Value Chain&Vertical-Horizontal Integration&Supplay Chain

8/14/2019 Value Chain&Vertical-Horizontal Integration&Supplay Chain

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VALUE CHAIN

• Michael Eugene Porter (born 1947), University

Professor at Harvard Business School

• Author of Competitive Advantage (1985)

• First to introduce Value Chain Analysis

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What is Value Chain Analysis?

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The theory that underlies activity based

management

• Helps to identify the critical success factors for the key processes within the business

• Reduces the non-value added activities



The activities

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•Primary activities produce the product or service for

the customer •Support activities provide the firm-wide

infrastructure for the primary activities



• an approach for increasing or decreasing the level

of control which a firm has over its inputs and

distribution of outputs.

• extent to which an organization controls its inputs

and the distribution of its products and services.

• refers to the degree of integration between a firm’s

value chain and the value chains of its suppliers and

distributors.

Description: What is Vertical Integration?

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There are two sorts of vertical

integration:

• backward integration -firm’s control of its

inputs or supplies

• forward integration -a firm’s control of its

distribution

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The benefits of using Vertical Integration

• Often considered as a strategic choice.

For example if suppliers are very powerful, a

solution to that threat is to buy a number of

them up.

• Is an action to decrease the bargaining power of

suppliers and customers.

• It allows reducing transaction costs.

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Horizontal Integration

• Similar products

• Substitutes for one products

• Competitors

• To complete the product range

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Increases the share of the market



Horizontal Integration

Strengths

• Economies of scale

• Synergy

• Defence against

substitues

• Fulfilling customer

expectations

• Increased negotiation

power

Weaknesses

• Monopolising

• Purchasing substitutes

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SUPPLY CHAIN MANAGEMENT

Planning, Organizing, directing & controlling flowsof materials, so that merchandise is producedand distributed in the right quantities to the rightlocations at the right time in damage-freeconditions and so as to minimize the total

system cost of a company subject to satisfyingservice requirements.

Motivation for SCM:

• Need to meet customer requirements• Desire to reduce costs

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KEY BENIFITS OF SCM

• Improved customer responsiveness

• pre and post-production inventory levels

• Higher product quality

• Faster product innovation

• obtain greater efficiency from labour,

equipment and space across the company

• More consistent on-time delivery

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Value Chain&Vertical-Horizontal Integration&Supplay Chain