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Operations Management: An Integrated Approach, 5th Edition by Nada R. Sanders, R. Dan Reid

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SOURCING ISSUES

Which products or services are provided in-house by the manufacturer, and which are provided to the manufacturer by other members of the supply chain? Vertical integration is a measure of how much of the supply chain is owned or operated by the manufacturer. Products or services provided by the manufacturer are insourced. Products or services not provided by the manufacturer are outsourced. Outsourcing means that the manufacturer pays suppliers or third-party companies for their products or services, a practice that is on the rise. A recent survey reported that 35 percent of more than 1000 large companies have increased their outsourcing. Another survey of large companies reported that 86 percent outsourced at least some materials or services. The activity most frequently outsourced was manufacturing.

imagesimages Vertical integration

A measure of how much of the supply chain is actually owned or operated by the manufacturing company.

images Insource

Processes or activities that are completed in-house.

images Outsource

Processes or activities that are completed by suppliers.

Backward integration ...

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