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The term vertical integration describes a process of reducing the hazards that may befall the company with regards to quality problems, cutting off of important material supplies and increase of cost. It deals with all the control measures that require implementation throughout the production process of the firm. Several benefits accrue to a firm that implements vertical integration.
The aspect of cost control is one benefit. Self-manufacturing takes away the supplier’s power and, in return allows the firm to gain crucial information. This further reduces the cost of purchasing the information which reduces the negotiation cost.
The other benefit of vertical integration is that it offers economies of combined operations. These two benefits lower the cost of manufacturing and allow a steady supply of crucial information that reduces the businesses’ risks. Vertical integration can either be backward or forward depending on what the firm prefers.
Identify problems related to the vertical integration process
The first problem in the firm is squeezing of profits. Affiliated companies are gaining ground as they convince purchasers to save money. Products of the firm are expensive, and purchasers prefer acquiring drugs that are cheap from the firm’s competitors so as to save a part of their earnings. A clear indication is visible in Lipitor. It is a firm’s drug that account for $13 billions of the firm’s revenue.
Its sale is missing the firm’s own targets since competitors are producing the generic drugs (Harrigan, 2003). The second dispute associated with vertical integration in the firm is that, it traps the company in the box of sales and marketing. This switches input from research and results in a backlash.
This is because the firm undergoing integration lacks full visibility of its assets to quickly and efficiently mitigate issues that arise during the integration. This makes it difficult for the firm to sell its quality products in the market. Additionally, there is no access to vital information that can aid the firm to outperform its weaknesses. The third problem is that, the firm is getting it harder and costly to establish new treatments (Peres, 1990).
Solutions to problems facing Pfizer organization’s
The organization can introduce backward vertical integration due to the benefits that it provides. This will improve workforce safety and productivity by giving the firm critical information that is vital in making effective decisions. This will also improve governance and reporting by capturing information at the point of selling and marketing. This will save on time and eliminate the aspect of entering data twice (Hill & Jones, 2012).
If the firm relies heavily on its own information without involving expertise in making substantial decisions, it might end up suffering considerable loss. However, if there is involvement of expertise, the opposite will be true. The firm can also engage new superiors to assist in changing things. These new bosses can use their skills and experience to solve the problems that the firm is facing (Peres, 1990).
The firm can further solve the problems it is facing by reacting to real-time conditions to optimize its operations and utilize the transformation network. This will minimize costs while keeping adequate levels of the firm’s reserve. In addition, the firm can accurately forecast and optimize demand response in order to plan in advance. This will help gap any issues that arise out of the firm’s operations (Hill & Jones, 2012).
Harrigan, K. R. (2003). Vertical integration, outsourcing, and corporate strategy. Washington, D.C: Beard Books.
Hill, W. L., & Jones, G. R. (2012). Essentials of strategic management. Mason, Ohio: South-Western/Cengage Learning.
Peres, W. (1990). Foreign direct investment and industrial development in Mexico. Paris, France: Development Centre of the Organization for Economic Co-operation and Development.
Summary of Problems, Opportunities, Solutions
(Fill out as many cells as needed in the matrix below and add rows, if needed).
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|Team Name:||Team members:|
Presenting problems or
opportunities will be
identified in Part 2]
|Solution Identified |
[Where more than
one solution is
identified, list them
in order of priority]
|Resource Needs |
Related to the
|Metrics of Success |
will be measured based on set targets]
|1. Squeezing profits||1. Production of high quality products in order to compete with substitutes |
2. Reacting to real-time conditions that optimize the firm’s operations and utilize the transformation network.
|1. Pricing constraints||1. Renewal of drugs (Bring new drugs/products to the market to replace lost revenues).|
|2. Trapping the company in sales and marketing||1. Relying more on the expertise and economies of scale. |
2. Engaging new superiors to change things in the company.
|1. Measuring the quality of information before implementing it into decisions.||1. Assessing the performance of the product in the market regularly.|
|3. Harder and costly to establish new treatments||1. Backward integration |
2.Forecast accurately and optimize demand response to plan in advance
|1. Methods for ascertaining the actual costs of the products in the market.||1. Improves control over the proprietary knowledge that is critical to the firm’s final product.|