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Bargaining Power Of Suppliers

This report serves lots of major purposes. To begin with, it seeks to comprehend the development of Information Systems IS/ Information Technology IT theory. Secondly, it narrows the scope to enterprise value chain to evaluate the existing practice in this field. Finally, it seeks to evaluate and analyze the continuing future of the firms studied in relation to IS/ IT.

1. 2 Definition of Key Concepts

The conditions "e-business" and "e-commerce" are often used interchangeably however they do not mean a similar thing. E-commerce means deploying it to trade goods and services. E-business is a broader term, covering not just goods and services exchanges, but also all kinds of business conducted using electronic transmission of data and information.

E-business started out when customers and suppliers recognized the benefits of exchanging documents such as purchase orders and invoices electronically, rather than through the postal service. This electronic data interchange EDI could speed ordering and fulfillment dramatically. The advent of the internet allowed businesses, organizations, and individuals to publish World Wide Web pages and communicate to broader audiences.

At first, web pages were mirrors of paper documents. But as they increased in sophistication, users recognized that there have been things that they could do with Webpages that were not possible with paper media. As internet utilization and Web development evolved, managers learned for taking good thing about the internet's unique nature in lots of ways. For example, retailers realized changing the price of an item required a few key strokes on the internet versus reprinting promotional materials and price lists within an offline environment. The transparency of the internet, or the ability for mass instantaneous sharing of information also created an almost flawlessly efficient marketplace for goods and services.

The next stage in the evolution of e-business was to distribute its use throughout an organization. This came in the form of intranets. Businesses created these internal internets to allow employees to talk to one another and exchange information. Once enterprises mastered internal communication through their intranets, they turned outwards. The link to customers occurred in early stages. All of those other supply chain linkage occurred in the next stage of the evolution as businesses began expanding on their connection to suppliers, customers and distributors. These included adding supply chain management and customer relationship management functionality. Portals allowed customers and suppliers to link more closely with an enterprise.

The present state of e-business is absolutely c-business where the "c" means collaborative. In c-business, the boundaries among enterprises become blurred. Businesses up and down the supply chain interact to attain objectives that maximize profitability for most of them.

1. 3 Overview of the Report

Section 1: Introduction

Objective of the report

Definition of key concepts

Overview of the report

Section 2: Review of Literature

2. 1 Literature review

2. 2 General theory

2. 3 Research area

2. 4 Rationale

2. 5 Need for research area

2. 6 Example of e-business application

Section 3: Case Analysis

3. 1 Case Study 1

3. 2 Case Study 2

3. 3 Case Study 3

Section 4: Evaluation of the Cases

4. 1 Comparison

4. 2 Recommendation

Section 5

Executive Summary


2. 1 Literature Review

IT/ IS has been employed by companies for over forty years. Initially, their usage was primitive by today's standards, but as time passes, improvements in computer technology have rendered IS/ IT to be a part of the business enterprise. Yet, the study of IS/ IT with regards to management is a somewhat recent discipline.

Initial research on IT/ IS tended to become more descriptive than empirical since the basic models that are currently used were not yet formulated. These research papers also tended to be overly optimistic about the continuing future of IT/ Is within terms of the huge benefits they bring to businesses. Later on, research in the region took on a more balanced tone as the limitations of IS/ IT were also highlighted. It has also during this time period than various strategic management models were incorporated into the framework for IS/ IT.

2. 2 General Theory

Now why don't we examine three theories that relate to e-business.

2. 2. 1 Porter's Five Forces

According to Michael Porter (1990), a business is influenced by five major forces and he developed this notion into a thorough model. Termed the Five Forces Model, they have greatly influenced strategic management thinking for days gone by 2 decades. These five forces are the bargaining power of buyers, the bargaining power of suppliers, the new entrants, the threat of substitutes, and rivalry.

Bargaining Power of Buyers

The bargaining power of buyers identifies the influence consumers have on an industry. Generally, if consumers have high bargaining power, there are numerous suppliers competing for an extremely limited amount of buyers (Porter, 1990). Because of this, it is the buyer who will dictate the price tag on goods and services. Buyers have greater power when there are few of them and they command a substantial market share, or when they buy a sizeable proportion of the products produced in a business (David, 2009). Also, buyers are powerful when they can threaten to buy products from rival firms. This is called backward integration (Griffin, 2001). On the other hand, buyers are weak if manufacturers threaten forward integration in which the manufacturers take over the distribution and retailing channels (Eitman et al, 2007). Buyers are also in a weak position when there is great difficulty in switching to alternative products and switching costs are high.

