Is Strategy at Nzmilk

IS Strategy at NZMILK

Paul Cragg Bob McQueen

IDEA GROUP PUBLISHING

IS Strategy at NZmilk 1

IDEA GROUP PUBLISHING 1331 E. Chocolate Avenue, Hershey PA 17033-1117, USA Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com

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IS Strategy at NZMILK Paul Cragg University of Canterbury, New Zealand Bob McQueen University of Waikato, New Zealand

EXECUTIVE SUMMARY NZmilk is a small, fresh milk supplier that is contemplating using IS to a greater extent to become more competitive. Following deregulation of the industry in 1997, supermarkets and home delivery contractors could purchase milk from wherever they chose, rather than a required local manufacturer. This had opened up both competition and expansion opportunities within the industry. NZmilk recognised that they would have to fight hard to retain and increase their share of the market. They had already lost some of their local market to competitors coming in from outside their region, but had also gained a contract to supply Woolworths supermarkets outside their traditional market area. Improvements to production facilities and distribution systems were in place, but NZmilk knew that a fresh look at how they interacted with their customers would be needed. Their general manager was convinced that information systems had a greater role to play at NZmilk beyond just the accounting and order processing that was presently undertaken. A new direction in using information systems to support NZmilk’s rapid growth and new strategy was needed, but he was unsure of which way to proceed.

BACKGROUND Whangarei Milk Company was formed as a private company in 1946 to supply home delivery milk in the growing town of Whangarei. In 1990, the company changed its name to NZmilk, and became a fully owned subsidiary of Northland Milk Products, an established, progressive dairy cooperative operating in the Northland region of New Zealand. This relationship with Northland Milk had brought benefits in terms of a guaranteed supply of whole milk. Previously, a number of dairy farms were directly contracted to supply NZmilk 365 days of the year, so NZmilk had to make use of all the milk provided each day from these suppliers. Now NZmilk could request the volume of milk it required by obtaining a milk tanker delivery from Northland’s major processing factory (during most of the year) on relatively short notice. Another advantage of the association with Northland Milk Products had been the ability to call on their resources when needed, particularly in the managerial, technical and financial areas. The parent company required NZmilk to submit monthly reports on their operations, and any major initiatives required approval from the Directors of Northland Milk Products. Copyright © Idea Group Publishing. Copying without written permission of Idea Group Publishing is prohibited.

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By 2000, NZmilk had become the fourth largest supplier of fresh white milk in New Zealand, with annual sales of $25 million. Milk had always been the heart of their business, but they had recently increased their product range to include fruit drinks and fruit juices, and were considering developing other food products to add to their product range. NZmilk occupied a modern plant on the outskirts of Whangarei, in one of the fastest growing regions of New Zealand. It employed 80 people, plus a distribution system involving an additional 36 vendors. These vendors were self-employed contractors who delivered on a daily basis to supermarkets, convenience outlets, and homes.

