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The National Industrial Transportation LeagueInformation Technology Advancement Committee Meeting
(ITAC)
November 10, 2004
Technology as a Competitive Weapon in the Supply Chain
Dr. Nancy W. NixAssociate Professor of Supply Chain Practice
Director, Supply and Value Chain CenterM. J. Neeley School of Business
TCU
Page 2© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Agenda
• Setting the Stage -Technology as a Competitive Weapon?
• Supply Chain Management – The Big Picture
• Defining the Opportunity for Competitive Advantage
• Keys to Supply Chain Success
• Summary and Wrap-up
Page 3© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Page 4© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
“IT Doesn’t Matter”
As availability of IT has increased and its cost has decreased, information technology has
become a commodity.
“IT Doesn’t Matter” by Nicholas G. Carr, HBR At Large, May 2003
Page 5© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
“Does IT Matter?”
Cost of Processing Power Per MIPS
$-
$100
$200
$300
$400
$500
1975 1980 1985 1990 1995 2000
Year
Co
st
“IT Doesn’t Matter” by Nicholas G. Carr, HBR At Large, May 2003
Page 6© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
“Does IT Matter?”
• What makes a resource truly strategic – what gives it the capacity to be the basis for sustained competitive advantage – is not … its availability …. but its scarcity.
• Has the strategic importance of technology as a competitive weapon diminished?
“IT Doesn’t Matter” by Nicholas G. Carr, HBR At Large, May 2003
Page 7© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Growth in IT Investment
IT Spend as a % of Capital Expenditures
0%
10%
20%
30%
40%
50%
60%
1960 1970 1980 1990 2000 2010
“IT Doesn’t Matter” by Nicholas G. Carr, HBR At Large, May 2003
Page 8© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Impact of IT Investment on Productivity
• 2001 McKinsey study found a significant positive correlation between IT investment and improved productivity in only six out of 59 industries
• In each of those six sectors, one or more companies introduced significant innovations in business practices to leverage IT capabilities
“Does IT Matter? by John Seeley Brown and John Hagel III, Harvard Business Review, July 2003
Page 9© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The McKinsey Quarterly, Number 1, 2003
Supply Chain Technology Performance
Page 10© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Factors Influencing IT “Failures”
• Focus on automating existing processes
• Patching with obsolescent technology
• Not learning from experience
• Unrealistic expectations
• Misalignment of technology and business strategy
• Lack of accountability for results
Page 11© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Impact of IT Investment on Productivity
• 2001 McKinsey study found a significant positive correlation between IT investment and improved productivity in only six out of 59 industries
• In each of those six sectors, one or more companies introduced significant innovations in business practices to leverage IT capabilities
“Does IT Matter? by John Seeley Brown and John Hagel III, Harvard Business Review, July 2003
Page 12© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
• While IT may be readily available and increasingly less expensive, the insight and ability required for it to create economic value are in very short supply.”
“Does IT Matter? by John Seeley Brown and John Hagel III, Harvard Business Review, July 2003
The Opportunity for Creating Competitive Advantage?
“It’s the combination of IT and innovation that helps companies outpace rivals.”
Page 13© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
• Top management involvement and support• Alignment of business strategy and technology strategy• Use technology to enable innovation and business processes• Cross-functional teams• Well-developed implementation plan• Clear guidelines on performance measurement• Clear guidelines on how to work with consultants and transfer knowledge• Well-developed plans for training employees
Effective IT Planning and Implementation
“Enterprise Resource Planning Systems: Common Myths versus Evolving Realities,” Mabert, Soni, and Venkataramanan, Business Horizons, May 2001.
Page 14© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Supply Chain Management
The Big Picture
Supply Chain Management
The Big Picture
Page 15© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Integrating Supply and Demand Management Integrating Supply and Demand Management
Fundamental Objectives of Supply Chain Management
Match SupplyMatch SupplyManagementManagement
With Demand With Demand ManagementManagement
To Maximize Profits and To Maximize Profits and Support Corporate ObjectivesSupport Corporate Objectives
Page 16© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
190018001700160015001000 500 10005000
BC AC
10000 ‘50‘70‘90
1441: Gutenberg printing press
1863: rapid print newspaper press
1876: Bell telephone
1895: Marconi telegraph
1920: First commercial radio broadcast
1950: National Television
1965: Transcontinental Television(Early Bird Satelite)
1969: Internet
1992: World Wide Web
Man on footFoot & canoe
Canoe w. Sailand paddle
Larger boats,horse carriots,pack animals
Big sail boatsw. Compass
Steam boats &railroad
Steamships,transcont. Railroad,autos & airplanes
Steamships,railways, auto,jet & rocket aircraft
Atomic boats,high speed railway,auto & rocket jets
The speed of travel across
time
Prior to 1441 a.d.:- word of mouth- drums- smoke- relay runners
Source: Buckminster Fuller
Page 17© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Drivers for Supply Chain Management - Why Important, Why Now?
