Abbott Labs and Vertical Integration Research Paper

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It must apply the same rigor it does to evaluating its supply chain as it does to the quality of its pharmaceutical products.

Strategic inflexibility

As a company with a worldwide outreach, Abbott would benefit from leasing areas to serve as distribution hubs. This would enable it to retain close contact with both outsourced and non-outsourced segments of the supply chain, yet allow for greater flexibility and agility regarding the market situation and new opportunities. Of course, the costs of leasing must be contrasted on a cost-benefit basis with the costs of maintaining a unity.

Increased mobility and exit barriers

As demand grows more volatile, the costs of 'exiting' a particular market or area have increased. This can be difficult if a product is shown to be ineffective over time or demand decreases due to the availabilities of cheaper competitors or generics, or simply because of demographic shifts. Once again leased distribution centers will provide greater flexibility for the company to make quick adjustments.

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Tight coupling to poor performing business units

As Abbott seeks to outsource strategic parts of its operations, it must also look to divest itself of less profitable units. This will free up funds for new opportunities in the future as well as result in short-term cost savings. Once again, leasing will result in greater freedom in regions with great market volatility.

Lack of information and feedback from suppliers and distributors

It is not enough to merely rhetorically stress the importance of communication -- useful feedback must be encouraged and solicited in a meaningful fashion from suppliers and distributors. All of these suggestions must be constantly tailored and refined to suit the needs of the marketplace.

Resources

Bullwhip effect. (2011). Net MBA. Retrieved August 6, 2011 at http://www.quickmba.com/ops/bullwhip-effect/

Mattel outsourcing success victim. (2007). UPI. Retrieved August 6, 2011 at http://www.upi.com/Business_News/2007/08/29/NYT-Mattel-outsourcing-success-victim/UPI-57971188426718/.....

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