SETTING THE STAGE Up until 1997, the home delivery of milk had been tightly regulated. Licensed local processors set the retail price of milk but were compelled to provide a home delivery service regardless of economics. Each home delivery milk processor had sole rights to a district. For NZmilk, this effectively meant no competitor could supply milk into the Whangarei region. Any firm could compete outside their restricted territories with other products like flavoured milk and yogurt. However, fresh milk was still the major product sold. Although the fresh white milk industry in New Zealand was worth about $400 million per year, milk consumption was slowly falling and losing market share to other beverages. Sales of flavoured milk were helping to slow the decline. New Zealand’s largest dairy company, New Zealand Dairy Group (NZDG), with revenues of $2 billion, was mainly focussed on the export of powdered milk, butter, cheese and other manufactured milk products, but also had a dominant market share of the pre-deregulation fresh white milk market in New Zealand’s North Island, where about 80% of the New Zealand population of 3.5 million lived. NZDG’s stated strategy was to become the low-cost leader in both the NZ domestic market as well as for the export products. Deregulation was forced on the industry by the government, rather than the industry choosing deregulation. Many milk companies initially resisted deregulation, but some, like NZmilk, saw deregulation as a business opportunity and a way for the company to grow. After deregulation, milk companies began to supply their products into competitor’s previously protected regions. Supermarkets were one target for additional sales outlets, but convenience outlets and home delivery drops in remote regions were less attractive, as more complex warehousing and distribution systems were required. The move into markets outside their region had been anticipated when NZmilk changed its name, and was further reflected with the introduction of “NZ Fresh” as the Company’s major brand. Pricing was another area that had changed. Prior to deregulation, pricing was controlled to the extent that prices in supermarkets had to be within three cents of the price of home-delivered milk from vendors. Deregulation removed such controls. At times, competitors had cut prices of milk, particularly during the spring and summer when milk was plentiful. This meant that pricing policies had to be flexible and able to respond to competitive pressures in the marketplace, particularly in supermarkets. Home delivery vendors had seen further erosion of their sales to homes. Prior to deregulation, supermarkets supplied less than 10% of fresh white milk, with the balance through home delivery and convenience outlets. The supermarkets’ share had risen considerably since deregulation. Various initiatives were taken to protect home delivery systems. For example in Nelson, most home delivery vendors had purchased hand-held computers so they could respond easily to changes in price and demand. Elsewhere, NZ Dairy Group had begun rationalising its distribution system by reducing the number of route contractors and amalgamating various supply companies. While supermarkets now had the advantage of a number of suppliers eager to sell them fresh white milk at competitive prices, they were not solely interested in stocking the lowest priced product. Reliability of supply, product quality (freshness), ease of ordering and obtaining product quantities

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matched to daily store demand, delivery frequency and ability to minimize the paperwork required for head office payments were all part of the equation.

CASE DESCRIPTION NZmilk had grown from a small home milk supply company providing a single product in glass bottles for a local market, into a progressive, highly sophisticated, multifaceted organization which even manufactured its own plastic milk containers. Every day, tankers brought about 85,000 litres of fresh milk to the NZmilk plant. Within only a few hours of arriving, most had been processed into full cream, homogenised or low-fat milk varieties, packaged in plastic bottles or cardboard cartons, and trucked for delivery to retail outlets and homes around the region. The product range included fresh cream, yoghurt and flavoured milks. Developing high standards of product quality was an important priority. NZmilk had established a quality assurance section which changed the emphasis from a random sampling “quality control” philosophy into an ISO 9002-accredited total quality management (TQM) program for ensuring top quality products. The emphasis on quality had helped NZmilk win a major contract to manufacture milk shake and soft-serve ice cream mix for McDonald’s restaurants throughout the North Island of New Zealand. Another international food company, Cadbury Schweppes, has its famous Roses Lime Juice bottled on contract by NZmilk. Innovation was another important characteristic of the company. NZmilk manufactured its plastic bottles for its own use, but had sufficient excess blowmoulding capacity to be able to sell containers to outside firms. It had pioneered a scheme for the collection of plastic milk bottles which were then recycled by plastics manufacturers into other plastic products, which had been successfully copied by other milk processors throughout the country. Their in-house product research and development programme had produced a New Zealand first in honey-sweetened natural yoghurt. NZmilk planned to grow by competing on quality and service to extend their sales through supermarkets while defending their current local vendor network. Sales of fresh white milk had been falling since the mid-70s, but it was still a profitable market. The home delivery market might fall by another 50% in the next 10 to 30 years, but there were large barriers to new entrants as good delivery systems were essential. The market for home delivery and convenience outlets seemed to be relatively price insensitive. NZmilk had seen a decline in volume sold through independent home delivery vendors, with a corresponding reduction in the number of vendors from 45 in 1991, to 36 in 1995, to 20 by 2000. Sales in 2000 averaged 300,000 litres per vendor. The selling price of products to vendors varied by the type of end customer. Prepayments were made to NZmilk by vendors weekly, and at month-end vendors reported the exact number and type of product sold in each category. A credit or debit was then issued with payment due on the 20th of the following month. The sales through their main channels for 2001 were expected to be about 25% to home delivery via vendors, 25% to local shops and small supermarkets delivered by vendors, and the rest to large supermarkets through bulk delivery and direct invoicing. Total sales for 2001 were expected to be 21 million litres of milk, and 4 million litres of other products. However, with growing interest in Internet shopping, and in particular the trials of grocery shopping over the Internet which highlighted the requirement for effective home delivery logistics, NZmilk saw a potential opportunity to supplement the home delivery of milk with the delivery of other grocery products. Thus, maintaining a healthy and profitable existing vendor network was important to both current operations and possible future strategic initiatives, and could not be discarded lightly.

