How You Benefit from Working with Vertically Integrated Companies
I am a big fan of vertical integration. It saves time, money, and it’s great for the environment.
But first, you might be wondering, what is vertical integration?
You see, DCI is a vertically integrated company. That means that we own every single step in our supply chain. From forest to floor, we manage, own, and control every step in the sourcing, production, and delivery of our sustainable hardwood furniture.
Why should you care?
That’s a good question. There are a lot of benefits to owning your supply chain, and those all work to the advantage of our customers and partners.
In the first quarter of the 20th Century, Henry Ford pioneered vertical integration at his state-of-the-art Ford River Rouge Complex in Dearborn, Michigan. This business model enabled Ford to source, manufacture, and deliver everything related to his automobiles in one place.
He didn't have to depend on any outside vendors.
With its own docks in the dredged Rouge River, 100 miles (160 km) of interior railroad track, its own electricity plant, and integrated steel mill, the titanic Rouge was able to turn raw materials into running vehicles within this single complex, a prime example of vertical-integration production.
Here are seven powerful reasons you should consider working with a vertically integrated company.
1. Cutting Costs, Lowering Prices
First of all, vertical integration saves you money. As business writer Neil Kokemuller describes it in the Houston Chronicle:
In the traditional distribution process, every step in product movement involves mark-ups so the reseller can earn profit. By selling directly to end buyers, manufacturers can "eliminate the middleman," removing one or more steps of mark-ups along the way.
One of the biggest benefits of vertical integration is that we can provide you with the highest quality sustainable hardwood furniture at competitive prices. No one else can do that.
To put it simply, we save a lot of money by not outsourcing any of our supply chain. We don’t pay for the taxes, fees, fuel, and transport costs associated with importing raw materials to make furniture. Usually the costs are passed along to the customer.
Instead, we pass along those savings to you.
Another example of how we cut costs through vertical integration is by creating economies of scale. Economic analyst and business strategist Kimberly Amadeo elaborates:
...vertical integration gives a company economies of scale. That's when the size of the business allows it to cut costs. For example, it can lower the per unit cost by buying in bulk. Another way is to make the manufacturing process itself more efficient.
2. Maximizing Value
By processing almost all of our raw materials in-house, we are not only lowering cost. We also deliver a superior product.
How? Here are a few examples.
When it comes to internal construction, DCI uses solid northern grown hardwood rails at every drawer level, and there is no skimping here. The frame is substantial. We are able to do this, because this wood is a by-product of our manufacturing process.
In terms of materials qualtiy, other companies often use hardboard, melamine, and masonite for case backs, drawer bottoms, and in some cases even drawer sides.
Instead, we use 7-ply hardwood plywood. We process and cut all our own plywood. Using this hardwood plywood significantly increases the longevity of the furniture.
And if you want solid wood tops and drawer sides, we can offer that at a much better rate than companies who outsource their components. Why? Because we don't pay any resellers for the raw materials.
3. Keeping Jobs in America
According to the Bureau of Economic Analysis, one of the 4 largest sectors of our economy that gets outsourced to China and other emerging economies is manufacturing. American now import a huge amount of furniture from overseas.
And the truth is, many companies in the residence hall furniture market import the bulk of their raw materials—and sometimes the finished product—from IndoChina.
Of course, there are a lot of issues with that. It’s bad for the environment, it leads to inferior quality, but most importantly, it offshores American jobs. It trades cheap foreign labor in emerging markets for more costly local labor.
According to the Kellogg School of Management:
Low wages elsewhere are the main reason that about 5 million US manufacturing jobs were offshored between 2001 and 2011. About a third of them went to China.
In contrast, one huge benefit of vertical integration is that we keep all the work local and close to home. That’s excellent news for the local and national economy.
Because it gives a leg up to the working class in small towns when all the resources in America are mostly flowing in the opposite direction. In large part—especially with respect to manufacturing jobs—that’s due to all the outsourcing.
4. Increasing Flexibility & Customization
Owning every step in the supply chain provides us with a unique advantage. We can customize our products and easily adapt to the distinctive needs of our partners. In fact, flexibility and our ability to create a highly customized products is something we pride ourselves on.
Speaking about the benefits of vertical integration, Kokemuller’s observation on this point lines up with our own experience when he says that companies:
...can more quickly adapt to changing customer needs if it owns the manufacturing or production (branch) that makes its products.
For the most part, people don’t think of furniture makers as super flexible. But we think of ourselves more like your italian suit maker. We work with you directly, blending our 40 years of furniture design experience with your vision to create a completely tailored end product.
Another advantage of vertical integration is the simple fact that we aren’t subject to the vagaries of suppliers or distributors. We own our sawmill and we work with certified state foresters to choose the timber for our FSC-certified furniture.
Consequently, we worry about the quality or quantity of our supply because we control it directly. And that allows us to provide a much higher level reliability in terms of delivering the final product.
Business writer Dennis Hartman says it this way. Vertically integrated companies have:
...control of their supply chains, ensuring steady access to components and raw materials. It can also ensure that distribution networks are ready to move products, especially during periods of high demand.
6. Maximizing Efficiency
One huge benefit of vertical integration is that we can continually maximize efficiencies at every stage of production. One powerful example of this is our zero waste manufacturing facility.
We don’t throw out any of our wood byproduct. All of it is repurposed. We collect all the sawdust to fuel our boilers and provide heat and electricity to our factory.
Here’s how we use the wood that doesn’t make it into our furniture.
- We use bark for landscaping materials.
- Sawdust is used at local farms or burned as fuel for heating.
- Rough wood cuts get re-used in pallets of other building materials.
- We use leftover hardwood to build our internal furniture components rather than buying Poplar or other species.
7. Sustainability: Buying with a Clean Conscience
Vertical integration allows us to ensure the sustainable pedigree of all our products. Sustainability is a core part of our organizational mission.
In Juliana Mansvelt’s book Green Consumerism: An A-to-Z Guide (p.173), she advises the savvy green consumer to privilege short supply chains when looking for green furniture. She highlights:
“...short supply chains including components such as locally or regionally harvested wood and local manufacturing - chain of custody assurances.”
We make our furniture with solid hardwoods from the Northeast United States. When we harvest our trees, we minimize the impact on local wildlife habitat and maximize long-term forest health.
We own our sawmill in Vermont. All of our trees come from within 120 miles of our mill. Once they are processed into lumber, they make the short journey to our manufacturing plant across the New Hampshire border.
In line with the exhortation from Juliana Mansvelt, we have one of the shortest supply chains (if not the shortest) in the residence hall furniture market. And because we control the entire supply chain, we meet and exceed the highest standards of sustainability.
Here’s an example. Our furniture possesses the gold standard of sustainable wood furniture certification—the FSC® (Forest Stewardship Council®) Chain of Custody standard (FSC-C019618). In March, 2014, the Rainforest Alliance re-certified DCI. Our certification is valid to March, 2019.
A Story Worth Sharing
From cost-saving efficiencies and manufacturing flexibility to ethically sourced raw materials and locally crafted products, vertical integration is a game changer. It allows us to bring you a standard of quality that’s unmatched at our competitive price points.
And more important, owning our supply chain allows us to tell an important story. It’s possible to manufacture the highest quality sustainable hardwood furniture in a family-run business right here in America with local materials and people.
That’s a story worth sharing.
(Photo via Flickr CC: Bit Boy)
Share this article:
Previous Article: Case Study: Penn State University