History
The business now known as HealthyGlow was set up in the late 1950s by Thomas Comfrey and Charles Garlick. Comfrey and Garlick sold a range of herbal medicines and natural therapies over the counter to a small but faithful band of customers. Garlick was an expert in herbal matters and had an encyclopaedic knowledge of the subject while Comfrey, who came from a shopkeeping background, concentrated on setting up the retail operation.
Comfrey was acutely aware of the need to avoid holding large stocks of slow-moving or out-of-date products and he therefore set up a detailed stock-control system based upon card-indexed records. In the early days, the shop carried some three hundred stock lines and Comfrey’s box of neatly-written cards effectively tracked every stock movement, in and out.
When Thomas Comfrey died, he left his share in the business to Charles Garlick, who was fortunate to inherit a well-established retail operation which required little attention to keep it running. Garlick continued to add to his extensive knowledge of herbal therapies and began to build a reputation in this esoteric world by contributing the occasional article to newsletters and journals. As a result, he found that some readers began to order remedies by post and he even received enquiries from other retailers who wanted to buy goods for resale. The operation grew to become a sound (if unexciting) business which sustained Charles and his family in modest comfort.
Growth and change bring problems
In the mid-1980s, Charles was gratified to find that public awareness of the world of natural therapies was growing. He found that he was being asked to contribute articles on herbal treatments to mainstream magazines and was delighted when a publisher approached him to write a book which became a surprise best-seller. There followed more books and articles, plus regular bookings for radio and television interviews, all of which enhanced Garlick’s reputation as the guru of herbalism, so that still more orders flowed in to the company, now renamed HealthyGlow.
However, this was not entirely a good thing: Comfrey’s manual systems had served the business well in their time but were no longer able to cope with the vastly increased number of stock lines (around two thousand at the last count) and the sheer volume of orders received, both in the shop and through the mail, fax and telephone services. Garlick deplored the deterioration in customer service standards but he was unable to put things right; he had not played a part in setting up the original system and he knew very little about modern retailing, administrative systems or information technology.
Garlick was not entirely naive and he realised that he faced wonderful opportunities for growth – perhaps he should open more shops, maybe try and develop the mail-order business, possibly find ways to develop the existing wholesale trade with other retailers. He had talked informally about the possibilities with the bank manager, who had been quite enthusiastic but had made it quite clear that he needed to see a detailed business plan before the bank would even consider providing further financial support.
Frankly, Charles did not know how to even start on this process. He really only had a “feeling” that growth was feasible; he certainly was not in a position to make a strategic decision about the future development of his business because he lacked sound information about the strengths and weaknesses of HealthyGlow, nor did he fully understand the opportunities (and threats) which existed in the company’s markets. He certainly did not have any sort of business model which would enable him to perform “if…then” experiments in order to test a variety of business options. The bank manager had even talked about producing forecasts of the cash flow statement, profit and loss account, and balance sheet! Charles was perplexed, to say the least.
However, there were also other administrative difficulties piling up for him just now. Indeed, the business that had been his pride and joy had turned into a burden, just when he should have been contemplating retirement. Only last month he had had an unpleasant interview with the VAT Inspector regarding late submission of his VAT return and the final straw was a letter he had just received from the auditors in which they pointed out that the company’s accounting procedures needed to be overhauled as a matter of urgency. It seemed to Charles that there was no refuge from the gathering storm and he sought relief in the finest Korean red ginseng.
Charles seeks advice
Undoubtedly, this self-prescribed therapy lifted his spirits and the next day he took himself off to the Bowls Club (his only indulgence) where he played a few ends with Curly Woods, an old friend who held a number of directorships in the City. Curly quickly saw that HealthyGlow was a business anachronism, operationally and technologically set in the 1950s and nearly overwhelmed by the challenge of the late 1990s. With characteristic insight, he told Charles that he had to plan for new administrative systems in order to secure the very survival of the business, as well as to form a basis for growth along the lines that Charles had described. Curly recommended a consultancy known as Information Age and Charles resolved to contact them the next day.
