Improving supply chain coordination in the engineer-to-order sector through virtual organizational forms

Supply chains in engineer-to-order (ETO) sectors face problems like frequent delays, reworks and claims. The existing literature on ETO supply chains argues that this problems can be overcome through more stable relations between buyers and suppliers as it happens in mass production sectors when supply chain management (SCM) principles are applied. ETO sectors, however, show features which make it difficult to establish stable relations. Purchasing strongly relies on competitive bidding; business processes are sequential and repetitive. ETO sectors require, then, different inter-organizational approaches than mass production sectors. We maintain that virtual organizational forms are able to induce improved performance in ETO supply chains. Virtual organizations are inter-organizational forms based on brief relations, flexible information systems, adoption of common standards and common rules diffused by associations and other institutions. Relationships in virtual organizations are formed through a process of "progressive inclusion" of suppliers in a network of qualified partners. In this chapter a method for the assessment of inter-organizational forms, proposed by the authors elsewhere, is further developed and applied to ETO supply chains. By comparing virtual organizations with other inter-organizational forms, namely market, vertical integration and relational network, we provide support for our argument in favor of virtual organizations for the coordination of ETO supply chains.