This report focuses on the impact of Enterprise System on ALDI supermarket. ERP systems are costly and complex. They require heavy investments and experts. This research examines key dimensions of implementation of Enterprise system within ALDI supermarket. The components of Enterprise System Software: ERP, CRM AND SCM and its benefits to ALDI supermarket are identified and discussed. Although enterprise system benefits ALDI in many ways, there are some disadvantages and barriers to implement it. These barriers and risks are identified and possible solutions are suggested.
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INTRODUCTION TO ALDI
ALDI (Albrecht Discount) is a discount supermarket chain which is based on Germany and is one of the cheapest and smartest ways to buy groceries. ALDI was established in 1913 and the chain is made up of two separate groups, ALDI North and ALDI south. By the early 1990s the company operated an estimated 3,000 stores in Germany, the Netherlands, Belgium, Denmark, Austria, the United States, France, and the United Kingdom. Today, ALDI’s rapidly growing network has more than 7,000 stores and serves millions of people across three continents. Aldi has taken this retail concept, which features low overhead and scanty selection, to its extreme. Unlike other supermarket chains, which continuously increase their product offerings and selling space, Aldi holds selection at its stores to about 500 items. The bulk of these items are packaged grocery or dry goods.
ALDI claims “Simplicity, consistency and responsibility have always been our three defining core values. As an expanding discount retailer, our actions have international influence in different markets and along the supply chain.”
ALDI has a different strategy of doing business and saving money. ALDI stores are usually small, from 8,000 to 15,000 square feet. ALDI’s outlets also used to bypass expensive barcode scanners that are used by other stores to inventory and price products. Instead, a stockperson would simply post a sign with the price nearby. Price lists were memorised by the cashier but with the demanding information technology, ALDI has now started to use barcode scanners. Each product that ALDI sales have 4 barcodes which makes it quicker to scan and increases the productivity of the cashier (this has been inspected in one of the ALDI store in seven sisters, London). ALDI has also decided not to sell fresh meat which again saves company money as it can avoid steep refrigeration costs as well as the high wages the meat-cutters’ unions demand.
ALDI also has a strategy to keep labour cost low in different ways. ALDI charges four cents per bag to their customers and the customers must bag their own groceries. Customers can rent a shopping trolley for 25 cents and they get their quarter back when they bring the shopping trolley to the front of the store. By doing this, ALDI does not have to pay someone to collect the trolley in the parking lot or replace stolen ones. ALDI also keeps the telephone numbers of their stores unlisted so that employees don’t waste time answering the phone. Aldi-style austerity holds labour costs to an estimated four percent of store sales, compared to ten percent to 12 percent for most supermarkets.
Enterprise software services a larger amount of users and needs, typically through the use of a network and multiple points of processing and clients. Enterprise software provides services which are typically business-oriented tools such as online shopping and online payment processing, interactive product catalogue, automated billing systems, security, content management, IT service management, customer relationship management, enterprise resource planning, business intelligence, Human Resource management, manufacturing, application integration etc. It is normally multi-tiered client/server.
In the past, companies were used to compete based on one or two competitive performance objectives such as price and quality. However, present markets demand both price and quality in addition to greater flexibility and responsiveness. Information systems such as
Enterprise resource planning (ERP) have gained ground in providing support for achieving an integrated supply chain. Firms around the world have been implementing ERP systems since the 1990s to have a uniform information system in their respective organisations and to re-engineer their business processes.
There are three main components of Enterprise System Software. They are:
Enterprise Resource Planning (ERP),
Customer Relationship Management (CRM), and
Supply Chain Management (SCM)
ENTERPRISE RESOURCE PLANNING (ERP)
ERP uses internet technologies to integrate the flow of information from internal business functions as well as information from customers and suppliers such as manufacturing, finance, procurement and distribution. The system uses a relational database management system, within client/server network architecture, to capture valuable management data.
ERP systems offer companies the following three major benefits:
Business process automation
Timely access to management information
Improvement in the supply chain via the use of e-communication and e- commerce.
ERP links all areas of a company including order management, manufacturing, human resources, financial systems, and distribution with external suppliers and customers into a tightly integrated system with shared data and visibility.
It is not a good move to just plan resources required to run the enterprise; they need to be managed as well. An organisation must access itself, to see if it is ready for ERP. It must determine if it is ready for the competitive business environment and then strengthen its position for future changes. ERP software helps company’s operations after they are integrated into the system with the help of experts. In addition, in order for them to be efficient, they have to be used by experienced personnel so it can sometimes be very costly.
