eBusiness and Supply Chain Management

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e-Business andSupply Chain Management

• Yossi Sheffi
• MIT Center for Transportation Logistics Studies

CMI Course 31 January, 2002
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Outline

• The hype and fall creative destruction
• The Impact of the Internet not
• The challenge of supply chain management
• Internet-based business models
• Examples

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The Hype...
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And the Fall...
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So What Was That About?
We are witnessing a classic process of
creative destruction
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Creative destruction

• The telegraph
• 1840s 1850s Hundreds of local service
  providers
• Around 1860 massive bankruptcies
• 1866 Western Union controls 90 of the
  telegraph business

• The railroads
• 1860 1890 RR grew from 30K miles to 200K miles
• 1895 - 169 railroads (20 of track) operating
  under bankrupcy
• J. P. Morgan rolled up and cleaned up the mess

• Automobile industry
• 1908 Ford is founded there are 515 car
  companies in the US
• 1930 GM, Ford and Chrysler control 80 of the
  market

• Personal computers
• Commodore TRS-80 DEC 300/350, DrDOS OS/2
• Wintel controls 90 of the market

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Whats Ahead

• 99 of auto companies failed but automotive
  travel is still here.
• The end of most dot.com-s does not mean that the
  influence of the net is marginal or fading.
• In many cases, aggressive first movers do not
  win.
• In many cases the first wave of creative
  destruction is followed by massive consolidation
• Creative destruction means that while companies
  are created and destroyed, the technological
  change will take hold.

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Claims for Internet Impact

• Direct selling
• Built-to-order (Pull vs. Push)
• Making markets
• Electronic business communications
• Dis-intermediation
• Creation of communities

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Is There Anything New?

• Consumers a new dimension (since 1995)
• Information availability 20 million web sites
  Open Courseware
• Interactivity 24/7 transactions
• 3.5 Trillion e-mails/yr
• But what about businesses?

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Key Value Creating Processes
From customer value to supply chain management
Create the value
Understand the value
Deliver the value
From Martin Christopher, Cranfield School of
Management
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Outside Forces Shaping SCM

• Prices
• Quality
• Service
• Choices
• Reliability

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Value of the Net for Business

• Most of the value more, faster, easier Scale!

Information display retrieval
Simultaneous interactivity
Communications Standard

• Reach
• Buyers
• Suppliers

• Collaboration
• Internal coordination
• External collaboration
• Standards e.g., CPFR

• Visibility
• B-T-O
• Postponement
• LOS (avail.-to-promise)

• Automation
• 24/7 access
• App.-to-app.
• Process flow

• To a large extent uncertainty reduction

• Secondary Effects
• Empowered customers
• New customer segmentation
• Customers have more information
• More consistent selling experience

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Horizontal
Exchanges

• Aggregation xcs industries
• Standardizedproducts/services
• Broad set of members

• Reduced prices
• Increased operationalefficiency
• Reduced inventories

• Price transparency/reducing prices
• Reaching new customers
• Access to more services

Public
Buyer-Centric

• Reduced cost(automate transactions)
• Increased flexibility (24/7)
• Improved transparency(e.g. pipeline visibility)
• Increased compliance(standard procedures)

• Increased prices
• Increased market share
• Increased operational efficiency
• Reduced inventories

• Tailored offerings
• Deep process integration
• Bundling products from multiple divisions

Seller-Centric
Private

• Aggregation within industries
• Provision of deep industry knowledge
• Premium priced advertising

Vertical
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The Internet Success Stories

• Few pure play success stories

• The most profound effect change in old economy
  companies

• Business benefits
• Visibility
• Collaboration
• Automation
• Reach

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IBM Case
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The Turnaround
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Results
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Case StudyAvnet Electronics Distributor

• Provides customers live, interactive chat
  sessions with company technicians on 350,000
  products, 24 hours a day, 7 days a week.
• Provides net seminarsan ongoing series of
  interactive audio/visual lectures on specific
  products.
• Provides up-to-the-minute inventory and pricing
  from 450 suppliers.
• Provides design services and CPD services.

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Nine West Offerings

• Nine West InCrowd

64.95

• Nine West Alsina

66.95
Jan. 3, 2002
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Traditional Supply Chain
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Improved Supply Chain
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Any Questions?
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Yossi Sheffi sheffi_at_mit.edu