Junk Van - Note to C Levels

Fellow C-Levels,

Subsequent to the presentation and advisement concerning our insufficient information technology system I offer the following.  I agree with the consultant’s opinion that our current data transmission process, which has caused orders to be forgotten and resulted in dissatisfied customers, requires an upgrade.  The use of our current IT system has affected our organizational efficiency and will not support our future growth model of expanding our business through franchising.  To transform our firm and elevate our business I recommend we implement a PaaS system as suggested by the consultants.  I believe the implementation of a PaaS system which uses cloud computing infrastructure and offers us the ability to create customizable applications to fit our business needs is the best solution to our problems.  The cost charts provided by the consults prove the conversion while costly will generate a positive ROI.  I can already envision orders being entered into the system and automatically send to the drivers handheld devices complete with accurate customer information and easily accessible maps and directions to the project sites.  Then, once the drivers complete each project real time data will be sent back to our corporate headquarters for invoicing.  In addition, payroll reports will be generated automatically and sent to Mr. Kingo for approval.  The upgraded IT system will have an immediate impact on our operations and enable us to meet the growing demands of our business and support our future franchising growth plans.

Zara

Zara is facing a decision to replace their legacy information technology system with a current enterprise resource system.  The conversion will alter the organizations long term and successful sales process.  The fact that further complicates the decision is Zara’s current electronic information system is working well and has done so for many years.  However, as technology progresses, their legacy system, which is DOS based is no longer supported by Microsoft.  In addition the PDA’s used in retail stores to transmit sales orders use a hardware device that is continuously being upgraded and may soon be completely unavailable.  Finally, the current legacy system lacks a centralized network which prevents the various business departments to communicate electronically.

Zara’s current information technology system has worked well with the business model to quickly and accurately respond to the shifting demands of customers which is evidenced by the fact that Inditex, the parent firm of Zara, was able to triple company earning from 1996 to 2000 and recently posted a net income of $502 million dollars.  This rapid growth and impressive net income serves as a valid argument against altering the company’s current information technology system and sales process.  Nonetheless, as time progresses Zara’s data collection and transmission process is growing old leaving the firm vulnerable to competitors who can replicate Zara’s business model and leverage technology to create a competitive advantage over Zara.  Therefore it is prudent that Zara examines their current information technology infrastructure and determine if there is tangible value in upgrading their system.

At La Cruna several information system are used to support Zara’s operations.  Internally developed systems are used to prepare the inventory offers, distribute the offer via the internet to stores around the world, receive orders and aggregate the orders.  A separate system compared the aggregate order to available inventories and highlighted situations of supply and demand imbalance.  A third system tracked theoretical inventory levels which are calculated by subtracted store sales from inventory shipped.  Sales data is transmitted from each store at the end of each business day via a modem connected to the stores POS terminal.  The factories use a simple application to plan production omitting sophisticated programs that could be used to optimize production schedules.  Distribution centers relied on a network of conveyors to sort the merchandize for shipment.  Finally all retail stores used PDA’s and POS systems.  PDA’s were used primarily for ordering, tracking garment returns and transmitting data from corporate headquarters.  POS systems operated on DOS.  Neither the POS nor PDA systems were always connected to headquarters or other stores which from a technology standpoint meant each store was operating on its own technology island until the end of each work day.

The decision criteria to upgrade to an enterprise resource system include the following.  If Zara upgrades their information technology system how will it affect the current sales process?  How long will take to perform the upgrade?  Will the solution be user friendly and support the current business process?  How much will the upgrade cost and will the firm experience a positive ROI on the investment?  If the firm doesn’t upgrade how much longer can they effectively operate using the current information system?

The first course of action that should be considered is no action.  Keeping the current legacy system has both advantages and disadvantages.  A few advantages of keeping the current system include global familiarity with the system, ease of use and historical success.  A few disadvantages of keeping the current system include the lack of networking capacity, no tangible inventory tracking program, the fact that the hardware being used will not be available forever and the threat of competitors mirroring Zara’s sales strategy and using technology to create a competitive advantage and steal market share from the firm.

The second alternative is to scrap the legacy system and implement an enterprise resource system capable of supporting all of Zara’s organizational processes.  The enterprise resource system should have full networking capabilities.  Every computer Zara uses should be connected to the network and continuously communicate with one another.  Beginning with the retail stores POS devices should be upgraded and be capable of logging and transmitting in real time all sales and inventory data to corporate headquarters.  PDA’s will be eliminated as inventory will be scanned upon receipt at the retail store, logged into a database and tracked by the POS devise.  In addition, POS devices will be used to generate new orders.  Automated systems can be developed to determine which items are selling well and which items are not.  The same system would be able to determine inventory imbalances and assist in determining which goods can be reallocated to stores where they are selling.  Factories will also be connected to Zara’s ordering network and once orders are confirmed factories will be provided with all the data they need to schedule production.  Advanced production programs can be developed to determine the most optimum production schedule.  Networking all of these systems will enable Zara to further enhance its ability to quickly and accurately service the ever changing demands of its customers.

