Notes

How business process velocity has increased, on average, across industries due to
information technology during the past three to four years.

Trading analytics: from 30 minutes to 5 seconds

Airline operations: from 20 minutes to 30 seconds

Call center inquires: from 8 hours to 10 seconds

Tracking finances: from 1 day to 5 minutes

Supply chain updates: from 1 day to 15 minutes

Phone activation: from 3 days to 1 hour

Document transfer: from 3 days to 45 seconds

Trade settlement: from 5 days to 1 day

Build-to-order PCs: from 6 weeks to 1 day

How has this increased velocity happened? What is the role of the Internet?

Combination of existing IT capabilities (EDI,ERP) with Internet enabled capabilities (CRM, SCM) to create the realtime extended enterprise. This has become the gold standard for B2B on the Internet.

ERP
Real-Time Extended Enterprise

What is ERP and how does it work? What are the specific benefits of a successful ERP system?

ERP is a system of software applications for collecting and managing information about all the operations of a firm

Administration (finance, accounting)
Human resources (payroll, benefits)
Manufacturing (procurement, production planning)
Sales and Distribution (order entry, delivery)
Customer Relationship Management

Data entered once
Consistency, visibility, transparency, integration

ERP allows managers to capture and analyze extensive internal data-such as inventory flow, production patterns, compensation levels, expenditures on equipment, investment and asset management statistics,

Requires huge expenditure and introduction in stages - usually one operational area at a time

ERP has generally been limited to large firms that could justify the expenditure through the ability to monitor the firm in new ways

What is the relationship between ERP and e-business?

What is the extended enterprise? What does it look like? What can it do that pre-Internet firms cannot do as well? What is the competitive advantage?

The concept of "extended enterprise" is often used to describe an Internet-based firm.

Extended enterprise is a new form of competitive system
Core competence is the ability to create and utilize information
Functioning extended enterprises are rare: Cisco and Dell

This graphic is used to depict the extended enterprise:

If you don't like this, try:

Can we make sense of these charts?

What are the reasons for creating an extended enterprise?

Reconfigured enterprise: change vertical firms into virtual, agile, seamless enterprises

Purpose is to provide new and more powerful links among traditional functional areas reconnected by complex real time information flows

Links extend information system of the firm out into suppliers and to consumers

The firm becomes an information processor, order taking, marketing

Integrate all information systems of the firm as an extended enterprise

What are the competitive advantages?

Cut transaction costs and increase efficiencies
Ability to reconfigure production based on market information - adaptability
Ability to accommodate a batch of one as easily as a batch of 1000 (economies
of scope overwhelm economies of scale)
Ability to extract new advantages from information flows

What are the requirements for creating an extended enterprise?

Management mindset: tech savvy; strong effort to manage information
See all employees as knowledge sources
Organizational flexibility
Adopt the characteristics of an Internet time firm

What kinds of legacy systems may be used to build an extended enterprise?

Mainframe accounting (supported by PC spreadsheets)
EDI
ERP

What are some of the limitations of the oldest legacy systems?

Proprietary
Structure is 20-30 years old (Cobol, Assembler)
Mainframe based/limited PC integration
Not real time
Slow response time
Little or no customer focus
Designed for a world of limited competition and slow rates of change

What is EDI? How does EDI improve on the weaknesses of other legacy systems?

Extends the information system across different enterprises
Main purpose is to exchange information rapidly, accurately, and cheaply
Capture and track product data across the supply chain
Automate transactions with purchase orders and invoices based on standards
Universal Product Codes (bar code)
Operates on proprietary VANs
Different VANs require different software
"Transaction sets" established standards for different industries
Hubs (big firms - early adopters) and spokes (small firms) pattern
WalMart created its own system - reaped huge advantages
Increased speed, reduced costs, reduced errors

The typical arrangement for EDI is:

PO ---- Conversion to EDI format ---- Transmission over VAN --- Translation to recipient's format --- Action

What are some of the limitations and drawbacks of EDI?

EDI penetrated 10% - 20% of potential users over 20 years
High costs: big fixed costs required many transactions to recover

How does the Internet relate to EDI?

Much lower usage costs than VANs
Much wider access to trading partners
Software based on open standards - interoperability
Much easier to operate - shallow learning curve for most
Internet expands dramatically the number of employees who can become a part of the EE
Questions of security and lost information
VPNs (intranets and extranets) solve some of these problems

 

What are some of the choices facing a firm that wants to move toward becoming an extended enterprise?

1) Establish goals for what is to be accomplished and stages for accomplishing them:

How do legacy assets affect the ability to become EE?
Focus first on internal information flows, supplier information, customer relationships?
What sequence of implementation?

2) How does the style of the organization need to change to become an EE?

Speed of response
Information sharing (inside and outside)
Entrepreneurial culture from the bottom up
Quality of product
Customization

3) What are some of the options?

