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Information Informati on Development Trends

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2015

CT037-3.5-3-ISDVT UC3F1410SE Charles Nzom 09 May 2014 TP035464 Mohammat Arfan Youshuf

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Information Development Trends

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1.

Introduction ........................................................................................................................................... 3

2.

Background of the Case Study .............................................................................................................. 3

3.

Mydins’ current market due to its’ Information Technology position .................................................. 4 3.1.

3.1.1.

Threat of new entry ............................................................................................................... 4

3.1.2.

Threat of substitutes .............................................................................................................. 5

3.1.3.

Bargaining power of customers ............................................................................................ 5

3.1.4.

Bargaining Power of Suppliers ............................................................................................. 5

3.1.5.

Degree of Rivalry .................................................................................................................. 6

3.2.

4.

5.

Porters’ 5 forces analysis of Mydin .............................................................................................. 4

Strategic Grid analysis of Mydin’s IT Position............................................................................. 6

3.2.1.

Support quadrant ................................................................................................................... 7

3.2.2.

Factory quadrant ................................................................................................................... 7

3.2.3.

Turnaround quadrant ............................................................................................................. 8

3.2.4.

Strategic quadrant ................................................................................................................. 9

Transformation due to IT .................................................................................................................... 10 4.1.

Localized exploitation ................................................................................................................. 10

4.2.

Internal Integration (II) ............................................................................................................... 11

4.3.

Business process Redesign (BPR) .............................................................................................. 11

4.4.

Business Network Redesign (BNR) ............................................................................................ 11

4.5.

Business Scope Redefinition (BSR) ........................................................................................... 11

Information System and Acquisition method ..................................................................................... 12 5.1.

Proposed IS ................................................................................................................................. 12

5.2.

Acquisition method ..................................................................................................................... 12

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Assumptions ........................................................................................................................................ 12

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Conclusion .......................................................................................................................................... 13

References ................................................................................................................................................... 14

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1. Introduction Influence of retail industry is comparatively high in the day to day life of the population. Especially in Malaysia there are plenty of large and small retailers who supply almost all the day to day needs of the people at their doorstep. Among all Malaysian retailers Mydin SDN.BHD holds a unique place in the market as it is prominently known as one of the biggest whole sale dealer in Malaysia. Mydin markets a huge range of products which include all kinds of domestic items, starting from food line, and soft line to hard line.

Mydin was started by Datuk Ameer Ali Mydin and his brothers in 1957 at Kota Bharu, Kelantan and the main focus of the business was selling toys. Since 1957 the firm was gradually stepped in its growth path and eventually take over the Malaysian retailers’ market and become one of the most popular house whole product provider among the locals. After approximately 50 years of sincere service, Mydin currently owns 40 outlets throughout Malaysia including 2 Hypermarkets, 24 Emporiums, one super store, 7 mini markets and 6 convenient stores. These stores are tactically allocated in all over the main cities including Klang Valley, Terengganu, and Kota Bharu, Seremban, Nilai, Johor, Alor Setar, Melaka, Pahang and Kelantan.

The plot of Mydin’s successful story is its low price scheme and the broad product line. Such strategy attracted especially the middle class and much surprisingly the community as a whole. Moreover it is well popular among the locals especially among the Muslim community, because it has embraced the HALAL concept. Since approximately 60% of Malaysian population are Muslims, Halal embracement is a great opportunity for the Mydin SDN.BHD. 2.

Background of the Case Study

The success of the Mydin depends on the functionality of all the departments and on how efficient and effective they are. Currently it supports with a rational warehouse ma nagement system which manual functions. Within a day there are hundreds of transactions are performed via warehouse, for instance, transit damaged goods, clearing shipments of merchandise from suppliers, and stock picking and delivering and many more. The manual process to function all these activities consumes lot of time and labor cost. Therefore to shrink these unnecessary costs, Mydin came up with an IT solution which is an integrated warehouse management system where, the system was

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delivered by Clapper Technology Sdn.Bhd, including CK61 mobile computers integrated with EX25 near-far scan engine (Mydin Wholesale Hypermarket , 2009).

3. Mydins’ current market due to its’ Information Technology position If we have a look at Mydins’ current position at a glance, Mydin is one of the emerging retailer and whole seller in Malaysian market. Mydin earned the loyalty of its customers through its low price strategy and having a focused customers’ line. As majority of Malaysian population are Muslims, Mydin directly projects on the majority population by specializing the Mydin, name as a Halal product provider and additionally provides Islamic products through its stores (Mydin Wholesale Hypermarket , 2009). To further analyze the market position of Mydin a nd to identify the external forces and the ability of the organization to survive in the market, the autho r will usePorters’ five forces model as a tool.

3.1.

