Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

2.3.7 The Virtual Enterprise and Other Forms of Coordination among Companies

Intended learning outcomes: Produce an overview on the virtual enterprise and underlying long-term network of potential partners. Present target area strategies for a virtual enterprise and disclose possible supply chain risks entailed. Describe some other forms of cooperation in relation to the virtual enterprise.

Are there any possible forms of temporally restricted and yet intensive cooperation, such as for nonrepetitive production or a service that solves a customer’s specific problem? A virtual enterprise is a potential answer. The reader is referred to [DaMa93] and [GoNa94].

The adjective virtual means, according to [MeWe18], “possessed of certain physical virtues.” In reference to the business world, this means that a company functions as such, even though it is not a company in a legal sense.

The concept of virtuality aims to fulfill individual needs of a customer defined on short notice. To this aim several partners, with some of their departments, join together. Toward the customer, they stand as a single company, but later they will separate again. These same companies may then join with other companies to form a new virtual enterprise.

A virtual enterprise is a short-term form of cooperation among legally independent partners of various types in a network of long-term duration of potential business partners. Partners cooperate on the basis of mutual values and act toward the third party as a single organi­zation. Each partner is active within the area of its core competence. The choice of a partner depends on its innovative power and its flexibility to enter as a partner into supply chains.

The strength of virtual enterprises lies in their ability to form quickly. In practice, partners must already be familiar with one another. Figure illustrates this concept.

Fig.        The virtual enterprise and underlying long-term network of potential partners (from [Brue98]).

The potential partners in the virtual enterprise strive toward a community of interests in the form of a long-term network (see thin arrows in Figure that gives each partner competitive advantages. Any obstructions to cooperation must be removed during this phase, so that the individual network participants can develop a relationship of trust. This requires the establish­ment of good communication channels, both technical and personal. For development cooperation, it makes sense in some cases to stipulate contractual terms.

Figure shows strategies related to the entrepreneurial objectives that arise between the partners of a virtual enter­prise. They complement the strategies shown in Figure

Fig.        Target area strategies for a virtual enterprise.

Of all entrepreneurial objectives, a company’s flexibility is particularly important here. To form a virtual enterprise rapidly, the company boundaries of the potential partners must already be open. Again, as a prerequisite, trust must develop long-term. As a general principle, competition within the network is often ruled out.

A broker is required for the rapid formation of networks. In the case of nonrepetitive production, the broker often also serves as a center for order processing; that is, for planning & control. If lead time must be very short, the planning autonomy of the participating companies must be curtailed. The decisive factor here is the degree of flexibility of the cost center to contribute to the entrepreneurial objectives of the virtual enterprise.

A virtual enterprise tends to have the following supply chain risks — in addition to the risks of intensive cooperation in the partnership relationship (see Section 2.3.1), which must be in total smaller than the advantages mentioned.

  • A lack of competition with regard to potential partners in the network means that certain orders cannot be taken on.
  • Legal problems (loss / gain distribution, copyrights, rights of ownership) can arise.
  • The volume of business is too small to justify the long-term expense involved.

To reduce the risk of a lack of business volume, each of the partners must attempt to anticipate the customers’ needs. This demand on agile companies requires them to study the actual use of products to develop proactive proposals for the implementation of new products that have not even occurred to the customer. See Section 1.3.3.

There are many other forms of cooperation as well. For some of these, specific terms have been coined. The following outline places some of these in relation to the strategies and action plans presented, in particular, in relation to the virtual enterprise. See also [MeFa95].

  • Consortium: Consortia have a horizontal effect, as the member companies work on partial lots of a total order, but do not — as in supply chains — supply one another. Examples of consortia are found in the building and construction industry. Banks may form a consortium to issue securities. Supplier partnerships, where several supplier organizations act as one, can also be a consortium.
  • The strategic alliance focuses on particular business areas and thus on similar competencies. Also, it is formed as an addition to a company’s actual core business, while the virtual enterprise is related directly to a company’s core competence.
  • corporate group is characterized by dominating the companies of the group via contracts. Such contracts are not necessary in a virtual enterprise. However, compa­nies of a group can certainly take on the role of partners within a virtual enterprise.
  • Joint ventures: Joint ventures involve re-formations and financial participation. These are not necessary in a virtual enterprise.
  • Keiretsu: Keiretsu is a form of cooperation in Japan in which companies remain legally and economically largely independent, even though they are woven together in various ways. The difference between keiretsu and the virtual enterprise is that, in the Japanese variant, membership is permanent.
  • Virtual service organizations apply the principle of the virtual organization to the structural installation of large international firms manufacturing machines and plant facilities to manage industrial services. Here see [Hart04].

Course section 2.3: Subsections and their intended learning outcomes