KOLO: Inquiry Project of a Global Company

The paper aims to apply reflective practice and inquiry methods to the problem of procurement management. In modern management theory, procurement management is important for every retail organization as it allows its management to design and develop effective purchasing strategies and select the best channels of distribution. Retailers move away from capturing and moving data around the organization to concentrating on converting data into information for managing their operations. The transaction system of a retail establishment is still its backbone. Vast improvements can be made in this sphere, but equally important improvements will also be made on the management decision support side. The key will be to apply technology to gain a sustainable competitive advantage. Only by applying technology in this manner can exceptional profit performance be achieved (Leenders et al 2005). What follows will reveal the threats to retailers from each of these potential competitors due to developing technologies that can be applied by others as well as by current retailers. In terms of reflective practice and inquiry methods, It is assumed that the real challenge for retailers is because the technologies are available to everyone, the mixing, and blending of different technologies together into an applications system constitutes the competitive advantage. The paper will be based on qualitative and quantitative data analysis and secondary and primary data collection. Action Research will prevail in the paper.

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KOLO is an Austrian-Polish joint venture, founded in 1989 with $150,000 in capital and four Polish and two Austrian shareholders. Today, all shareholders are Austrian but the store managers and sales staff are Polish. This company is vertically integrated, owning a factory that manufactures housing components. The owners saw an opportunity to supply the homeowner with interior elements such as carpeting and appliances and seized it. Sales volume for KOLO was 12 billion zlotych in 1992 (about the U.S. $90, 000 at 1992 exchange rates), up from 10 billion zlotych in 1991, but based on 1991 exchange rates sales was even with the previous year (KOLO SANITEC Home Page 2009). Traditionally, KOLO carries a variety of home-related merchandise and is divided into four departments. Bathroom products (sinks, mirrors, commodes) comprise half of KOLO’s sales volume; tools and electric appliances are 20%; home improvement products account for another 20%; and the remaining 10% of sales is attributed to lawn and garden. Initially, the store stocked home cleaning products but discontinued these products because they were not profitable. Margins on products range from 15% to 19% (KOLO SANITEC Home Page 2009). The store layout features a merchandise presentation scheme similar to a catalog showroom. The main source of information about KOLO Company is the website and a personal interview with its operations manager.

In recent years, KOLO experiences some problems with suppliers caused by the increasing role of Internet marketing and online purchases, transportation, and ordering changes. The old-fashioned system of ordering and inability of the company’s management to predict sales decline or increase in sales led to an oversupply of some mirrors and additional money spent on warehousing, and lack of other items “demanded” by customers. Once goods are shipped, they cannot be refused. The shop must buy them. Limited credit terms are available, with KOLO paying for goods as they are sold, but usually within six months of receipt of goods. The main problems occurred with mirrors coming from Germany, Holland, and France. Late delivery and orders cancellation are the main problems faced by KOLO (KOLO SANITEC Home Page 2009). Single items with pricing information are displayed, orders are placed within the departments, and stock depth is maintained in the warehouse. Orders for goods are placed six to eight weeks before projected delivery dates, but there are problems with deliveries. It is common to receive only 50% to 60% of what is ordered.

Procurement management pays special attention to materials planning and new product development. Information sharing is the main and the most important component of this activity. Cohen and Roussel (2004) suggest that effective procurement management and structure of purchasing determine the performance of the company and its competitive market position. In their research, they state that decentralization of suppliers tends to be the practice in companies with the following operating characteristics: a large number of small shipments are made, production facilities are decentralized and widespread markets exist, the products transported and stored are mixed and shipments cannot be consolidated, and different geographic areas require different services.

Following Christopher (2005), procurement management can be organized differently for various segments of an organization. For example, the manufacturer of widely diversified products may have centralized distribution for one division and a decentralized plan for another. This researcher underlines that coordination of procurement management requires a perspective that takes into account the properties of products, markets, and logistical process; the breakdown of lines among carriers and methods of movement and handling; and the development of integrated systems that utilize many procurement management modes to lower costs.