Porters’ 5 forces analysis of Mydin

Porter ’s five forces model is one of the best tools used to determine a company’s current market position. Further this model helps the company to scrutinize the current market environment by classifying the threats and competitors in the same industry, and the competitive advantages that the company has in comparison with its competitors. Porter’s five forces will be discussed in-depth in the following sub-chapter (Porter, 2008).

3.1.1. Threat of new entry According to Porter (2008), the level of threats increases when there is low barriers for the new competitors to enter the market. When analyzing the retail industry, the barriers to compete and catch the current market is comparatively high as Mydin along with other popular retailers remain strong in the market. Further competing with Mydin in low cost leadership is hardly possible. Apart from that as local industry and a low price merchandise provider, Mydin receives a good support from the federal government, for instance Mydin was given R M 386 million to initiate and expand its supplies in Sabah and Serawak (Wee, 2012). According to Gamayanto (n.d) government’s regulations is one of the factor that strengthens the impediment against new entries. Moreover there are other existing competitors in the retailing market especially Tesco Malaysia, 4


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Giant and Carrefour Malaysia are the multinational companies who stays stronger ( Abdullah, et al., 2011). Such an occupied market would possibly a difficult place for new entry to grow. (Porter, 2008).

3.1.2. Threat of substitutes Threats of substitutes increases when there are alternatives exists outside the realm field of common product (Porter, 2008). If there are alternative product suppliers who can supply products at a lower price than existing ones and who can provide more efficient and reliable services, generally consumers will be attracted to them. KK, 99 market, seven eleven are some of such substitutes for Mydin. Such substitutes could be a threat to Mydin bec ause most of those shops are located near residential areas, for instance, close to h ostels and apartment areas. It subjects to ease the substitutes to be accessed by customers. Mydin’s locations are mostly city centers and small towns where people do not frequently visit. Hence Mydin has a moderate level of threat from substitutes (Armum, 2010).

3.1.3. Bargaining power of customers Retail industry is highly depended on consumers, failing to satisfy customers would be disastrous for a firm. There are several factors that increases the customers bargaining power such as the y are sensitive on prices and well updated regarding all types product prices (Anon., 2014). As there are variety of retailers available, the customers have their own preference in choosing the retailer. Failure to fulfill customer demands would end up customer choosing different firm. Even though Mydin has executed and maintained a lower price strategy to overcome from this external force, still customers holds the power to bargain and mak e their choices ( Dobson, 2005). 3.1.4. Bargaining Power of Suppliers As an emerging whole sale dealer, Mydin has plenty of local suppliers as well as some international suppliers from China, India, France, Bangladesh, Indonesia, Pakistan, Korea, Taiwan, Thailand, Turkey and United Kingdom (Mydin Wholesale Hypermarket , 2009). As it has a large range of suppliers, it has the power to switch among the suppliers, besides Mydin also provides its own products which are produced under Mydin’s brand name, therefore it does not have a high bargaining power from the suppliers (Omar, et al., 2010). 5


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3.1.5. Degree of Rivalry Rivalry defines how the firms take steps upon competitive moves of the other organization in the same industry (Porter, 2008). There are several facts that determines which firm is having more competitive advantage among the rivals, such as level of price, introduction of new products, customer service, warranty and advertising ( Hoskisson, et al., 2008). Currently Giant, Carrefour, and Tesco are main competitors of Mydin in the market, four of these firms has a huge value in the current market. The important fact is that most of Mydin’s competitors are international firms which has widespread branches around the world ( Omar, et al., 2010). Mydin has got a high rivalry as all of the competitors follows a low price principle and also most of the competitors produces products under their brand name which also causes to lower the price level. Besides, all these firms provide a good customer service by providing convenient space for vehicle parking, customer friendly stores and provides customer enquiry counters to enquire about any item or to exchange and refund items. As above mentioned, Mydin an d the competitors has very similar characteristics where it shall make the customer switching cost low, which means, there shall be no effect on customers by either they stay on Mydin or any other hypermarket. Apart from that as Mydin strictly follow the “Halal” (permissible to consume according to Islam) concept, Mydin is not much popular among non-Muslims which also influence to raise the level of rivalry (Maheran, et al., 2009).

3.2.

Strategic Grid analysis of Mydin ’s IT Position

In current market trend Information Systems (IS) and the Information and Communication Technology (ICT) helps firms in many different aspects and it strengthens the firms’ competitive advantage (Yeon, 2007). For instance Information Systems are deployed in firms to enhance and enrich the customer relations and the productivity which means to improve the operational efficiency. Hence in other words IS and ICT can be identified as a tool to combat external forces which threatens the firm which we have analyzed using porters five forces model. To further analyze the level of support of IS and IT towards the firm, a strategic model is used which is known as Strategic Grid model, hence this model is used in this report to study how the external forces can be outrun by Mydin, using its Information systems (Yeon, 2007).

