The investors of Best Tool Company (BTC), a company established to manufacture and sell electric drills, saws, and sanders, have requested a supply chain strategy which is outlined below.
A.) In considering options for supply chain strategy, the pros and cons of various methods should be considered. In this section, the Keiretsu networks, Virtual Company, and Vertical Integration methods will be discussed.
Keiretsu networks are business networks composed manufacturers, distributors, and financiers. In this model, the manufacturers may choose to be partial owners of the suppliers and the suppliers become part of the company coalition (Heizer & Render, 2011). The benefit of a Keiretsu strategy is the mutually beneficial relationship through shared goals which provides a level of trust. This network strategy is compelling in that the risk that is normal in supply chains is spread somewhat. Also, the flexibility provided by this strategy is impressive. Short-term relationships can be developed with multiple vendors which assist in negotiating reduction of costs paid to these vendors. Long-term relationships will be developed over time with a few key vendors which provide security in the delivery of high quality products. A few disadvantages to consider are costs involved in maintaining the network when multiple vendors are involved. It is important to actively manage these relationships to avoid increased costs of goods or services and to monitor quality.
A virtual company is formed by a network of independent companies. A virtual company has a large number of supplier and provider relationships which offers flexibility to meet changing market demand, and low overhead costs (Heizer & Render, 2011). Virtual companies are formed on the basis of cooperative agreements and have little to no hierarchy or vertical integration. The advantages offered