A Logistics Perspective on the Virtual Marketplace

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A Logistics Perspective on the Virtual Marketplace

• Taylor Randall
• University of Utah
• LOGITRANS 2000

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The dynamics of virtual value. Where did the
value go?
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4 lessons from the dot com crash... A logistics
perspective
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Lesson 1 History shows that business
success is built on logistics infrastructure.
He who fails to learn from history is doomed to
repeat it. We have been repeating history.
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History Quiz Who said it and when?
You may go to an average store, spend valuable
time and select from a limited stock at retail
prices or have our Big Store of World Wide
Stocks come to you.
a) Jeff Bezos - business plan of Amazon.com
1995. b) Bill Gates - on retail plans for
Microsoft 2000. c) none of the above.
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History Quiz Who said it and when?
Answer c) none of the above From
Sears-Roebuck Catalog 1915
Catalog regarded by economists as a radical
transformation in the marketing and
distribution of consumer goods.
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History of Sears Roebuck
- 1886 - Richard Sears begins to sell watches to
railroad station agents.
What happened here?
High Growth
- 1915 - Rapid Sales Growth Begins
- 1896 - First large general Sears catalog.
3 innovations in logistics infrastructure made
the catalog successful.
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Tough to deliver goods prior to 1900
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The King Road Drag Invention leveled and
packed muddy roads. Made auto transportation
possible.
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History of Sears Roebuck
High Growth Begins
- 1886 - Richard Sears begins to sell watches to
railroad station agents.
- 1906 - D. Ward King invents the King Road Drag
- 1896 - First large general Sears catalog.
- 1912 - Congress mandates Parcel Post as
long as you have good roads
- 1906 - Sears installs pick and ship plant (10x
productivity increase)
So what was the greatest innovation Catalogs?
or the King road drag?
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Technological change happens in 3 phases 1.
Creation of infrastructure 2. Arrival of
enabling technologies 3. Business built on the
previous 2
A lot of people jumped the gun. They tried to
skip the first two phases. Roger McNamee,
Integral Capital Partners 2000
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Can you identify the key logistics infrastructure
for your business?
Your business
Stage of Development
Sears
Creation of Infrastructure Roads ??? Arrival
of enabling technologies Pick System ??? Po
stal Service Construction of business Catalog
Sales books online
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Lesson 2 Because infrastructure changes
slowly old companies still hold power.
Even when American voters are most angry, they
re-elect 88 of their politicians. Vital
Statistics of Congress.
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Incumbent power comes from existing
infrastructure.
Examples of incumbent power Over 3 times as
expensive to acquire a customer on-line as it
is to acquire a customer with physical
stores. Over 60 of all traditional retailers
had data processing and customer service
capabilities before going on-line. In 1925 Sears
opened retail stores by 1930 retail store
sales had outpaced catalog sales.
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Lesson 3 Despite the slower change in most
industries, infrastructure can change
quickly.
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Some examples of firms where infrastructure is
changing.
Encyclopedia Britannica 650 million in sales
in 1990 vs. 130 million in sales in 2000
2,200 sales price for books vs. 70 (or free)
for CD/Internet Newspapers Traditional
classified ads provide 40 of revenues only 10
of costs. Prediction that economics of
on-line classifieds are much lower. Music
Distribution CD
distribution vs. MP3 distribution
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Lesson 4 Value chain principles and
economics can help determine what will change
in your business and what will not change.
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The Old Economy and the New Economy Go Climbing
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Value chains have always consisted of product
flows and information flows.
Product flows
Distributor
Retailers
Consumer
Manufacturer
Information flows
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Old Value Chain Agricultural chemicals
Dupont Monsanto
Intermountain
AGWAY
Farmer Jones
Product Flows
Develop Produce Ship in bulk by
rail Advertise/Convince
Farmer/Retailer Receive order Track
shipment Payment from Distributor
Receive Break bulk Package Store Ship Order
product Track shipment Payment to
manufacturer Payment from retailer
Receive Store Present Alternatives Educate
Farmer Convince Farmer to Buy Educate for
Use Order product Track shipment Payment to
distributor Payment from customer
Pick up from store Gather
alternatives Evaluate alternatives Place
order Payment to retailer
Information Flows
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Observations
Information flows have taken secondary
importance. (Drive to lower physical cost of
delivery) Information flows have been attached
to product flow entities sometimes by
default. (Selling functions) Physical
intermediaries create information flow
redundancy. (Accounting and transaction
processing). New technology destroys these old
relationships.
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Framework for reconstructing the value chain
1. Begin with a detailed list of all product and
information flows in the supply chain. 2.
Identify activities where new technology
separates information flow and product
flow. 3. Identify activities where information
is redundant. 4. Use economic principles to
reconstruct your value chain. (Transaction cost
economics, value chain analysis)
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Old Value Chain Agricultural chemicals
Intermountain Agway
Dupont Monsanto
Farmer Jones
AGWAY
New Value Chain Agricultural chemicals
Farmer Jones
Dupont Monsanto
Rooster.com
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Bibilography - Suggested Reading
Supply Chain Structures on the Internet
Marketing-Operations Coordination Nils Rudi and
Serguei Netessine - rudi_at_simon.rochester.edu Blow
n to Bits How the New Economics of Information
Transforms Strategy Philip Evans and Thomas
Wurster The State of E-retailing E-retailing
World, March 200 DesinteRemediation Longer, Not
Shorter, Value Chains are Coming Paul Saffo
www.saffo.org