How Foodstuffs Values IT Investments Commerce Essay

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The purpose of this research essay is to review the importance of Information Technology (IT) for Foodstuffs and how Foodstuffs value their IT investments through its mambers and briefly discuss some of Foodstuffs IT investments.

By examining a range of recently published journal articles and internet sites on the topic of IT investments in Foodstuffs, this essay describes the main and most popular IT related projects and units which Foodstuffs members use today and examines their performance in relation to how it adds value to their businesses.

1.1 History and background information of Foodstuffs

The Foodstuffs has been one of the most successful organizations among the business industries in New Zealand, which embraces a long proud history, dating back to 6th July 1922, when the first Foodstuffs co-operative was formed in Auckland. J Heaton Barker, the founder of Foodstuffs called together members of the Auckland Master Grocers' Association to converse plans for the configuration of a co-operative buying group, which lead to the introduction of Four Square branding on members' stores in 1925. Deliberately, Wellington (1922), Christchurch (1928) and Otago/Southland (1948) set up comparable co-operatives. The name Foodstuffs was adopted by all the original co-operatives in 1935. Subsequently, the Foodstuffs has persevered to develop. In 1986 collective wholesale turnover surpasses $1 billion and in year 1990 and 2000 it was $2 billion and $4 billion correspondingly. Merging of smaller regional co-operatives over the years between, resulted the making up of the three co-operatives that exist today. Foodstuffs (NZ) Limited is mutually owned by the three regional co-operatives.

Foodstuffs (Auckland) Limited - covering the upper North Island from Cape Reinga, and south to Hawkes Bay, Ohakune and New Plymouth.

Foodstuffs (Wellington) Co-operative Society Limited - covering the lower North Island from Hawkes Bay, Ohakune through to New Plymouth and south to Wellington.

Foodstuffs South Island Limited - covering entire South Island.

Foodstuffs website states that "Foodstuff is a genuine Kiwi success story". Foodstuffs' member companies trade as cooperatives in the grocery sector of the New Zealand economy. The three companies combined turnover exceeds $6 billion, which makes Foodstuffs the largest grocery distributor and the second largest trading group in New Zealand. Foodstuffs is 100% New Zealand owned co-operative, which has more than 30,000 employees nationwide.

1.2 Foodstuffs South Island Limited

Foodstuffs South Island Limited was formed in 1988 from the merger of two long-established grocery co-operatives Foodstuffs (Christchurch) Limited and Foodstuffs (Otago/ Southland) Limited. Currently it has a membership of 834 banner group, independent grocer or foodservice members. PAK'nSAVE food warehouse, New World supermarket, Four Square supermarket, On the Spot dairies and Henry's Beer are independent grocers in South Island. Foodstuffs South Island Ltd supplies 9 PAK'nSAVE, 40 New World, 83 Four Square retail supermarkets in the South Island, and more than 147 On the Spot convenience stores, 24 Liquorland retail stores and 16 Henry's Beer Wines & Spirits full service liquor stores. Foodstuffs South Island Ltd is led by CEO Steve Anderson, and employs more than 1,311 people.

Foodstuffs South Island Limited members

New World - Full service supermarkets.

PAK'nSAVE - Foodbarns/retail food warehouses.

Four Square - Neighbourhood grocery stores and main order supermarkets in smaller communities.

On the Spot - Small convenience stores (South Island only).

Duffy & Finns - Large and small format liquor stores, Liquorland.

Henry's Beer Wines & Spirits - Small format liquor stores.

Foodstuffs is one of the leader organizations in New Zealand in their IT (Information Technolohy) sector. Foodstuffs provide high-quality services to its members by adding better value to their businesses, which facilitate them to be always ahead of their customer needs. Sharpe M. E. (1993) cited that investing IT in a business is "pushing the organization to a higher level of performance". In 1980 (approx) barcode scanning technology was launched in NewZealand. This was one of the key moments for Foodstuffs as it increases its progress. Introducing new IT projects and units to member businesses, Foodstuffs helps them to generate a stronger relationship with their customers as well as their employees, which lead them to have a better understanding about their business. According to Brian L. D. S, Ken P. and David C. M. (1993) it stated that "Innovative IT investments increase firm value". Foodstuffs aims to provide an enjoyable shopping experience to their valuable customers based around quality and convenience through its members' stores.

IT projects and units that Foodstuffs currently has with its members:

Project Valentine/SAP

Driving business strategy with technology can result many advantages. It can develop an agile IT strategy, resourcefully manage enterprise information, ensure sustainable products and delivery, and provide decision makers with trusted information (Durgut, Y. 2009). Durgut, Y. (2009) further stated that it can also encourage a free flow of ideas throughout the organization and across the business network. According to Bresnahan and Trajtenberg (1995) interms of business, information technology is best described not as a traditional capital investment, but as a "general purpose" towards the success of a business.

