Analysis of Aalsmeers Current Position - Case Study Example

Aalsmeer Case Study and Section # of AALSMEER’S CURRENT POSITION Aalsmeer is one of the largest Dutch Auctions that is owned by a group of 5,000 flower growers. The auction provides a platform for buyers and sellers and allows them to negotiate prices. The auction currently takes place at Aalsmeers offices which gets full to the brim when the buyers and sellers get together. The price determining mechanism at Aaslmeer is by the clock, each auction is given a specific time after which it is sealed. The offices also have inventories of the flowers that are traded everyday and most of the work is done manually. Issues It favours the growers over the buyers Price determining window can be as small as 4 seconds; this gives buyers a very small time to negotiate prices Manual warehouse operations and records High volumes of flowers are traded each day which means warehouse and logistics have a huge burden Physical presence of representatives for the auction process Limited time for the auction process Smaller order quantities cannot be dealt No space for the physical expansion of the building International buyers have to be physically present Objectives Improve the bidding process by allowing buyers more time to place bids Since, the physical expansion of premises is not possible the current resources must be utilized more efficiently Improve customer service Allow buyer and seller ratings to enhance the auction experience Accommodate smaller orders Improve the transaction times Reduce transaction costs BUSINESS INFORMATION REQUIREMENTS In order to improve their auction process Aalsmeer needs to deploy an information system that will help in the auction process by making it automated. For Aalsmeer Flower Auction the first thing that needs to be done is to analyze and obtain the information requirements for the auction site. In order to do this they must first device a strategy for information gathering. An information strategy is defined as the process for capturing, integrating, processing, delivery and presentation of information in a constituent in a timely manner (Majid, 2007). Thus, information and requirements gathering forms the foremost and the most important part of the development process. The first step in gathering information is to conduct user surveys and a companywide review so that the development team can gain a better insight on the problem domain and the kind of solution it requires (Hansen et all, 1999). The development team will conduct meetings with the board of Aalsmeer flower auctions to determine what kind of auction strategy they will follow and what key features will be needed in the end product. The case study requires us to develop an online auction for buyers and sellers to interact, place orders, set prices and then receive goods through a distribution channel. Aaslmeer has to record the data for the financial transactions, customer details, distribution channels and ratings for individual customers and suppliers. The proposed system will be developed using the following modules: Price setting mechanism The prices in the online auction will be set using the demand and supply mechanism. Buyers will bid on the products and sellers will determine the best the bid and then sell the products to the highest bidder. The auction will start off with a base price, which is then increased consequently when buyers bid on the product. The bidding process ends after a stipulated time and the highest bid becomes the selling price. The prices of different products will be stored in a database. The prices will usually follow world prices for flowers and related products, which can be referenced by clients before they agree on a mutual price. The prices will have to be uniquely identified with each transaction and the users should be given the room for discounts and premiums. Hence, the auction will accommodate discounts on large orders while the sellers can ask for premiums for orders that need to be delivered urgently. Distribution mechanism The distribution mechanism is a means of attracting particular audiences to the auction. These are people who are tech savvy and are willing to buy flowers online without going to the physical vendor. This helps in stimulating the demand for flowers in Netherlands. Similarly, the system will also be required to keep a track of the deliveries to individual customers so that the efficiency of the distribution channels can be easily determined. Since, third party logistics will be used to distribute goods, the information will be shared with the logistics provider. Coordination mechanism The auction helps in coordination by keeping the buyers informed of a particular offering. The sellers display their offerings on the website while buyers visit the website to find the best product for themselves. Hence, the website will serve as a source of information for buyers, who can buy the lowers they need at the best possible prices. Efficient allocation mechanism Since, flowers are products that cannot be used distributed through regular means the allocation mechanism allows to support non traditional delivery processes. Care needs to be taken while delivering the items to the sellers and the process should be efficient so as to preserve the life of the flowers. Seller and Buyer information maintenance Another feature offered by the auction will be a log of the buyer and seller information. The auction will offer a rating mechanism for the buyer and for the sellers. Al buyers and sellers will have a rating associated with their account, which will be updated after every transaction. Once, a transaction completes a customer will give feedback about the seller, quality of the flowers or plants, delivery status and the overall service. Similarly, the sellers will also be able to rate customers in terms of their payment process, order placing and cancellations etc. Thus, sellers will also be able to get an idea about a customer before transacting with him. As result both the parties will be able to have prior knowledge of the other business partner before completing the business deal. Financial record For every business website financial transactions are the most important. A log will be maintained of all the transactions that take place using the system. As the company is provides buyers and sellers a marketplace to interact and buy products they will charge commission from both the parties for the transactions. Therefore, numerous entities will be maintained in the log. Some of these entities will be order quantity, amount, buyer identification, seller identification and the transaction identity. THE AUTOMATED AUCTION PROCESS The SWOT analysis of the system is done below, it will explain the relative strength and weakness of Aalsmeer Auction with respect to the market competition. SWOT analysis Strengths Aalsmeer enjoys a strong market position Leader amongst online flower auctions Auctions help in fetching better prices for consumers Online business eliminates the time required to visit physical stores Customer and Buyer rating will improve integrity of the users Weaknesses Unpredictable weather conditions affect demand Auction does not bring the shopping experience people want It does not meet the needs of the retailers It has high logistics costs Opportunities - Information systems Innovative techniques to sell products Low transaction costs E-marketing Stock Control System Online order entry Threats Alternate electronically driven flower markets Power of retailers Mergers in between retailers Foreign competition PESTLE ANALYSIS Political Increasing political pressures from worldwide vendors for universal platforms EU’s involvement in businesses Trade unions Inter country relations in case of foreign imports and exports Economic High production cost Lesser selling cost as compared to physical vendors No land cost for a physical presence Opportunity cost for not going to the physical store Social Strong retailing market poses tough competition No economies of scale Caters to small orders of flowers 20th century technique for selling goods Technological It is a good initiative to sell flowers online Dependency on the internet and computing devices Easier to get to people using the internet Legal EU’s guidelines and framework for online businesses Environmental Unpredictable weather conditions affects demand Use of insecticides and pesticides for growing plants affect soil condition Porter’s five forces Bargaining power of suppliers Within the floricultural value chain growers are initial suppliers. The Dutch flower industry consists of about eleven thousand growers, who are typically family businesses. They strongly influence Aalsmeer auction strategy and policies. Bargaining power of customers Aalsmeer Auction has a number of different clients: supermarkets, retail store chains, cash and carry, wholesalers and garden centres. Typically, they send agents on their behalf to make a purchase. Threat of new entrants There are not many restrictions to enter a flower market. The creation of TFA is the best example to show how easy it is to start a successful business. Threat of substitute products There is an increase in the number of substitutes of services that the auction delivers, which is caused by numerous Internet applications. The emergence of alternative electronically driven flower markets is a huge threat for Aalsmeer. New technologies have a great impact on the dynamics of the business environment and because of them new channels of selling and buying are surfacing continuously. Competitive rivalry The rivalry is from the increasing size of low cost, foreign competitors such as Kenya, Spain, Israel, India and Colombia. Foreign competitors have lower labour costs, fewer environmental regulations, lower trade tariffs and cheaper air transport which make them more potent competitors. Aalsmeer Flower Auction was impacted by foreign growers. In the early 1990s they felt more and more threatened by the increase of imported flowers. Imposing some strict import restrictions in order to reduce foreign competition led foreign growers and buyer organization to band together and form their own auctions. The effort to restrict foreign access to traditional Dutch auctions actually created more competition. Tele Flower Auction was one of such outgrowth. TFA is a fully computerized operation that separates product location from pricing, yet uses the concept of the auction to determine pricing. It became one of the major competitors Growing share of Eastern European countries VALUE CHAIN ANALYSIS The value chain was created by M.E. Porter and is a method to examine the competitive advantage a firm has over its competitors. The chain consists of different activities that build value in an organization. The activities are divided in two categories which are primary activities and support activities. The primary activities are: Inbound Logistics Inbound logistics deals with the shipments or goods received from suppliers. These goods are then stored in the warehouse till they are required on the production lines or for sales in case of finished goods. Operations Operations is the service that is being provided by the Aalsmeer Auction, it includes the web interface given to the public to find and get the flowers that they want. The operations also include bid placing mechanism and the ratings. Outbound Logistics The outbound logistics are the goods that need to be delivered to the end customers. In this case it is the flowers that need to be delivered to the end customer. Marketing and Sales The marketing and sales function is to make sure that people know about the organization and its offerings. Similarly, they need to make sure that they fulfill the needs of the customers by effective sales forecasts. These activities are done using the marketing communications and the promotion mix. The support activities are: Procurement The procurement function is responsible for procuring gods and services at the least cost but ensuring that quality standards are not compromised. Technology Development Technology enables a firm to get competitive advantage over other firms. In our case technology is the only differentiating factor the Aalsmeer has. By employing the auction online the company has used innovation to reduce costs and to gain competitive advantage over retailers. Aalsmeers profit and competitive advantage is dependent upon the performance of the above mentioned activities. If these activities are performed effectively the auction will be able to differentiate itself from others and sustain its competitive edge. DEVELOPMENT METHODOLOGY Aalsmeer Flower Auction can employ one of the many different development methodologies. These methods are used to properly plan and control the processes throughout the development of the software system. The different models are waterfall, incremental, RAD (Rapid Application Development model) and the spiral model. Each of these models has its associated pros and cons but usually only one of them is used for a single implementation. Hence, at Aalsmeer the spiral model would be the best to implement. The spiral model is best suited for projects where the requirements are not absolutely clear and there is room for changing requirements over the period of the project implementation. Secondly, the spiral model incorporates risk as a built in factor during the development process. As a result, the risks imposed by the changing requirements and needs of the suppliers and buyers could easily be met through risk analysis and risk mitigation plans (Parekh, n.d.). Aalsmeer is going through the same issues; the situation in the flower market keeps on changing. There are new and alternative flower markets emerging and the dynamics of the markets also keep on changing. The retailers have a strong say in the market and the mergers of different retailers pose a serious threat to the existence of the system. THE SPIRAL DEVELOPMENT PROCESS The basic idea behind the spiral development process is to break the problem into smaller subsets that can be managed easily and can be worked along in parallel. Through this process risks can be identified at each increment of the process and changes to accommodate the risks can be made easily. Iteration is made up of four basic steps and they are defined as follows: 1. Planning (which comprises of the identification of objectives, alternatives, and constraints). 2. Risk Analysis (which constitutes of evaluation of risks and other alternatives). 3. Development and Engineering process (during which the actual deliverables are made and verified. 4. Feedback (the process through which customer feedback is acquired) (Selecting a Development Approach, 2008) HOW WILL THE SPIRAL MODEL HELP IN ACHIEVING THE BUSINESS REQUIREMENTS FOR AALSMEER? The development process for Aalsmeer will start off by identifying the objectives of the system that are described in the initial part of this paper. The basic requirement is to provide a marketplace for buyers and sellers to interact and conduct business transactions. The problem however remains that there is tough competition from other alternate sources. Therefore, as the premier service for online flower auctions Aaslmeer will have to continuously evolve their system to maintain a favorable position with respect to the market. The iterative approach will help to deal with this problem. Also, through risk analysis the process will keep monitoring what competition is doing to penetrate into their customer base and must adapt accordingly and as early as possible. Hence, the spiral model will be better than the other models in this case as after each engineering phase, the development team will get a chance to get the customers feedback and incorporate any changes in the system. The process will also help in designing an effective system for the retailers as well as for the end consumers. Since, Aalsmeer also provides storage and logistics support the system can be made efficient by showing it to the retailers and some of the target consumers. Their feedback will help to streamline the system with the most appreciated market responses. Once all the requirements are finalized, the development process will complete and the testing and deployment phases will begin. The system will be tested for a variety of factors which include integrity, consumer ease of use, reliability and data security. After the testing is done and the development team is content with their development efforts they will deploy the system at Aalsmeer’s offices. THE IMPACT AND EFFECTIVENESS OF THE NEW SYSTEM An information system increases the flexibility to perform day to day operations for a firm. It is much powerful than a database, a database will only allow storage of data while an information system provides the best information the user needs to perform day to day tasks more effectively. Such systems also take into account that different users have different information requirements and will perform their own specific tasks. Therefore, it presents the same information in different ways to different users so that each user sees only the data pertinent to his job domain. The new system will have its benefits for the staff and for the management. The staff will be able to perform their work more efficiently. They will have much more ease to deal with the daily problems, as information will be available to them in real time. Hence, the day to day efficiency will increase which will eventually lead to an increase in operating revenues. Similarly, the management will be able to manage more effectively due to the information available to them. They will be able to plan their activities in a much better way using automated tools. The system will improve the quality of the auction service by providing clients with an easy to use interface. The new system will allow catering for information overloads as all the data will be maintained electronically the staff will be relived of the pressure of maintaining any physical records for transactions. It will also make coordination and control activities easier for the board. CONCLUSION In conclusion, a new information system in the organization will cause a complete overhaul of all the business processes. There are numerous benefits of such implementations which include helping in performing operations more easily, more efficiently while at the same time reducing cost to a minimum. Consequently, the firm will be able to provide its customers’ a differentiated marketplace. While a firm cannot only rely on information systems, it has to depend upon other factors too such as human resource and external factors. REFERENCES Abai, M. (2007) Your Organization needs an Information Strategy. [Internet]. Available from < http://www.cioupdate.com/trends/article.php/3667451/Your-Organization-Needs-an-Information-Strategy.htm> [03 May 2010] Hansen, M.T et al. (1999). What’s Your Strategy for Managing Knowledge?. Harvard Business Review, Vol 77, No 2, pg 106 – 116. Parekh, N.(n.d.). Spiral Model - A New Approach Towards Software Development. Buzzle.com. Available from http://www.buzzle.com/editorials/1-13-2005-64082.asp Accessed [03 May 2010] Selecting a Development Approach.(2008). Centers for Medicare and Medicaid Services. Available from https://146.123.140.205/SystemLifeCycleFramework/downloads/SelectingDevelopmentApproach.pdf. [Accessed on 03 May 2010] Read More