Casualty Actuarial Society (CAS) Practice Exam

Backward integration refers to a strategy where an organization expands its role within its supply chain by taking control over its inputs or the production of raw materials. By producing inputs for processing in-house, a company can reduce dependency on external suppliers, enhance quality control, and potentially lower costs. This strategy allows a firm to better manage the supply chain, secure consistent access to materials, and maintain competitive advantages.

In contrast, the other options involve different strategies: selling products directly to customers focuses on distribution (which is more aligned with forward integration), acquiring a competitor involves horizontal integration aimed at increasing market share, and collaborating with suppliers would be more of a cooperative strategy rather than an integrative one. Therefore, producing inputs in-house solidly defines backward integration as it emphasizes gaining more control over the supply chain leading to potential operational efficiencies.