Management Notes

Reference Notes for Management

Which of the following approaches may use subcontracting to accommodate excess demand?

Which of the following approaches may use subcontracting to accommodate excess demand?

A. leading demand with a​ one-step expansion
B. leading demand with incremental expansion
C. Subcontracting should never be used to accommodate excess demand.
D. lagging demand with incremental expansion


Table of Contents

Subcontracting Definition

Two companies enter into a subcontracting relationship for mutual benefit. The process is known in India as ancillarisation and, more generally, as subcontracting. A great deal of production is outsourced to small scale enterprises called sub-contractors by large scale enterprises. In industrial subcontracting, small enterprises perform manufacturing work for larger companies. Commercial subcontracting is used in other cases. The work of subcontractors for more than one contractor is not uncommon.

Advantages of Subcontracting

  • By using it, you can increase production in the shortest amount of time.
  • Without investing in machinery and plants, the contractor can produce products.
  • Temporary manufacturing is especially suitable for subcontracting.
  • By using subcontractors, the contractor can take advantage of their technical and managerial abilities.
  • By providing them with business, subcontracting ensures the existence of subcontractors, despite leading to dependence.
  • In addition, subcontracting allows core firms to be more flexible in their production processes.

Disdvantages of Subcontracting

  • Contractors negatively affect the core firms’ ability to function because it does not ensure a regular and uninterrupted supply of goods.
  • It is common for subcontractor-produced goods to be of inferior quality.
  • As a result of subcontracting, the core companies can expand and diversify further.
  • Subcontractors’ survival is threatened by delays in payments by the contractor.


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