When applying value chain analysis, a firm sends its production manager to visit the operations of its major supplier in an attempt to determine if there are cost-savings capabilities that could be implemented at the supplier's warehouse. The firm is performing which form of value chain analysis?
a.Internal differentiation analysis.
b.Internal costs analysis.
c.Vertical linkage analysis.
d.None of the above.
Answer:C
Choice "C" is correct. Analyzing the vertical linkage of a firm means understanding the activities of the suppliers and buyers of the product and determining where value can be created external to the firm's operations. The production manager's visit to the supplier's location is vertical linkage analysis.Choice "a" is incorrect. The firm may analyze its ability to create value through differentiation (e.g., what are the sources of differentiation and what are the related costs?) when the customer perceives that the firm's product is superior to those of its rivals. The production manager's visit to the supplier's location is external, not internal, and represents vertical linkage analysis. Choice "b" is incorrect. In order to determine the internal value-creating ability of a firm, the sources of profit and costs of the internal activities within the firm must be analyzed. The production manager's visit to the supplier's location is external, not internal, and represents vertical linkage analysis. Choice "d" is incorrect, per the above explanation.