Bargaining Power of Suppliers

The second force is the bargaining power of suppliers (Porter, 1990). All companies that manufacture goods need to obtain recycleables from external parties or suppliers. Hence, it is imperative that companies establish good relationships with their suppliers so as to get favourable prices and a reliable way to obtain raw material. Yet, the supplier-manufacturer relationship is rarely one of equals (Griffin, 2001). Normally, one party gets the upper hand. Suppliers have greater bargaining power if there are handful of them so they can dictate terms to the clients who are in their mercy (David, 2009).

Threat of New Entrants

The third force is the risk of new entrants (Porter, 1990). New entrants to a market can seriously affect the market share of existing members which is a frequent way to obtain anxiety for companies. In an excellent free market system, a corporation can enter and exit market with the best ease and this profits will be nominal. However, in the real world, there are numerous barriers to entry, a few of which will be the consequence of economics, while others will be the outcome of government intervention (Rugman and Hodgetts, 1995).

Threat of Substitutes

The fourth is the risk of substitutes, which refers to products in other industries (Porter, 1990). If the costs of the products in a particular industry are too much, customers might switch to products in other industries. Price is not really the only variable but changes in technology have the potential to make users flock to rivals (David, 2009).

Rivalry Among Firms

The final force in Porter's framework is rivalry among organizations (Porter, 1990). Rivalry is high when there are a large quantity of firms in a saturated market, high fixed costs, high storage costs and low switching costs (Barney, 2007).

According to Porter, an enterprise can adopt one of four ways of deal with the five forces in its industry. They are really cost leadership, differentiation, cost focus and focused differentiation. IT can assist a company in attaining these strategies. For instance, to attain low priced, the company can adopt production engineering systems whereas to accomplish differentiation, it can use computer aided design.

2. 2. 2 Value Chain

The value chain is defined as a sequence of activities that should contribute more to the ultimate value of the product than to its costs. Products produced by a business rely on different activities of the organization and use different resources along the worthiness chain depending on the specifications. Essentially, all products flow through the worthiness chain, which commences with research, development and engineering and then moves through manufacturing and continues on to customers.

The company's value chain can be used to identify opportunities that give competitive advantage. Basically, there are two broad types of a firm's activities. They can be primary activities, consisting of the creation, marketing and delivery of products and support activities which provide support for primary activities. IT can be used to transform just how value activities are conducted and to improve linkages throughout the value chain to provide the company greater flexibility. According to Porter and Miller 1985, IT plays a strategic role within an industry that has high information intensity in the product and value chain itself.

2. 2. 3 Scott Morton's Model

Morton improvises and refines Porter's model. Morton asserts that the five forces that influence an organization's objectives are its structure, management processes, individuals and roles, technology and strategy. These in turn contribute to five levels of IT-induced reconfiguration. At the low amount of business transformation, they are really termed evolutionary levels. At the cheapest level, there may be localized exploitation where the main objectives are domestic effectiveness and efficiency. At level two, there is internal integration between different applications and systems. Cooperation and coordination enhance efficiency and effectiveness here. At a higher degree of business transformation, these are termed revolutionary levels. Level three involves business process redesign which involves a rigorous change in the company value chain. Level four concerns business network redesign for the reconfiguration of the tasks and scopes of the enterprise network mixed up in creation and delivery of products and services. The final and highest level is business scope redefinition where there is a migration of functions across the company's borders that eventually change the very nature of the business enterprise.

2. 3 Research Area

This paper targets the enterprise value chain of three very different companies. These are Tupperware, Toyota and Facebook.

2. 4 Rationale

The rationale for selecting these three companies is to explain how e-business is put on different industries. Tupperware is a favorite manufacturer of high quality plastic containers, Toyota is the world's largest car maker and Facebook is the largest online social network site on earth. They are all completely different businesses, yet they share one thing in common - the consumption of e-business in their value chain. The degree of success each business experience through e-business vis- -vis their value chain will be discussed in the analysis section.

2. 5 Need for Research Area

E-business is becoming an integral part of the present day corporation and is also a way of achieving competitive advantage. Besides that, it also creates opportunities for many alternative party services. For these reasons, it is vital to critically examine what exactly e-business can do for an enterprise. To demonstrate, the next SWOT analysis is done:

2. 5. 1 Strengths

Around the clock business operation

Convenient, fast and effective

Global outreach

Lower operation cost

Lower initial investment

2. 5. 2 Weaknesses

No direct interaction between buyer and seller

Low customer penetration

2. 5. 3 Opportunities

The number of men and women utilising the web is increasing daily

Over time, people will grow familiar with doing transactions online

2. 5. 4 Threats

Considerable risks such as privacy issues, security concerns, transaction processing and business policy issues.

2. 6 Types of e-business Applications

There are numerous examples of e-business applications, the most common being EDI which is the computer-to-computer exchange of business documents. Another example is in collaborative commerce. For example, airlines have partnered to generate Orbitz, an online travel service that searches the partner airline database for flights. The website also allows users to purchase resort rooms, rent cars and other services.