SAP is the world's leading supplier of business software, offering applications and services that facilitate companies of all sizes to become best-run businesses. It offers technology, solutions, and services to help protect IT infrastructure of businesses. For retailers, SAP provides complete perceptibility into their business operations and encourages trouble-free cooperation among vendors. Adopting SAPs' Retail solution assortment for food retailers of all sizes, helps manage the entire range of grocery-related business processes.

According to the Foodstuffs South Island Limited Annual Report (2009), the Project Valentine/SAP was the main focus during the time, when the SAP technology within Foodstuffs has successfully moved into a business. SAP technology addressed that the benefits for Foodstuffs South Island have been procurement, gross profit analysis and speed to market of any computerised initiatives. According to the report, Foodstuffs next major goal was to introduce SAP to all its major retail members. As the first step of this goal Foodstuffs piloted the retail solution, which helps retailors/grocers to meet the latest merchandise, supply chain and customer challenges, in two PAK'nSAVE stores (Wainoni and Riccarton). The report also stated that Foodstuffs is currently piloting the retail solution in one New World (St Martins) supermarket and another PAK'nSAVE (Hornby) supermarket, and will then be able to gradually introduce it to the rest of its major members.

Following advantages of having SAP retail solution were exposed by interviewing Damian Fernando (Liqor Manager and Merchendiser) and Amy Cameron (sccanning co-ordinator) at PAK'nSAVE riccarton:

Reduces costs - The SAP solution helps reducing the costs in terms of labor costs and cost of goods.

Streamlines operations - Simplifies operating processes and common standards by using one integrated database version which supports companywide processes to achieve best standard practices.

Increases productivity and improves decision-making - Makes it easier to focus on the important parts of the job by automating basic and repetitive tasks, which enables better reporting and allows employees to access simultaneous, up-to-date data for allowing them make better decisions.

Increases profit and sales - Provides a deeper understanding of consumer needs. Optimizes the product variety, and ensures exceptional service and fast checkout for customers. This maximises the number and frequency of customer visits and increses spend per visit.

Better product flow-through - Ensures the right products are planned, obtained, allocated, stocked up and re-oredred to maximise product flow-through.

Improves efficiency - Makes operations more profitable by using embedded workflow management tools assuaring that corrective actions are taken before ctitical situations become crises.

Mr. Fernando further stated that "SAP has provided us with the essential tools and functionality to meet our current business requirements and at the same time provide the suppleness for growth".

Information above reinforces the fact that investing in IT for a business helps improving operational processes and reduce staff efforts (Caruso, J.B. 2005). Farrell (2003) indicates that investing IT in a business increases labor efficiency and benefit consumption, and add value to existing goods and create new products.

Self-checkout system

The majority of modern businesses are being considerably affected by IT (Brynjolfsson E. and Hitt L. M., 2000). Brynjolfsson E. and Hitt L. M state that the value of IT towards a business is its capability of facilitating complementary organizational investments such as business procedures and work practices, and these investments, in turn, lead to productivity increasement by reducing costs and, more significantly, by allowing firms to maximize output quality in the form of new products or in improvements in intangible aspects of existing products such as convenience, timeliness and quality.

Self-checkout system is the ideal solution for retailers determined to lower operating costs and improve customer service. It is a computerized process that enables shoppers to scan, bag, and pay for their purchases using EFTPOS, cash or credit cards with minimal supervision from shop assistance (IBM Self Checkout System, 2009). In order to guide customers through the self-checkout process, the system uses simple and widely accepted technology such as touch-screen menus and automated voice instructions.

By launching the country's first trial of a self-checkout system, Foodstuffs (South Island) Limited, New Zealand's foremost grocery co-operative, has taken a pioneering step in grocery shopping (Foodstuffs website). Foodstuffs is giving the opportunity of enhancing customer service and efficiency to its members stores by allowing their shoppers the option of serving themselves.

The first self-checkout system in New Zealand was introduced In June 2007, at Moorhouse Avenue PAK'nSAVE (Christchurch) (Foodstuffs website). The NCR FastLane pilot, which included four self-checkout machines, was initially implemented at Moorhouse PAK'nSAVE. According to the Foodstuffs South Island Limited Annual Report 2009, throughout the last financial year, the implementation of the self-checkout system has continued and based on the success results observed from the trial at Moorhouse PAK'nSAVE, Foodstuffs introduced the technology into several of its South Island stores. Currently there are more than 133 self-checkout units at 28 different stores in South Island. Foodstuffs South Island Limited Annual Report 2009 further stated that "They continue to be successful for Owner Operators, customers and employees".

