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Formal Proposal to Modernize Offices and Warehouses

Max Shaggybottom Clothiers

As we enter the knowledge worker era, while trying to deal with the new reality in government IT contracting, interest in ways of capturing, sharing, and reusing an enterprise's most potent asset, intellectual capital, will grow. To leverage this capital, which all enterprises pay dearly to develop; information husbanding will become central, not peripheral, to all types of business activity. The carrot is improving quality and competitiveness (by doing more with less); the stick is much more obvious.


The apparel industry is being affected by information technology-based changes in the manufacturing and retailing of products. Based on detailed business-unit level data, we show that observed heterogeneity in the adoption of modern manufacturing practices by apparel business units can be explained by changes in retail customer requirements for rapid replenishment of products. The incentive to adopt new practices is further increased by complementarities between manufacturing practices. The garment industry is undergoing enormous change, and with this change comes increased pressures on retailers and apparel manufacturers. Both retailers and manufacturers are challenged to compete, not just in terms of price, but also in delivery times and services offered.

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However, the transformation of the industry provides an opportunity for U.S. manufacturers who can provide quality goods more quickly than their overseas competitors. Changes in the garment industry provide incentive for firms to invest in new technology and improve workers' training. The adjustment process is costly, but adaptation in the garment industry can result in competitive manufacturing in the United States without having to resort to any extreme measures.

Forces of Change:

The growth of large retail stores, proliferation of new technology to track and distribute inventory quickly, and an increase in the choice of products available to consumers have changed the retail sector dramatically in the last decade.

The rise of mass marketing stores and discount retailers with low overhead costs and low prices, an increase in retail space, and increasing competition among a declining number of national market leaders have led some industry analysts to express concerns about overcapacity in the retail sector. Mergers and acquisitions in the retail industry in the 1980's have resulted in larger firms and higher debt levels.

The 20 largest firms accounted for 33.3% of sales in all apparel and accessory stores in 1987. By 1992, according to Census Bureau statistics, the share of the 20 largest firms had risen to 41.3%. For family clothing stores, the degree of concentration was higher than the apparel retailing average: in 1992, the top 20 retailers sold 67% of the goods.

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The success of leaner retailers has changed the environment in which apparel manufacturers operate.

Between 1988 and 1992, apparel shipments headed to mass merchants and national chains rose from a quarter to a third of the total volume shipped.

Lean retailers are increasingly employing new technology to facilitate communication with suppliers and speed the distribution of goods. Bar code scanning equipment, other types of information technology, and highly automated distribution centers are important elements to lean retailing.

In 1988, 7% of shipping containers were labeled with bar codes on the outside of the container so that they could be rapidly shuffled through the distribution center. By 1992, 32% of shipping containers were marked with outside bar codes (Abernathy, Dunlop, Hammond, and Weil, 1995).

With closer links between lean retailers and manufacturers, more inventory risk has been shifted onto manufacturers. Instead of making big before-season orders, retailers are moving towards almost continuous restocking. Economists and sociologists point towards an increasing number of new products, an infiltration of the notion of fashion into even the lowest-cost apparel goods, and a rise in the number of selling seasons as signs that demand itself has become more volatile.

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Daily or weekly replenishment shipment constituted more than 66% of 1992 shipments. The type of stores that replenish the most frequently are those that have been gaining market share -- national chains and mass merchants.

Fast delivery, high quality, and other services such as attaching the price to a garment, have become as important as cost for U.S. retailers.

The number of separate detailed stock keeping units (SKUs) handled by stores has almost doubled from 1988 to 1992 to 6,304 SKUs. The number of products introduced in the line each year and the number of products retired both increased rapidly, implying that many products had very short life spans (Abernathy, Dunlop, Hammond, and Weil, 1995).

These forces of change mean increased pressure on manufacturers to respond quickly to restocking orders or style changes. Manufacturers now share the burden of inventory risk that was once borne by retailers.

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Why Computerization

As organizational dependence on information increases, so will grow the need for solid and dependable systems to manage and control the information. The coming years promise even greater corporate dependence on information technology. The battle cry of companies everywhere is to improve the "ilities" -- availability, reliability, and usability. The computerization of key business operations is an important way of achieving robustness and maintaining productivity. Information technology enhances the supplier's competitive advantage. Systems include computers, of course, but may also include phone systems, fax systems, copying systems, mailing systems, communications systems, and any other system whose primary function is the collection, transmission or processing of information.

