Chapter no.1 1. How are information systems transforming business and what is their relationship to globalization?

Wal-Mart: attaining competitive advantage from information technology Wal-Mart is the world's largest and most profitable retailer, with $44 billion in 1992 sales and 380,000 employees. Its growth from a single store in Rogers, Arkansas to almost 2,000 bright, attractive stores in 43 states is legendary in American business. Sam Walton was central to the legend. He built his empire on a belief in providing value for the customer and empowering employees, who are called associates. The Wal-Mart culture is built on obtaining the most current information about what customers want, getting the best ideas from employees about how to run the stores well, and sharing some of the profits with employees. The way Wal-Mart operates has been a model for General Electric's quest to increase speed and productivity. Jack Welch, CEO of General Electric said "Many of our management teams spent time there observing the speed, the bias for action, the utter customer fixation that drives Wal-Mart." The use of information technology has been an essential part of Wal-Mart's growth. A decade ago Wal-Mart trailed K-Mart, which could negotiate lower wholesale prices due to its size. Part of Wal-Mart's strategy for catching up was a point-of-sale system, a computerized system that identifies each item sold, finds its price in a computerized database, creates an accurate sales receipt for the customer, and stores this item-byitem sales information for use in analyzing sales and reordering inventory. Aside from handling information efficiently, effective use of this information helps Wal-Mart avoid overstocking by learning what merchandise is selling slowly. Wal-Mart's inventory and distribution system is a world leader. Over one 5 year period, Wal-Mart invested over $600 million in information systems. Wal-Mart use telecommunications to link directly from its stores to its central computer system and from that system to its supplier's computers. This allows automatic reordering and better coordination. Knowing exactly what is selling well and coordinating closely with suppliers permits Wal-Mart to tie up less money in inventory than many of their competitors. At its computerized warehouses, many goods arrive and leave without ever sitting on a shelf. Only 10% of the floor space in Wal-Mart stores is used as an inventory area, compared to the 25% average for the industry.

With better coordination, the suppliers can have more consistent manufacturing runs, lower their costs, and pass some of the savings on to Wal-Mart and eventually the consumer. Some 3,800 vendors now get daily sales data directly from Wal-Mart stores. And 1,500 have the same decision and analysis software that Wal-Mart's own buyers use to check how a product performs in various markets. Aside from computers and telecommunications equipment, the technical basis of the point-of-sale system is the bar code scanner. Bar code scanners make it possible to record the sale of each item and make that information available immediately for both reordering and sales analysis. The first use of bar code scanners occurred in the 1970s. After two decades of experience, accurate inventory tracking using bar code scanners is a competitive necessity for large grocery stores and retailers. Consistent with the adoption of any information technology, development and acceptance of bar codes required agreements on standards. The idea of bar code scanning required that industry develop a universal product code (UPC) system, a standard method for identifying products with numbers and coding those numbers as the type of bar code shown in the photo. The UPC codes that we see routinely today were chosen from a number of alternatives developed by different companies. As happens with other uses of technology, the use of bar codes has brought a range of problems along with the benefits Wal-Mart and other retailers have realized. The use of bar code scanners made it unnecessary to stamp the price on every item (except in states that still require this for consumer protection). This reduced costs but also eliminated jobs of some of the clerks who formerly did the stamping. Other problems (not necessarily related to Wal-Mart) were uncovered when a UCLA study of 1,200 purchases at three retail chains in California found mischarges on 5% to 12% of the purchases. For example, a researcher was charged a scanner price of $21.99 for a pair of jeans that were marked on sale for $15.44. The ratio of overcharges to undercharges at one chain was as high as 5-to-1. In other words, the majority of the mistakes were overcharges, not undercharges. The Riverside, California district attorney who prosecuted three retailers for scanner overcharges said, "I don't believe scanners have helped the consumer at all." On the one hand, the productivity of modern retailing depends on bar code scanners; on the other, the system of updating the prices is imperfect and may even be an opportunity for dishonesty. Stepping away from the technology and back to Wal-Mart, even its tremendous success has brought some problems. The huge Wal-Mart stores on the outskirts of small towns have overwhelmed many merchants on Main Street. Wal-Mart is so large that it can sell products profitably at prices less than many small-town merchants' cost. Some feel that Wal-Marts have killed the traditional business districts of some

small towns. If this is true, consumers in these towns receive the benefits of the best selection and pricing, but lose some of the benefits of living in a small town.
2.

Why are information systems so essential for running and managing a business today?

