Durable Vinyl Siding Corporation is a vinyl siding producing company that has been growing at a good pace. This tendency is accompanied by a stable increase in the corporation’s revenue. However, despite its evident success in the market, the company has encountered the following problems that must be addressed to keep it afloat (Mena, Christopher, & van Hoek 2014):
- decreasing net profits;
- 8% increase in procurement costs (from 2004 to 2008);
- no computerised procurement system to facilitate the control over purchasing tasks completed manually;
- no e-commerce system in place;
- overcrowded warehouses;
- low productivity of procurement groups; and
- an excessive amount of raw materials.
In order to solve these problems, three possible options can be considered as the most effective ones:
- e-commerce; and
The advantages of computerisation may be summarised as follows (Lim 2013):
- Higher speed and efficiency. A computerised inventory management system facilitates the whole process of inventory control, starting from inputting data to inventory count. Any task that requires several days to be performed manually can be accomplished within a few hours with the help of computers, which increases the efficiency of the working process.
- Document generation. Once the system is put in operation, it will allow the procurement group to easily create all kinds of papers (e.g., purchase orders, invoices, cheques, account statements, etc.), eliminating undesirable red tape and thereby saving time.
- Quick reporting. If anything goes wrong, the system can quickly report the problem and offer possible solutions for the management to consider.
- Timely data. A manual system of inventory control makes it impossible to track how many units have been sold, which of them are selling best, what the monthly progress is, etc. In addition, the data collection process requires a considerable amount of time, and this may make data irrelevant. On the contrary, computers provide timely and accurate reports keeping track of all changes that have occurred over a specified period.
- Better connection with the customer. An automatic tracking system can send an electronic notification to the customer to purchase more goods once his/her supply reduces to an insufficient amount.
- Lower expenses. Since the cost of hardware and software gradually decreases, the accounting software package becomes available to a larger number of organizations, which will save them a lot of the expenses connected with maintenance of the manual system of accounting.
As far as the disadvantages are concerned, they are as follows (Drury 2013):
- Dependence on technology. Once an organisation has adopted a computerised procurement system and totally eliminated manual labour, it immediately becomes totally dependent on its technology. In the case of electricity failure, loss of the Internet connection, computer viruses, or hacker attacks, the system will become useless for an indefinite period of time, which is fraught with huge financial losses.
- Possible inaccuracy or incompleteness of data. It is important to remember that a computerised system cannot ensure the accuracy of reports, since it depends on the accuracy of the input data (GIGO: Garbage In – Garbage Out). Therefore, companies that are planning to transfer to a computerised system need to validate their information for correctness and completeness before reporting it to the computer, which means that select hand count will still be necessary.
- Improper programming. Poor programming or inappropriate software can lead to the failure of the accounting system as it will be unable to satisfy the needs of a particular organisation.
- Risk of hacks and computer frauds. Any computerised system requires thorough control and needs to be maintained at a proper security level. Otherwise, it will run the risk of intrusion and fraud. Any dishonest employee can potentially redirect payments to his/her own account.
Another option for Durable Vinyl Siding Corporation is to introduce e-commerce. Despite its growing popularity and the many advantages that it provides to customers and businesses, there are still a number of drawbacks that should also be taken into consideration before making conclusions about its true value (Da Costa 2016).
The advantages of e-commerce are below (Da Costa 2016):
- The system eliminates lines and waiting time. In fact, this convenience is especially important to clients rather than to the organisation itself. However, it increases service satisfaction and can attract more customers.
- The procedure of selling and buying is facilitated as it is much easier to find good products using e-commerce.
- Durable Vinyl Siding Corporation will be able to transfer to a 24/7 selling system.
- E-commerce provides access to stores of the corporation that are located remotely, which allows for expanding the market. Moreover, there are no geographic restrictions for customers.
- Since the company faces the problem of overcrowded warehouses, e-commerce is a good option that will eliminate the need for a physical store and cut costs.
- E-commerce increases the variety of options as there are no physical shelves that limit the storing capacity. The corporation will be able to list a huge number of different items and increase its target audience. Moreover, Durable Vinyl Siding Corporation can solve its current problem of excessive raw materials.
- The system gives consumers the possibility to list their requirements online so that the company can assess their needs.
- The business will have a bigger opportunity to scale up as there are practically no limitations connected with inventory, warehouses, etc.
- Contact information is provided via email. The company can create automated messages that will increase the speed of communication.
- Many aspects can be customised using cookies to monitor the customer’s online behaviour.