Computer use has evolved from hidden rooms and paper output to real time monitoring and process control. Computers no longer report on the past -- they control the present and help determine the future. These process-oriented systems increase effectiveness and lower costs. Systems sharpen the competitive edge in other ways as well. Production lines run by computers are often more efficient, enabling precise production scheduling and the full range of Material Requirements Planning (MRP) functions. Warehouses run with computers, store products and supplies more efficiently, thereby reducing the overall square footage required. Shipping and receiving functions coexist more peacefully, thereby reducing labor costs. Today's computer systems are no longer relegated to special rooms. They populate our desks, run our production lines, organize our warehouses, and schedule our work. They even help us manage our business with just-in-time production, just-in-time ordering, and just-in-time cash flows!
New workplace organization and human resource innovations are additional steps in successful firms' response to a highly competitive environment.

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The traditional organization of production in the industry is the progressive bundle system. This system fragments production into many operations and is designed to minimize the direct labor required in each garment. It isolates individual workers who each specialize in only a few operations. To sew a dress shirt under the bundle system involves 20 to 40 operations requiring, in total, less than 20 minutes of sewing time. However, to minimize disruptions and allow maximum productivity of workers, the bundle system has large work-in-progress inventories. High inventories mean that it is more difficult for manufacturers to respond quickly to style changes. Berg, Appelbaum, Bailey, and Kalleberg (1994) find that "maximizing the productivity of individual workers may not maximize the productivity of the system".

Innovative manufacturers are replacing the traditional system by a modular production system: a team-based strategy in which groups of operators work together to assemble a garment. Each operator performs multiple tasks and workers become involved in the pace and quality of the team's work. Work-in-progress inventories are greatly reduced.

The move to modular production implies strategic complementarities among employment security, training, flexibility in job assignments, and participation in problem solving. A change in the method of production is the most advanced innovation in the whole array of advances adopted by forward-looking firms.

The firms that adopt new practices are more successful than firms that do not.

Abernathy, Dunlop, Hammond and Weil (1995) find that innovation boosts performance.

It took approximately 5 times as long to produce a completed garment in the progressive bundle system versus the modular system.
The most innovative firms in their sample fulfilled replenishment orders twice as fast as the control group.
The most innovative firms earned 4.3% more operating profits as a percent of sales than non-innovators, even after controlling for firm size and fashion content. With average operating profits in the industry of 8.7%, this amounts to 50% higher operating profits for innovative firms.

Dunlop and Weil also report increased performance for innovative firms.

Business units using information technology in 1992 earned 6.5% higher average operating profits as a percent of sales than those businesses that did not invest in information technology (Dunlop and Weil, 1996).

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94% of workers in firms using modular production were trained at more than one job in 1992, versus 41% in firms using traditional methods of production (Dunlop and Weil, 1994).

Compensation practices in the modular system allow firms to reward workers for quality work.

Berg, Appelbaum, Bailey, and Kalleberg (1994) also report impressive performance gains from adopting human resource innovations.

One company they examined experimented with outsourcing production abroad, but was unable to meet demanding delivery schedules. Therefore, the firm switched from the bundle system to modular production and found itself able to compete for orders from mass retailers. Overhead costs were reduced by 20 percent, and direct labor costs fell as well. However, the most important changes were the reduction in turnaround time and the flexibility of the modular production system.

Their surveys of workers reveal that learning and problem solving are much higher for team workers who rotate through jobs and who must continuously communicate with each other.

Training workers to prosper in a new workplace adds to the workers' human capital and allows them a greater role in decision-making. These investments in workers complement investments in technology and appear to be paying off for innovative firms.

Common Pitfalls

The following are some of the common pitfalls, which the management should be aware of:

  • Don't expect a computer to clean up a mess in the office. The mess must be organized before computerization is initiated.
  • Don't install a computer because you don't have the right people to do the jobs.
  • Don't install a computer with the idea that any information you want will be instantly available.
  • Don't expect the installation of a computer to help define the jobs that must be done. The computer is a tool to get those jobs done, but the jobs must first be well defined.
  • Don't expect computer installation to occur like magic. Computer selection and installation will be successful only through methodical work.
  • Don't expect any computer system to exactly fit your present methods of completing jobs. If you are not willing to listen to new ideas for solving problems, you will not be able to install a computer successfully or at a reasonable cost.
  • Don't acquire a computer to generate information you will not use.


