Vertical Integration: Supplier Visibility Heads "Back to the Future"

According to Wikipedia "Nineteenth century steel tycoon Andrew Carnegie introduced the idea of vertical integration. This led other businesspeople to use the system to promote better financial growth and efficiency in their companies and businesses." It is essentially the practice of controlling as many factors of production as possible in the overall supply chain that give rise to a product or service. With the recession induced increased need for supplier visibility, it is perhaps not surprising that many large corporations are (re)turning their attention to this pillar of the industrial revolution.

This morning's WSJ reports that "Larry Ellison, the billionaire chief executive of software maker Oracle Corp. ... known for forward thinking ... is taking a page from the past ... with his new business model [planning] to buy Sun Microsystems Inc. and transform Oracle into a maker of software, computers, and computer components -- a company more like the U.S. conglomerates of the 1960s than the fragmented technology industry of recent years." The column quotes "Harold Sirkin, global head of the Boston Consulting Group's operations practice [saying] 'The pendulum has shifted from disintegration to integration' ... He attributes the change to volatile commodity prices, financial pressures at suppliers and quests for new revenue -- challenges exacerbated by the recession."

The Journal states that "Mr. Ellison is betting that the combination will appeal to corporate customers tired of assembling technology from multiple vendors" and sums up this contemporary back shift best in quoting Mr. Ellison from an event in October where he said "We weren't in the hardware business, now we're diving in with both feet ... We're really brilliant, or we're idiots."

William Busch

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