Charles had a long talk with the consultant. He described his problems with customer service and administrative systems but also pointed out the growth opportunities which some of his competitors were already exploiting. He asked the consultant to undertake a feasibility study, to look at the issues and to report on ways in which information systems could support and develop HealthyGlow operations. It was agreed that a feasibility study could be produced in two weeks, and on this basis Charles would decide whether or not to invest in the design and implementation of computer-based application.
Information Age Consultants study the situation
Information Age consultants came and spent a week studying the business. They interviewed staff, observed the whole cycle of operations, and studied documents, reports and records which already existed. They found a great many circumstances which adversely affected the efficient running of the business and the quality of service offered. For example, the number of stock items carried had grown from just three hundred when the shop first opened to over two thousand, taking into account all the different pack sizes, etc. Also, the constant flow of customers into the shop made it difficult for staff to keep records of stock movements, particularly as the wide range of goods offered meant that many items had to be kept in the back room. Often the card index showed items to be in stock when in fact there was nothing on the shelves, and no doubt the converse was also true.
Furthermore, it was noted that newer members of staff in the shop were not very familiar with some of the products and often needed to consult Charles Garlick (or one of his reference books) for details of the recommended treatments and dosages associated with each item. As a result, service in the shop could be exasperatingly slow for the long-suffering customer. Nor was it much better for those who tried to shop by post, since the manual stock records were simply unable to cope with demand. Products were often out of stock, resulting in extended deliveries and yet more irate customers.
Another problem arose when customers wrote and asked for a repeat order without giving full details of their requirements. The company did not keep any organised records of sales by mail order, any more than they did of retail sales. Consequently, mail order letters were simply packed away in boxes after they had been fulfilled, more or less in date order and with a large rubber band around them to keep each month separate. Tracing any one order was a time-consuming process and inevitably the neat bundles soon degenerated into boxes full of loose paper.
Purchasing was similarly rather a shambles; Garlick’s original list of about fifteen British suppliers had grown to over one hundred, both at home and overseas, and only he really seemed to know which suppliers were best for any specific product, or where to go for an alternative source. For the most part, any and everybody seemed to place orders, usually by telephone, and sometimes they forgot to write down exactly what had been ordered. This frequently caused arguments among staff because individuals tended to order for their own department’s needs, yet everyone expected to be able to call off stock as soon as it came in.
Staff working under pressure were also often careless in administering goods inwards procedures (i.e. the checking of deliveries from suppliers). It had been known for urgently needed goods to be grabbed by shop staff as they came through the door and before they had been booked in; this created problems when the supplier’s invoice arrived because there was no record of the consignment having been received.
Nevertheless, consultants found that the underlying business trends were very healthy. In spite of the recession (and abysmally poor standards of customer service) demand in the retail shop was growing steadily, while the mail-order business was creating new sales records each month. Of course, Mr Garlick’s employees were aware of this situation: shop staff had been heard to say that they hoped Mr Garlick would open more shops and start to build a retail chain, whereas people working in the mail order department disagreed with this, because they saw lots of orders coming in from all over the country and they felt that they could mop up the extra demand that way. In another interesting development, one consultant had looked through the boxes containing last year’s orders and had noted that, while most orders were from individual consumers, a number came from other health food and herbalist businesses which wanted to resell some of the exotic products imported by Charles. These bulk orders tended to be of relatively high value but were usually placed on terms of 30 days credit; the book-keeping system (based on cash sales through the shop) was unable to monitor these transactions effectively and this was one reason for the auditors’ unfavourable report.
Charles himself had seen some of the practical problems and even recognised that the present low standards of customer service had to be addressed. However, he was not aware of the existence, let alone the scale, of his staffing problem. In truth, Charles had grown out of touch with his employees.
