Online Procurement
Procurement is the act of obtaining goods at the best possible cost, in the correct quantity at the time they are needed. Traditionally, this is a time consuming process involving much negotiation by several sources. In recent years some companies have opted for a system of online procurement, which reduces the level of labour intensity required. One company which has followed suit is Mars Incorporated through their online purchasing auctions. Mars Incorporated was founded in Washington in 1911 when Frank and Ethel Mars began producing and selling candy. The company quickly gained popularity and developed several well known brands. Today, it is one of the largest privately owned businesses in the world. For Mars Incorporated, online purchasing has allowed them to increase supply chain management to a level which could not previously have been obtained.
Advantages and Disadvantages
Online procurement does have its advantages and disadvantages. One of its main benefits is that the use of the auction system ensures that market value is always paid for items and often one of the main reasons that a company may opt for a system of online procurement is the desire to reduce production costs. In the case of Mars, by buying things through auction this ensured that they were never likely to be overcharged for the items they were buying. For companies entering into online procurement for the first time, it can be difficult to judge the value of materials and therefore the expected value of the winning bid. Generally, the auction system should drive the cost down as it forces bidders to compete to provide materials but finding the market value can be tricky. For Mars, the difficulty in this situation was slightly lessened as they had a subsidiary already using an online system. Therefore the principal adopted by the subsidiary was simply extended throughout the whole of the group.
Unfortunately, this can also generate problems of it’s own. As the bidders are required to win orders to support their own businesses they are inclined to reduce their prices in order to beat the competition and be selected as supplier. A reduction in price can, at times, result in a reduction of quality. Mars may have experienced the effects of this - mainly due to the strategy they chose when selecting suppliers. The Mars auction process began with a Request For Quote (RFQ), which specified exactly what was required of the winning bidder. For large RFQ’s, Mars always selected the bidder guaranteeing the cheapest price. Even although large RFQ’s only contained standard materials such as sugar and cocoa, the quality of these could still be compromised if they were purchased at too low a price as the supplier would only be able to produce low quality goods. As Mars Incorporated is a company which holds its five core principals with such high regard, this could have a negative effect on its credibility. To combat this problem, Mars restricted entry to their auction process to a limited number of suppliers. The materials provided by these suppliers were known by Mars Incorporated to be of the high standard required.
Even using a system such as this, problems in the process could still occur. As Mars had deliberately limited the bidders they would accept tenders from, they were effectively cutting off a huge number of potential suppliers. In doing this they left the company more susceptible to material shortages from these preferred suppliers. To tackle this, Mars imposed a maximum number of auctions that each supplier was entitled to bid for. In doing this, Mars Incorporated effectively ensured that they would receive the high standard of product that they expected, while managing to cut material costs. Through continually using different suppliers Mars also avoided the issue of price fixing.
In terms of the man hours required to arrange the purchase and delivery of any one order, online auction systems are hugely advantageous. Traditional methods of procurement require a lot of negotiation to arrange factors such as quantity, quality and delivery date and costs. Online procurement completely removes these features from the purchasing process. Through the issue of a RFQ, Mars Incorporated specified their requirements clearly. It was then the responsibility of the bidder to meet them as necessary. This reduced the time required for the entire process considerably which in turn made the delivery time shorter. Overall, the process became far more efficient.
Although the long term benefits of online procurement are clear, it is also important to consider the time and cost involved in the initial application of such a system. Like any new software implemented into a business, costs are generated not only through integration into the existing system but also through training of staff in its use. It should also be remembered that the potential financial benefits of the online auction system will only be gained by companies which are fully competent in their system’s use. Therefore, a large set up cost must be incurred before any profit can be made.
Conclusion
Companies such as Mars Incorporated which choose to use a system of online procurement, experience both benefits and problems in relation to their decision. For many companies the most enticing factors of online procurement are the ability to gain greater control over the supply chain and to reduce the cost of materials. Nonetheless, it is important to consider the effect that this may have on the integrity of the company from the perspective of both suppliers and customers, not to mention the installation costs. These problems may in turn trigger a downturn in profit. Therefore, it can be said that for some countries online procurement certainly brings about an increased turnover, however, for many the increased risk in loss of profits is too high.
