When should Mature Businesses Rely on itself to Manufacture

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The make-or-buy question in mature industries. This article review analyzes the answer to the age-old question of when should mature businesses rely on itself to manufacture or provide certain parts, products, or services, and when should the organization purchase from outside sources instead? Hayashi (p. 5) also discusses different choices made about the use of vertical integration whether it is warranted or not by gleaning through considerable analytical research. In addition, the data also addresses when countries like the U.S. must compete with countries such as China who can produce items or services at a much lower cost and higher production rate.

How can the U.S. stay relevant in such as a competitive global market? Extensive data from the researchers at Institut Europeen d'Administration des Affaires (INSEAD) or the European Institute of Business Administration, a graduate business school, along with the Universidade de Coimbra and InsCosta with the Center for Innovation, Technology and Policy Research at the Instituto Superior Tecnico in Lisbon is considered to explain a theory and possible conclusion. The data itself is collected over a period of 15 years during 1990-2005 from a significant study conducted within the Portuguese footwear industry compiled from a limited sample pool. The review explains how the three subjects of the study Basilius, J. Sampaio & Irmao, and Investvar were observed for not only routine practices like product design, marketing, and distribution, but also specialized manufacturing which included cutting, stitching of leather pieces, and producing the soles. Two out of the three firms were able to come up with relatively successful results for vital aspects of a winning strategy: scope, permeability, and modularity of their value-creating activities (Hayashi, 2008, p. 6). One main point highlighted is that the research did not conclude definitive results. However, it did reveal businesses that focused less on core competencies, introduced technology advances, and ventured to outside market influences were more effective. As well as abandoning the practice of internal functionality only and then instituting modularized and self-sufficient business units. Thus, thereby creating a formula and an effective management of a supply chain. The textbook states that "supply chain management (SCM) consists in the theory of multiple firms collaborating to leverage strategic positioning and to improve operating efficiency representing a strategic choice," (Young, 2017, p. 4). To reiterate further SCM is a cohesive management approach to a firm’s supply-side relationships. The SCM suggests organizations move away from the routine and solo production into a coordinated effort that increases market impact, overall efficiency, continuous improvement, and competitiveness (Young, 2017, p. 7).

The informative text also points out that a significant factor of SCM is mobility and unquestionable transformation. Many believe that SCM and procurement are closely related. Procurement being the method which consolidates the activities of obtaining and then managing a business’s supply efforts. Hayashi (2008) explains supply chain management based on the study by discussing how the two of the three companies adopted five areas of strategic importance: information, product, service, financial, and knowledge to set up a pioneering opportunity. Information reviewed as all three firms were observed to pinpoint general processes as well as industry-specific activities. All methods noted as to whether businesses relied on itself to manufacture or provide certain parts, products, or services, when some jobs were outsourced for maximum efficiency, and when a combination of the two was utilized.

The data supported that each organization used varying degrees of an SCM strategy that worked and did not work. As indicated in the article Basilius settled on a traditional channel of strategy by adhering to the same methods used in the past and not embracing newer best practices of SCM. The company proved an older theory of mature companies focus only on tried and true methods used in past successes. However, Basilius displayed the most unfavorable results based on this decision. Unfortunately, research reveals that this is the decision of many mature companies when demand and finances decline to reemphasize those processes and not introduce a different strategy. J. Sampaio & Irmao and Investvar sought to improve and utilize innovative procedures. The most effective and favorable decision. The SCM strategy was to be confident in core competencies, and move to other improve upon the supply network, integrated enterprise and market distribution network. The move aimed at increasing the scope, permeability, and modularity of the two shoe manufacturers.

A closer look revealed that J. Sampaio & Irmao and Investvar revamped operations incoming and outgoing and found an unexplored market niche of supplying shoe sample collections for retail chains. In reworking the supply chain models and adding innovative activities to the existing network each was able to create an operation that aligned the production with customers, provided supportive distribution, and a supplier network that improved both facilities’ competitive advantage. It was also cited that researchers found that the benefits outweigh the coordination costs involved in managing an increased number of activities. A strategy of not focusing on core competencies but introducing technological advances into the current operations. This accomplished by exposing core competencies to outside markets for suggestions of improvement and possible outsourcing if necessary to improve efficiencies. Then making each facet modular and self-sufficient. Mature companies can emphasize these adjustments and successfully evolve over time and extend the life of a product or service. In other words, update processes continually to stay relevant or in demand to customers and supply network participants.

In conclusion, Hayashi finds that the scope, permeability, and modularity of value-creating activities help answer the make or buy question for some businesses. Both researchers felt confident in the findings that those three vital components; scope, permeability, and modularity contributed to a business being able to succeed in a mature climate time after time. By continuously addressing these three areas mature businesses can adjust processes of making, buying parts of the operation and remain competitive for because of for some time. "In particular, the researchers argue that greater scope, permeability, and modularity enable companies to identify and take advantage of lucrative business opportunities more quickly," (Hayashi, 2008, p. 6). However, Hayashi (2008, p. 6) emphasizes that in no way are these results definitive because such a small pool of participants was used. Hayashi also mentioned that the study proved correlation and not causality. Meaning that the primary components contributed to a notable continual success rate. However, it did support that traditional channels of adhering to the same methods or only reinforcing core competencies definitely did not prove to be the best method.

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When Should Mature Businesses Rely on Itself to Manufacture. (2021, Mar 20). Retrieved December 1, 2023 , from

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