Most of the existing staff had originally joined him through their interest in alternative medicine in the days when most customers were regulars and often personal friends. They did not have experience of either mainstream retailing or serious mail-order fulfilment operations, nor had it occurred to Charles that they might need training to cope with changing circumstances. Staff throughout the business were feeling the pressure of work as demand grew and grew; they dealt every day with angry customers and were keenly aware that the standard of service was unacceptably low. They were therefore unhappy in their work and were rapidly losing the sense of mission that they had shared in the past.
Nor was this the only problem: Charles had told the chief clerk in the accounts department that he was going to seek a consultant’s advice about installing some computers,”…to sort out the problems in the company” but he did not think to mention it to anyone else. The office grapevine started to hum and the rumours spread like wildfire; virtually no-one in administration had experience of computing technology at any level, so the very idea struck fear into the hearts of everyone. How would they cope? Would they be able to keep their jobs, even?
At Information Age, they knew that they could specify a system which would restore efficiency and service levels and hopefully this would help to re-motivate staff; however, the lead consultant was keenly aware that all HealthyGlow staff would have to be kept fully informed about the project, would have to be reassured about the nature of the new systems and, above all, would need thorough training before “going live”. It was very clear to the consultant that there were problems which went further than a simple need for better accounting records (for VAT, audit and management accounting purposes) or for a computer-based stock book.
Perhaps the most interesting point arose when they began to consider the issue of competitive advantage: one of their consultants had turned up a marketing report which said that alternative healthcare was on the brink of a period of enormous growth and the business which took greatest advantage of this opportunity would be the one which could differentiate itself from the other players and command the profitable heights of the market.
The marketing report stressed that the natural therapy market was turning “legitimate” and was being perceived by consumers as a segment of the over-the-counter healthcare market. The consultant realised that Healthyglow’s corporate image already stressed a close relationship with traditional modes of health care. This might be developed by having staff wear white uniforms and by training selected personnel give treatment advice, backed up by training certificates displayed prominently on the wall. The contribution from information technology might be a proposal to print out details of the therapy and the recommended treatment, personally, for each patient, to be attached to the goods purchased.
While this would draw an immediate analogy with the professional pharmacist and thus confer a sense of legitimacy and confidence in the customer’s mind, the principal value of this proposal was to allow HealthyGlow to capture at point of sale the names and addresses of all retail customers, whose details would then be transferred to a marketing database which would be used to send details of new products, special offers, etc. to them in due course.
Consultants consider some solutions
Information Age staff now held a “brainstorming” meeting at which they discussed an outline proposal. Computerisation of the stock control card index clearly was a major issue but there also had to be a computerised sales order processing function to monitor stock movements accurately and to record changes in real time.
Planned growth in Healthyglow’s business meant that there would soon be a need for more stock, in more locations, stock which would turn over faster, thus requiring more deliveries from suppliers. Information Age staff thought that bar-code technology should be introduced from the outset in the warehouses and at point-of-sale in the shops to facilitate the movement of stock into, through, and out of, the proposed system. In addition, a purchasing module would be required to speed up the process of placing orders with suppliers, monitoring the progress of such orders, and keeping control over both deliveries and outstanding items.
The fast-growing mail-order operation also needed support to deliver much-needed improvements in customer service; on-line access to the order processing and stock reporting functions would make it easier for staff to provide a fast and accurate response to customer queries and requests. A marketing database would have to be set up to keep records of customer details, including the items they bought, and this should ideally capture details of all retail shop customers also, as well as anyone who wrote for leaflets and information.
The administrative issues also required urgent attention. It was clear that better control of cash flow was needed – history was full of examples of sound businesses which fell into bankruptcy because they were unable to finance the extra resources needed to sustain growth. The company needed better records of its customers, suppliers and of its business transactions; it also needed detailed accounting reports to support management decision-making and to provide detailed information for other people such as bankers, auditors, and especially the VAT Inspector. Information Age therefore decided to recommend a proprietary accounting package which would offer all these facilities and integrate with all the other functions. They would also recommend a payroll application which would enable HealthyGlow to handle wages and salaries for all employees quickly and efficiently, from one central location.
