As an IT Consultant, I am obligated to recommend appropriate information systems and technology for Aalsmeer Flower Auction (known as AFA or organisation throughout the report) to achieve their business objectives and ensure competitive advantage in the industry.
The report begins with an illustration of the organization case study, recommendation on systems and strategies followed by the explanation of the chosen system development methodologies that applicable in this case. The end of the report will outline the impact and effectiveness of the proposed system to the organisation, management level and employees in the business.
Information system is a set of interrelated components that retrieve, process, store and distribute the information to support the decision making in an organization (Laudon & Laudon, 2009). In order to identify appropriate business and information required by Aalsmeer Flower Auction (AFA), the organisation can use SWOT analysis to carve out a strong business strategy to meet strategic opportunities.
1.1 SWOT Analysis of Aalsmeer Flower Auctions
AFA recognized the organisation strength as the world largest Dutch Flower Auction evidence by holding market share of 44% (Esmeralda Farms Inc., 2011) and play as mediation role to global growers, wholesalers and exporters in the flower industry. AFA is also viewed as the world flower price indicators for growers in price setting and retailers to obtain the right price for bidding in the auction. The organisation is efficient in transferring products by breaking large consignments from growers into smaller amounts for buyers.
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One of the weaknesses is AFA unable to response to flower industry that is demand oriented. The organisation unable to satisfy changing demands of retailers asked for fresher products, more varieties, smaller quantities and multiple deliveries each week. The nature of auction rules did not provide incentives to buyers by supporting transaction in large lots (Eric Van Heck, 1997) is one the reason customers switching auctions to get more benefits.
AFA created inconveniency for both parties during business transaction because buyers have to be physically present in an auction room and growers then package the product as specified and deliver it the next day to the buyer location in the auction complex or to other buyer warehouse (Eric Van Heck, 1997). Thus, packaging cost is incurred multiple times for transferring the flower to the auction and repackaging for transport out of the auctions (Ajit Kambit & Eric Van Heck, 1995).
Internet or new Information system is seen as the opportunities of AFA to gain more market share by increasing the transparency and supporting decision making of both parties via new information system. Through the new system, AFA can redefined value chain and strengthen the link with wholesalers and retailers by reducing in overall transactional cost.
However, AFA faces many threats in the industry starting from the domination of electronic driven market over the traditional flower auctions. Then, the competitive environments encourage the forming of mergers and acquisitions among retailers which led to high bargaining power of buyers in the industry. AFA also threaten by increasing trade outside the auction as growers are opt to different way of selling such as via electronic and direct selling.
2.0 NEW SYSTEM OBJECTIVES AND STRATEGIES
Figure Porter’s Generic Strategies (QuickMBA.com, 1999-2010).
2.1 Cost Leadership Strategy
By reviewing the SWOT analysis of Aalsmeer Flower Auction (AFA), it is seen that suppliers and customers are more appealing to generate lower cost in business. Thus, low cost leadership strategy proposed by Porter (1980) is the most relevant focus for AFA in gaining competitive advantage through the reduction of transaction cost to both suppliers and customers.
AFA can acquire cost advantage by improving process efficiency by installing new information system features similar to the case of AVNET Marshall. The organisation reported the Internet database benefit the organisation in reducing operation cost and strengthening business relationship between suppliers and customers (O’Brien, 2003). Intranet enables suppliers to get point of sale and inventory status report about their product any time for replenishes purpose. Customers, on the other hand, can check the inventory status of the product they want as well as the order they previously placed (O’Brien, 2003).
Besides, AFA management able to keep costs at minimum by effectively link the use of new information system features in their value chain which consisting primary and secondary activities. For instance, AFA could save transaction cost by outsourcing the logistic process (primary activity) to downstream logistics partners which electronically link through AFA Internet database for sending flower just in time to the auction and customers. While the organisation business functional unit (secondary activities), could increase cost efficiency in gaining vertical integration decision making via proper information system.
The low cost strategy is deemed to create high return to AFA as evidence by Porter’s five forces competitive analysis shown below that illustrate the extends of AFA in gaining competitive advantage after implementing the strategy. If AFA were to implement the strategy, substantial investments has to be made on suggested information system typically on enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management (SCM) which will be explained later in this proposal.
2.2 Porter Five Forces Competitive Analysis of Aalsmeer Flower Auction after Implementation of Cost Leadership Strategy
Porter’s five forces
New market entrant
With the low cost strategy, AFA able to raise barrier of entry of new players to the flower industry as their size is smaller as compared to AFA from the ability of providing lowest cost in large volume of selling as efficient low cost service via the electronically link with buyers and suppliers in the auctions. In this way, the organisation can achieve economies of scale and remain profitable in the industry.