References
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1075387398
http://en.wikipedia.org/wiki/Mars,_Incorporated
http://en.wikipedia.org/wiki/E-procurement
Wednesday 19 December 2007
Sunday 9 December 2007
The advantages and disadvantages of Open Source Software – MySQL
Introduction
In recent years, previously unchallenged closed source software providers such as Microsoft, IBM and Oracle have noticed an increasingly threatening competitor in the form of Open Source Software. Michael Bloch, who writes a long established and well informed internet blog, describes open source Software as “…free applications released under special licensing terms where the core coding is viewable and able to be edited to suit the needs of the user.” One example of this type of software is MySQL, the most popular open source database in the world and the greatest opponent to closed source suppliers. As with any business tool, open source software has a number of advantages and disadvantages for the businesses that use it.
Advantages
The most obvious advantage open source software has over its closed source rivals is that the core components of the software are completely free. For providers such as MySQL this makes the product relatively easy to distribute and market. MySQL have identified that the “lower cost advantages of open source” are one of the main forces in attracting customers. As the cost of software can be a major deciding factor, especially for smaller businesses or those that have been newly established, open source providers are more likely to determine a prominent market share through this process. More importantly for businesses, they are able to download and use MySQL and other open source databases without paying any fees.
Excluding the obvious financial gains of free software, one of the other major benefits is that companies do not become tied to one provider. As there is no required financial investment by user businesses in databases such as MySQL, if a software package is considered unsuitable, there is no monetary loss for users in switching to a more appropriate alternative. As a result, this forces MySQL and other providers to continue to develop and update their software to retain existing customers and expand to new users. In doing this, the services they provide to businesses become more proficient.
An approach other than changing database providers that can be taken by businesses is to modify their existing set-up. For MySQL, because the coding for the database is provided, users can create alterations and extensions that are beneficial to their needs. An advantage to this is instead of having to buy another programme for this purpose, companies can save money by altering MySQL. When companies have then modified the programme they are then entitled to redistribute their new version of it. Users are also able to operate all open source software in any way they like. In doing this, along with redistribution, there are advantages for all parties. For MySQL these aspects ensure that their database product is continually distributed on a wider scale eventually leading to more paying customers for other services. For businesses using MySQL, as more users become involved, a larger support network evolves which becomes immensely useful in suggesting further enhancements to improve the database and troubleshooting.
Closed source software usually has to be completed and on the market for a certain date in order to ensure profits are made and targets are reached. Alternately, open source software is generally not released until the development team believes it has been perfected and is ready for use. As the pressures of marketing are not inflicted nearly as heavily on open source software, the finished product is usually developed more slowly and as a result is more adept. This theory is well illustrated by the small amount of demands placed on MySQL in comparison to database competitors Oracle. It is inevitable that for all software, some problems will arise following its initial release. Nonetheless, these problems generally occur far less often with open source software as more time is available during the initial development process. Another effect of this is that programmes such as MySQL usually contain less ‘bugs’ than their closed source competitors.
Disadvantages
Although users of open source software often form large support networks, one important disadvantage is the omission by providers to give qualified technical support. For businesses, the main problem with this is that they will most likely be required to pay to have any errors in the software ironed out. In contrast, closed source operators are obligated to provide a technical support service. The difference between the two was noticed by MySQL Chief Executive Officer Marten Mickos following the launch of MySQL’s subscription service in 2005. He commented, “For the first time we have customers complaining…It’s a question of expectations”.
Another issue is that companies wishing to adapt open source software to meet their usage specifications often encounter problems and are forced to employ experts at an expense greater than closed source software would have been initially.
Finally, businesses using open source technology run the risk of the product they are using simply being terminated. Unless the product has been purchased, providers are under no obligation to continue to produce it and users could ultimately be left without any service at all.
Conclusion
Both open and closed source software have their advantages and disadvantages and are suitable for different business needs. For businesses in their early stages, open source software can provide the platform needed to start making profits. Without which often very expensive closed source alternatives would have to be purchased. Those with relevant experience are able to modify all types of open source software into very unique and useful tools. It is this degree of flexibility that so many companies find attractive. However, it is important to also consider the less appealing attributes of open source software. These include costs that may not initially be evident due to support issues and the need for business specifications to be met. There is also the possibility of further problems arising in the future. For these reasons and many others, for any company, the decision of whether to use open or closed source software is not one to be taken lightly.
References
http://eu.conecta.it/paper/Advantages_open_source_soft.html
http://www.tamingthebeast.net/articles5/open-source-software.htm
http://www.mysql.com/
Witting, C and Burgelman, R. (2006) MySQL Open Source Database in 2006 (B), Stanford Graduate School of Business, Case: SM-124(B)
In recent years, previously unchallenged closed source software providers such as Microsoft, IBM and Oracle have noticed an increasingly threatening competitor in the form of Open Source Software. Michael Bloch, who writes a long established and well informed internet blog, describes open source Software as “…free applications released under special licensing terms where the core coding is viewable and able to be edited to suit the needs of the user.” One example of this type of software is MySQL, the most popular open source database in the world and the greatest opponent to closed source suppliers. As with any business tool, open source software has a number of advantages and disadvantages for the businesses that use it.
