Can Information Technology Enhance Business Competitiveness?

Jatinder (Jeet) N. D. GuptaUniversity of Alabama in Huntsville

guptaj@uah.edu256-824-6593

Quiz

A box of cereal spends ? days in the supply chain.

• A box of cereal spends 104 days in the supply chain.

Total inventory in the pharmaceutical supply chain exceeds ? days and ? $ in savings to be realized.

• Total inventory in the pharmaceutical supply chain exceeds 100 days with at least $ 11 billion in savings realized.

Quiz (continued)Poor coordination in the food industry supply chain wasted ?

dollars. • Poor coordination wasted $ 30 billion annually in

the food industry.Boeing wrote-off ? dollars in 1997 due to supply chain

inefficiencies.• Boeing wrote-off $ 2.6 billion in 1997 due to supply

chain inefficiencies.It costs, on average, ? dollars to process each purchase order.• It costs, on average, $80 to process each purchase

order.

http://obelia.jde.aca.mmu.ac.uk/multivar/pca_graf.htm

http://obelia.jde.aca.mmu.ac.uk/multivar/pca_graf.htm

The doughnut never changes shape eventhough the projections are quite different.

Principal Component Analysis

Impact on Business Decisions

• Decisions are based on partial information, from a specific perspective only.

• A decision good for one business function is not best for overall business.

• Information needed to make business decisions are not available.

• Coordination and collaboration becomes rather difficult, if not impossible.

Ord

er

Siz

e

TimeSource: Tom McGuffry, Electronic Commerce and Value Chain Management

CustomerDemand

CustomerDemand

Retailer Orders

Distributor OrdersDistributor Orders

Production PlanProduction Plan

Information Asymmetry between Customer Demand and Manufacturing

Nobel Prize in Economics 2001

Information Asymmetry

What is Information Technology?

• Information Technology (IT) refers to a wide variety of items and abilities used in the collection, storage, dispersal, processing and conversion of data into information to create knowledge.

• Knowledge is an understanding of a set of information and how that information can be put to the best use.

Three Dimensions of IS/T

• Processing dimension: Here IS is treated primarily as a data processing system.

• Functional area dimension: Here IS is considered as meeting the functional needs of the firm.

• Management hierarchy dimension: Here IS is considered as supporting the decision making processes at various levels of management.

Fourth Dimension of IS

• Knowledge management is one of the fundamental requirements in an organization.

• Hence, the fourth dimension of IS considers the IS function as one of knowledge generation and management.

• This is a much broader role for the IS function and will gain importance.

An Information Age

• Person-to-person IT links between individuals and businesses are an important feature of an Information Age.

• Now, more people work at handling information than in agriculture and manufacturing sectors combined.

• Effective use of IT enables an organization accomplish more than a few years ago.

Embedded Information Technology

• In an Information Age, IT is embedded and integrated with other components of products and services.

• Products and services with embedded IT are also called knowledge-based because knowledge about their function and performance are embedded within them.

Transformational Technology

• A technology that transforms the way we usually do work is called transformational technology.

• It is also called a ‘disruptive technology’ as it causes a disruption in organizations.

• The full benefits of these technologies are only realized after majority of the participants start using these technologies.

EC Productivity Focus

SUPPLIERS

Distribute

Source

Build

Integrate

Assemble

DesignCUSTOMERS

ConcurrentEngineering

Supply Chain Connectivity

GatewaySolutions Extranet

Solutions

Electronic Commerce Solutions

The Business Value of Electronic Commerce

• Order processing cycle times reduced by 30% to 70%• Customer service levels improved by 5% to 25% • Inventory was reduced by 10% to 15 days • Inventory turns increased by up to six fold• Distribution personal productivity increased by 25%

to 30%• Demand forecast errors reduced by 50% to 60% • Profit improved 150% to 250%

