Axton carpets plc – exploitation of information systems and e commerce for business development
Axton Carpets Plc is a traditional bricks and mortar company which is faced with the challenge of transforming to business in the information age. The inability of the company to adjust to new forms of commerce is evident with the gradual decline in its manufacturing profile, thus from three factories it has now based its production on a single factory. Its main customers are major retailers who are switching over to online model of business. Axton Carpets on the other hand continues to be dependent on a much slower off line model based on paper transactions both internally and externally. This is resulting in slower turnover time and leading to dissatisfaction amongst its customers as well as some company employees. Unless these issues are addressed at the earliest, customer retention is likely to be a problem which Axton will have to face very shortly. Thus conversion to e business is a necessity for Axton.
The company being a wholly integrated manufacturing, marketing and sales business, ideally it should be able to coordinate all these through Enterprise Resource Planning (ERP). The level of automation being limited it is envisaged that directly switching to an ERP package would not be organizationally effective as it would create dissonance at many levels. Thus a gradually scaled up ERP model is envisaged for adoption by the company. Expanding its traditional off line business to on line B2B and B2C is another area which needs consideration.
Axton Carpets Plc – Present Status
Axton Carpets Plc is a traditional bricks and mortar company which is based in Kidderminster, South West of Birmingham. High quality woven carpets are its specialized area of business. It is catering for overseas as well as customers at home. The company operates from one factory with employee strength of 350 people. Its manufacturing facility is essentially based on an industrial model without any automation. This is seen to be delaying production and also limiting its productivity.
The company’s main customer base comprises of off line stores and superstores. 70 percent of the sales are to large carpet superstores to include Allied Carpets and Carpet World based in retail parks away from the company’s factory. 30 percent of the customers comprise of small independent carpet and furniture retailers. The heavy dependence of the company on major retailers who are volume players and its relatively poor management of supply have led it being subjected to the vagaries of a buyers market with lower margins. The buyers are also maintaining just in time procurement system, thereby retaining low inventory and in turn placing heavy demands on the company to provide carpets in time. The buyer’s stores are directly placing orders with Axton which are being delivered in two to seven days from the stocks maintained by the company. The orders are being placed on telephone or fax with a postal confirmation.
High street furniture and carpet shops place orders only by post after confirming availability of the required designs. Pattern books of carpet samples are the source for orders from these shops. Speed of delivery is not a critical part of their business, but specification and size needs to be ensured.
Dependence of the company on information technology is extremely low. There is an automated sales order processing system which processes sales orders based on a standard package used mainly for sourcing orders matching a central customer data base with stock records. The customer’s orders are directly processed to the warehouse in case stocks are available or to the production planning section in case ready stocks are lacking, which then plans to make up the same and indicates the likely time of delivery which could be up to six weeks. The delivery of orders is also manual. Consolidation of orders is done area wise to ensure that there is adequate load for vehicles. This creates problems in ensuring timely delivery. There is pressure on the company from large Superstore retailers as Global Carpets plc, for a fully automated sales ordering system which could be online. The company has even threatened to withdraw its orders in case Axton does not go online quickly.
Analysis – Present Status of Business of the Company
A detailed analysis of the present business of Axton Carpets Plc would indicate the following critical areas which need improvement:-
(a) Manufacturing is machine oriented without any automation.
(b) Customer base is limited to stores and super stores which are primarily off line.
There are no online customers at present.
(c) It is operating in a buyers market due to dominance of major retailers and its inability to cater to their timely needs.
(d) Maintenance of high inventory levels by the company in its ware house, thereby increasing inventory costs.
(e) Pattern books are generally the source of orders from customers shopping in high street specialist furniture and carpet shops.
(f) For major retailers, time and speed of delivery is important whereas for high street shops, conformity to pattern is essential.
(g) The present automation package is simple sales information processing software rather than an analytical tool for management which can provide feedback.
(h) There are no information technology linkages between various departments which can provide total visibility to the management at a single source. The delivery system of the company is also manually controlled thereby leading to delays.
(j) The company is likely to lose business particularly with large retailers in case it does not go in for automation.
