Vertical integration is a term that can be used in reference to any number of companies and industries. In the manufacturing sector, vertical integration can be a particularly effective strategy for organizations to utilize. The term refers to an organization taking ownership of more than one link in the supply chain. This often means bringing more manufacturing processes in-house which may otherwise be outsourced to suppliers or contract manufacturers.
At Advanced Conversion Technology (ACT), we are vertically integrated for military power manufacturing and are proud to be able to design, build, and test under one roof. This means we have first-hand experience with this type of operation and continue to iterate and elevate our processes and capabilities—keeping us at the forefront of our industry.
Let’s explore what vertical integration is and some benefits, and dive into vertical integration at our facility in the blog below.
Since 2020, the supply chain for commonly used components and semiconductors in the electronics industry has generally seen increased lead times and decreased availability. This has served to highlight the potential benefits of vertical integration. Organizations that bring more processes and capabilities in-house are often able to exert a higher level of control over factors that impact internal lead times, cycle times, and efficiency. These firms are no longer competing for the best price and lead time on an open market and can internally prioritize products as needed to meet their customers’ needs.
The capital investment required to vertically integrate can vary wildly depending on the product or process. For instance, the investment to bring a complex semiconductor manufacturing operation online can cost $10 billion or more depending upon the capabilities needed. The considerations go beyond investment in equipment and staffing, including R&D costs required to continuously improve and develop these complex processes, as well as specialized facilities capable of maintaining the environment necessary to produce a reliable product.
Increasing the level to which an operation is vertically integrated does not need to be overly complicated or expensive, however. It can be as simple as a machine shop that utilizes CNC mills and assembly processes investing in CNC screw machines to produce high-precision specialized hardware that was previously purchased from a supplier. In this example, the organization is strategically choosing to invest in a process that utilizes the same infrastructure and knowledge base that they already have. The investment can be minimal and gradual, starting with specific processes to address pain points in the supply chain and growing the initial investment to broaden the scope of the operation’s capabilities as opportunities arise.
As mentioned above, there are many benefits to a vertically integrated manufacturing facility. Some of these are:
Vertical integration has been a part of ACT’s DNA since its founding. It was important to retain our design control, flexibility, and competitive advantage. “Now as an employee-owned company, vertical integration also allows our team to directly impact the quality, delivery, and cost of our products throughout the design and manufacturing process,” says Dean Larusso, Manufacturing Manager.
At ACT, we strive to vertically integrate by manufacturing all elements of a power supply wherever feasible. Here’s a high-level look at our integrated manufacturing process:
Our machine shop can produce the chassis, enclosures, insulators, shields, and internal metal components used in our designs. We utilize CNC mills and fabrication operations as well as our finishing and plating capabilities for the prototyping and design process as well as LRIP (low-rate initial production) and full production.
Magnetics, such as transformers and inductors, are critical components in any power supply. ACT has a magnetics manufacturing operation that utilizes a combination of machine and manual processes to wind, finish, and test the magnetics that we design into our power supplies.
Our SMT (surface mount technology) and PTH (plated through-hole) assembly operations feature state-of-the-art automated processes to populate, solder, and inspect our boards efficiently and consistently.
Our machine shop, magnetics, and SMT/PTH operations feed the downstream assembly and test teams. Since we have extensive electrical and ESS (environmental stress screening) capabilities in-house, we can efficiently organize production lines that incorporate functional testing in line with assembly operations. This minimizes waste due to movement and storage and allows any issues to be identified and addressed immediately. The assembly team integrates the products manufactured through the other internal processes into the sub-assemblies and final assemblies in preparation for the final test, inspection, and shipping.
ACT has been recognized by customers as a go-to supplier for difficult power supplies that require a short time-to-market and present unique design challenges. They recognize that our investment in vertical integration over the past four decades allows us to remain agile throughout our design and manufacturing processes.
We continue to invest in equipment and training to grow the depth and breadth of our operational capabilities. As an ESOP, we control the success of our enterprise. The benefits of a highly vertically integrated manufacturing operation allow us to maximize the impact on our success and the success of our customers.
