DSS ASSIGNMENT (ASSIGNMENT 1)

INSS 640

MODEL =-2

GRADE 55/60

SEE COMMENTS

GROUP B

JOSEPH WARREN CAIN

PAMELA CATHERINE NG

SHEZA NASIR

JEFF BROGLIE

EXECUTIVE SUMMARY

This report provides an analysis and evaluation of the current and projected profitability,

cost analysis, price analysis, and recommendations for the future of Pierogi_rus.com.

Pierogi_rus.com is a specialty foods company that is extremely sensitive to seasonality. Projected

indices range from 0.43 percent of the average sales to 1.89 percent of the average sales for the

year 2011. Ninety percent of Pierogi_rus.com’s business is domestic with a strong growth

potential in Poland and the surrounding eastern European countries. In 2007, stockholder’s faith

in Pierogi Inc. waned as the economic downturn at the time affected the stock price

detrimentally, and sales were expected to decrease 5% annually through 2012.

Methods of analysis include the calculations of units sold, gross sales, production costs,

other costs, and inventory carrying costs to determine the net profit and rate of return for 2011.

Separate spreadsheets were created and are attached to this report to determine a what-if analysis

if the price per unit went up by 20% and the demand decreased by 20%. A goal seeking

spreadsheet was also created and attached to determine the sales price increase needed to obtain

a 15% rate of return for the month of December. All calculations can be found in the

corresponding spreadsheets.

Analysis of the data revealed several issues that Pierogi_rus.com will have to address.

First, monthly inventory for September and October is projected to fall below 500 units, which

will be in conflict with the company’s current business policy regarding level of monthly

inventory. Second, monthly profit before taxes is projected to fall below $100,000 in the months

of January, February, November, and December, which will violate the company’s business

policy regarding monthly profit before taxes. This projected drop in monthly profit before taxes

is not unforeseen, as Pierogi_rus.com is aware that its sales drop in the winter months. However,

management will have to make adjustments to deal with these issues.

The final part of this report presents recommendations for the Pierogi_rus.com to help it

deal with the challenges presented by the economic downturn, and to help increase the

confidence of the company’s shareholders. For short-term strategies, Mr. Polanki should revisit

the business plan, seek supporters and advisors, make customer satisfaction their priority, expand

relationships with existing clients, and advertise. The IT which Pierogi can use for immediate

advantage is Supply Chain Management systems, Customer Relationship Management systems,

network automation, and network security. For the long-term, Pierogi should plan to diversify by

acquiring a distribution company and adding more foods that they can sell.??? to whom?

existing customers or new markets? These and more in-depth strategies are discussed in

more detail over the following sections.

Part 2: Attached Spreadsheets (4 Total)

Part 3: Goal Seeking and What-if Analysis

3a) In this part of the analysis we calculated a profit and loss statement of the outcome if

the prices went up by 20% and if the demand went down by 20%. If this situation were to occur,

the outcome is not positive. From the base model, it was calculated that the months that fell

below $100,000 were January, February, November and December. The profits were $17,150,

$69,475, $64,457.60, and $11,141.85 respectively. Changing these calculations to include the

what-if scenario drops these profits even lower. (OK) In addition, after the what-if calculation is

taken into account, the month of March also falls below $100,000. The profits for January,

February, March, November and December fall to $11,990, $62,155, $94,015, $94,015.00,

$56,537.60, and $5,261.85 respectively. Increasing the price of the Pierogi by 20% does not cover

the loss if the demand were to fall by 20%. Pierogi_rus.com should implement a Management

Information Systems to help monitor if profits fall below $100,000. A MIS system can produce a

regular scheduled exceptions report summarizing the company’s transactions that fall below an

unanticipated level (Laudon & Laudon, 2010). Next, the inventory carrying cost is a big cost for

the company. It is always better to carry as little inventory as possible. (good point) We

recommend that Pierogi_rus.com use information systems to make their online site a customer

order site. An order can be placed online by customers and the Pierogi can be made and ready for

customer pickup. Then, the system can link the order to production control so that once the order

is placed, more materials will be ordered to replenish materials directly from the suppliers. This

will enable Pierogi to decrease the inventory carrying cost. The MIS can remember (Systems

do not have memory, You mean it can be stored in databases and retrieved as

needed) each of the customers’ ordering patterns and compare the amount of ingredients needed

per customer (Laudon & Laudon, 2010). The system can notify the store manager if the portions

are out of line.

