Virtual Integration: When ERP fits the Dell's Direct model:
The introduction of enterprise resource planning (ERP) software improves the coordination between firms. Before ERP, the each function in value chain had separate organization with separate information system. Each function performed its own tasks thus not globally optimizing the whole value chain. ERP builds the "electronic nervous system" to links all units together and increases overall productivity.
In some cases, firms found that they could eliminate most inventories by shifting to faster but more expensive transportation alternatives (e.g. air cargo) that replenished supply just in time. Simply put, ERP …show more content…
Six days of inventory (Dell's norm) compared with 34 days (standard at Compaq) can therefore result in significant cost savings on inputs. Furthermore, reduced stockpiles can offset the risk of being caught with large amounts of obsolete inventory if technology shifts and there is a transition to a next-generation product - as often happens in high technology sectors. It therefore comes as no surprise to learn that Dell's competitors such as IBM and Compaq are constantly striving to cut their inventory levels but have yet to match Dell's success in this area.
The Dell Direct Model and Virtual Value Chain Integration
The notion of 'linkages' between supply chain participants is not new and was traditionally referred to as 'vertical integration'. Unlike the Dell model, though, vertical integration implies ownership of both upstream suppliers and downstream distributors. Firms such as Ford habitually controlled all elements of the value sequence, vertically integrating the information, decision, financial and operational dimensions of the strategic supply chain.
The spread of Internet-based commerce during the 1990s resulted in the emergence of "virtual" supply/value chain linkages. This approach was perceived by many companies as a way of realizing the benefits of supply chain integration while avoiding the perceived negative impact of integrating vertically. By seamlessly