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What effects does digitalization have on supply chain communication?

May 25, 2022

Dr. Clemens Löffler from the Institute for Digital Transformation and Strategy (IDS) at FHWien der WKW shows why “good news” can be expensive for companies and – loosely based on Paul Watzlawick – you cannot “not inform” in added value chains.

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If information is considered the new oil in the digital age, then information exchange is the control of the pipelines. In the modern information society, companies should think carefully about how information exchange (e.g. with suppliers) can be used to their advantage. This is the main conclusion of Dr. Clemens Löffler from the Institute for Digital Transformation and Strategy (IDS) at FHWien der WKW. In a recent article published in the renowned European Accounting Review, the economist examines the benefits of digitized information systems for sharing strategically important information.

Digital information systems have significant strategic effects on the entire supply chain. Companies must consider which partner should receive which information and the implications when data such as demand forecasts, production costs, economic development etc. is deliberately concealed.

Good news is expensive

For example, supplier companies flexibly react in their pricing according to the information they receive from the market and their customers. “Good news,” such as rising economic prospects or successful process innovations, can lead to higher prices. “Bad news,” such as decreasing demand or gloomy economic forecasts, can encourage suppliers to discount prices. By using flexible digital information systems and artificial intelligence, algorithms can be developed to determine under which conditions information – e.g., to a supplier company – should be shared or better withheld.

An example of the relevance of this topic for companies is the Chinese industrial group Haier. The global market leader in the field of large household appliances (including Candy, Hoover, GE Appliances) invested the equivalent of over 12 million euros in a digital purchasing system. This enables the group to flexibly communicate with its supplier companies, such as Mitsubishi or Hitachi, which also use their market power to set prices.

You cannot “not inform“

These digital purchasing systems not only support companies in the information exchange of, but also in the timely decision regarding whether and with whom an exchange of information should take place at all. Because even “no information” is information. Digital information systems support the flexible transfer of relevant information and provide strategic advantage, e.g., when bargaining purchase prices. In this way, a flexible information strategy suppliers can assist companies to curb suppliers that try to capitalize on their market power.

The Controller Magazin has taken up the digitalized information procurement and data processing in value chains in its current issue and also “Die Presse” deals with the influence of artificial intelligence on negotiation tactics in an article.