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Beyond Vertical Integration The Rise of The Value-Adding Partnership

1) Value-adding partnerships (VAPs) are a set of independent companies that work closely together to manage the flow of goods and services along the entire value chain as an alternative to vertical integration. 2) VAPs provide the benefits of coordination and scale like large companies but also the flexibility, creativity, and low overhead of small companies. 3) For VAPs to be successful, participating managers must adopt practices that generate trustworthy transactions and sharing of information between partners.

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98 views

Beyond Vertical Integration The Rise of The Value-Adding Partnership

1) Value-adding partnerships (VAPs) are a set of independent companies that work closely together to manage the flow of goods and services along the entire value chain as an alternative to vertical integration. 2) VAPs provide the benefits of coordination and scale like large companies but also the flexibility, creativity, and low overhead of small companies. 3) For VAPs to be successful, participating managers must adopt practices that generate trustworthy transactions and sharing of information between partners.

Uploaded by

sumeet_goel
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Beyond Vertical Integration the

rise of the Value-Adding


Partnership
Submitted By:
Amit Singhal(93008)
Ankit Sharma(93011)
Manvi Garg(93025)
Sumeet Goel(93055)
Vaibhav Sharma(93057)
Vichikka Singhal(93058)
OVERVIEW
 Vertical Integration and its drawbacks
 Value Adding Partnerships
 Examples of VAP
 Merits of VAP
 Limitations of VAP
 Conclusion
VERTICAL INTEGRATION
The degree to which a firm owns its upstream suppliers
and its downstream buyers is referred to as vertical
integration.
Expansion of activities downstream is referred to as
forward integration, and expansion upstream is referred
to as backward integration.
Examples: Brooke Bond, Bata, Reliance petrochemicals,
Arvind mills etc
Benefits of Vertical Integration
Reduced transportation costs
Improved supply chain coordination
More opportunities to differentiate
Capture profit margins
Increased barriers of entry for potential competitors
Better accessibility
Facilitate investment
Drawbacks of Vertical Integration
Emphasis on one competitive dimension – eg: low cost
emphasis may loose focus on R&D, design, marketing
etc
Increased complexity due to large structure may
inhibit communication, innovation and flexibility.
Potentially higher costs
BEYOND VERTICAL

INTEGRATION…….
VALUE-ADDING PARTNERSHIPS
A set of independent companies that work
closely together to manage the flow of goods and
services along the entire Value Added Chain.
 VAC is to describe various steps a good or
service goes through from raw material to final
consumption (Smaller companies perform one
part of the VAC and coordinates its activities
with rest of them).
Merits of VAP model
Low complexity in VAP may facilitate communication,
innovation and flexibility.
Core competency, low overhead, lean staff, few middle
managers and short response time.
VAPs have the best of both worlds: the coordination
and scale associated with large companies and the
flexibility, creativity, and low overhead usually found
in small companies.
Merits of VAP model
Close and long lasting ties with each other in value chain.
Sharing of Resources.
Cost cutting.
Each partner looks for ways to add value by creating new
services.
More focus on Core competency.
Flexibility in production and variety.
Limitations of VAP
Competitive model - Lose of bargaining power with
increase in partners strength
Threat of partner as future potential competitor,
which may lead to :
Lack of trust among partners
Unwillingness in sharing information
Shipping shoddy materials, squeezing margins, delaying
payments, stealing ideas etc
McKesson Corporation
An example of a convention wholesale distributer turning
into a successful VAP
Its total network included manufacturer, retailer,
consumer, third party insurance supplier.
Success of Mckesson as VAP is because of its mangers
capability to see the entire VAP as one competitive unit
and not just because of the innovative use of IT.
Textile Industry
(Massimo Menichetti)
An example of how a loss making large vertically
integrated textile mill when disintegrated into eight
independent organizations turned successful.
The owner acting as an impannatore (broker) among
different organizations.
Other Examples
The subcontracting of jobs in Construction Industry.
The automobile industry shift from Vertically
integrated to VAP model.
The success of modern movie studios.
How can VAP be made successful
Attitude and practices of participating managers.
Partners must adopt and adhere to a set of ground
rules that generates trustworthy transactions.
The sense of partnership must become an enforceable
reality
Concept of “Prisoner's dilemma”
Choosing right number of partners, sharing
information, help partners control costs and
punishing partners in case of acts of opportunism and
gaming.
Conclusion
It seems clear that, for at least some value-
added chains, a value-adding partnership is a
viable and advantageous means of achieving
the benefits of vertical integration. By
observing the characteristics of and the
processes followed by successful partnerships,
executives can determine whether VAPs might
pay off for their organizations.
Thank You

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