Royal Selangor It System And Cloud Computing

1. Introduction

This report is commissioned by the request of Royal Selangor International (RS) for the purpose of analyzing existing IT infrastructure and draw out recommendations for RS to adopt to cloud computing technology. The current IT infrastructure that operates RS’s business processes are analyzed. Data for the analysis are collected through interviews with RS management representatives. Based on these data and comparison with available cloud computing solutions, recommendation on the adoption of cloud computing are derived for RS’s considerations.

1.1. Background

Royal Selangor’s core business is retailing pewter artifacts and jewelleries. RS is a private owned company manufacturing and retailing fine quality pewter artifacts products worldwide and is now the largest pewter artifacts producer in the world. Founded in 1885 and based in Kuala Lumpur, Malaysia, RS has expanded leaps and bounds to international recognition and has won several prestigious awards. The company recently celebrated its 125 years anniversary. The homepage URL of the Royal Selangor is http://www.royalselangor.com

RS currently operates 3 brands under the company. RS on its own crafts and retails the pewter artifacts, Selberan which retails fine jewellery and Comyns, a brand that has 350 years old legacy in silversmiths. (Bernama 2011)

RS’s products are marketed through 3 channels as follows;

• RS owned flagship stores which are located at prominent shopping districts around the world, including London, Tokyo, Melbourne and Toronto.
• Distribution network to reputable retailers around the world.
• Online shop that serves both distributors and customers.

The major part of RS’s success is through the online retailing. RS are the pioneer in setting up its business for online shopping. It has enabled RS to spread its business internationally to distributors and also directly to end users. RS was awarded the CIO award in 2001 which recognizes the genius is IT implementation and strategy. (International 2001) The online shop has also provided RS channel to communicate with the customer and improves its services. RS has also established worldwide offices with warehousing facilities in major markets such as Australia, Japan, Hong Kong, China, Singapore, Britain and North America. 

1.2. Corporate Structure

RS is a family run business since it was first founded in 1885. Through 4 generations, the business has been passed on to succeeding family members. RS organization structure for the manufacturing business is as per Attachment A. The Managing Director is supported by two General Managers, managing and overlooking the entire operations from raw materials, production, research and development, marketing, e-commerce up to distribution and international marketing. Each section operates on its IT system for reporting and thorough tracking of the raw materials up to storage and distribution. Further detail analysis of the IT system of RS will be captured in Part 2.

RS’s Company Policy states the ambition of the company to maintain its status among the forerunners of the industry and to strive for excellence by being ahead of competition. In align with this policy, RS has adapted well with new IT systems to further improve its services to the customers. This is proven when RS opened its online store 10 years ago in 1996 while many industry players are still skeptical about online store. (Yee 2007)

RS has structured its operations to run on a systematic IT infrastructure. Business processes of the group include the following:

• Financial department
• Human resource management
• Manufacturing
• Distribution
• Marketing
• Warehousing
• Customer relation management.

2. IT Infrastructure

With over 1000 different products to be manufactured and distributed across local branches in Malaysia and also to 20 other countries directly, RS requires a system that could provide up-to-date and accurate information to the people involved. RS had embarked on various marketing strategies to expand the organisation and in the year 1996, ventured into the e-commerce with RS online shop and website promotion and advertising (International 2001). The subsequent business strategies, marketing, e-commerce system and web development have since been developed in-house to the specific needs of the organisation and RS wanting more control in its development and deployment. (Yoon Kit, Yong 2011, pers. comm., 1 April)

Critical business processes especially for manufacturing and the retailing are being integrated and streamlined for speedier processing and better performance for the organisation. For the manufacturing department, integration and real-time updating of information for raw materials, work-in-progress and final goods are vital for the organisation to be leaner. Enterprise applications have the capability to provide accurate buying trends of customers and the information gathered have translate into a better inventory management for the organisation and also to the customers.