There are number of ERP softwares such as: SAP R/3, ORACLE, IFS APPLICATION, SAGE MAS 500, CANIAS ERP, SAS etc of which SAP R/3 is the most popular and is used by most of the organisation.
BENEFITS of ERP
ERP software can help ALDI supermarket in following ways:
End user service delivery: ERP software has the features and functions that enable end-user services: innovative support for ALID’s business roles that help to extend the reach of human resource processes to all stakeholders. It also boosts productivity and efficiency and reduces many transactions and processes once handled by HR staff.
Reduce operating costs: ERP software can help ALDI supermarket to reduce cost such as inventory cost, production cost, marketing cost etc. with ERP software, ALDI can improve coordination across functional departments and increase efficiency of doing business.
Support strategic planning: Strategic planning defines business target and set of goals and objectives. It assesses plan and design coordination strategies and logically connects these strategies to needs, assets and outcomes. Part of ERP software systems are designed to support resource planning portion of strategic planning.
CUSTOMER RELATIONSHIP MANAGEMENT
Business in today’s world is customer driven. In the past, price and quality were the key factors to successful business but now, customer satisfaction and flexibility have also become equally important. Customer Relationship management is very important to a business successfully. The better the customer relationship is, the easier it gets to conduct business and generate revenue. Customer Relationship Management (CRM) software helps to understand customer needs and allows ALDI supermarket to design customer-specific levels of service and also increases value per customer and customer retention. CRM softwares can be categorised into four different types: outsourced solutions, off-the shelf solution, bespoke software and managed solutions. It might be very costly and time consuming at times to implement CRM software however it can benefit ALDI in many ways:
Based on previous records, it can increase sales through better timing by anticipating customer needs
Can identify needs by understanding customer requirements
Can identify which customers are profitable and which are not
Can improve profitability by focussing on most profitable customers.
BENEFITS OF CUSTOMER RELATIONSHIP MANAGEMENT
Customer Relationship Management (CRM) helps to build profitable and lasting customer relationship by providing the insight and analysis needed to anticipate customer needs. CRM provides the following:
Flexibility to create unique customer experience: CRM software helps end-to-end business processes to address an array of marketing, sales, and service situations. The CRM software easily adapts and extends to create a more distinctive customer experience.
Drives organisation to more consistent interactions across all channels: CRM software can help ALDI to make the most of every customer interaction that is consistent and relevant, with real-time information about the complete history, value and profitability of each customer across the entire customer life cycle.
Enables end-to-end process within the industry value chain: CRM software can help ALDI drive customer value, loyalty across the entire value chain. CRM can turn the vision of customer-driven growth into reality with the best in class front office functionality that complements industry-specific processes.
SUPPLY CHAIN MANAGEMENT
Supply chain management can be defined as the management of a distribution channel across organisations. It is the design, planning, execution and monitoring of all supply chain activities. Supply chain management can benefit ALDI supermarket to plan smoothly and execute related operations to achieve long-term profitability and maintain a solid competitive edge.
BENEFITS OF SUPPLY CHAIN MANAGEMENT
Improve supply chain network: with supply chain management, ALDI can monitor the status of all activities across all suppliers, production plants and distribution centres. SCM enables an effective way of tracking and managing all related processes, from ordering through manufacturing and shipping of end product to customers.
Minimized Delays: Delays in supply chain can result in poor relationship, unsuccessful business and eventually loss of business. With supply chain management software, all activities from start to finish can be coordinated with higher level of on-time delivery across the board.
Enhanced collaboration: Supply chain softwares can bridge the gap between departed business software at remote locations to improve collaboration among supply chain partners. All participants can dynamically share vital information such as demand reports, forecasts, inventory levels etc. in real time.
Reduced Costs: Supply chain software can help ALDI supermarket reduce overhead expenses in many ways. It can improve inventory management and facilitate successful implementation of on-time stock models. It also helps ALDI to make effective demand plans, so production and sales level can be set to the maximum. It can also help improve relationships with distributors which can cut the cost in ordering products in volume.
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BARRIERS IN IMPLEMENTING ENTERPRISE SYSTEM SOFTWARE
Though enterprise system softwares have many benefits, these benefits can sometimes be matched with high level risk because of its complexity. According to Soh (el al 2000), some companies even terminate the implementation of enterprise system software regarding time, cost and disruption caused and sometimes limited benefits once the system becomes operational. There may be some barriers while trying to adjust the enterprise software and barriers cause decrease in organisational performance instead of improvement. Organisational change is one of the most important barriers encountered in transition of new systems. Some of the barriers involved during implementation of enterprise system software are: Structural Barriers, Technological Barriers, Intellectual and Socio emotional Barriers and Cost Barrier.
