Question

Explain the differences between vertical integration and outsourcing. Identify the strategic advantages of each and explain how each position can be used to help supply chain strategy.

Answer 1

Vertical integration can be defined as a process in which one firm implement it to different steps along its production path or supply chain. This type of approach is very essential for developing competitive advantage as well as reducing the overall cost in Operation. It can vary widely increase the overall companies profit provide elimination of per unit makeup. It helps in maintaining high quality standard in supply chain by reducing the multiple factors and uploading multiple strategies into one single factor for improving the availability of opportunities in the specific supply chain.
Vertical integration can be done by several method some of the methods are

• Forward integration

In this type of a specific vertical integration the company gain ownership of the distributors.

• Backward integration

In this method company games ownership of its supplier.

• Balanced vertical integration

In this approach, balance between supplier and distributor is created improving the availability of opportunities for the specific company.

Outsourcing has emerged as an option for manufacturers who sold their products from pet uprising countries. By setting up channels of outsourcing in different countries such as China has increase the overall profit margins of different manufacturers .Rather than manufacturing the product they prefer selling the products to the customers because it has more benefit and does provide a positive support to the organisation if they are operating in selling industry.

Where vertical integration requires intensive approach of managing the organisation, outsourcing requires proper monitoring and support. Both type of the operating strategies require proper approach of implementation and improve the overall availability of market opportunities creating an advantage for the company over international as well as national market.
Why implementation of outsourcing overall cost of operation can be very easily reduced increasing the overall revenue generated by the organisation in international as well as the national market. Outsourcing is usually done over international markets by importing goods from developing countries or low cost markets for reducing the overall cost involved in Operation.

All in all we can say that both of the strategies of operation are essential for maintaining benefit for the supply chain. Where vertical integration provide support to internal structure of the organisation, outsourcing benefit the organisation by maintaining extrinsic benefit of reducing the overall cost in availing supplies.