Information and competition

1. 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

2. 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

3. 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

4. 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)

5. Value activities • Firm infrastructure • HRM • Technology development • Procurement • Inbound logistics • Operations • Outbound logistics • Marketing and sales • services

6. The value system • Supplier value chain (upstream value) • Firm value chain (firm value) • Channel value chain (downstream value) • Buyer value chain (downstream value)

7. 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?

8. Old supply chain model • Buy raw materials • Make finished products • Move goods to market • Sell through retailers

9. 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

10. 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

11. Information distortion in SC • The Bullwhip effect • The cause of the effect • The Beer Game………

12. Importance of Information • Forecasting is everything…….. • Who should do the forecast? • Uncertainty is evil, … • How to reduce it? • Lead time, another devil

13. 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.

14. The trade-offs • Lot size-inventory • Inventory-transportation • Lead time-transportation • Cost-customer service

15. What about E-Commerce? What is E-Commerce (or eCommerce)? Where is it going next?

16. 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

17. eCommerce enabled SCM benefits • Reduction in • Supply costs • Transaction/system costs • Inventory costs • Transportation costs • Lead time

18. eCommerce enabled SCM benefits • Increase in: • Responsiveness to customer and market demands • Quality of service • Ability to track customer behavior and buying patterns

19. Components of SC information • Demand planning • Procurement/purchasing • Capacity planning • Inventory tracking • Market information collection and analysis • Transportation planning

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

21. Technologies • To sense the change in demand • POS • VMI • EDI • Information transparency • Centralized information collection