VIRTUAL ENTERPRISE:

NEW PARADIGM FOR MANUFACTURING

SYSTEMS ENGINEERING

Prof. Dr. Tibor Tóth

Prof. Dr. Ferenc Erdélyi

University of Miskolc
Department of Information Engineering

2010.
0.
 Contents

1. Globalization
2. ICT (Information and Communication Technology)
3. Paradigms
4. Computer Integrated Manufacturing
5. Virtual Enterprise
6. VE characteristics
7. Architecture, functions, content, goal
8. Benefits
9. Infrastructure
10. Case study

VIRTUAL ENTERPRISE 1.
 Globalization
General environment for Virtual Organisations

Globalization is an economic and social tendency of great importance,

which has effect on the world as a whole.
Globalization is an objective process the sources of which are to be searched
in the objective tendencies of sciences, technologies, economy and world
politics.
The main benefit of globalization is that it provides opportunities for a faster
development of relatively undeveloped countries.
Economic organisations appearing on global market have been forced by
globalisation to improve their competitiveness and innovation capabilities in a
short while.
The main disadvantage of globalization is the danger of the global extension
of any local crisis symptoms.

VIRTUAL ENTERPRISE 2.
ICT
Information and Communication Technology
Technology of primary importance for science, economy, and society

One of the most important phenomena of globalized economy is the wide-

spread application of new information and communication technologies in
social, economical, technical and business processes.
The implementation of world-wide computer network, the Internet has
brought the vision of “information society” into a real closeness.
The fast progress of Internet has resulted in a qualitative change in the
environmental circumstances of economic processes:
•The technical possibility of accessing information has been increased to a
great extent;
•Information is a fundamental value, which does not decrease proportionally
when shared;
•Political, management, business and technical decision making processes
have drastically accelerated;
•Cooperation and coordination between business partners have became fast
and more effective even if they are at long distance.

VIRTUAL ENTERPRISE 3.
Paradigms
Science does not progress via a linear accumulation of new knowledge, but
undergoes periodic revolutions, also called "paradigm shifts".
Thomas Kuhn (famous historian of science)

Paradigm is a set of assumptions, concepts, values, and practices that

constitutes a way of viewing reality for the community that shares them,
especially in an intellectual discipline.
Paradigm is a set of exemplary solution, expedient or experiments that are
likely used, to be copied or emulated.
In this scientific context, the prevailing paradigm often represents a more
specific way of viewing reality, solving problems or limitations on acceptable
tools and methods or systems for future applications.
The traditional industrial management was based on the paradigm of the
division of labour into areas of specialization and the domination of mass
production.
ICT progress has permitted of changing paradigm to CIM (Computer
Integrated Manufacturing) and toward a lot of further new paradigms.

VIRTUAL ENTERPRISE 4.
The CIM paradigm
The development of CIM paradigm has to be characterized as a bottom-up
process from Integrated Manufacturing to Integrated Engineering,
Manufacturing, Management and Business.
Integration development
Virtual Enterprise
Enterprise modeling standardization
Internet, HTML, Java, XML
CIM-EMB
e-business, SCM, CRM Computer Integrated Manufacturing
Engineering, Management and Business
Integration of business processes
Application components standardization CIM-EM
BPR, MIS, ERP, MES Computer Integrated Manufacturing
Engineering and Management
Integration of management functions

Data Interfaces standardization

APT, CLD, IGES, STEP, SQL CIM-E
CAD, CAPP, PPS, CAQ Computer Integrated Manufacturing and
Engineering
Integration of engineering processes
Network standardization
MAP, MMS, TCP/IP, Profibus, CAN
NC, PLC, Robots, FMS, FAS
CIM
Computer Integrated Manufacturing
Integration of manufacturing systems

time
1960 1970 1980 1990 2000 2010

VIRTUAL ENTERPRISE 5.
The CIM paradigm
The CIM paradigm has a lot of successor paradigms to be characterized by
new organizations, new methods, new business priorities, new resources,
new performance measures, and new goals.