CURRENT CHALLENGES Doug Allen was NZmilk’s Sales and Marketing Manager, and William Edwards the Sales Manager. The customer relationships they had to manage were with the home delivery vendors, the

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owners of local shops and small supermarkets, and the buyers, product managers and local store deli managers of the large supermarket chains. There were a host of daily problems and complaints that had to be handled promptly and professionally which soaked up most of their time each day. In addition, they had to try and look to the future expansion of sales volumes in the context of a steady annual decrease in per capita consumption of milk products, and increased potential for competition in their own local area. Liaison with the 20 vendors was one of William’s responsibilities. It was important not to take these vendors for granted, as they were the point of contact with NZmilk’s customers and consumers. Most vendors were small operators. The owners usually drove the delivery trucks themselves, hired some students to assist with the evening deliveries and did the paperwork when they returned home at night. Some of these vendors had computers to assist with their accounting, but there was a wide spectrum of computer capability, and computer-to-computer links were only possible with some vendors. Doug and William were aware that reducing administrative burdens of invoice checking and reconciliation was a high priority for supermarket managers. At Woolworths, shipping dockets had to be initialled by department managers, and then reconciled in store with invoices submitted by suppliers. The invoices were batched, and submitted to the head office in Auckland, where the invoices were collected together with others from that same supplier, batched together and then approved for payment. While it seemed at odds with the need to reduce administration, the supermarket head office was indicating that daily invoicing of goods received at each store was the way of the future. Daily invoicing would allow better control over in-store stocks, and avoid some of the batching and reconciliation steps presently required. Some snack food vendors had instituted off-truck invoicing, where an invoice was printed by the company truck driver from a computer in the truck as the goods were delivered. This allowed for flexibility in meeting the needs of the store at the exact time the delivery was made. However, this system was somewhat less attractive for perishable products like milk which had short duration “best before” dates. There had been some discussion of electronic data interchange of invoices between suppliers like NZmilk and the supermarket head offices. However, the transfer of the invoice was only a small part of the process of ordering, checking of incoming goods and reconciliation of invoices that was undertaken at each individual supermarket, and systems that supported the whole process electronically seemed still some time away. Most stores now had checkout scanning systems that read the bar code label on each product, and kept track of how much of every product went through the checkouts every day. NZmilk had been assigned unique bar codes for each of its products and sizes, so it was theoretically possible to tap into these checkout systems, either to individual stores or to the head office host computers to determine volumes of product sold each day and how much inventory remained in the store. However, it was an area of rapid change for the major supermarket chains, and it was not known whether they would be keen to provide access to their computers to outside firms like NZmilk. A further complication in this area was that the “best by” date was not presently bar coded, so that tracking of shrinkage from in-store inventory could not be exactly matched to the daily deliveries made.

