Exam 2: Value Chains

Backward integration refers to acquiring capabilities toward distribution.

Nearly all value chains are managed from a centralized operational structure because of the inherent inefficiencies that are found in decentralized operational structures.

Value chain integration requires consolidating information systems among suppliers, factories, distributors, and customers; managing the supply chain and scheduling factories; and studying new ways to use technology.

Two alternatives are being considered for a customer's order whose anticipated volume is not yet known.If the firm produces in-house, the fixed cost is $340,000 and variable cost is $2.90 per unit.If the firm chooses to outsource, it will incur a fixed of $275,000 and variable cost is $3.50 per unit.Determine the breakeven quantity and a decision rule of when to outsource.

Contrast outsourcing with vertical integration.Also, contrast backward integration with forward integration.

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its new fax machine production.The company expects to produce 9,000 units per year.The following estimates have been made: a.What is the annual cost to make the roller gear assembly in-house? b.What is the annual cost to buy the roller gear assembly? c.At what volume are they indifferent regarding the decision to make or buy?

What are the major decisions a firm must address in designing and configuring a value chain?

A value chain begins with the goods and services that are provided to customers.