Another layer of literature related to procurement management investigates internet marketing and its relations with supply chains and operations. In their studies, Hanson (1999) and Kotler and Armstrong (2008) underline that even if all these factors are considered, though, managerial and organizational limits often prevent the reduction of costs, for the authority of a distribution manager extends only to activities undertaken after products are made. The example of manufacturing shows that the elements of a procurement management system include market segments, manufacturing, distribution to wholesaling and retailing points, and transportation and storage links. The system’s structure is affected by the predictability of product flows through the system, the distances between points, and the bulk of commodities.

Stroh (2006) supposes that the same elements affecting such marketing areas as advertising, personal selling, and products affect physical distribution decisions. For the automotive industry, plant and warehouse location, competition, markets, transportation facilities, service requirements, the location and size of customers, product characteristics, distribution requirements, inventory forces, and production requirements establish the frame for procurement management systems. While demand-creating forces attempt to make sales and develop markets, procurement management is concerned with developing the supporting logistical system that will move and position products to permit the most profitable development of markets. Thus, the issues of both production and markets shape the design of the procurement management system. The research made by Stroh (2006) is interesting and useful for managers as it explains the interrelationship of production activities with market patterns, establishes guidelines for choosing particular forms of inventory, transportation, distribution, and handling activities.

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Monczka et al (2005) and Leenders et al (2005) state that introducing changes and ship release influence all activities in logistics management. The fundamental activities performed by a procurement management system are concentration and dispersion. These processes can be performed several times in the distribution of the end product as products are assembled and stored and bulk is broken. In many car companies, terminals are located at points to balance market demands with the movement and shipment size. These structures are dictated by movement-and-handling processes.

In general, the current literature identifies the main trends and approaches in procurement management and proposes solutions for modern managers and business organizations. The major decisions in designing a procurement management system involve: (1) the number and geographical location of plants; (2) the number, size, and geographical location of warehouses; and (3) transportation and handling possibilities. Up to the point of processing, the location of raw materials and accumulation of volume shipments are the most important factors in designing geographical. Beyond this point, customer needs and purchasing habits (largely dispersion) take on increasing importance.

In a personal interview, Mrs. Lisa Jenkins, operations manager, states that orders cancellation and late delivery are a result of an ineffective system of communication and old technologies used by KOLO. It is assumed that effective planning of marketing activities can be achieved only if market-related information is available. Such information must pertain to future potentials. Sales forecasting, which is both based on and part of marketing intelligence, furnishes management with information about what market conditions are likely to be during some specified future period. This information helps in planning broad company goals and strategies and the programs to achieve them. The establishment of potential volume and profit targets expected market shares, and sales quotas become the basis for guiding and controlling operations (Leenders et al 2005). For KOLO, to integrate goals, objectives, and operating programs with potential market opportunities, management must concretize its sales forecasts. This necessitates translating the sales forecast into a specific market, customer, product, territory, and volume goals to be realized during some future period. Thus, the sales forecast becomes the foundation for marketing programs, financial budgets, purchasing plans, personnel budgets, production schedules, plant and equipment demands, expansion programs, and other aspects of management programming (KOLO SANITEC Home Page 2009). Programming, as we have said, is concerned with specifying a sequence of activities over time and geographic areas so that strategies may be executed effectively. Programs put marketing strategies into effect. In marketing terms, programming determines the marketing mix (Christopher, 2005).

The Internet value chain will help KOLO to improve the delivery and monitoring process, plan and control product shipment. Computers are linking suppliers to customers, giving salesmen, buyers, advertising managers, and retailers new roles. They are initiating new decision systems. To utilize computers most effectively, management must consider the interaction of computers with marketing environments and human beings. Eventually, marketing systems may be redesigned so that computers can be built into the total system. Businessmen thus far have not learned to use computers effectively in problem-solving and decision-making (KOLO SANITEC Home Page 2009).