ManufacturingFacilities NZmilk’s plant contained four filling production lines where containers were filled, labelled, capped and crated. Two lines were dedicated to plastic bottles, one to cardboard containers and the fourth to fruit drinks. Other parts of the factory manufactured plastic bottles and food mixes. Once packed in crates, the milk was transferred to a cooler from which orders were picked and assembled for their customers. The fridge pickers started at 6.30 am, and the first truck for the day would leave at about 8.30 am. Two other large trucks left at about 11 am for local vendors and the town of

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Kamo, and smaller trucks for local destinations left at 9.30 am, 10.30 am and 12.30 pm. Other trucks departed for other towns during the afternoon, some only on alternate days. During the evening, one large truck left at 10.30 pm for Auckland. All loads went as a mix of specific orders for vendors or supermarkets, with the exception of the Auckland load for Woolworths, which was a bulk order which was then broken down for specific supermarkets. Often what was delivered to individual Woolworths supermarkets was different from what was ordered the day before, following a last minute telephone call to the Auckland depot to change the order. Seven lock-up depots were located in the Whangarei region, but each vendor had their own secure area for collection at their convenience. John Tobin was the production manager overseeing all of the manufacturing areas, as well as raw material and finished goods stock holding, and distribution. There were 34 production staff, plus nine in blowmoulding. John had implemented changes in the manufacturing process to reduce unit costs, but more efficiency could be gained if longer runs and fewer setups were possible. He was concerned that the production schedule seemed to be disrupted every two or three days in order to meet urgent delivery needs. The daily production schedule determined which products and sizes were to be run on which packaging line. The daily plan often had to be made before all orders for that day had been received, and what went out on a truck was a mix of product that had been in the fridge from the previous night’s production, and what was just coming off the packaging lines as the order was assembled. Vendors and other customers preferred to receive consignments where all product had the same “best before” date. Therefore, production was sometimes disrupted to change the date back one day to be consistent with stocks held overnight. Such “best before” dates were conservative estimates; if kept refrigerated, milk could last considerably longer. Because of this dating scheme, it was impossible to stockpile product for future use. What went out on a given day had to be packaged that day or the night before, to the requirements of orders just received that day. Once all orders for the day had been received (sometimes as late as 11 am), it took time to work out if there was likely to be a shortage of any product or size. Therefore, the schedule was not finalised until well after the production run for the day had started. If a shortage was expected, then two changeovers were required; one to run the shortfall product, and another to return to the original plan. Although a shortage was never ignored, mixed “best before” dates were tolerated to avoid additional setup delays, despite concerns expressed by the marketing staff. These disruptions extended production times and led to total overtime hours of 170 to 200 hours per week. John felt that better production planning could reduce overtime to 50 to 70 hours per week. Fridge capacity was limited, but workable. However, the layout presented difficulties to pickers, with only 90% of orders being picked correctly. This led to one or two complaints each day from customers, so NZmilk was investigating total automation and a move to just-in-time manufacturing. However, initial enquiries suggested that this would require an investment of at least $500,000 in additional packaging and computing equipment. As a result, it seemed that NZmilk was unlikely to move in this way within the next three years.

Order Entry Vendors and major supermarkets were expected to fax, email or phone their daily order to NZmilk, either the night before or up to 10 am on the day of delivery. Order data was collected in both the factory office and the front office. When Diane McCann arrived to work in the factory office at 5 am, she collected the order faxes and the messages left on the answering machine overnight. Some orders had to be ready by 6.30 am for loading the first truck. She analysed the orders just received to check the production plan that had been prepared for that day. Many orders for afternoon deliveries were taken during the morning of the same day. Local vendors telephoned, faxed or emailed their orders to Diane directly, while Jane Roberts and one other in the front office typically spent two hours every morning telephoning the 30

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Woolworths supermarkets to obtain that store’s order details. They rarely got through to the right person (such as the deli manager) in the store the first time they called, and often had to wait on the phone while the person was located, the store needs worked out and the order finalised. If the deli manager was not available, they had to deal with one of the other junior employees in that area, and this sometimes caused problems with over or under ordering of required products. Jane spent a further hour each day collating the Woolworths order data. An accurate picture of the orders required to be manufactured and shipped that day was often not available until late in the morning, which meant that the planned packaging run of some products in the plant had already been completed. This meant that additional short runs of products might have to be done late in the day, which entailed significant time to clean out and re-configure the packaging lines for these products.