Prime directive: enterprise application integration (EAI)
Flexibility of systems - ability to adapt to firm procedures
All Internet based
ASP solution
Full-scale ERP supplier
Link to suppliers -
interoperability
spot pricing system or negotiated contract
XML and Java based

Summary of traditional versus extended enterprise:

Traditional mass-production Hierarchical organizations, vertically integrated Move goods and materials along production supply chain Long-range forecasts of customer needs Lean manufacturing innovation Good at operating in stable environments

Extended Enterprise Need for price, quality, speed to market, rapid response to changing customer needs, point of delivery customization, value-added services Real-time information about all aspects of production, distribution and customer demand Simultaneous information exchange Extends out like a confederation into manufacturers, suppliers, and logistics Created by deconstructing the vertical enterprise into virtual, agile, seamless enterprises Firms are legally separate but operationally interdependent Compete and collaborate Share resources, facilities, technology, and know-how Opportunity-driven and adaptable - reassemble the extended enteprise based on nature of the market Rapid response to continuous and unpredictable change Permeable boundaries

Supply chain management

Information Sharing in a Supply Chain (pdf)

What are the goals of supply chain management (SCM)?

Replace logistics flows and inventories with information?

Purpose is to develop an extended enterprise, with the unit becoming a supply chain (including parts suppliers, manufacturers, distributors, logistics service providers, wholesalers and retailers).

Permits the retailer and the manufacturer to share inventory information and jointly manage inventory levels. Sharing information is the only way to make an SCM system work.

How can a successful supply chain management system alter the way an organization works?

Becomes an extended enterprise:

Traditional transaction-based intra-organizational relationships give way to partnerships in which information, processes, decisions and resources are shared among partner companies.

What is the competitive advantage from SCM?

a supplv chain that makes decisions based on global information would clearly dominate one with disjointed information

What is the relationship between SCM and B2B?

 

What are the specific advantages from an Internet based supply chain?

Bullwhip effect

What is the bullwhip effect? What are its consequences? How can it be fixed?

Other advantages:

Total Cost of Operations
Working Capital and Liquidity
Fixed Capital
Tax
Profitable Growth Increase: Linking sales, marketing, creative design, and CRM systems to your
supply chain initiative

If real time extended enterprise is such a good idea, why are there so few?

60% people, 30% processes, 10% technology

Steps to a real time enterprise?

Building blocks in place?
Vision, processes needed, people, potential resistance, technology
Supplier, partner, customer buy in
Compelling business proposition for RT
Retraining of entire enterprise - no private C drives - no command and control
Break down barriers to information flows and communication
Research and decisions on technologies
Small and accomplishable steps
Good analytics at each stage

Operating a real time firm:

Digital dashboard
Information as a new product line
Data 'black belts'

What is the role of knowledge management in a RT/EE firm? How does a RT/EE firm change the nature of KM?

Case studies:

What do the following companies have in common?

Dell
Cisco
GE
Walmart
7-11
NMS

Dell:

Emerges first in 1984 by substituting reach for richness of buying experience: over the phone
No dealer network - Dell disintermediates dealers (trys and ditchs retail outlets)
Match quality at a lower price (3% U.S. market share in 1994 to 12.7% in 1998)
Outsource all components
Rapid delivery
Build to order -

very low inventory, speed of execution
quick inventory turn (Dell 6 days of inventory; Compaq has 35 days)
cost of sales is 10.3% versus 12.6% industry average
$750,000 revenue per employee versus $525,000 industry average

Why is low inventory an especially big advantage in the PC business?
Effective management of the information of ordering: link buyer to supplier of parts and assembly
JIT/ all warehouse space is WIP

How would you describe Dell's supply chain? What does the value web look like?

How did Dell deal with potential cannibalization when it opened an Internet channel?

What are the advantages of using the Dell site rather than the phone?

Internet sales -

What innovations in CRM has Dell been able to make?
increase richness and reach - order site, direct customer relationship
OL tech support
virtual integration links suppliers to orders on the same web-based information system
high velocity
$60 million per day online sales

 

New economics of things:

How does Dell's direct model have advantages over the indirect model?

pull instead of push; how close is Dell to the market?
responds in near real-time to demand
real-time links to suppliers such as Intel
24/7 links to customers (high level support)
value-added services

Role of IT and the Internet in creating an integrated production/supplier/customer system

Dell's advantages in adopting the Internet to sales
lowers cost of configuration, ordering, tracking, and support by 15%
Premier Pages for large customers - then extends it to small customers too
capture information in real time for internal reports
share information with customers and suppliers: bring them inside the firm (boundaries???)
create a virtually integrated organization—an organization linked not by physical assets, but by information.
What is the mindset needed to achieve this?

Competitor response:

Compaq
NEC - fails in Dell imitation: Why?
For Dell, the Web was a natural extension of an existing business model, whereas its competitors had to put together an entirely new delivery system.

Does Dell have an Achilles' heel?

 

GE:

Describe the operation of GE as a real-time firm - what does it look like?

What benefits has GE achieved with its real-time operation?

Costs - what kind of payoff ratio? Any downside to cost savings?
Time

What does it mean to have an event-driven organization?

build to order
just in time
fix it when it fails
reference data, state data and event data

How has real-time at GE affected work environments?

