Application of E-Commerce in a Company - Case Study Example

Application of E-Commerce in a Company and Section # of Introduction 1 About the Research The purpose of this report is to illustrate my idea about the plan of my research that I intend to pursue. The rule of thumb for maximizing profits in business is either to minimize costs or increase the revenue. My aim, by means of this research, is to develop a cost leadership strategy for Zorbas Ltd, whereby, the firm can increase is profits by minimizing its costs. 1.2 About the Business Zorbas and Sons Public Ltd is an established Limited Company in Cyprus and its main activity is the production, distribution and sale of fresh pastry and confection products. The company today has 45 stores all over Cyprus (20 in Nicosia, 9 in Limasol,9 in Larnaca, 3 in Famagusta and 4 in Paphos) and three production units in Aradippou Industrial Area, equipped with the latest of technology. The human resource of Zorbas Group of Companies amounts today in 1200 individuals. The reason for choosing this company for my project is because it was initiated from a single family bakery business in a small village, and has moved from there to being one of the most successful companies in Cyprus today and I believe with the correct implementation of e-business models will improved the firm's standing in terms of cost reduction and customer satisfaction. The nature of Zorbas business may not require a well organized IT structure but the huge growth of the company the last years, created some room for improvement using the right e-business models-theories. 1.3 What is EDI EDI is the abbreviation for Electronic Data Interchange. In accordance with McLure (1996), the technology refers to the exchange of data between electronic medium in a structured manner. EDI, in its true sense, updates data in a real time manner. Classical examples of EDI include: Courier Service: As a courier person delivers the parcel, update is sent via the handheld device to the headquarters confirming the delivery details Inventory Updates: In a retail or wholesale set up, a sales transaction updates the inventory record and a sales return does the same, i.e. reducing and increasing the inventory respectively. McLure (1996) further states that EDI solely works on real time updates. Its various applications and benefits will be discussed as the proposal is about its application to the company under consideration. 2. Methodology 2.1 How the issue was investigated For investigating the issue, both primary and secondary research mechanisms were used to ensure wide spread area of data collection. Primary research was conducted by means of informal conversation-cum-interviews with the senior management, and also various employees who are directly influenced by this process which is to be improved under this proposal. Secondary research was conducted by means of searching articles, journals, textbooks, and other literary resources present both online and in physical libraries. 2.2 Justification of the Methods used This report does not need loads of primary research, other than understanding the processes and their workings, because the major aim underlying herewith is that the right solution is to be proposed and presented, and by right, it implies the solution being feasible, suitable and acceptable to the management and the stakeholders. 2.3 Problems Encountered The major problem encountered here was the lack of documentation available at the company that could define the codes and mechanisms of communication and coordination between the production, distribution and sales units. Therefore, the data gathered can be anticipated to involve biasness from the company personnel who were the respondents. Absence of documentation also leads to the issue that the respondent bias cannot be eliminated, nor reduced. 2.4 Alternative Methods The concerned departments have been very busy to provide formal and informal information pertinent to the communication processes and procedures. However, there was no other mechanism to reach the information on how the process proceeds. Subsequently, some bits and pieces of time were taken up in various meetings that ensured collection of the relevant data. 3. Findings 3.1 Current Method Used at XXX The organizational structure of the company is divided into retail department, warehouse and delivery departments. Every morning the delivery trucks depart from Aradippou, where the production unit resides in the industrial unit zone, and distributes the products all around the retail stores. The process of communication moves as follows. The individual retail outlets are responsible for developing their respective forecasts for time period of minimum five days in advance. Their requirements, based on their existing stock and inventory holding, are presented to the warehouse, where the requirements of all the retail stores are gathered. The warehouse then develops its own forecasts and projections that are sent to the production unit. The warehouse gives a seven day schedule to the production unit every day. This cyclic time of five and seven days for retail outlets and for the warehouse respectively ensures safety cushion stock for assuring that there are no stock outs. Forecasting is done using various mechanisms for which the warehouse and the retail outlets have their respective autonomy, but the mechanism that is used to convey these forecasts is the issue of consideration. On a general note, fax and emails are used to convey these requirements on a daily