ELC 498

DAY 5

Creating & Capturing Value in the Supply Chain

Agenda

Questions?? 4th Perspective Creating & Capturing Value in the Supply

Chain ERP Overview Pick case studies

Two for Oct 1 (SAP and Siebel) Two for Oct 4 (QRS and AOL)

Case study presentation information posted in Blackboard

4 Perspectives

1. Technological Drivers Of Change

2. Creating Value: Economics Of Internet-based Commerce

3. Capturing Value: Market Structure And Competition

4. Creating And Capturing Value In The Supply Chain

The Supply Chain

The flow of good and services i a supply chain is generally unilateral from the raw materials to the consumer

Information flows in both directions in a supply chain Supply conditions (up) Demand condition (down)

Information flow helps to minimize transaction costs in the chain Reduce buffer inventories Reduce “bull whip effect”

http://en.wikipedia.org/wiki/Bullwhip_effect

Vertical market structures

Vale creation and capture If you hold a powerful position in the vertical

chain you can extract value both upstream and downstream (at the expense of the consumer)

Disintermediation can cause intermediaries to completely disappear from the chain (and sometimes create new ones!)

eCommerce has the ability to improve supply chains and to completely restructure vertical markets by the creation of new electronic markets

Manufacturing versus Distribution

The VisionTie real-time demand information to JIT

manufacturing “pull” manufacturing

Reality is “push” manufacturing Guess the demand and start making and

distributing products that you hope the consumer will buy.

What will market researchers do then??

Attempts to realize the Vision

Tie all the economic actors in the vertical chain electronically The Internet!!!

The problem American manufacturing is not set up this

way (use batch manufacturing) Requires “sea State” change

Best example is DELLBut what about the Wal-Mart deal?

Dell

Direct sales to end consumerGet the order Make the PCShip the order

Why only dell?New industry <> no legacy issues

What about the auto industry?

8 weeks to make a car at GM3 weeks at Toyota

Kaizen and Kanban!Distribution is still the problem

Centralized manufacturing of a large hard to ship item

Consumers will compromise and buy “off the lot” instead of “made to order” because they just won’t wait.

Channel Conflicts

Consumer shops off-line; buys on-lineNo geographic protection; exclusive sales

regionsManufactures selling direct to consumers

Competes with other downstream channelsHigher pricing or collaborative sales

Changes

Two waysReduce transaction costs

Configure productions process to produce components when and where it is most efficient

Improve information flows (up and down) Ensure that information about what is needed,

what has been produced, and what is in process is available wherever it is needed in the chain

Wal-Mart

Uses integrated data systems to optimize its supply chains Suppliers systems tied into Wal-Mart

systems POS info relayed to suppliers

Triggers replenishment ordersStock levels automatically readjusted based on

statistical modeling of demand

Some issues

Who has the best information of consumers demand? The retailers (local view of customers) The manufactures (global view of retailers) Pool the information!!

Cultural problems Inertia Boundary issues

Integration brings structural reliance which leads to high switching cost (ex post exploitation)

Technology integration issues XML & SOAP

Electronic markets

Restructuring of the supply chainMany formsSolve different problems

Must suppliers sell to more than end user

Most end user buy from more than one supplier

Normal supply chain

Toyota GM Boeing Airbus

Auto partsSuppliers

Auto partsSuppliers

Paper Supplier

Aero partsSuppliers

Aero partsSuppliers

With new Intermediaries for Transactions

Toyota GM Boeing Airbus

Auto partsSuppliers

Auto partsSuppliers

Paper Supplier

Aero partsSuppliers

Aero partsSuppliers

Auto Marketplace

Aero Marketplace

PaperMarketplace

The new intermediaries

Two typesVertical

With a given industry Auto suppliers

HorizontalAcross all industries

MRO’s

Intermediary interactions

Content and Community Portal

Efficient Commerce Hub

Dynamic marketplace

NeutralEX

SellerAdvocate

BuyerAdvocate

Tra

nsa

cti

on

en

ab

lem

ent

Extent of Change to established Purchasing and Sales practices

DSIR returns

eCommerce Hubs exhibit DSIR More buyers > greater value for a sellers to

joinMore sellers > greater value for the buyers

to join Lower transaction costs for ALLLower search costs for ALLWinner take all B2B markets

First mover advantage

Marketplace Outcomes

Sellers

Buyers

Few Many

Few Less value created

Les need for Marketplace

Difficult for Third Party to enter

Intermediate levels of value created

Intermediate need for marketplace

Buyers best positions to establish Markets

Many Intermediate levels of value created

Intermediate need for marketplace

Sellers best position to establish Markets

HUGE value created

Hard to get traction

(chicken and egg)

Role for third party

Summary

New technology Revolutionary

Restructuring > new marketplaces

Evolutionary Gradual improvement and efficiencies

B@B will exhibit mania, revulsion and then consolidation There will be only one (or two) marketplaces in

each market sector Winner take all effects