3b) In the month of December 2011, we have calculated that Pierogi_rus.com can

increase the sales price by 8.73% to obtain a 15% rate of return. This was calculated by trial and

error (should use goal seeking tool available in EXEL under tool menu). We plugged in

percentage increases and multiplied it by the sales price times the units sold until a rate of return

of 15% was obtained. The results can be referenced from the Goal Seeking spreadsheet.

Reference List

1) Laudon, K. C., & Laudon, J. P. (2010). Management Information Systems: Managing the

Digital Firm. (11th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.

Part 5: Bid by Food_r_us.com

The first factor that should be considered is whether this acquisition will benefit both

companies. Can Foods_rUS.com make Pierogi_rus.com a more profitable company by

enhancing its operations and making them more efficient? Can Foods_rUS.com expand

distribution of the specialty pierogi to more countries and markets? Of course, a key factor in

answering these questions is whether Foods_rUS.com is planning on just acquiring

Pierogi_rus.com and then running the companies separately, or whether Foods_rUS.com plans

on merging the two companies together (good point!!!). If Foods_rUS.com does end up

acquiring Pierogi_rus.com and does not merge the two companies, will it leave Mr. Polanski and

the rest of the management intact? What changes will it make? Will be there a culture clash

between the two companies, resulting in high turnover at Pierogi_rus.com and a decline in

performance (Hill, 2004)?

Although the case mentions that the bid was friendly, the benefits and advantages of the

acquisition will have to be clearly presented to the employees of both companies. The two

companies will also have to evaluate ethical dilemmas such as whether the acquisition will result

in any layoffs, especially if Foods_rUS.com decides to merge the two companies (Laudon &

Laudon, 2010).

Another factor that needs to be considered is the global strategies used by the two

companies, since these global strategies have an impact on how successful the companies are and

the systems configurations used (Laudon & Laudon, 2010). Based on the information presented

in the case, it appears that Pierogi_rus.com has been functioning as a domestic exporter, since all

of its corporate activities appear to be based in Buffalo, New York. If Foods_rUS.com acquires

Pierogi_rus.com, it may determine that it can more effectively operate some of Pierogi_rus.com’s

major departments in other countries. Moving some of these major departments to other

countries will allow the company to realize a comparative advantage (Laudon & Laudon, 2010).

For instance, the company may realize a comparative advantage by moving the Production

department to another country where labor and material costs are cheaper. Of course, the

company would have to ensure that lower production costs do not translate into lower quality.

Also need to think of shipping cost, duties etc if they make it another country.

Also think of the perishable nature of the product. is it wise to make it in

Europe and ship it back to US??

Another factor that should be considered by the two companies is the issue of information

systems. The decision on what information systems (decision-support systems, executive

support systems, supply chain management systems, customer relationship management systems,

etc) to use if the acquisition does occur will have to be made based on whether the two

companies are merged or not. In either case, there should be interoperability between systems

wherever possible to ensure that the right data is being collected for decision making (Laudon &

Laudon, 2010). At this stage concentrate on MACRO issues.

Political issues

Legal issues

Language/labor problems?

The configuration of these systems should be made based on the global strategies used by

the two companies if they are not merged together into a single company (Laudon & Laudon,

2010). As a domestic exporter, Pierogi_rus.com would use centralized systems as its system

configuration. While using centralized systems may have worked great for Pierogi_rus.com

before the takeover, it may not be the most effective system configuration after the takeover if

Foods_rUS.com expands Pierogi_rus.com’s reach into new countries. If Foods_rUS.com plans

to really push pierogi sales in European countries, Pierogi_rus.com’s global strategy should be

changed to multinational and its system configurations should be changed to either decentralized

or networked (Laudon & Laudon, 2010). This would allow Pierogi_rus.com’s Finance

department to be concentrated in one base country, while allowing the Production, Human

Resources, and Information Systems departments to be decentralized in countries where a

comparative advantage can be realized (Laudon & Laudon, 2010). Likewise, it Foods_rUS.com

decided to merge the companies, it would have to decide the best global strategy for the new

company. If the company could transform into a transnational, it could benefit from local

competitive advantages in the different countries in which it operates (Laudon & Laudon, 2010).

