2 Information Systems in the Enterprise - Main Web

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Firms in a single industry Firms in complementary businesses Firm 1 Firm 1 Horizontal industrial network Firm 2 Firm 3 Firm value chains and enterprise systems Industrial networks Supplier 1 Supplier 2 Vertical industrial network Chapter 2 ❙ INFORMATION SYSTEMS IN THE ENTERPRISE 25 Firm 4 Supplier 3 Industry value chain Realizing Strategic Value Companies may also fail to achieve strategic benefits from enterprise systems if integrating business processes using the generic models provided by standard ERP software prevents the firm from using unique business processes that had been sources of advantage over competitors. If an enterprise system is not compatible with the way the company does business, the company may lose a better way of performing a key business process that may be related to its competitive advantage. Enterprise systems promote centralized organizational coordination and decision making, which may not be the best way for some firms to operate. There are companies that clearly do not need the level of integration provided by enterprise systems (Davenport, 2000, 1998). Chapter 11 provides more detail on the organizational and technical challenges to enterprise system implementation. Extended Enterprises and Industrial Networks In some industries, companies are extending their enterprise systems beyond the boundaries of the firm to share information and coordinate business processes with other firms in their industry. Industrial networks, which are sometimes called extended enterprises, link together the enterprise systems of firms in an entire industry (see Figure 2-17). For instance, Procter & Gamble (P&G), the world’s largest consumer goods company, developed an integrated industry-wide system that coordinated the grocery store point-of-sale systems with grocery store warehouses, shippers, its own manufacturing facilities, and its suppliers of raw materials. This single industry spanning system effectively allows P&G to monitor the movement of all its products from raw materials to customer purchase. P&G uses data collected from point-of-sale terminals to trigger shipments to retailers of items that customers have purchased and that need restocking. Electronic links to suppliers enable P&G to order materials from its own suppliers when its inventories are low. The system helps P&G reduce its inventory by allowing the company to produce products as they are demanded by retailers. P&G is implementing an Ultimate Supply System that uses Internet technology to link retailers and suppliers to its private corporate intranet (see the Chapter 1 opening vignette). By having retailers and suppliers integrate their systems with P&G’s systems, P&G hopes to reduce product cycle time by half, inventory costs by $4.5 billion, and systems costs by $5 billion. There are two kinds of industrial networks. Vertical industrial networks integrate the operations of the firm with its suppliers and can be used for supply chain management. Horizontal industrial networks link firms across an entire industry. An example would be the OASIS network of utility industry firms, which uses the Web to help members sell surplus electrical power. A few industry networks coordinate the activities of competitors. For example, Yamaha Europe, Honda, Aprilia, and Piaggio, competing manufacturers of motor scooters, are now working together to share suppliers. They hope to ultimately reduce the number of suppliers, which will boost the production efficiency in the remaining group, and they all expect to realize savings from their cooperation (Abramson, 1999). Table 2-9 provides examples of both types of industrial networks. Most industrial networks today are vertical and do not link together competitors in the same industry. Figure 2-17 Industrial networks. Industrial networks link the enterprise systems of firms in an entire industry into an industry-wide system. Horizontal industrial networks link firms in the same industry, including competitors, whereas vertical industrial networks link a firm with suppliers in the same industry. industrial networks Networks linking systems of multiple firms in an industry. Also called extended enterprises. vertical industrial networks Networks for integrating the operations of a firm with its suppliers. horizontal industrial networks Networks for linking firms across an entire industry.
26 Part I ❙ ORGANIZATIONS, MANAGEMENT, AND THE NETWORKED ENTERPRISE TABLE 2-9 Examples of Industrial Networks Type of Industrial Organization(s) Network Description Coca-Cola Vertical Installed an enterprise system using SAP software and extended the system to its bottling partners. Coke and its partners can pool resources, share sales information, and leverage their combined size to obtain lower raw material costs. The extended enterprise system enables them to react rapidly to market changes and deploy products efficiently to the places where they are most likely to sell. OASIS Horizontal Web sites link U.S. electrical utility companies in regional power pool groups to sell their surplus power to wholesalers and locate the transmission facilities for moving the power between its source and the customer. Ford, General Motors, Horizontal Shared Internet purchasing system enables them to obtain parts online from and DaimlerChrysler suppliers, reducing costs and saving time. Safeway UK Vertical Has electronic links to suppliers where it can share information about forecasts, shelf space, and inventory, so they can track demand for their products, adjust production, and adjust the timing and size of deliveries. The suppliers can download Safeway’s information into their enterprise systems or production planning systems. Suppliers send Safeway information about product availability, production capacity, and inventory levels. Many of these industrial networks are currently dedicated to supply chain management. Enterprise systems have primarily focused on helping companies manage their internal manufacturing, financial, and human resource processes and were not originally designed to support supply chain management processes involving entities outside the firm. However, enterprise software vendors are starting to enhance their products so that firms can link their enterprise systems with external vendors, suppliers, manufacturers, distributors, and retailers. Enterprise systems can produce the integration among internal supply chain processes, such as sales, inventory, and production, that makes it easy for the firm to coordinate its activities with manufacturing partners and customers. Manufacturing can be informed of exactly what to produce, based on sales orders, and reduce the need to keep excess stock in inventory. If participants in the supply chain use the same enterprise software systems, their systems can exchange data without manual intervention. Companies can also use Internet technology to create industrial networks, because it provides a platform where systems from different companies can seamlessly exchange information. Application Software Exercise Database Exercise: Tracking Reservations at Monroe’s Midnight Inn Monroe’s Midnight Inn is a family-owned and operated bed and breakfast. After inheriting the Monroe mansion eight years ago, James and Peggy Monroe decided to renovate the mansion and establish a bed and breakfast. The bed and breakfast has 14 rooms: 5 overlook a private lake, 5 overlook the woods, and the remaining 4 rooms overlook the gardens. Room rates are based on room choice, length of stay, and number of guests per room. Guests staying for 7 days or more are given a 15 percent discount on their daily room rates. A maximum of four guests are permitted in each room, with each additional guest charged $20 per day. Business has grown steadily during the past eight years. In the early years, the establishment was frequented primarily by couples; however, the bed and breakfast now caters to a variety of clientele, including families, executives, and locals. The bed and breakfast’s growing popularity is because, in part, of its location, the activities available to its visitors, and its affordability.
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