MBA 5670 Management of Information technologiesIn-Class Exercises 2: IT & Competitive AdvantagesExercise 1: Electronic Data Interchange & Competitive AdvantageSince the early ages of eBusiness, American companies were using a technology calledElectronic Data Interchange - or EDI - for ordering merchandise and raw material from suppliers.Most often, the EDI system is tied to the companies’ inventory database so that orders canautomatically be placed when the inventory reaches a certain level. Even though its popularityhas decreased, the technology is still being used by companies around the world. Figure 1illustrates how a typical EDI system works.Figure 1: Typical EDI operationA typical EDI system requires the following technologies:On the Supplier side- A computer with server software that receives and process orders in a standardized formfrom the buyers – known as EDI partners. The server software also automatically generatesand sends standardized receipts and shipping information.- A database management system for storing and managing the supplier’s inventory ofmerchandise and raw material. The database is, typically, connected to both the serversoftware and the supplier’s manufacturing information system for making sure the supplier’sstock is optimal.On the buyer’s side- A computer with client software that automatically generates electronic orders usingstandard order forms and sends them to the supplier. 1/4SupplierBuyer 1Buyer 2EDI Server softwareManufacturing ISMerchandise & Raw MaterialEDI Client softwareManufacturing ISMerchandise & Raw MaterialEDI Client softwareManufacturing ISMerchandise & Raw Material- A database management system for storing and managing the buyer’s inventory ofmerchandise and raw material. The database is, typically, connected to both the clientsoftware and the buyer’s manufacturing information system for making sure that orders areautomatically generated when the buyer’s inventory reaches a set minimum levelBetween the buyer and the supplier- A dedicated network connection allows the client and the server software to communicate.Typically, both the buyer and the supplier subscribe to a Value Added Network (VAN)service. A VAN acts as a regional post office. It (1) receives the electronic documents (formorders, shipping info, etc.), (2) examines the “From:” and the “To:” fields of the receiveddocuments, and (3) routes the documents to their final destinations. It also retransmitsdocuments if necessary and acts as a gateway for different transmission methods amongother things.Answer the following questions:A company is interested in using EDI for buying raw material from a major regional supplier at avery competitive price. 1) What specific technology components the buyer needs to acquire? Explain/justify youranswer.2) How may engaging in EDI affect the company’s bargaining power? Explain.3) How may the EDI partnership affect the supplier’s bargaining power? Explain. 2/4Exercise 2: IT and the Five-Force ModelQuestion 1: imagine the retail gasoline business in a typical American city where there are many gasstations. What kind of technology can help increase customer’s power? In answering the question, youneed to provide two examples of technology that could be used by customers in order to increase theirbuyer power by identifying the cheapest seller. Explain. You may search the internet to provide somedetails about each of the technologies.Question 2: You read a good article that reported that car repair shops in your area are paying highprices to buy parts from the three local auto parts businesses. After thinking about it, you decided toexplore the possibility of starting a business that could give local car repair shop – and even other carrepair shops from the surrounding area – more bargaining power. The business plan you drafted includesusing UPS and FedEx for delivery. You located five major auto parts suppliers from whom you can buy theparts at much lower prices than the selling price of the local auto parts businesses. You approached UPSand FedEx about the business idea and, based on the information received from them, you realized thatyou can deliverer the parts 15% cheaper than the local auto parts businesses after including the shippingfees. Now, you are thinking of a kind of information technology or information system that you mayimplement to support the activities involved in your business. The system should be accessed remotelyby the car repair shops (your customers) giving them more bargaining power. Discuss in more detail whatthe system will look like along with the key features to be found in it. 3/4Question 3: A company has developed a computer program that helps shoe manufacturers design shoeswith unique features. The software includes an updatable database of shoe designs from all major shoemanufacturers. Among other things, it can analyze and compare shoe designs, determine their bestfeatures, and allow its user to select different features they want to incorporate in a new design. A shoemanufacturer is interested in buying the software for exclusive use. (1) Which of the five forces of thePorter’s model this software could help deal with (2) and what competitive strategy/advantage to thecompany would be pursuing by using the software? Explain.