basis by a particular time, say by noon each day, the retailers submit to warehouse and by evening, the warehouse sends it across to the production unit. Fax and emails are the mode of quick transfer of information; however, physical paper work is also mandatory. When a delivery transport comes, the requisition is signed off, and simultaneously, the request for the readily delivered goods is placed. The later may seem redundant but is for the record purpose only, for the warehouse and the production unit records. Apart from the mode of communication, the head office, at the production site, often wants to know the basis of the forecast. In such a scenario, there has to be a scheduled meeting that would take place, appointments taken from the concerned individuals and then meetings are held, which is time consuming, and in essence, bears costs in itself; not only cost for organizing the meeting but also the cost incurred in terms of the time taken. 3.2 Secondary Data 3.2.1 Mechanism Deployed Today In one form or the other, today, in accordance with Sudweeks (1998), firms across the world are deploying EDI and related set ups to cut down time and cost - two major variables that define the competitive advantage and the competitive standing. Arguably, sectors such as bakeries have not been able to use EDI tremendously; otherwise, life can become simple in their businesses as well. Emmelhainz (1993) presents the example of a courier service; the parcels when placed at the courier counter for delivery are tagged with a unique identity for instance a bar code. This bar code becomes the fixed value that can assist in tracing the parcel whenever need be. The complete route of the parcel is automated. For example, as the parcel leaves the counter for the regional headquarter, it is scanned and thus its positioning is updated. When disbursement is made towards the area of the address, it is again scanned for updates, and similarly, scanning and updating is held at all possible steps till the final delivery of the parcel. Emmelhainz (1993) also states that the automobile industry has also been using EDI effectively; their industry may be different but the structure is rather similar to a bakery. Both the sectors have production, warehousing and retail units - retail for automobile are their showrooms while for the later are the selling units. The deployment of EDI at automobile industry has created great efficacy in terms of the coordination and communication between the retailers, all the way up to the suppliers of the raw material. Thus, there is no reason why the deployment of EDI cannot enhance the efficiency of a bakery, and that too for the one that has such a mass scale operations like Zorbas. 3.2.2 Expectations from EDI Sokol (1989) states that following can be expected from an EDI application: Enhance communication and coordination amongst the various units Provide timely updates on the forecasts and sales Eliminate time lag in forecasting and communication of the forecasting If the sub units forecast, it can be immediately communicated With EDI, even the head quarter can involve itself in the forecasting process through direct communication with both retail and the warehouses Enhance strategic planning, particularly related to inventory costing and production plans Reduce inventory holding costs at production, warehouse and retailers. 3.2.3 What can EDI achieve Baker (1991) states that managers can expect the following achievements by using EDI: EDI can achieve the cost efficiency for the firm - a single factor that can lead the firm into cost effective operations, allowing it cost leadership in the industry. Though, lowering cost may provoke price wars which is not something a firm may want to indulge itself in, yet the prices can be lowered compared to the market in a manner that does not invoke the competitors into a price war kind of a situation. EDI cannot just eliminate costs in terms of direct monetary value but also in terms of time taken for information to be communicated and processed; alongside, it can also eliminate redundancy, and extra over head jobs. For example, the business can employ a single person at the headquarter who would be responsible for all forecasting based on the data coming in from each of the production, warehouse and retail units via EDI, through real time processing. 3.2.4 Barriers to EDI Beard (1996) states various barriers to EDI; some of them are stated in this section. Change often brings out resistance as employees fear their job security being threatened; therefore, change management is a critical phenomenon while deploying any changes whatsoever. However, in this scenario, the management can train employees that this system is not going to lead to any downsizing, but only take off the existing burden of forecasting and communication of this forecasting to the warehouse and the production site. The initial investment may also act as a barrier for the implementation of EDI, but the management must understand that there is investment involved in the times when a major change has to take place. However, if rightly considered the ROI (Return on Investment), then the cost may seem not highly significant against the advantages that can be yield out of it. 6. Proposal 6.1 Benefits of EDI to Zorbas EDI would be highly beneficial for Zorbas. Following are some of the advantages that can be foreseen at present, while more can be realized once the project goes on-air: Easing the forecasting process for the retailers, warehouse and the production