APPEAL OF BACKWARD INTEGRATION
APPEAL OF BACKWARD INTEGRATION
- Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
- Cost savings potential is strongest when
- Suppliers have sizable profit margins
- Item being supplied is a major cost component
- Necessary technical skills are easily mastered
- A differentiation-based competitive advantage arises when firm ends up with a better quality part
- Spares firm uncertainty of depending on suppliers of crucial raw materials