Question 68

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

Backward integration is a strategic move where a company acquires control over its supply chain, specifically by obtaining ownership of raw material sources. This approach allows the organization to ensure a steady supply of essential materials for its production processes.

A) Backward integration

Backward integration is correct because it involves a company taking control of its suppliers or raw material sources, thereby gaining direct access to the materials necessary for production. This strategy not only secures supply but can also reduce costs and increase efficiency in the production process.

B) Insourcing

Insourcing refers to the practice of delegating work or tasks to internal resources rather than outsourcing to external vendors. While it can enhance efficiency and control, it does not specifically pertain to gaining access to raw material sources, making it incorrect in this context.

C) Outsourcing

Outsourcing involves contracting external parties to handle certain business functions or processes. This method does not provide access to raw materials directly, as it relies on third-party suppliers, which makes it an unsuitable answer for the question posed.

D) Horizontal integration

Horizontal integration is a strategy where a company acquires or merges with competitors to increase market share. While it can enhance market presence, it does not facilitate access to raw material sources, rendering it incorrect for this question.

Conclusion

Backward integration is definitively the correct answer as it directly addresses the need for access to raw material sources by controlling supply chains. In contrast, insourcing, outsourcing, and horizontal integration do not provide the same direct access and therefore cannot be considered valid options in this scenario.