As for the design team, IT is needed to speed up the design period and can help to transform new ideas into great products. Design information can be used for quick and clear generation of manufacturing ready drawings and used for virtual prototyping. All this can offer distinct advantage to RS over their competitors such as new products were created in pewter with an additional animated storybook. (Bao Shan, Yip 2011, pers. comm., 3 April)

Retailing staff will benefit from the information on customers and also inventory to better serve the customer. Fast response and also delivery scheduling can help the retail staff to close sales deal quicker. Besides that, online marketing tools such as social networking are used to promote products actively. For RS, the strategic role of IT is very clear and it is for creating a competitive advantage over their competitors. (Yee 2007)

2.1. Computer Hardware Platforms

For the routine tasks, desktop computers and laptops from Dell and HP running on Intel or AMD processors are provided. For the design team, Apple IMac is used as it is more suited for the modelling and designing purposes.  The mainframes are located in-house and consist of HP and Dell servers. These are dedicated for the critical applications such as the enterprise resource planning system (ERP), Storage Area Network, private automatic branch exchange (PABX) and the network systems between the offices and also the online shop. Cashiers at the respective branches are utilizing Point of Sales (POS) Terminals connected to the main servers for daily transaction processing.

2.2. Operating System Platforms

For the general desktop computing or client level, RS is using Windows based operating system to manage the resources and activities of the computers. The Apple computers are supported with IMac OS X system. For the servers, RS is using Samba / Linux Server OS systems which are open sourced and it is easily adaptable to different servers and software. Centralised updates and patches are provided in-house by RS IT staff.

2.3. Enterprise Software Application

RS is currently using the Baan ERP system and it was deployed in the year 1999. The system is used mainly in manufacturing, finance, human resource and warehousing. The Baan Client is running on the Windows based operating system. The selection of Baan was based on the capability of the manufacturing module of the Baan ERP system.

2.4. Networking / Telecommunication

RS requires a reliable network and telecommunications setup because of the global presence and extensive distribution channels to more than 20 countries such as Singapore, Japan, Hong Kong, China, Australia, United Kingdom, Canada and United States of America. Locally, there are about 21 outlets nationwide. They are using Unifi fibre optics broadband services provided by Telekom Malaysia. This is for the standard activities such as internet and correspondences and the network is managed via Transmission Control Protocol / Internet Protocol (TCP/IP) suite.

As for the dedicated leased line, it is connected to the offices and branches via the Cisco Networks. Cisco Core Switch provides the entire organisation connectivity for their Enterprise Data Routing and with the switching capability of the Intelligent Bandwidth helps to ensure optimum availability to their office and branches worldwide. Inter-office communication is using Lotus Notes as the integrated desktop client option for accessing e-mail and calendaring.

The main office is utilizing PABX phone system which is able to support an enterprise wide phone and fax machines where as the branches are connected via standard public switched telephone networks.

2.5. Data management and Storage

The Data management and storage for RS is quite large as it is to ensure that all product designs are archived and kept for future reference. The other requirement of the organisation is to provide a shared folder running on the server as the depository of the new product designs in use by the organisation. The major usage of a 20 tetrabyte space is for the designs of the products and the accessibility of the information by various departments. Baan ERP application and database usage accounts for about 200 gigabyte space and the Lotus Notes application takes up about 150 gigabyte space.

The physical hardware for the storage comes from various original equipment manufacturer (OEM) sources and the main supplier is Dell. The hardware components are Dell / EMC CX3 which is utilizing Small Computer System Interface (SCSI)/Fibre hard disk for key production system.

2.6. Internet Platforms

The key internet sites for RS are the online shop/e-commerce and the visitor center homepage. The other sites under the group are Comyns and Selberan which is also under the support of RS IT department. The web site was built with customers in mind – it is to be used as a two-way communication channel for customers, as well as a one-to-one marketing and fulfilment tool. The web hosting of these sites has been outsourced to CSC to ensure service availability and network latency. These webhosting servers are running on the latest iteration of Microsoft IIS Servers. The website are maintained with Linux / Apache / MySQL / Perl/PHP/Python package as it is open-source and it is easily adaptable to suit RS applications.

2.7. Consultants and System Integrators

Most of the system integration work is done in house leveraging on the knowledge available.

Currently, RS is getting external consultant support for the Baan ERP systems when required. The e-commerce system initially was out sourced but due to the specific needs of the organisation, it is now fully developed and maintained in house. Others system integrators or consultants are being appointed when necessary.

