Volume 11 No. 9
Supply Chain Management
here, there, and everywhere.
By Alan N. Miller, Ph.D.
virtual corporation first came into vogue in the early 1990s. A virtual
corporation, in the context of supply chain management, is a firm that
relies on extensive outsourcing to meet a specific market opportunity. The
firm forms an alliance with strategic suppliers to outsource one or more
of its operations. Outsourcing allows the firm to focus on its core
competencies. Companies that are selected for outsourcing have distinctive
competencies the firm lacks. The combination of all core competencies in
the network of companies results in synergy. Outsourced functions may
include such areas as customer service, distribution, marketing,
manufacturing, and research and development. When the goals of a virtual
corporation have been accomplished, its network of members usually
all about knowledge and trust
companies of a virtual corporation are generally geographically
corporations rely on information technology to coordinate the sequencing
of their partnersí activities and outputs. Information systems must,
therefore, be designed to provide optimal communication between member
companies. Indeed, information technology is a key factor in the success
of a virtual corporation.
between the partners is essential because they must often share
proprietary information and knowledge, and they depend on each other to
accomplish the corporationís strategic objectives. This often leads to a
sense of equality between them. Thus, information exchange and knowledge
sharing replace hierarchical control in managing their relationship.
that produce motion pictures are often virtual corporations. They
typically outsource many of the functions necessary to make a film (e.g.,
editing, set design and construction, and special effects). Other examples
of virtual corporations include Dell Computer and Nike. Dell focuses on
its core competencies of marketing and distribution and merely assembles
its PCs from outsourced parts. Nike outsources all manufacturing of its
athletic shoes to its Asian partners while retaining its core competencies
in product design and marketing. Employees at Nikeís headquarters in
Beaverton, Oregon send their new designs for athletic shoes to the
companyís suppliers in Southeast Asia who produce the shoe parts (e.g.,
soles and uppers). These suppliers then send the manufactured parts to
other companies for assembly. Next, the finished products are shipped to
distributors worldwide. Nike uses its marketing expertise to promote the
sale of its shoes. If an outsourcing partner does not meet Nikeís
stringent quality and cost standards, it is quickly replaced.
virtues of the virtual
has several potential advantages. First, it allows a virtual corporation
to reduce its costs and improve quality by outsourcing non-core activities
to suppliers that are more efficient. Outsourcing may also reduce a
virtual corporationís administrative and payroll costs, and better
differentiate the characteristics of its final product. Finally, because a
virtual corporation has the flexibility to switch suppliers swiftly, it
can be more responsive to changing market conditions, although proponents
of supply chain management prefer to establish long-term relationships
with strategic suppliers.
to watch out for
disadvantage of outsourcing is that a virtual corporation does not have
complete control over its suppliers. This may result in delayed delivery
or inferior quality of outsourced parts and services. Virtual corporations
must, therefore, maintain tight control over performance parameters. A
second disadvantage is that firms are unable to develop potentially
valuable distinctive competencies in functions that they outsource. This
may put them at a competitive disadvantage. A third disadvantage is that a
firm may become too dependent on its suppliers. Suppliers may then charge
the firm higher prices for their products and services. Another
disadvantage is that a firmís intellectual property may be revealed to its
competitors. Finally, a firm may unintentionally outsource one or more of
its core competencies, thus losing its competitive advantage.
rapid advent of information technology has facilitated the growth of
virtual corporations by enabling seamless integration and collaborative
computing between a firm and its outsourcers. This is encouraging more
firms than ever to explore extensive outsourcing in order to optimize
their supply chains.
N. Miller, Ph.D., is professor of management in the College of Business at
the University of Nevada, Las Vegas. He can be reached at (702) 895-3814
or via e-mail at email@example.com.