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VIRTUAL ORGANIZATION BREEDING ENVIRONMENT: EXPERIENCES FROM ITS IMPLEMENTATION IN MEXICO Jorge Giraldo1, Nathalíe Galeano1, Arturo Molina2 1

CIDYT – Tecnológico de Monterrey, Campus Monterrey. Monterrey-México Phone: +52-81-83581400 ext. 5355 2 VIDT – Tecnológico de Monterrey, Campus Monterrey. Monterrey-México Phone: +52-81-83586968

Abstract: The demand for high quality products manufactured at low costs with shorter cycle times has forced a number of SMEs (small and medium enterprises) to consider new manufacturing strategies. New business models have successively used in order to cover such market requirements. One of them is the Virtual Organizations Breeding Environment (VBE) model, which could be defined as the evolution of the industry cluster concept, introducing an added-value advantage represented by the creation of dynamic Virtual Organizations (VO) and the incorporation of ICT. This paper describes the theoretical and applied research done by Tecnológico de Monterrey with Mexican SMEs during last years, aimed at the development of VBEs and VOs in the manufacturing and engineering fields. Copyright © 2002 IFAC Key words: Virtual Industry Cluster, Virtual Enterprise Broker, Virtual Organizations Breeding Environment, Virtual Organization.

1. INTRODUCTION Nowadays companies, especially SMEs (small and medium enterprises) face the need to strongly use collaboration mechanisms sharing valuable knowledge to answer globalization and actual market challenges. Diverse collaborative forms arise as an alternative for companies that wish to achieve flexibility and respond rapidly to changing environments. Collaborative Networks (CN) and their forms, such as a Virtual Organisations created out of a Virtual Breeding Environment provide accepted common benefits, such as capitalizing knowledge and market power existent in the partners, achieving a competitive situation (Noran, 2004). Virtual Organization Breeding Environment (VBE) groups a pool of organizations, and their related support institutions that have both the potential and the interest to cooperate with each other, through the establishment of a long-term based cooperation agreement (Camarinha-Matos and Afsarmanesh, 2004). Such cooperation agreements have as main

objective the creation of Virtual Organizations, which are defined by Camarinha-Matos et. al. (2005) as temporally alliances of organizations that come together to share skills, core competencies and resources in order to better respond to collaboration/business opportunities and produce value-added products and services, and whose cooperation is supported by computer networks. In Mexico, the high level of competitiveness and the emergence of many disperse business opportunities prompted the need to create mechanisms that support the development of competencies and the integration of capacities, especially for SMEs that would like to approach those opportunities. Chambers of commerce and industrial associations could develop these mechanisms; but sometimes Universities and research institutes could catalysts and lead new models developed in the research field. This paper presents the second approach, the Tecnológico de Monterrey leaded an effort to validate and apply the research results derived from the creation of the VBE and VO model.

In 1997 a research network named COSME – GVE (Cooperation of Small and Medium Enterprises – Global Virtual Enterprise), was created under the scheme of a European Alfa project, the Tecnológico de Monterrey was one of the partners. The network defined the Global Virtual Enterprise (GVE) Model based on the concept of Virtual Enterprise (Molina et al 1998a). The GVE model is a framework based in three business entities: Virtual Industry Clusters (VIC), Virtual Enterprise Broker (Broker) and Virtual Enterprise (VE). A VE is created when a business opportunity can be exploited by the Broker, through the selection of the appropriate competencies from members of a VIC (Molina and Flores, 2000). A Broker will look for business opportunities around the world, or will receive requests for specific products/services. In order to satisfy this demand, the Broker will search for the best combination of partners' competencies in the VIC that, as a whole, meet customer’s requirements. Details of this model can be found in Molina et al. (1998a), Bremer et al. (1999), Eversheim et al. (1998), and Molina et al. (1998b). It is important to mention, that the VIC is a type of VBE, this mean that a VIC is a network of profit-companies, usually in the design and manufacturing field, while a VBE is a more general term that is not restricted to profit-organizations. The GVE model was planed to be validated by the CIDYT (Centre for Innovation in Design and Technology) at Tecnológico de Monterrey developing several VIC in the metal-mechanic and plastic sector. The first attempt was the creation of seven clusters in Monterrey, which triggers, two years after, the creation of a brokerage company named IECOS. The history of this effort done by more than 6 years, the actual work that is being developed according the current needs of the Broker (IECOS), and the plans for continuing the applied research using new technologies is introduced in this paper.

