 And welcome to another session on supply chain digitization the NPTEL course that we are conducting for all participants interested in supply chain management and the digitization opportunities that are present in it. I am Professor Sushmita Narayana, I am a faculty in the operations and supply chain management area at Indian Institute of Management Mobile. Today's lecture, we will be looking at a very very interesting concept which is become so common today, it is all around us and in some form or the other we have involved ourselves in this particular idea and that concept that we shall be talking about is called platform economy. Now, this platform economy is very important to understand because this has become a core part of supply chain management, they are both integrated in some way or the other which is what makes it so interesting to study from a practitioner perspective and as well as a researcher perspective. So, what exactly is this platform economy and why is it important to us? In order to understand what is platform economy, we need to understand some traditional concepts of business for which platform economy has emerged as a solution. So, what would that be is what we will see right now. I will be picking up an example from supply chain management itself, but let us remember that platform economy is not only limited to supply chain management, it has wide applications across different types of businesses, but we have seen a lot of application for this in supply chain management. So, in this session what I would be looking at is an introduction to the concept of platform economy. Firstly, we look at some of the challenges that we face in traditional supply chain management and a few examples related to that and then we will end our lecture with the overview of the platform economy concept. So, when we consider the typical business that I was talking about, I am considering now a typical supply chain. So, in order to understand a typical supply chain, we need to see what is the fundamental element in a supply chain. The fundamental element in any supply chain is the existence of two parties. One is a buyer and one is a supplier. We also call it as buyer and seller, buyer and vendor, customer and supplier, customer and vendor. There are many such nomenclatures, but the core element or the foundational aspect of any supply chain is the existence of at least two parties, one being the buyer and one being the supplier. Now, a typical buyer supply chain or buyer-supplier relationship, it actually requires several mediators to be present in order to function well and that is how a chain or a network actually emerges in supply chain management. So, if we were to consider this, the first and foremost, we need to have an entity which wants to sell a product or a service. So, I am calling that as seller 1 and there is a reason why I am calling it as 1 because we will see that there are going to be many other sellers also present within the value chain. Now, let us assume the seller 1 is primarily a manufacturer of products and has to sell the products to other customers. He has or she has the option of directly selling it to the customer or has the option of selling it to an intermediate buyer who would then sell it to customers. Now, the reason why intermediate buyers would exist is because of the locational advantage that the buyers could have to the markets. It could also be that they have a variety of sellers from whom they are going to procure the products. So, for that reason, I am considering a slightly more complex supply chain design over here. We have a seller who is going to sell the product after manufacturing to a buyer. Now, note that I have called this as seller 2, which means this particular entity is a very important element within the supply chain. He or she acts as the buyer of products from this seller, but is also a seller himself or herself to other customers. So, it could be you know it could be a trading company who is just looking at purchasing the products and selling it onwards to other customers. So, what would happen after this? This is an intermediate buyer right. So, the intermediate buyer is going to procure the product and then going to sell this product to another customer. So, which means you would have another customer. So, in this case I have considered that we have a final buyer or the end customer, but note that it is not required that we have only these many elements within a supply chain. I could have another customer associated with this particular end customer so to speak. It could be possible that you know the seller is seller 1 who is present here who is the manufacturer is actually going to be selling components and the final buyer who is present over here is going to procure these components, assemble them, create a product and sell it further. So, this can keep going on and on right and that is how a chain is going to form which is why we said a chain could form. Now, as we have seen here these arrows over here represent material flow. So, I have kept it quite simple. Now, what could make this slightly more complicated is that we have multiple parties within this particular supply chain. So, let us see how that will be. I could have a seller again who is the manufacturer of the products. This particular manufacturer will sell now to two other buyers. So, in the previous example we had just one buyer. Now, I am going to have two buyers. I have buyer 1 and I have buyer 2 and if you can see here I am also calling them as seller 2 and seller 3, which means they will also further sell this product to another customer. So, as you can observe here the supply