Some companies have found a
different way of maintaining control over the production and
distribution of their products. As it turns out, this way is actually
about 100 years old.
A recent Wall Street Journal
points out that companies including ArcelorMittal, PepsiCo, General Motors and Boeing are turning to “vertical integration,” whereby companies control the key aspects of a product’s sourcing, production and distribution. This is different from the early part of the 20th century, where some companies controlled absolutely every aspect
of a product’s life.
These companies are employing vertical integration
to battle against such things as volatile commodity prices and
financial pressure at suppliers, the Journal
step into vertical integration was solidified when it bought a 50
percent stake in a joint venture that makes parts for its 787
Dreamliner jet. The 787 is supposed to fly higher, faster and use less
fuel than anything out there. But now Boeing is looking to clamp down
on production of the jet, which features space-age parts and all kinds
of newfangled technology. Why? Because the company ran into some big
problems and it’s pushed back the date the jet was supposed to enter
service by at least two years.
It started when Boeing basically
turned the typical production mode on its ear. Instead of having
vendors ship parts to a central location where Boeing technicians would
put the jets together, contractors were supposed to piece together
larger parts of the jet at their own facilities, then ship those
components to Boeing for final assembly. But some plans look better on
paper than in reality. The contractors had problems getting hold of
parts and couldn’t stay on schedule. And Boeing had to contend with production problems created outside the company.
to the tried-and-true “if you want it done right, do it yourself”
method, Boeing ended up buying the company that was providing it with
fuselage sections. There are still plenty of kinks to be worked out,
but the company is addressing those to get this jet up in the air.
the automotive industry, there are various degrees of outsourcing, from
engines, to undercar parts to doors. But probably no one does it like
Porsche, which has a contract with a Finnish company to produce the
Porsche Boxster and Cayman. (Not to produce parts for the vehicles, the
Finland-based company Valmet produces the WHOLE vehicle.)
aftermarket brake manufacturer buy a steel plant to make its own
backing plates? Not likely. But perhaps a larger manufacturer of a
multitude of aftermarket products could. It’ll be interesting to see
how well companies who go “vertical” will do.
A WORD ABOUT VEGAS
going to evoke the tireless cliche/genius marketing slogan “What
Happens in Vegas Stays in Vegas.” Why? Because I don’t believe it. Many
people attending AAPEX in Vegas thought it would be a show full of
gloom and doom. But it wasn’t. The great thing about the show was I
heard no such thing. And those good vibes should follow us home from
Economists say a recession typically lasts about 18 months. I’ve looked at my calendar. We’ve done our 18-month sentence.