2. THE DEVELOPMENT OF VIRTUAL INDUSTRY CLUSTERS IN MEXICO During 1999, a cluster analysis was undertaken to identify the industry sectors that would be appropriated for create a VIC in the region. The plastic sector was selected and therefore the first VIC was named VIRPLAS. The results of this first experienced can be found in Molina and Flores (1999). During the following year (January 2000), 4 new clusters were created: VIRCAST, VIRTROQ, VIRTUAL CNC and DIES and TOOLS. All these VICs were grouped in the portal Mexicanindustry.com. Six month later, due to the needs of complementing competencies in the network, two new clusters were created: FINISHING PROCESS and VIRWELD. By the end of 2000, MexicanIndustry grouped more than 40 small and medium enterprises in the metal-mechanic and plastic fields. The main objectives of the VIC developed were:

• To provide excellent suppliers services to OEMs (Original Equipment Manufacturers) and outsourcing industry by combining SMEs’ core competencies through the creation of VOs. • To improve members’ capacity to learn and innovate by exchanging experiences and information. • To increase members’ strategic management capabilities by complementing individual functions with collective functions for: searching competitive information, sharing information resources and best practices, establishing strategic alliances within the network, and developing network competencies. • To increase members’ negotiation power and achieve economies of scale by developing supplier programs, exploit collective acquisitions, use common services and share financial risks in project funding and business endeavours. During the operation of Mexican-Industry, several ICT tools were developed, such as: Mexican-Industry portal, a database with the members’ manufacturing capabilities, tools and methodology for enterprise evaluation and qualification (IMMPAC Diagnostic System). Experiences derived from the use of these tools can be found in Molina et al. (2001). These networks allow to its members developing unique core competencies and share these competencies with other companies in order to fulfil market needs. A survey made after two years of operation of the networks, reveal good changes in the behaviour and operation of the members: • 90% of the companies interviewed showed that its satisfaction level with the services that offered the project was high or very high. • 67% of the consulted enterprises changed their operations as a direct result of enterprise evaluation and qualification and the development of specific improvement projects. Next table shows the percentage of enterprises that noticed changes in specific business processes. Processes Changed Business strategy formulation

% Consulted Enterprises 24%

Quality System

24%

Marketing and promotion strategies

19%

Sales strategy

19%

Post-sale customer service

19%

Administrative Systems

14%

Purchase of raw materials

14%

Table 1. Immediate results derived from members’ evaluation, qualification and specific projects development. In terms of performance improvement, some indicators were measured in order to clearly define the effects produced by evaluation, qualification and specific projects development in the members. Table 2 shows the percentages of enterprises that noticed changes in each indicator.

Increase in number of clients

% Consulted Enterprises 24%

Absenteeism and accidents reduction

24%

Defects, re-works and client’s rejects reduction

19%

Productivity increasing

14%

Fulfilling standards and regulations

14%

Costs reductions

10%

Manufacturing lead time Reduction

5%

Table 2. Immediate results in performance indicators. Despite the results presented in the survey an important issue that arose during the second year of the project was the development of SMEs’ core competencies based on a demand driven approach. In the first year of operation a lot of effort was placed trying to improve the competitiveness of VIC members based on training programs and improvement projects. But it was noticed that the main concern of the companies was the searching and development of new business opportunities. Therefore during the second year, major emphasis was placed in the search for new contracts for the members of the VICs. This unidentified issue caused that several companies in the VIC ended their participation in the project. In consequence, the need of having an external Brokerage company, that constantly search and coordinate the development of business opportunities, was one of the main issues that come up during the operation of MexicanIndustry. This important concern triggers the creation of IECOS company as the Broker enterprise.

