Assignment 2: Planning Vertical Integration
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m5_a2_part_a.docx
Introduction
Vertical integration refers to the degree of control a firm exerts over its variety of groups as they move through daily operations and processes. (Coto, 2014). Vertical integration involves the interrelationship of the varying functions within the firm and without, particularly including supplying partners and buyers/customers. (Coto, 2014).
This paper will analyze vertical integration with respect to Quest Diagnostics. The company is huge and sprawling, with an inordinate number of functional groups due to the variety of services it performs as well as the number of varying acquisitions it has made and continues to make today in an effort to improve revenue. The company does not currently have an effective process design to promote vertical integration and leverage its functioning groups in a synchronistic manner in order to create competitive advantage. (Russell, Taylor & Pamplin, 2009). In fact, Quest Diagnostics’ revenues declined 3% last year and the company’s senior leadership is publicly revealing its need to improve process efficiencies and enhance financial performance. (Lee, 2014). The company is experiencing difficulties not only with the complexity of its structure engendering waste and increasing costs, but with the variety of products and services included in its supply chain structure at one end of the chain, and a decline in utilization from customers at the other end of the chain. (Lee, 2014).
This paper was produced by Team A of Dr. Roberto Coto’s Strategic and Operational Planning course online at Argosy University. Team members include Kahtrena DuBois, Deonte Smith and Linda Derrick. This paper will identify problems associated with the vertical integration at Quest Diagnostics, recommend possible solutions to those problems, and lay out solution evaluation methods as well as metrics to measure success of solution implementation. This paper will also provide a timeframe for the Vertical Integration Project’s completion, as time is the most critical element of project management, as well as provide a detailed accounting of who is responsible for each recommended solution’s implementation. (Russell, Taylor & Pamplin, 2014).
Problem 1: Diversity of Functioning Groups within the Company
Quest Diagnostics has over 2,200 patient service centers, hundreds of fully equipped labs, 42,000 employees, cancer, hospital and physician services, legal and compliance requirements at the federal, state and private levels, insurance claims department and underwriter testing and risk-assessment programs, HR, commercial and operational departments and needs, R&D initiatives including esoteric (molecular and genetic) testing and test development vital to company growth, sales and marketing needs, big data collection and communication services, and a complex variety of billing and reimbursement processes. (www.questdiagnostics.com, 2014).
The company, like most service companies, is also geographically spread out and decentralized, complicating the company’s ability to maximize economics of scale through effective utilization of its resource to lower fixed costs per unit and manage the integration of its processes so that costs related to operations/performance of its services do not increase when it increases its output. (Russell, Taylor & Pamplin, 2014).
Problem 2: Vast array of products and services needed by Quest Diagnostics from suppliers
Quest Diagnostics is involved in such a variety of outputs that its supply chain is extremely complex. Below is a listing of what the company buys.
(www.questdiagnostics.com, 2014). Problem 3: Underutilization At the sales/marketing/customer end of the supply chain, Quest Diagnostics is suffering from underutilization. With the current weak economy, prospective patients in all of the various networks utilized by Quest (physician, hospital, academic medical centers and community/local patient centers) are delaying testing and doctor visits, shrinking Quest’s customer base and revenues. In addition, as healthcare becomes more and more expensive, most companies are reducing the level of benefits provided to their employees, causing greater out of pocket expenses which deter people from seeking medical care. (Lee, 2014). |
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References
Coto, R. (2014). Online lectures, B6024, Argosy University Online.
Lee, J., (2014). Quest Diagnostics 3% revenue drop in 2013. Healthcare Business News.
Market Watch, )2014). Quest Diagnostics announces senior leadership appointments. The Wall Street Journal. Retrieved from http://www.marketwatch.com/story/quest-diagnostics-announces-senior-leadership-appointments-2014-02-17
Quest Diagnostics Press Release. (2012). Quest diagnostics launches new organizational structure to drive operational excellence and restore growth; appoints new senior leaders. Retrieved from http://newsroom.questdiagnostics.com/2012-10-11-Quest-Diagnostics-Launches-New-Organizational-Structure-To-Drive-Operational-Excellence-and-Restore-Growth-Appoints-New-Senior-Leaders
Quest Diagnostics Press Release. (1999). Quest diagnostics to offer testing services to more than 500 acute care hospitals of Broadlane. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=82068&p=irol-newsArticle&ID=155218&highlight=
Russell, R.S., Taylor, B.W., Pamplin, R.B. (2009). Operations management: creating value along the supply chain. John Wiley & Sons, Inc.
www.questdiagnostics.com. (2014). What we buy. Retrieved from https://questdiagnostics.com/home/about/operations/suppliers/indirect-purchasing-terms.html
