Can Information Technology
Enhance Business Competitiveness?
Jatinder (Jeet) N. D. Gupta
University of Alabama in Huntsville
guptaj@uah.edu
256-824-6593
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
Principal Component Analysis
The doughnut never changes shape even
though the projections are quite different.
http://obelia.jde.aca.mmu.ac.uk/multivar/pca_graf.htm
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.
Nobel Prize in Economics 2001
Information Asymmetry
Information Asymmetry between Customer Demand and Manufacturing
Distributor Orders
Order Size
Retailer Orders
Customer
Demand
Production Plan
Source: Tom McGuffry, Electronic Commerce and Value Chain Management
Time
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.
Electronic Commerce Solutions
Concurrent
Engineering
EC Productivity Focus
Source
Integrate
Design
SUPPLIERS
Supply Chain
Connectivity
CUSTOMERS
Distribute
Build
Assemble
Gateway
Solutions
Extranet
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
….. Move Productivity Beyond the Shop Floor
SUPPLIERS
Source
Integrate
Design
Distribute
Build
Assemble
Traditional Productivity Focus
CUSTOMERS
Plan / Forecast
Supply Chain Integration is the Competitive Differentiator
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
Strategic Decisions
 Entry/Exit Decisions
Investment Decisions
Sales/Marketing Targets
Financial Strategic Management
 Evaluating opportunity costs
Checking if targets are met
Revising targets according to business
plan
Supply Chain Decisions
Supply Chain cost & pricing targets
Budget allocations for purchasing new
inventory
Holding cost and other variables
Supply Chain Management System
Inventory management
Tracking and storing inventory
Recording procurement and sales
Asset recording
Financial Management System
Storage and processing of data
Conversion of data into timely, accurate, useful
reports
Data
Inventory costs
Inventory quantity
Transportation, warehousing and other
SC costs
Assets on hand and their classifications
Amount sold / purchased
Multi-enterprise Design Collaboration
Value-added Suppliers
and Manufacturers
Develoment Parnters
and/or Customers
High-speed
Lines
CAD/CAE Models;
E-mails
Design
Data
CAD/CAM Models;
E-mails
High-speed
Lines
Collaborative
Environment
Technical Data;
2D Drawings;
E-mails
Internet
Distributors & Customers
Technical Data;
2D Drawings;
E-mails
Internet
Piece Part Suppliers
Dramatically Decrease NPI Cycle Time While Improving Quality
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 interorganizational 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 online
Customer Order and
Manufacturing Cycle
Procurement Cycle
Procurement cycle
PUSH PROCESSES
Customer Order and
Manufacturing Cycle
PULL PROCESSES
Customer
Order Arrives
Dell Supply Chain Cycles
Retailing: Amazon.com
Customer
Customer
Pull
Amazon
Retail Store
Distributor
Warehouse (?)
Publisher
Publisher
Amazon Supply Chain
Pull
Bookstore Supply Chain
Grocery on-line
Customer
Customer
Supermarket
Online Grocer
Warehouse (?)
Manufacturer
On-Line Supply Chain
Manufacturer
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.