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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