Dairy Farm Group—Redesign of Business Systems and Processes

Case Study

IS 650 Enterprise Resource Planning

Rosemary Schwartz

E00106419

January 24, 2006

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Dairy Farm Group (DFG) began as a small business which, over 100 years, expanded to

include 1350+ stores/restaurants and over 45,000 employees. With this type of expansion, there were

bound to be troubles, with overhead and profit margins, among others. DFG decided redefine their

business strategy. They enlisted two consulting firms to present technical and/or business renovations

in order for DFG to retain its “dominant position in the Asia-Pacific region” (pg. 2). Whichever plan

DFG felt would contribute better to the bottom line would be implemented.

The Development of Dairy Farm Group

Sir Patrick Manson, along with five Hong Kong businessmen created Dairy Farm in 1886 as a

cow’s milk supplier to Hong Kong people. By 1904, the company began importing frozen meat and

opened its first retail store. Just over 50 years later, by 1957, DFG had three stores and began its’

transformation into a “major food retailer and distributor” (pg. 2). The firm then expanded quickly and

by 1987 it had over 300 retail outlets, including a grocery chain, 50% interest in a major restaurant

chain in Hong Kong and 25% interest in Kwik Save Group. Two years later the firm acquired over

200 7-Eleven convenience stores, 108 Simago’s (in Spain), and over 60 Woolworths (in New

Zealand). The expansion continued into the 1990’s with a joint venture with Nestle, the acquisition of

another chain (140+ stores in Singapore) and continued development of joint ventures with other firms

throughout Asia.

DFG’s Systems

Each chain DFG had obtained had a separate operating system. Those systems did not

interface with any of DFGs’ systems. Some stores had cash registers, others had optical scanners.

“Each business unit had its own merchandising, inventory and warehouse system, [which were]

implemented on diverse hardware and software platforms” (pg. 3). Software systems had been

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customized for multilingual and multicultural environments. This resulted in several versions of

software existing and the manpower to man these systems significantly increased overhead.

Also, DFG’s systems were not designed to capture the full details of customer transactions and

that lack of knowledge was seen as a barrier to respond to customer needs. Decisions that management

had to make were based on outdated, fragmented, large amounts of information which were spread

over several formats. Mobile employees had trouble working remotely because they had difficulty

accessing corporate information remotely. Security systems were diverse and could not be extended.

Consequently, access locations were fixed, often making it difficult for mobile employees to do their

job.

Inventory management was a major concern with DFG. Assets were sometimes duplicated and

there was “wastage” of human resources. For example, instead of mainstreaming their trucks for stock

movement, DFG had separate truck fleets for Wellcome (one of their grocery chains) and 7-Eleven,

even though stock was distributed at different times of the day. Double the trucks, double the drivers,

double the costs. Stock shrinkage was also a problem. DFG’s average hold time was 35 days, when

the industry norm was only 7 days.

Finally, organization of DFG’s purchase orders was a daunting task which required huge

amounts of manpower. Copies of PO’s had to be matched with copies of invoices and then matched

with delivery confirmation of stock. This was all done manually. On a yearly basis, 120 people

performed this task over 375,000 times, and that was just DFG’s 7-Eleven stores. One can imagine

how much manpower, how many resources and how much money DFG was wasting just on keeping

their purchase orders organized.

Fixing the Problems

In 1997, DFG realized they had to address some major concerns. Their overhead was way too

much and they were losing their hold on the Asian market. In June, they hired a new CEO. They

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decided on a new business strategy. First, DFG wanted to defend its existing markets “through a

process of rationalization focused on the disposal of, or closure of, its non-core operations” (pg 2).

Secondly, the firm wanted respond “to the increased competitive threat through changes to its

organizational structure” (pg. 3). Finally, it wanted to

exploit “new markets and opportunities consistent with its core market capitalisation strategy” (pg. 3).

In order to realize this business strategy, DFG hired two consulting firms to reorganize the

company. These firms will respectfully be described as Firm A and Firm B. Each provided

recommendations after investigating DFG’s business operations, systems and procedures and the

supporting infrastructure.

Firm A

Firm A believed DFG had an “excellent network of retail stores and product lines” (pg. 5)

which gave it an advantage over its competitors. They felt there were problems with management

control which was due to the fact that DFG’s systems were geographically dispersed, disparate and

close-walled. DFG could improve by building a “corporate management information system,

supported by the right technology and communications infrastructure” (pg. 5).

This consulting firm recommended these changes:

• Adopting electronic retailing as a subset of its retailing function

• Applications be rewritten and centrally deployed with a n-tier client server architecture

using an internet browser with the user interface and application server as the middle

tier

• An organizational intranet be developed where LANs at the stores would be

interconnected with each other through Common Gateway Interfaces

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• Create an integrated set of applications within each business unit so information could

be easily interchanged across business functions

• Provide mobile users with secured, location-independent access to corporate

information resources

• Develop Data Warehouse and Data Marts to facilitate data analysis and decision making

• Provide access points on the corporate intranet for venders so direct buying by stores

could be quickly organized and records were easily maintained

• Systematic assessment of the required technical skills be made and necessary training

plans and recruitment schemes be charted out so as to have core competence within the

organization

Firm B

Firm B felt that technology advancement was not enough, but changing DFG’s business

processes would be the key. The firm felt the current processes were major determinants of DFG’s

ability to develop and retain a competitive advantage. Firm B suggested creating two components

business and technical.

This consulting firm recommended these changes:

• Business Component

o Group DFG’s processes under Business Process Domains (BPDs) allowing for

availability, assurance, usability and adaptability within each domain

o Create common store applications around standardised technology. Redesign

the existing applications to ensure all data conducive to decision making was

captured at the transaction points

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o Integrate store systems with operational systems extending them to buyers and

suppliers

o Create a centralized merchandising system within each business unit.

Consolidate purchase orders to reduce POs and invoices

o Establish a common buying and sell process that would enable customer

requirements to be sensed and catered to so that DFG would not have huge stock

of slow moving items and stock outages for fast moving items

o Begin creating electronic commerce but do not put it into full force

• Technical Component

o Create a corporate WAN ;to provide group-wide information systems through

interconnections across the various BPDs

o Provide enterprise-wide system security, integrity and credibility

o Create a Technical Architecture Programme Group (TAPG) under a Technology

Strategy and Architecture Group (TA Team). The TA Team will conceive,

develop and maintain DFG’s Technical Architecture.

Conclusion

Both firms A and B have strong plans. Firm A concentrates on the technology integration,

while Firm B focuses more on reengineering business processes. DFG faces major changes ahead.

Which plan they choose may decide their place in the Asian market.

My Recommendation

I feel that DFG would be better off implementing the plan presented by Firm A. It is much

more straight forward and I feel it would be easier maintained. Also, it allows for retraining of most, if

not all, DFG’s employees. Restructuring does not need to lead to lay offs.

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Questions

1. Which plan would you recommend for DFG and why?

2. What do you think DFG could have done differently so they would not have to restructure their

entire technical practices?

3. If you were a consulting firm, what would you recommend differently than the firms DFG

enlisted to change their business?