Issues that were identified are as follows:-

1. To ensure interoperability between each systems. RS have basically two systems to ensure its interoperability which are the CRM and the ERP applications. As for the other platforms such as servers and data center, the software used are open source whereby customisation would be easier.
2. Ensure constant communication and connection between shared information worldwide. The need to access to data and inventory in real-time and reliably.
3. Maintain a well integrated and smooth supply chain especially for the online shop. It needs to be updated constantly and best practices are to be employed and cascade down to the operation levels. Implementation will be a major stumbling block due to the manufacturing processes being labour intensive.
4. Maintenance of software and hardware systems 24/7. For storage, the challenge is managing the data and managing the systems that house the data. Software tools that track and manage storage resources efficiently are in high demand for these reasons.
5. IT staff retention proved to be difficult. Internally, the IT department is supporting on hardware troubleshooting whereas the service or troubleshooting support will be provided by the external team of consultants.
6. The current staff skill is sufficient to maintain and operate the system effectively. However, the staff education at the operator level is still lacking. Constant training and retraining is required.
7. Cost reduction is actively pursued whenever there is chance as budget is always constrained. Since data storage continues to grow at 40% to 60% per year, the challenge is amplified to try to get the most from any new storage purchase.

Challenges that are constantly faced by RS are listed below and a few are being actively pursued by RS.

1. To maintain operation excellence in the whole value chain – design, manufacture, distribution and retailing not only locally but also worldwide. Leaner production and shorter processing time and delivery schedules are key focus area for continuous improvements. (International 2001)
2. To innovate and re-invent the “wheel” for the retailing and marketing of the products by using IT. Constantly RS need to find ways to market their products as the current marketing channel in local and overseas retail shops, on-line shop, corporate customers and the visitor center / showroom is not adequate. Currently each competitor in pewter ware has their very own website and they are promoting their products on line, retails shops and also at their main showroom (Tumasek 2011). RS have to look at the industry of premium giftware as well which would consider a worldwide market. Search Engine Optimisation programs, partnership with search engines and partnerships with other websites are areas to focus more in order to penetrate further into the international market. (Shankar 2003)
3. To retain customers and to attract new customers are important. Major competitors such as Tumasek, Oriental Pewter, Mariwasa and Pewter Arts are constantly challenging RS. New designs and faster production and roll-out of products would ensure a greater market share. Providing better and more personal touch to customer service will benefit in the long run as customers would have greater perception of the product not only in terms of quality but also the service that comes with it. (Shankar, 2003)
4. To constantly review the business strategies and if necessary upgrade or adapt the current system based on the specific needs of the organisation. The final call is that any new product or system purchased should move towards lower costs, better processes and common management.(Yee 2007) Strategies such as using setting up websites in native languages of the country they are going to market the product.
5. Open source plays an important role with the servers in RS. (Yoon Kit, Yong 2011, pers. comm., 1 April) Most of the infrastructure servers are on Linux which gives flexibility in rolling out new servers as well as replicating our administration. RS uses a lot of the virtual machine ware so it is now easier to deploy new test and production servers on demand without having to submit capital expenditure and commission new machines. Constant updating of information and also skills related to open source would be vital for RS.

3. Cloud Computing 

Cloud computing obtained its name from the metaphor for internet which represents an area on the network that resides outside (cloud) but is required to make the network complete. The control of the cloud is an external party’s concern which is hosted and maintained by other parties and does not need the interference of the internal parties (Velte et al. 2010, p. 3).

Examining the Cloud computing, it is basically a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources. These resources include networks, servers, storage, applications, and services that can be provided to the customers to assist its daily operations. As explained in NIST document, Cloud computing consists of five essential characteristics, three service models, and four deployment models (Mell & Grance January 2011, pp. 2-3).

The 5 Essential Characteristics

• On-demand self-service. Services are available to the customer at all times and without any need for intervention by the service provider.
• Broad network access. The system is web based and can be accessed from any internet enabled device such as through mobile devices, thin or thick client platforms.
• Resource pooling. The provider of the cloud computing services uses physical or virtual resources to serve multiple customers with different needs. The customer generally has no control or knowledge over the exact location of the provided resources.
• Rapid elasticity. Customers can scale up or scale down according to their own requirements. Additional services can be purchased at any time.
• Measured service. Customers accessing the system are easily tracked and controlled by means of storage, processing, bandwidth, and active user accounts.

