Recent comments and analysis concerning the state of the steel industry (Supply Excellence here and Spend Matters here) have pointed out that there is a strong trend of vertical integration going on; “certain industries now realize that these “old school” routines could help business” as Spend Matters Jason Busch puts it. WSJ reports that a growing number of steelmakers are shopping for iron-ore mines.
But using vertical integration as a strategic advantage never really went away; it just received a bad reputation. For instance, back in the late eighties/early nineties, as most companies were going horizontal; IKEA took a look at what they were doing and decided to go the other way. With a long history of doing business in Eastern Europe, IKEA founded Swedwood, to ensure supply in what they believed would become volatile times after the fall of communism. IKEA needed to safeguard itself against the loss of vital suppliers, and actively played a role in the privatization of their former suppliers.
Today, IKEA/Swedwood takes an active interest in the whole wood based furniture value chain; from forestry operations to sawmills and the board industry.
The reason IKEA did it back in the early nineties is the same that the steel industry is citing today: ensure supply and quality at competitive prices.
And if you haven’t forgotten your purchasing basics; that’s why you’re in the business.
