Question

Given the complexities involved with supply chains, might it make sense for a business to vertically integrate and be its own supply chain? Justify your position.

What trade-offs would you consider. Keep in mind that some companies aggressively outsource as much as possible while others strive to keep the work in-house.

Answer 1

It makes sense for a business to vertically integrate and be its own supply chain considering below trade-offs:

• Cost: Vertical integration makes sense for company when it wants to reduce cost of production over long term.

• Quality: Vertical integration makes sense for company when it wants to have more control over quality controls in production.

• Reduce risk: Vertical integration makes sense for company when it wants reduce risks associated with external suppliers.

• Dependence on suppliers: Vertical integration makes sense for company when it wants to reduce supplier’s power and create more in-house capability to replace suppliers.

• Flexibility: Vertical integration makes sense for company when it wants to have more flexibility over supply and demand in the manufacturing process.

  Factors which can determine to keep companies aggressively outsource as much as possible are below:

• Company is looking to focus on core competency and outsource all other non-core competencies.

• Cost of having vertical integration involves large initial fixed cost expenses which do not gel with organization philosophy and goals.