As Oracle looks to make Sun's hardware business profitable again, a key part of the plan is reforming Sun's supply chain, according to officials. Sun is moving from a build-to-stock model to a build-to-order strategy, reducing the number of systems it sells, cutting the number of component suppliers, and closing manufacturing and distribution centers. The moves will save money on transportation, distribution and inventory, Oracle and Sun officials said.
A key part of Oracle's plans for taking over Sun Microsystems' hardware business
centers around how those systems are built and delivered, according to officials with the newly combined company.
At the event Jan. 27 where Oracle executives unveiled plans for bringing Sun into the fold
executives outlined their strategy for making Sun's hardware supply
chain significantly more efficient, which in turn will enable Oracle to
save money and provide better service to customers, they said.
"Sun's supply chain was very complicated," Oracle President Charles
Phillips said. "We are going to make it a lot more efficient."
Oracle will change Sun's build-to-stock model to a build-to-order
one, a move that will help the company save on a variety of costs,
including shipping, distribution and inventory, according to Cindy
Reese, senior vice president for supply chain operations who came over
to Oracle from Sun.
At the same time, Oracle will greatly reduce the number of Sun
hardware products it produces, Reese said during the event held at
Oracle's Redwood Shores, Calif., headquarters. Already Sun has cut in
half the number of hardware products it sells, and will reduce that
even more as the build-to-order strategy becomes the norm, she said.
Reese didn't elaborate on the product lists, but said Oracle will
give more details during customer Webcast events in the future.
John Fowler, senior vice president for hardware engineering who also
came over to Oracle from Sun, said the company will offer fewer servers
than Sun did, and the systems will primarily be aimed at the high-end
of the market.
The future of Sun's hardware business was a key point of debate after Oracle announced last year that it intended to buy the struggling tech vendor
$7.4 billion. In the months leading up to the closing of the deal Jan.
26, CEO Larry Ellison said several times that Oracle intended to keep
Sun's SPARC/Solaris server business, invest more in the portfolio than
Sun did, and target the high-end of the server space, ceding the
high-volume, low-margin market to the likes of Hewlett-Packard and Dell.
Throughout the five-hour-long event Jan. 27, company officials said
Sun's server and storage businesses were key foundations of their
strategy to offer customers highly integrated solutions that included
everything from the hardware and applications to the middleware and
Making the hardware supply chain more efficient is an important part
of bringing the hardware business back to profitability, they said.
By reducing the number of products it sells and moving to a
build-to-order model, Oracle also will be able to cut the number of
Sun's component suppliers in half, reduce the number of manufacturing
locations by 60 percent and close two distribution centers in the
United States and Europe, Reese said.
In the build-to-order model, systems will be shipped directly from
the manufacturer to the customer, rather than stored in distribution
centers while waiting to be bought, she said.
"After working with Oracle, we decided to move to a build-to-order
model, which will save on distribution costs," Reese said. "We are
moving from a complex model to a very simple model."
During a question-and-answer period with reporters and analysts,
Oracle CEO Ellison said his company was going to be aggressive in
reshaping Sun's supply chain.
"We're going to move on this very, very fast," he said.
Fowler said Sun already had begun to move toward a build-to-order
model in the time leading up to the close of the deal with Oracle.