A firm that buys from another company a good or service that is part of the firm's value-added activities is practicing ________.
A) outsourcing
B) vertical integration
C) horizontal integration
D) lean production

Question

Quizplus · Accepted Answer

Outsourcing involves a company contracting out or purchasing goods or services from an external supplier, rather than producing them in-house. If the goods or services being purchased are part of the firm's value-added activities (i.e. activities that add value to the final product or service), then outsourcing can help the firm focus on its core competencies and reduce costs. Therefore, A) outsourcing is the correct answer. B) vertical integration involves a company expanding its operations into different stages of the supply chain (e.g. a manufacturer acquiring a supplier or a distributor), while C) horizontal integration involves a company merging with or acquiring another company in the same industry. D) lean production is a manufacturing approach that focuses on reducing waste and increasing efficiency. While outsourcing can be a component of lean production, it is not a defining characteristic.

A Firm That Buys from Another Company a Good or Service