As a low cost leader, AFA could maintain price-value relationship with the use of new information system features to retain customers from going to other electronic driven market.
The strategy enables AFA, the low cost market leader on hold down the bargaining power of suppliers because the use of new information system is effective on reducing the increase of price level to buyers. For example, electronic data interchange (EDI) enable fast and speedy electronic connection between the business and its suppliers. This yield benefits for suppliers in term of reducing warehousing cost, delivery times and increase accuracy of information (Curtis & Cobham, 2005).
As a low cost leader, AFA aimed to adopt new system help to reduce the search costs of buyers and allow buyers to seal the bids anytime anywhere without constraint. In this way, it builds strong customer relationship of AFA which is seldom focused by any efficient auctions. Thus, buyer’s incentive on making purchases in AFA will increase.
AFA will gain competitive advantage of being a low cost leader in the industry and competitors will be competing in price war. However, it would not affect AFA in the long run because competitors tend to be small scale and they will sooner be eliminated in the industry as cost of keeping everyday low cost does not justified their profit. AFA, on the other hand, benefited as the monopoly in the industry and more likely to capture more profit with low cost strategy.
2.3 Cross -functional Enterprise System
Many organizations view cross-functional enterprise system as a strategic way to use information technology to share information resources and improve the efficiency and effectiveness of business processes, thus helping E-business attain its strategic objectives (O’Brien, 2002). AFA is recommended to invest in cross functional enterprise system consists of enterprise resources planning (ERP), supply chain management (SCM) and customer relationship management (CRM) as part of their survival strategy.
2.3.1 Enterprise Resource Planning (ERP)
Enterprise resource planning (ERP) serves as a framework to integrate and automate many of the business processes that must be accomplished within the manufacturing, logistics, distribution, accounting, finance, and human resource functions of a business (O’Brien, 2002).
The integrated software enables AFA in achieving efficiency through the fast and accurate data transfer and sharing by many different business processes and functional units throughout the enterprise (Curtis & Cobham, 2005). For example, ERP software effectively help manufacturing company typically in tracking the status of sales, inventory, shipping, and invoicing, as well as forecasting raw material and human resource requirements of the business (O’Brien, 2002).
Financial and accounting
On the other hand, AFA require a complete and efficient accounting system to offset the challenges from electronically driven flower market. ERP software supports financial and accounting departments to process financial information using systems such as cash management, credit management, order processing and financial planning. For example, order processing system provide fast, accurate and efficient method of recoding and screening customer orders in the auction (O’Brien, 2002, p.149). This streamline the management of AFA on making important decisions such as allocate of proper amount of investment on flower warehousing after revising the forecast financial performance of the company.
Besides, AFA also needs a proper human resource management (HRM) to improvise the internal performance in order to create more satisfying customers and suppliers’ service performance, which is essential to increase the market share of the organisation. HRM information systems involves staffing, training and development and compensation administration which benefit AFA in making proper job and employees allocations in each department quicker and involve little physical intervention of HRM departments. For example, AFA could increase the morale of employees through computer based multimedia appraisals to motivate employees to enhance job performance in various departments.
2.3.2 Customer Relationship Management (CRM)
According to O’Brien (2002), “the odd of selling a product to a new customer are 15 percent, whereas the odds of selling a product to an existing customer are 50 percent”. Thus, customers’ retention is relatively important for AFA to survive in the demand oriented flower industry as well as capturing new customers to secure business’ profitability.
Customer relationship management (CRM) is one of the systems that can help AFA to achieve long term business relationships with customers for mutual benefits (Bocij et al, 2003). CRM system consists of software that enable AFA to interact with customers through integrating and automating many of the customers servicing processed in sales, marketing, and product services. For example, AFA can use CRM software to keep track of customers’ contracts from the database that revealing the flower purchase patterns and the dealing price. And through the database, AFA can implement suitable marketing strategy such as by sending electronic newsletters regarding the hot deals of flowers product that up to certain customers’ purchase preferences.
Besides, AFA can even effectively identify profitable customers and then implements appropriate customization and personalization of products and services that based on customer wants, needs and buying habits and life cycles (Brien, 2002, p.131). AFA can improve customer service and support by through help desk software, which is part of CRM program to assists customer who having problems such as giving advices for customers in the choice of growers that can satisfied their product requirements. Electronic service data showing portfolio of growers and their respective flower offered can facilitate assistance of help desk too make quick suggestions for resolving problem.
