Managing Digital Organizations
Theory:
The Supply Chain Management Effect
Team 604/04/05
Arsalan A. Lodhi
Pankaj Luthra
Daniel M. Li
Managing Digital Organization
Agenda
Vertical View
1. Cross Enterprise
Integration
Horizontal View
Personal
Views
40%
2. Market Mediation
Technology
Impact
40%
Theory
20%
3. Demand Focus
4. Collaborative Eco
System
5. Breakthrough Business
Models
6. Tailored Offerings
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Managing Digital Organization
1. Cross Functional to Cross Enterprise Integration
Author’s Key Points:
 Enterprises have moved their focus from Cross Functional to Cross Enterprise
Integration
 Many forms of cross enterprise Integration
- Privately led – for example Wal-Mart, Dell, JC Penny let vendors manage their inventory
- Industry-level initiatives – for example ECR, CPFAR. Dominant leaders head towards
common goal
- Shared initiatives – companies from multiple different industries collaborate to create cost
benefits. For example third party logistics
Personal Views:
 Concept of Cross Enterprise Integration is not new
 Complex economy has shifted value-Chain to value-Network
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Managing Digital Organization
Cross Enterprise Vs Cross Functional Integration
 Proposing New Name :
Value Network Management
Researchers
Professionals
Vendors
Organization
Students
Partners
value
Dynamic Roles
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distribution channels Customers
Managing Digital Organization
2. Market Mediation
 Author’s Key Points:
Optimized Management leads to Excellence
Market Mediation Cost
Total Physical Cost
Selection
Manufacturing
Transportation
Quantity
Matched Supply Expected
Demand
Cycle Stock Cost
Variety
 Most companies lose their profit margin by overlooking the management of market
mediation cost that includes safety stock, safety capacity, price protection, returns and
lost sale
 Certain industries have uncertain supply – agriculture – requires extensive physical cost
management while others like clothing and apparels have uncertain demand – requires
extensive market mediation cost management. Tech industry has both uncertain supply
and demand requires the management of both components .
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Managing Digital Organization
2. Market Mediation
Personal Views:
 Agree with author. Today’s complex economy requires an effective management of
both components – Total Physical Cost and Market Mediation Cost
 Recent News – according to LogisticToday – DOT (department of Transportation)
announced $3.5 million funding for breakthrough transportation model in SMB market
 Clearly Government want to simulate economy with ripple effect
- 70-80% of America constitute of SMB market
- Efficient supply chain would bring innovation and involve other industries together – perhaps
will create more jobs
- New Models of Supply Chain requires prediction accuracy, knowledge management, and
collaboration tools – that will boost tech industry
 Amazon Prime – another example how they are bringing more value for end
customers by establishing strong relationships with logistics
 Sun MicroSystems, Inc reduced lead times and cost by integrating half of the solution
during its transportation – example of effective market mediation management
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Managing Digital Organization
Cross enterprise Integration + Market Mediation
Key Technology Vendors:
 Oracle
- Retek – covering retail industry
- PeopleSoft
 SAP
 IBM partnered with many ISVs (Independent Software Vendors)
 SSA Global
Key Supply Chain Services Companies – provides consultancy how companies can
optimize their supply chain
 IBM
 CSC
 EDS
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Managing Digital Organization
3. Demand-centric Approach
Author’s Point
 Move away from being supply-focused to more emphasis on pro-active demand
management
 Better quantification of demand impact on supply-chain performance on sales.
 Marketing & Sales become the champions of SCM
 Breakthroughs in demand management
- Mitigation of the Bullwhip Effect (ie. P&G Pampers)
- Investment in better demand information, POS data coupled with reactive supply-chain
- Demand based management – integrate marketing efforts and demand-management
instruments with supply-chain initiatives (ie. Dell’s dynamic pricing system)
Personal Views
 Highly reactive supply-chain through aggressive demand management is necessary
in adapting supply-chains and capabilities to meet changing market needs.
 Is CRM the prerequisite to a more pro-active approach to SCM?
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Managing Digital Organization
4. Collaborative, Concurrent Product, Process & SC Design
Author’s Point
 Product design influences supply chain definition and performance
 Early consideration of SCM issues in product development
 Increased collaboration (design for supply-chain management)
 Use of information systems for collaborative product development (ie. Agile Software,
Freeborders)
 Postponement strategies
- Generic safety stocks
- Reduction of demand variability through demand pooling (ie. HP)
Personal Views
 Collaboration is necessary to:
- Establish strategic operating models
- Migration from internal-only to extended supply chains
- Integration of core business processes with best-in-class partners across the chain
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Managing Digital Organization
5. New Supply-Chain Initiatives to Enhance Customer Value
Author’s Point
 Shifting to a customer oriented approach will bring to light new go-to-market
strategies, opening new lines of revenue and enhancing customer value.
 GMAC built own auto auction infrastructure – generating revenue from
sales and services in addition to becoming the largest auto auction house.
 Increased customer awareness through auctions.
Personal View
 Innovating go-to-market strategies to enhance end-customer experience is this SCM or CRM?
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Managing Digital Organization
6. From Mass Market Supply to Tailored Offerings
Authors Point • Companies should integrate Sales and Marketing with Supply-Chain logistics to understand
the customers needs and provide custom offerings to valuable customers.
• Advances in Technology further aids in customizing offerings, thereby enhancing customer
experience, increasing sales and enabling efficient resource usage.
• Whirlpool web-based configurator.
• Companies integrate SCM & CRM to
create Digital Loyalty Network’s that help
increase profitability.
• Samsung performed a "value-driver
analysis" by asking customers which of its
capabilities would provide the most value.
• The results: Samsung has reported 50%
sales increases year on year
“In the simplest form, a company will track customers in
terms of repeat purchases and share of purchases and then
design the most appropriate supply-chain response. “
Source: http://www.optimizemag.com/article/showArticle.jhtml?articleId=17700912
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Managing Digital Organization
Interesting Facts
1. The supply chain management services market will reach $21.6 billion by 2005, according to a
report from Gartner Dataquest.
2. The RFID Journal writes an interesting article suggesting 2005 could be the year for widespread
adoption of the RFID standard – Wal-Mart factor (Intel is a significant player with its RFIDEPC technology).
3. The cost of lost revenue opportunity, measured by leading consumer package goods audit firm,
suggest that inventory out of stock situations can account for up to 20% of lost sales.
Thank you !
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