Factors to be considered:

There are rules about transborder data flow across the borders.

Management philosophies

Reference List

Hill, Charles W. L. (2004). Global Business Today. (3rd ed.). Boston: McGraw Hill.

Laudon, K. C., & Laudon, J. P. (2010). Management Information Systems: Managing the

Digital Firm. (11th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.

Part 6: Short/Long Term Issues

Short-Term Issues:

identify causes first, then suggest

Two main problems:

inventory production rate is constant, building up inventory during lean periods

Advertising problems, not enough or targeted to wrong audience?

Mr. Polanki is worried about sales projections that point to declining sales (5% per year until

2012) and profits in the coming years because Pierogi, Inc. sales are seasonal and sensitive to the

economy. In addition, shareholders are revolting and want to change the board. So the issue Mr.

Polanki is worried about during this economic downturn is what strategies can be used that will

comply with business policies and how can IT be used for immediate advantage?

In the article “Surviving in an Economic Downturn,” the author lists several practices that

a business can follow; these short-term strategies will not cost very much to implement. These

are important since Mr. Polanki is worried about cost. Some of the strategies, mentioned in the

article, are to revisit your business plan, seek supporters and advisors, make customer

satisfaction your priority, expand relationships with existing clients, and advertise. These are just

a few of the short-term strategies which Pierogi could implement that will help cut costs, keep

and make new customers to bring in profit, and seek advice from advisory boards. (Surviving in

an Economic Downturn.)

These short-term strategies can be implemented effectively and efficiently through IT and

should be implemented because they can give Pierogi a competitive advantage. Toyota has an IT

system known as the Toyota Production System (TPS) which “focuses on organizing work to

eliminate waste, making continuous improvements, and optimizing customer value.” (Laudon &

Laudon, Pg. 15.) Because Mr. Polanki is looking only for short-term solutions to weather the

economic storm and not to spend lots of money, Pierogi should implement IT which

will be the most beneficial (??? too generic). Based on the short-term strategies

recommended in the previous paragraph, Mr. Polanki should, follow the advice of the production

department manager and the marketing department manager, and implement Supply Chain

Management (SCM) and Customer Relationship Management (CRM) systems.

The SCM will help Pierogi manage its relationships with their suppliers. The SCM will

help “suppliers, purchasing firms, distributors, and logistics companies share information about

order, production, inventory levels, and delivery of products and services so that they can make

better decisions about how to organize and schedule outsourcing, production, and distribution.”

(Laudon & Laudon,. Pg. 56.) This will give Pierogi an immediate advantage because it will

expand relationships with existing clients by providing better service so that the clients do not

take their business elsewhere. The clients which Pierogi sells its food to are supermarkets and

restaurants. Pierogi needs their clients to be happy because there is a huge amount of competition

in the food industry.

Pierogi, Inc. should also implement the CRM systems. The “CRM systems provide

information to coordinate all of the business processes that deal with customers in sales,

marketing, and service to optimize revenue, customer satisfaction, and customer retention. This

information helps firms identify, attract, and retain the most profitable customers; provide better

service to existing customers; and increase sales.” (Laudon & Laudon, Pg. 57.) While this IT

technology also focuses on customers – this will be useful in giving Pierogi an immediate

advantage. This will build Pierogi as a company that cares about its customers and bring in new

business.

Finally, some other short-term IT that Pierogi can implement in the economic downturn is

network automation and network security. According to Dipankar Das, network automation helps

companies achieve more by cutting costs. “Automation of key network configuration

management, compliance and provisioning processes helps companies to achieve more.

Companies can also get the maximum of ROI from the past investments by recovering lost

network assets.” In addition, Das also wrote that network security is important to invest in during

an economic downturn because fraud and crime increase. His recommendation is that “you need

to pay attention for better network security compliance, network authentication, traffic routing

and system access, and more audit tracking.” (Das, Dipankar).

