International Divider Walls
International Divider Walls
PREPARED FOR:
DR. KHAIRUL AZMAN BIN AZIZ
GROUP MEMBERS:
WAH JUN YEW
A142341
A139789
A139477
A140209
A140099
A136723
TABLE OF CONTENT
Content
Page
1.0
Introduction
2.0
3-5
3.0
6-9
3.1
10-12
4.0
13-14
4.1
15-16
5.0
Suggestion
17-19
1.0
INTRODUCTION
International Divider Walls is the world market leader in design, production, and sales
of divider walls.ID Walls was founded in 1968 in Atlanta, GA (USA) as a manufacturer of
room dividers. In 1993, the owners decided to raise additional capital for a worldwide
expansion. Ever since, the company has been listed on the NASDAQ. Many room divider
manufacturers were acquired in the 1990s, and the company diversified in related businesses
like indoor and outdoor sun screens and installation services. On December 31, 2003, ID Walls
employed approximately 5000 employees worldwide. The company marketed products in over
100 countries. Its principal geographic markets were the Americas, Europe, and Asia Pacific
with sales of respectively 71%, 24%, and 5% of total net sales for fiscal year 2003.
2.0
DESCRIPTION
OF
COMPANYS
STRATEGY,
ORGANISATIONAL
This is the analysis of the companys strategy, organisational structure and culture to have
better understanding in order to give a suitable suggestion on the implementation of ERP
system.
Companys Strategy
During the many years of operation, ID Walls has used different strategies in order to make
profit and to save its business where it started to make substantial net losses. The strategies
that are used by ID Walls are as the following:
i.
ii.
iii.
Consolidation
iv.
Retrenchment
On 31 December 2003, ID Walls employed approximately 5000 employees worldwide.
In order to improve its cash position, ID Walls had implemented several strategic
restructuring initiatives in the years 2001 to 2003. One of it was the reduction in force
of over 750 employees in the corporate research and development operation, and backoffice operations.
v.
Divestiture
Divestiture of non-core activities such as the service division and the exterior sun
screen business was also one of the several strategic restructuring initiatives
implemented by ID Walls.
vi.
Due to there are few issues occurred during the implementation of the strategies, Chad had
developed a strategic IT plan for ID Walls in which he proposed to select and implement a
global Enterprise Resource Planning (ERP) system. In addition, Larissa believed that better IT
support from an integrated ERP system was indispensable for improving the financial control
and for the preparation of higher-quality consolidated financial statements. With an ERP
system, data in ID Walls would be integrated, meaning that they had to be entered once and
could then be used and shared throughout the company.
Organisational Structure
Josh Steward fostered the entrepreneurial spirit in the company and stimulated the international
expansion. He designed the organisation in such way that it reflected the autonomy of the
various divisions and the divisions could operate freely in their respective businesses as long
as they achieved the agreed upon profit and loss objectives. He divided the division into three
division which are divider walls Americas, divider walls Europe and Asia Pacific, and indoor
sun screens. Each of this division will have President, SVP Finance, IT Director, SVP
Marketing & Product Development, SVP Sales and SVP Manufacturing. Each of them will
report to president and then president will report to CEO whereas the IT Director for each
division will report to CIO, Chad Wolford.
Culture
The culture of the ID Walls us directly influenced by its organization strategy and structure.
The more the power distribute from higher management level to lower management level, the
higher the flexibilities of the organization. Josh Steward fostered the entrepreneurial spirit in
the company and stimulated the international expansion. He designed the organisation in such
way that it reflected the autonomy of the various divisions and the divisions could operate
freely in their respective businesses as long as they achieved the agreed upon profit and loss
objectives.
This shows that the culture of the ID Walls is more flexible working style with a
fixed target goal set. The culture for the three main division will be different due to the
different strategies implemented. For example, Americas Division the employee is with high
redundancy of changing where they still using manual spreadsheet for management
customers order rather than the Advanced Planning Module even ERP system have been
implemented for two years in the division and causing the capacity planning issue.
3.0
The analysis of the financial position of the company to have a clear view the current financial
position of the company and have an estimation of the effect of ERP system to the company.
i.