It is very important to understand the organisational structure existent in the organisation before implementing enterprise system software to prevent possible knowledge integration problems that could exist. The main structural barrier is that organisational structural limits the interaction among the different functional areas. The level of efficiency reached in the implementing enterprise system software depends upon how the organisational structure aligns with the nature of the tasks performed by members. Ross and Vitale’s (2000) found that the majority of the firms surveyed perceived enterprise system software implementation to be extremely disruptive. Enterprise software implementation may only succeed when the organisation is able to re-structure itself, and not just overlay the new management information system on the old organisational structure. Hammer (1999) argues that the ERP implementation is an integrative mechanism that connects diverse departments establishing integrated processes.
The IS people within the information systems department who are the founders of the pervious system might have problems to understand and maintain the new enterprise software easily. This is when the technological barrier emerges. The IS people may not be able to provide good support the new enterprise software users because they had not internalised the routines necessary to support the new enterprise software.
The second technological barrier could be the parallel use of legacy systems. According to Mileton-Kelly (2004), the new systems may quickly become legacy systems as they might not meet the full requirements of the users and may not be able to fully support business evolution. Furthermore, most of the legacy systems do not use a relational database management system (RDBMS); they still use proprietary flat file system. The reason for this is because there is no central ownership of data or information items in use by companies.
This problem could be solved with the use of legacy systems for validation reasons only. Since ERP modules, processes or reports were validated, users only will have access to the ERP environment for their day to day work. This solution reduces the amount of work in terms of duplication of efforts. Moreover, users will focus only in the ERP system; this means a reduction of the comparisons with the legacy systems, an increment of the users’ productivity, and a possibility to integrate user knowledge in the ERP system.
INTELLECTUAL AND SOCIO-EMOTIONAL BARRIERS
The intellectual dimension is related with the learning and knowledge of users, and the socio-emotional dimension considers the feelings and the willingness to improve skills of the users. The main barriers involved in these dimensions could be: knowledge transfer between the legacy system and the new ERP system, and between consultants and ERP users. According to Ko, Kirsch, and king (2005), not much is known about knowledge transfer from consultants to ERP users, in which the knowledge structure of the participants is asymmetric. The consultant primarily possesses technical knowledge, whereas their clients and future ERP users primarily possess business knowledge. Hence, the knowledge initially possessed by the consultant must be integrated and embodied in the knowledge of the ERP users. This might remove barriers and also allows both parties to minimize disagreements and enhance their ability to work together for effectively transferring knowledge. The concern about users preferring old procedures and not adopting to the new ERP environment could be prevailing. Users may not be resisting to the change, but they might be trying to make sense of the change. This approach is related with the socio-emotional dimension because users need to justify that these changes are better from them.
User training could be a key requirement for ERP implementation. Those organisations which invested in training had successfully overcome socio-emotional barriers involved with the ERP implementation. The individual knowledge barrier could be overcome by the identification and definition of new procedures and functions to shift the user perspective from the individual level to the organisational level. This means that to reach the knowledge integration process across the organisation, there may be a need to map the existing knowledge into the ERP functionality. This new vision helps to reduce the perception of the new ERP system. Pan et al. (2001) also suggests that ERP team members must instigate a process of relationship building through increased information sharing and social interaction among users. This behaviour promotes the structural integration to improve knowledge integration through users’ willingness to share information and ideas in the form of political transparency or process de-layering.
Although Enterprise system software can benefit ALDI in many different ways, it is very costly and hard to implement. ALDI’s main strategy is to sell cheap products and use less technology. They sell the products cheap as they save money on technology but if they use technology, they might not be able to sell the products so cheap which is going to bring another competition among other supermarkets and is against ALDI’s current strategy.
In the report, a brief history and introduction to ALDI supermarket was discussed. ALDI is a supermarket which was established in 1913 at Germany. Today, ALDI has more than 7000 stores and serves millions of customers across three continents. ALDI’s business strategies were studied by visiting ALDI’s local store and conversation with managers of ALDI. An overview of Enterprise Software and its components: Enterprise resource planning, customer relationship management and supply chain management were discussed. Benefits of using ERP, CRM and SCM were identified and it was discussed how ALDI would benefit by using these enterprise system software. Finally, barriers and risks of using enterprise system software were identified and solutions to those barriers were discussed.
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