chain has become already slightly complicated because of the presence of two players in this particular layer or in this level of the supply chain. And then after this there are many alternatives that are possible. One of the cases that I have taken over here and it is slightly simple is both of these players are going to purchase the product from seller 1 and they are going to try to sell it to the same customer right. So, this is interesting which is in the sense even buyer 1 is procuring from seller 1 and buyer 2 is procuring from seller 1 and both of them are going to try to sell it to the end customer right. So, it could be for example let us say instead of components you could also take the case of a farming example, where a farmer is going to sell his or her produce to you know some intermediate buyer who has come to his farm and he has picked up the produce. Now, both of these buyers or even the farmer himself can go to a market and they are going to try to sell it to the same customer. The same customer will be walking through the market and they will try to sell it to that customer. So, it can come from the same farm, it can come from the same factory, it can come from the same source, the same region and it can reach the end customer through different ways. As you can see this is a different kind of a channel and this is what we would term as a network. Of course, this is a very very simple form of a network because we have just added two players within this supply chain. So, as you can see here the supply chain is getting more and more complicated with the entry of few more players within the value chain. Now, this is what we have seen when we understand traditional supply chains, but why is this important for platform economy is the problem or is of interest to us is what we would say. Notice that the end customer has to purchase from these two sellers and these two sellers are purchasing from this one seller. So, let us look at step by step what issues or challenges could arise within the system. So, I am considering the same value chain there is no difference as such. One of the things that could happen is over here in this zone over here which I am picking up this is the interaction space between these two sellers these two sellers who are going to try to sell the product to this end customer. They would have stored the product in their warehouse and they might have done some additional value add maybe packaging or maybe some kind of labeling they would have done something and or they might not have done anything also that is also possible. And now they are both trying to sell this product to this end customer and so, here is where we are interested in understanding what could be the issue that arises. So, let us look at it from the perspective of the end customer. Now, let us say this end customer is interested in buying the product made by this seller. Remember the end customer is not really bothered about the intermediate buyers the end customer is interested in the product the product could be electronics the product could be farm produce FMCG product it could be anything. So, they are interested in a particular product or a particular brand which is being sold by this particular seller over here and they want to know where to purchase from. So, that means they want to know location right they want to know what the look of the product is going to be. So, that means, they need to know what are the attributes they also want to know you know what is the price of the product. So, they can make a decision based on this they may be interested in many other aspects also related to the brand who is endorsing it what could be the kind of color is there for that product there may be interested in many other aspects. But when they are trying to make a purchase they would be interested in knowing where they want to purchase this from what are the attributes and the price the basic attributes of any kind of a transaction that we are looking at. So, they need to know this information right. Now, let us say they have this information that both these buyers buyer 1 and buyer 2 or for this end customer we would say seller 2 and seller 3 that both these sellers are present in the market and this end customer knows that both these sellers are available may be one of them is closer to the home one of them is slightly far from the home and now they have to make a decision as to where to purchase this from. So, the end customer is going to factor in a lot of other ideas into making this decision they could be interested in knowing how far the buyer 1 or seller 2 is from their house if they are very far they might actually make the choice of going to seller 3 and that might not be the only factor they might be you know interested in looking at the product at both the locations. So, they may be interested in making a trip to seller 2 and a trip to seller 3 and only after seeing both of them they will need to make a decision as to how to purchase this product. So, you can see here the decision of making a purchase itself can get complicated in this particular zone. So, not only does the end customer need to know what are some of the attributes of the product in terms of where it is located what are its physical attributes as well as the price of the product they would also need to understand how this particular transaction will need to take place do they need to travel and all of this. So, they need to make a decision based upon all of these aspects. What could happen is let us say seller 2 might offer a higher price and seller 3 might offer a lower price. So, it can be a decision where he has to first