Invoicing and Accounts Receivable Control Joan Proudfoot was in charge of NZmilk’s major computer system, which was called Milkflex. Because of the very different business processes and billing arrangements with vendors that had arisen from the previously regulated environment, off-the-shelf order and billing systems were not suitable for NZmilk’s needs, and the development of a custom system had been required. Milkflex had been developed about five years previously by a local software services company in Dataflex, a PC database language. Milkflex had been designed to specifically incorporate NZmilk’s existing business processes during the time of government regulation. The major function of Milkflex was to produce invoices and accounts receivable reports, after sales order data had been entered from the order sheets. Milkflex was originally written to invoice home delivery vendors, but was modified to include centralized weekly billing for Woolworths, and to incorporate different pricing policies. About 50 supermarkets were invoiced weekly, and about 65-70 other customers invoiced monthly. The unique system of discounts and credits for the home delivery vendors complicated this billing cycle. Furthermore, as supermarkets were billed weekly, but often supplied with product from vendors’ trucks, these orders were initially entered into order forms by vendor, later entered into Milkflex under the vendor code, then later recoded by supermarket. Typically, vendors were charged for what they ordered, while supermarkets were charged for what they sold. Other changes had been made to Milkflex over the years. The range of reports was extended to include daily stock reports and a production plan based on stock on hand and past sales. Monthly sales analysis reports were typically available by the middle of the following month. Further minor changes were still outstanding; for example, it was not easy to prepare monthly summaries by supermarket. Joan found that Milkflex worked well for her, and wondered why production and marketing were not keen on their new reports, after asking her for them for months. Angela and Joan assisted Les Brown, the financial controller, with the wages each week, using a Milkflex module, which worked well, despite limited reporting functions and very demanding formatting.

Financial Planning and Control NZmilk had been using modules of the standalone PC-based Charter accounting package since the early 1980s for creditors, general ledger and fixed assets. The system had been upgraded in 1995 after Les Brown looked for a more user-friendly product, but decided to stay with Charter as the only obvious replacement (CBA) could not be supported locally. Only Les and Joan had access to Charter, and much of the data came from the Milkflex system printouts and was transferred manually. Data input times were typically less than 15 minutes each time. The Charter system met most accounting needs, although its reporting features were very limited. NZmilk had about 600 creditors accounts, and 150 payables cheques were sent out each month. Les and Joan also used Excel spreadsheets to produce forecasts, budgets and plans, typically for use by the whole management team. Much of this data was extracted from other reports, either from Charter or Milkflex.

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Production Planning A new report from Milkflex had been created to assist with production planning. However, this report had not been accepted or used by production staff, as the computer data never matched the physical closing stock data. Instead, production staff used a manual approach to plan the day’s production, and hoped that Joan and Les would sort out the problems with the new report. As Robert Kokay put it, “The system seems to be right for the front office, but not user friendly for us”. Production planning was made even more difficult as there were high sales at weekends, but there were no deliveries on Sunday. Ideally they wanted to generate a production plan by packaging line, by product, by time of day, for every shift. Brian English and Diane McCann drew up the production plan late in the afternoon for the following morning. This had to be done when none of the next day’s final orders were known. Instead, data from the corresponding day two weeks earlier was used as the best estimate. A two-week period was used because some of the more distant vendors collect on alternate days, and some social security benefits are paid on a two-week cycle. The preparation of the production plan started after a physical stock-take. The planning task was demanding as there were about 50 to 60 products to consider, with most having to be made on a daily basis. Much of the afternoon was spent preparing the next day’s plan, and it took an hour just to determine the bulk milk needs for the following day. During the day, the plan was checked frequently as incoming order data became available. Revisions to the plan were made during the day if needed. It was desirable to finish a day’s production with sufficient finished goods in the refrigerator overnight to satisfy the first three truck loads the next day, but on 80% of days, this stock was inadequate to completely fill the orders for these trucks. Part of the Milkflex system was designed to assist with the control of finished goods. However, it was not user friendly, failed to help when stock data did not balance and had a poor data entry screen.