RT monitoring of worker behavior
Reduction in workforce = resistance from workers to RT
"It's really a work speedup, a way to get people to run more parts in less time—and at
no extra pay. Those who can do it the fastest get to keep their jobs."

What are some of the management challenges?

How good is the information - more precisely, how good are the measures of the
state of the system?
Real time, right time, hourly, 8 hour intervals, weekly
How much of what information from extended enterprise partners?

Does the use of digital cockpits centralize or decentralize the organization?

Contrast between the centralization of decision making and the
"model of the U.S. Marines. Current Marine war-fighting doctrine says you cannot have micromanagement. You have to permit localdecision-making with distributed responsibilities and trust without monitoring"—precisely,he says, the opposite of the command-and-control digitized model being developed at GE."

Does it make good sense for a firm as large as GE to use 50 digital cockpits
to monitor the enterprise?

7-11:

Compare 7-11 and Dell in their ability to get stronger in a declining economy.

How is the 7-11 system different? Describe it.

What advantages did 7-11 get from this system?

Customer needs
Quality control
Inventory

Product cycles
Weather and sales
Supply chain logistics
Vendor managing of inventories

Is the 7-11 system different from other retail operations? How does 7-11 differ in operating their information system from GE?

What are the metrics for success at 7-11?

Declining profit margins force cooperation with suppliers - is this difficult? What are the solutions?

Walmart:

How does Walmart's inventory management problems differ from Dell's?

How did a strategic decision involving suppliers provide Walmart with a big competitive advantage?

CPFR? collaborative planning, forecasting and replenishment
"Blurring the lines" = ?

RFID?

NMS:

Demand driven?

Build to Order? Build to forecast?

Agile enterprise?

Product design

Modular components
Manageable configurations

How did the new strategy at NMS change its role in the value chain? What
is the core competency at NMS now?

 

Cisco:

 

• Dominant market share in the infrastructure of the Internet
• Products include: routers, LAN switches, and wide-area network (WAN) switches Web site management tools, dial-up and other remote access solutions, Internet appliances, and network management software. Goal is to provide end-to-end networking solutions. Supplier of voice, video and data - only networking firm in convergence game
• 80% market share in routers and 42% in LAN switches; Major competitors are Nortel, Lucent, JDS Uniphase, and Juniper
• Most competitors lack the market strength of Cisco and lack the capacity to operate as a networked enterprise - Nortel tried and only partially succeeded
• Carries on majority of business on the Internet - long movement along learning curve; $10 billion e-commerce revenues in 1999 - roughly 80% of sales
• Creation of an intergrated e-business - ERP/CRM/AI/supply chain/data mining/employee training; "Dynamic replenishment" software linking customer orders to manufacturers

Web as solution to speed and quality and cost control for customer support:

1. ability to test for quality of routers using the Internet
2. customer support system becomes a "gold mine" of information about customers
3. "virtualization" of business: creation of real time information
4. ability to create an "Internet efficiency" that surpasses other firms: sales/inventory ratio of 6:1
5. Inventory as a % of sales dropped 45% from 1993-1999
6. Web savings equal $500 million annually
7. real-time cross-organization information on procurement, recruitment, and the net profit on every transaction
8. able to achieve a virtual closing of the quarterly books in near real time (virtual close at all times)
9. shift personnel from accounting to data mining

Consequences of operation as an extended, real-time firm:

• Capacity for outsourcing and operating as a networked (extended) enterprise permits rapid shifts toward new market opportunities - ability to shorten time to market
• Product cycle typically lasts six months - requires continuous innovation
• Relentless customer focus through seeing customers as inside the network
• High-powered online customer support system (from on hold to online) with very high satisfaction ratings - system saved $275 million and increased customer satisfaction by 25%
• Cost savings through using specialized producers who are part of the network
• Capacity for innovation through the operation of networks
• Management strength in design, technological innovation, network synergies
• Network organizational model enhances the speed and effectiveness of incorporating new firms as acquisitions

 

Cisco's Time of Troubles - 2001-2002

• Cisco was unable to scale down its supply chain as quickly or effectively as it could scale up. During the recent downturn in network spending, the result was an enormous buildup of inventory and a $2.5 billion inventory write down against Cisco's earnings.
• Various units of the supply chain used different standards for making decisions, and the flow of informal information that could have uncovered these differences never happened. The formal contractual relationships between Cisco and its suppliers were unable to capture the tacit rules necessary for an effective relationship, and the information flowing through the supply chain was not rich enough to make adjustments to changing market conditions.
• The source of the differences was a mismatch between Cisco's need for production flexibility and its suppliers' need for predictability. This mismatch made it difficult to turn off the push part of the production system fast enough to adjust to deteriorating market conditions.
• Cisco needs to think in terms of a supply web with differentiated production capabilities and greater flexibility of capacity utilization. This involves not only more flexibility in product design but also a greater willingness for strategic supply partners to make adjustments and adaptations to the supply web as conditions warrant.