Reason 1: Greater control over the prior production processes
The first benefit associated with backward vertical integration is that it gives a firm greater control over the prior production process. A firm is not dependent on another company for the quality of that production step. If you are running into quality issues, for example, you can look to correct those problems yourself without needing to involve another firm.
Reason 2: Allows greater integration with other stages of production
Backward vertical integrating also allows a company to increase the integration between a prior stage of the production process and other subsequent steps in the manufacturing process. By bringing prior stages of the production process in-house, a company could pass material directly from one stage in manufacturing to the next stage – illuminating the need for inventory to be held as a buffer between.
Reason 3: Remove a powerful supplier
Another reason that a firm may look to backward vertically integrate is to remove a powerful supplier. If for example there is only a limited number of firms that provide the goods or service that you rely on, and this results in them charging a high premium for the good, then backward vertically integrating may remove your dependence on that supplier.
Reason 4: Avoid knowledge accumulating at your supplier
Backward vertical integration may also allow you to accumulate the knowledge in the prior manufacturing stage, rather than that knowledge accumulating with your supplier. If you are able to become more knowledgeable in this stage than your suppliers who competitors rely on, you may be able to achieve a competitive advantage relative to companies with whom you compete.
Reason 5: Greater flexibility to make changes to the product
A final advantage that comes with backward vertically integrating is overall greater flexibility in making changes. If there are changes that a firm wants to make in the prior manufacturing stages, a company that has backward vertically integrated can enact those changes without having to seek agreement from the supplier.