The Graph 1 (see apendix) shows the key benefits of self-checkout system, which were identified from a survey conducted on 23rd April 2010 at PAK'nSAVE Riccarton.

New IT related project that Foodstuffs will be introducing to its members:

3.1 Unit pricing

Foodstuffs is proud to announce a new policy of introducing unit pricing to its New World and PAK'nSAVE supermarkets by 30th June 2010 (Foodstuffs website). According to the Foodstuffs website, to place unit pricing into run through across all New World and PAK'nSAVE supermarkets across the country, it will approximately take 14 months. Giving the main priority to customers and customer simplicity, Foodstuffs is taking a big step ahead in their IT sector by initiating the latest technology of unit pricing to their valuable customers.

Tony Carter Managing Director of Foodstuffs (New Zealand) Ltd says, "The purpose of introducing unit pricing is to enable customers to better compare the price of goods between brands, and also between pack sizes".

"We are currently working on making the required software developments to ensure that our unit pricing is effective and meets customers' needs." says Mr Carter.

The unit pricing system outlines the importance of looking at the cost per unit and compares the cost before purchasing the goods. The "unit price" tells the cost per pound, quart, or other unit of weight or volume of packaged food and will enable customers to more easily compare the price of goods on a unit basis such as per 100grams. It also compares the relative pricing of different pack sizes as well as different brands. This whole process leads the supermarket shoppers to find it easier to work out which products offer the best value for their money.

Conclusion

This research essay concludes that IT invesment is integral for Foodstuffs. Infact, information technology is indispensable for all businesses. In todays modern world running a business would not be possible without the aid of Information technology. Inorder to gain a competitve edge in a business it is essential to invest into IT, which makes the business operations more efficient. For any business including Foodstuffs customer and business relationship is very vital. Without customers businesses will suffer and the negative impact will be reflected on the businesses revenue. To combat this, businesses must value their customers and provide them with ease, efficiency and trust to use their IT applications mainly in e-commerce to purchase or obtain the required products and services. After analysing the data obtained from the survey about self-scan checkouts, conducted at PAK'nSAVE riccarton, it could be crealy seen that customers tend to prefer IT applications or automations (slef-checkout system) when purchasing.

Further more from the analysis of the interview gained from Mr Damian Fernando, it was apparent that automation of merchandizing is integral to PAK'nSAVE as it saves time, is less costly and more efficient than manual merchandizing. This is as PAK'nSAVE can view real time information of their stock and also the stock avaialbility at Foodstuffs, which allows them to have a better product flow-through.

According to the SWOT analysis (see apendix) it can be clearly seen that there are a number of opportunities and strengths of investing in IT. Eventhough there are some negative effects, according to the survey and interview, it was analysed that customers and Foodstuffs members prefer automation for efficiency, productivity, comfort and cost reduction. The benefits and returns from invesments are greater than the risks. Customers and Foodstuffs members are essentials for Foodstuffs to stay in business therefore, investing to provide solutions from demands of both customers and its members, it is vital to invest in IT.

Appendix

Graph of customer responses vs benefits of self-checkout system at PAK'nSAVE Riccarton:

Graph 1

SWOT analysis of investing in IT at Foodstuffs (Luftman J, 1993):

Strength:

Easy merchandizing for Foodstuff members.

Real time inventory management.

Reduces costs.

Streamline operations.

Weakness:

High implementation costs

New projects can be time consuming

Time issues from strategic planning as technology is advancing every day

Opportunity:

Gives leading edge.

Leads to innovation.

Leads to close strategic alignment of business and IT strategies.

Threat:

New substitute products from competitors

New entrants in the market

Failure or system crash is unpredictable

Data collection methods:

Interviews:

PAK'nSAVE Riccarton staff:

Mr. Damian Fernando (Liqor Manager and Merchandiser) - usefull information was gained about SAP system and its advantages towards the business. After being gathered information from Mr. Fernando, it was much easier to compare the results from websites and journals and the reall situation, which helped to come up with the conclusion of the essay.

Miss. Amy Cameron (Checkout Supervisor and Scanning Co-ordinator) - information about customers behaviour and their needs were discovered and also how IT helps Miss. Amy to perform well on her job.

Survey:

A survey was conducted at PAK'nSAVE Riccarton self-scan checkouts to identify the key benefits of having self-scan checkout system. The survey was done on 23rd April 2010. 50 customers of different age were surveyed and was able to discover 8 key benefits of self-scan chechout system.

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