Advantages
The most obvious advantage open source software has over its closed source rivals is that the core components of the software are completely free. For providers such as MySQL this makes the product relatively easy to distribute and market. MySQL have identified that the “lower cost advantages of open source” are one of the main forces in attracting customers. As the cost of software can be a major deciding factor, especially for smaller businesses or those that have been newly established, open source providers are more likely to determine a prominent market share through this process. More importantly for businesses, they are able to download and use MySQL and other open source databases without paying any fees.
Excluding the obvious financial gains of free software, one of the other major benefits is that companies do not become tied to one provider. As there is no required financial investment by user businesses in databases such as MySQL, if a software package is considered unsuitable, there is no monetary loss for users in switching to a more appropriate alternative. As a result, this forces MySQL and other providers to continue to develop and update their software to retain existing customers and expand to new users. In doing this, the services they provide to businesses become more proficient.
An approach other than changing database providers that can be taken by businesses is to modify their existing set-up. For MySQL, because the coding for the database is provided, users can create alterations and extensions that are beneficial to their needs. An advantage to this is instead of having to buy another programme for this purpose, companies can save money by altering MySQL. When companies have then modified the programme they are then entitled to redistribute their new version of it. Users are also able to operate all open source software in any way they like. In doing this, along with redistribution, there are advantages for all parties. For MySQL these aspects ensure that their database product is continually distributed on a wider scale eventually leading to more paying customers for other services. For businesses using MySQL, as more users become involved, a larger support network evolves which becomes immensely useful in suggesting further enhancements to improve the database and troubleshooting.
Closed source software usually has to be completed and on the market for a certain date in order to ensure profits are made and targets are reached. Alternately, open source software is generally not released until the development team believes it has been perfected and is ready for use. As the pressures of marketing are not inflicted nearly as heavily on open source software, the finished product is usually developed more slowly and as a result is more adept. This theory is well illustrated by the small amount of demands placed on MySQL in comparison to database competitors Oracle. It is inevitable that for all software, some problems will arise following its initial release. Nonetheless, these problems generally occur far less often with open source software as more time is available during the initial development process. Another effect of this is that programmes such as MySQL usually contain less ‘bugs’ than their closed source competitors.
Disadvantages
Although users of open source software often form large support networks, one important disadvantage is the omission by providers to give qualified technical support. For businesses, the main problem with this is that they will most likely be required to pay to have any errors in the software ironed out. In contrast, closed source operators are obligated to provide a technical support service. The difference between the two was noticed by MySQL Chief Executive Officer Marten Mickos following the launch of MySQL’s subscription service in 2005. He commented, “For the first time we have customers complaining…It’s a question of expectations”.
Another issue is that companies wishing to adapt open source software to meet their usage specifications often encounter problems and are forced to employ experts at an expense greater than closed source software would have been initially.
Finally, businesses using open source technology run the risk of the product they are using simply being terminated. Unless the product has been purchased, providers are under no obligation to continue to produce it and users could ultimately be left without any service at all.
Conclusion
Both open and closed source software have their advantages and disadvantages and are suitable for different business needs. For businesses in their early stages, open source software can provide the platform needed to start making profits. Without which often very expensive closed source alternatives would have to be purchased. Those with relevant experience are able to modify all types of open source software into very unique and useful tools. It is this degree of flexibility that so many companies find attractive. However, it is important to also consider the less appealing attributes of open source software. These include costs that may not initially be evident due to support issues and the need for business specifications to be met. There is also the possibility of further problems arising in the future. For these reasons and many others, for any company, the decision of whether to use open or closed source software is not one to be taken lightly.
References
http://eu.conecta.it/paper/Advantages_open_source_soft.html
http://www.tamingthebeast.net/articles5/open-source-software.htm
http://www.mysql.com/
Witting, C and Burgelman, R. (2006) MySQL Open Source Database in 2006 (B), Stanford Graduate School of Business, Case: SM-124(B)
Monday 3 December 2007
Outsourcing of BBCTL
Introduction
Beginning in 1922 as a radio transmission service, the British Broadcasting Corporation (BBC) is now the largest of its kind throughout the world. Following the introduction of television services in 1936, the BBC became well known and respected for its honest, accurate news reporting especially during the Second World War.