Current Ratio
The current ratio helps investors and creditors understand the liquidity of a company
and how easily that company will be able to pay off its current liabilities. A higher
current ratio is always more favourable than a lower current ratio because it shows the
company can more easily make current debt payments.
Current Ratio = Current Asset
Current Liability
Year
Current Ratio
2003
= 337,409
179,029
= 1.88 times
2002
= 344,718
158,777
= 2.17 times
Current ratio for ID Walls in year 2002 and 2003 are 2.17 and 1.88 times respectively.
It shows that there was a declination around 0.29 times within these 2 years.
Inefficiency will be arisen where all the current liabilities would be less covered by
the current assets in year 2003. However, they had current ratio more than 1 times, it
means the company can more easily make current debt payments.
ii.
Quick Ratio
The quick ratio measures the liquidity of a company by showing its ability to pay off
its current liabilities with current assets. Higher quick ratios are more favourable for
companies because it shows there are more quick assets than current liabilities.
Quick Ratio = Current Assets - Inventories
Current Liabilities
Year
Quick Ratio
2003
= 337,409 135,252
179,029
= 1.13 times
2002
= 344,718 126,577
158,777
= 1.37 times
Quick ratio of ID Walls in year 2002 and 2003 are 1.37 and 1.13 times respectively. It
shows that quick ratio had decrease around 0.24 times from year 2002 to 2003.
Therefore, it is hard for ID Walls in paying their current liabilities by using their
current assets without including their inventory (capital assets) in short period of time.
i.
2003
= 868,098
135,252
= 6.41 times
2002
= 868,639
126,577
= 6.86 times
The companys inventory turnover ratio in year 2002 as compare to 2003 which is
dropped from 6.86 to 6.41 times. Even though the ratio was decreased 0.45 times, the
company still have high turnover rate. High inventory turnover rate means ID Walls
did not store their inventory for long period of times but ID Walls had often buy new
inventory to gain high profit for their company.
ii.
Total asset turnover is a financial efficiency ratio that measures the ability of a company
to use its total assets to generate sales. Management uses the total asset turnover to
judge how efficiently the company is using its assets to generate income.
Total Assets Turnover Ratio =
Net Sales
Total Assets
Year
Total Asset Turnover
Ratio
2003
= 868,098
840,618
= 1.03 times
2002
= 868,639
811,699
= 1.07 times
The total asset turnover ratio is 1.07 times and 1.03 times in year 2002 and 2003 respectively.
It shows that there was 0.04 times declination in this ratio. Although this ratio decline, ID
Walls still can use their total assets to generate their income for the company.
2003
= 631,758
840,618
= 0.75 @ 75%
2002
= 596,366
811,699
= 0.73 @ 73%
Based on the calculation, it shows that the debt ratio was slightly increase 2% where it increased
from 73% to 75% in year 2002 to 2003. It shows that debtors have poor capability in paying
the debts and high risk will be faced by the company.
operational profit from their assets. In this sense, profitability ratios relate to efficiency ratios
because they show how well companies are using their assets to generate profits.
i.
2003
= -31,262
868,098
= -0.036 @ -3.6%
2002
= -82,404
868,639
= -0.095 @ -9.5%
Based on the calculation above, profit margin ratio had negative percentage which are
-9.5% and -3.6% in 2002 and 2003 respectively due to their major expenses in
restructuring charges and in selling, general and administrative expenses. It reflected
that the slightly declination in net sales cannot covered back the net income as the
expenses of company too high.
ii.
2003
= -31,262
840,618
= -0.037 @ -3.7%
2002
= -82,404
811,699
= -0.102 @ -10.2%
The ROA of ID Walls in year 2003 and 2002 declined from -10.2% to -3.7% due to
increasing in both total asset and net income. This shows that ID Walls managements
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are not well manage their asset properly such as cash, inventories, prepaid expenses
and deferred income taxes even though the receivable is increasing by year. The
higher the ROA ratios, the greater the total asset to generate income of company.
iii.
Net Income
Common Equity
Year
Return On Common
Equity Ratio (%)
2003
= -31,262
205,609
= -0.152 @-15.21%
2002
= -82,404
210,721
= -0.391 @ -39.11%
In the year 2002, the ROE is -39.11% and the ratio dropped to -15.21% in year 2003.
