VALUE CHAIN DECISIONS

Elbo, Katherine L.
C B E T - 0 1 - 1 0 2 A : B S A
VALUE CHAIN DECISIONS
Organizations face numerous decisions in designing
and configuring their value chains. The integration of
all pieces should be an effective and efficient system. 

The operational structure of a value

chain is the configuration of
resources such as suppliers,
factories, warehouses, distributors,
technical support centers,
engineering design and sales
offices and communicatin links.
VALUE CHAIN DECISIONS Different management
skills are required for
different operational
skills
Each business is a profit
center w/ its own unique
market and operating
conditions
Consequently operational
structure  is decentralized
Technology made its way
in the industry  
4.1 Outsourcing and Vertical Integration
VERTICAL INTEGRATION
Vertical integration refers to the process of
acquiring and consolidating elements of a
value chain to achieve more control.
It adds more complexity to managing the value chain
A successful integrated companies where effective
execution of its strategy on controlling all stages of
production, from making to selling.
VERTICAL INTEGRATION IN
THE PHILIPPINES

Zamboanga Universal Southern

Universal
Universal Ice Plant Philippines
Shipyard
Fishing Corp. and Cold Fishmeal
Storage Corp

S O U R C E : U N I V E R S A L C A N N I N G . C O M
 4.1 Outsourcing and Vertical Integration
OUTSOURCING
Outsourcing is the process of having suppliers
CING provide goods and services that were not
previously provided internally.
Opposite of vertical integration, organization is shedding 
The organization that outsource does not have ownership of
the outsourced process or function.
The U.S. has experienced three waves of outsourcing:
The first wave involved the exodus of good-producing
jobs. ex. Gibson Guitars, produces it  Epiphone litne in
Korea.
The secondi wave involved simple service  work.  ex.
Accenture, IT and Bookkeeping operations in Costa Rica.
The third, and the current wave, involves skilled 
knowledge work. ex. Fluor Corporation of Aliso Viejo,
California, uses engineers and drafters from Philippines, 
Poland, India, etc.,

S I N A I D E S I G N E R S
 Top 6 Reasons to
OUTSOURCING IN THE

Time is a factor in all businesses, but with in the

Outsource
construction projects, it is crucial. 
Philippines 
PHILIPPINES

English Language
The Business process Proficiency
outsurcing (BPO) industry Cost-effective
in the Philippines  is one of Cultural Advantage
the highest contributor to Data Privacy Act of
the GDP. It could earn 2012
roughly $55 billion by year Government support
2022 which is 11% of  and political will
Philippines GDP. Positive attitude
0 5 S O U R C E : O U T S O U R C E A C C E L E R A T O R . C O M
 Backward integration refers to
acquiring capabilities at the
front-end of the supply chain
(for instance, suppliers)
ex.  Motorola Siemens and Sony

Forward integration refers  to acquiring

capabilities towards the back-end of the
supply chain (for instance, distribution or
even customers) ex. DuPont, British
petroleum,  Haimen Jiangbin  an d GFS 
Chemicals
0 6 S I N A I D E S I G N E R S
 4.2 The Economics of Outsourcing
The decision in whether to outsource is usually based
on economics, and break-even analysis can be used to
provide insight into the best decision
VC1 = variable cost/ unit if produced
VC2 = variable cost/ unit if outsourced
FC = fixed cost
QD = Quantitiy demand (volume)
* Whenever the anticipated volume is greater than Qd the firm should produce the part in-house,
otherwise it is the best to outsource

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             Suppose that a manufacturer needs to produce a
customer aluminum housing for a special customer order.
PROBLEM EXAMPLE
Because it currently does not have the equipment necessary
to make the housing, it would have to acquire machines and
tooling at a fixed cost of $250000. The variable cost of
productio. is estimated to be $20 per unit. The company can
outsource the housing to a metal fabricator, at a cost of $35
per unit. The customer order is for 12000 units. wha should
they do?
Solution:
VC1= variable cost/ unit if produced = $20
VC2= variable cost/ unit if outsourced= $35
FC= fixed cost associated with producing the part =$250000
QD= ?
 4.3 Value and Supply Chain Integration
VALUE CHAIN INTEGRATION
Value  chain integration is the process of managing information,
physical goods, and services to ensure  their availability at the
right place, at the right time,at the right cost, at the right
quantity, and with the highest attention to quality.
Value Chain Integration in services-where value is in the
form of low prices, convenience and access to spatial time
sensitive deals and travel packages- take many forms.
S I N A I D E S I G N E R S
4.3 Value and Supply Chain Integration
SUPPLY CHAIN INTEGRATION

Supply chain integration focuses solely on coordinating

the physical flow of materials to ensure that the right
parts are available at various stages of the supply
chain,such as manufacturing and assembly plants 

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THANK YOU