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As up to today Mydin has implemented several Information Systems to support the business processes, the current IS systems adopted by Mydin are, Transaction processing system, Batch processing system, Real time processing system, ERP, Server virtualization, Decision support system (Mydin, n.d.) And the integrated warehouse management system (Mydin Wholesale Hypermarket , 2009). Using the McFarland & McKinney Strategic Grid model, the IS systems can be categorized in to 4 sections as following.

Factory h gi h ot w ol

Strategic

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Real time processing system

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ERP

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Integrated Warehouse

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Server virtualization

( SI

Management System f o t

Support c a p mI

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l a n oi

Turnaround

Transaction processing

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Decision support system

system and POS t ar e p O

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Batch processing system Strategic Impact of IS (low to high)

( Laurindo, et al., 2009) 3.2.1. Support quadrant This section consists of the systems which are used in firm’s daily activities and these IS are not much critical as it has low operational and strategic impact ( Laurindo, et al., 2009). Transaction processing system, POS and Batch processing system falls under this category. These systems supports Mydin’s daily transactions. These systems assists in providing efficient services to the customers where it can increase customers switching cost, therefore it can also be considered as a strategy which helps to reduce the level of rivalry (Mydin, n.d.), (Clark, et al., 1999).

3.2.2. Factory quadrant The information systems which are critical for the Mydin’s current operations especially with high operational and low strategic impact, comes under the factory quadrant ( Laurindo, et al., 2009).

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Real time processing system (RTPS) and Integrated Warehouse Mana gement System (IWMS) are two highly important IS systems used by Mydin. RTPS is used for sharing real time information in the firm, the information stored are required to be 100% accurate and it shall be retrieved later on for reporting purposes (Microsoft, 2010). Apart from that IWMS is used for warehouse management. Previously the warehouse management was done manually and it was consuming lot of labor power and time, but after implementing the automated IWMS, Mydin could increase the productivity by 60% and reduce both labor cost and time consumption in a huge ratio (Mydin Wholesale Hypermarket , 2009). A 60% of productivity increase is a huge advantage to Mydin and the cost saved by reducing labor cost and time con sumption can be partially dedicated to lower the price levels of goods. By providing lower prices Mydin gains the strength to lower the bargaining power of customers and it definitely gives a good fight for its competitors (Mydin Wholesale Hypermarket , 2009).

3.2.3. Turnaround quadrant The information systems which are dedicated towards the Mydin’s future success are taken in to account within this quadrant in other words systems which has lower operational and high strategic impact are listed here ( Laurindo, et al., 2009).. Decision support system (DSS) is one such system deployed by Mydin. DSS has been utilized to support the firm to make critical decisions. Especially it allows the managers to determine which types of goods should put under offer, what are the fast selling items, which goods must be purchased from suppliers, which brands of items are customer preferable (Microsoft, 2010). Moreover DSS helps Mydin to trace the customer purchases and accordingly the business can be shaped elegantly. All the above-mentioned functionalities influences a firm’s survival. Moreover DSS assists in making decisions such as enhancing on the product variation, identifying and increasing products which has high demand. Through monitoring customer purchasing patterns Mydin would be able to introduce new products and services which may help Mydin to strengthen competitive advantage over its rivals. Further DSS can be used to tactically reduce prices of certain goods as well as to increase the quality of required goods in the market as DSS has the functionality to analyze the customer deviation on price and quality. As a result of this, DSS can be considered as a shield to support Mydin to lower the customer bargaining power (Mydin, n.d .).

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3.2.4. Strategic quadrant Information system having high operational and h igh strategic impact on Mydin are considered in this quadrant ( Laurindo, et al., 2009). Enterprise Resource Planning system (ERP) and server virtualization fall under this category. ERP system enables to integrate both internal and external information used. Furthermore it assists Mydin to manage commercial activities of the business such as planning, current inventory monitoring and management, purchase management, manufacturing, finance, accounting human resource management, marketing and sales services ( Moon , 2007). As stated above, ERP provides support towards both operational and strategic enhancement. Therefore ERP system is highly substantial for Mydin’s current and future success in the industry. Besides ERP could possibly utilized to combat against porter’s five forces (Citrix case study: Mydin Mohamed Holdings, 2013). Server virtualization was another strategic and operational IT solution that Mydin adopted since 2009. Before 2009, all Mydins’ ERP and other information systems were only depended on physical server farms and followed a client server information access method, but in 2009 onwards Mydin went on by virtualizing 90% of its servers on cloud. Server virtualization provided 1.5 million ringgit cost saving which was supposed to be spent on physical server implementation and maintenance. Besides monitory benefit, Mydin could enhance the competitive advantage by increasing the accuracy of information generated within the systems, and reducing the labor cost and maintenance cost for servers (Clark, et al., 1999).

