The Seventh Day of Christmas – Review of Vertical Integration Options in the Goose Egg Supply Chain

- December 17, 2012 1:31 PM
Categories: | Tags: , ,

Analysis

What we face here is an issue of vertical supply chain integration. We require a particular input to our business process. So we have two options – do we purchase that particular input in its finished form, or do we acquire  the means to produce that input?

The issue is analogous to the old Henry Ford question. Ford famously took vertical integration of his supply chain to extremes, buying mines and forests to control the sources of his raw materials. Now arguably the advantages of doing this a hundred years ago were clear – supply was less certain, and he wanted to guarantee availability of critical inputs for his auto plants, at a time when manufacturing was booming and shortages of material were likely.

The other advantages of such integration can include the opportunity to develop new business opportunities – clearly, as well as supplying the internal supply chain, that downstream operation can sell on the open market too.

So, given our requirement for goose eggs for our new luxury chilled omelette ready meals, do we purchase the eggs directly – or do we look to control the next level of the supply chain by purchasing our own geese?

On the positive side, the geese will reduce the need for grounds maintenance as they will keep the lawn in front of the offices nicely trimmed. On the other hand, someone has to clean up their mess…  We’ve also carried out the financial analysis and the business case is not clear in either direction – the cost of the eggs on the open market is within 10% of our estimated goose running costs for the in-house option.

Then final question is security of supply. Our research suggests that goose eggs are rarely in short supply. And of course owning our own geese does not guarantee regular production – we may have to supplement this on the open market anyway if our flock don’t lay at the required rate.

Recommendation

Given the lack of a clear financial case in favour of investing in our own means of production, and limited supply risk given the secure external production base (with apparent spare capacity from what we can see), our recommendation is not to proceed with the purchase of seven geese a laying. We will run a brief tendering process to source supply from the open market.

Debbie Robinson, Category Manager, Food Ingredients

Comments

  • Flog:

    Hi Debbie,

    Just read your analysis – very interesting; however, I know my Dad always relied on his geese as self-financing security staff. They can be viscious little beggars, plus the one that was becoming a bit less aggressive made a nice alternative to the Xmas turkey!

    So my question, was there a security services consideration in your business case? It may swing the 10% difference.

    See you in the New Year

    Carole, Head Chef

Join the Conversation

* Required fields  [email address will not be published]

*