2006S Electronic Business BASIC ECONOMICS OF EB

2006S Electronic Business2 Market and Hierarchy Old dilemma Tug-O-war between transaction cost and agency costs Electronic Supply Chain Tightly coupled relationships Electronic Market Free and efficient market

2006S Electronic Business3 Transaction Cost Cost reduction due to IT Org. size SmallLarge Cost High Low

2006S Electronic Business4 Agency Cost Monitoring Cost reduction Mobility of agents Org. size SmallLarge Cost High Low

2006S Electronic Business5 Total Costs Optimal point varies with context Org. size SmallLarge Cost High Low

2006S Electronic Business6 A New Way Out HierarchyUndesirable Best of both World Market Transaction Cost Agency Cost High Low

2006S Electronic Business7 Leverage Financial leverage Operation leverage Economy of Scale

2006S Electronic Business8 Economy of Scale Average cost decreases with volume Volume SmallLarge Cost High Low Fixed cost Total Cost

2006S Electronic Business9 Operational Scale Volume LowHigh Cost High Low Total Cost Volume LowHigh Cost High Low Total Cost Revenue

2006S Electronic Business10 Externalities Some economic issues are internal to an organization Efficiency Some are external Multipliers Partners benefits Attractiveness result from size

2006S Electronic Business11 Speed Potential speed Realized speed Advanced information Early involvement, collaborative forecast Advanced actions

2006S Electronic Business12 Visibility Distance Timeliness Obsolescence Detail Tracking Tracing

2006S Electronic Business13 The effects of Speed + Visibility The case of 100 meter dash vs. 4x100 meter relay The Taiwan suppliers Computer manufacturers 6 months delivery time  2 days  955  983  982  1002 Shoes making 21 weeks delivery time  10 weeks The magic? Order  (Blanker order + Order forecast + Order)

2006S Electronic Business14 Postponement Product Postponement Labeling Packaging Assembly Design Geographic Postponement Logistics Time Postponement

2006S Electronic Business15 Postponement Benefits Risk avoidance Conditions Response rate (speed) The faster you can respond, the more you can postpone Build to Stock  Build to order with forecast