Quality Assurance The Quality Assurance manager, Tony Fineran, had a staff of two. The team conducted tests in the laboratory on samples of both raw and finished product. The results were analysed and presented on typed sheets, but Tony was trying to make greater use of a PC spreadsheet. Quality reports were also available, but only McDonalds requested them for the products made for them. No data could be automatically transferred from the testing equipment to the computer. As a result, Tony was concerned that some patterns/trends might go unnoticed. Furthermore, Tony received about 200 complaints from customers each year, and a further 150 from staff at NZmilk, all of which had to be handled. His team dealt mainly with serious cases, and had time to investigate only some of the others. Tony suspected there was an opportunity to use computers to assist in the monitoring and handling of complaints, which was currently a paper-based system.

Present Use of Information Technology Up until the present situation, NZmilk would not have been considered to have been an intensive or strategic user of information technology. The early systems installed were financially focused, and to a large extent were automation of existing manual billing and accounting systems. The firm relied on external local firms to supply software, hardware, programming and technical support when needed. Only a few employees were knowledgeable about the systems that were operated, and they generated ideas and extensions for the custom software, which was then contracted out to an external firm. The focus of these changes was more about tailoring the software to fit existing business processes and manual procedures, rather than thinking about the re-design of business processes (supported by IT) to support company strategy. Most changes were oriented to make life easier or provide additional reports for the internal employees interacting with the system, rather than provide information useful to external customers.

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Major hardware and software additions occurred in early 1991, when NZmilk installed a network of Windows-based PCs, in early 1995 when Milkflex was expanded and in 1998 when the Internet began to be used for email and WWW browsing. There were no employees of NZmilk dedicated to support applications or develop software, although the hiring of an IT coordinator was being considered. Some training of employees on IT packages had taken place. For example, Les Brown and Joan Proudfoot had spent some time with consultants from Baycom, looking at the ways to change Milkflex report formats. Otherwise, most have learned by being users of the packaged software, and a few were able to specify changes required for custom applications like Milkflex, but the company had to rely on outside people to provide anything beyond these basic functions. Ed Doughty was the local agent for the Charter accounting package, which had about 60 sites installed in New Zealand’s North Island. He had an accounting background, and believed that NZmilk’s needs were unique because of their vendors and their billing requirements. The Charter package used by NZmilk was written in QuickBasic, and could accept datafiles straight into the General Ledger. There was a Bill of Materials module which might be able to help with bulk milk forecasting, but there was no easy way within Charter to use order data to determine a production plan. The general ledger and creditors modules that NZmilk were using were the latest versions. Other modules exist for Charter which were not presently used by NZmilk, such as a financial report writer. There was also a Global Report Writer, but this was for application developers rather than end-users. Modules averaged about $1,300 each. An external person who had regular contact with NZmilk was Hugh Gurney, who used to work for Whangarei Milk, and developed the first version of Milkflex after forming his own software company called Baycom. Baycom provided support to NZmilk and a large number of other clients. Baycom used various tools for system development, including Dataflex, a 4GL relational database programming language designed for experienced software developers. Baycom also sold hardware and other software, and had installed the Novell Netware software at NZmilk. Over the years, Baycom had built various systems for their clients using Dataflex, including modules for general ledger and creditors, but not fixed assets. Some of these could be adapted for use by NZmilk if required. Baycom also had products for legal practices, as well as EDI experience with a local bakery for order entry via modem. Hugh Gurney’s business partner Graham Jackson felt that NZmilk’s needs were unique, so no existing product could be used to meet all of their needs. Graham regretted missing out on NZmilk’s contract for the upgrade to their local area network, and attributed it to various factors, including spending too little time determining requirements, and not providing top service to NZmilk at times. He would like to have extended Milkflex beyond the upgrades, and saw this as a viable option rather than NZmilk trying to develop their own systems. He was keen that NZmilk should retain Dataflex as their base technology, and would be happy to offer training so that users could more effectively use the Milkflex report writer for simple inquiries. FlexQL would be needed for more complex relational queries, but this had a steeper learning curve. Neil Dickie, a local, independent consultant won a recent contract to supply and install three new PC’s for NZmilk, and a notebook for Maurice Lloyd, the general manager. When extending the network, Neil noticed that the network required better configuration. Security and access were not well setup or managed, and all the Microsoft files were in one directory. He also wondered why some applications were set up to work on only one PC. Neil expressed interest in spending a day sorting out these problems, which likely resulted from the network being set up by numerous people at various times, with no plan in mind.

