ECCO Case Study - Question 1
ECCO has a fully integrated vertical value chain. What are the pros and cons of that strategy? What economic and strategic factors should be analyzed to answer this question?
The pros of a having a fully integrated vertical supply chain for Ecco include the following:
* Improved supply chain coordination between tanning, manufacturing and distribution. This would ultimately help maintain quality and improve operational efficiencies such as logistics.
* There is also an increase in the areas possible for differentiation, as Ecco can control more inputs. An example might be in the tanning process, in which their competitors may have less control over.
* Ecco can also create greater…show more content… * More complex organizational structures may increase bureaucratic inefficiencies and complicate management decision making processes.
* Outsourcing manufacturing is typical for most of Ecco’s competitors, to keep costs down, the quality of manufacturing themselves needs to offset these increase costs.
Factors which favor vertical integration include:
* Taxes and regulations that could escalate costs between activities in the value chain.
* Studying the economics of scale are critical to ensure that sufficient volume is produced that will allow Ecco to benefit from economies of scale.
* Difficulty or risk in formation and monitoring of contracts with other partners in the supply chain.
* When other firms are reluctant to make investments due to macroeconomic influences.
Factors against vertical integration include:
* Quantities do not provide sufficient economies of scale.
* Labor costs will increase.
* If product is widely commoditized such that large-scale production is significantly more efficient than the volumes needed by Ecco.
* When there are significantly different types of industries in the value chain, expertise in the business will need to broaden to effectively manage all parts of the business.
* The addition of an activity may put Ecco in competition with a previously considered partner such as in tanning.
Further to this, whilst there are numerous pros