Virtual Integration

Virtual Integration means you basically stitch together business and the partners that are treated as if they are inside the company.

What are the advantages Dell derive from virtual integration?

Ans: - Following are the advantages that Dell derive from virtual integration

1. Tightly coordinated supply chain

2. Eliminate the long hierarchy of supply chain ( eliminate the dealer channel)

3. Substitute information for inventory.

4. Focus on specialization (adding value for consumer)

5. Increase customer satisfaction by meeting their needs faster and in an efficient way.

6. Focus on changing demand of customer and prepared the company to be responsive for this change in efficient way.

7. Closeness with the customer helps the company to create uniqueness and product differentiation.

Reduction in the cost of carrying large physical assets or adding value for customer: - Company keeps only those activities inside the business which can add value for customer and in turn gives them higher return. For other activities Dell coordinates with its partners like technicians from other firms who can service their products.

Reduce the complex network of supplier and increase the coordination between suppliers (business partners) and company by sharing real time information, also eliminate the cost and risk of carrying the large inventories of finished goods:-

Through virtual integration company go for supply on demand strategy, instead of stocking up its own inventory, company selects few supplier and asked the suppliers to send the components on demand basis and eventually the suppliers become the partners.

Company share its real time information with the suppliers and plan out the production /supply of material on daily production requirement basis.

Helps to bypass the dealer channel, reduction in the long supply chain (Only Supplier, Dell and Consumer) that further eliminate the reseller's markup :-

Company discards the vertical integration and increase the transparency between supplier, dell and end users.

Tighten up the relationship between customer and dell, extend the value of offerings for customer:-

Company get closer to them by eliminating the dealer channel, this closeness enable the company to forecast customer need. This forecasted information flow from customer to manufacturer to supplier and helps to reduce the cost of inventory. The close relationship also allow the company to extend the value of its product and services by providing them other IT related services at less price such as supplying the computer with the loaded software or adding the asset tags in the computers or by implementing the latest technology.

How important these advantages in the auto business?

Not all but some of the advantages are important for auto business such as

1. Creating a tight coordination between supplier and company is important, providing real time information to supplier helps the company to reduce the cost and risk of inventory. Instead of stocking up inventory at company's warehouse, company can go for supply on demand strategy.

2. It is important for an auto company to have a retail network. Auto business can't rely totally on online business. But the advantage of virtual integration definitely helps the auto business too. Instead of diversified dealers, company can have a unified dealership that helps the company to get the advantage of building the close relationship with the end user. This closeness helps the company to forecast customer demands, meeting customer need in efficient and effective way and adding more value to its product and services.

3. Implementation of IT for creating a direct virtual contact with customer where customer can place their demands, customize their choice, give feedback about the products and services.

What challenges must Ford overcome that Dell does not face?

1. Supply base of Ford is complex than Dell: - Although company was able to reduce the complex network on supplier and create a long term relationships with the capable suppliers who can provide the entire vehicle sub systems but the existence of hierarchy within the supplier channel was a challenge for ford. Ford somewhat assists its immediate supplier in improving their operations through the IT capabilities but they were not able to invest hugely on IT technologies at the rate Ford did.

Also the availability of IT capabilities decreased at the lower level of supply chain.

2. Company controlled dealership