Information and competition

• It changes industry structure and alter the rules of competition

• It creates competitive advantage by giving companies new ways to

outperform their rivals

• It spawns whole new businesses, often from within a company’s

existing operations

---Michael Porter and Victor Millar, HBR

1985

Determinants of industry attractiveness

• Threat of new entrants

• Threat of substitute products or services

• Bargaining power of suppliers

• Bargaining power of buyers

• Rivalry among existing competitors

The concept of “value chain”

• Highlights the role of information technology in competition

• The value a company creates is measured by the amount buyers are willing to pay for a product or service.– Profitable: the value created >the cost of performing

the value activities

• To gain competitive advantage (do either)

– Perform the value activities at lower costs

– Perform them in a way that lead to differentiation

and a premium price (more value)

Value activities

• Firm infrastructure• HRM• Technology development• Procurement• Inbound logistics• Operations• Outbound logistics• Marketing and sales• services

The value system

• Supplier value chain (upstream value)

• Firm value chain (firm value)

• Channel value chain (downstream value)

• Buyer value chain (downstream value)

How information changes the value chain?

• Each activity has two parts:– Physical component (all physical tasks required to

perform the activity)– Information-processing component ( steps required

to capture, manipulate, and channel the data needed to perform the activity)

– Which is moving faster?

Old supply chain model

• Buy raw materials

• Make finished products

• Move goods to market

• Sell through retailers

New SC model (demand chain)

• Sell customized products

• Move to delivery based on consumption

• Make only those products for which there is known

demand

• Buy raw materials in line with accurate production

requirements

Key issues

• Do not wait for customers placing orders or forecast

– Information to sense the change in demand

– Information allows companies to respond to the

change

Information distortion in SC

• The Bullwhip effect

• The cause of the effect

• The Beer Game………

Importance of Information

• Forecasting is everything……..

• Who should do the forecast?

• Uncertainty is evil, …

• How to reduce it?

• Lead time, another devil

Information integration

• Everybody in the SC has his/her own objectives

– Usually conflicting to one another’s

• We need a SC that will balance all the members’ needs.

The trade-offs

• Lot size-inventory

• Inventory-transportation

• Lead time-transportation

• Cost-customer service

What about E-Commerce?

What is E-Commerce (or eCommerce)?

Where is it going next?

Order fulfillment

• Challenges:– Provide dealers (B2B) and consumers (B2C) to

purchase goods– Improve order fulfillment efficiency

• Benefits:– Reduce overhead for order processing– Reduction in turnaround time– Improved customer service

eCommerce enabled SCM benefits

• Reduction in

– Supply costs

– Transaction/system costs

– Inventory costs

– Transportation costs

– Lead time

eCommerce enabled SCM benefits

• Increase in:

– Responsiveness to customer and market demands

– Quality of service

– Ability to track customer behavior and buying

patterns

Components of SC information

• Demand planning

• Procurement/purchasing

• Capacity planning

• Inventory tracking

• Market information collection and analysis

• Transportation planning

Technology

• To respond to demand changes– QR– ECR– Flexible manufacturing systems (FMS)– EOS– CRP

Technologies

• To sense the change in demand– POS– VMI– EDI– Information transparency– Centralized information collection