Introducing A Method to Support Integration Strategy In Supply Chain

This paper proposes a decision model of vertical integration which is based on some factors of Transaction Cost Economics (TCE): asset specificity, the uncertainty of the supplier and the uncertainty of the buyer. In the literature, there is a lack of a decision support model which will help the strategic managers of the firms in their vertical integration decisions. The proposed model in this paper was developed based on the approach of organizational design developed by Burton and Obel (1998). The model provides suggestion about making or not making vertical integration by indicating the level of certainty of the decision. The suggestions were developed using the concept of “If-then rules”. These rules were created using the research finding of the vertical integration studies in the related literature, which were sometimes conflicting because even with the same conditions the findings could be completely opposite of each other. In order to deal with this confliction, the findings of literature were integrated into the model, using Certainty Factors Theory. The model was applied to the 9 raw materials of 5 different firms and the firm managers were informed about the recommended vertical integration decision.