PRODUCTION DIGITAL FACTORY PA Programmable Automation

FLEXIBILITY FMS Flexible Manufacturing System
IMS
TQM CIM Computer Integrated Manufacturing
SOA
MRP Material Requirements Planning
VE
FMS COOPERATIVE MIS Management Information System
NETWORK JIT Just-in-Time
PA ERP
AGILE VMI Vendor Managed Inventory
MES EAI
MANUFACTURING SCM Supply Chain Management
CIM
CRM Customer Relation Management
MRP MIS CUSTOMIZED
ERP Enterprise Resource Planning
NUMERICAL MASS PRODUCTION
CONTROL MES Manufacturing Execution System
CRM
EAI Enterprise Application Integration
LEAN
SCM TQM Total Quality Management
PRODUCTION VMI
IMS Intelligent Manufacturing System
JIT
SOA Service Oriented Architecture
TRADITIONAL
VE Virtual Enterprise
MASS PRODUCTION
DEMAND VARIETY

VIRTUAL ENTERPRISE 6.
Virtual Enterprise
There are a lot of discussions regarding the definition of virtual enterprises
International Association of Virtual Organizations

A Virtual Enterprise (VE) is a temporary alliance of enterprises that

come together to share skills or core competencies and resources in order
to better respond to business opportunities, and whose cooperation is
supported by computer networks. It is a manifestation of Collaborative and
Distributed Working by computer network.
Virtual Enterprise (VE) refers to a new organisational form
characterised by a temporary or permanent collection of geographically
dispersed individuals, groups or organisation departments not belonging to
the same organisation – or entire organisations, that are dependent on
electronic communication for carrying out their operational processes.
Virtual Enterprise is a dynamic alliance between organisations that
bring in complementary competencies and resources and that are
collectively available to each other, with the objective of delivering a
product or service to the market as a collective.

VIRTUAL ENTERPRISE 7.
Virtual Enterprise
Virtual Enterprise as extended CIM paradigm

VE is an occasionally established
cooperating system of autonomous VE 1.
organisations (enterprises, affiliated firms)
based upon electronic information
1. 2.
processing and organisational integration. Enterprise Enterprise

It makes possible for the participating

organisations to be able to effectively utilise VE infrastructure
extra resources, and not only those, which
are physically available at this particular VE 2.

organisation without significant expansion.

3.
In this sense, VE is mainly a paradigm Enterprise
of integration between enterprises.

VIRTUAL ENTERPRISE 8.
Virtual Enterprise
Virtual Enterprise as extended CIM paradigm

VE is a continuous cooperating system of

autonomous functional organisations Corporation management
(settlements, departments, factory units)
VE 1.
based upon electronic information processing
and organisational integration. VE 2.
Engineering
It enables participating organisations to
operate shared resources in an effective way,
without any considerable extension of the VE 3. Factory
resources available physically at the
individual organisations.
In this formulation VE is mainly a Distribution
comprehensive paradigm of integration
within a corporation.

VIRTUAL ENTERPRISE 9.
Virtual Enterprise
Virtual Enterprise as extended CIM paradigm
Integrated organizational components in cooperative structure

REAL ENTERPRISE
REAL REAL
INPUT ORGANISATIONS REAL
OUTPUT
VIRTUAL
ORGANISATIONS

LOGISTICS COMPUTER NETWORK LOGISTICS

SERVICES SERVICES
VIRTUAL NETWORK SERVICES

VIRTUAL
CORPORATIONS

REAL
REAL INPUT
CORPORATIONS
REAL
OUTPUT
BUSINESS ENVIRONMENT

VIRTUAL ENTERPRISE 10.

Virtual Enterprise
Virtual Enterprise as extended CIM paradigm
Integrated functional components in virtual matrix structure

Management Financial Marketing Production Supply SCM Customer CRM

Information Management Chain Relation ERP
System components components Management Management
Master Planning
Capacity
Planning
Product
Design
Technology
Planning
NC
Programming Material
Bill of
Material
Project CAE
Planning CAD/CAPP
CAD CAPP Requirements Planning
Program Planning
Provision
Middle term
Quality SCADA Production Production
Assurance Supervising and DNC Scheduling Activity PAC Tracing
CAQA Control Control PDA
MES
Tool SFC
Management
Short time
System
Quality TMS Scheduling Cell Control Flexible
Control
PLC Machine CC Manufacturing MA
SPC ROC CNC Manufacturing Line Control System FMS

VIRTUAL ENTERPRISE 11.

VE characteristics
Characteristics of VE are determined by the requirements of
flexibility, adaptability, agility, cooperation and integration.

Virtual Enterprise has several characteristics that

distinguish it from a conventional one.
The most unconventional characteristic is its virtuality.
A Virtual Enterprise lacks many of the management and
facility structures of a conventional business even if it
can work like a conventional business.
Another important characteristic is the adaptability of
the enterprise activities; it must be able to change
according to market and customer demands.

VIRTUAL ENTERPRISE 12.

VE characteristics
Characteristics of VE are determined by the requirements of
flexibility, adaptability, agility, cooperation and integration.

