* The main objective is at providing the customer with merchandise which is always available as advertised, so, the company has to make a decision and formulate action plan to solve organization problem.
VIII. Conclusions/Detailed Action or Implementation Plan
* They need to implement Information systems that facilitate the acquisition, transformation, and distribution of information. Information systems can improve decision making, enhance organizational performance, and help increase firm profitability, thus contributing to corporate value. * Also, they need to plan technical approach to information systems that emphasizes mathematically-based models to study information systems and the physical technology and formal capabilities of information systems.
Case Study – ShopKo and Pamida: System Triumph or Tragedy? 1. Evaluate the role of information systems in the way ShopKo and Pamida run their business. How important are they?
ShopKo and Pamida’s information systems are very important to the successful management of the businesses. However, the traditional information systems are ineffective and are not helping the companies achieve their business objectives.
The new information systems are supportive of the businesses’ requirements and enabling the businesses to achieve their overall objectives. ShopKo uses its information system to determine appropriate markdown prices for overstocked items. The traditional system determined a product’s markdown price based on the clearance price used in previous years. Since the information system was unable to factor local geography and culture into the equation, a product’s clearance price was the same at all stores. The traditional information system was ineffective, in that ShopKo was losing money, and the system was not helping the company realize its business objectives. In contrast, the new system (Markdown Optimizer) allowed the company to price its products based on various factors,
including season, geography, local tastes, and historical demand.
The Markdown Optimizer “stores the previous recommendation for each item in each individual store so that it can evaluate past results and then produce recommendations for the closeout of the current cycle.” Because of the improved system, ShopKo saw a 25 percent increase in its gross margin, decreased payroll costs by 24 percent, and the percentage of unsold goods was reduced from 7 percent to 2 percent. As the case scenario indicates, Pamida’s strategy is to maintain a high in-stock-rate. However, Pamida’s traditional system did not help the company achieve its objective. Stores were out of stock on items, while the same items were sitting in Pamida’s warehouses. Although Pamida changed its warehouse from a flow-through facility to a full-service distribution center, it did not update or replace its warehousing software.
According to Pamida’s CIO Dan Nicklen, the reason the warehouse management software was not updated was because “the software had been working fine under the old distribution system.” As a result of the inadequate warehouse management information system, bottlenecks occurred, earnings declined in the first nine months of 2001, and ShopKo lost $6.7 million in overall revenue. As a result of the product supply shortage for the 2000 holiday season, estimated sales losses were $5 million, and lawsuits were filed by shareholders. It is obvious that Pamida’s current technology did not support the transition from a flow-through facility to a full-service distribution center.
2. Evaluate the importance of Pamida’s distribution center consolidation project for both Pamida and ShopKo. What management, organization and technology factors prevented Pamida’s new distribution center from working successfully?
The distribution center consolidation project was very important for both Pamida and ShopKo. One of the goals of the distribution center was to enable Pamida’s stores to maintain a high in-stock rate. Additionally, ShopKo wanted to expand its Pamida stores into small towns. The distribution center was key to achieving these management objectives. The management challenge was to move Pamida’s distribution center from a flow-through facility to a full-service facility. The organizational elements include suppliers, the warehouses, and the individual stores. The technology included using outdated Catalyst, International warehouse management software and mainframe systems.
Unfortunately, the CIO assumed that the existing technology would satisfy management objectives because the technology had worked fine in the past. The case points out that the existing technology was inflexible and required the new distribution center to conform to the technology, as opposed to having the technology support the new management and organizational requirements. This is a very good example of why it is important to examine the management, organization, and technology dimensions of an information system, and that you cannot just assume that existing technology can satisfy current and future business requirements. 3. Are ShopKo and Pamida using information systems effectively? Why or why not? How much value do their systems provide to the business?
The traditional systems described in the case were very ineffective. Because of its traditional system, ShopKo was using a markdown strategy that was costly, time-consuming, and not very useful. Pamida’s traditional system caused the company to have too many out-of-stock items and a decreasing gross margin. However, ShopKo’s new information system enables the company to more effectively determine markdown pricing strategies for each product within a given store. This improved system has helped the company increase its gross margin, decrease payroll costs, decrease the amount of unsold goods, and reduce payroll expenses. The case scenario mentions that Pamida has implemented a new distribution center and that ShopKo is confident with the new system. The value of the systems is very apparent from the case scenario.
When the systems were not functioning properly, the systems were a detriment to the company, as opposed to being an asset. The systems were causing the companies to lose money, items were either overstocked or under stocked, and employee time was inefficiently used. In the case of Pamida, shareholders sued the company. However, when the systems were improved and aligned with management objectives, the information systems enabled ShopKo and Pamida to achieve objectives and earn a profit. 4. If you were the CEO of ShopKo, how would you have addressed the problem? If you were the CEO of Pamida when it was purchased by ShopKo, would you have recognized the problem? Explain. How would you have solved the problem?
Students will provide different answers for this question. As CEO of ShopKo, students should recognize that the consolidation project required changes in the information systems for both companies. These changes require an examination of the management, organization, and technology dimensions of the information systems. It is apparent from the case that management wanted the distribution center to adapt to the technology, as opposed to the technology being upgraded to address the new requirements for the distribution center. As the CEO, students should recognize that the management requirements and organization requirements should be identified, and then the technology required to satisfy these requirements can be identified and then implemented
5. What management challenges does this case study illustrate? Explain your answer.
ShopKo faces several management challenges, including strategic business, information architecture and infrastructure, information systems investment, and responsibility and control challenges. Strategic Business Challenge. Pamida’s decision to continue using its existing warehouse management software rather than update the software shows the unwillingness of the company’s management to explore how technology can be used to help the company achieve a strategic advantage. Information Architecture and IT Infrastructure Challenge. ShopKo’s decision to use Spotlight Solution’s Markdown Optimizer and Pamida’s refusal to upgrade to new warehouse management software are good examples of the information architecture and infrastructure challenge. ShopKo’s move to the Markdown Optimizer shows the company’s willingness to modify its information technology infrastructure in an attempt to meet both current and future business requirements.
After changing its infrastructure, ShopKo then changed its information architecture. This is apparent by its ability to now manage and tailor markdown pricing strategies for each of its stores. Pamida’s unwillingness to make changes in its underlying infrastructure caused the information systems to become outdated and unable to satisfy the company’s current business requirements. Information Systems Investment Challenge. ShopKo did address the information systems investment challenge. It appears that the company did evaluate the potential benefits and costs for the new information system. The new system did provide the company with a sizable payoff and has definitely increased its value. In contrast, Pamida should have examined in more detail how investing in an improved information system could have provided the company with a better payoff and increased corporate value.