Virtual Integration

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Paradigms:

Through virtual integration, people/companies are no longer restrained to stay/come to in one physical place to do business: the corporate department can be dispersed anywhere in the world as long as it is best for fulfilling its duties; Institutions from different part of the world(suppliers and customers) work seemlessly as a whole to carry out huge tasks too large, too complicated for the capability of either side; Information scattered around the world is readily available in diversed viewpoints for different users of the integrated system. It allows company to exploit the new channels and leverage increased geographic access better than their existing competition and the new market entrants. The key to success is now about efficient management not only of the physical flows but also the information flows.

An example of this paradigm is what has happened in the automotive sector. Today the vision for most automotive vehicle manufacturers is to become virtual companies, owning only the brand and the customer. The design, system development, product sourcing, logistics, and even final assembly can all be outsourced to supply chain partners. Increasingly the goal is to replace physical assets with information in such a way that every member of this extended supply chain benefits. This forces the move from an environment of ‘hard wired integration’, where relationships are arms-length and adversarial, even across functional boundaries within the organisation, to an environment based on 'negotiated sourcing', where non-core activities are outsourced and collaborative partnerships are the norm.

Experts:

Dell Corp.
Cisco Systems, Inc

Timing:

Historically, the trend among companies in the manufacturing sector has been to do everything in-house, to be "vertically integrated". This model is being challenged, driven largely by the need for economies of scale and greater asset utilisation, and the need to be on-time in the market with products. This need has created specialized companies across various horizontal layers. The Internet is helping tie-in these companies into closer companies, to create "virtually integrated" companies.

It is this virtual integration across the supply chain which helps companies like Dell and Cisco outsource much of their manufacturing, and focus primarily on design and marketing. And this business model has spawned a relatively new industry called Electronic Manufacturing Services (EMS). EMS companies offer a vast array of products and services to accelerate time to market and time to volume for a broad range of OEMs. In doing so, EMS companies allow OEMs to reduce total costs, increase cash flow, conserve capital and focus on their own core competencies such as product design and marketing.

Moreover,the Internet has cut geographical barriers to do business, and with supply chain management and optimization software made virtual integration easier.

Thanks to virtual integration, closed business systems are giving way to collaborative relationships. B2B ecommerce is not just about finding the cheapest supplier halfway across the world; it is about using technology to build trust with suppliers, and deepening relationships with these trusted parties.

Web Resources:

http://www.paconsulting.com/news/by_pa/2000/by_pa_20000321.htm
http://portal.cetim.org/file/1/68/KatzySchuh-1999-The_virtual_enterprise.pdf