3. THE DEVELOPMENT OF THE VIRTUAL ENTERPRISE BROKER: IECOS COMPANY IECOS was created as part of the incubation program for technological based companies from Tecnológico de Monterrey. In October of 2001, IECOS was created as a formal firm with the objective of exploring different ways to develop new business for the Mexican-Industry VIC. IECOS is “an engineering enterprise focused in the development of innovation projects through the integration of the competencies of partners and allies, satisfying customer needs related with: integrated product development, supply chain management, construction and engineering services, technology development and commercialization” (www.iecos.com). IECOS integrates the capacity of more than 40 manufacture associated enterprises capable to achieve the quality, costs and delivery time required to offer supply services the most demanding clients. The key objective of IECOS as a Broker is to create new VOs through the use of the core competencies of different SMEs, which belong to a VIC or that are independent companies (Molina and Flores, 1999). Aimed to fulfil this objective, IECOS configure a VO

searching in its network the best option according to customer’s requirements. To achieve this objective IECOS should use information provided by SMEs related to their technological capacities and capabilities (manufacturing capabilities database of the VIC members). Based on this information IECOS is able to search and select partners with the correct competencies for the formation of VOs. Figure 1 details the operational model of IECOS, the relation with the VIC and the creation of VOs. It is important to mention that the VBE defined at the beginning of the paper is afterwards formed by the integration of the VICs and the Broker (see section 4).

Virtual Breeding Environment

Processes

Virtual Organizations Integration of Competencies

Broker

•VIRTROQ •VIRCAST •VIRPLAST •VIRTUAL CNC •DIES & TOOLS •FINISHING PROCESS •VIRWELD

Companies

Virtual Industry Clusters

Fig. 1. IECOS operational model (Based on Molina et. al. 1998a) Four core processes have been defined for the Broker: Analysis of Market Requirements, Project Planning, Project Execution and Customer Service (Mejia and Molina, 2002). IECOS perform these four processes as part of its operational model: • Analysis of Market Requirements. Identification of business opportunities, analysis of technological requirements, search for potential partners, and, partners’ evaluation and selection, are main tasks developed. • Project Planning, which includes: technological and financial capability analysis of the VO, quotation and negotiation. • Project Execution. Project management and execution activities take place at this stage. Different types of projects can be developed: product transfer (transfer of products from one large company to the potential suppliers), technology transfer (transfer of the product and manufacturing facility to the potential suppliers) and new products development. • Customer Service. VO operation support and after-sales services are the tasks performed. The operative model of IECOS follows the Build to Order (BTO) manufacturing strategy. The Build to Order supply chain responds to the demands of new global manufacturing economy offering high level of customization, high customer driven design, volume flexibility, short cycle time, none inventory costs, minimal total cost and supply chain integration (Molina et. al, 2006a). In this case IECOS achieves Build to Order supply chains through the integration

of small and medium enterprises that are willing to share their design and manufacturing capabilities and capacities.

Many experiences emerged from IECOS creation and operation, facing technology changes and lack of industrial maturity are part of main challenges. Major lessons learned are: • Main organizational aspects that IECOS partner should have are: commitment and trustworthiness, these two elements are important to assure the product/service delivery according to customer requirements. • Suppliers’ network management is not an easy task, it requires the use of IT tools to structure the information of each partner and collection of the information of each VO developed. According to the performance results of each supplier in each VO, historical information should be collected, and feedback according to the global results should be also provided. • The different maturity levels of each supplier could be and obstacle for the creation of new VOs that should be overcome by the execution of improvement projects and training activities. • VO management is a key element for IECOS success: product/service follow-up, quality assurance and time fulfilment are important tasks that should be coordinated. • The integration of multiple companies in a VO represents an advantage for the final customer due to the fact that they only have to deal only with one supplier (the broker).

