The Competition Advantage of IT for Retailing

Xu Liang

China University of Mining & Technology (Beijing) Beijing, P. R. China 100083

E-mail：xuliang_168@126.com

Abstract

This paper focuses the discussion on retailing industry and analyzes the application

and strategy of information technology, by quoting the competition advantage and

the value-chain model framework made by Michael E•Porter. At last, Concrete

examples show the competition strategy based on the information technology in

Wal-Mart.

Keywords: information technology, competition advantage, retailing

1 Introduction

Retailing is a traditional and typical industry, Along with the information technique widely used in recent years, the management of the retailing has changed greatly. Wal-Mart, Carrefour, Metro etc, which are the international retail price tycoon, play an important role on information technique. In China, the technical business value of information did not get the value and the development that should have. After reform and opening, internal business has began to study marketing means of modern retailing, knowing: the information technique contains abundant value, which is “strategic weapon” that acquires the competitive advantage.

2 Value-chain, Competition Advantage and Information Technology The value chain and the framework model for analyzing the competition advantage put forward by Michael E•Porter is the basic method for analyzing how the retailing obtains competitive advantage by applying information technology. According to the value chain theory, the enterprise management can be divided into several small movements called value movement, based on the influence of these small movements on enterprise management value. The value produced by an enterprise is measured with the cost which the purchaser of its products or services would like to pay. The enterprise’s profit depends on the fact that the value which enterprise produces is more than the cost which enterprise pays to produce it. Therefore, when enterprise wants to obtain competitive advantage and exceeds its competitor, the following two are alternatively necessary. One is to produce your value at a lower cost, and another to make product or service leading to difference, or to produce more value to raise the price and gain more profit.

To enterprise, the value chain can be studied in two perspectives. It is called enterprise value chain in microcosmic perspective, and system value chain in macroscopical perspective.

Enterprise value chain is the value chain system in which the value movement inside enterprise is the core. The enterprise value movement consists of two kinds of movements, basic movement and assistant movement. Basic movement is the producing, marketing and after service involving from design to product. Assistant movement is the investment and infrastructure which assist the basic movement. Assistant movement involves material purchasing, personal resource and technology development. Enterprise infrastructure consists of the movements to maintain the value chain, such as general management, legal document processing, financial affairs, etc. In each kind of movements, there maybe some relatively independent movement due to various concrete circumstance. For example, in the service movement, there are movements of installation, repairing, debugging, updating, parts stock management, etc.

-1-http://www.paper.edu.cn To an enterprise, the system value chain involves its enterprise value chain. System value chain is a value movement system which is broader than the enterprise value chain. It consists of provider, channel distribution and purchaser.

The value movement of each enterprise in the system value chain also reciprocally depends on other material provider and product circulating place. Enterprise can improve its competitive advantage by optimizing combination and effectively adjusting the relation between the enterprise value chains. Comparing with its competitor, enterprise's advantage always reflects in cost ant difference. To the cost, there is cost factor in every value movement of enterprise. The total cost of enterprise depends on all value movements. At the same time, whether there is difference, that is the unitary particular character, between the enterprise and its competitor depends on the fact that whether or not its every value movement can adequately satisfy the purchaser. Additionally, what the purchaser need lies on not only the impact of enterprise's product, but also other enterprise's value movements.

3 How information technology affects five competing factors

Five main compete factors that affect the structure of a industry are purchaser, supplier, substitute, new-comer and rivalry.

3.1 Purchaser

ECR, QR and the like are all advanced services methods based on information technology. Edges for the purchaser are: information technology supplies helps to adjust operation strategies and to avoid aimless and random operation by analyzing index of importance of customers, mastering purchase situation and customers’ need by pre-control of customers’ need development and value tropism with information technology.

3.2 Supplier

Edges for the supplier are: first, information system helps to strengthen the management of suppliers by applying different control methods; second, the application of VMI, ECR, QR could reduce bargaining fee and improve the efficiency of exchanging commodities and satisfactory extent of customers by adding turnover of goods. By integration of scanning bars, POS-MIS, EDI, Internet to combine procedures of producing, exchanging commodities and selling so that more competing edges could be gained.

3.3S u b s t i t u t e

Information system may prevent customers from looking for the same products and services, let them become loyal groups with easier system and oriented sales promotions.

3.4 New-comer

The new comer should realize traits of consuming need the cost of time and capital, which is the edge of the old shop. To set close relationship of value chain and supply chain to prevent new suppliers from changing partner and helps to improve the threshold of keeping edges.

3.5 R iv a lr y

Systems such as supplementing, ordering goods automatically links shops, the center of allocating, exchanging commodities, suppliers as a whole to form an effective supply chain which is highly cooperated. Compared with rivalries, if products or that of good sale is on display very quickly, customers would feel categories of the shop are various and new.

-2-http://www.paper.edu.cn 4 The competing strategy based on information technology

The effective application of information technology may support the competing strategy of enterprises. Usually enterprise would get competing edges with three competing strategies: the edge of cost, to do something unconventional, the focus of target.

4.1 I n f o r m a t io n t e c h n o lo g y a n d t h e e d g e o f c o s t

Most key costs of retailing are: cost of storage, capital and office affairs. VMT, EOS, ERC, QR could reduce the loss of opportunities of sale. The control of inventory and ordering would reduce unreasonable stock and cut down the expense.

4.2 I n f o r m a t io n t e c h n o lo g y a n d t o d o s o m e t h in g u n c o n v e n t io n a l

Information technology supports the strategy of “doing something unconventional”. Clients are provided satisfying, unique service when BI is used to research data warehouse.

The application of the edge of information system could help to take various sales promotions. For example DM after analyzing client data warehouse could add the efficiency of ad.

4.3C a s e s t u d y

As the magnate in the retailing of the world, Wal-Mart，in collaboration with Hughes, have set up a private satellite-communication system, through which manager can get the exact information about the product, sales, stocking, reserving goods, delivering, finance and personnel within 1 to 2 minutes. And the computer system can be connected with any store and delivering center. The information enable the manager to make a decision about whether they should stock, when they should deliver the goods to store, and how to relieve the goods among the stores. The application of the computer network has developed the adaptation ability to market. Just as the founder of the Wal-Mart, Sam Walton said: “The energy we get from the computer system becomes predominance for our competitiveness”

5 Conclusion

According to the development of retailing from bypast single store to collectivizing industry which is big scale and the degree of systematism, the style and means of retailing has also changed from handcraft to information technology, which has seeped through each link of the business operation. Retailing must change the view to unilateral understanding of the information technique, increase investment, and promote the way and level of the application. Consequently, the retailing can gain the cost advantage and difference advantage in the intense competition.

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