The purpose of the BBC is “to enrich people's lives with programmes and services that inform, educate and entertain”. As the British people effectively own the BBC, it also has to meet certain targets and standards fashioned by the UK Government in order to receive funding. In the year 2000, one of the targets was to increase revenues by £1 billion over a seven year period. Like many large organisations, the BBC chose to do this initially through innovation and eventually through outsourcing. On October 1st 2004, BBC Technology Limited (BBCTL) was outsourced to Siemens Business Services (SBS) over a ten year period for £1.9 billion.
BBC Technology
The BBC Technology group was created in San Francisco, US in March 2001 in order to help the BBC reach their pressing financial goals. In was split into two divisions, BBC Technology Direction and BBCTL. BBC Technology intended to raise revenue through the provision of technology services to the BBC and other third party sources in both Britain and the US. It employed 1400 people and provided services for television channels such as ESPN. The group was very successful in doing so, reporting a turnover of £230 million by 2004.
Effect of outsourcing
To this day, the BBC states that its vision is “to be the most creative organisation in the world”. When John Varney joined the BBC as Chief Technology Officer (CTO) in 2002 he soon identified that by outsourcing technology, more funds could be generated in order to do just that.
Varney calculated that through outsourcing BBCTL, a saving of £20 million to £50 million could be made. When the decision to outsource was relayed to the media, it was stressed that the resulting surplus would be used to develop content for television programmes, in turn providing a better service for the viewing public. To produce the same savings internally, 350 employees would had to have been made redundant. With increasing pressure to boost revenue, outsourcing seemed like the obvious answer. Through outsourcing to a company which concentrated specifically on technology, this would allow the BBC access to up coming digital technologies while freeing more resources to focus on creativity.
The BBC decided that the contract should span a ten year period which became an issue of much debate for the media and Broadcasting Entertainment Cinematograph and Theatre Union (BECTU). Employees and the BECTU were concerned that over a period of ten years, changes could be made which would result in the loss of their jobs. Worries were heightened when SBS refused to give job-related guarantees to staff. Critics also argued that Siemens could not be relied upon to produce a high quality service over such a long time period. On top of this, it was argued that the BBC may be limiting their access to new technologies, some of which BBCTL had created. The greatest concern however, arose from the fact that no clause for early termination of contract was included in the proposed terms.
Selecting a supplier
The process of selecting a technology supplier began in November 2003. In keeping with European law, the contract was to be advertised in the Official Journal of the European Communities which meant that it was open to any potential applicant. Although the BBC had no control over this aspect of the process, through stipulating the criteria of the contract carefully, they were effective in ensuring that no time was wasted on companies which would be unable to provide a suitable service. A team of twenty six employees looked after the contract. As this same team were to take charge of selecting a supplier, negotiation and initiation of changes, they were able to work closely with all concerned parties in efficiently beginning the process of change. This was important in ensuring that at all stages of the selection process requirements were met, as it was crucial that the deal received approval from the EU Commission and the UK Government. Thirty one companies completed a pre-qualifying questionnaire and the BBC were meticulous in analysing the financial position and technological awareness of each. A team of finance, procurement and technology specialists examined the standing of each company in relation to the contract resulting in nine suppliers including HP, Accenture, Fujitsu and SBS being short-listed. The selection process ended in SBS being declared as the preferred bidder before eventually securing the contract.
Long term results
Although many were sceptical, when the transaction with SBS was finally completed technology services ran smoothly and employees appeared satisfied. The worries that many had expressed over the initial handover and the subsequent months amounted to nothing as the process was handled both slowly and with care. The first big test of the new collaboration was the BBC coverage of the 2005 general election which silenced critics with its impressive reporting on polling results. It was recorded as the most advanced coverage of an election to date and ran without a flaw due to painstaking preparation and maximum effort on the part of SBS.
Conclusion
The BBC needed to outsource to a company that understood their strategy and long term goals but also had the capability to run BBCTL successfully and increase profitability. SBS have allowed the BBC to ensure digitalisation by 2012 and have continually set targets in keeping with the savings required in order to satisfy the UK Government. The estimated savings by the BBC of £20 million to £50 million per year have continually been reached. Nonetheless, as SBS have secured the contract for a further seven years great things are expected by the UK Government and the BBC alike in years to come.
References
http://www.bbc.co.uk
http://www.silicon.com/research/specialreports/enterprise/0,3800003425,39128184,00.htm
Information Technology Outsourcing at BBC by M Vinaya Kumar
Beginning in 1922 as a radio transmission service, the British Broadcasting Corporation (BBC) is now the largest of its kind throughout the world. Following the introduction of television services in 1936, the BBC became well known and respected for its honest, accurate news reporting especially during the Second World War.
