Wednesday Sep 19, 2012

Orchestrating the Virtual Enterprise

During the American Industrial Revolution, the Ford Motor Company did it all. It turned raw materials into a showroom full of Model Ts. It owned a steel mill, a glass factory, and an automobile assembly line. The company was both self-sufficient and innovative and went on to become one of the largest and most profitable companies in the world.

Nowadays, it's unusual for any business to follow this vertical integration model because its much harder to be best in class across such a wide a range of capabilities and services. Instead, businesses focus on their core competencies and outsource other business functions to specialized suppliers. They exchange vertical integration for collaboration. When done well, all parties benefit from this arrangement and the collaboration leads to the creation of an agile, lean and successful "virtual enterprise."

Case in point: For Sun hardware, Oracle outsources most of its manufacturing and all of its logistics to third parties. These are vital activities, but ones where Oracle doesn't have a core competency, so we shift them to business partners who do. Within our enterprise, we always retain the core functions of product development, support, and most of the sales function, because that's what constitutes our core value to our customers. This is a perfect example of a virtual enterprise. 

What are the implications of this? It means that we must exchange direct internal control for indirect external collaboration. This fundamentally changes the relative importance of different business processes, the boundaries of security and information sharing, and the relationship of the supply chain systems to the ERP. The challenge is that the systems required to support this virtual paradigm are still mired in "island enterprise" thinking. But help is at hand. Developments such as the Web, social networks, collaboration, and rules-based orchestration offer great potential to fundamentally re-architect supply chain systems to better support the virtual enterprise. 

Supply Chain Management Systems in a Virtual Enterprise

Historically enterprise software was constructed to automate the ERP - and then the supply chain systems extended the ERP. They were joined at the hip. In virtual enterprises, the supply chain system needs to be ERP agnostic, sitting above each of the ERPs that are distributed across the virtual enterprise - most of which are operating in other businesses. This is vital so that the supply chain system can manage the flow of material and the related information through the multiple enterprises. It has to have strong collaboration tools. It needs to be highly flexible. Users need to be able to see information that's coming from multiple sources and be able to react and respond to events across those sources. 

Oracle Fusion Distributed Order Orchestration (DOO) is a perfect example of a supply chain system designed to operate in this virtual way. DOO embraces the idea that a company's fulfillment challenge is a distributed, multi-enterprise problem. It enables users to manage the process and the trading partners in a uniform way and deliver a consistent user experience while operating over a heterogeneous, virtual enterprise.

This is a fundamental shift at the core of managing supply chains. It forces virtual enterprises to think architecturally about how best to construct their supply chain systems. 

Case in point, almost everyone has ordered from Amazon.com at one time or another. Our orders are as likely to be fulfilled by third parties as they are by Amazon itself. To deliver the order promptly and efficiently, Amazon has to send it to the right fulfillment location and know the availability in that location. It needs to be able to track status of the fulfillment and deal with exceptions.

As a virtual enterprise, Amazon's operations, using thousands of trading partners, requires a very different approach to fulfillment than the traditional 'take an order and ship it from your own warehouse' model. Amazon had no choice but to develop a complex, expensive and custom solution to tackle this problem as there used to be no product solution available. Now, other companies who want to follow similar models have a better off-the-shelf choice -- Oracle Distributed Order Orchestration (DOO). 

Consider how another of our customers is using our distributed orchestration solution. This major airplane manufacturer has a highly complex business and interacts regularly with the U.S. Government and major airlines. It sits in the middle of an intricate supply chain and needed to improve visibility across its many different entities. Oracle Fusion DOO gives the company an orchestration mechanism so it could improve quality, speed, flexibility, and consistency without requiring an organ transplant of these highly complex legacy systems.

Many retailers face the challenge of dealing with brick and mortar, Web, and reseller channels. They all need to be knitted together into a virtual enterprise experience that is consistent for their customers. When a large U.K. grocer with a strong brick and mortar retail operation added an online business, they turned to Oracle Fusion DOO to bring these entities together.

Disturbing the Peace with Acquisitions

Quite often a company's ERP system is disrupted when it acquires a new company. An acquisition can inject a new set of processes and systems -- or even introduce an entirely new business like Sun's hardware did at Oracle. This challenge has been a driver for some of our DOO customers. A large power management company is using Oracle Fusion DOO to provide the flexibility to rapidly integrate additional products and services into its central fulfillment operation.

The Flip Side of Fulfillment

Meanwhile, we haven't ignored similar challenges on the supply side of the equation. Specifically, how to manage complex supply in a flexible way when there are multiple trading parties involved? How to manage the supply to suppliers? How to manage critical components that need to merge in a tier two or tier three supply chain? By investing in supply orchestration solutions for the virtual enterprise, we plan to give users better visibility into their network of suppliers to help them drive down costs.

We also think this technology and full orchestration process can be applied to the financial side of organizations. An example is transactions that flow through complex internal structures to minimize tax exposure. We can help companies manage those transactions effectively by thinking about the internal organization as a virtual enterprise and bringing the same solution set to this internal challenge. 

The Clear Front Runner

No other company is investing in solving the virtual enterprise supply chain issues like Oracle is. Oracle is in a unique position to become the gold standard in this market space. We have the infrastructure of Oracle technology. We already have an Oracle Fusion DOO application which embraces the best of what's required in this area. And we're absolutely committed to extending our Fusion solution to other use cases and delivering even more business value.

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A Blog about how Oracle helps organizations transform their supply chains into more holistic and integrated value chains that cover the three key operational pillars; Demand, Supply and Product.

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