Assignment-1 Dairy Farm Group-Redesign of Business Systems and Processes The Dairy Farm Group of companies founded by Sir Patrick Manson began as a small business of supplying cow’s milk to the people of Hong Kong in 1886. In the next 100 years it gradually expanded to become one of the major food retailers with more than 1350 stores, restaurants in major cities of the Asia-Pacific region with employee strength of more than 45000 employees.
The main business goal of the company is to be a leading food and drug store operator in both sales and shareholder value. Over the years it has followed a growth through acquisitions and partnerships strategy with major acquisitions like 200 7-Eleven stores, 180 Simago’s in Spain and joint ventures like that with Nestle. In addition to these internal problems, the group is said to have faced a host of external problems as well.
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Margins were shrinking because of economic crisis that gripped the Asian market in the latter part of 1997. Also new competitors had begun to emerge from European and US retail chains. I think the Daily Farm Group tried to expand too quickly without matching its resources and capabilities to fit with the increasing demand created by the expansions. I also think the group has no problem with its human resources. The problem lies in the integration of the workforce with its existing systems and operations.
Also as the group comprises of a large number of small companies which are geographically dispersed, the group needs to identify and implement centralized basic core processes such as accounting, supply chain, supplier identification and management and also build a open network of communication where free flow of information could benefit each of these companies and lead to substantial cost reductions. In a bid to focus their attention towards achieving their mission of being a leading food and drug store operator, the group reorganized its entire management with a new CEO being hired in 1997.
The company sought recommendations from two consulting firms to improve its current processes and to introduce quality innovations in its systems and processes to achieve economies of scale and scope and hence to gain competitive advantage in the market through cost reductions. The group decided to award the final contract to the group whose recommendations fit the best as far as the future strategy was concerned. We will now discuss the recommendations provided by each of the consulting firms. The following recommendations were provided by Firm A:
The stores adopt electronic retailing to complement the store retailing to increase customer service and satisfaction. Create an integrated set of applications within each business unit to allow for the free flow of information. It was also recommended that all store applications interface with operational systems such as finance, merchandising, warehousing and human resources. Develop an n-tier client server architecture using an internet browser with the user interface and application server as the middle tier and rewrite all centrally deployed applications in the mainframe environment.
Provide secured, location-independent access to corporate information resources to all three distinct classes of mobile users namely telecommuters, traveling employees and task oriented mobile users. To facilitate data analysis and decision making, the firm recommended that DFG develop Data Warehousing and Data Marts. To improve inventory management, the Firm recommended that suppliers and vendors be provided access points on the corporate intranet so that direct buying by stores could be quickly organized and records were easily maintained.
To achieve the core competencies, the Firm recommended that training and systematic assessment of required technical skills be made so that staff effectiveness could be maximized. The consulting firm recommended the following changes: Build common store applications around standardized technology and redesign existing applications so that all important decision making data was captured at transaction points. To achieve economies of scale, all store systems be integrated with operational systems and be extended to suppliers and buyers.
To improve inventory management, a central merchandising system be created to monitor individual inventory levels and store orders. Introduce e-commerce into the system and begin with advertising on the web before moving on to selling and buying on the web. To bridge the gap between stock inflow and outflow, the company recommended establishment of a common buying and selling process. Technical Component: Firm B recommended that DFG need to change from a federation to a group business structure and for that it needed to build a corporate-wide network that provided group wide information systems through nterconnections across the various Business Process Domains. Provide enterprise wide security, integrity and credibility to support the core infrastructure services with some services being used explicitly by application programs while others dependent on operating systems and databases. To develop a Technology Strategy and Architecture group to constantly conceive, develop and maintain DFG’s technical architecture. Analysis: I think that both Firms have good strategies in place for the group.
While the main focus of Firm A is on technology integration, Firm B focuses more on re-engineering business processes. I think that recommendations of Firm B seems the best option to move forward for the company as it focuses on improving business processes before integrating technology. As I mentioned above, technology cannot alone help achieve business improvements. Technology as far as Firm B is concerned is not a tool to support existing functions but to play a role as an enabler of new organizational forms.
The re-engineering framework is focused on all four aspects needed to gain competitive advantage i. e. organization, technology, strategy and people. Firm B concentrates on core business processes with an aim to update constantly the existing processes. As far as the supply side is concerned, the re-engineering process will enable smooth flow of materials, information and services from warehouses to end customers. As far as the demand side is concerned it puts pressure to achieve economies of scale and scope.
The technology strategy and architecture group is a good example as far as future growth is concerned. Another aspect that could be a value addition to the recommendations of Firm B is the balanced scorecard approach to achieve the required objectives, goals and targets of the future. Successful competitors like Wal-Mart could be benchmarked for their way of integrating technology. This would be major gain for DFG as it would be difficult for emerging competitors to achieve the same level of supply chain efficiency especially in the Asian market.
These competitors will have to customize their systems and operations to suit the local market and thus this would be major competitive advantage for the firm. Also I think going ahead with the e-commerce strategy will be a solid value addition as far as customer satisfaction and service is concerned. The main factors which are important for successful implementation of technology plan are: 1) Identifying how the technology plan fits with the existing resources and capabilities. 2) Identifying the scope and requirements (Financial, Human & Operational) for the plan. ) Monitoring and maintaining continued learning and training. 4) To check the reliability of the hardware and software network. 5) To add or to eliminate redundant suppliers and to form a sound supplier network to support the technological infrastructure. 6) Lastly, to gain effective feedback from customers to gather information on the effectiveness of the technological infrastructure. Implementation Schedule: I would follow the schedule mentioned below: Selecting the business processes in questions and appoint specific teams for each process.
Understand the existing process Develop and communicate vision of improved process. Identify and implement the action plan. Execute the above plan. Monitor the changes and get employee feedback. I think both the Firms aimed at changing DFG from a federated business to a single entity. Firm B recommended dividing entire set of operations as Business Process Domains to serve geographically dispersed regions. Also networking of store LAN’s with data centers and central office for data transmission is an important step in achieving the objective.
Another important factor in achieving the objective was to integrate all store systems with standard DFG management mechanisms. The introduction of ecommerce into the systems for advertising was an important step in integrating the system into a single entity and a good move towards the future. The reason for that is if we analyze the industry using porters five forces, the threat of new entrants and threat of competition is relatively high, thus advent of electronic trading and marketing would make the future profitable for the company.