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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Brindle Ltd compares its value chain with competitors and finds its inbound logistics costs are high. Management considers acquiring a key supplier so it can control input quality and cost. In value chain terms, which analysis does this relate to?

This is vertical integration backward, analysed through the value system that links the firm's value chain to those of its suppliers. Buying the supplier brings upstream activities in-house to control input quality and cost, unlike outsourcing or unrelated diversification.

  1. ALinkages within the organisation's own chain only
  2. BVertical integration backward into the supplier's value chain, using the value systemCorrect
  3. CHorizontal diversification into an unrelated industry
  4. DOutsourcing of a support activity to a specialist

Explanation

The value system connects the firm's chain with supplier and distributor chains. Acquiring a supplier is backward vertical integration, capturing margin and coordinating linkages upstream. Horizontal diversification and outsourcing move in different directions; outsourcing would reduce, not extend, the firm's own activities.

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