In this way, AFA can strengthen the link with customers as CRM provide fast, convenient, dependable, consistent customers experience and superior service and support across all the contact points a customer chooses (O’Brien, 2002, p.131).
2.3.3 Supply chain management (SCM)
Supply chain management is defined as coordination of all supply activities of an organization from its suppliers and delivery of the products to its customer (Chaffey & Wood, 2005). Aalsmeer Flower Auctions is also recommended to utilise SCM as a way to foster the relationships with their suppliers, growers and retailers. SCM can help the organization to reengineers and streamlines traditional supply chain processes by encouraging the stakeholders to use intranet, extranet and E-commerce Web portal.
The system also aimed at helping organization to achieve agility and responsiveness in meeting the demands of retailers and the needs of growers and wholesalers. By using SCM software, AFA can optimize supply chain process, aided by Internet technologies. For instance, inventory management is improved through the information sharing (data) on demand from products within retailers (Chaffey & Wood, 2004) which reduces the number of times a product is handled, reducing overall packaging costs and damage (Eric Van Heck, 1997) of AFA results in reduction of transaction cost.
3.0 NEW SYSTEM DEVELOPMENT METHODOLOGY
3.1 Waterfall Model of System Development Lifecycle (SDLC)
It is recommended for AFA to use waterfall model of system development lifecycle (SDLC) as a framework for introducing new information system development. As illustrated in Figure 2, SDLC involved seven phases of system development which are initiation, feasibility, analysis, design, build, and implementation and finally review and maintenance. Each phrase need to be completed before the next commence. Thus, the overall system could be affected if the output presents week in any phrase in the process.
Figure the traditional waterfall model of information systems development (Bocij, 2003, p.298)
Initiation is the start-up phrase in SDLC involves evaluation of the essentials or ideas to be considered in the information system in order to support the business needs of AFA. As illustrated in the case study, AFA acquires the support of new information system to maintain the organisation strong position in the flower industry as well as establishing rigid business relationship with growers and retailers. Thus, the key focus of the new system is to improve the efficiency of the organisation, buyers and suppliers in reduction of transaction cost.
After identifying the general needs of new information system, feasibility phrase is then established as a check point of the suitability of computer-based information system based on certain feasibility criteria as shown in Table 1 below. AFA might need to revise these criteria as before further proceeds the new information system.
Table Feasibility criteria needs to be taken account in system development.
Does AFA have sufficient technical support of the require system?
Does AFA have enough financial resource to develop and sustain the new information?
Does the new system benefit AFA in the viewed of cost benefit analysis?
Does the proposed information system capable of helping AFA within the required speed, volume, usability and reliability?
Do the existing employees have positive attitude and skill sets towards the proposed system?
In order to answering the criteria, AFA will need to analyse through the investigation on the current system and the related documentation. Interview is one of the best ways for AFA to obtain the opinion of employees regarding the new system and the results are needed to be documented for the system analysis.
Once the proposed information system is agreed to be feasible, system analysis phrase begin where the AFA need to determine types of system required for the business. AFA will need to analyse the strength and weakness of their present system such as the operating system, volume, and response times. AFA is also recommended to revise the user requirement analysis document as a way to further improvise the proposed systems as well as other types of requirements shown in Table 2 below. The output of this stage involved a detailed requirements specification summarising system functions involving the use of data flow diagrams in order to approve by IT professionals and system users.
Table Examples of the functional requirements (O’Brien, 2002, p.286)
Examples of the functional requirement
User interface requirement
Automatic entry of the product data entry screens for Web customers.
Fast retrieval and update of the data from the product, pricing and customer databases.
Fast, automatic, calculation of sales totals, and shipping costs.
Signals for data errors and quick E-mail confirmation for customers.
By using the user requirement analysis document generated from the previous stage, AFA will enter to system design phrase. System design specific how the system will accomplish the requirements identified in previous stage. In this phrase, AFA need to specify the database, production and activities to support the user interface in the system design. For instance, AFA will require large data storage and capture to support internal usage as well as to the external usage such as the transaction record and other detailed about the buyers and suppliers.
Besides, internal and external controls need to be part of the designed to ensure the system would be reliable, accurate, secure and maintainable. Lastly the phrase will end up with system design specification which will be presented to the actual users for review and approval.