It is widely accepted that computing power in both the hardware and software areas will continue to improve at an accelerating pace. Parallel processing, even within a single chip, promises to demolish all computer speed barriers and make computing vastly cheaper and faster (Cohen and Roussel 2004). Communications technologies are improving almost as fast as are computer hardware and software technologies. The move to fiber optics over the next decade will provide a quantum leap in what can be done with communications. KOLO will be moving from a copper wire technology that can carry twenty-four voice conversations simultaneously (on what are currently advanced T1-lines) in an analog mode to fiber-optic lines that can carry sixteen thousand conversations simultaneously in a digital mode (Christopher, 2005; Blaxter et al 2006).

Following the Kolb Cycle approach in reflective practice, it is possible to say that the professional practice of KOLO should be changed. Companies also do not like being without money just because the bank at a particular location is closed, and they do not like having to travel somewhere just to order something. Companies like KOLO much prefer a full range of services, provided 24 hours a day, located within their facility — an ideal to which telephone banking is getting closer. The use of information technology (in this case telephones and sophisticated computers) not only means that geographical presence is unimportant but also offers a way of enhancing the service offered by banks. It is not surprising that companies like KOLO are flocking to this type of banking wherever it is introduced.

Pedlar et al (2001) suggest that reflective practice can be used as a management development tool. Applied to the situation under analysis, it’s possible to say that despite the widespread success of virtual services such as telephone banking in the financial services industry, the reaction we most often encounter when we discuss these issues with executives in other industries is that, while it is obvious in retrospect that such changes were bound to occur in the financial services sector, they could not possibly happen in other sectors because of the physical nature of most goods (Cohen and Roussel 2004).

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The alternative solution is based on the exchange of information related to stock and the number of goods available for customers. The exchange of information takes place in the virtual domain without the requirement of a physical presence — all the co-operatives have to do is find a cost-effective method of distribution. The point is not to emphasize the essential niche aspects of the service that is being provided. Organic (and relatively expensive) goods are not going to be to everyone’s taste. However, just as with financial services, it illustrates that it is possible to provide home deliveries of relatively low-cost but still bulky items. Larger retailers may use slightly different tactics — they may, for example, rely on their brand to be able to convince shoppers that they can be trusted to deliver high-quality goods (Christopher, 2005).

To be able to acquire new customers and to access them on a long-term basis, KOLO needs to be able to exploit the information revolution to provide new, added-value services rather than just provide a new way to access customers. As these added-value services increase, and even if the price remains the same as other channels, customers will migrate away from the physical domain (retail outlets) and start to do business in the virtual domain. At its very simplest, the advertising campaigns for telephone banking emphasize the ability to access accounts 24 hours a day, 365 days a year from the comfort of your own home. These added-value components enabled telephone banking to increase rapidly its market share even though it did not offer any particular price advantage over the traditional bank account (Hanson, 1999). Furthermore, such an advantage appealed particularly to a highly valuable market segment — those people who did not have time to go to a bank because they were too busy working hard and making money. Banking via your personal computer has further advantages in that it enables you to do more with your account — and it saves the bank money by getting you to perform tasks that it would otherwise pay a teller to do. It is this imaginative approach to changing a basic product or service — a massive revaluing of the traditional marketing propositions that are put to customers — which is threatening many existing organizations (among which may be organization) (Pedler et al 2007).

Like the traditional value chain, the virtual value chain needs to be managed if its full potential is to be realized. The processes by which this value is extracted are themselves virtual (bringing together disparate pieces of data, analyzing, sorting, and distributing that data), as are its customers (companies that need information for their processes). Once again, the number of companies that have already taken advantage of opportunities such as these, either to improve their service or cut their costs, is growing rapidly: banks are moving away from high-street branches to electronic banking across the Internet; manufacturers are cutting expensive physical processes out of their production lines (Christopher, 2005).

