation from related issues

Depth of performance

The depth of service of a company is understood as the proportion of the administrative and administrative tasks of the company that it does itself.

Vertical integration

Vertical integration is the summary or combination of technologically independent processes or functional units that are upstream or downstream in the value chain. For example, a paper manufacturer is vertically integrated by buying a sawmill or newspaper company.

In contrast to the vertical integration, the conception of vertical integration is not only limited to the production management perspective, but is also the subject of investigation of organizational theory , economics and strategic corporate management .

The vertical degree of integration describes how high the proportion of services provided by a company itself is within the value chain . The higher the degree of vertical integration, the more activities the company takes on itself; if the degree of vertical integration is lower, many activities are carried out by partner companies or contractual partners.

Outsourcing

With outsourcing outsourcing is considered by business tasks to third-party companies. The aim of outsourcing is to have inefficient or too expensive tasks performed by specialized service providers at the company's location. In addition, you can relieve the company's activities by outsourcing, so that from now on it can focus entirely on its core competencies. Core competencies are company-specific activities that cannot be imitated or substituted and thus represent a competitive advantage over the competition . Therefore they should not be outsourced under any circumstances. For outsourcing, on the other hand, there are support processes that can be imitated and substituted and that can be provided cheaper and / or better by the competition, e.g. B. through the use of size effects and / or specialization. Administration is an example of a typical support process.

Make-or-buy decision

Among make-or-Buy ( "mob") refers to the decision between house production or external reference.

The decision about the vertical range of manufacture includes the determination of the provision of sub-processes, to which the problem area of the make-or-buy decision can also be assigned. The difference between make-or-buy and the decision on vertical integration is that in the case of the latter the area of investigation is limited to the production area, in the case of the former the range of applications is basically open.

The vertical range of manufacture can thus be described as the result of an overall production process-related make-or-buy decision. The result of a make-or-buy decision does not necessarily affect the vertical integration, while a change in vertical integration is always due to a make-or-buy decision.

Purchase share

Purchased part is the externally manufactured, i.e. the purchased part of the production
the term is used in connection with the "mob" and consequently the vertical range of manufacture, e.g. B. in the key figure compass VDMA ; In general, the trend is increasing, the average in mechanical engineering is 55%

Delimitation to the production stage

Production stages in the production process are procedurally self-contained process sections during production, which must be followed by further process sequences up to the manufacture of the end product . The vertical range of manufacture can encompass several production stages.

Others

In the German VAT law which was until 1967 tax on each sale of intermediates due. This gave large companies with a high degree of vertical integration a considerable advantage. Before: If an entrepreneur bought intermediate products (e.g. a car manufacturer batteries), he had to pay sales tax on the purchase price. Sales tax was then charged again on the entire car (including the battery). A total of three sales tax was paid on the battery acid purchased from the battery manufacturer. The longer the production chain, the more the tax burden rose like a cascade. In April 1967 the first two VAT Directives were enacted, which introduced a general, multi-tiered but non-cumulative sales tax . This new regulation was welcomed unanimously in finance and business , as the cascade effect has now been avoided.

literature

C. Legner, T. Vogel: Leveraging Web Services for Implementing Vertical Industry Standards: A Model for Service-Based Interoperability. In: Electronic Markets. Vol. 18, No. 1, 2008, pp. 39-52.
Manfred Weiß: Planning the vertical range of manufacture: a hierarchical approach. Deutscher Universitätsverlag, 1993, ISBN 3-8244-0147-9 .
Literature on vertical integration in the catalog of the German National Library

Individual evidence

^ Gabler's Economic Lexicon. Volume 2, Verlag Dr. Th. Gabler, Wiesbaden 1984, Sp. 1494.
↑ Christian Huth: Strategic planning of the vertical range of manufacture with uncertainty and dynamism. Springer Gabler, Wiesbaden 2014, ISBN 978-3-658-06830-1 , p. 60. (books.google.de)
^ Peter Klaus, Winfried Krieger (Ed.): Gabler Lexikon Logistik. 2000, ISBN 3-409-29502-X , p. 144. (books.google.de)

[1] Gabler's Economic Lexicon. Volume 2, Verlag Dr. Th. Gabler, Wiesbaden 1984, Sp. 1494.

[2] Christian Huth: Strategic planning of the vertical range of manufacture with uncertainty and dynamism. Springer Gabler, Wiesbaden 2014, ISBN 978-3-658-06830-1 , p. 60. (books.google.de)

[3] Peter Klaus, Winfried Krieger (Ed.): Gabler Lexikon Logistik. 2000, ISBN 3-409-29502-X , p. 144. (books.google.de)