Question 68

Backward integration enables an organization access to a raw material source.

Backward integration is a strategy where a company acquires or merges with its suppliers to gain control over the raw materials needed for production.

A) Backward integration

This option is correct as backward integration directly involves a company taking control of its supply chain by acquiring sources of raw materials. By doing so, an organization can ensure a steady supply and potentially reduce costs associated with sourcing these materials from external suppliers.

B) Insourcing

Insourcing refers to the practice of bringing operations or services in-house rather than outsourcing them to third-party providers. While this can improve control and reduce costs, it does not specifically address access to raw material sources as backward integration does.

C) Outsourcing

Outsourcing involves contracting out business functions or processes to external vendors. This strategy focuses on efficiency and cost savings but does not enable an organization to gain direct access to or control over raw material sources, which is essential for production continuity.

D) Horizontal integration

Horizontal integration occurs when a company acquires or merges with competitors in the same industry to increase market share. While this can enhance market presence, it does not facilitate access to raw material sources, making it less relevant to the question at hand.

Conclusion

Backward integration is the definitive strategy that allows organizations to access and control their raw material sources, ensuring supply stability and cost management. The other options, while relevant in different contexts, do not provide the same level of direct access to raw materials needed for production.