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Evaluation of Ford’s Supply Chain in the Light of Dell's Virtual Integration

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Virtual Integration of the

Supply Chain

Examination & Evaluation of Ford’s Supply Chain in the light of Dell’s business model

  1. Executive summary 

Dell Computer Corporation was the first company in its field to adopt a revolutionary formula known as the “Direct Business model”. Its founder, Michael Dell, succeeded in creating a perfect system of so called “virtual integration” between both his suppliers and his customers using the newest technologies available, optimizing the company’s supply chain to an unprecedented level. 

Ford Motor Company is undoubtedly considered one of the leading players in the global automotive industry. The company’s supply chain director saw herself in a challenging situation when asked to provide recommendations regarding the company’s supply chain strategy and how it could potentially benefit from the same model implemented by Dell, which is primarily built on so the called “virtual integration”. 

Within the supply chain director´s team at Ford, there are dissonant opinions on how the company should be using new information technologies and ideas from high tech industries as Dell in order to redefine the way it interacts with suppliers across the supply chain network. The group that is in favor of virtual integration argues that technology became a major player in supply chain and Ford needs to redesign its activities by adopting new technologies to prosper. On the other hand, a second group is more conservative. They understand that the automotive and computer industry are two very different environments. Ford’s network of suppliers is huge, has several layers and a lot of different companies. In comparison to Dell, Ford needs thousands of parts in order to manufacture a single vehicle. Dell on the other hand can manufacture a computer with materials delivered by a couple dozens of suppliers. 

Having said that, this analysis will identify the main causes of the dilemma faced by Ford and justify the recommendation that Ford should aim to implement Dell’s business model by using a mixed approach, which would encompass some aspects of what has been done at Dell, but also some alternatives that could be better suitable for the automotive industry. 4 

  1. Dell’s attained advantages through virtual integration

 

Dell Computer Corporation, which was established in 1984, was the first company in its field to adopt a revolutionary formula known as the “Direct Business model”. Its founder, Michael Dell, succeeded in creating a perfect system of virtual integration between both his suppliers and his customers using the newest technologies and information flow correlated to them, while in return achieving both coordination and focus. Virtual integration allows companies to work with partners in real time, which allows them to outsource the designing, system development, product sourcing, logistics and even final assembly to strategic partners. 

When Dell began his business in the computer industry, he observed that all the companies focused their efforts trying to produce every single item, creating a vertical integration just within one company. Being unable to afford it, he proposed an apparently simple strategy: reduce the number of activities operated by a single firm and better focus on some selected operations in order to add value for the customers. This idea would have led to the significant advantage of being able to leverage Dell’s relationships with its clients and all the way back to the suppliers. 

Despite having reduced the number of activities to manage, Dell indirectly provides a work-place for thousands of technicians, but the most incredible thing is that customers think that they actually work for Dell; this highlights the result of a perfect virtual integration. In terms of communication and coordination, vertical integration leads to efficient and effective collaboration between the suppliers and Dell itself. 5 

Acting against the traditional ways of the IT industry, Dell tried to coordinate the activities in order to create as much value as they could. In order to achieve this level, the relationships with its suppliers played a fundamental role. In regards to this, the strategy consists of ordering a massive quantity of items in the long-term even when the demand is higher than the supply. It leads to the fact that the suppliers become a real partner of the company. They start to work together with Dell’s teams, sharing information, ideas and opinions. It creates an intimate environment and a willingness to discuss freely. Furthermore, because this field is more stable than for example the automobile industry, there is also an important advantage in the reduction of the number of suppliers. In fact, Dell tightens relationships with few of them, which last as long as the level of innovation of that specific supplier remains at satisfactory levels. It represents a big difference between the computer industry and the automobile business, where the relationships between the suppliers and the company normally last forever because of the rather simple nature of the products. In the specific case of Ford, for example, we can notice that it has several thousand suppliers and operates in a more complex network of business relationships. To produce a single product, Dell needs less than a hundred parts whereas Ford needs several thousand. All these factors represent a great obstacle to achieve a perfect model of virtual integration. 

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"Evaluation of Ford’s Supply Chain in the Light of Dell's Virtual Integration." EssaysForStudent.com. 10, 2017. Accessed 10, 2017. https://www.essaysforstudent.com/Business/Evaluation-of-Fords-Supply-Chain-in-the-Light/107486.html.