The Virtual Organization

In a previous role, my company provided warehousing and distribution services to Apple, Google and Microsoft. We managed a massive global network of warehouses, millions of square feet. We were able to quickly connect companies into our systems, then ship their products for them. We would receive product in bulk, often from manufacturers in China, then we would receive the order details and fulfil them. We also had some very slick reverse logistics capabilities.

A great deal of this connectivity is still based on "old" EDI. Its extremely reliable and scaleable, but API’s have provided newer and faster ways to connect structured messages and business processes. This means that even smaller companies are able have rich connectivity, by enabling all the key structured messages. These virtual organizations provide better systems and visibility than the old monolithic organizations. Better systems with lower costs.

If you outsource your logistics operations to a third party logistics provider (3PL), you should expect greater capability from an organization that exists purely because of operations excellence, you should expect thought leadership and critically, you should expect better systems.

If you outsource your manufacturing to a contract manufacturer, you should expect that they have more manufacturing expertise than you. You should expect that they have scale and geographical reach. They will likely be able to reduce your manufacturing costs and provide you better quality.

Imagine that the most valuable companies on the planet, producing the most successful consumer electronics devices all have the following in common:

• They don’t own factories
• They don’t own warehouses
• Some of them don’t even own the product in the warehouses that they don’t own, they take flash title as their third-party logistics provider(3PL) ships the product to the consumer
• The have extremely sophisticated ERP’s with connectivity into their OEM Manufacturers and 3PL’s

This really does allow these world beating companies to focus on what they do best – design products and solutions. It also means that they have almost zero inventory and extremely low fixed overheads.

So if we have a scenario that:
1. Reduces cost
2. Improves quality
3. Reduces working capital

What more could we ask for? Possibly the biggest advantage of this approach is flexibility to scale. What if your product takes off? How do you increase volume massively? The outsourced, virtual organization allows you to scale without blowing up your working capital and without investing in manufacturing capacity.

Is it any wonder that Microsoft, Apple and Google don't own a factory or a warehouse? These world class organizations are more than capable of buying and running excellent manufacturing and logistics operations. They have no shortage of money and expertise. They outsource because its simply a better business model.