Global Manufacturers’ Challenge

Supply Chain Integration is the Competitive Differentiator

Source

Build

Integrate

AssembleDistribute

Plan / Forecast

Traditional Productivity Focus CUSTOMERS

Design

SUPPLIERS

….. Move Productivity Beyond the Shop Floor

The Six Forces Model for the NE Era

Added for NE Strategy

SCM and EC Issues• Multiple partners in an extended supply chain• Global nature of the business operations• Increased need for coordination• Increased need for collaboration• Increased need for cost reduction• Increased need for speed• Coordination and Integration is key to success

Financial Strategic Management Evaluating opportunity costsChecking if targets are metRevising targets according to business plan

Supply Chain DecisionsSupply Chain cost & pricing targetsBudget allocations for purchasing new inventoryHolding cost and other variables

Supply Chain Management SystemInventory managementTracking and storing inventoryRecording procurement and sales Asset recording

Strategic Decisions Entry/Exit DecisionsInvestment DecisionsSales/Marketing Targets

Financial Management SystemStorage and processing of data Conversion of data into timely, accurate, useful reports

Inventory costsInventory quantityTransportation, warehousing and other SC costsAssets on hand and their classificationsAmount sold / purchased

DataData

•SUPPLY CHAIN•INTEGRATION

Multi-enterprise Design Collaboration

Dramatically Decrease NPI Cycle Time While Improving Quality

CollaborativeEnvironment

DesignData

Value-added Suppliersand Manufacturers

High-speedLines

CAD/CAM Models;E-mails

Distributors & Customers

Internet

Technical Data;2D Drawings;

E-mails

CAD/CAE Models;E-mails

Develoment Parntersand/or Customers

High-speedLines

Technical Data;2D Drawings;

E-mails

Internet

Piece Part Suppliers

Generic Competitive Strategies

• Low Cost Leadership: Outperform firms in the industry by providing products or services at a lower cost than competitors.

• Product Differentiation: Provide a product or service that is generally recognized as distinct from competitors.

• Focus on a Market Niche: Identify and compete in a market segment in which competitive advantage may be gained by concentrating on a specific buyer group, product line, or geographical area.

Realizing IT’s Competitive Advantages

• Changing the basis of competition: Dell’s Computer Order Entry and Manufacturing System

• Build barriers to a new entrant: Microsoft Windows on PCs

• Build in switching costs to customers: Merril Lynch’s CMA integrates variety of product and services to offer valuable service

• Strengthen a firm’s power in dealing with suppliers: Wal-Mart

• Provide new products and services: UPS

In Conclusion

• Information Technology can provide significant competitive advantages to a firm by making the firms more efficient and effective.

• Information Technology also decreases the competitive disadvantage for a firm by focusing on customer service and desires.

• Looking only to IT to solve organizational problems is inviting disaster.

Personal Research Emphasis

• Walk a rather thin line between theory and practice.

• Attempt to understand the way to collaborate while playing the competitive game.

• Learn the process of intra-organizational and inter-organizational integration.

• Develop strategies and tools for supply chain management.

• Use technology as a tool that we must learn to manage this tool to gain advantage.

The Computer Industry: Dell on-line

Customer Order andManufacturing Cycle

Procurement Cycle

Dell Supply Chain Cycles

Procurement cycleCustomer Order andManufacturing Cycle

CustomerOrder Arrives

PUSH PROCESSES PULL PROCESSES

Retailing: Amazon.com

Publisher

Distributor

Amazon

Customer

Amazon Supply Chain

Publisher

Warehouse (?)

Retail Store

Customer

Bookstore Supply Chain

Pull Pull

Grocery on-line

Manufacturer

Online Grocer

Customer

On-Line Supply Chain

Manufacturer

Warehouse (?)

Supermarket

Customer

Supermarket Supply Chain

Courses and Programs at UAH

• Developing and teaching a graduate course in Supply Chain Management and E-Business.

• Developing a track in Supply Chain/Logistics Management at the graduate and undergraduate levels.

• Reviewing the MS in MOT program to determine its effectiveness in current times.

• Learning the process of learning to develop effective strategies for the “learning to learn” paradigm.

• Researching in the integration of technology with other business functions to gain competitive advantage.