Given both the absolute and opportunity costs involved, it is not surprising that, when companies look to shift more of their processes into the virtual world, it is with the KOLO R&D department that they often start. It is not just rational economics that drives this selection: it helps that R&D departments tend to be staffed by highly trained people with an interest in new technologies, people who have been selected to embrace and develop new ideas (Kotler and Armstrong. 2008). Of all the functions in KOLO, this is the one that should show the most natural inclination to embrace the new ideas of working within the virtual world. It doesn’t matter whether you are a big company with a large, formal R&D department, or a small company that can afford to invest in new product development on only a relatively small scale. However big or small you are, your R&D can be improved by making it more virtual (Hanson, 1999).

The traditional methods of discovery exceedingly resource intensive. They require researchers to remain abreast with the current developments in their fields and preferably several other fields as well. They require attendance at conferences, the reading of papers, and discussions with colleagues so that new developments can be identified, assimilated, and transferred to the researcher’s own particular opportunities and projects (Kotler and Armstrong. 2008). The use of computers and computing technology by KOLO to purchase mirrors from all over the world, where information is processed and handled within a virtual world, will not change this requirement. The process of discovery still needs an individual to identify the opportunity, to have the idea, to develop the concept. What moving to the virtual world will do is vastly increase the productivity that can be achieved by an individual. In other words, the more experiences to which people are subjected, the more likely they are to be able to make a discovery. Equally, the more insightful they are, the more likely they are to generate a discovery from that experience. The virtual world can, as we shall see, certainly increase the level of experiences that a person can assimilate. However, it is beginning also to help to increase the level of insight that can be extracted from that experience (Christopher, 2005).

To improve relations between suppliers, it is recommended to use an online ordering system, namely CRM (customer relationships management) software. This software will help the company to manage orders and sales and demand in 2-3 months. The advantage of this solution is that once information is in the virtual domain, it can be manipulated many times, essentially for free. If a description of a drug or candidate molecule is produced for one particular experiment, that description can be placed on a database and used again and again. The second time you search the database, that drug will be included ‘for free. The more drugs that are contained, the more likely it is that you will find a successful match (Kotler and Armstrong 2008). The law of increasing returns comes into play, and, over time, drug discovery will become more and more successful at no additional cost. Keeping the process in the virtual domain brings with it enormous advantages. Perhaps most fundamentally, designers and engineers can work together. Everyone can see the design at the same time, and everyone has an opportunity to comment on what will and what will not work. The saffron this one change alone is considerable. Car designs no longer have to cycle round long iterative loops aroundcould take weeks or months to complete. Instead, engineers can react to designers’ ideas as they are being placed on the drawing boards.

CRM software provides a mechanism by which consumers can be linked to the R&D process (Leenders et al 2005). Rather than just a few, possibly atypical, consumers suggesting how the product should be developed, there are now thousands of very different people trying out the product in all sorts of different circumstances. Press a button, and a few days later they will automatically be delivered to your door. Newspapers can be designed to provide just the news that you want to read. Thousands of applications are springing up, which because the R&D process can be performed in the virtual domain, means that items can now be developed to an individual’s exact requirements. The R&D function is changing rapidly, with more and more of the processes being performed in the virtual domain. Wherever possible, the leading organizations in industries as diverse as pharmaceuticals and car manufacture are looking to exploit the information revolution to put the whole of their R&D activity into the virtual domain. The physical domain is being used only to provide a final test at the end (Cohen and Roussel 2004).