High Levels of Uncertainty
Outsourcing
Speed of Change
Complex, Interdependent Networks
Supply Chain Collaboration Accelerates
Innovation and Adaptation
Technology
Intense Competition
Page 18© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Defining Supply Chain ManagementS
up
pli
ers
Information Systems
Procurement
Cu
sto
mer
s
Integrated Forecasting and Planning
Performance Measurement
Supply Chain Strategy and Supporting Processes
Production DistributionCustomerService
Cu
sto
mer
s
Su
pp
lier
s
Focal Firm Demand ManagementSupply Management
Product, Service, Information and Financial Flows
NPD
NPD = New Product Development
Page 19© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Members of the Focal Company’s Supply Chain
n
n
n
n
n
n
n
Con
sum
ers
/ E
nd
-C
usto
me
rs
Tie
r 3
to
n c
ust
ome
rs
1
2
1
1
2
n
1
2
Initi
al S
upp
liers
Tie
r 3
to
n s
up
plie
rs
1
2
3
1
2
1
2
3
1
Focal Company
Tier 1Customers
Tier 2Customers
Tier 3 toConsumers/
End-Customers
Tier 2Suppliers
Tier 1Suppliers
Tier 3 toInitial
Suppliers
n
1
Complex Supply Chain Networks
Page 20© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
“The best supply chains aren’t just fast and cost effective.
They are also agile and adaptable, and they ensure
that all their companies’ interests stay aligned.”
“The best supply chains aren’t just fast and cost effective.
They are also agile and adaptable, and they ensure
that all their companies’ interests stay aligned.”
“The Triple-A Supply Chain” Harvard Business Review, Hau L. Lee, Oct. 2004
The Triple-A Supply Chain
Page 21© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Defining the Opportunity for Competitive Advantage
Defining the Opportunity for Competitive Advantage
Page 22© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Defining the Opportunity for Competitive Advantage
• Focus on your most important customers. • Understand the value you bring to their
supply chains.• Focus IT innovation on:
– helping your target customers achieve supply chain success,
– improving relationships and performance across the supply chain, and
– doing both at a reasonable profit.
© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Redefining Marketing and Customer Relationships
• Under the old marketing concept, the objective was to make a sale.
• Under the new marketing concept, the objective
is to develop a customer relationship, in which the sale is only the beginning.
• The customer is a long-term strategic
business asset.
Page 24© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Long-term Trends
Old EconomyGoods
Transactions
Attracting Customers
Product Focus
Product Profitability
New EconomyServices
Relationships
Retaining Customers
Customer Focus
Customer Profitability
Page 25© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The New Reality
• Products come and go
• Customers remain
Page 26© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The Customer Pyramid
Source: Zeithaml, Rust, Lemon (2001), California Mgt Review, 43, p. 125.
What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with?
Most ProfitableCustomers
Least ProfitableCustomers
Most ProfitableCustomers
Least ProfitableCustomers
What segment spends more with us over time, costs less to maintain, spreads
positive word of mouth?
What segment spends more with us over time, costs less to maintain, spreads
positive word of mouth?
Lead
Iron
Gold
Platinum
Lead
Iron
Gold
Platinum
Page 27© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Pro
fit
Customers
70,000
50,000
30,000
10,000
-10,000
-30,0001 42 83 124 165 206 247 288 329 370 411 452 493 534 575 616 657 698 739 780 821
Customer Profit for Physicians
Source: Mulhern (1999), Journal of Interactive Marketing, p.32
Page 28© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Profit Ranges ($2000 groups)
Freq
uen
cy
200
150
100
50
0
-15,000 -5,000 5,000 15,000 25,000 35,000 45,000 55,000 More
Frequency Distribution of Customer Profit for Physicians
Source: Mulhern (1999), Journal of Interactive Marketing, p.33
Page 29© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
What is Customer Equity?
A firm’s Customer Equity is the total of the discounted lifetime values of all of its customers.
Page 30© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Lifetime Value of a Customer
1
1.91
2.74
3.49
4.17
0
1
2
3
4
5
1 2 3 4 5
Planning Horizon
Lif
etim
e V
alu
e
Page 31© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Driving Customer Equity
Customer Equity
Value Equity Brand Equity Relationship Equity
Quality Price ConvenienceBrand
AwarenessBrandEthics
BrandPerceptions
LoyaltyPrograms
Affinity CommunityKnowledge
Building
Marketing ActionsDrive Each of These
Marketing ActionsDrive Each of These
Marketing ActionsDrive Each of These
Page 32© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Driving Customer Equity
Customer Equity
Value Equity Brand Equity Relationship Equity
Quality Price ConvenienceBrand
AwarenessBrandEthics
BrandPerceptions
LoyaltyPrograms
Affinity CommunityKnowledge
Building
Technology DecisionsDrive Each of These
Technology DecisionsDrive Each of These
Technology DecisionsDrive Each of These
Page 33© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Defining the Opportunity
• Focus on your most important customers. • Understand the value you bring to the
supply chain.• Focus IT innovation on:
– helping your target customers achieve supply chain success,
– improving performance across the supply chain, and
– doing both at a reasonable profit.
