Managing Operations - Essay Example

Vertical integration will ensure that the company owns upstream buyers as well as downstream suppliers. This kind of strategy, unlike the horizontal integration, is characteristic of one firm engaging in diverse production processes that include manufacturing, transportation, marketing of its products and the end process of retailing. Vertical integration will also enable the new company expand vertically through processes of acquisition (Holloway, 2002). Such processes of acquisition will enable the company to expand.

Expansion in business is desired because it consolidates the supplies needed by the company in the production of the needed products and their subsequent marketing and sale. This results to a more diverse and efficient business entity that incurs lower costs of production and surge in profits. Related to this is lateral expansion, which means growth of the business through acquisition and purchase of similar firms in anticipation of attaining economies of scale. Through these kinds of expansion strategies, there are increases in scales and market shares.

However, internal/external losses and gains are characteristic of vertical integration. They differ depending on the technological state of the manufacturing sector/industry that produces power hand equipment/tools (saws, sanders, and electric drills). They correspond to the stages that characterize the industry’s life cycle. The company is therefore set to gain in terms of lower costs in transaction, the synchronization of demand and supply along the supply chain’s products. The supply chain is also set to gain from higher levels of investment and lower uncertainty.

Another gain that the proposed business is set to achieve is the ability to capture and monopolize the market by selling high quality products that are capable of propelling the company’s fortunes in profits and market share. Vertical integration would also translate to strategic independence of the company in cases where vital inputs are scarce or their prices are highly volatile (Bovel, 2003). Vertical integration also attracts some losses to the company. These losses touch on high coordination costs, high organizational and monetary costs brought about by changing to other buyers/suppliers.

There is also less motivation for quality performance at the beginning of the business because sales are guaranteed and substandard quality may be included into other types of inputs at subsequent stages of manufacturing. Five major performance metrics ought to be adopted by the proposed supply chain business. These metrics ought to be measured regularly, for instance, after a period of one month or so, for each specific product of the business. One of the performance metrics that should be used to measure performance of the supply chain is the Fill Rate, which is the order percentage, delivered on schedule/time.

This means the products are delivered to the customers on time as requested. Another performance metric that should be incorporated by the supply chain is the Response delay, which is the difference between the negotiated day and the requested day of delivery expressed in normal working days. Measuring frequencies of different delay values can enable estimations of the statistical order distributions with a specific delay value. In this instance, managers ought to be interested in the probability of surpassing a given value.

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