- If Durable Vinyl Siding Corporation decides to expand to the global market, e-commerce will make its procurement faster, cheaper, and more transparent, eliminating the necessity to handle currency notes and the need for meticulous cash management.
- The company can maintain lower inventories and manage them more easily.
- Human resources are used more efficiently with e-commerce as the system is automated and fewer employees are needed to do the same amount of work.
- Logistics can be tracked online.
The disadvantages are as follows (Da Costa 2016):
- It is easier for customers to compare and locate the best prices. This may become too restrictive to the corporation as it can be filtered out of the selection if it has higher prices.
- Since customers are unable to experience the product before buying it, it may result in later dissatisfaction with its quality.
- Similar to a computerised accounting system, e-commerce requires an Internet connection. If it fails, the working process will cease.
- Identity and credit card fraud hazards may prevent many customers from using the system.
- The corporation itself runs the risk of phishing attacks.
- Goods cannot be delivered instantly. Empty-handed customers may give preference to companies providing immediate service.
- The reliance on the website is too high; even several minutes of downtime will bring about considerable monetary losses.
- E-commerce tax regulation is still rather vague and can be fraught with extra expenses.
- The system usually presupposes charge-backs, which is rather inconvenient for the organisation, especially if the product has already been delivered.
- It is convenient for the consumer to have goods delivered to his/her home. However, for the company, this process brings about complicated logistics.
- Running an effective website requires an effective and costly infrastructure.
- Reverse logistics is required to receive products back in case of customer dissatisfaction.
Outsourcing procurement is the third variant Durable Vinyl Siding Corporation may choose. This option helps large companies save money and maximize net profits (Schniederjans, Schniederjans, & Schniederjans 2015).
The solution features the following advantages (Dinu 2015):
- Outsourcing non-core business procurement activities can help the corporation to shift the focus back its major activities, such as marketing and sales.
- One of the greatest benefits of outsourcing is saving costs on operation, labour, training, and office space. There is no need to hire people in-house, which means that operation and recruitment expenses will be reduced to a possible minimum.
- It also cuts expenses coming from back-end operations.
- As a result of outsourcing, the cash-flow of the corporation will be streamlined.
- In the case of Durable Vinyl Siding Corporation, some functions are currently out of control, so it needs outsourcing to have support in resolving the problems.
- Outsourcing increases the company’s efficiency and productivity, which will prepare it for encountering market challenges.
- The organisation will be freed from the necessity to invest in technology and infrastructure.
- Staffing and human resource management will become more flexible. The service provider will be responsible for the productivity of the workforce.
- Market leverage will allow the organisation to make better discounts, which will increase the customers’ satisfaction.
- Logistics costs can be lowered with outsourcing.
- The company will improve its connections with purchasing experts.
- Since tasks are outsourced to professionals of the field that can dispose of specific equipment, faster and better-quality output is achieved.
- Certain responsibilities will be shifted to the outsourced vendor, which will allow for sharing and mitigating potential risks.
The disadvantages are detailed below (Oshri, Kotlarsky, & Willcocks 2015):
- The handover time may interrupt the continuity of service. Therefore, the company needs to manage it so that the goods delivery continues.
- If the corporation opts for outsourcing, it will partially lose control of its daily transactions. This means that it will have to rely on the loyalty of the service provider.
- Outsourcing procurement has to be managed on a regular basis in order to ensure that all the activities comply with the contracts concluded with the provider.
- The technology will have to be updated to solve the problem of the warehousing systems. Moreover, it will also require educating staff as they need to understand what is going on and treat the outsources areas properly, as a part of the company.
- Outsourcing puts the corporation at risk of exposing its confidential data to a third party, which can lead to huge financial losses.
- If the service provider is not properly chosen, it may stretch the time of delivery, have a negative impact on quality output, and cause inappropriate division of responsibilities. Such factors are easier to regulate without attracting any partners.
- Despite the cost-effectiveness of outsourcing procurement, there are still certain hidden expenses involved in concluding the contract with the provider.
If I had to choose the best option for Durable Vinyl Siding Corporation, I would suggest resorting to e-commerce. The introduction of a computerised accounting system could also bring positive results. However, it will not resolve the procurement issues and the problem of excessive raw materials. In this case, we need a long-term solution that would allow the corporation to get to a new level of practice. The Internet continues to present new opportunities to organisations, allowing them not only to achieve greater customer satisfaction but also to solve problems of warehousing, accounting, and inventory management (Zimmer 2014). However, this transition requires proper consideration: The corporation will have to choose whether it is going to manage it in the house or outsource. There are obvious advantages and disadvantages to both options. Still, I would suggest uniting the two solutions discussed above and outsourcing e-commerce development. The advantages of this strategy would be:
- A team of highly qualified employees. If the company decides to outsource its e-commerce development work, it will be able to resort to the help of the premium class professionals who will complete the task, thereby avoiding all the mistakes that could be made in house. In addition, it would eliminate the risk of possible website failures, improper software, viruses, etc. (Rao & Dai 2016).
