Multiple suppliers respond to orders, and the purchasing is thus done based on price. The suppliers compete against each other to have the lowest bid while there is no guarantee of developing relationships between the company and its suppliers. The strategy places the burden of meeting the buyer’s demands on the supplier, thus improving services and cost. There are few disruptions, and businesses are flexible in dealing with unexpected market demands. The disadvantages include; higher costs regarding contract negotiations, lower-order volumes reduce bargaining power (Sinkovics, Hoque, and Sinkovics, 2018). The application of the strategy is common when the products are commodities. Walmart applies the strategy as it has thousands of stores worldwide where each location has multiple suppliers.
Buyer forms long term relationships with fewer suppliers forming alliances. The advantages include creating value through economies of scale, that is, large orders and low prices. Suppliers contribute to technical expertise through the design of new products. There is also reduced delivery time through just in time delivery service. The disadvantage of a few suppliers is the massive cost of switching suppliers. Toshiba Electronics applies a single-source strategy by partnering with Asyst Technologies.
Vertical integration is a competitive strategy where a company takes control over one or more production or distribution stages. The company owns its suppliers, thus controlling its supply chain. The advantages of vertical integration include; independence, reduced costs, and improved efficiency. The integrated firms are not dependent on other companies, thus reducing disruptions in the supply chain. The company can circumvent the middleman, suppliers with high bargaining power, thus reduce costs leading to greater profits and product improvement. The disadvantages include; high set-up costs, reduced flexibility, and erosion of company culture. Companies invest huge capital in acquiring the plants. The method reduces flexibility in business with rapid technological change due to capital investment in the latest technology. There are two different cultures involved, factories and retail stores, which can lead to misunderstandings and productivity loss. Apple Company applies vertical integration as it owns retail outlets and manufacturing facilities worldwide.
Keiretsu refers to a structure in which several suppliers, manufacturers, distributors, and bankers link together and form a business network. The organizations work together often as suppliers to each other and have close relationships. They also take small equity stakes in each other but remain independent (Min, 2019). The pros include the companies leveraging each other’s expertise to become stronger. Keiretsu network also limits the threat of competition and takeovers through the alliance. The disadvantages include reduced flexibility regarding adjustment to market changes and reduced quality, and inefficient practices due to lack of competition. Keiretsu networks are applied in the Japanese automobile industry, such as Toyota and Mitsubishi.
A joint venture is a formal collaboration between two companies to share ownership and control over property rights and operations (Uluskan, Joines, and Godfrey, 2016). The strategy pros include companies sharing the returns and absorbing the risks associated equally. The companies leverage combined resources such as expertise to achieve set goals. There are also reduced costs for each company due to shared advertising and labor costs. Joint ventures cons include the impossibility of recovering capital and different views on objectives. An example of a joint venture’s application is between UBER and Volvo to produce driverless cars with an ownership ratio of 50% each.
Virtual companies use networks to collaborate with other companies to create and distribute products without being limited by traditional physical locations. They outsource contractors in their business functions such as marketing and sales. Virtual companies’ advantage includes reduced overhead costs associated with retail space, such as leases and utility bills. Companies are also flexible in adapting to changing business environments. The disadvantages include communication issues due to lack of face to face conversations and lack of company identity due to diverse language and cultural differences. Retail and information technology industries apply the strategy through companies such as Amazon’s e-commerce trade.