This ratio indicates that ID Walls did not use the investors funds effectively due to
decreasing in total equity which affected by retained earnings and foreign currency
adjustment.
3.1
10
where IT workforce and back-office staff can be further reduce. The cost like salary, benefits,
hardware, communication, software, external service providers will be decrease.
12
4.0
This is the analysis about current IT application and the effectiveness in the whole company
by divisions and identify the needs of IT of each division.
Americas
Americas Division need the IT to resolve their current capacity planning in order can fulfill the
market demands. Although ERP have been implemented in Americas Division in year 2001,
but the complicated planning of order was still done manually in spreadsheet. In year 2004, the
Division expected that there will have an increase in demand of high-priced, made-to-order
divider walls which are complex manufacture in. However, the factories had experienced
difficulties in planning the large number of small orders. To resolve this issue, the factories
have outsourced some of the work and causing the cost been increased. Therefore, the Division
need the IT to improve their current capacity planning by making use of the advance planning
module of ERP system. By making use of this advance planning module, they can improve
real-time operation, optimization of production planning and adjustable planning horizons.The
advance planning module is simple and convenient tools for interactive planning. It will
automate the relevant subsequent steps like materials resource planning and generating order
proposals. There will be an information platform which will consist of all data of orders,
material, inventory and so on. Overdue work steps, missed deadlines and production time will
also be prepare and displays. In short, the capacity planning can be improve.
financial management functionality which can improve the Division management. Information
about inventory, compliance, capital and so on can be access easily. Normally, ERP system
will be in multi-language and multi-currency platforms which will facilitate timely
management of exchange rate exposure and help to reduce the impact of currency fluctuation.
14
4.1
i.
ii.
15
iii.
iv.
IT Data Support
The used of hours per week in IT data support will be as a benchmark to measure the
effectiveness of each division. The number of hours per week for IT data support being
used for each division should be reasonable to ensure the IT application is well
functioning. Based on the information given, the hours per week for IT data support in
Americas division is 45 hours, in Europe & Asia Pacific is 163 hours while in Indoor
Sun Screen division is 0 hour per week. This shows that Europe & Asia Pacific is using
too many hours in IT data support while Indoor Sun Screen had 0 hour in IT support.
The two divisions is less effectively in using IT application. Meanwhile, the Americas
division spends only 45 hours per week which can be reasonable and be more
effectively.
16
5.0
SUGGESTION
Centralisation and decentralisation both have their advantages and disadvantages. After our
consideration, we would like to suggest ID Walls to implement centralised ERP system in all
divisions due to few aspects. A centralized organization is structured by a strict hierarchy of
authority where most decisions are made at the top by one or a few individuals. Information
from lower levels flows up to the decision-maker where the information is analyzed in order to
aid in decision-making.
to be produce. Therefore, Americas division can have a better focus on making high priced,
made to order divider wall that were complex to manufacture. Centralized ERP infrastructure
would be hosted and managed centrally. This will include a standardization of customer,
vendor, product and finance naming conventions and processes.
Indoor Sun Screen been having deteriorated market and a negative operating income in
2013. CEO Josh Steward targeted to bring the business back to net profitability by
consolidation of factories, cost reduction and minimal investment. He also plan to milk it or
sell it once the division is profitable again. Therefore, there is little room for investment and
Centralized ERP. Adrian Campbell, IT Director has the same opinion which is to use the ERP
system already implemented in Americas Divider Walls in his division.
For the goods of ID Wall, centralized will be more suitable for them to meet the
corporate needs. In term of debt management, sales generation, and reduce the management
cost, centralized will be more suitable for ID Walls. As Chad mentioned, a global ERP system,
data in ID Walls would be integrated. Data only need to enter once and can be used and shares
throughout the company.
However, a business is an entity that aim for long lasting. Although centralized need more time
and high cost to develop, it will be more suitable for the ID Wall management needs where
wish to integrate the management of all divisions and cost saving and reducing. There will have
an annual saving of 1 million on global IT cost after the implementation of centralized ERP.
Besides, from the meeting with Terry Higgins (company V) which has experiences of using
decentralized ERP system for more than 12 years believes that sooner or later centralized ERP
system will implement for the company. It shows that centralized ERP system will be more
beneficial from the view of long term.
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