The 3 Service Models

• Cloud Software as a Service (SaaS). The provider offers an application that the customer can be accessed by different client platforms such as a normal client computer. The software is web based and does not reside in the customers computers. The devices only need to interface via a thin client interface such as the Web browser. The consumer does not need to physically install the software.
• Cloud Platform as a Service (PaaS). The capability provided to the customer to develop applications using the programming languages and tools provided by the provider. The customer will only have control of the application developed using the platform provided.
• Cloud Infrastructure as a Service (IaaS). The provider only provides the infrastructure to the customer. The customer controls its own software and applications but has no control over the cloud infrastructure.

The 4 Deployment Models

• Private cloud. The cloud services are provided to only one organization.
• Community cloud. The cloud services are shared by few organizations
• Public cloud. The cloud services are made available to the general public or a large industry group and are owned by an organization selling cloud services.
• Hybrid cloud. The mixture of two or more cloud deployment models which runs on a standard or propriety technology.

To summarize the definition of cloud computing, it is where software, platform or infrastructure services that are made available to the customers at all times. The customers have relieved itself from the concerns of operating and maintaining the physical aspects of the system and enable them to focus on its core competencies.  

Before exploring the adoption of Royal Selangor with cloud computing, the advantages and disadvantages of cloud computing will be explored in following chapters below to examine further the key positives that will help the company. Figure 3.1 illustrates the advantages and disadvantages of Cloud Computing.

3.1. Advantages of Cloud Computing

3.1.1. Financial Benefits

Cloud computing provides new solutions for all sizes of businesses and industries. When modern businesses looks for ways to cut operating cost without losing much productivity, cloud computing serves to be a key part to assist the business to achieve the target.

By improving server utilization and decreasing the number of servers, significant cost reductions can be seen and additionally, future capital expenditure can be controlled. Normally servers are designed to have redundancy as well as spares for future expansions. This translates to capital expenditures spent for facilities that are not utilized. Cloud computing provides enables the customer to only pay the amount of usages utilized which translates to cost reductions. 

Also, there’s a reduction in physical server depreciation cost. As pointed out above, fewer servers maintained by the company means less depreciation costs. In addition, it also directly reflects to energy consumption and facilities cost. Reduced servers require less energy to operate and smaller facilities.

When a true comparison is done, using a fully cost model, the decision weighs more favourably towards cloud computing. And when the other advantages are taken into account then cloud computing can really stack up as a viable option (Group 2009, p. 6) .

3.1.2. Technological benefits

Cloud computing has the ability for the system to expand and contract automatically based on the demand of the customer. For software, new users can be assigned to the system and start using almost immediately without much complications. The resource platforms such as storage, networks and servers are available on-demand and again do not require much intervention or effort by the customer to prepare the system. More significantly is the redundancy and back-up system available to the customer, ensuring that the data are safe and protected.

3.1.3. Operational benefits

In terms of operations benefits, this can be referred as outsourcing the IT system and delegating the risk management. Service providers have to ensure that the system is available at any time and redundancy provided. The problems that have been concerns for companies running physical hardware, servers and data centers can now shift the risks to the service provider. Access to the system is also improved as it can be accessed from anywhere through an internet enabled device. This improved operation excellence as data are always available at anywhere, anytime to the users of cloud computing.

3.1.4. Environmental Benefits

By using lesser servers through servers consolidation, energy consumption of the IT system is drastically decreased. This translates to lower and more efficient energy consumption.

3.1.5. Competitive Advantage

Businesses can be more competitive by adopting to cloud computing. Cloud computing provide a quick and efficient start up for any small or medium size businesses. This enables them to have almost similar capacity as larger established companies in terms of IT systems. Also, with data easily available, it enables businesses in general to be more agile and response quicker to market.

