Development of Decision Model for Vertical Integration of Sales and Service Network, Scania CV AB.

University essay from Linköpings universitet/Produktionsekonomi; Linköpings universitet/Produktionsekonomi

Abstract: Abstract Vertical integration is a strategy where the firm owns the supply chain activities to gain control over the business operations, increasing the market share, and lowering the transaction costs. The vertically integrated firms tend to make more in-house operations. In the supply chain, vertical integration is performed either upstream or downstream. In the automobile industry, upstream integration is chosen to acquire or increase control over the suppliers by manufacturing goods internally while downstream integration is preferred to gain ownership with the previous distributors and dealers. This thesis work is carried out in the department of New and Strategic Project Markets in Sales and Marketing, Scania. The department New and Strategic Project Markets works with identifying the market potential in a country and future expansion of the sales and service network. A significant part of the Scania business is delivered through the sales and service network, which differentiates Scania from the competitors and provides the basis for profitability. Scania currently has models for identifying market potential and setting up the business in a market. With the future expansion, the establishment of a competitive sales and service network is a core part of the Scania business model. Currently, with changing market dynamics, Scania needs to evaluate the appropriate level of vertical integration to capture market potential, achieve profitability, and manage risk for the sales and service network. This led to the development of a decision model for vertical integration of the sales and service network. The purpose of this research is to develop a structured decision model for performing vertical integration and disintegration in the sales and service business of Scania to maintain or improve profitability by considering the risks. The current state illustrates an overview of the sales and marketing business process in Scania. As a pre-study phase, the thesis project includes reviewing Scania’s current practice for evaluating the market which contains market screening model and distributor development process (market establishment). Adding to that, an empirical study is carried out through interviews to identify the factors, forces, and risks involved in driving captive and non-captive markets. The above-mentioned information will act as a base for performing the analysis on building the decision model. From the acquired information, the analysis is carried out by prioritizing and categorizing the predominant factors and forces of vertical integration. Further, by performing risk analysis the decision model is built into four levels and the appropriate decisions are made to identify the level of vertical integration in the sales and service network. At last, to check the credibility of the decision model, a country is chosen for analysis, and the results are discussed.

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