Long-Term issues:

Pierogi, Inc needs to not only focus on short-term strategies but long-term goals as well.

Mr. Polanki wants to acquire a distribution company either in the U.S. or Poland as well as

diversify their company into other foods. The issue for Mr. Polanki is should he diversify when

the economy is in a recession?

Pierogi, Inc. should acquire the distribution company and follow this expansion strategy

because the economic downturn presents a “opportune time to broaden your base.” (Surviving in

an Economic Downturn.) Mr. Polanki should also diversify into other foods. “Diversification

gives you more stability because a down market in one product may be compensated for by

another product.” (Surviving in an Economic Downturn .) Also diversification makes sense when

the bulk of the sales are during a particular time of the year, which Pierogi’s generally are

because the number of units sold are not consistent every month (Business diversification.) 

Diversification is also a way to sell more products to existing customers and extend brand

reputation into other markets (Business diversification.)

However, the risk of diversification is that Pierogi is known for their pierogi and if the

company decides to diversify into other foods then this could harm the reputation they have built

already. In addition, the risk is that the strategy fails and this will burn up money for the

company (Business diversification.)

Reference List

1. Business diversification (2007, August 8). Retrieved June 10, 2010, from

http://www.growingbusiness.co.uk/business-diversification.html

2. Das, Dipankar. (2010, April 12). Five tips for IT Managers to Manage the Economic

Downturn. Retrieved June 10, 2010, from http://blog.taragana.com/index.php/archive/how-it-

managers-can-manage-the-economic-downturn/

3. Laudon, K. C., & Laudon, J. P. (2010). Management Information Systems: Managing the

Digital Firm. (11th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.

4. Surviving in an Economic Downturn (n.d.). Retrieved June 10, 2010, from

http://www.smallbusinessnotes.com/operating/controlling/econdown.html

Part 7: Value Chain and Porter’s Model

Need to discuss what Porter’s strategy are you implementing?? cost advantage?

growth? The survival of Pierogi_rus.com relies heavily on using information technology to

increase their value adding activities to lower overall costs and pass some the savings on to the

customer while investing in its own expansion. The Polanki family worked hard for generations

to maintain its market niche as the specialty pierogi, and it was this branding that has resulted in

the increase demand from foreign markets while maintaining a stronghold in the United States.

We as a group believe that as the global buying power of the customer has increased through the

use of internet technology, this company should evaluate its core processes and peripheral

processes from production to inbound/outbound logistics.

As an established specialty food company, Pierogi Inc. has had to deal with competitors,

pierogi substitutes, and the increased buying power of customers through price comparing search

engines for quite some time.(???) Through all of these obstacles, Pierogi_rus.com has remained a

growing, profitable specialty foods company establishing a global demand for their product even

before their website went live. This speaks loudly about the quality of their product and puts

them a notch above their competitors even in an economic downturn. The problem, on the other

hand, is that Pierogi_rus.com needs to utilize the benefits of IT so it can grow even larger in spite

of the down turned economy.

Just in time inventory management systems will help Pierogi_rus.com better distribute its

product while cutting down on inventory costs (good point)!!!. Just-in-time systems use

constantly updated information regarding customer orders and sales so manufacturing has a

better idea of how much product to process and distribution has a more accurate picture of how

much inventory to keep on hand. For 2011, the company has a surplus (over 500 units) of

product in every month except for September and October. By incorporating a Just-In-Time

strategy in production and logistics, Pierogi Inc could save thousands in inventory costs even if it

still kept a safety stock of 500 units across the year.

Regarding shipments and logistics, if Pierogi is not incorporating them already, they

could utilize palette packaging algorithms and corporate partnership. The use of packaging

algorithms will ensure that no space per truck, whereas the corporate sponsorship ensures that no

truck is left empty. These algorithms are meant to be combined with automated shipment

scheduling systems to ensure that customers receive their shipments of goods on time according

to an optimized shipping schedule.

