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BASIC ECONOMICS OF EB

This article explores the dilemma between transaction and agency costs in electronic supply chains, highlighting the benefits of tightly coupled relationships and the role of information technology in cost reduction. It also discusses the importance of leverage, economy of scale, speed, and visibility in optimizing total costs. Additionally, it examines the potential of postponement strategies to enhance responsiveness and minimize risks in supply chain operations.

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BASIC ECONOMICS OF EB

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  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 • Optimal point varies with context High Cost Low Small Large Org. size

  6. A New Way Out High Agency Cost Low Transaction Cost High

  7. Leverage • Financial leverage • Operation leverage • Economy of Scale

  8. Economy of Scale Total Cost • Average cost decreases with volume High Cost Fixed cost 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. Speed • Potential speed • Realized speed • Advanced information • Early involvement, collaborative forecast • Advanced actions

  11. Visibility • Distance • Timeliness • Obsolescence • Detail • Tracking • Tracing

  12. 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)

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

  14. 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

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