Creating an automated process for manufacturing, online data base, e commerce and integrating these processes appears to be the prime requirement at Axton. The need for data sharing mechanisms between various functional areas in a business such as manufacturing, inventory and sales for efficiency is considered important. To attain the same integrated information structures are designed which comprise of a series of interlinked information systems for accurate and timely sharing of data between functional areas. (Brady. Monk. Wagner, 2001). Such a system appears essential internally for Axton. There is also a need to shift to E Business by having an on line and off line model. Both these systems can be linked by an Enterprise Resource Planning (ERP) package with an external interface. With an extensive online presence it can conduct B2B as well as B2C interaction greatly enhancing the scope of business.
E Commerce and ERP – Benefits
Chaudhury and Kuilboer (2002) have indicated that e commerce is generally doing business online and includes purchase of services and goods through the inter net. E business involves total conduct of business on the web and is considered as an all encompassing process which includes e commerce which has some what restricted connotations of online shopping. E-business offers many opportunities for customization of marketing in all its dimensions associated with communication, product, delivery, price and relationships. Business processes and models thus have to be aligned to succeed in this new marketplace. Most business and business sectors will use e-commerce to complement other channels in different ways and therefore, understanding the integration of e-business into an established enterprise as Axton Carpets will be essential. (Rowley, 2002).
E Commerce is said to comprise of four key transactions to include quoting, ordering, payment and delivery. It is only when all these transactions are conducted on the internet that it can be called as ecommerce. (Jiacheng, Nd). While goods that can be downloaded on the internet such as an e book will form a total e commerce transaction, even in cases such as ordering carpets, where the final stage of delivery is undertaken through an offline approach are categorized as an online transaction through ecommerce. (Jiacheng, Nd). Another important issue is support of online payment by financial institutions and not just by establishment of technology and creation of regulation. The acceptance of modes such as credit cards and Pay Pal has facilitated the growth of online financial transactions.
E commerce also relates to availability of networks with sufficient capacity and the creation of infra structure to include technological, financial and regulatory to conduct business transactions on line. Businesses are provided an opportunity to reach out to the clientele offering them the best services thereby overcoming the hegemony of monopolies and establishing an even field for all players, big as well as small. The large number of web sites caters for hundreds and thousands of customers each day. They are also many who provide specialized services to a niche segment specifically in the EU area, thereby providing an economical and effective source for display and procurement of goods for the customer. Axton Carpets can effectively exploit this model for retention of its customers as well as growth.
Internet is an ever expanding medium. The number of users of the World Wide Web colloquially called as the internet has grown to over 1.02 billion and includes 15 percent population of the World. (World Internet Usage, 2006). This is slated to expand even more rapidly hereafter as it is proving to be an ideal medium for all types of social, business, government and informational transactions. In UK specifically, the growth of the internet and online business is being supported by development of a state of the art communications network by British Telecommunications (BT). It has recently launched the 21 CN (21st Century Network), a programme which intends to achieve convergence between technologies at the call of the customer thereby providing him unprecedented benefits. The key area which will be facilitated by convergence is said to be that of electronic commerce which could be B2B or B2C, business to business or business to customer respectively. (Green Paper, 1997). The availability of convergence will imply that this can be carried across many spectrums with great ease, bringing the business and the customer or client as the case may be even much closer than hitherto fore. (Green Paper, 1997). This will considerably boost online retailing of even luxury goods as carpets by placing their catalogues on the internet for access by a much larger clientele than at present. It would thus be evident that e commerce is an ideal mode of business for Axton Carpets.
Online Shopping – The Overall boom
A Survey conducted by the BCS from 7th to 11th July 2006 has highlighted that over 64 % of the adults in Britain have access to computers at home and 23 % at work and a very large 71 % has access to a computer. Of these 63 % adults have an access to the internet. 58 % of the internet home users utilize the internet for buying goods online which is the second largest use of the net after that for research. (Survey, 2006). Of these 92 % ensure that common precautions being taken for safe online buying. The two main measures include, secure payment areas on websites as confirmed by 52 % of the shoppers and web sites of well known retailers at 51 %. (Survey, 2006). The average spending by shoppers on the net is said to be a very high monthly ? 164 per person. The total number of internet users in Britain is said to be 17.4 million which is a very high population, thereby providing excellent opportunity for retail vendors to offer their goods on this space. (Survey, 2006).
