the national industrial transportation league information technology advancement committee meeting...

The National Industrial Transportation LeagueInformation Technology Advancement Committee Meeting

(ITAC)

November 10, 2004

Technology as a Competitive Weapon in the Supply Chain

Dr. Nancy W. NixAssociate Professor of Supply Chain Practice

Director, Supply and Value Chain CenterM. J. Neeley School of Business

TCU

© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain

Agenda

• Setting the Stage -Technology as a Competitive Weapon?

• Supply Chain Management – The Big Picture

• Defining the Opportunity for Competitive Advantage

• Keys to Supply Chain Success

• Summary and Wrap-up


“IT Doesn’t Matter”

As availability of IT has increased and its cost has decreased, information technology has

become a commodity.

“IT Doesn’t Matter” by Nicholas G. Carr, HBR At Large, May 2003


“Does IT Matter?”

Cost of Processing Power Per MIPS

$-

$100

$200

$300

$400

$500

1975 1980 1985 1990 1995 2000

Year

Co

st



“Does IT Matter?”

• What makes a resource truly strategic – what gives it the capacity to be the basis for sustained competitive advantage – is not … its availability …. but its scarcity.

• Has the strategic importance of technology as a competitive weapon diminished?



Growth in IT Investment

IT Spend as a % of Capital Expenditures

0%

10%

20%

30%

40%

50%

60%

1960 1970 1980 1990 2000 2010



Impact of IT Investment on Productivity

• 2001 McKinsey study found a significant positive correlation between IT investment and improved productivity in only six out of 59 industries

• In each of those six sectors, one or more companies introduced significant innovations in business practices to leverage IT capabilities

“Does IT Matter? by John Seeley Brown and John Hagel III, Harvard Business Review, July 2003


The McKinsey Quarterly, Number 1, 2003

Supply Chain Technology Performance


Factors Influencing IT “Failures”

• Focus on automating existing processes

• Patching with obsolescent technology

• Not learning from experience

• Unrealistic expectations

• Misalignment of technology and business strategy

• Lack of accountability for results


Impact of IT Investment on Productivity

• 2001 McKinsey study found a significant positive correlation between IT investment and improved productivity in only six out of 59 industries

• In each of those six sectors, one or more companies introduced significant innovations in business practices to leverage IT capabilities



• While IT may be readily available and increasingly less expensive, the insight and ability required for it to create economic value are in very short supply.”


The Opportunity for Creating Competitive Advantage?

“It’s the combination of IT and innovation that helps companies outpace rivals.”


• Top management involvement and support• Alignment of business strategy and technology strategy• Use technology to enable innovation and business processes• Cross-functional teams• Well-developed implementation plan• Clear guidelines on performance measurement• Clear guidelines on how to work with consultants and transfer knowledge• Well-developed plans for training employees

Effective IT Planning and Implementation

“Enterprise Resource Planning Systems: Common Myths versus Evolving Realities,” Mabert, Soni, and Venkataramanan, Business Horizons, May 2001.


Supply Chain Management

The Big Picture

Supply Chain Management

The Big Picture


Integrating Supply and Demand Management Integrating Supply and Demand Management

Fundamental Objectives of Supply Chain Management

Match SupplyMatch SupplyManagementManagement

With Demand With Demand ManagementManagement

To Maximize Profits and To Maximize Profits and Support Corporate ObjectivesSupport Corporate Objectives


190018001700160015001000 500 10005000

BC AC

10000 ‘50‘70‘90

1441: Gutenberg printing press

1863: rapid print newspaper press

1876: Bell telephone

1895: Marconi telegraph

1920: First commercial radio broadcast

1950: National Television

1965: Transcontinental Television(Early Bird Satelite)

1969: Internet

1992: World Wide Web

Man on footFoot & canoe

Canoe w. Sailand paddle

Larger boats,horse carriots,pack animals

Big sail boatsw. Compass

Steam boats &railroad

Steamships,transcont. Railroad,autos & airplanes

Steamships,railways, auto,jet & rocket aircraft

Atomic boats,high speed railway,auto & rocket jets

The speed of travel across

time

Prior to 1441 a.d.:- word of mouth- drums- smoke- relay runners

Source: Buckminster Fuller


Drivers for Supply Chain Management - Why Important, Why Now?