4. SHIFTING TO A VIRTUAL ORGANIZATION BREEDING ENVIRONMENT MODEL All the activities that the manager of MexicanIndustry developed were absorbed by IECOS after its creation. One of the main reasons for managing the

After 2 years of IECOS operation two projects were initiated at the University: one aimed to define the complete model and the tools needed for the development of VBEs and VO (ECOLEAD Project), and the second one aimed to develop an ICT platform that support the operational process of SMEs that potentially would create a VBE (PYME- CREATIVA Project). Main objectives and results expected from these projects are detailed in the following sections. Figure 2 represents the evolution of the projects developed related with VICs, VO and VBE, which are presented in this paper.

1997

2000

VEB

VE

VIC

Enterprise

collaborative work

There have been several e-application developments proposed to support key processes of the Broker. Those e-applications (web based applications) help the Broker having the right information, at the right moment, in the right place. Examples of these tools are: e-RFQ, e-selection, e-inspection and e-fax communication, e-engineering, e-supply, e-brokerage, e-marketing and e-productivity (Mejia, et. al, 2002 and Mejia, et. al, 2004). Some of these tools were analyzed to use in IECOS, nevertheless, the implementation of separated tools was not an easy task. During 2006 a collaborative engineering environment was proposed to develop according to IECOS requirement. This web-based application will provide to IECOS clients order management capabilities, order status visibility and transaction history. This tool also offers to the suppliers a “quick start” for on-line order fulfilment. With this application IECOS will offers a cost-effective method for support client requirements electronically. Details of this tool can be found in Peñaranda et. al. (2006).

network directly in IECOS was the difficulty found in achieving a sustainable business model for the VICs. Actually IECOS is the key partner of the network, becoming the manager of the VBE.

Mexican Industry Project: Seven clusters in metal mechanic and plastic industry.

Broker: Agent looking for business opportunities, executing projects by joining cluster members´ competencies

2001

2006

Fig. 2.

COSME Project. GVE (Global Virtual Enterprise)

European COllaborative networked organization LEADership Initiative

PYME for creation of Information Technologies for added-value industry networks

Tecnológico de Monterrey collaborative networking projects from 1997 to 2006.

4.1 Improvement of IECOS as a VBE In 2004, a research project started aimed to create strong foundations and mechanisms needed to establish the most advanced collaborative and network-based industry society in Europe, this project is named ECOLEAD (European Collaborative networked Organisations LEADership initiative). ECOLEAD is a consortium formed by 26 partners. The results of this project will help IECOS to improve its operation and to introduce new IT tools. ECOLEAD vision is: "In ten years most enterprises will be part of some sustainable collaborative networks that will act as breeding environments for the formation of dynamic virtual organizations in response to fast changing market conditions. ECOLEAD addresses the fundamental and interrelated focus areas, which form the basis for dynamic

