The cost incurred also depends on structure and entry mode the organization

The cost incurred also depends on structure and entry

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structure and how the firm enters the market. The cost incurred also depends on structure and entry mode-the organization structure which is based on many employees and hierarchy would result in more costs.
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4. Why was it profitable for GM and Ford to integrate backward into component-parts manufacturing in the past, and why are both companies now buying more of their parts from outside suppliers?What value creation activities should a company outsource to independent suppliers? What are the risks involved in outsourcing these activities ? Answer : Companies can increase overall value of their business when ownership of processes at different stages of supply chain is under control. To achieve this backward integration is the only option. Backward integration decreases the risk of increase in cost, quality problems and disruption of critical material supplies. Ford Motors and General Motors are famous examples of backward integration in the automobile industry. They have been manufacturing key components themselves. Henry Ford believed that the cost of manufacturing began from the moment the raw materials were purchased. As a result, he wanted to control all stages of manufacturing and entered into backward integration. But today both the companies prefer to buy many components from outside which they have been manufacturing themselves. Many factors are responsible for it. Intense competitive pricing along with high labor costs has rendered this business less attractive for them. There are many suppliers of parts who can supply at a much lower price per unit these companies have been incurring by manufacturing on their own. Moreover, these companies need not have any sort of labor agreements with UAW if they outsource supply of materials. Companies usually outsource value creation activities such as non-core and non- strategic to their suppliers. Non-core activities such as Business Process Outsourcing and Knowledge Management, which gives company time to concentrate on future development of business instead of focusing on day to day routine. But risks involve are as follows: Company becoming too dependent on the outsourcing activity, though such risks can be eliminated by using parallel sourcing policy; Loss in control of scheduling in the supply chain, which can be managed by outsourcing to more than one competing company.
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5. What steps would you recommend that a company take to build mutually beneficial, long- term, cooperative relationships with its suppliers ? Answer: Supplier relationship management is the strategic planning and managing the interactions with the suppliers in order to have long-term relationship and mutual benefits. The steps taken that can be taken by a company to build long term cooperative relationship with its suppliers are as follow:- Understanding the working style of the suppliers - This includes learning about their business, how they work and respecting their working styles.
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