It was also clear that the bank would require regular reports of the company’s performance and it would, therefore, be essential to recommend a high-powered spreadsheet application which could be used to model the business development plan, to test alternative business scenarios and to produce regular revisions of the plan.
Among the database applications to be developed would be a “Suppliers” file, containing full details of domestic and overseas suppliers and the range of products available from them. A central marketing database would keep detailed records of all “Customers” (over-the-counter retail, direct mail retail and direct mail wholesale), complete with their trading histories.
The unique element, however, would be a “Product” database which included full details of recommended dosages and therapies for each product, from which would be abstracted the “treatment report” which would accompany each individual sale.
The Report
Information Age’s lead consultant looked at the minutes of the “brainstorming” meeting and at the pile of reports which represented the rest of their detailed research in to Healthyglow’s problem. All that remained was to write the report outlining the feasibility of a system to meet the observed requirement; if this was favourably received by the client, the result could be a lucrative contract to undertake the development and implementation of the whole system.
She sighed and turned to the word-processor…
(The following pages contain the text of the feasibility study which was submitted to Mr Garlick)
Report on the Feasibility of implementing Computer-based
Information Systems in HealthyGlow Ltd.
1. Terms of Reference
This Report was commissioned by Mr Charles Garlick, Chairman and Chief Executive of HealthyGlow Natural Health Products Ltd. (HGNHP Ltd.) The Report will address the present and future information requirements of the Company: it will take note of a number of problems which are perceived to exist at the moment and will also take account of the opportunities for business growth which have been identified. (“Growth and Segmentation within the Natural Health Products Market” Market Analysis Ltd. September 1993).
The Report will make recommendations regarding the feasibility of introducing computer-based applications in place of current manual systems and will thus form the basis of forthcoming strategic investment decisions.
2. Background
HNHP Ltd. was founded some forty years ago as a partnership under the name of Comfrey and Garlick. The original business was a small retail operation selling traditional therapies and natural health foods to an essentially local market. It now trades under the present name as a limited company and the Chairman, Mr Charles Garlick, is the sole surviving founding partner.
Turnover is currently in the region of £15m p.a. and the company has enjoyed substantial growth, particularly over the last 15 years. This is partly due to the growing perception in the eyes of the public that the use of natural remedies and health foods constitutes a perfectly rational regime, and partly to the reputation of Mr Garlick as an acknowledged expert in the field. His books, articles and broadcasts have done much to raise the profile of the company and the acceptability of natural health products in general.
In the first twenty years of its existence, the company employed no more than six people at any time; the payroll currently stands at over 60. The number of lines stocked has grown from around three hundred to over two thousand. Sales through the principal retail outlet have grown substantially, though this operation has been dwarfed by the burgeoning mail-order division, which has grown rapidly in recent years.
Whilst turnover has grown in proportion to this increase in demand, profitability has slumped and the number of service complaints has rocketed. The Chairman is also sensitive to a change in the prevailing culture of the company, when a staff previously noted for its commitment to the “cause” now displays a degree of dissatisfaction and cynicism in the face of service shortcomings.
A recent report on the prospects for the natural therapies market points to still faster growth in this sector and HGNHP Ltd. should be well-placed to take advantage of this development. However, it is well known that at least one major High Street retailing consortium is proposing to launch a chain of shops specialising in natural therapies. The press has also recently reported that the number of mail-order advertisers has tripled in the last eighteen months, though no large-scale national name has yet come upon the scene. The survival and the return to prosperity of HGNHP Ltd. will depend upon how successfully it can withstand the competition of a professional and well-funded retailing chain and capitalise upon the undoubted strength of its brand identity and the reputation of its founder.
3. Problems – these have been categorised into the following main areas:
(a) administrative
(b) human
(c) Opportunities
4. Recommendations
The extensive administrative problems should be addressed by the introduction of a suite of related applications centred upon stock control. It is essential to keep comprehensive records of current stock, in all sizes, including the price of the products, so that the value of these assets is always known with accuracy.
