Economics of Vertical Integration and Control

Discuss about the Economics of Vertical Integration and Control.

Microfuse Inc has given emphasized on vertical integration. This is one of the most significant operational strategies in the industry for gaining competitive advantages.  The advantage lies in greater capability of for controlling the input access by having a control on the cost, deliver times and quality of the important inputs. Vertical integration has affected the Economic scale, Cost reduction, minimizing threat from the suppliers and customers who are powerful, economic scope, great control on the chain value and reduction of cost (Blair & Kaserman, 2014). Therefore, vertical integration helps in controlling the inventory level and thus minimizing the time span.

Therefore, the reasons accounted for higher levels of inventory for Microfuse are excellent quality on the control of inventory helps in increasing the cost of the final products, increasing the competitiveness, inventory’s holding cost is high, which also increases the storage cost and in turn increases the cost of raw materials (Jacobs, 2015).

The outsourcing of the Microfuse Inc operation leads to the reducing the cost of inventory, staffs and users are more trained, reducing the cost of products as well as raw materials and excellent efficient process. Therefore, outsourcing will have certain quality advantages over the control of inventory cost.

Microfuse Inc has included both outsourcing as well as off shoring. The outsourcing is done in both strategic and tactical way. The process of strategic outsourcing helps in employing the service provider for managing significant tasks, which is been managed by the in-house employees. It helps the business to gain benefits by arranging the asset and utilizing it according to their need.  It also helps the progress of the company to their desired goals. Tactical outsourcing is done when the desire for solving the practical problem exists (Gunasekaran et al., 2015). For example the company might outsources the processes of payroll and all the work done regarding the payroll is been completed within the time supported with low costs. Therefore, by applying the process of tactical outsourcing Microfuse gain huge final gain on operation efficiency. On the other hand strategic outsourcing is not based on solving the practical problem. This strategy is been aligned and formulated according to the long-term strategies of the company. Strategic outsourcing helps in gaining competitive advantages over the other rival companies, organization is reposition in the competitive market, share price increase dramatically and more time as well as priority is given on the activities that contributes for the success of the companies (Xiao, Xia & Zhang, 2014). The operation of Microfuse Inc is been affected by outsourcing strategy as it helps in lowering the cost of raw material and inventory. Therefore, the global operation of the company is been uplifted by controlling and enhancing the mechanism of outsourcing strategy.

The company also follows the off-shoring strategies. It is quite difficult in off-shoring the work as it requires hiring the law firm from outside and maintaining the in-house employees. Off- shoring also adds some advantages in the field of gaining skill employees. It helps the company to gain skilled workers.

References List

Blair, R. D., & Kaserman, D. L. (2014). Law and economics of vertical integration and control. Academic Press.

Gunasekaran, A., Irani, Z., Choy, K. L., Filippi, L., & Papadopoulos, T. (2015). Performance measures and metrics in outsourcing decisions: A review for research and applications. International Journal of Production Economics, 161, 153-166.

Jacobs, R. R. L. (2015). Methods for predicting inventory levels in a segmented retail supply chain (Doctoral dissertation, Massachusetts Institute of Technology).

Xiao, T., Xia, Y., & Zhang, G. P. (2014). Strategic outsourcing decisions for manufacturers competing on product quality. Iie Transactions, 46(4), 313-329.

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