How Information Technology can transform business : Part 2
Business transformation using IT:Two case examples
These stages of transformation are bestillustrated by case examples. Below, you will find three examples of Textile and Apparelfirms that have harnessed IT to exploit core competitive advantages.
Established in 1984, Company A is a specialist manufacturer of diving suits. In 1997,turnover was around £2 million ($3.2 million) and the company employed approximately 60workers. The company realized progressive growth based on superior product design andtechnology.
Early investment in IT systems
Their starting point was a PC-based accountancy package for management of financesand to improve stock control. As the company expanded the range of products grew. Thisultimately resulted in problems with scheduling and control. A decision was taken topurchase a custom software package to schedule and monitor manufacturing processes. Thesuccess of this application encouraged further investment to facilitate transactionalprocesses and payroll.
Investment in an integrated IT System
Subsequently, a decision was taken to introduce a BS5750 certified quality controlsystem linked to an IT package that gave 100 percent traceability. A software house wasbrought in to develop an entirely new system to integrate existing islands of IT and toprovide an opportunity for future modular expansion (internal integration).
However, during this process, managementbecame aware that co-ordination problems were taking-up a considerable amount of theirtime. It was then decided that business processes should be re-engineered to enable newcapabilities offered by IT. The first development involved establishing on-line linkageswith customers, which enabled them to design their own products using the company's CADinterface. These connected directly to the production scheduling and costing system. Itallowed customers to look up expected delivery dates, the cost of each item ordered and toplace orders or book production space directly. Dealers used the system to sell directlyto their own customers.
Company A found it could sell directly toretail and cut out wholesalers. Subsequently, the system was extended to link with majorsuppliers. However, this met with resistance from companies with less advanced ITapplications. IT was introduced into the company's products. Microprocessor controlledheating systems maintain temperatures and fabrics that generate electrical energy frommovement are being developed as a power source.
Company A's IT investment strategy was notbased on percentage of sales or cost benefit analysis. Instead it was based on the need tosolve specific problems. The company's founder noted how he had developed a manufacturingoperation that ran itself and which left him and his specialists to focus on the moreimportant issues.
Company B - From mind to market
Company B is a successful US fashion retail chain with over 3,000 storesnationwide. The company has re-engineered its business processes and redesigned itsbusiness networks, utilizing IT, to achieve a supply chain management system. This systemis considered to be four to five times faster than its competitors. The logistics systemsincorporate IT and integrate manufacturing, distribution and communications. It is made upof the following elements:
- from point-of-sale computers in all stores, daily sales reports flow back to the company's headquarters
- to restock its best sellers, production orders are sent by satellite to plants in the United States and in Asia
- goods manufactured in Asia are flown to the company's automated distribution center in the US, four times per week
- at the Distribution Center (DC), apparel is sorted, priced, and shipped within 24 hours to stores nationwide
For replenishment items, this gives aresponse time of two to three weeks rather than months.
Company B took the initiative to reduce thetime taken to bring new product developments to market. The company knows what is going onin the mind of consumers through focus groups. Product development teams translate thisinformation into appropriate merchandise. Specifications are sent by satellite to HongKong or Taiwan. Estimates are done by CAD/CAM systems within three days. Following orderplacement, the merchandise is shipped within three weeks by air to the company's DC in theUS before being shipped on to the stores. The system is designed to achieve the wholecycle from 'mind to market' within 1000 hours (or six weeks). Air freighting issignificantly more expensive than sea, but the company has calculated that this is moreprofitable than marking down the merchandise. The company has a turnaround of 760 hoursand they are aiming to reduce it to 500 hours. According to the company the benefitsprovided by this reconfiguration of business processes and networks are:
- lower inventory costs
- shorter lead times
- increased product availability and dependability
- accelerated and more accurate product development
- improved customer communication and higher customer service
- lower total system cost
- higher sales and profitability
Company C - A virtual apparelmanufacturer
Company C is a long established manufacturer of branded leisure apparel. Inrecent years, the company has been completely re-engineered to become a 'jobbing apparelmanufacturer'. All factories were sold to former management or closed and the headquartersrelocated. A team of three marketing and financial specialists now runs the company.
The company owns no shops or factories. Itsub-contracts activities including market research, new product design and development,manufacturing and logistics to a network of sub-contractors around the globe. Thesecollectively service the network of retail customers. All the nodes of the network aretied together and unified through IT. IT has replaced physical proximity, reduced the needfor physical movement, and eliminated the need for ownership of supply chain processes.
For Company C, IT has enabled a completereconfiguration of the business scope through re-design of the business network andbusiness processes. Through IT the company has achieved virtual integration of its supplychain and, through an holistic approach, bound all partners together.
'A journey of 1,000 miles starts with the first step.' Mao Tse Dong Investment inIT by companies typically follows an evolutionary path from initial, localizedexploitation through systems that effect internal co-ordination within the business. Thisultimately leads to those that alter business relationships and scope. A company'sposition in the framework and that of its competitors helps to define the appropriate ITobjectives for the company. Therefore, if a competitor has achieved BPR, then forcompetitive parity the company should match this. To gain competitive advantage throughIT, the company would have to attempt to leapfrog its competitors by pursuing BNR inaddition to BPR.
Not all investments will provide acompetitive advantage. Instead, they may be necessary for survival. Consider, for example,a supermarket, which does not have an automated checkout and payment system, ElectronicPoint of Sale (EPOS) and Electronic Funds Transfer at Point of Sale (EFTPOS). However,companies should not take for granted that investments should stick rigidly to this path.There may be opportunities to skip specific stages. Finally, IT systems which rendersophisticated improvements in the business are not necessarily leading edge and incrediblyexpensive. Consider the example of Company A. This company has followed the classical pathover the last 10 years from islands of technology through to BPR and BNR. The company hasgrown in the process from a handful of employees to more than 60. Their example shows thatsmall businesses can harness IT successfully to lever a competitive advantage in themarketplace.
Peter Kilduff is associate professor ofMarketing and business strategy in the college of Textiles at North Carolina StateUniversity, USA. His expertise lies in the competitive and structural analysis of thefiber, textile and clothing industries and their markets. His 15 years of research intothe dynamics of these industries has embraced strategic, marketing, organizational andsupply chain management. He has particular interest in the impact of new informationtechnologies.
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