Virtual Enterprise must be created for temporary alliance

therefore it is cost effective. Investments in personnel and
facilities are optimized. It evolves and dissolves over time.
Virtual Enterprise forms in order to complete a project, and
disbands when the project is complete.
The use of ICT plays a vital role in the Virtual Enterprise. It
is not limited geographically. Employees may be located
anywhere in the world and still can support the organization
effectively. Virtual Enterprise use ICT tools and methods,
client workplaces, servers, data warehouse, cooperation
platform, services and Internet protocol.

VIRTUAL ENTERPRISE 13.

Virtual Enterprise
Development architecture

VE paradigm VE concepts VE reference architectures

General conception, business environment, roles, responsibility,

authority, legal system, contracts, tasks, standards, information
technology

Business modelling methodology

Enterprise application systems
Modelling tools
Application interfaces
VE models, objects, parameters,
planned procedures, activities User platforms, guidelines

Operational ICT environment, network services, implementations

hardware components

VIRTUAL ENTERPRISE 14.

Virtual Enterprise
Functions, contents, goals
Cooperation

Cooperation among internal and external participants:

Managers, designers, planners, dispatchers, operators,
partners, suppliers, distributors, customers;
VE functions support:
• Dynamic grouping for cooperations
• Knowledge sharing and collaborations
• Work flow syncronisation (concurrent engineering)
• Existence of organizational and geographic dividing
• Different types of communication
• All the kinds of group-work and undertaking of different roles
• Exchange of information with different form as much as possible
• Changing organizational frames and the different life-duration of groups
• Determination of authority and responsibility
• Measuring performance of work group
• Reporting results and problems.

VIRTUAL ENTERPRISE 15.

Virtual Enterprise
Functions, contents, goals
Integration

Integration of business and technology processes, including all the

connections with internal and external participants.
Deeper knowing, modelling and harmonising the business processes, revising
the goals, the constraints and formal objectives in order to create the
conditions and framework for optimization.
VE functions support:
• Modelling business and technology processes
• Using unified modelling tools
• Creating semantically coherent business identities
• Simulating systems and processes
• Integration of existing working tools and working methods
• Shared use of resources
• Determination of authority and responsibility
• Continuous exchange of data and messages
• Assembling product from components.

VIRTUAL ENTERPRISE 16.

Virtual Enterprise
Benefits

Service sphere:
More efficient customer relationships with expanded revenue
opportunities:

•The Virtual Enterprise enables multiple business entities to join

together to offer consumers anywhere-anytime access to a variety of
related services through one convenient portal.

• The multiple entities may be completely independent businesses,

such as airlines, hotels, and car rental companies on a travel Web
site, or business segments of the same organization, such as banking
and investment branches of financial services companies.

VIRTUAL ENTERPRISE 17.

Virtual Enterprise
Benefits

Government sphere:
More efficient citizen relationships with faster and streamlined
services and operations:

• Diverse officies within federal, state, or local governments can

integrate operations to make it easier and more efficient to deliver
services to constituents.

• Simplifying services delivery for multiple agencies in areas such as

health and human services creates opportunities to simultaneously
improve the user experience and control administrative costs.

• The Virtual Enterprise can also serve to streamline IT and

operational administration when multiple agencies are working
together toward a common goal, for example, homeland security.

VIRTUAL ENTERPRISE 18.

Virtual Enterprise
Benefits

Manufacturing sphere:
More efficient partner relationships
• Being able to integrate supplier operations with manufacturers’ internal
information systems creates new opportunities for cost efficiencies in areas such
as inventory control.
• A key materials supplier, for example, can access information about a
customer’s supply of a particular material to schedule reordering and delivery at
the optimal time.
• Previously, this would have been done through an expensive proprietary
electronic data interchange (EDI) network. But today’s services-oriented
architectures (SOA) make it possible for systems to work together in the Virtual
Enterprise through secure, flexible Web services.

More efficient engineering area relationships:

• VE integrates CAD-CAPP-PPC-CAM agents in the framework of concurrent
engineering.

VIRTUAL ENTERPRISE 19.

Virtual Enterprise
Benefits

Improved customer service

This business goal is top priority. Keeping the market and attracting new
customers is a precondition of realization of every other business goal. This
goal can only be obtained by means of guaranteed quality of products,
meeting deadlines and product specifications, and offering a low price-level.
Increasing revenue
This business goal, at the level of production planning and control, requires
continuous improvement and control of the macro-parameters of the so-
called production triangle (readiness for delivery, stocks level, capacity
utilization).
Lowering working capital
This goal can also be achieved by simultaneously and in a synchronized way
improving the macro-parameters (production indices) of the production
triangle. Meeting deadlines and minimizing the stocks level under reasonable
constraints have a direct effect on working capital demand.