3.2. Disadvantages of Cloud Computing

While the advantages of cloud look promising, there are also disadvantages to the cloud services such as below:-

3.2.1. Security issues

There is a need to look at the security aspect for cloud. The security risks that come with cloud computing ranges from user access, recovery, regulatory compliance and long term viability.  Sensitive data processed/stored externally brings with it an inherent level of risk, because outsourced services bypass the “physical, logical and personnel controls” from in-house programs. The controls of user access and also content management access would need to be transparent and clear so customers are not worried about their data being compromised. (Brodkin 2008)

3.2.2. Lack of control

For cloud computing, the hardware and software could be based in multiple locations all around the world compare to in-house systems. The control on the storage and security of the data will be the under the jurisdiction of the cloud vendor and users do not have much control over it. Performance and upgrading of the applications and data protection will be relying on the timeliness or scheduling of the vendors to update their software.

3.2.3. Lock-in to cloud vendors

Users should be aware of the risk of lock-in to the cloud vendors. The consideration will be on whether in the future there is the need for changes or replacement of the software/platform/infrastructure selected initially and thus switching cost will be incurred. Based on the three types of cloud computing, the service and platform will have some sort of impact and difficulty if there is a need to change vendors. Selection of vendors that provide minimum lock-in should be preferred. (Petri 2010) There is also the need to ensure that the data that is held with the vendor will remain available even if they have been acquired or merge with other larger vendors.

3.2.4. Reliability on cloud functionality

Cloud vendors based their business on providing high up-time and downtimes should be kept to a minimum. Overall hardware and network reliability from cloud vendors are considered to be at par or above par comparing to the average data center. However, there are instances when there is downtime and this would be considered to be unacceptable if it is too long and economic losses are being factored in. A few vendors will have strict service level agreements (SLAs) that provide themselves with a method of controlling the downtime. (ENKI 2011) Besides the downtime from servers, we need to look at the downtime created due to non internet service such as connection and bandwidth availability. There might be problem when the internet connection is not available or not sufficient to support the functionality of the applications. This would totally render the cloud application a total failure.

3.2.5. Data segregation

Data stored in the cloud is generally in a shared environment and it is placed within the same location as other users. There is the need to ensure that the data is fully secured and only the authorised user can access it and the cloud provider should proof that encryption schemes were designed and tested by experienced specialists. Data can be totally unusable if there is complication during the de-cryption procedure. (Brodkin 2008)

3.2.6. Recovery of Data and Services

There would be difficulty in accessing the data and service provided in the cloud as the user would not have any information on where the data is or how it is being stored. In the event of disaster, the cloud provider would need to setup a proper data recovery or restoration. There would be question on when can be data be ready for use once they initiate the recovery process. (Brodkin 2008)

4. Recommendation of cloud computing adoption/adaption

The findings from above are analyzed against the factors that forms the Competitive Forces Model for IT Infrastructure (Laudon & Laudon 2010, p. 223). This will provide an outline of RS’s requirement to adopt cloud computing as its IT infrastructure.

4.1. Market demand for organisation’s services

Internet sales have always been the forefront business of RS. 80% of RS’s sales are from the online shop. (Yee 2007) Considering future trends, the e-commerce will keep on expanding and improving. The market demand is and has proven to be in abundance for RS to venture. With cloud computing, RS’s operation can be more streamlined and improved and meet customer’s demands.

4.2. RS business strategy

RS strive to be the best pewter manufacturer in the world and maintain its competitive edge over competitors. (Khay Chong, Saw 2011, pers. comm., 5 April)

4.3. RS IT strategy, infrastructure and cost

RS plans to use IT to gain competitive edge over their competitors and to maintain their market position. The strategy has proven to be useful as it was acknowledge by the CIO Asia Award in 2001 and Intelligent Enterprise: Asia’s Intelligent 20 award for the E-commerce operations.(International 2001) Ventures into social media marketing and web collaboration with overseas online shop have provided the exposure and advertising advantage for them such as partnership with John Lewis (http://www.johnlewis.com) or Wesell Royal Selangor (http://www.wesellroyalselangor.co.uk/).

4.4. RS Information technology assessment

Current setup is very centralized and all located within the main HQ. From the IT infrastructure study, we find that the hardware and software used within the organization are considered to be reasonable and commonly used in all industries. The use of open source have also help in ensuring that the system can be modified and be made better as they use it with constant upgrading. However the weakness could lie with the staff availability.

With cloud computing, it is a perfect IT infrastructure for RS to adopt. Switching to cloud computing provides a feasible solution for RS to maintain its businesses outside of Malaysia with the same IT infrastructure.

