The advantage of internal operations

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Advantage 1: Close integration between activities

The first benefit that comes with undertaking activities internally within a firm instead of via suppliers, is that it allows close integration between the activities. Different areas of the firm may be able to work directly with one another, with products moving directly from one area to the next. 

Advantage 2: Greater control over activity

The next advantage associated with internal operations is that it gives you greater control over the activity. You are not dependent on the specific decisions made by a supplier, instead, you are free to adapt the activities to the specific needs of the business.

Advantage 3: Greater ability to differentiate from competitors

Undertaking an activity internally may also give you a greater ability to differentiate your offerings from your competitors. If all of your competitors are using a particular supplier, then undertaking it yourself, particularly if you are able to do so in a way that offers some new benefits, may allow you to separate your operations from those of your competitors. The internal operations may give you specific benefits that no other firms in your industry have. 

Advantage 4: Avoids powerful suppliers

The final reason for undertaking activities internally is that it avoids suppliers becoming too powerful and extracting a high proportion of the overall value being created. If you are dependent on a supplier, then they may be able to gradually increase the price of the input over time, knowing that you have to continue your relationship because you have no other options. This tendency may be particularly true when there are few suppliers available. By undertaking the activities internally, you avoid this danger of getting locked in. 

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