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KOLO is now moving away from competing on the traditional aspects of a product, such as the speed and comfort of cars, the quality of the lens and range of focal lengths of cameras, or the number of different drawing tools within a graphics package, and are moving to compete in the virtual world — the ability to provide directions to get to your destination, to get the right settings for the perfect portrait, to produce a persuasive presentation. The rapid march of technology makes adding this information cheap and of high benefit to the consumer. it is important to stress that the spoils exploiting the sphere of a product will fall to the first company to market. In this playing, catch-up is rapidly becoming an almost impossible way in which to operate. Many of the easy improvements in the physical design of products have been achieved; further improvements are likely to be of only marginal benefit. One area that is still open for considerable improvement, however, is the exploitation of the sphere of the product. KOLO predicts that most of the major product developments will be centered around better exploitation of the marketing sphere (Monczka et al 2005). Whatever the product, exploiting its information content can add value. In some cases, that exploitation can change the market completely, but the key to this exploitation is to understand why customers are purchasing products — what do they want them for? If the company understands that, managers are well on the way to understanding how best to exploit the marketing sphere of your products. Those who get in first have a significant advantage. Not only do they reap the rewards of publicity and new customers, but they also can continue to evolve their exploitation. As soon as the companies who are following manage to catch up, they can add a new variant to keep them in the position of market leader (Cohenand and Roussel 2004).

In addition, KOLO could alternatively move from applying existing technology to existing customer needs by applying new technology to serve those same needs (Monczka et al 2005). For example, rather than simply allowing credit customers to dial a number and talk to someone about their credit balance, the retailer could provide the ability for a customer with a computer to dial-up and view the entire account history on-screen. The best approach to applying technology typically lies between the two extremes and involves taking a small step in one direction and then in the other direction. However, some of the highest payoff projects in retailing have involved the high technological risk that required moving in both directions at once (Stroh, 2006).

Inquiry methods and reflective practices help me to create a framework for analysis based on secondary data collection. The proposed supply chain will help KOLO to purchase mirrors avoiding orders cancellations or late orders delivery. This supply chain will be a part of the traditional supply chain and will help KOLO to balance purchases and sales. Virtual design features will help customers to select the best mirror for their bathroom and allow KOLO to order immediately after the payment made by a customer. In this case, KOLO will look beyond the segmentation into groups and will apply technology to track customers as individuals and consequently respond to them on an individual basis. This will require the development of customer tracking systems at the store level, greater integration of purchasing and credit histories, and sales associates supported by intelligent decision support systems. Changes in lifestyles and market environment have had a direct impact on goods and services produced, expenditures, and the consumption process. For example, the effect of increased leisure time, suburban living, shopping centers, automatic vending machines, automobiles, television, and widespread geographic shifts on consumer wants and needs is pronounced.

List of References

  1. Blaxter,L. Hughes, C. and Tight, M. 2006, How to Research. (3rd Ed.) Milton Keynes:Open University Press.
  2. Cohen, Ch., Roussel, J. 2004, Strategic Supply Chain Management. McGraw-Hill; 1 edition.
  3. Christopher, M. 2005, Logistics & Supply Chain Management: creating value-adding networks. FT Press; 3 edition.
  4. Cohen, Sh., Roussel, J. 2004, Strategic Supply Chain Management. McGraw-Hill;.
  5. Hanson, W. 1999, Principles of Internet Marketing. South-Western College Pub; 1 edition.
  6. Mrs. Jenkins, Lisa. Operations manager of KOLO. Telephone Interview. 2009.
  7. Kotler, Ph., Armstrong. G. 2008, Principles of Marketing, 12ed, Pearson Prentice-Hall.
  8. Leenders, M.R., Fearon, H. E., Flynn, A.E., Johnson, P. F. 2005, Purchasing and Supply Management (13th Edition). McGraw-Hill, New York, NY.
  9. KOLO SANITEC 2009, Home Page.
  10. Monczka, R. M., Trent , R.J., Handfield, R. B. 2005, Sourcing and Supply Chain Management (3rd Edition). South-Western/Thomson Learning, Mason, OH.
  11. Pedler, M., Burgoyne, J. & Boydell, T. 2007, A Managers Guide to Self-Development. Aldershot: Gower.
  12. Stroh, M. 2006, A Practical Guide to Transportation and Logistics. Logistics Network Inc.
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