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Transformation due to IT

With the aid of information technology, Mydin has been able to step towards a successful transformation in its business process. To further measure and clarify the level of transformation due to its IT position Scott Morton's transformation model is being used in this report. ) h gi H w o L(

Revolutionary levels n oi t a

Business scope redefinition mr of s n

Business network redesign ar t s s e

Business process redesign ni s u b f

Internal integration o e

Evolutionary levels er g

Localized exploitation e D

Range of potential benefits

(low-high)

(Gamayanto, 2004)

4.1.

Localized exploitation

Mydin has achieved the first level of the transformation by using its Transaction Processing system (TPS) and POS. TPS and POS supports the firm to perform all daily operations effectively and efficiently. For instance, recording monetary transactions. Placing orders for products or services, withdrawing money at cash machine are some of the functions performed by TPS. All these processes are solely dedicated to one business function of the firm and their ultimate target is to enhance the effectiveness and efficiency of that particular sector ’s functionality (Mydin, n.d.).

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Internal Integration (II)

Internal integration level is a very significant level to be achieved b y Mydin as it is the gateway to access the three level of revolutionary transformation (Gamayanto, 2004). ERP, real time processing and integrated warehouse management systems are purposely deployed by Mydin to reach this level. Combination of these three systems acts as a single platform to circulate useful information to any department in any branch according to their needs in purpose of automat and enhance the enterprise efficiency.

4.3.

Business process Redesign (BPR)

Main focus of BPR is to revolutionize the firm’s supply chain and production process (Gamayanto, 2004), with the adaptation of ERP Mydin has been able to grasp this level. ERP in fact has revolutionized Mydin’s supply chain by integrating all the supply chain processes under one system where supplier and customer systems can ensure compatibility, effectiveness and efficiency across supply chain. Further by providing quality reports and analysis on business process, ERP enables Mydin to keep track of its market position.

4.4.

Business Network Redesign (BNR)

BNR defines the necessary changes in the processes involved in production and delivery departments of the company using the information collected through information systems. These changes are meant for rebuilding the scope and tasks involved during the production and delivery (Gamayanto, 2004).

4.5.

Business Scope Redefinition (BSR)

BSR involves changes of the business scope and boundaries, as per today Mydin have not yet extended its scope using its current information systems. Therefore Mydin c ould not reach the fifth level of the transformation graph (Gamayanto, 2004).

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Information System and Acquisition method

5.1.

Proposed IS

Mydin has not yet enabled online shopping whereas there is only one existing web system for customers which keeps update on latest products and promotions and some other basic functions. Since every major hypermarkets has commenced online shopping facilities and it is highly recommended, to acquire a web based information system which facilitates online shopping.

5.2.

Acquisition method

There are several IS acquisition method which can be used to acquire new IS. The first one is to develop the IS by own, which means the firm shall develop the whole system by their own staff and resources according to their specific needs and requirements. Second way is to b uy a pre-built system, where the firm shall go to software system vendors and buy a prepackaged system which shall fulfill the firm’s requirements. The third method is to outsource the IS project in which the company will hand over the project to a vendor to tailor it according to the firm’s requirements. (Hardcastle, 2008). The third method will comparatively the best match for Mydin, because a retailor normally does not necessarily require to own a crew of software developers and programmers except for some IT technicians. The second method does not suit because prepackaged IS are tailored according to general requirements, where it shall not 100% match with the requirements of the firm. But when it outsources the development process to vendors, the IS system is 100% built based on the requirements of Mydin and the functionalities are unique. Hence considering all these factors the best IS acquisition method is outsourcing the development. When outsourcing the development, all requirements have to be clearly understood and documented, then in the next stage the vendors can be called for a bid for the project using a reverse auction method. By using a bidding method Mydin can choo se the best vendor with the best price.

6. Assumptions It is assumed that, the implementation cost of the suggested system can be obtained back at most within 3 years of time, where it may not affect the firm’s current financial position. Further, it will increase customer attraction towards the firm.

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Conclusion

Mydin has captured and survives in a good position in the retailors’ market of Malaysia. Mydin’s strategies and deployed information systems have a large share in its current success. The existing information systems and the recently implemented systems hugely benefits to enhance the business opportunity of Mydin as well as to increase competitive advantages. It is extremely important for a company to understand customer behavior in order to survive in the market, hence it is highly recommended for Mydin to quickly look in to the online shopping platform as its competitors already stepped in and simultaneously customer expectations are growing for online shopping. Hence acquiring and implementing such IS strategies are important for Mydin at the moment. As a retailor the best way to acquire IS for Mydin is outsourcing the project to other software development vendors. This would be cost effective as well as will meet all the needs.

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