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Vertically Integrated System (AGAINST (Ownership of supply chain reduces…
Vertically Integrated System
FOR
Cost control
Control of schedules
Guarantee of supply
Access to technical capabilities
Economies of Scale
AGAINST
Ownership of supply chain reduces market forces within - may lead to inefficiency
Economies of scale: capacity mismatch between ends of supply chain
Product variety/complexity increases downstream
Cost competition increases upstream (downstream concentration usually product differentiation, ie, quality
Different tiers may have different competitive strengths - co-ordination problems
Under-performing suppliers 'locked in'
Increased risks - if demand falls away. Need to reduce capacity of end-tier supply or even entire supply chain
Control of supply chain challenging. Need of de-coupling points and buffers between tiers. Difficult when concentrating on efficiency across entire supply chain
Ford Rouge Plant
Reasons to de-integrate
Technological changes: develop or leave to others
If raw material supply increases, may be cheaper to source elsewhere
Market changes: demand for higher levels of output variety