VIRTUAL ENTERPRISE 20.

Virtual Enterprise
Benefits

Managing fixed assets

Utilization of the existing capacities invested in earlier is a fundamental
condition to realize effective production capable of ensuring the profit
expected. In case of well-proven products, successful accomplishment of
the accepted external orders depends on, in most cases, the capacities
available.
Reducing operation costs
Under the conditions of the prices agreed and fixed in contracts the net
profit can mainly be influenced by decreasing the operation costs and lead
times, as well as by optimal utilization of the resources (machines, workers,
materials).
Achieving higher level environment protection
Total product life cycle management and reuse of unmaintanable or over-
time devices and materials are the main industrial activities of sustainable
development.

VIRTUAL ENTERPRISE 21.

Virtual Enterprise
Infrastructure

Web Data base

Data
server server Warehouse

Multi-tier INTERNET

…
architecture
Enterprise
application server

Web clients
Client-server architecture, in which
clients, functional applications, 1. Work n. Work
(process and/or business logic), data group group
base and access are implemented, used
and maintained as independent
components most often on different
platforms.

VIRTUAL ENTERPRISE 22.

Virtual Enterprise
Infrastructure
Software tools

Software Enterprise Knowledge Work

development applications management management
tools
E-mail
Document system
Project manager ERP management
Web browser CAD Forum
Data mining
CAPP Group ware
Design tools PPC OLAP (On Line tools
Analytical
Java MES Processing) Virtual
Perl CAQM Meeting
Work flow
C++ SCADA analysis Activity
scheduling
Web server Expert system
FTP
HTML, XML Data base Intelligent
STEP
Simulation search engine Monitoring

VIRTUAL ENTERPRISE 23.

Virtual Enterprise
Case study
Centrally focused supply chain management

Other manufacturers

Supplier Customers

VE End product Distribution

Supplier
manufacturer centre

Shopping
Supplier Supplier
VE centre

Different type VE organizations

VIRTUAL ENTERPRISE 24.

Virtual Enterprise
Case study
Virtual Enterprise organization for Supply Chain Management

Supplier Supply Chain Platform End product

Contract, confirmation,
manufacturer
forecast, renouncement
ERP ERP
Material demand, specification
MRP MRP
Master plan, uncertainty handling
PPC PPC
Assembly and filling schedule
MES MES

Quality Control Vendor Managed Inventory Quality Control

Inventory
Status Call-down Inventory
Control Control

Logistics Logistics
System System
Filling Delivery

VIRTUAL ENTERPRISE 25.

Virtual Enterprise

Standards

Virtual Enterprise organisations demand the application of syntactic,

semantic and pragmatic standards.
• Syntactic standards enable sources to have similar formats (e.g. DXF,
Java RMI, XML, Html, TCP/IP).
• Semantic standards help using coherent models and applications (IDEF,
UML, STEP).
• Pragmatic standard enable business and engineering applications (ERP,
CAD, CAPP, PPC, MES, SCM) to have harmonized or unified functions and
services for optimized planning and control of business processes (eg. ISA-
95).
Life cycle of Virtual Enterprise has configuration, design, implementation,
operation and disbandment phase.
Life cycle can have several reconfiguration phases.

VIRTUAL ENTERPRISE 26.

Virtual Enterprise

Conclusions

Virtual Enterprise is a new paradigm to support building and operating

temporary but closed co-operation between firms or organizations to
achieve new business goals.

It has been successfully used at the area of manufacturing and

researching corporations, as well as at the area of different organizations.

Keywords that characterise this paradigm are as follows: coordination,

cooperation, collaboration, (CCC) and integration with information
and communication technology (ICT).

CCC can appear between human users, software applications, as well as

production and logistics system components.

VIRTUAL ENTERPRISE 27.

Virtual Enterprise

Conclusions

Virtual Enterprise is a new alternative way to differentiate and share

resources, business operations and services under complex and dynamic
conditions and requirements.

Virtual Enterprise can permanently adapt to actual tasks, assumptions,

real conditions and constraints. It can follow variable business policies
and business priorities so that solutions satisfy multi-objective features.

The growing number of successfully virtualized companies shows that

the main advantages, such as high utilization rate, lower VIP level,
instant reaction on needs, as well as reduction in cost and time make
these companies stronger competitors in the global market.

VIRTUAL ENTERPRISE 28.

Virtual Enterprise

Thank you for your kind attention!

VIRTUAL ENTERPRISE 29.