Weighing the options against the decision criteria I recommend Zara upgrade their legacy information technology system to an enterprise resource system.  The implementation should be global.  My recommendation is support by the following reasons as they relate to my decision criteria.

If Zara upgrades their information technology system how will it affect the current sales process?  Zara’s current sales process and goal of satisfying the ever changing demands of their clients will be enhanced with the use of a networked enterprise resource system.  Automated network programs will enable the firm to monitor sales and changing trends in real time.  Order decisions can be made using supply and demand data and merchandise can be shifted to location with the highest demand.

How long will take to perform the upgrade?  We estimate a full scale, globally implemented upgrade will take 20,000 worker hours and one year.  A dedicated team of 55 workers will be assigned to the project.

Will the solution be user friendly and support the current business process?  The redesigned system will be unfamiliar at first and will require the firm to provide training and support.  After ample training the new system will be as user friendly as the legacy system.

How much will the upgrade cost and will the firm experience a positive ROI on the investment?  The anticipated cost of the upgrade is shown below:

·         Operating System for POS terminals – 550 locations x 5 per location x $170 = $467,500.00

·         Hardware – 550 location x $5,230.00 = $2,876,500.00

·         Connectivity – 550 locations x $240 = $132,000.00

·         Overall Programming – 20,000 hours x $56.25 = $1,125,000.00

·         Retail Installation & Training – 550 locations x 4 days x $2,000 = $4,400,000.00

·         Total Cost - $13,208,500.00

·         Current Net Income - $502,000,000.00

·         Required increase in sales to cover cost of upgrade = ($502,000,000.00 + $13,208,500.00) / $502,000,000.00 = 2.631% increase in net income to cover the cost of the upgrade

If the firm doesn’t upgrade how much longer can they effectively operate using the current information system?  If Zara elects to stay with the legacy system they’re exposing themselves to liabilities that the hardware they use will no longer be produced.  In addition they’re already using POS systems which run on DOS and are not supported by Microsoft.  Staying with the current legacy system will become a future issue that has catastrophic implications.

iPads for Success

Dr. P,

In accordance with our discussion regarding replacing our pharmaceutical sales associates laptops with iPads I offer the following.  For many years our firm has successfully utilized laptops equipped with our current CRM program to market and sell drugs to physicians.  Our system has been effective however as technology evolves we must embrace change and seize the opportunity to use technological advances to creative a competitive advantage.

Implementing the use of iPads will improve the visual portion of our sales presentations.  In addition, the iPads will enhance our brand image and we’ll perceived as a technologically advance organization who is willing to invest in and embrace new technologies.  

Our sales associates typically speak with physicians for approximately 2-3 minutes in the hallways of the physician’s office.  It is critical that we optimize the extremely limited amount of time we spend with the doctors.  The iPads are smaller in overall size and much lighter to carry making them easier for our sales associates to handle.  This ease of handling will enables the sales associates to show the doctors graphs, forms, short videos or case study results more effectively during their 2 minute presentations.  A clean, crisp, efficient and technologically advanced presentation will optimize the time our sales associates spend with the physicians and increase our sales revenue.

From a financial standpoint we upgrade our laptops every three years.  We’re at the end of the second year of our current three year rotation and our expected budget to upgrade our laptops next year is $3,750,000.00 ($1,500.00 x 2,500 sales associates).  The laptops we’re currently using cost us $3,375,000.00 ($1,350.00 x 2,500 sales associates).  We’ve used our current laptops for 2 years which using straight-line depreciation equates to a utilized value of $2,250,000.00 ($3,375,000.00 / 3 * 2) leaving us with an unutilized value of $1,125.000.00 ($3,375,000 - $2,250,000).  We can expect to sell the laptops for $750,000.00 ($300.00 x 2,500 units) 

If we switch to iPads at the beginning of next year the cost to purchase the iPads will be $1,500,000.00 ($600.00 x 2,500 sales associates) plus the cost for CRM data conversion and training which is estimated to be $7,500,000.00 (5 times the cost of the hardware).  Adding the items together, one year of unutilized laptop budget (i.e. sunk costs) $1,125,000.00 + cost to purchase iPads $1,500,000.00 + cost for CRM data conversion and training $7,500,000.00 – sales of laptops $750,000.00 we arrive at a total cost to switch to iPads of $9,375,000.00.  Our budgeted costs to upgrade our laptops in year three is $3,750,000.00 which provides us with a delta expense of $5,625,000.00 ($9,375,000.00 - $3,750,000.00) for the conversion.  During the three year expected life of the iPads each sales associates will need to generate an additional $62.50 in monthly revenue to justify the expense ($5,625,000.00 / 2,500 x 36).