Stock movements should be recorded in real time and these movements should be analysed to provide management reports summarising demand patterns, cycles etc. Sales order processing should also be provided on-line, allowing sales staff to have access to the current actual stock position on the shelves. Stock levels in the database would adjust automatically as each customer order is entered into the system.
The retail operation will continue to meet demand from its shelf stock, with re-ordering from the warehouse being the responsibility of the shop manager. Shop stock orders would be treated by sales order processing staff in the same way as any other mail order from an individual or corporate customer.
Alternatively, the retail operation might embrace the latest technology and capture each transaction at point of sale. This is potentially an expensive course, though there are benefits, particularly if direct marketing is seen as a major plank of the company’s expansion.
Stock reports would show true current stock positions, thus enabling re-stocking purchase decisions to be made. Analysis of demand will allow purchasing patterns to be predicted and anticipated. Data on preferred suppliers and agreed prices would be captured by the system, thus allowing the process of procurement to proceed under strict management control. It will then be possible to budget for cash outflows related to stock purchase.
The company has no real marketing policy at present. It fulfils customer orders through retail and direct mail channels but does not have a co-ordinated policy to actively seek orders from either existing or prospective customers. There is a modest budget for advertising in the relevant journals (What Remedy?, Herbal Medicine World, Herbal Shopper, etc.) and Charles Garlick’s publications and broadcasts provide useful PR mileage.
This report does not focus on marketing issues, but does note that the mail order operations of HealthyGlow have shown substantial growth, as does direct marketing activity in the sector in general. In order to take advantage of this trend, the company must enter the proactive world of direct marketing rather than remaining in the reactive world of order fulfilment. A marketing information system should be developed if the company wishes remain a serious contender in this area.
The serious issues raised by the company’s Auditor and VAT Inspector mean that a full accounting system must be installed as a matter of urgency. There are currently a number of industry-standard packages available which would meet the company’s requirements. The package selected will offer full connectivity with other applications within the information system but it will also be necessary to ensure that it meets any accounting criteria laid down by the company’s professional advisers.
Powerful spreadsheet tools should be used to create a detailed model of the business. Managers may then evaluate alternative scenarios for the business, particularly where various levels of investment are possible – the so-called ‘what if?’ modelling.
The same spreadsheet tools should be used to create whole-company and departmental budgets and to monitor performance against these. It will, of course, be important to ensure that input from other parts of the system can be readily captured and incorporated into your models.
Staff are an important resource and their feelings should be carefully considered as the company contemplates far-reaching technological change.
In the first place, staff must be informed and consulted about any proposed changes: the management must acknowledge the problems that everyone recognises and proposals to deal with them should be openly discussed. Staff disquiet regarding technological innovation must be recognised and dealt with in a consensus manner. The benefits of supporting their tasks with an appropriate level of technology must be emphasised.
Applications that are developed must be particularly user-friendly and easy to learn. Training must be planned well in advance and should be focused upon making the users comfortable with the technology, as well as upon developing expertise.
The issue of staff confidence in their ability to give advice to customers may be addressed through the database applications already proposed. On-line access to up-to-date stock and price data is essential. It will also be possible to capture technical detail about individual products and therapies and make this available on line to both counter staff and telephone sales personnel. It would even be possible to print information at point of sale or despatch, if required.
5. Conclusions
(a) The problems that have been identified are all based upon shortcomings in the outdated administrative systems, which are still in use in HealthyGlow. Such shortcomings may readily be rectified by the introduction of computerised applications that are commonplace in the commercial world in general and we have outlined a plan for developing and implementing such systems.
(b) On the positive side, there are considerable opportunities for growth and we have proposed that a marketing information system should be developed to enable the company to take advantage of them. Of course, this presupposes that the problems already identified have been speedily dealt with.
(c) One difficulty is that there are frankly too many issues to deal with at once. It will be necessary to prioritise tasks in order to develop and implement each application properly.
(d) The human aspects of the problem are also fundamental to the success or otherwise of the whole project. There must be a clear policy for dealing with the human relations issues and recognition that there will inevitably be a cost for the communication, training and management overheads.
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