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