On the labor and administration side of the business, Pierogi needs to incorporate

workforce planning systems as well as electronic scheduling and messaging systems. These will

optimize their entire business model so that even when the business hits a low season, there

would not be any waste of labor.

Part 8: Cloud Computing

Pierogi_rus.com is considering using cloud computing in to cut costs in IT to bring up the

overall return on investment. Concerns in the organization regarding converting to CC/SM

revolve mostly around timeframes of implementation, staff education, and short term benefits.

Upon analysis, our group has decided that cloud computing would be a great course of action to

take especially for short term benefits and immediate increase of cash flow to the company.

Cloud computing is a revolutionary way for companies to cut costs of IT by outsourcing

much of its hardware and software expenditures to a third party, which significantly cuts down

on the company’s own use of capital. Examples of services provided by cloud computing

providers include, but are not limited to, additional data storage space, systems applications, and

multipurpose processing power 3. The cloud provider acts as an outside source that supplies all of

said amenities without the customer having to make a significant expenditure on IT infrastructure

long before its business benefits are realized. The cloud provider is able to turn a profit

themselves by buying their hardware and software in bulk as a result of serving several

companies at the same time and passing the savings along to them 2. The result is a brand new

industry of IT specialists and significant cost reduction for the companies the cloud is provided.

To make things even better, cloud providers charge on a pay-as-you-go basis so cash

flows more accurately match the total system cost 2. The pay-as-you-go system, based on actual

usage or a monthly bill, allows the company to have the power to cease the provided cloud

services at any time. This allows the company to avoid any risk in purchasing hardware or

software packages with unrealized benefits 1.

However, there is a flipside to the coin of cloud computing. Implementation of cloud

computing requires the customer to relinquish power of their IT to a somewhat trusted, but

wholly unknown source. Ultimately, the company using cloud computing has to act in good faith

that the provider has the proper security measures in place to protect the company’s data and

purchased services. Cloud providers use virtualized software that enables them to store several

companies’ data the same processor. This system saves the provider money, but also increases the

risk of malicious attacks by computer hackers by having such a large collection of data in one

place 4. It also leaves the system vulnerable to service outages that affect several companies’ data

at the exact same time if downtime maintenance is required. Although these attacks have yet to

take place, a new generation of malware is expected to be developed specifically to infiltrate

cloud computing systems 4.

In Pierogi_us.com’s situation, the large swings in seasonality sales would warrant the

company to move toward cloud computing on a usage basis to immediately save money on IT

infrastructure and also save money in the off seasons. However, Pierogi_us.com should do

significant research on the provider they choose as to reinforce the security and reliability to the

stockholders as well as ensure that they will be provided with enough bandwidth to manage the

increased European interest without impeding core processes.

Reference List

1. Embrace Cloud Computing to Cut Costs (2008, October 31). Retrieved June 6, 2010,

from http://www.eweek.com/c/a/Enterprise-Applications/Forresters-Advice-to-CFOs-

Embrace-Cloud-Computing-to-Cut-Costs/

2. How to Explain Cloud Computing to your CFO (2008, October 5). Retrieved June 6,

2010, from

http://www.cio.com/article/459819/How_to_Explain_Cloud_Computing_to_Your_CFO

3. Cloud Computing: Supercomputers for Hire (2009, February 4). Retrieved June 7, 2010,

from http://money.cnn.com/2009/02/03/smallbusiness/cloud_computing.fsb/index.htm

4. How safe is Cloud Computing? (2010, March 12). Retrieved June 10, 2008, from

http://www.cnn.com/2010/TECH/03/12/cloud.computing.security/index.html?

iref=allsearch

Appendix A: Grading Criteria

Submissions Maximum Points Group Points

Part 1:

Executive Report

5 5

Part 2:

Worksheet (Spreadsheet):

Data file, Base case, What-If, &

Goal seeking

30 28

Part 3 –

Goal seeking and What-if analysis

4 4

Part 5:

Bid by Food_r_us.com

5 5

Part 6:

Short/Long term Issues

8 6

Part 7: 4 3

Value Chain & Porter’s Model

Part 8:

Cloud computing

4 4

TOTAL 60 55