- Cost-effectiveness. The major reason to entrust the business into the care of outsourcing providers is that it would allow the corporation to cut its costs. It would be especially evident in human resource management. Outsourcing companies will hire workers at a lower price, and operational costs of the business will, therefore, be saved. Moreover, the company will ensure that the transition to e-commerce is performed by those who specialise in the field (Rao & Dai 2016).
- Promotion on the Internet. Since the company is currently quite unknown in the online world, e-commerce outsourcing will help it promote its operations on the Internet. The problem is that Internet business is highly competitive and wants to be visible. This implies occupying the best positions on the first pages of the major search engines (Zimmer 2014). This is hardly achievable when the transfer to e-commerce is performed in the house as it requires the highest possible level of expertise. E-commerce outsourcing providers have experts who possess all the necessary skills to popularise the business online and help the company expand its target audience in a short period of time (Rao & Dai 2016).
- High level of service provided. Due to the popularity of the online business, more and more e-commerce outsourcing companies appear every year. The situation creates a highly competitive environment, ensuring companies’ determination to execute their functions at the best possible level. This way, they will be able to get positive reviews and referrals, which predetermine the success of their business, bringing them new clients (Brewer, Wallin & Ashenbaum 2014). Bearing this in mind, Durable Vinyl Siding Corporation can choose any popular outsourcing company, ensuring that it will generate reasonable traffic on the Internet. There is no need for close supervision of the activities of the service provider as it is their primary interest to ensure that the job is performed at the highest quality level (Rao & Dai 2016).
- Fixes prices. If the corporation decides to outsource, it will be able to set the price range of the project, which will give it a clear picture of how much is going to be spent on the transition process. In addition, the company will be able to select a developer that will meet its pricing expectations (Zimmer 2014).
- Well-defined working schedules. When you work with an outsourcing company, you can be sure that it is concentrated on a specific task at each moment of time to ensure the accountability of each action. This gives the company an opportunity to track the implementation of the project. It can also estimate all risks, even before the process is launched (Zimmer 2014).
- Assistance on the project. In the given case, the company has a limited need and requires high-quality work. This means that it would be unreasonable to hire full-time, in-house employees whose services will be unnecessary in a short period of time when the system is fully introduced. Therefore, outsourcing will give the corporation a possibility to get project-based assistance (Zimmer 2014).
The only disadvantage of e-commerce outsourcing that the company can face is that agencies providing this service are rather expensive. This will be a problem considering that Durable Vinyl Siding Corporation currently has a decreasing net profit. The project will have to go through all internal red tape before the decision can be made. However, the costs are fully justified and will pay back in rather a short period of time.
Brewer, B, Wallin, C & Ashenbaum, B 2014, ‘Outsourcing the procurement function: do actions and results align with theory?’, Journal of Purchasing and Supply Management, vol. 20, no. 3, pp. 186-194.
Da Costa, E 2016, Global e-commerce strategies for small businesses, Mit Press, Cambridge.
Dinu, AM 2015, ‘The risks and benefits of outsourcing’, Knowledge Horizons, Economics, vol. 7, no. 2, pp.103-128.
Drury, CM 2013, Management and cost accounting, Springer, Berlin.
Lim, FPC 2013, ‘Impact of information technology on accounting systems’, Asia-Pacific Journal of Multimedia Services Convergent with Art, Humanities and Sociology, vol. 3, no. 2, pp. 93-106.
Mena, C, Christopher, M, & van Hoek, R 2014, Leading procurement strategy: driving value through the supply chain. Kogan Page Publishers, London.
Oshri, I, Kotlarsky, J & Willcocks, LP 2015, The handbook of global outsourcing and offshoring, 3rd edn, Springer, Berlin.
Rao, X & Dai, M 2016, ‘In-sourcing or outsourcing: an economic analysis on internal and external alternatives for enterprise R&D, American Journal of Industrial and Business Management, vol. 6, no. 6, pp. 794-810.
Schniederjans, MJ, Schniederjans, AM & Schniederjans, DG 2015, Outsourcing and insourcing in an international context, Routledge, London.
Zimmer, D 2014, ‘Outsourcing strategy: local versus international contract research organizations’, Bioanalysis, vol. 6, no. 10, pp. 1279-1281.