A guest post by Jon Chorley, Oracle's Chief Sustainability Officer & Vice President, SCM Product Strategy

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. In my next post, I will share examples of companies that have made that shift and talk more about the distributed orchestration process.