Earlier in the semester, I wrote a blog post examining the proposed merger between Broadcom and Qualcomm under the framework of Managing Projects. This week our topic is Designing Supply Chains, and I thought a great way to explore the broad scope of Operations Management would be to analyze this deal in the new framework. This is an opportunity to show how one project or business function incorporates several aspects of OM, and that each of these is equally as important as the next to its own success.
We can look at most mergers on the topic of supply chain design, because often times these deals are an effort by firms to have a greater control either on their own supply chains or the supply chains of their competitors. In this case, Broadcom was making an effort to purchase one of its most direct competitors in an effort to decrease competition in the superconductor industry and gain a greater degree of control of the industry-wide supply chain. The deal was abandoned in March after President Trump blocked the merger on the basis of national security concerns.
One of the important aspects of supply chain design is integration. Integration relates to the way companies can organize or consolidate their supply chains. The reorganization or consolidation of a firm’s supply chain can lead to lower costs, and better responsiveness to changes in the firm’s market. The Broadcom/Qualcomm deal was an example of horizontal integration. Horizontal integration occurs when two firms at the same level of a supply chain merge to form one larger firm and effectively reduces competition and gains the new firm leverage in purchasing and pricing components and end products. Another common form of integration is vertical integration. This occurs when a firm purchases a firm at a different level in the supply chain. This move is also incredibly helpful in reducing costs by reducing redundant processes and decreases both fixed and variable costs in production.
The move by Broadcom would have significantly decreased competition in the semiconductor industry. Though the two firms produced different products and services, the overlaps would gain Broadcom significant leverage in the industry. Both firms are suppliers to Apple, a massive purchaser in the industry, and being able to consolidate that revenue under one umbrella would have been a huge gain for the firm. The newly consolidated firm would have been able to increase the selling price to Apple and other purchasers to increase revenue in both the short and long term.
Operations Management is a broad subject that touches just about every process that a firm must maintain and optimize to ensure that all of its goals are met. In this case we looked at a merger between two firms under the frameworks of project management and supply chain design. Though the teams that operate these processes may be different, both are incredibly important especially in a deal of this magnitude. A successful merger could lead to significant growth for the combined firm, but an unsuccessful completion could lead to massive, damaging consequences.