Potential Uses of Technology Maurice Lloyd was convinced that information technology could play a key role in NZmilk’s growth strategy. There were a number of exciting ideas for using computers which included:

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• • • • • • • •

EDI with supermarkets, although it seemed that firms like Woolworths were not likely to force this, at least within the next few years. Internet-based ordering with vendors and supermarkets (some already placed orders via email). Invoice at point of sale through in-truck computer systems. Support for production planning and forecasting decisions A fully automated warehouse. Business process reengineering. A telemarketing system to contact stores, solicit orders and sell additional products. Addition of home delivery of groceries via telephone or computer ordering.

Pressure for Change There had been approaches by several New Zealand representatives of manufacturing and distribution software packages (both MRP II and ERP), and the operations and sales people in NZmilk were clearly interested in looking at what might be done. Maurice Lloyd had been exposed to the use of IT for strategic advantage in the part-time MBA degree he had been undertaking, and also had been following reports in trade magazines about manufacturing and distribution software systems, the industry transforming impact of the Internet, and the rise of customer relationship marketing. Their parent company, Northland Milk, also had some experience with the purchase of both packaged and custom-developed software, primarily in the manufacturing and financial areas. However, Maurice was unsure whether their focus should be on solving their manufacturing and distribution problems with a tried and proven off-the-shelf packaged system tailored and modified to their requirements, or whether they should take a step back, and try and understand the impact of the new ways they might be doing business in the future, and the new trust and information exchange relationships they might develop with both present and future customers and business partners. He could see that a significant investment in IT was looming, and probably critical for their survival and growth in an increasingly competitive market. However, the potential was also there for an expensive disaster if an appropriate and realistic path was not taken. The key question he kept turning over in his mind was: “How should I get this process underway?”. But he was not sure how to proceed, what process he should follow and who he should involve, including who should be project leader. If NZmilk was to grab the opportunities that were available, and avoid the pitfalls, he had to make the right decision.

APPENDIX: PRODUCTION CAPACITY Typically the filling lines are working from 5 am to 2:30 pm. 55,000 litres of milk are held overnight. Daily supply averages 85,000 litres, typically from 24,000 litre milk tankers. Raw milk is tested for quality on delivery. Typically only three or four loads are rejected per year, and problems occur rarely during peak periods. The blowmoulding plant works 24 hours per day, with one machine producing 1 litre bottles, the other 2 litre bottles. Bottles require 4 hours to cool and shrink, otherwise they expand and thus take more milk to fill. Filling capacities are: Line one: 60 units per minute (2 litre) or 112 units per minute (1 litre) Line two: 38 units per minute (1 litre) or 75 units per minute (300 ml) Line three: 25 units per minute (1 litre carton) The production cycle moves from low fat milk first through to higher fat content products. During the last few years changeover techniques have improved, so that change over times are now a maximum

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of 5 minutes rather than the previous 15 minutes. The change to cream requires a flush of the system, taking about 20 minues. On average, there are about eight prodct changes per line per day.