4.5. Competitor’s IT Services

In evaluating RS’s competitors’ IT services, two main competitors namely Tumasek Pewter and Oriental Pewter are analyzed. Both Tumasek Pewter’s (http://www.tumasek.com/home.htm) and Oriental pewter’s (http://www.orientalpewter.com.my/home.htm) website does not have online shop. RS is the leader in pewter industry as its main competitors are not having the same IT services as RS. This is even more a reason for RS to adopt cloud computing. As the start-up of IT system are faster through cloud computing, the competitors will definitely offer the same services in the near future. By adopting cloud computing first, RS can be ahead of competition.

4.6. IT infrastructure investment in pewter/retail industry

For retail industry, capital spending in 2008-09 at John Lewis (RS partner) was £404m, compared with £363m in the previous year. About £30m represents investment in efficiency projects such as new Oracle finance systems recently implemented in Waitrose and the firm’s head office, and investment in maintaining and modernising its IT set-up. (Mari 2009)

Investment into IT for manufacturing is continuing to grow for Asian manufacturer and focus is on cloud based applications’ capability to increase the efficiency of the organization such as gaining insight on customer behaviour, improve efficiency and productivity of manufacturing operations and in the supply chain from supplier and also to customers. (Yap 2011).

Under the Malaysia’s Economic Transformation Programme, the wholesale and retail and tourism industry are place in the forefront of Malaysia’s economic development. Few key areas were earmarked for development and the key area with IT investment would be the globalisation of our products by means of virtual retail platform or malls. Investment of about RM 1.3 billion will be spent on this area which can help competitors of RS to develop their online shop. (PEMANDU 2010)

RS is well aligned to adopt to cloud computing. Moving into cloud for an established firm like RS requires a strong management vision statement and support for the migration. Strategies had to be developed to enable the migration to be completed flawlessly and most important, without hampering any existing business processes.

Strategies to be taken by RS are as follows;

Business Review

To establish the key objectives, tools that can be use is SMARTA objectives which is Specific, Measurable, Achievable, Realistic, Timely and Agreed. ( Williams 2010, p. 102 )

Project Management

To setup a Project management team to manage the migration and keep all stakeholders satisfied. An Implementation plan will provide the necessary clear procedures for the migration. ( Williams 2010, p. 113 )

Adoption to cloud system shall be done according to recommended solutions as below;

1. For the routine communications and content management, RS would be wise to look at the various applications offered from cloud computing. This would probably relieve some of the bottleneck for support currently faced by RS IT department’s staff.
2. Part of the RS marketing channel to corporate users would be beneficial if there was an application similar to what is being offered by Sales.Force.com. The sales value chain from initial contact to ideas sharing between customer, designer and marketing guys would generate large knowledge content for future reference. Other marketing staff can benefit by learning by example/mistakes during the sales value chain.
3. Currently RS’s manufacturing processes utilizes the BAAN system. To streamline the effectiveness and promote an equal platform for RS’s business worldwide, RS can consider adopting the SAP Business ByDesign 2.5 cloud SaaS solution. SAP has a tremendous manufacturing domain expertise and can provide RS the best solutions to its manufacturing processes. (Singleton 2011)
4. Improvement to the supply chain management whereby suppliers can adopt cloud computing with applications with best practices. This can work both ways by ensuring the transparency of the supply chain to the manufacturing line of RS and also RS can monitor the scheduling and efficiency of the supplier. As part of SCM, RS could help develop the smaller suppliers to be more efficient with cloud computing applications and also possibility of reducing cost to the same supplier which might not have the investment for IT.

5. Conclusion

Examining the above, RS is a well established company and is an industry leader in pewter crafts manufacturing and retailing. Driven to be the industry leader, RS has already ventured into e-commerce since the early nineties and is quick to adopt new IT technologies to help the business grow. RS’s business processes are well operated through a well established IT infrastructure and already has the resources to adopt new technologies.

Focusing on cloud computing, the advantages of cloud computing proves to out weight the disadvantages. The promises of cloud computing and the future of computing shifting to cloud, businesses no longer can ignore the progress of cloud computing. The financial benefits, improved operations and competitive advantage prove to be enough of an incentive for any business to consider adapting to cloud computing.