High Levels of Uncertainty

Outsourcing

Speed of Change

Complex, Interdependent Networks

Supply Chain Collaboration Accelerates

Innovation and Adaptation

Technology

Intense Competition


Defining Supply Chain ManagementS

up

pli

ers

Information Systems

Procurement

Cu

sto

mer

s

Integrated Forecasting and Planning

Performance Measurement

Supply Chain Strategy and Supporting Processes

Production DistributionCustomerService

Cu

sto

mer

s

Su

pp

lier

s

Focal Firm Demand ManagementSupply Management

Product, Service, Information and Financial Flows

NPD

NPD = New Product Development


Members of the Focal Company’s Supply Chain

n

n

n

n

n

n

n

Con

sum

ers

/ E

nd

-C

usto

me

rs

Tie

r 3

to

n c

ust

ome

rs

1

2

1

1

2

n

1

2

Initi

al S

upp

liers

Tie

r 3

to

n s

up

plie

rs

1

2

3

1

2

1

2

3

1

Focal Company

Tier 1Customers

Tier 2Customers

Tier 3 toConsumers/

End-Customers

Tier 2Suppliers

Tier 1Suppliers

Tier 3 toInitial

Suppliers

n

1

Complex Supply Chain Networks


“The best supply chains aren’t just fast and cost effective.

They are also agile and adaptable, and they ensure

that all their companies’ interests stay aligned.”

“The best supply chains aren’t just fast and cost effective.

They are also agile and adaptable, and they ensure

that all their companies’ interests stay aligned.”

“The Triple-A Supply Chain” Harvard Business Review, Hau L. Lee, Oct. 2004

The Triple-A Supply Chain


Defining the Opportunity for Competitive Advantage




• Focus on your most important customers. • Understand the value you bring to their

supply chains.• Focus IT innovation on:

– helping your target customers achieve supply chain success,

– improving relationships and performance across the supply chain, and

– doing both at a reasonable profit.


Redefining Marketing and Customer Relationships

• Under the old marketing concept, the objective was to make a sale.

• Under the new marketing concept, the objective

is to develop a customer relationship, in which the sale is only the beginning.

• The customer is a long-term strategic

business asset.


Long-term Trends

Old EconomyGoods

Transactions

Attracting Customers

Product Focus

Product Profitability

New EconomyServices

Relationships

Retaining Customers

Customer Focus

Customer Profitability


The New Reality

• Products come and go

• Customers remain


The Customer Pyramid

Source: Zeithaml, Rust, Lemon (2001), California Mgt Review, 43, p. 125.

What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?

Most ProfitableCustomers

Least ProfitableCustomers

Most ProfitableCustomers

Least ProfitableCustomers

What segment spends more with us over time, costs less to maintain, spreads

positive word of mouth?

What segment spends more with us over time, costs less to maintain, spreads

positive word of mouth?

Lead

Iron

Gold

Platinum

Lead

Iron

Gold

Platinum


Pro

fit

Customers

70,000

50,000

30,000

10,000

-10,000

-30,0001 42 83 124 165 206 247 288 329 370 411 452 493 534 575 616 657 698 739 780 821

Customer Profit for Physicians

Source: Mulhern (1999), Journal of Interactive Marketing, p.32


Profit Ranges ($2000 groups)

Freq

uen

cy

200

150

100

50

0

-15,000 -5,000 5,000 15,000 25,000 35,000 45,000 55,000 More

Frequency Distribution of Customer Profit for Physicians

Source: Mulhern (1999), Journal of Interactive Marketing, p.33


What is Customer Equity?

A firm’s Customer Equity is the total of the discounted lifetime values of all of its customers.


