BASIC ECONOMICS

1

• BASIC ECONOMICS
• OF EB

2
Market and Hierarchy

• Old dilemma
• Tug-O-war between transaction cost and agency
  costs
• Electronic Supply Chain
• Tightly coupled relationships
• Electronic Market
• Free and efficient market

3
Transaction Cost
High

• Cost reduction due to IT

Cost
Low
Small
Large
Org. size
4
Agency Cost

• Monitoring Cost reduction
• Mobility of agents

High
Cost
Low
Small
Large
Org. size
5
Total Costs
High
Cost
Low
Small
Large
Org. size

• Optimal point varies with context

6
A New Way Out
High
Hierarchy Undesirable
Best of both World Market
Agency Cost
Low
Transaction Cost
High
7
Leverage

• Financial leverage
• Operation leverage
• Economy of Scale

8
Economy of Scale
Total Cost
High
Cost
Fixed cost

• Average cost decreases with volume

Low
Small
Large
Volume
9
Operational Scale
Revenue
High
High
Total Cost
Cost
Cost
Total Cost
Low
Low
Low
High
Low
High
Volume
Volume
10
Externalities

• Some economic issues are internal to an
  organization
• Efficiency
• Some are external
• Multipliers
• Partners benefits
• Attractiveness result from size

11
Speed

• Potential speed
• Realized speed
• Advanced information
• Early involvement, collaborative forecast
• Advanced actions

12
Visibility

• Distance
• Timeliness
• Obsolescence
• Detail
• Tracking
• Tracing

13
The effects of Speed Visibility

• The case of 100 meter dash vs. 4x100 meter relay
• The Taiwan suppliers
• Computer manufacturers
• 6 months delivery time ? 2 days
• 955?983?982?1002
• Shoes making
• 21 weeks delivery time ? 10 weeks
• The magic?
• Order ? (Blanker order Order forecast Order)

14
Postponement

• Product Postponement
• Labeling
• Packaging
• Assembly
• Design
• Geographic Postponement
• Logistics
• Time Postponement

15
Postponement

• Benefits
• Risk avoidance
• Conditions
• Response rate (speed)
• The faster you can respond, the more you can
  postpone
• Build to Stock ? Build to order with forecast