Max Shaggybottom Clothiers is a moderate sized company manufacturing designer clothing and active wear for young adults. The company is known for comfortable, fancy and caual designer clothing. Its product line has a balanced hybrid of modern style and classical elegance. The management is highly concerned with quality, elegance and simplicity coupled with dynamism and color. As we think about the new century, we have determined that our central focus must be on "sustainable growth." By this I mean, we must create both shareholder and societal value while we reduce our environmental footprint. And, this must be viewed along the entire value chains in which we operate. Sustainable growth is our operational definition of sustainable development. However, we believe business growth is every bit as essential in this equation as is sustainability. In the 21 st century, we will not have one without the other. Economic growth will remain a central element of successful corporations and successful societies, but the environmental aspect of growth in the future must be different than in the past.

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Opinions on the best strategy to accomplish sustainability will vary, as well they should. There will not be a single approach that will apply across all industries and in every society.

During the last couple of management review meetings, there was a consensus among the senior management staff that the current computer system does not have the capability to meet the long-term objectives of expansion, growth and profitability. The system is 15 years old and has never been upgraded, thus failing to meet the office and warehouse requirements, so necessary to climb up the business ladder. The company aims at modernizing its offices and warehouses with the help of Information Technology and a new computer system. three approaches - integrated science, knowledge intensity and productivity - are the main drivers not just for sustainable growth but for business success.


The Max Shaggybottm Corporation desires to achieve the following objectives to be accomplished with the help of the new computer system. Knowledge intensity is about getting paid for what we know rather than simply for what we make. It is at the heart of an overall goal of reducing the amount of material necessary to do a job safely and effectively but at the same time offering the value that customers are willing to pay for.

  • Provide technological foundation for the Shaggybottom Corporation to expand across the continental United States in the near future.
  • Make everyday businnes affairs run more efficiently, including the financial management information system.
  • Empower sales associates to better manage their accounts.
  • Move from a manual based delivery system to a computerized delivery system.

The kinds of benefits that may result from computerizing include:

  • No more bottlenecks in the flow of information or products.
  • On-the-spot information on which to base decisions.
  • Increased sales and new opportunities that come with being well organized.
  • More current accounts receivable and, as a result, reduced cash-flow problems.
  • Reduced overtime and higher productivity for the company and the employees.

Company Information

The company has a main office and 6 regional offices in the Southwestern United States. The CEO sits in the main office; there are 60 employees here out of whom 10 are Sales Consultants and 49 are auxiliary management staff. Each regional office has 15 Sales Consultants and 5 to 8 auxiliary staff. In total there are 186 employees.

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After having a clear understanding of the firm’s long- and short-range goals, the advantages and disadvantages of all of the alternatives to a computer and, specifically, what Shaggybottom wants to accomplish with a computer, this proposal has been prepared. We have compared the best manual (noncomputerized) system the firm can develop with the computer system they hope to get. It has been established that the existing computer system is outdated and necessitate replacement.

Operations to be computerized

The following operations will be streamlined by computerization.

  • Accounts Receivable - Even if properly organized and maintained, a large volume of active accounts can require many hours of posting sales and receipts and, especially, of preparing statements. Unfortunately, at Shaggy bottoms the volume of information being handled is increasing, which cannot be handled by the existing system resulting in an increased number of  errors.
  • Advertising – Currently this is being done manually. Using only manual systems, it is costly and complicated to have special sales programs directed toward particular customers. Manually prepared mass mailings are time consuming and expensive. The proposed system provides computerized sketches and designing campaigns.
  • Warehouse Inventory - A large number of items or high-volume turnover can cause major errors in tracking inventory. There have been frequent errors reported in near past owing to the increased business potential. Errors in inventory control can result in lost sales and in the maintenance of unnecessarily high quantities of slow-moving products.
  • Finance & Payroll – Currently this function is being done manually; only records are maintaines for filing purposes on the old computer system. Calculating and writing checks are tedious operations in payroll administration. It can also be difficult to effectively implement an employee incentive plan using manual procedures. The proposed computer sustem has a dedicated module for Financial Mangement Information System.
  • Management Information and Reporting System-There is no management/executive information system. The proposal includes an integrated MIS comprising of modules on Human Resource, Sales Managemnt, online transactions, orders posting and invoices.
  • Networking-The proposed system will provide the unique opportunity (which Shaggybottom does not have, and realize that it is the most sought for feature) of National Network of regional warehouses and distribution breakpoints.

The company will have a company wide INTRANET (Wide Area Network, WAN). Max Shaggybottom realizes that that in order to gain competitive advantages via computing, they have to set up their own “Information System Group.