approach each seller visit their facilities could be a retail point visit the facilities see the product see the price then go to another seller see the product see the price and then make a decision. As you can see this can take a certain amount of effort and sometimes this effort can be very significant one of the sellers might be located in a completely different state as compared to where the customer is actually located. So, in that case what would happen if one of the sellers let us say seller 3 is located very far away the end customer will not even go to seller 3 and will end up making a decision based upon location of seller 2 even if seller 3 over here is offering a lower price right. So, you can see here the decision making for the end customer is based upon information which is very easily available to him or her. As a result this can actually become a complex process if he needs to take a very fully informed decision. So, in other words what we need to see here is that there is a certain amount of effort that is involved for the customer to search for sellers who are selling this product and then to evaluate among the sellers and select with whom he or she is going to make the final transaction. So, he is going to make or she is going to make a decision based upon all the information he or she has collected in the market. And as you can see if you know it is too difficult the end customer might take a decision with whatever information is readily available. So, this is the complication that we observe at the end of the end customer. A similar complication can actually arise at the end of the manufacturer as well. In this case we are saying manufacturer is seller 1 and what would that complication be? Seller 1 or the manufacturer over here is trying to send their products into the market. They want their products to be purchased by the right kind of customers, they want their products to be sold to as many customers possible, they want as much reach as possible for their products. So, which means they need to find ways to reach the end customer and make a successful transaction. As you can see here seller 1 can go via two different ways, seller 1 can go via intermediate buyer 1 and then go to the end customer, seller 1 can go via intermediate buyer 2 and then go to the end customer, seller 1 also has the choice of selling the products to both intermediate buyer 1 and intermediate buyer 2 before reaching the end customer. Not only that we have missed another possibility if he is not satisfied with buyer 1 and buyer 2, seller 1 might make a direct delivery of product to the end customer and absorb the cost of logistics, warehousing and other aspects which may be involved in it. So, you can see seller 1 or the manufacturer that we have taken has many choices and sometimes these choices may be many number, it may be few in number, again the problem that the seller 1 is facing is similar to what the end customer was facing. Seller 1 has to search for channels which can be used to reach the end customer, it could also be possible that seller 1 has to also realize where is the end customer himself or herself located, which means not just the channels, but also what will be the end customer's location, what will be the price that the end customer is willing to pay, all of these aspects is something that seller 1 has to actually find out. In other words, basically do a market search in order to identify which would be the right place to send the product to, which could be the variety of channels in which you can send the product to these markets, such that the profitability is highest or the business advantage is the highest whichever may be the case, this would be the requirement for seller 1. Again this particular problem can be complex because seller 1 has to take in a lot of elements into consideration, what would be the storage cost that are going to be present, what would be transportation cost, all of these aspects and even if the sale is made seller 1 might be interested in knowing how is the payment going to be made to the seller, so on and so forth. So, as a result the complication for seller 1 is slightly similar to the end customer, which is in terms of searching who would be the buyers and who of these buyers should the product actually be sold to. So, as you can observe here both the parties over here seller 1 and customer each of them has a searching problem and a selection problem, which is related to them, which can be quite complex. Now, we have not looked at what happens to the intermediate buyer, there are two intermediate buyers over here, will they be not having these problems or will they be having these problems. As you can very rightly think they are also buyers and they are also sellers, so they will also be having similar problems like the end customer and the seller, but they would be having both sides of the problem. So, if I were to consider the intermediate buyers over here, they would be a buyer from seller 1, so they would have a problem just like the customer, they would need to have knowledge of where to procure the products from. So, right now as you can see intermediate buyer 1 and buyer 2 are procuring only for seller 1, they might need to think of whether this is a good decision or are there other sellers also who are present in the market, who could be selling the same kind of components at a better price to them, better payment terms and conditions as well, someone who is going to give them sufficient credit period which can make payment easy, someone who is going to also give good quality products which can be stored easily, someone who is also going to give