PERSONAL FINANCE ONLINE

<< ELECTRONIC DATA INTERCHANGE (EDI)

SUPPLY CHAIN >>

E-COMMERCE IT430

Lesson 37

PERSONAL FINANCE ONLINE

Personal finance allows the management of your financial matters in a customized manner. For example,

tax calculations or financial budgeting can be done through personal finance software. Popular software

packages for personal finance are Quicken, MS Money and Money 2003 etc. In personal finance online data

is imported automatically into the register of transactions maintained by the software package as the

account/transaction details are downloaded through the internet. This information can then systematically

be used to calculate taxes or prepare a budget for certain activities.

Value Chain

EC includes so many activities that it is difficult to figure out where and how to use it in the business. One

way to overcome this difficulty is to break business into many value adding activities. A strategic business

unit is a combination of a particular product, distribution channel and customer type. In 1985 Michael

Porter gave the idea of value chains in his famous book "Competitive advantage". A value chain is a way of

organizing activities that each strategic business unit undertakes to design, produce, promote, market,

deliver and support the products or services it sells.

Primary and Support activities

Porter identified that there are some primary activities as well as certain supporting activities in a strategic

business unit. Following is the example of value chain for a strategic business unit (see Fig. 1 below):

Primary activities

Provide after

Manufacture

Design

sale service

Deliver

product or create

and support

service

Purchase

Market

materials and

and sell

supplies

Identify

customers

Support activities

Human

Technology

Finance and

resources

development

administration

Fig. 1

`Identify customers' refer to those activities which try to find new customers and ways to serve

better to the existing ones, e.g, surveys and market research;

`Design' activities take a product form concept stage to manufacturing stage. They include concept

research, engineering, drawings preparation, test marketing etc.

`Purchase materials and supplies' activities relate to procurement of material, vendor

selection/qualification, negotiating supply contracts, monitoring quality and timely delivery etc.

`Manufacture product or create service' activities relate to transformation of materials and labor

into finished products, e.g, fabricating, assembling, packaging etc.

`Market and sell' activities give buyers a way to purchase and provide inducement for them to do

so, e.g, advertising, promotions, managing salespersons, monitoring distribution channel, pricing

etc.

`Deliver' activities relate to storage, distribution and shipment of final product, e.g, warehousing,

selecting shippers, material handling, timely delivery to customers etc.

`Provide after sales service and support' refer to those activities that aim at promoting a continuing

relationship with customers, e.g, installing, testing, repairing, maintaining a product, fulfilling

warranties etc.

152

E-COMMERCE IT430

Note that left to right flow does not mean a strict time sequence for these activities. For example,

marketing activity can take place before purchasing materials.

Importance of each primary activity depends on the product/service and the type of customers.

For example, for certain type of businesses/products manufacturing activities are more critical and

for others marketing activities may be more important.

Support activities provide infrastructure for a business unit's primary activities as indicated in Fig. 1

above. Following are the support activities:

`Finance and administration' activities relate to accounting, paying bills, borrowing funds and

complying with government regulations etc.

`Human resources' refer to the activities that coordinate management of employees, e.g, recruiting,

hiring, compensation and benefits etc.

`Technology development' relates to activities which help improve product/service that a business

is selling and also help improve processes in every primary activity, e.g, fields tests, maintenance of

procedures, process improvement studies etc.

Industry value chains

It is useful to examine where a strategic business unit fits within its industry. Porter uses the term value

system to describe larger stream of activities into which a business unit's value chain is embedded. Different

strategic business units are associated, each having its value chain, to form industry value chain. By

understanding how other business units in industry value chain conduct their activities, mangers can identify

new opportunities for cost reduction and product improvement. Fig. 2 below shows industry value

chain of wooden furniture:

Logger cuts down tree

Sawmill converse logs to lumber

Lumberyard (distributor) provides lumber

furniture factory manufactures/assembles

Furniture retailer markets and sells furniture

Consumer purchases and uses furniture

disposes of furniture which is recycled

Fig. 2

Note that loggers grow and cut the trees to convert them into logs. Sawmill purchases logs and processes

them in its processing unit to converts them to lumbers. The lumberyard business purchases lumbers form

the sawmill business and sells them to furniture factory, which manufactures furniture using the lumbers.

Furniture retailer buys the furniture from furniture factory and sells it to customers, who use it. After

sometime the furniture is of no use and is disposed of by the customer. It can be then recycled. Note that

each business unit has its own value chain. The analysis of industry value chain is useful for a sawmill

business that is considering entering the tree harvesting/growing business or for furniture retailer who

wants to be a partner with a transportation business. Industry value chain identifies opportunities up and

down the product' s life cycle for increasing efficiency or the quality of product.

Examining value chains one finds that EC can help in four different ways as follows:

It can reduce costs of a business;

It can improve quality of products;

153

E-COMMERCE IT430

It can help in reaching new customers or suppliers;

It can create new ways of selling products.

For example, a software developer who releases annual updates of his software might consider eliminating

software retailer from distribution channel for updates by offering to send updates through internet directly

to his customers. In this way he can reduce the price of his product and increase sales revenue since revenue

margin payable to the retailer can now be cut down from the price.

SWOT (strengths, weaknesses, opportunities and threats) analysis

In SWOT analysis, an analyst first looks into the business unit to identify its strengths and weaknesses then

looks into the environment in which the business operates and identifies opportunities and threats

presented by such environment.

While judging the strengths of a business, questions can be asked such as what does a business do well?.

Does it have a sense of purpose and culture to support that purpose? While judging weaknesses of a

business questions can be asked as to what does a company do poorly?. Has it any serious financial

liabilities?. Has it got the required skilled manpower? In analyzing opportunities a company can try to find

answers to questions, such as, what is the industry trend? Are there any new markets to enter/explore? Are

there any new technologies to use?. In finding threats to a company's business it can ask questions as to

what things the competitors of the business doing better? Are there any troublesome changes in company's

business environment? Are there any new technologies or laws likely to be introduced that might cause

problem to the company?

Example of Dell

Dell, a famous computer manufacturing brand, used SWOT analysis in mid 1990s to create a strong

business strategy that made it a successful competitor in its industry value chain. It found that its strength

was to sell directly to customers and design its computers to reduce manufacturing costs. It also found that

it had no relation with local computer dealers. It faced threats from competitors which had much stronger

brand names/quality at that time. Dell identified an opportunity by noting that its customers were becoming

more knowledgeable about computers and could specify what they wanted to buy without Dell sales person

helping them or answering their questions to develop configuration for them. Moreover, it decided to use

internet as a potential marketing tool.

Dell took all four SWOT elements into consideration (see Fig. 3 below) and decided to offer customized

computers. The computers could be built/configured according to the order or specifications of the

customers who could place orders through phone and internet. Thus, it developed a strategy using its

strengths effectively and avoiding reliance on dealer network. Note that brand and quality threats form

competitors were reduced in this case by Dell's ability to deliver higher perceived quality of its product in

the sense that each computer could be customized according to the needs/specifications of the customers.

Strengths

Weaknesses

· sell directly to consumers

· No strong relationships

· keep costs below competitor's

with computer dealers

costs

Threats

Opportunities

· Competitors have stronger

· Consumers know what they

brand names

want to buy

· Competitors have strong

· Internet could be a powerful

relationships with computer

marketing tool

dealers

Fig. 3

154

Table of Contents: