Low Cost Leadership Strategy

In the world of businesses today, every organization definitely needs information systems in their way of doing business. Laudon and Laudon define information system as “a set of interrelated components that retrieve, process, store and distribute the information to support the decision making in an organization”. In fact, those who acquire a decent information system would eliminate those who don’t have to fight against it. The ever changing world of information technology brings new challenges for every organization to set up an information system that would provide numerous advantages.

According to Laudon and Laudon (2009), there are six main reasons why business are investing millions of dollar in information system and technologies, among them are operational excellence; new products, services, and business models; customer and supplier intimacy; improved decision making; competitive advantage and last but not least, survival. Therefore, Aalsmeer Flower Auction (will be known as Aalsmeer throughout the research paper) who is encountering several problems would need the help of information system to overcome the problems.

2.0 Information strategy

2.1 Analysis of current situation

Aalsmeer is facing threats from various sources and should utilize the information technology today in defending their business. Laudon and Laudon (2009) believe that the more successfully a firm can align the information technology with business goals, the more profitable it will be. Apart from that, business people who claim themselves do not understand information technology will pay a hefty price in poor performance (Laudon and Laudon, 2009).

In the market today, electronic driven flower market is becoming more and more dominant than the traditional way of doing business. Besides, the competitive environments among the retailers encourage them to merge and forming a larger company with an increased in demanding power. Indeed, they are demanding fresher products, more varieties, smaller quantities and multiple deliveries and this inevitably exert pressures on Aalsmeer who needs to change their way of doing business in order to survive.

It is advisable for Aalsmeer to adopt a new strategy for the organization to achieve their business objectives and ensure competitive advantage in the industry. The objectives of Aalsmeer at the moment are:

Enable innovation for the business processing methods

Redefine the value chain to reduce transaction costs

Integrate smoothly with wholesalers and retailers

Increase the market share to increase profit

2.2 Low-cost leadership strategy

After examine the current situation of Aalsmeer, low-cost leadership strategy is undoubtedly the most suitable for the company now. Low-cost leadership strategy is centered on the capability of Aalsmeer to produce and deliver the products of high quality at low costs. “A company having low-cost leadership when extends its value to customers expectation, can further strengthen its strategic position in the market place”, (Alagse, n.d).

In fact, information systems could be use to lower the operational costs and hence, lower prices for the customers. The typical example is Wal-Mart, which is a company continuously relies heavily on information system to reduce costs and this leads them to one of the largest profitable company. They replenish the products as soon as the customers make payments at the cashier. The computers collect information from the stores and send it to suppliers and therefore, Wal-Mart does not need to spend large amount of money on maintaining large inventories.

Aalsmeer offer relatively standardized products with features that are acceptable to customers; in other words, with minimum differentiation at the lowest competitive price. In addition, Aalsmeer who are suggested to follow a low-cost leadership strategy need to maintain constant efforts aimed at lowering their costs, but yet creating values for the customers. Such efforts include investing in technologies, establishing tight control of production and overhead costs, minimizing the cost of sales and services. Specifically, investing technologies means to develop a new information system for Aalsmeer to achieve the objectives stated earlier which would be discuss later on this proposal.

Implementing the strategy means Aalsmeer must consider its value chain of primary and secondary activities and effectively link them to be successful. The critical focus now is to increase the efficiency of how the business process. In detail, processes and procedures of selling flowers to customers must be simplified, achieving efficiency and effectiveness and last but not least, monitoring the cost of activities provided by others that interface with the company’s inbound and outbound logistics. For instance, the delivery travel costs.

Moreover, when Aalsmeer successfully implements the low-cost leadership strategy, it can still obtain a high return even when the Porter’s five competitive forces are strong.

Porter’s five forces

Explanation

Traditional competitors

When Aalsmeer is offering the lowest cost in the market, the competitors will undoubtedly consider competing in a price war, and even if it does, Aalsmeer will still continue to earn profit after the competitors compete away their profits.

Customers

If there is any customers tends to drive prices below the cost of the next most efficient company, that company might choose to exit the market and leaves the low-cost company with a monopoly position. Therefore, customers would lose bargaining powers when that happens since low-cost company would be in a position that has power to raise the prices.

New market entrants

Aalsmeer who successfully utilize the low-cost strategy generally will sell in large volume to earn high profit. This indirectly creates a barrier for the new entrants who need to enter the industry at large scale (large enough to achieve the same economies of scale with low-cost company).

Suppliers

Once Aalsmeer achieve the lowest cost in the market, it enables them to absorb a greater amount of cost increases from suppliers before it must raise prices charged to customers. Moreover, Aalsmeer who will be dominating the market may force the suppliers to hold down the level of price increases, reducing the power of suppliers.

Substitute products and services

Aalsmeer, as a low-cost leader will be in a more attractive position relative to the substitutes. They could reduce prices to maintain the price-value relationship to retain customers from going to the electronic driven market.

2.3 Enterprise Resource Planning

The information system that is suggested for Aalsmeer would be the Enterprise Resource Planning (ERP), which can be define as a set of integrated programs capable of managing a company’s vital business operations for an entire multi-site, global organization. ERP attempts to integrate the key business processes of an entire firm into a single software system that allows information to flow seamlessly throughout the organization. For instance, the transactions with customers and flower growers.

Indeed, the key to ERP is real time monitoring of business functions, which allows timely analysis of key issues such as quality, availability, customer satisfaction, performance and availability. It is a set of integrated software modules and a central database that enable data to be shared by many different business processes and functional units throughout the enterprise (Curtis & Cobham, 2005).

Sources: extolcorp

ERP functional units

Financial and accounting

The Aalsmeer is facing challenges from the electronically driven flower markets and due to this reason, it is vital for them to have a complete accounting system. All the transaction ought to be recorded quickly with no error or minimal error in order to let the other departments to take the next actions immediately.

It also includes cash management and forecasting, credit management and financial reporting. It would gives Aalsmeer an edge if they could forecast the cash flow and make important decisions when necessary such as, stop buying stock of flowers when they flower markets are down in particular period.

Human Resource

Since consumers are demanding fresher products, more varieties and smaller quantities, the human resource definitely needs an information system that can divide the jobs to each employees from each department of the organization. Therefore, the company could satisfy the demands from the consumers.

Besides, human resource process also involves performance management and travel expense reporting. The new system could do a performance analysis of the current situation and make necessary changes to it. Apart from that, the travel expenses such as petrol fees can be monitored closely to avoid any extra expenses being used.

Manufacturing and production

Whereas the manufacturing and production processes includes mainly the procurement process, which is the action of obtaining flowers at the operational level. As the problems stated, the growers are becoming more professional and starting to utilize the electronic way of selling their flowers.

The system could manage the inventory effectively by not wasting any extra capital to rent the inventory, or having insufficient place to keep the flowers. This is to ensure the flowers are in good quality control and further strengthen the links between wholesalers and retailers when they actually get what is ideal for themselves.

Supply Chain Management

It is composed of three sub processes: demand planning, supply planning and demand fulfillment. Demand planning is to understand the customer’s buying patterns and then develop aggregate long-term or short term forecast of demand on the flowers. Whereas the supply planning includes the strategic inventory with distribution planning and demand fulfillment is to provide a fast, accurate and reliable delivery for customer orders.

It also helps to determine what type of supplies is required, what quantities are needed to meet the demand, and how the shipments of supplies and products to customers are to be scheduled, monitored and controlled.

Customer Relationship Management

A system that helps in all aspects of customer encounters, including marketing and advertising, customer service after the sale and programs that retain loyal customers. Aalsmeer ought to understand the needs of current and potential customers to increase customer retention and loyalty, which leads to a bigger market share.

With the processing system capturing data of every customer with the company, Aalsmeer would then know the best way to sell the flowers based on the analysis such as customer preference, time of purchasing, ways of purchasing and many more. This could ensure an increase in efficiency of the selling force and then, increase the productivity by focusing on the most profitable customers.

2.4 Advantages of ERP

Agile manufacturing underpins the success of Smart car, DailerChrysler’s city car brand. Smart has successfully responded quickly to customer demands ever since they have adopted the ERP system from Baan, the Dutch software vendor (Geoff Nairn, 2003, as cited in Curtis & Cobham, 2005). The optimized production is due to shorter processes but yet still came out with reliable products.

Advantages

Explanation

Improvement of Work Process

It ensures good work processes based on best practices which lead to increased efficiency. In this case, the ERP could helps in reducing costs for the organization, such as human resourcing or transaction cost. Besides, it eliminates the problem of synchronizing changes between multiple systems and provides a top-down view of the enterprise at anytime.

Increase in Access to Data for Operational Decision Making

The data is integrated from all the departments in the organization to provide excellent support for operational decision making. In addition, it allows the company to provide greater customer service and support, strengthen customer and supplier relationship, and also generates new business opportunities. The system connects the necessary software for accurate forecasting and this allows inventory levels to be kept at maximum efficiency.

3.0 Methodology

3.1 System Development Life Cycle (SDLC)

Kay. R (2004) believes that System Development Life Cycle (SDLC) is a model created for an organization when adopting a new information system. In fact, SDLC is a sequential series of steps to build an information system and it is one of the most common development strategies. It is best to follow the SDLC which consists of five phases: system planning, system analysis, system design, system implementation, system operation and maintenance. The phases are interconnected by the inputs and outputs, and if the previous phase has poor outputs, the rest would be affected.

3.1.1 System Planning

The first phase of SDLC is system planning, which happen when there is a request of a new system. Aalsmeer realizes that they need a new information strategy in order to remain strong player in the market. A preliminary investigation ought to be conducted to review the existing system and identify the problems. Indeed, a feasibility study could be carried out to identify whether the proposed new system is feasible to be implemented. If the new system is possible, practicable, reasonable and applicable in four main aspects, then the management should invest on it in order to get benefits in a long term.

Aspects

Why?

Technical feasibility

To determine whether a new IS can be developed with available technical resources.

Does Aalsmeer Flower Auction have the hardware, software and equipments?

Can it be developed with current technology?

Economic feasibility

To determine whether the new IS has a reasonable cost despite the changes it will brings

Can Aalsmeer Flower Auction bear with the cost?

Operational feasibility

To determine if the new IS will be used effectively and efficiently after it is developed

Are the changes to business operation minimal?

Schedule feasibility

To determine whether the new IS can be developed within an acceptable time frame?

After conducting the feasibility test, Aalsmeer could then decide the actions to be taken based on the preliminary investigation report.

3.1.2 System Analysis

Next, it is the system analysis phase, where the purpose is for Aalsmeer to learn how to improve the existing system, and then determine what the new system should do in order to achieve the goals. Therefore, the organization could find some facts about the current system, such as the strength and weakness of it and produce a report with what is required in the new system.

Requirement

Anticipation

Requirement Specification

Requirement

Investigation

In fact, Aalsmeer could gather the facts by study existing documentation, interview with employees, observation and questionnaire. Then, operational details and performance criteria need to be specified and examined, i.e. the speed of the ERP system after developed. After that, this phase carefully analyzes the information and then prepares a system requirement document which should include managements and users requirements, and recommended plan to develop the new ERP.

3.1.3 System Design

This is the phase where after the management level has decided to develop a new system for the organization. A blueprint, which is a detailed plan that satisfied all requirements specified, needed to be develop at this phase. Aalsmeer’s management should discuss this with all the employees in order to develop a system that satisfies everyone. Programs related are written, tested and documented by the analyst.

In addition, internal and external controls are to be designed to ensure the system would be reliable, accurate, maintainable at any time and secure. Lastly, this phase would end up with system design specification where the blueprint is presented to managements and the actual users for review and approval.

3.1.4 System Implementation

At this phase, the developed ERP system will be installed in the organization. In addition, operational documentation and procedures of the new ERP system are prepared for the Aalsmeer employees. The employees would need to attend classes to be trained in order to utilize the system effectively. This is a phase of conversion from old system to new system.

Indeed, the new system is a huge and complex one, so Aalsmeer could install the software step by step and therefore, it would not crash the whole system when some particular department has problem using it. Aalsmeer could create a legal contract that indicates the system is approved and will be signed by users and stakeholders (Stair & Reynolds, 2008).

A post-implementation system evaluation could be done to access the quality of the system. Apart from that, it is to examine whether the system operates ideally and are the costs and benefits within the earlier expectations.

3.1.5 System Maintenance

This phase is an on-going process as the purpose is to support the operation of the system through proper maintenance, enhancement and protection. Under the maintenance process, any broken hardware is repaired or replaced to avoid any surprising break down. Besides that, the Aalsmeer needs to optimize the system to make the system run smoothly. For example, by compressing the data base, or delete the old and unused files. When there are any errors detected, modification should be done as soon as possible (Stair & Reynolds, 2008).

On the other hand, enhancement is needed at particular time interval to increase the system capability such as adding more hard disk space to store a large database of customer information. In addition, new functionalities and features could be added when there is a change in the ways of doing business. Lastly, the protection on the system to ensure it is not attacked by any virus or hackers. The firewall of the system is configured and monitored to minimize the chances of being attacked. Besides, backing up the database is definitely a good way to protect all the customer information which is private and confidential. King Stairs Software (n.d.) mentioned that a proper backup strategy is vital for business as well as personal users.