Six reasons why information systems are so important for business today include: 1. Operational excellence 2. New products, services, and business models 3. Customer and supplier intimacy 4. Improved decision making 5. Competitive advantage 6. Survival Here is onother answer to this questionThe emegence of a global economy, transformation of industrial economies, transformation of the business enterprise, and the emergence of digital firm make information systems essential in business today. Information system is a fondation for conducting business today. In many businesses, survival and the ability to achieve strategic business goals is difficult without extensive use of information technology. There are six reasons or objectives why businesses use information system: 1. Operational excellence. Business improve the efficiency of their operations in order to achieve higher profitability. Information systems are important tools available to managers for achieving higher levels of efficiency and productivity in business operations. A good example is Wal-Mart that uses a RetailLink system , which digitally links its suppliers to every one of WalMart's stores. as soon as a a customer purchase an item , the supplier is monitoring the item , knows to ship a replacement to the shelf. 2. New products, services, and business models. Information system is a major tool for firms to create new products and services, and also an entirely new business models. A business model describe how a company produces, delivers, and sells a product or service to create wealth. Example: Apple inc transformed an old business model based on its iPod technology platform that included iPod, the iTunes music service, and the iPhone. 3. Customer/supplier intimacy. When a business serves its customers well, the customers generally respond by returning and purchasing more. this raises revenue and profits. The more a business engage its suppliers, the better the suppliers can provide vital inputs. This lower costs. Example: The Mandarin Oriental in Manhattan and other high-end hotels exemplify the use of information systems and technology to achieve customer intimacy. they use computers to keep track of guests' preferences, such as their preffered room temperature, check-in time, television programs. 4. Improved decision making. Many managers operate in an information bank, never having the right information at the right time to make an informed decision. These poor outcomes raise costs and lose customers. Information system made it possible for the managers to use real time data from the marketplace when making decision. Example: Verizon Corporation uses a Webbased digital dashboard to provide managers with precise real -time information on customer complains, network performance.. Using this information managers can immediately allocate

repair resources to affected areas, inform customers of repair efforts and restore service fast. 5. Competitive advantage. When firms achieve one or more of these business objectives( operational excellence, new products, services, and business models, customer/supplier intimacy, and improved decision making) chances are they have already achieved a competitive advantage. Doing things better than your competitors, charging less for superior products, and responding to customers and suppliers in real time all add up to higher sales, and higher profits. Example: Toyota Production System focuses on organizing work to eliminate waste, making continues improvements, TPS is based on what customers have actually ordered. 6. Day to day survival. Business firms invest in information system and technology because they are necessities of doing business. This necessities are driven by industry level changes. Example: Citibank introduced the first automatic teller machine to attract customers through higher service levels, and its competitors rushed to provide ATM's to their customers to keep up with Citibank. providing ATMs services to retail banking customers is simply a requirement of being in and surviving in the retail banking business. Firm turn to information system and technology to provide the capability to respond to these. Information systems are the foundation for conducting business today. In many industries, survival and even existence without extensive use of IT is inconceivable, and IT plays a critical role in increasing productivity. Although information technology has become more of a commodity, when coupled with complementary changes in organization and management, it can provide the foundation for new products, services, and ways of conducting business that provide firms with a strategic advantage. 3.

What exactly is an information system? How does it work? What are its management, organization and technology components?

. How is Information technology related to Wal-Marts business model? How does it benefit suppliers?

Wal-Marts basic business model is low cost. INFORMATION TECHNOLOGY promises to reduce supply chain costs and improve the availability of items on store shelves. The worlds biggest retail chain wants INFORMATION TECHNOLOGY readers installed at store receiving docks to record the arrival of pallets and cases of goods. Software uses sales data from its pointof-sale systems and the INFORMATION TECHNOLOGY data about the number of cases brought out to the sales floor to determine which items will soon be depleted. The information system will generate a list of items to pick in the warehouse to replenish store shelves before they run out. Wal-Mart is sharing all its INFORMATION TECHNOLOGY data with suppliers through its Retail Link extranet. The INFORMATION TECHNOLOGY data improve inventory management because suppliers know exactly where their goods are located within 30 minutes of the goods movement from one part of a Wal-Mart store to another. Sales improve because the system allows Wal-Mart to always have products in stock. . What people, organization, and technology factors explain why Wal-Mart suppliers have had trouble implementing INFORMATION TECHNOLOGY systems?

Wal-Mart initially hoped to have up to 12 of its 130 distribution centers using INFORMATION TECHNOLOGY by January 2006. As of October 2007, only five have implemented the technology, along with 600 of Wal-Marts 60,000 suppliers and 600 Wal-Mart retail stores.

Organization factors: Costs of INFORMATION TECHNOLOGY tags, readers, and supporting systems are a barrier. Suppliers have to purchase not only the tags for every item they send to Wal-Mart, but also additional hardwarereaders, transponders, antennas, and software to track and analyze the data. Suppliers also have to pay for new software programs to integrate the INFORMATION TECHNOLOGY software with their inventory and manufacturing systems.

People: Suppliers must change some of their business processes to incorporate the new INFORMATION TECHNOLOGY systems with their other systems. The tags must be attached to products by hand at the warehouse.

Technology: INFORMATION TECHNOLOGY tags may not perform properly when they are near certain liquids, metals, or porous objects. To ensure accuracy and proper performance, suppliers may have to use more expensive tags. Wal-Mart expects its suppliers to bear the brunt of the implementation costs for the INFORMATION TECHNOLOGY system. Meeting WalMarts INFORMATION TECHNOLOGY requirements might run over $20 million for a large supplier. Even though some Wal-Mart suppliers report benefits from INFORMATION TECHNOLOGY, other suppliers say they dont expect any return from their INFORMATION TECHNOLOGY investments for years, if at all. If Wal-Mart was more willing to share some of the implementation costs, then perhaps its suppliers would be more willing to speed up implementation of the new system.