Heizer render munson 2017 based on this case study

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Operations Management: Sustainability and Supply Chain Management (12thed.). Heizer, Render, & Munson . ( 2017 ). Based on this case study, the relationship between Ferrero and Oltan is supplier and manufacturer. Thus backward integration will be more considerable. To be effective, vertical integration has to have sufficient cost savings to make up the investment for integration and its operations. In my opinion, there are three key advantages of vertical integration which are material cost reduction, supply chain cost reduction and quality control. First of all, as mentioned in the Ferrero Group Study (2016), cost fluctuation of raw material makes the market unstable. As a consumer, I would judge products and brands image with how they can provide consistent and stable service and product. When we talk about products only, the increase or decrease of costs is definitely from the raw materials cost. Therefore, I think this material cost reduction is the major advantage from vertical integration. Secondly, there will be cost reduction from supply chain restructuring. Supply chain involved in every industry and business. When we use backward integration strategy part of vertical integration, we can eliminate or reduce supply chain cost. Because the margins that supplier has, will be removed from backward integration.
FERRERO GROUP CASE STUDY 6 Lastly, the quality control is advantage from backward integration. Especially food industry, if the company owns farm (supplier) they can get the quality they want. They do not need to depend on their suppliers and able to control the quality appropriately. On the other hand, there are three disadvantages from vertical integration. First, there is possibility of inefficient production costs. I have seen some cases of this. For example, if a serialized component maker is rather inefficient compared to other competitors, the production cost may increase. Automaker GM is more vertically integrated than Chrysler and I have seen this disadvantage from this example. Second, there is a risk of loss of investment opportunity. Vertical integration can increase a company's capital investment and possibly lose another investment opportunity. Lastly, I think there is possibility of increase of competition with other companies if the company integrated vertically. The reason for this is that competition will be worsening as the company's business scope expansion.

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