them products which can be traded easily through packaging with the next customers that they are going to have. So, as a result this problem is very similar to what the end customer is facing, they also they need to search and select sellers who will provide the right price for the right quantity and the right service that is of interest in the market. So, they need to have this knowledge and as a result they are having similar problems as that of the end customer, but here their problems are directly with the equipment manufacturers or component manufacturers or the farmers whichever be the market that we are interested in and this is not the only concern that they are going to have, they are going to have another concern as a seller themselves. So, this was the concern that they had as a buyer or an intermediate buyer to be more specific, but they could have similar concerns as sellers themselves which is over here. So, here they are trying to sell to end customers, they may be you know purchasing products from seller one and trying to make a margin by selling it to the end customers. So, they need to identify the end customers and the markets appropriately, they need to see whether the right kinds of volumes are there for them to procure and sell. So, they need to be able to sell to the right customer and remember here it is very interesting because they have another seller who is present in the market. So, seller 2's competition is seller 3, seller 3's competition is seller 2. So, whatever margin they are making is going to be impacted by the presence of competition that they are having. So, they need to have knowledge not only of who is the end customer, but they would also need to have knowledge of who will be the other sellers who are present in the market. As a result of this, they also need information as to what the market looks like and what kind of price they could sell to the end customer. So, in some ways they have a concern which is very similar to seller 1. So, you can observe over here as we can see there are multiple layers or interfaces within this entire supply chain where each player, each entity has certain concerns related to searching, selecting, evaluating and making the right decision. And as you can observe here also, each of them is independently making these decisions. As a result, the supply chain can become very complex in the sense there are too many decisions being taken, not much visibility of information and the value which is finally provided to the customers, to the sellers, to the buyers that might get diminished. So, this is a concern which a traditional supply chain faces. This has always been a concern. It is a concern even today, even in the presence of e-commerce. Of course, e-commerce has made a lot of disruption to the way business is being carried out, but these are the concerns which are going to be there in any traditional supply chain. Now, in addition to this, one of the aspects that I actually have not covered is the fact that not only the material flow, there would also be flow of money, right. From the customer to the buyer or from the end customer to buyer 1, from end customer to seller 3 or buyer 2, from buyer 1 to seller 1 and from buyer 2 to seller 1. So, we have material flow which is also complicated because it is going via different channels and we have financial flow which is happening across a variety of channels. So, as you can see over here, the value chain that we have in terms of a simple 4 entity supply chain is complicated. There are many complicated relationships that are present and as a result of this, we could have a lot of challenges to how the supply chain actually functions. In essence, if I were to consider the typical challenges that this supply chain is going to face and why it is complicated is because we have many players within the market, we have many transactions to be carried out, we have many paths for these transactions and we have the need to have visibility of players of information of paths of prices of products so on and so forth. And we need to also have appropriate decision making skills at each stage. In the absence of appropriate decision making skills, the supply chain becomes complex, but what is more interesting is it is going to create very interesting dynamics of competition, collaboration within the economy. So, some of the players might actually collude with each other knowing that the manufacturer is not aware of what is happening in the market in terms of the kinds of prices that they are going to actually get in the market, the kind of quantities they can actually sell in the market. Similarly, the end customer might also not be aware of what to procure or what to purchase. So, they might end up not purchasing some things and as a result of which the market for a particular product might actually die down very quickly. So, these are some challenges that the supply chain has and the kind of impact that it can have on an economy as such. So, with this what I have tried to present to you are some of the traditional supply chain challenges that we face. In the next lecture just after this we are going to look at some examples in which these kinds of challenges are going to occur and where the role of a platform economy is going to take place. So, with this I will end this session and this lecture. Just to summarize we have seen what a traditional supply chain looks like in terms of the challenges that it faces in terms of the number of entities so on and so forth and we have now created a foundation for where the platform economy is going to play a role. So, thank you very much see you in the next session.