FedEx: Question 4

Q4. Discuss the virtual integration of supply chains without ownership

Faced by today’s competitive and uncertain environments, many businesses are now planning to engage in virtual integration for their supply-chain activities to improve flexibility and cost. Virtual integration is a term used to describe the use of the information technology to replace physical components of a company with information.1 This means firms owns only the brand and customers since they have outsourced their supply-chain management functions to third party logistics companies to handle the production, transportation and inventory control etc.

Being the pioneer of express transportation and logistics industry, FedEx had invested a lot in information technology to build one to one relationship with its customers. It provides an integrated logistics system to help customers to manage its outsourced supply-chain. The services FedEx provided include transportation, order processing, distribution, fulfillment, inventory control, purchasing, production and customer and sales services. By helping customers to link with other parties in the supply-chain, such as raw materials suppliers, FedEx has ability to interconnect and distribute information to all the players in a supply-chain in order to provide a better inventory control to customers.


Advantages of using virtual integration of supply-chains without ownership

1. Increase accuracy

Transportation company such as FedEx helps customers to coordinate all the supply-chain activities by applying powerful information system. When new information or order was entered into the system by FedEx or by customers, all the data were automatically updated and therefore customers can track the real-time status of shipment or delivery schedule and volume conveniently.


2. Better inventory control management

Since logistics company now provides one-shop value-added services such as procurement, distribution, fulfillment and transportation to customers, it can smooth the operation and help them to match supply to demand to avoid stock-out or minimize backorder problem.


3. Reduce the length of order cycle

Company like TAL is now deploying replenishment model which materials can be arrived just-in-time before receiving customers’ order. Then later when customers place the order, TAL can produce the garment immediately which smoothes the production process and deliver the right amount of products at the right time. In this way, product lead time would be shortened and thus customer service would be improved.


Reference:
BusinessDictionary, n.d.. What is virtual integration?. Available from: <http://www.businessdictionary.com/definition/virtual-integration.html>[21 Mar 2014]