Proposal for Business Selection Technology Initiative
Centervale Apparel is a textile manufacturing company that seeks to improve the efficiency and performance of all the factors of production. At the same time, the company works under a specified budget of $9.7million for improvement and adaptation of new technology, however, the projects proposed to add up to $15million. This means that some of the projects will either be disapproved or be postponed to be accomplished in the subsequent financial years. The fact that there is a chance that the project may be postponed means that there is a need to prove its urgency and necessity in the company.
The SCM system deals with the purchase and storage of the raw materials required for production, the inventory management process which is inclusive of the documentation of all the processes involved. The system also incorporates the distribution and marketing of the final product up to the point where it reaches the consumer (Hugos, 2011). The main areas that are involved in SCM system are the operational activities, logistics analysis, procurement process and the introduction of new technology. The last aspect is the one that is less emphasized by Centervale Apparel this has resulted in the inefficiencies within the system that presents a situation that requires to be corrected.
a). Project Description
The project is aimed at replacing the legacy order fulfillment in technologies by implementing an SCM system. The SCM system is a supply chain management system that is based on technology. This is based on the contemporary consumerism which is highly demanding and based on information. Manipulation of the market is no longer an easy task. Incorporating technology in supply chain management increases accountability, responsibility, and visibility in the firm.
Once the technology is incorporated, it will aid the SCM in the following ways;
- Keeping the production process on track by anticipating and detecting mistakes and errors which if not corrected in due time can lead to massive losses.
- Automating the sending system will ensure that effective communication is maintained. A single important message can be sent to various distributors and suppliers at once saving up time (Cheng, 2010).
- Electronic invoicing minimizes the errors; computerized shipping of inputs and products also ensures consistency and can easily be tracked (Cheng, 2010).
- Use of smartphones which are very portable makes it easy and convenient to conduct business without even being within the premises of the company. Supply managers will be able to correct mistakes and make orders regardless of their location.
Statement of the Problem
Increased financial losses and decrease in clientele base are as a result of the use of an outdated Supply Chain Management strategy.
a). The History
The order fulfillment team in Centervale Apparel has been using several legacy technology systems to manage inventory and distribution. The current system does not work effectively, requiring redundant information input and processing. Due to the redundancy processes, work is duplicated leading to multiple data entry points. More often than not this results in inaccurate and irreconcilable data.
On the ground, the inaccuracy leads to overage or shortage of supply as a result of the time required for data to move from one point to another. The result is unsatisfied clients who at times may end up leaving an increase in the cost of the inventory management. It is clear that the current system requires to be corrected, to save up on the cost in the future financial years to come. Technology will ease the process of maintaining data and decrease the chances of an error occurring.
Statement of Solution
The solution for the above-stated problem in Centervale Apparel is to adopt a more technologically advanced SCM. In order for this to occur the SCM and technology project has to be embraced. The project is anticipated to have achieved the following goals and objectives by the end of its implementation.
a). The goals and objectives
- Increase customer satisfaction which is targeted at increasing customer loyalty and insistence on the products of the company.
- Reduce the inventory errors that have been a major problem for the company.
- The decrease in implicit and explicit costs experienced as a result of poor inventory management.
- The company will be cost-effective as a cost on the maintenance of an inventory storage system will be established.
Project Cost: The project will cost approximately $1.2 million including infrastructure and resources to complete the implementation and $250,000 annually to support and maintain the new system with a ten-year lifecycle for the system.
- Improvement in the order system-It is estimated that the incorporation of the technology supply chain management system will improve the order fulfillment process. This is because it will be easier to get and track information.
- Time and cost effectiveness-the time and inventory-carrying costs will be greatly reduced. This means more funds will be available for expansion and re-investment back into the company.
- Implementing the system will also aid in the retirement of several legacy systems. Estimated annual cost savings are:
-Data entry staff reduced from 10 FTE to 8 FTE = $100,000/yr savings
Reduction in inventory carrying costs = $300,000/yr savings
Improved order fulfillment = 10–20% decrease in order to delivery time.