FURTHER READING AND REFERENCES Bergeron, F. & Raymond, L. (1992). Planning of Information Systems to Gain a Competitive Edge. Journal of Small Business Management, 30, 21-26. Currie, W, (1995).Management Strategy for IT: an international perspective, Pitman. Earl, M.J., (1989). Management Strategies for IT, Prentice-Hall. Earl, M.J. (Ed) (1996). Information Management: the organizational dimension, Oxford UP. Galliers, R. D. (1991). Strategic Information Systems Planning: Myths, Reality and Guidelines for Successful Implementation. European Journal of Information Systems, 1, 1, 55-64. Horne, M., Lloyd, P., Pay, J. & Roe, P. (1992). Understanding the competitive process - A guide to effective intervention in the small firms sector. European Journal of Operational Research, 56, 54-66. Luftman, J. (1996). Competing in the Information Age, Oxford Press. Martin, E.W, C.V. Brown, D.W. DeHayes, J.A. Hoffer & W.C. Perkins (1999). Managing Information Technology: what managers need to know, 3rd Ed., Prentice-Hall. Papp, R. (2001). Strategic Information Technology: Opportunities for Competitive Advantage, Idea Group Publishing. Robson, W. (1997). Strategic Management of Information Systems, Ch. 9, IS resource management, Pitman, 2nd edition. Thong, J.Y.L., C.S. Yap & K.S. Raman (1996). Top Management Support, External Expertise and Information Systems Implementation in Small Businesses, Information Systems Research, 7(2), 248-267. Ward, J. & Griffiths, P.(1996). Strategic Planning for Information Systems, 2nd Ed., Ch. 8, Wiley.

WEB RESOURCES Customer Relationship Management. Customer relationship management research centre. http:// www.cio.com/forums/crm/other_content.html. Gartner group report on CRM. http://www3.gartner.com/1_researchanalysis/executive/ premierecrmmgt.pdf. Manufacturing Resource Planning (MRP II). A guide to MRP and ERP. http://www.bpic.co.uk/ erp.htm. List of over 500 manufacturing software vendors. http://www.softmatch.com/manufact.htm. Site of a prominent manufacturing software vendor. http://www.qad.com/. Strategic Information Systems Planning. Information Technology Management Web. http:// www.itmweb.com/. Milk industry in New Zealand. New Zealand Dairy Foods, a manufacturer similar to NZmilk. http:// www.nzdf.co.nz/. New Zealand. General information about New Zealand. http://www.nz.com/.

BIOGRAPHICAL SKETCHES Paul Cragg is an associate professor in information systems in the Faculty of Commerce at the University of Canterbury, New Zealand, where he teaches on the MBA programme, as well as within the B.Com., M.Com. and PhD degrees. Previously he was on the staff at the University of Waikato, New Zealand, and before that at Leicester Polytechnic, England. Cragg’s research centres on small firm computing. Current studies focus on IT alignment, benchmarking, IT sophistication, and

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adoption and use of the Internet. He has published in many international journals including MISQ, EJIS, Information & Management, and JSIS. Bob McQueen is Canadian by birth (Toronto area), and New Zealander by choice. He has a BApSc in Electrical Engineering from the University of Waterloo, an MBA from Harvard Business School, and a PhD (Computer Science) from the University of Waikato. He is presently an Associate Professor in the Department of Management Systems, University of Waikato in Hamilton, New Zealand. He has been living in New Zealand since 1988. He has also worked with IBM in Toronto and Digital Equipment in Vancouver. Teaching is in the area of electronic commerce, information systems, and information technology in organisations. McQueen is an enthusiastic proponent of case method teaching as an effective inductive learning approach. Thirteen cases have been developed in the IT Policy area under his supervision, using the Harvard Business School approach, for teaching IT Policy at fourth year undergraduate and graduate (MBA) levels.