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Auto Industry and Dell’s Model of Virtual Integration Case Study

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Updated: Apr 20th, 2021

From the case study, it is clear that the auto industry will work differently on several processes and strategies if designed by Dell’s model of virtual integration. The concept of virtual integration is an organizational strategy concerned with integrating a firm’s internal functions with both suppliers and distribution outlets not only to achieve coordination across organizational boundaries, but also to spur operational efficiency and customer responsiveness (Abebe, 2007; Applegate, Austin, & Soule, 2009).

It is evident from the case study that many auto manufacturers experience inefficiencies in their relationships and interactions with their supply chain partners due to maintaining a costly inventory buffer in the hope of minimizing market uncertainty (Applegate et al., 2009). However, upon the adoption of Dell’s model of virtual integration, the automakers will depend more on emerging information technologies (e.g., internet technologies) as well as inter-organization information networks to obtain an on-time delivery of raw materials continuously, hence successfully dealing with the problem of having to maintain a costly inventory (Abebe, 2007).

In the same vein, Dell’s model of virtual integration will assist companies within the auto industry to minimize the amount of finished product inventory by sharing information with customers in real-time to manufacture vehicles to customer orders (Abebe, 2007). In this light, the aggressive employment of technology to facilitate information sharing between auto manufacturers and customers will not only reduce working capital but also minimize exposure to inventory obsolescence, leading to competitiveness in the design, manufacture, and sale of automobiles (Applegate et al., 2009).

To expand on the above, it is clear from the case study that virtual integration of the supply chain will assist auto manufacturers to adopt an effective just-in-time (JIT) purchasing framework, whereby vehicle components will be held under suppliers’ inventory and will only be transacted into the manufacturer’s location moments before they are used for production or to assemble motor vehicles. Extant literature demonstrates that such a strategy not only contributes to substantial capital savings since auto manufacturers do not require to have a huge amount of capital to hold small inventories but also frees up precious factory space which can then be reallocated for production expansion and improvement activities (Abebe, 2007).

One of the challenges that continue to face players in the automobile industry is to consolidate their product development activities often found across diverse geographic locations (Applegate et al., 2009). According to these authors, the use of technology is necessary not only to overcome the constraints normally imposed by geography on information flow but also to ensure that teams in different continents across the world can work together as if they were in the same building. Consequently, designing the auto industry by Dell’s virtual integration model will facilitate the use of cutting-edge information and communication technologies to ensure that such diverse production units can interact and share information in real-time (Serve, Yen, Wang, & Lin, 2002).

It is a well-known fact that most auto manufacturers make use of a network of dealership channels to market their products to the end consumers (Applegate et al., 2009). While it may not be possible to do away with the dealer channels due to the nature and scope of the auto industry, players within the industry can make use of Dell’s virtue integration model with the view to eliminating several dealership tiers in their supply chain and subsequently reducing product-to-market time (Serve et al., 2002).

Available literature demonstrates that, as product life cycles get shorter and customer’s inclinations shift quickly, “businesses focus on virtually integrating with their customers and suppliers in order to get a direct feedback on the specific market requirement and build new products that meet these emerging needs” (Abebe, 2007 p. 197). Consequently, by reducing the dealer tiers to a bare minimum in line with the virtual integration model, players in the auto industry will position themselves at a vantage point not only to create a relationship with customers but also to get direct feedback on their needs and requirements with the view to continuously improving and fulfilling future automobile demand.

Moving on, it is evident from the case study that most firms within the automobile industry have been grappling with the challenge of blurring the traditional boundaries in their value chain, particularly among several tiers of suppliers, manufacturers, dealers, and customers (Applegate et al., 2009). This challenge has been costly to their operations, thus the need to consider other frameworks and strategies that could be successfully used to blur the boundaries.

Virtual integration is one such strategy that could be used by vehicle manufacturing companies to blur the boundaries in the value chain through the use of technology. By successfully adopting the virtual integration model, these firms will not only have the capacity to coordinate their operations to achieve new levels of efficiency and productivity but will also benefit from the focus and specialization that drive virtual organizations (Applegate et al., 2009; Serve et al., 2002). Extensive coordination and specialization arising from real-time information sharing with suppliers and customers will enable automobile manufacturers to identify growing demands and forecast future markets, leading to increased competitiveness and productivity (Abebe, 2007).

Lastly, available literature demonstrates that “adopting a virtue integration strategy enables the organization to focus on its core competence, availability of more resources and faster time to market for new products” (Abebe, 2007 p. 198). Since automobile manufacturing companies such as Ford and General Motors operate in very competitive and dynamic environments (Applegate et al., 2009), it is generally felt that they could work differently upon the adoption and implementation of Dell’s virtual integration model, particularly in terms of enhancing the speed and the level of coordination across various functional units within the firms as well as with other supply chain partners to take full advantage of faster time to market for new car models.

Such an orientation will enable players within the automobile industry to concentrate on their core competence and establish close supplier partnerships to outsource their non-core business processes with the view to shifting their critical resources toward strategic decisions and customer satisfaction.

Overall, it is evident from the case study that the adoption and implementation of the virtue integration model is the way to go for the automobile industry if players are to maintain competitiveness, efficiency, and productivity in their supply value chain.

References

Abebe, M.A. (2007). To integrate or not to integrate: Factors affecting the adoption of virtual integration strategy in organizations. Business Strategy Series, 8(3), 196-202.

Applegate, L.M., Austin, R.D., & Soule, D.L. (2009). Corporate information strategy and management (8th ed.). Burr Ridge, IL: McGraw/Irwin.

Serve, M., Yen, D., Wang, J.C., & Lin, B. (2002). B2B-Enhanced supply chain process: Toward building virtual enterprises. Business Process Management, 8(3), 245-253.

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IvyPanda. (2021, April 20). Auto Industry and Dell's Model of Virtual Integration. Retrieved from https://ivypanda.com/essays/auto-industry-and-dells-model-of-virtual-integration/

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IvyPanda. 2021. "Auto Industry and Dell's Model of Virtual Integration." April 20, 2021. https://ivypanda.com/essays/auto-industry-and-dells-model-of-virtual-integration/.

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IvyPanda. (2021) 'Auto Industry and Dell's Model of Virtual Integration'. 20 April.

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