Oracle to Revamp Sun Supply Chain

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 for $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 operating system.

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.