week 3: digital supply chain platforms - temple mis...supply chain platforms digital platforms –...
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WEEK 3:Digital Supply Chain Platforms
MIS 3537: Internet and Supply Chains
LEARNING OBJECTIVES
■ Understand the idea of a digital platform
■ Supply Chain Digital Platforms
■ eMarkets
Platform
Intermediary that brings together groups of users to facilitate economic or social exchange
• NYSE/Nasdaq exchanges for public equities
• Apple’s “app store” for developers and consumers
• Payment networks: Visa, Mastercard, Paypal
• Social platforms: Facebook, Twitter, Match.com
• Media (papers, websites): advertisers, consumers,
content
Platforms and their economics
■ Network Effects:– the value or demand for a product or service grows as an exponential function of
the number of current adopters of that product/service and/or the number of complementary products/services available for that product/service
■ Critical Mass:– The momentum produced by positive networks is unlikely to be reversed by entry into
the market by an appealing new product/service– Sufficient number of customers such that positive externalities and switching costs
tip a market in favor of a winner (think barrier to erosion).
■ Long-tail effects:– Ability to offer broader variety of products thus tapping into smaller demand from
greater number of customers (i.e., aggregate demand). Digital markets are more able to compete for long-tail customers compared to physical markets.
One-Sided: Customers are primary source of revenue; common revenue paths include purchase of goods or services, subscriptions fees to gain access to goods or services, transaction fees for using services
Two-Sided: Both a customer (often subsidy side) and provider (often paying side) network benefit from network effects and serve as potential revenue sources for platform builders. Platform owners bring together two distinct communities and then broker economic transactions between them. Trying to build and leverage critical mass.
One-Sided versus Two-Sided Platforms
A Two-sided Network
Subsidy-side Money-side
Components- Hardware- Software- Services
Rules- Standards- Protocols- Policies- Contracts
Digital Platform
Network Effects with Two-Sided Platforms
Side 1
Platform
Side 2
Same-side effect: network effect within each side of the platform. Adobe example: benefits derived by users when more people have readers and document sharing is made easierCross-side effect: Potential value one side derives when there are more participants on the other side. Adobe example: adopters of reader software benefit when more providers adopt the Acrobat software making more documents available* Effects can also be negative: think Monster.com
Platforms Beat Pipelines
■ Scale more efficiently by eliminating gatekeepers
■ Unlock new sources of value creation and supply by using data-based tools to create community feedback loops
■ Invert the firm by shifting the focus from internal optimization to external interaction
LEARNING OBJECTIVES: What are Electronic Markets Like?
■ Understand the idea of a digital platform
■ Supply Chain Digital Platforms
■ eMarkets
Supply Chain Platforms
■ Digital platforms– connect different stakeholders mobilized throughout the
distribution chain – bring together all the systems, applications, processes
and information in the supply chain– enable data to accumulate from each step of the chain– allow players of all shapes and sizes to reap the benefits
of an agile supply chain.
Supply Chain Platform example
Benefits of supply chain platforms■ Total visibility
■ Uniformity of Data
■ Less manual intervention
■ One stop shop
■ Ease of integration (Platform as a service)
■ AI and forecasting
LEARNING OBJECTIVES: What are Electronic Markets Like?
■ Understand the idea of a digital platform
■ Supply Chain Digital Platforms
■ eMarkets
eMarkets – Digital Supply Chain Platform
■ Why do we need a marketplace at all?
■ A marketplace is a common ground for buyers and sellers
ELECTRONIC MARKETPLACES
■ Electronic marketplaces serve as platformsthat connect organizations and transact in areas with little distinctive power in relationships
■ Why a platform?v A marketplace should allow for new entrantsv The more entities joining the marketplace, the
more valuable it becomes (critical mass)
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Concepts, Characteristics, and Models of B2B EC
Comparison
One-to-ManyBuyer or Supplier
Centric
Many-to-ManyNetwork of all, eMarketplace
EVOLUTION OF ELECTRONIC MARKETPLACES
■ Stage 1– Dotcom companies – In the chemicals industry, a lot of new players –
eChemicals, Chemdex, CheMatch and – were born
■ Stage 2– The established players strike back– Companies like Dow Chemical, Du Pont and BASF –
big, existing players – setup their own eMarketplace
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34
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EVOLUTION (CONTD.)
■ Stage 3– The best of both worlds meet
v The leading industry players partnered with
v Existing players took between 5 and 10% of the equity share
v Has become the established industry standard
– Other players – eChemicals, CheMatch – have been marginalized
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THREE TYPES OF EMARKETPLACES
■ Vertical eMarketplaces– The eMarketplace is focused on one industry, trade,
profession (group of similar customers) – e.g. vertical – retail, chemicals, plastics
– Examples:
TYPES OF EMARKETPLACES
■ Horizontal eMarketplaces
• Provides related services e.g. procurement
• Driven by:– Geographical circumstances– Inter-industry activity
– Special Practice, Products
TYPES OF EMARKETPLACES
Branded private marketplaces– Really big organization can setup an exclusive
eMarketplace
– built its own: Global eXchange Services – one of the worldʼs largest B2B eCommerce networks
Chemicals
Food
Stationery
CRITICAL SUCCESS FACTORS
■ Sustainable business models & realistic expectations� During the dotcom boom, a lot of eMarketplace
providers had high valuations because of future expectations
� As the industry consolidated, few providers remained in business and were profitable
� Long-term viability is critical� Ability to form and sustain relationships
CRITICAL SUCCESS FACTORS
■ Rapidly build key capabilities– A successful eMarketplace should become a one-
stop shop– Must provide a range of transactional and value-
added services– Breadth of services is a key success factor– Services include security, workflow, reporting,
fulfillment, billing and settlement, supplier management etc.
CRITICAL SUCCESS FACTORS
■ Integration of activities with major stakeholders– The platform should be flexible enough to
accommodate diverse needs of stakeholders
– Degree of integration determines long-term success
– Onboarding: Getting companies to build the interfaces to participate in the eMarketplace
CRITICAL SUCCESS FACTORS
■ Management of regulatory relationships– In 2000, MyAircraft, an eMarketplace consortium
of
, & accused of price fixing
– The European Union ruled in favor of MyAircraft, declaring that it was just another business entity
– eMarketplaces across country and continental boundaries must comply with requisite regulations
CHALLENGES
■ Inter-marketplace competition– Different industries have setup their own
marketplaces– Communication across these marketplaces is a
challenge■ Different business models, financial structures, technical
standards ■ Different business processes / practices with
different expectations
CHALLENGES
■ Managing high levels of complexity– Each participant in an electronic marketplace brings his /
her own:■ Set of problems, values■ Business processes / practices
– Integrating each participant properly into the marketplace is critical
– Juggling multiple business models, financial structures, technical standards and business practices
CHALLENGES
■ Sunk costs , lower margins– The eMarketplace provider has to make significant investments
upfront
– While buyers and suppliers might profit, the provider might have to operate with low margins
Building and sustaining relationships are key challenges facing the provider
Next week
■ WWT ClearOrbit Case
■ RFID / Internet of Things