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The Proposed Computer System

To computerize the offices and warehouse have to choose the right programs, select the right equipment and implement the various applications. This involves training personnel, establishing and maintaining security procedures, and maintaining equipment, supplies and day-to-day operations.

Two types of computers have been recommende; the minicomputer and the microcomputer.

A Minicomputer is a general purpose computer that links a number of dumb terminals, i.e., display units that can only function if connected to the minicomputer. It can be programmed to do a variety of tasks and is generally designed so data can be inputted directly into the system. For example, data on a sales order are put into the computer at the same time the order is written. Users who don’t have special computer knowledge can operate a minicomputer.

Minicomputers cost ten or more times as much as micro (or personal) computers; sophisticated systems may cost well over a hundred times more. The computer power/cost ratio is relative, however, and may be readily justified by the application required. There are also monthly costs for system administration and maintenance of both hardware and software. The central system at Shaggybottom will be mini computer.

The microcomputer or personal computer is a household word, if not quite yet a universal household item. It can operate independently of a network, is relatively inexpensive, and is compact enough to sit on a desk. These computers run programs that do an astonishing variety of tasks and can be operated without special computer knowledge. Microcomputers can satisfy the desktop needs of all the Sales Consultants and auxiliary and managemnt staff. They usually handle one task at a time, although some may have modest capabilities for multitasking and multi user applications (more than one program and terminal at one time). Personal computers are much cheaper than the minis.

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Following hardware is recommended:

Central processing unit-The CPU performs logic calculations, manages the (CPU) flow of data within the computer and executes the program instructions. CPUs are either XT (8088), AT (80286) or 80386. The AT is the recommended choice for Shaggybottom looking to link their PCS in a LAN (local area network).

Main memory is measured in the K - for example, 32K (or 32 1,024 bits). It is simply a storage area readily accessible to the CPU.
Mass storage-This storage is simply permanent. There are a number of mass storage devices available, such as disk, diskette and magnetic tape. For Shaggybottom, all three will be used.

Input device(s)-These units are used to enter data into the system for processing. One type of input device is a keyboard. Scanners are a new way to input data, which are very important for designer clothing and are part of the proposed system.

Output device(s)-These display the data. The most common output devices are the monitors and the printers. We have recommended VGA monitors and laser printers.

Communication System-We have recommended the MCK Communication Branch Office Extender 6000 system. It offers full voice and data convergence capabilities needed to allow small branch office locations to take advantage of very aspect of “Customer Information Management System. The comprehensive system consists of highly integrated modules that enable all the Sales Consultants (Head Office and 6 Branch offices) from their individual desktops to:

  • Fill orders.
  • Gauge their productivity.
  • Conduct phone conversations.
  • Send orders specifications with accompanying schematics and photos.
  • Issue orders and warehouse pick tickets.
  • Prospect for new customers.

The MCK Communication Branch Office Extender 6000 system is GUI driven system which:

  • Logs all phone calls and duration of each.
  • Adjusts inventories.
  • Issues orders and invoices.
  • It will connect the 6 branch offices to the head office PBX-have voice/voice mail facility (branch offices will have 4 digit inter office dialing-a centralized e-mail system through MS Exchange Server.
  • Cost effective remote administration.


A program, usually referred to as software, is a set of instructions that tells the computer to do a particular task. Programs are written in a computer language (such as FORTRAN, COBOL, and BASIC). The software determines what information is to be entered into the computer and what output or report is to be returned by the computer after it has performed as instructed by the program. The act of entering information into a computer is called inputting the data.

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We have recommended the following three types of software:

1. Compilers and interpreters - This is special software that translates programs written in programming language that people can use (such as FORTRAN, COBOL, BASIC) into machine language that the CPU can execute. These are part of the system configuration recommended for Shaggybottom.

2. Operating system software - These are the programs that control all the separate components of the computer, such as the printer and disk drives, and how they work together. System software generally comes with the computer and must be present (or loaded into memory) before the application software can work. Again these are integral part of the recommended sustem for Shaggybottom.
3. Application software - This is software composed of programs that make the computer perform particular functions, such as payroll check writing, accounts receivable, posting or inventory reporting. Application software programs, particularly the more specialized ones, are normally purchased separately from the computer hardware. Before beginning our search for the application software that is right for Shaggybottom, we discussed in detail with the key decision-makers and users what the software must accomplish.
We have recommended five primary types of business software, often called applications:

1. An electronic spreadsheet does calculations such as budgets, business plans, amortization, cash-flow analysis, statistical analysis, what-if analysis, and other mathematical functions. All these will help Shaggybottom in providing critical management information.