System build phrase is the creation of software involving writing software, constructing and populating the database and testing by programmers and end-users (Bocij et al, 2003). In this phrase, AFA needs to conduct operational documentation and procedures of ERP system which tends to have tricky user interfaces and highly customized. AFA need to educate employees through training courses in order to utilize the system effectively. AFA also suggested establishing websites that is attractive with user friendly interface such as video tutorials and with updated press release to educate the customers and suppliers to use the new system.
Due to fact that ERP is too complex for new user, AFA will need to test the performance of software by installing step by step to avoid system failure. Besides, the connectivity and accessibility of Internet database is a concern for AFA as it is important to strengthen the relationship between buyers and suppliers.
It is often to encounter errors at the live running stage; AFA will need to revisit any of the previous stage in SDLC, and continued the system in operation until the errors are corrected (Bocij et al., 2003).
3.1.7 Maintenance and review
After the system changeover, AFA should review the information system such as ERP, CRM and SCM, because failures and problems tend to arise during operation over a period of time. Thus, in this phrase, AFA is ought to maintain the system by closely monitoring, evaluating and modifying the information system to ensure it meet the changing business requirement.
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AFA need to undertake the post implementation review process to monitor the security and firewall of the system in order to prevent leakage of company’s confidential such as customers’ information from system hackers. On the other hand, evaluation on the database storage is required for AFA to ensure it is adequate on supporting growing of suppliers and customers over time. Additionally, it is also important for AFA to undertake system modification such as by adding new functionalities and features because the adopted system may turn obsolete due to changing business environments.
4.0 NEW SYSTEM IMPACT AND EFFECTIVENESS
4.1 Impact and effectiveness of new system to organisation
The usage of information system is deemed to delivered efficiency to AFA through the reduction of transaction costs particularly in the coordination of warehousing, communication with suppliers and customers. For instance, information such as varieties of flowers, delivery dates and current status can be acquired electronically via Internet database or email which can deliver greater value to customers.
On the other hand, the cost on developing a new system is high for AFA and the worthiness of new system application depending the gaining of the organisation. According to the findings of Brynjolfson’s (1993), the computing power has increased by two orders of magnitude since 1970s, productivity, particularly in the service sector has stagnated (Davies, 2002). This means if no improvement in productivity is deemed to create losses to the organisation because the benefit outweigh the costs incurred before implementing the new system.
4.2 Impact and effectiveness of new system to management
ERP system improved the efficiency in management decision making process as information processing can pass down to each level speedy and in a systematic way. On top of that, ERP system reduces human’s workload and minimized human errors while preparing documentation. In this way, managements can refocus on more important task such as trim down operational cost by downsizing the number of employees need in the organisation.
In reality, it would be hard for AFA management to lay off any of the workers who have been loyal to the organisation after years of contributions. Thus, AFA needs to be rational in filtering the pro and cons of the decision as the organisation benefits are priority concerns of all businesses.
4.3 Impact and effectiveness of new system to employees
The new system will definitely create both positive and negative impact to the employees. First of all, ERP system demanding IT competent workforce attributed to its complexity and the needs of managing, programming and maintaining the system. Employees may be motivated to increase their IT skill to adapt the changing environments in the organization. Additionally, the system will enrich jobs and provides greater degrees of workers empowerments (Davies, 2002). For instance, customer service is improved by letting customer service personnel make instantaneous decisions about actions to take in relation to customers with the aids of information system (Davies, 2002).
However, the automation system reduces social interaction among workers due to the frequent usage of electronic mail in organization communication. Workers on the other hand feel stressful because worry to be laid off as their job roles is slowly replaced by information system. Thus, AFA needs to increase the workers’ morale with relevant consultation and rewards system in order to prevent the occurrence of low productivity after implementation of new system.
Conclusively, AFA still remain its roles as flower mediators by strengthening the business relationship with both wholesalers and retailers via new information system application. New system enhances flexibility of both parties as in they no longer need to be physically present in the auctions to make deals which reduces unnecessary cost the process. Retailers can now browse and search varieties of flowers available online and seal the bids of their favourite just by one click in the AFA Internet database. While growers, can now constantly updated with the stocks needed in the auction by accessing the Internet database. In this way, AFA is likely to increase market share if they stay competitive in industry.
Last but not least, AFA should constantly alert and proactive in the industry as the current proposed system may turn obsolete overtime. Thus, modifications of the system need to be made in order to provide more conveniences of the organisation internally as well as to satisfying other stakeholders like growers and retailers in the business place.
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