Vertical Integration vs. Outsourcing “Following the Crowd”

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Vertical Integration vs. Outsourcing
“Following the Crowd”

Collaboration issues in an SCM context

Table of Content

1. Thesis and Introduction
1.3Introduction into the topic

2. Logical Problems and Sub-questions

3. Methodology and Justification of Sections

4. Literature Review
4.1Literature Concerning the Terminology
4.2Literature Concerning the Main Theories of Outsourcing and Vertical Integration and the Examples of Carnegie Steel Company and Nike 4.2.1 Literature Concerning Vertical Integration and
Carnegie Steel Company
4.2.2Literature Concerning Outsourcing and Nike

5. Vertical Integration
5.1The Concept
5.1.1 Introduction into the Concept
5.1.2Advantages, Reasons, Goals
5.1.3 Disadvantages and Deficiencies
The Example of Carnegie Steel Company

6.1The Concept
6.1.1 Introduction into the Concept
6.1.2Advantages, Reasons, Goals
6.1.3 Disadvantages and Deficiencies
6.2The Example of Nike

7.Antagonism in the Goal of Improved Cooperation
and Production flow
7.1Conflicts in an Integrated Supply Chain
7.1.1In-house Collaboration vs. B2B- Collaboration
7.1.2The Reliability of Third-World Suppliers
and Quality Considerations
7.2Giving up Profit Margin Advantages

8.Conclusion and Outlook

9. References

1. Thesis and Introduction

(1.1) Thesis

The concept of vertical integration has evolved at the end of the 19th century and from then on succeeded throughout decades, helping blue chip companies to gain large profits and to gain market shares that are unimaginable today. In the 1980ies however, after the first two decades of intensive research in strategic management had passed the time of outsourcing as the new “promise of heaven and earth” began, caused by the widely perceived need to delegate non-core operations from internal processes (especially production) to external companies and by the necessity to be able to react to the ever-changing needs of the consumers. By today outsourcing as corporate strategy has captured such a big stake that most standard teaching books of Logistics and Supply Chain Management do not even any more raise the question of justification for this basic change in strategic management. As an example could be mentioned “Logistics and Supply Chain Management” by Martin Christopher (Third Edition) which focuses heavily on the concept of the integrated supply chain and dealing with suppliers and distributors. It thoroughly explains the increasing rivalry of supply chains instead of companies but does not cover the underlying question of the need to source out. The evolved big transnational companies which face strong competitions nowadays are in the permanent pressure that they may not manage to jump on the “fast running train” of technical innovation and newly developed markets which could trigger big profits and a higher market share. Our thesis is that the jump on the “fast running train” also resembles the choice and implementation of the right supply chain. Since most products today are commoditized, meaning that there exist mainly no noticeable differences in the product properties, it is a fight of supply chain against supply chain which makes the difference in success on the market (M.Christopher, Logistics and SCM, 2005, Ch. 1). We therefore will try to elaborate the assumption that firms chose to implement similar strategies to their competitors to make sure that they have the same chance to adapt to market changes. They do not really take into consideration the chances of “swimming offside of the mainstream”, thus choosing a different corporate strategy with its advantages and disadvantages. In compliance with the overall task we will also convey our opinion that a vertically integrated supply chain is more likely to lead to an optimized collaboration within the complete supply chain from the first supplier to the end...
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