Manufacturing and Production Video

5 Steps Towards Vertical Integration

5 Steps Towards Vertical Integration

Vertical integration is something that’s been pretty big in the food industry for a really long time. It’s about Nabisco and Kraft, and how they own the factories that they make the goods in, as well as sometimes owning the farms that they’re growing product in too.

However, did you know that in the fashion industry, vertical integration is something that’s popular as well? Vertical integration can come in the forms of simple things, like owning the factory or even owning the farm where your organic cotton is being produced. Or, even owning the process by which you are producing a specific textile or a particular technique. The art of vertical integration is really owning a part of that supply chain.

Why do such a thing? Vertical integration is a fantastic way to streamline a lot of your costs, including removing the middleman. You own the exact part of your business that you actually want to be scaling.

The second reason why it’s so great is really because this gives you an opportunity, as the brand owner, to now be selling other kinds of goods and services to other brands. Not only will you be able to produce your own goods in your own factory or your own yardage, you’ll have all of that with any fibers or textiles you produce, but you can then sell off that space, you can sell off that fabric, that time in the factory, to other brands out there. How on Earth do you get closer to that, and how on Earth do you start?

1. Think About Key Opportunities.

Do you already have a great manufacturer? Are they possibly looking to sell that business? Are they looking to sell that factory? That would be a very easy way for you to then take over existing infrastructure. Or, possibly, you’re a sustainable brand out there, and you want to get a collective together to really place the right kinds of yields on the organic cotton that you want to be producing. You get into a collective with other like-minded brands, and you go ahead and start to do some vertical integration where you actually own the land collectively. Vertical integration certainly doesn’t just have to happen with you as a brand on your own. Companies like Pact that are really fantastic sustainable businesses, have gotten together in collectives and done this.

How do you know it’s something that’s right for you? Well, first you must make sure you have a lot of capital. Owning a part of a supply chain is no easy feat. You’re buying infrastructure. You’re buying hardware. You have employees. In fact, guys, it’s a whole other business model. When you go through the vertical integration process, essentially, you’re going to cut out the agents, the other factory owners, and I’m going to have my own production capacity, or whatever that happens to be in the supply chain.

2. Develop Additional Revenue Streams.

What would be a great revenue-generating stream that you can be using to sell to other vendors? When you’re done with that factory usage or when you’re done with the yardage, you want to make sure that you’re actually creating additional sources of revenue for your business. You’ve got to go into it with that in mind. That may mean that you need to hire a business partner or someone to kind of manage this new area of the business, especially if you’re buying this from an existing factory owner, or anyone else who already has the infrastructure in place.

3. Buying or Building From Scratch?

Buy out is doing something like working with an existing factory, but building out is actually wanting to create. You can’t find what you want anywhere, so you’re going to build this up from scratch. This can be an extremely time-consuming process. You’ll certainly want to bring an expert onboard, but if what you’re doing does not currently exist, then actually having the environment where you can be introducing a new commodity into the market, a new type of functionality, could actually be extremely lucrative for you.

Imagine your brand is consistent and you’re doing well, you’re at the stage of scaling and you have a totally different revenue stream that’s solving a problem in the market for the next 10 or 15 years. Because it is so cost-intensive and time-intensive to build out the backend, not too many brand owners are so keen on heading into that direction. If you’re interested in doing that, then think about this, certainly, from a long-term strategy.

4. What Products Will You Produce?

What are the different kinds of products that factory is going to be able to produce? Are you a ready-to-wear brand interested in launching accessories or jewelry or shoes? If so, you might want to be thinking about all the different areas of the business that will come through this new factory. Think about the long-term strategy of your brand.

5. Analyze Your Costs.

It’s also very important to think about all the start-up costs that are going to be necessary to build that business. Once you do absorb a business or you start something new, you are going to want to market it a little bit, you are going to want to let people know that you exist. Think about the brand-building techniques and strategies that you did in order to get your brand to where it is today, and then think about everything you’re going to have to do in order to really integrate a new business model. It’s going to be new scenario planning, new cash flow planning, and a new market. You’re going to have to let people know that you are there, and you’re available. However, preserve one of these services or techniques for your own collection, vs. what you’re going to be using for the outside market.

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