The purpose of the BBC is “to enrich people's lives with programmes and services that inform, educate and entertain”. As the British people effectively own the BBC, it also has to meet certain targets and standards fashioned by the UK Government in order to receive funding. In the year 2000, one of the targets was to increase revenues by £1 billion over a seven year period. Like many large organisations, the BBC chose to do this initially through innovation and eventually through outsourcing. On October 1st 2004, BBC Technology Limited (BBCTL) was outsourced to Siemens Business Services (SBS) over a ten year period for £1.9 billion.
BBC Technology
The BBC Technology group was created in San Francisco, US in March 2001 in order to help the BBC reach their pressing financial goals. In was split into two divisions, BBC Technology Direction and BBCTL. BBC Technology intended to raise revenue through the provision of technology services to the BBC and other third party sources in both Britain and the US. It employed 1400 people and provided services for television channels such as ESPN. The group was very successful in doing so, reporting a turnover of £230 million by 2004.
Effect of outsourcing
To this day, the BBC states that its vision is “to be the most creative organisation in the world”. When John Varney joined the BBC as Chief Technology Officer (CTO) in 2002 he soon identified that by outsourcing technology, more funds could be generated in order to do just that.
Varney calculated that through outsourcing BBCTL, a saving of £20 million to £50 million could be made. When the decision to outsource was relayed to the media, it was stressed that the resulting surplus would be used to develop content for television programmes, in turn providing a better service for the viewing public. To produce the same savings internally, 350 employees would had to have been made redundant. With increasing pressure to boost revenue, outsourcing seemed like the obvious answer. Through outsourcing to a company which concentrated specifically on technology, this would allow the BBC access to up coming digital technologies while freeing more resources to focus on creativity.
The BBC decided that the contract should span a ten year period which became an issue of much debate for the media and Broadcasting Entertainment Cinematograph and Theatre Union (BECTU). Employees and the BECTU were concerned that over a period of ten years, changes could be made which would result in the loss of their jobs. Worries were heightened when SBS refused to give job-related guarantees to staff. Critics also argued that Siemens could not be relied upon to produce a high quality service over such a long time period. On top of this, it was argued that the BBC may be limiting their access to new technologies, some of which BBCTL had created. The greatest concern however, arose from the fact that no clause for early termination of contract was included in the proposed terms.
Selecting a supplier
The process of selecting a technology supplier began in November 2003. In keeping with European law, the contract was to be advertised in the Official Journal of the European Communities which meant that it was open to any potential applicant. Although the BBC had no control over this aspect of the process, through stipulating the criteria of the contract carefully, they were effective in ensuring that no time was wasted on companies which would be unable to provide a suitable service. A team of twenty six employees looked after the contract. As this same team were to take charge of selecting a supplier, negotiation and initiation of changes, they were able to work closely with all concerned parties in efficiently beginning the process of change. This was important in ensuring that at all stages of the selection process requirements were met, as it was crucial that the deal received approval from the EU Commission and the UK Government. Thirty one companies completed a pre-qualifying questionnaire and the BBC were meticulous in analysing the financial position and technological awareness of each. A team of finance, procurement and technology specialists examined the standing of each company in relation to the contract resulting in nine suppliers including HP, Accenture, Fujitsu and SBS being short-listed. The selection process ended in SBS being declared as the preferred bidder before eventually securing the contract.
Long term results
Although many were sceptical, when the transaction with SBS was finally completed technology services ran smoothly and employees appeared satisfied. The worries that many had expressed over the initial handover and the subsequent months amounted to nothing as the process was handled both slowly and with care. The first big test of the new collaboration was the BBC coverage of the 2005 general election which silenced critics with its impressive reporting on polling results. It was recorded as the most advanced coverage of an election to date and ran without a flaw due to painstaking preparation and maximum effort on the part of SBS.
Conclusion
The BBC needed to outsource to a company that understood their strategy and long term goals but also had the capability to run BBCTL successfully and increase profitability. SBS have allowed the BBC to ensure digitalisation by 2012 and have continually set targets in keeping with the savings required in order to satisfy the UK Government. The estimated savings by the BBC of £20 million to £50 million per year have continually been reached. Nonetheless, as SBS have secured the contract for a further seven years great things are expected by the UK Government and the BBC alike in years to come.
References
http://www.bbc.co.uk
http://www.silicon.com/research/specialreports/enterprise/0,3800003425,39128184,00.htm
Information Technology Outsourcing at BBC by M Vinaya Kumar
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