The overall boom in online shopping the world over is indicated by data from a wide variety of areas. In New York for instance, Brustein (2004) has indicated that Americans spend approximately $ 65 billion on online retail buying which is said to be approximately 4 percent of the overall national retail. Of this $ 3.5 billion is said to be spend on personal electronics, a category which includes mobile phones. By 2008 the online retail market is slated to be $ 110 billion in the United States. The result is that more and more retail stores are having a dual presence to include the internet, while continuing to have a bricks and mortar store. (Brustein, 2004). Axton Carpets can exploit this trend for expanding its exports.
A survey of online shopping by Mintel has indicated that the UK is the biggest online market in Europe with shoppers spending ? 6.7 billion or € 9.79 billion on line in 2005, thus overtaking Germany for the first time. (ECommerce UK, 2006). The overall online sales in Europe are also said to be increasing by 51 % each year and were at Euro 40.2 billion with expectations of this crossing over Euro 120 billion by 2010. Since this is only 2 percent of the retail sales in Europe, Mintel research analysts as Neil Mason were confident that there was adequate scope for increase of online retail in Europe. (ECommerce UK, 2006). With UK leading in this category it could well be expected that online sales could grow to € 30 billion by 2010 or 25 % of the European retail online sales. Thus Axton can suitably benefit by exploiting dual presence on and off line.
ERP Model for Axton Carpets
ERP is essential to support e business by integrated companies as Axton Carpets. It provides management a total view denoting connectivity between all its parts be it manufacturing, warehousing, customer relationship or sales. This will overcome the present siloed information structure of Axton Carpets and will enable meeting the needs of varied types of customers, large scale retailers as well as large number of small, high street shoppers very effectively. It enables both internal as well as external management of business. The modular structure of the ERP will provide the company very effective means of upgrading. Thus the present low information solutions base of the company will be gradually upgraded without causing an upheaval which may be damaging to the long term interests of business. (Jones, 2005).
ERP will provide the company a single database which will enable manufacturing processes, management of supply and delivery chain, financials and cash accounting, customer relationship management, inventory and warehouse control, human resources and so on. This will provide the company a holistic overview of its complete internal systems at one source. The extension of the ERP suite to connect with the external environment of stores is strongly recommended as it would enable the management of demand and supply very effectively. (Jones, 2005). ERP will provide the advantages of improving design, tracking of orders, ensuring effective delivery, management of orders, inventory and receipts and overall accounting.
Issues in Implementation of ERP and E Commerce
The implementation of ERP and E Commerce will have to link all functions and processes of the company starting with manufacturing. Axton is apparently undertaking manufacturing in a machine rather than an automated mode. There is scope for shifting carpet manufacturing to an automated mode with advanced CAD and CAM technologies available. This will even facilitate manufacturing carpets based on the issue of order by a customer online. The order could specify the colour, design and weave pattern and density of the carpet based on which computerized manufacturing systems could first produce a design, have the sample approved by the customer online, make variations if any and finally manufacture the carpet much faster time than at present. Such a facility will provide it the following advantages:-
(a) Reduce the cycle time from order to manufacture.
(b) Improve customer interface.
(c) Provide for unique needs of each customer.
(d) Improve satisfaction to the customers by involving them in the designing process and provide them exclusive previews to the carpets ordered before final manufacturing.
(e) Reduce the rate of rejection.
E commerce will also facilitate advertising and marketing by Axton Carpets by providing it greater business possibilities on the internet. Web based business does not imply that it should focus only on generating revenue from the web on a continuous basis. It is prudent to seek business based on the web as well as directly through the existing network of large retailers and small stores. The mix of marketing and advertising strategy between on line and off line would have to be worked out. Cyber marketing and cyber advertising need to be deliberately considered.