unit Possibility of standardization of forecasting techniques Easing the communication and coordination process Linking this data to the costing system can lead to opening doors for various other analyses Costing and competition of the retailers amongst themselves Cost cutting based on reduced inventory holding costs There can even be a chance of eliminating the intermediation of a warehouse and the retailers directly interacting with the production unit; however, warehouse is recommended as a centralized point of disbursement because the production unit should only be held responsible for production and disbursement of the output The spontaneous action of delivery and correspondence would reduce the wastage associated with the 'leftovers' Accuracy can be achieved in forecasting The production unit can schedule their assembly lines in accordance with the known requirements Freshness of the products can be ensured Apart from these, there are many other opportunities for EDI to expand such as: Developing transportation model to reduce transportation costing The sale units figures can allow the management to foresee which region demands which product more, and thus, may be have a standalone production unit for specialized product in that area. Many of these have been stated by Zimmerman (1996) as the advantages of an EDI environment. 7. Critique 7.1 Issues Following are some issues that the firm may face while deploying EDI: Employee performance and motivation may reduce with fears and threats of job security Cost of EDI may become a major consideration The cost associated with maintenance and possibly hiring specialized individuals may also be a major issue Elimination of warehouse would mean reducing staff i.e. downsizing Eliminating the warehouse would imply that the disbursement of output would take place directly from the production unit, therefore, scheduling transportation may become an issue The benefits of EDI may take a while to show and the break even may not be in near future It may sound weird for a bakery to have automation 7.2 Counter Arguments & Responses Following are the arguments against the issues stated as above: There should not be any job security threat for production or retail units and they should be ensured by the management that the automation i.e. EDI is for their ease of operating and convenience, rather than for firing employees Cost of bringing down 'cost' is generally on the higher side but its long term benefits should be taken into consideration and financials such as CBA (Cost Benefit Analysis) and ROI must be considered. Maintenance is an issue but the cost of maintenance is not very high, and there are always options for outsourcing maintenance jobs in the IT segment Downsizing is inevitable; however, since the warehousing function would truly be 'shifted' to production unit, since the units have to handle disbursements of the output, there would be creation of jobs and the employees can be adjusted therewith. Scheduling of transportation would definitely become an issue. Consider a crude example; production unit in area X, warehouse in area Y, and retailers in area B and C. Currently, a single huge 'truck' so-to-speak would take the output from X to Y, and then smaller containers would take the goods from Y to B and C. The distance from X to Y is covered in small cost, while the distance from Y to B and C requires various modes. With the implementation of EDI, the distances and the mode of transportation may become a threat or an issue. The common rule of business states that the projects start off from negative profile, and slowly move towards the break even. This case would be no different. Researches reveal that IT projects have a long break-even point so this may become an issue of consideration. However, depreciating this cost against the cost saving would definitely lead to better analytics for implementation It may seem a very weird idea to have EDI implemented in a bakery set up; however, initiatives and being market leader in innovation is considered a prime factors form firms in gaining competitive edge and competency amongst the competitors. 8. Conclusion Over all, I feel that the implementation of EDI at Zorbas can lead to various advantages for the business, particularly cost efficiency. Other than the firm itself, it can lead the sector itself into a new horizon whereby technological advancements would greatly enhance the efficacy and working of the businesses prevailing in the industry. 9. Bibliography Celia T. Romm, Fay Sudweeks (1998) Doing business electronically: a global perspective of electronic commerce. Springer Gordon Bitter Davis (1999) The Blackwell encyclopedic dictionary of management information systems. Wiley-Blackwell Hossein Bidgoli (2004) The Internet encyclopedia. John Wiley and Sons James J. Moynihan, Marcia L. McLure (1996) EDI: A Guide to Electronic Data Interchange and Electronic Commerce Applications in the Healthcare Industry. Irwin Professional Pub. Jan Zimmerman (1996) Doing Business with the Government Using EDI: A Guide for Small Businesses. John Wiley and Sons Jon W. Beard (1996) Impression management and information technology. Greenwood Publishing Group Margaret A. Emmelhainz (1993) EDI: A Total Management Guide. International Thomson Computer Press Phyllis K. Sokol (1989) EDI: the competitive edge. Intertext Publications, 1989 Richard H. Baker (1991) EDI: what managers need to know about the revolution in business communications. 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