This will improve customer satisfaction and retention Improved data accuracy Legacy system maintenance retirement savings = $100,000/yr.
c). Cost-Benefit Analysis
A cost-benefit analysis weighs the cost versus the benefit. A project is said to be viable and profitable if the benefits outweigh the cost. The benefits should be quantitative (tangible), and qualitative (intangible). In this case, the SCM is meant to aid the company is saving both implicit and explicit cost (Ross, 2010). The system should also increase the client level of satisfaction, especially because customers are retail companies who order from this clothing manufacturer. A delay in delivering the order for a client leads to financial losses for the client and can easily deter them from seeking the service and products of the company again.
Costs reduced/ gained by the company= (100,000 +300,000+ 100,000) = 500,000/yr
The initial cost of the project= 1.2million
The maintenance fund per year= 250,000/yr
500,000 – 250,000= 250,000/yr
= 1200000 ÷ 250,000 = 4.8 years
The project is aimed at having a ten-year life cycle during which it will be used for the SMC, the fact that the payback period is 4.8years means that the rest of the ten years the $250,000 will be saved by the company and be put to other uses.
(10- 4.8) × 250,000= 1,300,000
The company within the ten years will have saved 1.3million, more than what was initially used for the project after repayment of the project.
Enterprise Risk Management Model
Enterprise risk management model is based on the premise that the objectives to be achieved by any project or department in a company should be based on minimal risks or manageable risk and exploitation of opportunities (Moller, 2011). By using the model we can easily evaluate the technology SCM system as follows;
Evaluate risks and opportunities and the relative cost benefits of the risks and opportunities
The risks involved in the implementation of the project are financial and foregoing other opportunities. The project is quite expensive because it requires $1.2million and $250,000 yearly for maintenance. This will mean that other projects will have to be foregone by the company in order to implement.
The opportunities include increased accuracy in the inventory. This will increase the level of satisfaction from the clients who are retailers. It will also increase dependability to the system in detecting technical errors. The decrease in costs of maintaining inventory will allow the firm to have more funds in the long run for reinvestments. The system will also increase the operational performance of the company by improving the daily activities of the firm.
At the end of the lifecycle of the project, the company would have saved $1.3million as opposed to lost $5million from the maintenance of the old inventory system.
External mechanism of the risks and opportunities
Some of the external mechanisms that can be attributed to the risk undertaken and the opportunity maximized include; giving the company a competitive advantage over the competition (Moller, 2011). This is because the system will decrease the time taken to process an order for a client and quick and urgent deliveries can easily be handled. Increase in market share control is also another external factor. Increase in market share control increases the sales and revenue as well as the profitability of the company.
Determining the internal controls
The internal controls that will be affected by the system include the performance of the employees, decrease in errors. The system will also increase responsibility, accountability, and validity of the work done by the workers.
At the same time, the decrease in inventory workload will increase invention and innovation in the employees. Top management will have fewer complaints to deal with.
According to Hugos, (2011), an effective SCM should decrease friction within the operations within a company, while increasing the influence of the firm in the market. This means that a smooth running SCM has benefits for the company in the long run. A cost-benefit analysis has established that the system will be of more benefit than it actually costs. The system will ensure the smooth running of operational activities, logistics, and innovation. At the same time aid in increasing market share control.
The best alternative for the company is to do away with its current SCM and adopt the new technologically enhanced system (Ross, 2010). Even though the initial cost of the project is high, the benefits outweigh the cost. Implementation of the system will increase the quality of the service delivered by the company and the quantity of output.
Cheng, E. T. C. Tsan-Ming, C. (2010). Innovative Quick Response Programs in Logistics and Supply, Thai Publishers
Hugos, H. M. (2011). Essentials of Supply Chain Management, Random House Publishers
Moller, R. R. (2011). COSO; Enterprise Risk Management: Establishing Effective Control, Cambridge University, London
Ross, F. D. (2010). Introduction to Supply Chain Management Technologies, 2nd Edition, Springer Publishers
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