A. Analyze whether a Keiretsu network, a virtual company, a vertical integration, or a different supply chain strategy should be adopted. A Keiretsu network is a network of businesses that own stakes in one another as a means of mutual security, especially in Japan, and usually including large manufacturers and their suppliers of raw materials and components. There are two types of keiretsu: vertical and horizontal. Vertical keiretsu illustrates the organization and relationships within a company, for example all factors of production of a certain product are connected. A horizontal keiretsu shows relationships between entities and industries normally centered on a bank and trading company. The two are complexly woven together and self-sustain each other. A keiretsu network would not be a viable option for this small power tool company. A virtual company perspective, a virtual business will employ electronic means to transact business as opposed to a traditional brick and mortar business that relies on face to face transactions with physical documents and physical currency or credit. In this context the company can use suppliers on an as needed basis a virtual online environment would be a worthy consideration for this company. Today however my concerns are where the sales markets of power tools are concerned it is found that customers like to touch and feel what they buy, due to that fact online sales for power tools are not very equitable. However a company that provides a website to provide customer service for the products the company sells would be a good alternative to consider because it could possibly boosts sales through customer confidence in the company’s products. Another alternative to consider involving using e-commerce would be to offer customized power tool products that are only available online and require a pre-ordering process. In the power tool market considering a virtual company only is not recommended however if adopted along with a vertical integration process it could be a viable avenue to pursue. Vertical Integration, The degree to which a firm owns its upstream suppliers and its downstream buyers is referred to as vertical integration. Because it can have a significant impact on a business unit's position in its industry with respect to cost, differentiation, and other strategic issues, the vertical scope of the company is an important consideration in corporate strategy. Expansion of activities downstream is referred to as forward integration, and expansion upstream is referred to as backward integration. The concept of vertical integration can be visualized using the value chain. Considering the fact that the tool company’s products are made using an assembly process given this, it should implement backward integrating into intermediate manufacturing or forward integrating into distribution. There are two important issues that should be considered when deciding whether to vertically integrate your company and that is the cost and control factors. The advantages to implementing vertical integration consists of the following; Reducing transportation costs if common ownership results in closer geographic proximity, Improves supply chain coordination, Provides more opportunities to differentiate by means of increased control over inputs, Captures upstream or downstream profit margins, Increases entry barriers to potential competitors, for example, if the company can gain sole access to a scarce resource, Gains access to downstream distribution channels that otherwise would be inaccessible, Facilitates investment in highly specialized assets in which upstream or downstream players may be reluctant to invest, Leads to expansion of core competencies.
Today some of the benefits of vertical integration can be quite attractive to the company however there are some drawbacks that may negate any potential gains. Vertical integration potentially has the following disadvantages:...
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