2. A word processor creates and stores documents such as letters, reports, catalogs, mailing labels, and procedure manuals. With many word processors, one can put charts from a spreadsheet or drawings from a graphics application into your documents. The auxuliary staff of Shaggybottom typically requires these.

3. A database stores information about customers, vendors, investors, or inventory and then organizes, sorts, and updates the information so that one can create reports, catalogs, invoice, monthly statements, or form letters. This will help Shaggybottom in devising customized reports for decision-making purposes.

4. A desktop publisher gives tools to produce sophisticated layouts for newsletters, catalogs, business plans, and other documents, required for the auxiliary and management staff.

5. With communications one can connect your computer to a modem and call other computers to send or receive information. This might include getting market demographics from an online database service, filing taxes, or sending financial information to the accountant.

Integrated software includes several tools--spreadsheet, word processor, database, and often communications--that work together to help staff do all their basic business tasks.

The recommended Computer System for Shaggybottom also can perform more complicated operations, such as the following:

  • Financial modeling programs prepare and analyze financial statements.
  • Spreadsheet and accounting programs compile statistics, plot trends and markets and do market analysis, modeling, graphs and forms. They can combine all these functions and can interchange and evaluate data from four programs simultaneously.
  • Word processing programs produce typewritten documents and provide text-editing functions, offering options such as a thesaurus, a speller, and punctuation and style checkers.
  • Desktop publishing programs to create good quality prints materials on the computer.
  • Critical path analysis programs divide large projects into smaller, more easily managed segments or steps. This helps to target goals and set dates for completion.
  • Payroll system programs keep all payroll records; calculate pay, benefits and taxes; and prepare paychecks.
  • File management programs to create and design forms, then store and retrieve the forms and the information on them.


To determine requirements of Shaggybottom, we prepared a list of all functions in theirbusiness in which speed and accuracy are needed for handling volumes of information. These are called applications. For each of these applications made a list of all reports that are currently (or will need to be) produced. We also included any preprinted forms such as checks, billing statements or vouchers. For each report we listed the frequency with which it is to be generated who will generate it and the number of copies needed.
In addition to printed matter, we made a list of information they want displayed on the computer video screen (CRT) and the circumstances under which they want this information displayed.

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For each application a list of all materials used as input into the system was developed. These include items such as time cards, work orders, receipts, etc. Information was obtained on the time period in which these items are created who creates them and how they get into the system. Also the maximum and average expected number of these items generated in the appropriate time period.
For all files being kept manually or expect to computerize (such as customer files or employee files), we listed the maximum and average expected number of entries in a specific time period, such as 10 employees per year, 680 customers per year. Normally, a file, manual or otherwise, is cleaned out after a specified time and the inactive entries are removed.

Identified how they retrieve a particular entry. Do they use account numbers or are they organized alphabetically by name? What other methods would they like to use to retrieve a particular entry? Zip code? Product purchased?

Note which of their requirements are a must and those on which they can compromise.


After compiling all of the information, we found that the needs and the requirements of Shaggybottom were fairly complex. We solicited inputs from specialized service providers like hardware retailers, software retailers, custom software vendors, mail order software houses etc.

At this point we reviewed and compared the software packages and verified the extent to which each meets their needs.

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The business of Shaggybottom falls into the category of businesses that handles large volumes of detailed or repetitious information in short periods of time, and thus will surely benefit from computerization. The recommended modernization plan to computerize the offices and the warehouses can:

  • Organize and store many similarly structured pieces of information (i.e., addresses including name, street, city, state and zip code).
  • Retrieve a single piece of information from many stored records (i.e., the address of Carroll Adams).
  • Perform complicated mathematical computations quickly and accurately (i.e., the terms of a loan amortized over many years).
  • Print information quickly and accurately (i.e., a sales report).
  • Perform the same activity almost indefinitely, in precisely the same way each time (i.e., print a hundred copies of the same form letter).
  • Facilitate communications among individuals, departments and branches (i.e., quickly transmit messages and/or documents that require review or editing).
  • Link the office to many sources of data available through larger networks.

Our recommendations are based on the following criteria

  • The investment decision (pay-back period, depreciation, tax impact, etc.) and
  • The potential increase in the management capability.

The total cost of purchasing, installation, testing, commissioning and training is US$ 450,000

That is the sustainability challenge before us. We have made a modest start. Most of the real work remains to be done.

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