Dive Brief:

• Luxury fashion brand Burberry said it will acquire a leather goods business from Italian supplier partner CF&P, Sourcing Journal reported.
• Burberry CEO Marco Gobbetti called the acquisition a "major milestone" and said the move would give the brand "greater control over quality, cost, delivery and sustainability of our leather goods," according to a press release.
• Under the agreement, CF&P employees will become employees of Burberry once the deal is complete.

Dive Insight:

Is there a better way to gain control of a supplier than to buy them?  Perhaps there is.

In a strategic sourcing process, we identify suppliers that are critical to our business and create a strategy to ensure optimum performance and continuity of supply. Sole source suppliers, especially those with a proprietary technology, specialized process or unique material, take special planning and consideration to understand their business as well as the structure of their supply chains.

If enough risk is identified and further control is necessary, companies can amp up their contractual relationships, take a financial stake or take outright ownership of a key supplier. As companies take a deeper dive into the viability of supply chains and their inherent risk, there might be more situations where ownership becomes the solution. But it is a risky one.

I’ve dealt with captive suppliers, those companies with only one customer. In once case, I inherited this job-shop relationship and it was my responsibility to keep the supplier humming along with work. While I certainly dealt with other suppliers in this commodity area, the responsibility of managing a captive supplier was intense. Their cost models were not that beneficial and the risk of their failure was high.

When my business hit a market dip, fewer orders went to the captive supplier, causing them to teeter on bankruptcy. The owner eventually retired and their work was disbursed to the rest of the supply base. But why were they a captive supplier in the first place? There was a relationship between the owner of my company and the owner of the supplier. Some sourcing decisions are made in the boardroom … or golf course.  

I’ve also dealt with "sister-divisions." These are business units of your company that can supply parts and services. The relationships are typically set up at the senior level and the mandate to use this "intercompany" supplier is non-negotiable, often due to financial and tax considerations. Mandated relationships are often rocky, and these were no exception. Too often critical deliveries were shifted to "real customers" and my expediting and negotiation had to be at the senior management level.

While ownership might change the relationship, it will not change the risk. The company that now owns the supplier inherits all of the issues that the supplier has, including those in the supply chain. That risk is now the responsibility of the new owner. There is certainly more control but the problems and risk issues still need to be resolved. It might not be as easy as it looks.