Page 34© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The Uncertainty Framework
Source: Hau L. Lee, 2002
Low SupplyUncertainty
High SupplyUncertainty
Low DemandUncertainty
High DemandUncertainty
Grocery, basic apparel, food, oil
and gas (Walmart, Barilla, Case)
Hydro-electric power, some food produce (Frito-Lay,
Coors)
Fashion apparel, computers, pop music (Dell, HP, Benetton, Sports Obermeyer)
Telecom, high-end computers,
semiconductors
Page 35© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The Uncertainty Framework
Efficient Responsive
Risk Hedging Agile
Low SupplyUncertainty
High SupplyUncertainty
Low DemandUncertainty
High DemandUncertainty
Source: Hau L. Lee, 2002
Page 36© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
The Uncertainty Framework
Low SupplyUncertainty
High SupplyUncertainty
Low DemandUncertainty
High DemandUncertainty
Source: Hau L. Lee, 2002
Efficiency – Information Sharing and coordination, eliminate bullwhip effect,
economies of scale, manufacturing efficiency, efficient logistics systems
Risk Hedging – Information sharing, involving suppliers in product development and life cycle
management, integration, upstream inventory positioning, hubs, multiple
sources, risk pooling, SC visibility and event management
Responsive – Build to order, mass customization, order accuracy,
demand information, customer linking, postponement, cycle time reduction
Agile – Responsive and flexible to customer needs, hedging supply uncertainties, tight linkages with
suppliers, flexible supplier contracts, Cisco e-hubs for multiple levels of
suppliers (merge in-transit)
Page 37© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Defining the Opportunity
• Focus on your most important customers. • Understand the value you bring to their
supply chains.• Focus IT innovation on:
– helping your target customers achieve supply chain success,
– improving relationships and performance across the supply chain, and
– doing both at a reasonable profit.
Page 38© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Keys to Supply Chain Success
Keys to Supply Chain Success
Page 39© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Keys to Supply Chain Success
“Connectivity: Enabling Visibility in the Adaptive Supply Chain,” Year 2004 Report on Trends and Issues in Logistics and Transportation, Capgemini, Microsoft, CRST Logistics, University of Tennessee
Optimization Optimization
Flexibility*Flexibility*
Connectivity Connectivity
SpeedSpeed ExecutionExecution
VisibilityVisibility
Collaboration Collaboration
Page 40© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Integrated Technology Infrastructure
ERP Systems
Decision Support Systems
Managing the Interface
Ecommerce, CPFR, CRM, CTM, SRM
Optimization Modeling, Planning & Analytics
Connectivity and Data Interchange
Integrated Transaction Management System
Internet, Inranet, EDI,
RF, Barcoding
DataData
InformationInformation
Planning & ExecutionPlanning & Execution
Connectivity, Visibility, and Connectivity, Visibility, and CollaborationCollaboration
Page 41© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Building Flexibility - The “Lego” Model
• Synchronized supply chain responses
• Rapid redeployment of assets
• Quickly shift source of supply
• Standardization– Data– Business Processes
Page 42© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
In SummaryIn Summary
Page 43© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Keys to Making Technology a Competitive Weapon
• Adopt a customer focus– Identify most valuable customers– Differentiate offering to support objectives of target
segments– Focus first on business processes– Understand what the technology will and will not do– Understand what you must do to use the
technology effectively– Make decisions based on what value the
technology will deliver
Page 44© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Keys to Making Technology a Competitive Weapon
• Improve relationships and performance across the supply chain– Make it easy for customers to
do business with you– Provide supply chain visibility
with timely exchange of relevant data and information
– Develop an integrated technology infrastructure that supports supply chain success
Managing the Handoffs
Page 45© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Keys to Making Technology a Competitive Weapon
• Do it profitably– Understand profitability of customers,
products, and services and manage the mix– Pursue technology strategy in support of
your business strategy– Manage internal efficiencies well
Page 46© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
From a transportation perspective, what are the greatest opportunities and barriers to using technology as a
competitive weapon?
TACTICALTACTICAL
OPERATIONALOPERATIONAL
UnavoidableDemand
Supply
STRATEGICSTRATEGIC
1.
2.
3.
1.
2.
3.
Internal
1.
2.
3.
1.
2.
3.
Customer facing
BarriersOpportunities
Page 47© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Questions to Ponder
• Can technology be used as a competitive weapon?
• Is there one answer to this question?
• If the answer is no, how should technology be managed?
Page 48© TCU Supply and Value Chain Center - 2004, All Rights Reserved, 11.10.04 Technology as a Competitive Weapon in the Supply Chain
Discussion?Discussion?
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