Corporations have long been aware of how information systems can allow them to operate across organizational boundaries; however, there has not been much research into the competitive implications of these IOIS arrangements. There has also been significant concern on the part of suppliers who see no tangible benefits accruing to them from different information sharing arrangements. Our study offers the following insights into these long-standing concerns.
- The impact of IOIS relationships is not merely operational; they can alter supplier marketing and sales strategies, and shape competition in supplier markets.
- It is possible for a buyer to extract all the competitive value of information from each supplier. Therefore, it is worthwhile for buyers to collect as much information as possible that is of competitive value to their suppliers – they need not actually share it – a realistic threat of potential sharing is sufficient.
- In a supplier market with many competing suppliers of similar size, VMI is likely to be the best policy for a buyer; though category management may offer higher operational savings, a buyer can do better by extracting competitive value from the suppliers with the threat of CM.
- The following factors increase the operational savings that a supplier expects from an IOIS relationship:
- High inventory cost rates
- High demand uncertainty
However, the supplier should examine the competitive factors involved in these arrangements, before being tempted by large (and often illusory) cost savings, as the buyer could end up getting all the value from the arrangements.
- Buyers should target suppliers who have the characteristics described in (4), as they are likely to be tempted by the prospects of high savings – since these savings are likely to accrue to the buyer; these are better firms to share information with. The same holds for highly competitive supplier markets.
- Partnering with suppliers (as advocated by many supply chain management information systems vendors) is unlikely to be optimal for the buyer in many situations. There is little reason for buyers to be worried about loss in bargaining power when they share information; through creative contracting, they can regain any power they apparently lose.
- A supplier in an IOIS relationship is unlikely to benefit from the relationship, or accrue any of the value generated; however, it may still be necessary to remain in the arrangement, to avoid further losses. A supplier who breaks even on a VMI or category management agreement, is probably doing as well as they can.
- As I.T. enables buyers to use and share information more effectively, they are bound to be able to ‘pull’ more and more from suppliers. Hence, suppliers may do well to negotiate long-term VMI contracts with buyers. Even if these contracts generate little or no apparent present or future value, they are insurance against what will only become a less favorable market for them. This is particularly true in highly competitive markets; if a buyer
- Possesses competitive information that is potentially very
- Valuable to a supplier, this is not a sign of the supplier
- Benefiting a lot, but a predictor of all suppliers losing a lot.
- As the cost of processing and sharing information drops, as is evidently has and will continue to do, two related occurrences are very likely:
- The volume of information that a buyer collects (and can potentially share) will increase
- The strategic and competitive value of this information to suppliers will increase
In the light of our analysis, this spells more profits for the buyer, and more value extraction from suppliers.