Legal parameters applicable to other forms of selling are generally applicable to on line selling as well and hence there is a need to have a sound grounding in these laws in the UK. The Office of Fair Trading ensures that these parameters are being followed on a regular basis by the community of web based sellers. The Consumer Protection (Distance Selling) Regulations 2000 provide the consumer protection for shopping on the internet. (CPA, 2006). There are some minor changes which have been brought about in these regulations vide the Consumer Protection (Distance Selling) (Amendments) Regulations 2005 in the United Kingdom. Online commerce is also regulated by the Electronic Commerce (EC Directive) Regulations 2002 in the United Kingdom. Provisions of the Private International law are also applicable to on line selling which are based on the 1968 Brussels Convention which deals with jurisdiction in cross border civil and commercial disputes now replaced by the Community Regulation and 1980 Rome Convention which deals with contractual disputes. Management will have to consider all these issues to evolve a successful business model.
All businesses based on the internet are susceptible to a number of threats such as viruses, worms, and hacker attacks, data theft especially of customer credit and debit cards and banking accounts as well as spy ware. There is increasing threat to small and mid sized businesses like Axton Carpets as much to large sized businesses. (Alexander, 2005). The basic security measure essential on the net where financial transactions are to be made is a firewall which is an electronic fence which will prevent unauthorized access to the servers of the online site as well as to the data base. Firewalls can be established at a number of levels to provide security in layers. A 128 bit security Socket layer will provide additional security. This will enable separation of the internal ERP with the external B2B transactions except for authorized users.
A Verisign or other certified payment gateway provider will have to give a certificate for the security of payments being made. There would also be a secured means for transfer of funds and bill payments. This will be achieved by ensuring that the payment gateway is linked with an authorized authority and bankers of repute and these are also certified by an agency which has a federal certificate. Basic security measures should include installation of firewalls, anti virus and anti spy ware programmes on all computers on the network in a uniform manner. The security at the initial stages may be carried out by hiring a consultant who can be specifically responsible for this aspect. As the on line business develops there can be internal hiring of personnel for this task. These should be dove tailed with hardware vendors, software developers and payment gateway providers to have an integrated security solution. This is important as it would not be feasible to have a practical assessment of threats as well as requirements. The investment in this could be scalable; thereby ensuring that the costs do not exceed the companies envisaged outlays.
Overview of Functioning of Model
A brief overview of functioning of the Model for each category of customer of Axton Carpets, large carpets super stores, high end speciality stores and net shoppers as well as internal functioning of the company is indicated as given below:-
(a) Large Carpet Super Stores. These would be able to order carpets directly on line and if need be the company will be able to undertake speedy manufacturing of the required designs not in stock. As at a given time all functional heads of the company will have a total view of the state of orders, manufacturing and delivery, this will eliminate delays and lead to retention of customers.
(b) High End Specialty Stores. These should be able to display designs to customers on line, order and pay on the internet, thereby greatly eliminating delays. More number of designs can be displayed on the internet than in catalogues providing different views, which will enable attracting greater number of customers. The designs can be updated at much lower cost on line than through a physical catalogue and this will greatly expand the scope of business.
(c) Net Shoppers. This will be a new category of customers which Axton will be tapping for the first time. The customers will be able to see carpets through an online catalogue, order and pay for these with great ease. This will greatly increase the customer base and also enable the company to save on commissions to intermediaries.
(d) Internal Functioning. Orders received will be directly cleared to the ware house as well as to the manufacturing plant as at each level an assessment of the customer’s credit line, availability in stock or otherwise will be indicated. A sale order can be issued immediately on receipt of order.
(e) Delivery of Goods. This function can be very easily outsourced to express goods couriers who can undertake the same much more efficiently and speedily avoiding bottlenecks for smaller orders at present. Bulk orders can follow the present system.
(f) Full Asset Visibility and Analytics. The management will have full asset visibility and can carry out analysis of the trends, the inventory, financial and sales profile at a single point. This will provide them a strategic overview of the entire company which is lacking at present.
Implementation Options for E Commerce and ERP
Options for E commerce for Axton Carpets would include training of the company staff in management of the system or outsourcing the same to an external specialist. The advantages and disadvantages of each need to be considered. While training of staff will enable smooth integration of the package into the existing processes, this may entail time, hiring of additional staff and upgrading skills as well as a change in attitude of the present staff. On the other hand outsourcing may cause problems in terms of providing a smooth inter face with the vendor who will have to understand the total nuances of the carpet business. This will also have cost and time overruns. In the long term it may be prudent to train internal staff as the company’s total business profile at present may not warrant the necessity of external sourcing.
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