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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