Amajor retail store recently spent $24 million dollars on a large private satellite communication system that provides state-of-the-art voice, data, and video transmission between stores and regional headquarters. When an item gets sold, the scanner software updates the inventory system in real time. As a result, store transactions are passed on to regional and national headquarters instantly, which keeps inventory records up to date. One of the store’s major competitors has an older system in which transactions are uploaded at the end of a business day. The first company feels thatits method of instant communication and feedback allows it to react more quickly to changes in the market, givingthe company a competitive advantage. For example, ifan early winter snowstorm causes stores across the upperMidwest to start selling high-end (and high-profit) snow throwers quite quickly, the company’s nearest warehousecan prepare next-day shipments to maintain a good inventory balance, while the competitor may not movequite as quickly and thus lose out on such quick inventory turnover.
1. Do you think a $24 million investment in a privatesatellite communication system could be justified by a cost-benefit analysis? Could this be done with astandard communication line (with encryption)?
2. How might the competitor attempt to close the “information gap” in this example?