4.0 Impacts and effectiveness of ERP

Systems changeover can be effected in some ways which not only has certain benefits, there will be drawbacks as well (Curtis & Cobham, 2005).

4.1 Organization

The purpose of this research is to identify a way for Aalsameer to strengthen itself in the market. It is believed that the company is able to reduce the operational cost, due to the effectiveness of the system to finish up the work in lesser time given. The new system would emphasize on the information technologies, where the large amount number of workers is no longer needed.

Apart from that, the organization can offer lower cost compared to rivals. The ERP system enable the organization to fight with the electronically driven market and thus, accelerating the business growth. Besides, the budget saved can be use on the marketing campaign to promote the new system of organization to public, and thus, they would be well aware of the new operating business model.

However, Aalsameer should consider whether the system supports the business objectives (O’Brien & Marakas, 2008). If the system does fully support the business objectives, it is worth to be invested even though they may face problems on capital, when hiring the system vendors to develop it. If the system does not support the objectives, Aalsmeer may need to re-consider the actions taken before.

4.2 Management

Whereas for the management level, the reports statement such as invoice, can be generated through online now. It saves the time for everyone the processing time is cut down in a systematic way. To top it off, it reduces the workload easily and the burden of management level can be taken off. Therefore, it increases the efficiency of management level since they can rely on the ERP system more than before.

By using a complete and efficient ERP system, it also reduces the error or mistake which could possibly occur when the work is done by human alone. The process of paper work simply becomes easier, simpler and faster for management and they could put more attention on other problems. For example, searching for more potential customers via new marketing communications.

On the other hand, they can put more emphasis on matters that could possibly cut down the operational cost such as downsizing the number of workers in the organization. Since the organization is utilizing the ERP system now, it is possible to rely on the technology instead of human hand to do the work. However in reality, it may be difficult for the management to layoff the employees who may be had work for the company long time, but it is essential to make the decision as it benefits the organization, after all.

4.3 Employees

Certainly, there would be several impacts on the employee of the organization, who is the direct users of the new ERP system. Firstly, it may create a chaos in them, where the new system would take over their position by terminating them. Besides, elderly employees who are not familiar with new technology, or not used to changes in working environment will definitely suffer in using ERP when the system is installed. Indeed, employees who are not good at adapting to the surrounding will face hardships this may create a negative environment in the organization.

However, it is believed that after few months, they will eventually find themselves comfortable with the ERP. Moreover, the new system will ease the burden of the employees, and increase the time for them to focus on their work. For instance, they can provide a good and reliable quality of customer service which in long term, will bring up the reputation of Aalsmeer Flower Auction. Moreover, since the ordering and payment are all done online now, it simplifies the working process. Indeed, employee would be more ambitious in completing their tasks.

5.0 Conclusion

All in all, Aalsmeer definitely needs a new information strategy as well as a new information system in order to achieve the business objectives. Ideas suggested to Aalsmeer are considered carefully and it is believed as the best way for the organization now. If Aalsmeer would to follow the proposal carefully, they would achieve the business objectives and make a success in the market today.

References

Books

Curtis, G. & Cobham, D., 2005. Business Information Systems. 5th ed. Edinburgh Gate: Pearson Education Limited

Laudon, K.C. & Laudon, J.P., 2007. Essentials of business Information Systems. 7th ed. New Jersey: Pearson Prentice Hall.

Laudon, K.C. & Laudon, J.P., 2009. Essentials of management Information System. 8th ed. New Jersey: Pearson Prentice Hall.

O’Brien J.A. & Marakas, G.M., 2008. Introduction to Information Systems. 14th ed. New York: McGraw-Hill/Irwin.

Stair, R.M. & Reynolds, G.W., 2008. Principles of Information Systems: a managerial approach. 8th ed. Boston: Thomson Course Technology.

Websites

Alagse, n.d. Promoting through leadership… . [Online]

Available at: http://www.alagse.com/strategy/s10.php

[Accessed 2 April 2010]

Kay, R., 2002. QuickStudy: System Development Life Cycle. [Online] Available at: http://www.computerworld.com/s/article/71151/System_Development_Life_Cycle [Accessed 5 April 2010]

King Stairs Software, n.d. The importance of backup. [Online]

Available at: http://www.kingstairs.com/articles/doc0003.html

[Accessed 24 April 2010]

Extol, 2006. Secured Enterprise Application. [Online] Available at: http://www.extolcorp.com/solution/sea_ecerp.html

[Accessed 25 April 2010]