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Virtual Integration:
Action Areas |
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Integrate into customers' operations.
To
increase customer value-added
and
differentiate yourself from
your competitors, integrate
yourself into your customers operations. The more of your
customers' work you undertake, the harder it is to find the line
that separates you from them.
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Use
Internet to transform the processes
that link you with your customers, suppliers and other alliances
and work intimately with
them to reduce distinctions from them.
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Converge your core competences and
outsourcing.
With virtual integration, flawless
coordination of outsourced processes, such as
product design or
coaching, can be achieved so
that operations of different companies are intertwined and
cannot exist independently.
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Vertical vs. Virtual Integration |
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What Is Virtual
Integration?
Virtual integration is a new form of
value chain management. Under such a
system, the links of the value chain are brought together by informal
arrangements among suppliers and customers. Shipments of the components that
your firm needs can be easily arranged through the Internet or a networked
computer system. The same type of arrangement allows you to fully serve your
customers in ordering, services, or any other needs.
Why Virtual
Integration?
Today the vision for many
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 organization, to an environment based on ‘negotiated
sourcing’, where non-core activities are outsourced and collaborative
partnerships are the norm.2
Smart Business Architect
Virtual
versus
Vertical Integration
Vertical integration is history, the
future will be about virtual organizations operating within virtual
supply chains.
Virtual integration, as opposed to traditional vertical
"contractor-subcontractor" integration, represents the decomposition of the
traditional company. Virtual integration is characterized by
culturally
different value-added relationships between manufacturers and suppliers. In
the new world of virtual integration, no matter who signs the check, all the
people are working together for a common cause. Vertical integration
performs, virtual integration innovates.
Integrating E-business
Business processes must not only incorporate
timely company information – for improved customer relationship management,
supply chain management, and beyond, they must also be kept up-to-date with
fast-changing business needs. E-business facilitating these processes is the
way most business soon will be transacted. Whether or not you ever plan to
sell products or services over the Web, your most important customer or
supplier may one day insist upon using Web for all transaction.
The
fastest growing companies are moving
aggressively to bring e-business into all their operations. They align their
systems with their fast-changing business priorities and use these systems
strategically, for growth. In addition, successful businesses are employing
information technology to gather and interpret data about their ultimate
customers, including demographics, trends, and buying behavior.
Case in Point
Dell
Inc.
When Dell Inc. first began
using the
Internet to expand their business, the
company had three basic objectives:
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to make it easier to do business with Dell,
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to reduce the cost of doing business with Dell, and
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to enhance their customer relationships.
Starting in 1996, by 1999 Dell was selling more than $35
million per day over the Internet. "But for Dell, online commerce was only
the beginning," writes
Michael Dell1, the Founder & CEO of
Dell Computer Corporation. "Because we viewed the Internet as a central
part of our IT strategy, we started to view the ownership of information
differently, too. Rather than closely guarding our information databases,
which took us years to develop, we used Internet browsers to essentially
give that same information to our customers and suppliers – bringing them
literally
inside
our business. This became the key to what I call a
virtually integrated organization
– an organization linked not by physical assets, but by information. By
using the Internet to speed information from between companies, essentially
eliminating inter-company boundaries, it would be possible to achieve
precision and
speed-to-market for products and services in ways not dreamed possible
before. It would be the
ultimate business system for a digital economy."1
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