Dell Computers has gradually moved from vertical integration to full adoption of virtual integration as its new way of focusing on quality and reducing costs. Dell’s virtual integration also known as direct business model gave Dell Corporation a substantial cost advantage (Magretta, 1998, par 1). The new business model did away with the dealer channel through which computers reached the customers. This meant that Dell would now have a direct relationship with its customers and build on customer focus (Magretta, 1998, par 1).
Through the new direct customer relationship, Dell would now have an accurate forecast on demand (EMKTR, 2006, par 2). Initially the supplier or reseller had the direct customer contact meaning that Dell had to rely on the supplier to approximate the market demand, giving the supplier priority over the customer. Virtual integration has done away with the supplier giving the customer first priority. The new customer contact would help the manufacturer have an accurate forecast on demand.
After meeting the accurate market demands, Dell Corporation would now sell directly to customers, doing away with the intermediaries and therefore there was no added markups making the price favorable to customers (EMKTR, 2006, par 2). Meeting actual market demands, doing away with intermediaries and having customer friendly prices meant there was the cost advantages to go with it (Magretta, 1998, par1).
The virtual integration also meant that Dell would do away with the costs and risks of carrying large inventories of finished goods (Magretta, 1998, par 1).
The advantages that virtual integration can bring to the auto business include; strategic partnerships, decreased holding costs, increased flexibility, and quicker market response (Austin, Roods, and Sands 2004, par 6). In regards to strategic partnerships, Ford could benefit from these by seeing decreased costs related to maintaining its huge number of partners, as the forming of strategic partnerships would result in several key relationships versus hundreds of lesser ones (Austin, Roods and Sands 2004, par 6). Reducing the inventory it holds would be an important advantage in the auto industry, as it would mean quicker adaption to market changes.
Ford Motor Corporation faces some challenges that are not faced by Dell on its adoption of virtual integration. One of the challenge is that ford cannot completely do away with the dealers who have direct access to customers. Customers would rather prefer to buy a vehicle from a dealer who they know will be there in case of a problem than buying a vehicle online without even having a road test. This use of the independent dealers has made the company lack control of their products end users, influencing negatively on ability to directly control their customer service experience (Hammoud, 2013, par 3.2). Dell on the other hand has successfully done away with resellers and has a direct contact with its customers.
Another disadvantage Ford is facing and not faced by Dell is the need to invest in new IT equipments to better manage virtual integration. This new introduction of IT equipments will mean that training of employees will be necessary to efficiently handle the new technology, meaning it requires additional costs. Dell on its side does not have to undergo this immense expense, as it already is a technology related company (Hammoud, 2013 par 2).
Ford should partially adopt the virtual integration while maintaining its important dealerships that they cannot wholly eliminate in the supply chain. Ford can adopt a mixture of online and offline operations and form certain procedures to enable customization and ordering by customers virtually, but still maintain physical dealership as well (Hammoud, 2013 par, 5.1). As important as it is to embrace new technology, Teri Takai needs to recommend partial adoption of the virtual integration or direct business model.
This partial adoption will help in having some form of control on the end user products as the customers have already relayed the required information. Ford can also boost its sales by providing better customer service, which will be made possible through faster communication between suppliers, manufacturers and customers in the value chain (Hammoud 2013, par 3).
Since ford being a motor corporation handles more supplies in terms of car components before assembling, as compared to Dell, full adoption of virtual integration will hamper its production. Ford has to deal with a lot of suppliers before a car is complete as well as after completion when dealers set in and therefore virtual integration should be done up to the level of minimizing time taken to exchange information between them, so as to make customer’s experience a happy one. In order to fully understand customer’s need to maximize on satisfaction and keep up with competitors, Ford will need to gather information from the customers through use of technology and therefore its importance cannot be overlooked.
References
Austin, J., Rood, D. $ Sands, J. (2004). Ford Motor Company – case study. Web.
EMKTR. (2006). Virtual Integration (dell model). Web.
Hammoud, Y. (2013). Ford vs Dell Case Study. Web.
Magretta, J. (interviewer) & Dell, M. (interviewee). (1998). The Power of Virtual Integration. Web.