CIS 220 - 1/17/23

Amazon Case Write Up due 1/23/23

Business Models
3 components
 Value-creation model
 Profit model
o Revenue
 Add more
o Cost Structure
o Unit Economics
o Key drivers of Profitability
 Logic
o Business goal
o How will you meet it?

Value
o What is value?
o
o How do you calculate it?
o
o How does Apple create value making a phone?
o Consumer values at 1300
o Price 900
o Average cost 600
o Value apple created = $700 (1300-600)
o How much did they capture?
 300 = 900-600
 Left over 400 is consumer surplus
o What are you actually measuring?
 Reasonable measure of value is firm’s profit
 Profit is total value they capture
o Implication
 IT must increase value firm captures by increasing revenue or decreasing
cost, or both
Barcode Scanners at Walmart
o How did they create value?
o Makes employees more efficient, don’t need as many employees (reduce cost)
o Keeps track of inventory better, reduces cost bc you don’t need to pay people to
look at inventory on shelves
 However, there stealing or “shrinkage”
  100, sell 90, 4 stolen, only 6 left and the barcodes don’t track that
 If you figure out that something is selling faster, you order more sooner
and then won’t run out of stock so you don’t miss sales
o Barcode scanners don’t make many mistakes, so won’t make any mistakes in the
customers favor (charging them too less)
 Increase revenue by undercharging customers less frequently
What is EDI? How does it create value for Walmart?
o Electronic Data Interchange
o Instead of printing out a purchase order, they gave vendors access to their
systems and the Walmart vendor will immediately see it (PO)
o Electronic po is cheaper than normal po (reduce cost), no printing and shipping
o Faster, cuts lead time down so you can get orders faster
 Keep less inventory, lower cost
Economic Order Quantity Model (EOQ) NOT ON EXAM, BUS ops class
o Tells you optimal number of things to order at a time

How does having firm wide communications network create value for Walmart?
o Gives them a better demand signal at the corporate level
What is Vendor Managed Inventory? How does it create value for Walmart?
o Walmart gives vendors access to systems, vendors are responsible for tracking sales and
replenishing inventory
o EX: Coke and Pepsi, the preferred company would also have to replenish the
other, however, they do it because of better shelf space, more space, etc
o Walmart eliminates PO with this, and they don’t have to pay someone to be in the back
to stock and keep inventory
Value Disciplines
o Operational Excellence
o Competing primarily through cost advantage
o EX: Walmart, Costco
o Product/service leadership
o Product: unique product or service
 EX: Apple
o Service: generic product but they deliver it very well
 EX: Starbucks, DONS
o Customer Intimacy
o Marketing to individual customers
o EX: Rolls Royce
o Value Chain Coordination
o Adding value by facilitating transaction through other parties
o EX:
Why Value Disciplines?
o Look at how to use IT to create value
o IT choices depend on value discipline
o Operational Excellence
o Product/Service Leadership
o Customer Intimacy
o Value Chain Coordination
o Dynamic marketplace sometimes requires excellence on multiple disciplines
o Achievable through new tech
o Difficult to focus on improving on more than a single dimension at a time