Question

Throughout the supply chain in a poultry industry, there are several processes between the raw materials (corn, soya, and wheat) and the end product (chicken cutlets). For example, raw materials will be used in the production of chicken feed which will later be used in a breeding farm. The breeding farm will then produce eggs that will be sent to a hatchery. After hatching, baby chickens will be sent to a rearing farm until they are old enough to be sent to a slaughterhouse and finally to a processing plant that produces chicken cutlets that will be sold to business buyers. A single company may decide to integrate all these stages in this chain by having upstream units produce goods that downstream units use as input in order to control the supply chain, from manufacturing to end sales.

A) What strategy does this implementation best describe?

B) Would you choose to implement this strategy? Give at least 5 reasons to support your answer.

Answer 1

1. It is an example of Vertical integration where the supply chain of the company is owned majorly by that company, including the raw material and other steps in the value chain.

For example, Netflix which was primarily a media or movie distribution company is now also making them(movies or series) to earn more revenue. Thus, they have owned different steps of the value chain

2. Yes, choosing this strategy can make a business much more independent. Other reasons are
a) It reduces transportation cost and time for supply as now the majority of the steps are owned by the company itself, which can be run nearby.
b) Dependency and bargaining power of supplier is reduced, and the company can now produce according to itself without bothering much about suppliers' cost and availability
c) Customers can get products directly from producer to consumers, thus more profits and control on quality.
d) With economies of scale, there would be less cost involved. It is because of owning the steps in the supply chain which can produce large quantities at a time
e) Brand equity is improved as now the company has full control over its operations plus it can also become a supplier for other businesses.

Thus, these are a few reasons to support this strategy