Eighteen per cent of a factory's output does not make it a captive supplier

The component was familiar. Our sourcing colleagues knew why it mattered, our product team understood the qualification work and our shops sold luggage that depended on it. That familiarity made the proposed factory acquisition easy to describe as an extension of the retailer. I initially used the same description. It was only when the output forecast was placed beside our own requirements that the commercial distance became clear. Qarvelli would absorb eighteen per cent. Most of the business we were considering buying would still need customers outside Qarvelli.

The proposal concerned Dorzali Wheel Components in 2023, with a ₹24 crore purchase price and ₹6 crore planned capital work. The acquisition paper's supply-control argument deserved attention. Dependence on an outside manufacturer can affect a retailer's ability to keep its product promise. But ownership is a substantial response to that problem, and the factory's economics do not end when the retailer's requirement has been served. We needed to understand the whole enterprise rather than let a familiar input stand for an entire business model.

## Start with the business that must earn the other revenue

The eighteen per cent was a comparison of forecasts, not a measured future outcome. Our requirements could change, and the plant's output assumptions needed their own scrutiny. Even with those limitations, the comparison was enough to challenge the captive-supply description. Eighty-two per cent of forecast output would require other buyers. That meant sales capability, customer relationships, commercial terms and competition in a market where the retailer's own demand offered only partial support. A decision about supply security had become a decision about entering that market.

CFO Elsa Merqethi saw a case for owning more of the supply chain. Her view was not that a component business could ignore outside customers. It was that control over an important capability might justify the additional undertaking, subject to the financial evidence. I wanted that argument represented fairly. A strategy review becomes weaker when the alternative is made deliberately foolish. The actual question was whether the expected control and external business opportunity justified the capital, management work and risks, compared with other ways of meeting our defined product need.

We spent ₹48 lakh on diligence. Technical, financial and transaction specialists examined their respective parts of the proposal. I did not treat a percentage in a strategy model as a substitute for that work. The useful contribution of the percentage was to redirect the inquiry: who would buy the rest, why would they choose this supplier and what would we need to maintain or build after acquisition? Those questions had to be answered even if the factory could make exactly the component our current range used.

The same distinction applies to management capacity. Our executives knew retail, sourcing and travel products. Some of that experience would transfer, but it would not automatically provide a complete component-enterprise team. We had to consider the business that would remain when our own demand was set aside. A senior leader can mistake familiarity with a supplier's output for familiarity with the supplier's work. I had worked in sourcing and divisional management for years, which made the initial argument more comfortable. It also made it especially important to admit where my experience did not settle the question.

## Compare ownership with the actual alternative

I recommended declining the acquisition, and the authorised board made that decision. The company instead approved ₹2.8 crore for a narrower tooling and qualification route through contract manufacturing. Product and technical owners retained acceptance requirements. That route was not a cheaper version of owning the factory. It bought a different set of capabilities and left a different set of dependencies. The comparison needed to describe those differences rather than present a large purchase price beside a smaller programme figure and let the subtraction deliver the conclusion.

The acquisition's ₹24 crore price was not money we had already spent or could recover by saying no. The ₹6 crore planned capital work was also an estimate associated with that route. I did not report either amount as savings. The chosen programme had its own costs, and the diligence expense had already been incurred. A decision can avoid a future commitment without creating an equivalent cash benefit. The board needed to see the actual resource consequences, including the opportunity we were declining, not a celebratory total assembled from proposals that never became expenditure.

Nor did the alternative prove that manufacturing ownership was inherently wrong for a retailer. Another company, with a different capability base or a different external-customer case, might reach a different conclusion. Our decision concerned this factory, our requirements and the evidence available then. Generalising it into a rule against integration would discard the reasoning that made it useful. A strategy leader should be able to explain why an option did not fit without pretending that the same option cannot create value elsewhere.

The narrower route also required work. Tooling needs a commercial and technical context; qualification is performed by the responsible specialists; production capacity and quality still need attention. These were not details that could be assumed away after the board chose the smaller investment. They were part of what the retailer had selected. I wanted the implementation account to remain connected to the original need, so the programme would not gradually acquire expectations that only the rejected ownership route might have supported.

## Keep the dependence left by the decision visible

We remained dependent on suppliers after declining the acquisition. That sentence belongs in the outcome. If the original problem included supply exposure, the chosen route needed a credible account of how that exposure would be managed and what remained outside our control. I would not describe the decision as resolving every supply question because the proposed purchase had been stopped. A rejected transaction can make a risk less expensive to discuss without making the risk disappear. Management still has to carry the selected business model through ordinary operations.

For a board, the useful follow-up is whether the chosen route is delivering the capability it was intended to support and whether its remaining assumptions have changed. It is not a request to relitigate the acquisition every quarter. Directors should understand which developments would justify reopening the strategic question. A change in internal demand, supplier capability or the external market could matter. The original decision should leave a record of its reasoning precise enough to make that later review possible, rather than only an approval or rejection beside a price.

My own correction was to ask the outside-customer question earlier. I had let the component's relevance to our product range make the business feel closer than its demand structure showed. Putting internal requirements beside full output in the opening paper would have exposed that distance before colleagues invested further confidence in the captive-supply story. Diligence remained valuable, but the strategic framing should have been clearer from the beginning. Experience should improve the first question, not merely make the eventual correction sound more authoritative.

The case is a useful reminder that adjacency has several meanings. Products can be adjacent in a customer's bag, in a bill of materials or in a corporate presentation while their businesses depend on quite different capabilities. A retailer considering ownership should name the enterprise it would actually have to run and the customers it would need to earn. Eighteen per cent of a forecast did not answer whether the acquisition was good or bad. It prevented us from answering the wrong question with confidence, and that changed the recommendation I was prepared to put forward.