3. 1 RESEARCH STUDY 1: Tupperware

Tupperware is a multi-billion dollar United States based manufacturer of plastic food storage containers which has a existence in over 100 countries worldwide. Recently, the business altered its distribution model to a multilevel compensation structure. This inevitably increased the volume of paperwork faced by multilevel sales consultants who found less time to do actual sales. In addition, the order entry system was insufficient to cope with peak sales demands.

To overcome these problems, the business implemented MyTupperware which is a web-based order management system. The first problem was solved because the duty of entering orders was shifted from distributors to sales consultants. The next problem was solved because the integrated and streamlined communications between your relevant parties and provided better support in the promotion and sales of products.

3. 2 RESEARCH STUDY 2: Toyota

From its humble beginnings in Japan, Toyota Motors emerged as the world's major & most profitable car maker in April 2007. It accomplished this major feat through unparalleled excellence in its production process, and even throughout its entire value chain.

Central to the success was the Toyota Production System TPS. Initially, Toyota faced the same problems as other automobile makers including slow product design time, uneven quality of production, wastage and obsolescence. These factors hampered the business's ability to accomplish competitive advantage.

Consequently, Toyota critically examined its strengths weaknesses, though not in the way Western companies do. Toyota adopted japan approach of kaizen, which really is a philosophy of continuous improvement by eliminating wastage. By harnessing the power of IS/ IT in its e-business, the company created the TPS as a means to accomplish competitive advantage. Consequently, the business achieved tremendous success and its own manufacturing process was deemed the 'gold standard' in quality manufacturing at low priced.

Unfortunately, this was not to last. Within the last two years, Toyota suffered its worst catastrophe in years. Cars produced by its U. S. plant suffered from faulty brakes and there have been defects in cars made by other plants. Consequently, the business made an enormous recall, which seriously eroded the trustworthiness of the company. Possibly the company overextended itself or was lulled into a false sense of complacency. Regardless, the much vaunted TPS has come under scrutiny as people question what sort of system that was deemed near perfection could cause such egregious errors. It remains to be observed how Toyota will cure the situation.

3. 3 Case Study 3: Facebook

By now, the story of Facebook's founding is well known, thanks to lots of books and the Hollywood movie "The Social Network". A Harvard student named Mark Zuckerberg founded the site in 2004 as an internet social network for Harvard students before establishing it as a firm. Though there are other online online networks, the secret to Facebook's success lies not just in the features it provides, but the clear interface rendering it appealing and easy to use. From its humble origins, Facebook has over 500 million users and has been valued at US50 billion.

While the business is phenomenally successful, it is continually suffering from issues concerning its privacy. Since Facebook's business design is such that it will not charge users for the assistance it provides, its source of revenue originates from advertising and data mining. This has resulted in repeated concerns about the violation of users' privacy by selling their personal information to advertising companies who publicly share such personal information. Furthermore, there are concerns that users' personal information is obtainable to the public with very dangerous consequences like identity theft.

One major error that Facebook made was its Beacon advertising service which informed users when their friends made purchases and were involved in other activities beyond Facebook. Users didn't agree to share these details which caused a public backlash and the company had to rescind the service.

Similarly, when Facebook launched its news feed feature, users baulked at the infringement of privacy. They did not want Facebook to post updates every time they updated their profile, added friends or changed their settings. However, Zuckerberg addressed this issue much better by causing a public apology and explaining the merits of the system. Although some users were still resistant, the reason won over many and today, the news headlines feed is one of Facebook's most popular services which is emulated by other online social network sites.

A third problem Facebook has is the handling of users' personal information when they want to delete their profiles. Unlike other network sites, Facebook made it almost impossible for users to delete their accounts and copies with their personal information were stored indefinitely. This caused a backlash and Facebook has since managed to get much easier for users to delete their accounts.




Ease of using site


Effectiveness of e-business

Case 1




Highly effective

Case 2




Highly effective

Case 3




Highly effective

4. 1 Comparison

Overall, it appears that of the three, Facebook has been the most successful in applying e-business since its entire business design is dependant on it. The other two are types of traditional companies that employ e-business to improve their value chain. Tupperware uses the least intensive form of e-business as it is confined to its sales and after sales services as opposed to the manufacturing process. Toyota uses e-business extensively throughout its value chain as is seen in the TPS. However, recent developments indicate that its e-business application may well not be as successful as once was thought. Hence, Facebook is the most successful of the three in harnessing e-business to gain competitive advantage though it must be reminded here that the business still struggles with some security issues.

4. 2 Recommendation

It is preferred that Tupperware uses e-business more extensively throughout its value chain to add the planning and design and manufacturing process. Toyota should reevaluate its TPS to recognize weaknesses in today's system and improve them. Facebook on the other hand should use e-business to gather more feedback from its customers about its services, particularly privacy issues and take them seriously.

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