and sustainable networked organizations: the VO Breeding Environments, Dynamic Virtual Organizations and Professional Virtual Communities. IECOS decided to convert its operational model towards a regional VBE, will trial a set of applications and developments from ECOLEAD project. Three main business processes are expected to be impacted in IECOS within the implementation of the new tools during the next two years, these are: Registration of New Members for the network, where an optimized and standardized procedure for registration of new members will be the main outcome. The achievement of this objective will be oriented by creation in parallel of a Methodology to Guide the Registration of New members, using templates, surveys and qualification procedures to validate information of the members. The Profiling and Competency Management System (PCMS) as one of VBE management system functionalities is the tool that will support this first business process. IECOS Performance Management System, with the purpose to better monitor and control VBE and VBE members’ activities. Different functionalities will be used such as: A tool that evaluates the trust level of organizations for different purposes (TrustMan), and a Decision Support Management Tool that can: perform a competency gap analysis, advice about the lack of performance and low trust level of any member. VO Creation in IECOS: A system to decompose products/services in terms of competencies will be developed an implemented in IECOS business processes. This tool provides a guide for the Broker to characterize any specific product, obtaining the competencies (resources, processes, practices) needed to meet customers’ requirements. The output is therefore a list of competencies needed for the VO. This tool will facilitate the further matching between what is required (business opportunity requirements) and what is available for the creation and development of VOs. 4.2 PYME-CREATIVA as a VBE One of the lessons learn during the development of Mexican-Industry and IECOS was the issue that SME networks need integrated information services (eServices) that offer and enable coordination and cooperation among its members, allowing share their technological resources, for the creation of VO. These e-Services can be integrated in an open web-based technological platform, easy to access, known as eHub (Molina et. al., 2006b). The e-Hub can be seen as a market place platform, where the SME can execute trading processes, purchase orders, supply chain management, request for quotations, and other types of electronic business (e-business) with others SME into the e-Hub.

PYME-CREATIVA (acronym in Spanish of: SMEs for the Creation of Information Technology for Value Added Industrial Networks) is a project funded by the IDB (Inter-American Development Bank) that is developing the e-Hub architecture concept, comprising the following e-Services (ICT4BUS Program, 2003). See figure 3: • e-Brokerage integrates technologies to support the searching of business opportunities and match making process. • e-Supply implements technologies for manufacturing execution systems that control production in a shop floor. • e-Marketing integrates different technologies that develop intelligent and customizable portals. • e-Productivity incorporates technologies for the diagnostic, planning, and monitoring of the SME enterprise development. • e-Engineering includes the development of a collaboration environment in engineering that integrates design and manufacturing technologies for integrated product development. User Request

User enterprises profiles

HUB PYME-Creativa

Data Base

e-facilitator e-Marketing e-Productivity

Partners + Tools CO-SOURCING

e-Supply

e-Brokerage

e-Engineering

New Products + Development of Collaboration Opportunities

Fig. 3. PYME-CREATIVA e-services The concept of creating e-Hubs enables the integration of value added networks, creating VOs. This concept reduces critical troublesome characteristics that limit SME’s competitiveness, allowing new business opportunities to be exploited through sharing technological capabilities (e-Hub). At present PYME-CREATIVA platform development is being finished, commercialization and training phases are already started. 5. CONCLUSIONS AND LESSONS LEARNED This paper presents the efforts done by the Tecnológico de Monterrey in Mexico focused on the application of collaborative networks concepts (Virtual Organizations and Virtual Breeding Environments) in real industry cases. The first attempt was the creation of seven metal-mechanic and plastic clusters in Monterrey, which triggers the creation of a company, named IECOS that started operations as the Broker for these clusters. Considering IECOS needs, aimed at improving its network management, research results of the

ECOLEAD project regarding VBE management will be implemented. In parallel, the PYME-CREATIVA project is being developed, which aims the integration of IT tools that support key business processes in manufacturing SMEs members of a VBE. All approaches and results presented in this paper constitutes efforts done in last years that evolve the cluster concept into VBEs supported by ICTs enhancing the possibility to better identify and satisfy customer requirements. It is important to mention that although there are important issues regarding the use of ICT in the networks, commitment and trustworthiness are also two key aspects for the successful creation of VBEs and VOs. 5. AKNOWLEDGMENTS The research presented in this document is a contribution for the ECOLEAD Project, funded by the European Community, FP6 IP-506958. The authors acknowledge the support of the CIDYT (Center of Innovation in Design & Technology) of Tecnológico de Monterrey, Campus Monterrey. The authors acknowledge the support received from Tecnológico de Monterrey through grant number CAT031 to carry out the research reported in this contribution. The project PYME-CREATIVA is partially funded by the initiative ICT4BUS of the Interamerican Bank of Development.

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