The use of the iPads will increase our brand image and allow us to optimize the time our sales associates spend with the physicians which will equate to additional monthly sales revenue during the course of a three year period which exceeds the target mark of $62.50.  For this reason I recommend we perform the switch and provide our sales associates with iPads.

Junk Van

The problem facing Junk Van is that the organization does not have a proper system in place to facilitate the efficient and accurate flow of job information.  The symptoms of this problem are the increased occurrence of errors during information transmission leading to forgotten jobs and unnecessary database shutdowns and maintenance.

Junk Van is experiencing rapid growth.  During its first year in business the firm doubled its annual revenue from $300,000 to $600,000 and expanded from one truck to five.  Junk Vans current resource planning process is unable to keep up with the current level of business demand.  Their billing methodology is working properly, a flat fee for service plus a per pound rate for junk disposal.  However, job scheduling, invoicing and cash collection methods are creating driver inefficiencies.  The job order system is broken as email transmission of information is often incomplete.

It’s evident that the information technology infrastructure that is currently in place is insufficient to support both current and future business growth.  Mr. Kingo wishes to keep the IT solution simple and economical.  Ease of use is a top priority.  However, Mr. Kingo’s long term plan for the organization is to expand using a franchising model which means the information system must be scalable. 

The decision criterion surrounding the problem includes the following:

·         Is the selected system easy to use?

·         Does the system enable the efficient and accurate transmission of information?

·         Is the database of information accessible remotely?

·         Is the solution scalable?

·         Does the solution align with long term business goals?

·         Does the solution make economic sense?

There a few solutions that should be considered.  They include MS Access which is a low cost solution with central server capabilities and remote access using VPN.  Mr. Kingo would need extra help to implement this solution as he is not confident in his ability to establish remote access using a VPN.  In addition this solution will satisfy the immediate demands of the organization but would be difficult to scale.

The second alternative would be to design a custom application which offers design flexibility and completely customized solutions.  However, since the solution is customized implementation may be delayed since the final product will most likely be subject to multiple revisions.  In addition long term support of a customized solution is an issue as Mr. Kingo would lock the firm in with the solution designer subjected the organization to lofty support fees.

The last alternative would be to use Platform as a Service which is offers cloud computing infrastructure, remote access through an internet connection, the use of both common and customizable applications, the ability to easily create forms and tables could easily be built, manageable service costs $300-$600 per month, add one professional customization support for $180.00 per hour, no long term contract and the solution is scalable.

Weighing the decision criteria identified above we can see that Platform as a Service satisfies all of the predefined criteria.  As seen during an onsite demonstration forms can be easily created and linked to each other which will enable information to be entered, stored and analyzed efficiently.  Since templates can be easily created structured forms can be used for data input and transmission which will insure timely and accurate communication of information.  Platform as a Service uses cloud based computing which enables access though any internet connected device.  The solution is customizable which enables the system to be scaled to match the growth of the organization.  A typical IT budget is 5% of gross revenue.  Junk Vans current annual revenue is $600,000.00 x 5% = $30,000.00 /12 months = $2,500.00 per month.  Platform as a service solution makes economical sense as the implementation costs are well below the industry standard budget for IT services of 5% allowing budget space for customization and hardware upgrades.

Once a platform service provider is selected, database migration will need to occur.  Once a new database is established, custom job and invoicing forms can be created.  The forms will be accessible to the appropriate employees though the cloud.  Drivers will be provided with Wi-Fi enabled tablet devices which will provide access to the cloud.  All job information will be posted in the could enabling drivers to access the cloud at anytime to see current and future work schedules.  When a job is complete drives will update the job forms in the cloud and submit them for processing.  Data clerks will review the completed job forms before submitting the form to AP.  Once in AP invoices will be automatically generated and emailed to the customer.  Customers who do not have email will receive a hard copy of the invoice in the mail. Payroll will be processed from the hours logged into the job forms and paycheck information will be transmitted to Mr. Kingo for review and approval prior to checks being issued.  The Platform as a Service solution will streamline Junk Vans operations, support the current level of business and offer a scalable solution for long term growth.