Lifetime Value of a Customer

1

1.91

2.74

3.49

4.17

0

1

2

3

4

5

1 2 3 4 5

Planning Horizon

Lif

etim

e V

alu

e


Driving Customer Equity

Customer Equity

Value Equity Brand Equity Relationship Equity

Quality Price ConvenienceBrand

AwarenessBrandEthics

BrandPerceptions

LoyaltyPrograms

Affinity CommunityKnowledge

Building

Marketing ActionsDrive Each of These




Driving Customer Equity

Customer Equity

Value Equity Brand Equity Relationship Equity

Quality Price ConvenienceBrand

AwarenessBrandEthics

BrandPerceptions

LoyaltyPrograms

Affinity CommunityKnowledge

Building

Technology DecisionsDrive Each of These




Defining the Opportunity

• Focus on your most important customers. • Understand the value you bring to the

supply chain.• Focus IT innovation on:


– improving performance across the supply chain, and



The Uncertainty Framework

Source: Hau L. Lee, 2002

Low SupplyUncertainty

High SupplyUncertainty

Low DemandUncertainty

High DemandUncertainty

Grocery, basic apparel, food, oil

and gas (Walmart, Barilla, Case)

Hydro-electric power, some food produce (Frito-Lay,

Coors)

Fashion apparel, computers, pop music (Dell, HP, Benetton, Sports Obermeyer)

Telecom, high-end computers,

semiconductors



Efficient Responsive

Risk Hedging Agile













Efficiency – Information Sharing and coordination, eliminate bullwhip effect,

economies of scale, manufacturing efficiency, efficient logistics systems

Risk Hedging – Information sharing, involving suppliers in product development and life cycle

management, integration, upstream inventory positioning, hubs, multiple

sources, risk pooling, SC visibility and event management

Responsive – Build to order, mass customization, order accuracy,

demand information, customer linking, postponement, cycle time reduction

Agile – Responsive and flexible to customer needs, hedging supply uncertainties, tight linkages with

suppliers, flexible supplier contracts, Cisco e-hubs for multiple levels of

suppliers (merge in-transit)


Defining the Opportunity

• Focus on your most important customers. • Understand the value you bring to their

supply chains.• Focus IT innovation on:


– improving relationships and performance across the supply chain, and



Keys to Supply Chain Success




“Connectivity: Enabling Visibility in the Adaptive Supply Chain,” Year 2004 Report on Trends and Issues in Logistics and Transportation, Capgemini, Microsoft, CRST Logistics, University of Tennessee

Optimization Optimization

Flexibility*Flexibility*

Connectivity Connectivity

SpeedSpeed ExecutionExecution

VisibilityVisibility

Collaboration Collaboration


Integrated Technology Infrastructure

ERP Systems

Decision Support Systems

Managing the Interface

Ecommerce, CPFR, CRM, CTM, SRM

Optimization Modeling, Planning & Analytics

Connectivity and Data Interchange

Integrated Transaction Management System

Internet, Inranet, EDI,

RF, Barcoding

DataData

InformationInformation

Planning & ExecutionPlanning & Execution

Connectivity, Visibility, and Connectivity, Visibility, and CollaborationCollaboration


Building Flexibility - The “Lego” Model

• Synchronized supply chain responses

• Rapid redeployment of assets

• Quickly shift source of supply

• Standardization– Data– Business Processes


In SummaryIn Summary


Keys to Making Technology a Competitive Weapon

• Adopt a customer focus– Identify most valuable customers– Differentiate offering to support objectives of target

segments– Focus first on business processes– Understand what the technology will and will not do– Understand what you must do to use the

technology effectively– Make decisions based on what value the

technology will deliver



• Improve relationships and performance across the supply chain– Make it easy for customers to

do business with you– Provide supply chain visibility

with timely exchange of relevant data and information

– Develop an integrated technology infrastructure that supports supply chain success

Managing the Handoffs



• Do it profitably– Understand profitability of customers,

products, and services and manage the mix– Pursue technology strategy in support of

your business strategy– Manage internal efficiencies well


From a transportation perspective, what are the greatest opportunities and barriers to using technology as a

competitive weapon?

TACTICALTACTICAL

OPERATIONALOPERATIONAL

UnavoidableDemand

Supply

STRATEGICSTRATEGIC

1.

2.

3.

1.

2.

3.

Internal

1.

2.

3.

1.

2.

3.

Customer facing

BarriersOpportunities


Questions to Ponder

• Can technology be used as a competitive weapon?

• Is there one answer to this question?

• If the answer is no, how should technology be managed?


Discussion?Discussion?

the national industrial transportation league information technology advancement committee meeting...

Documents

business practices

stage technology

harvard business review

business horizons

investmentit doesnt

supply chain management

john hagel

competitive weapon