Case Study: ZigZag
Case Study: ZigZag
Background
ZigZag is a music and media distribution company, selling entertainment products in various formats including CDs, DVDs and Videos to customers throughout the UK. All of ZigZag’s current customers are retail chains or outlets such as shops and petrol filling stations. It does not sell directly to the public at the moment, but has plans to do so in the near future.
Customers order products from ZigZag by telephone, fax and by post. One of ZigZag’s highest priorities is to expand into on-line selling over the Internet.
ZigZag operates from a large depot, which holds stocks of products from a number of suppliers ranging from music companies to games software importers.
Organisation
ZigZag is divided into four main divisions: Sales and Marketing, Purchasing, Warehousing and Administration. Each division is further subdivided into sections, as shown below:
ZigZag Organisation Chart
History
ZigZag began trading fifteen years ago, out of a small industrial unit, selling CDs and tapes to independent petrol stations.
Twelve years later the business has expanded greatly, to sell a range of products, from music and games software to blank tapes and even books to a much wider range of customers, including some national retail chains.
The business moved out of the over stretched storage unit to a larger depot seven years ago. Around this time computers were introduced to keep records of stock levels and to support the accounts section.
ZigZag is no longer tied to a small number of suppliers. With the growth in its trade ZigZag has been able to negotiate deals with many specialist suppliers, many of whom compete to supply the same or similar products.
Overview of Current Business Operations
ZigZag stock a range of entertainment products, selected by purchasers from within the Purchasing Division.
Customers send orders for items from the ZigZag catalogue to the Sales and Marketing Division, who then pass them to the depot for despatch.
If an item is out of stock, customers are informed of the shortfall, and must order again later if they still require the item.
Information on current stock levels, together with estimates of future customer orders, is assessed by the Purchasing Division, who place purchase orders with suppliers to cover anticipated demand.
Suppliers deliver a complete order at a time to the depot, who check and record the delivery of new stock.
Invoices from suppliers are matched with delivery records by each depot and sent to the Accounts Division where payment is made according to pre-arranged terms (e.g. within 30 days of delivery).
The Accounts Division also deals with the invoicing of customers following the dispatch of goods from a depot.
Within the depot, goods are stored in zones, which may consist of areas of floor, shelving, or for very small items, large plastic bins.
Current Systems Support
The systems introduced with ZigZag’s move to the new depot seven ago still form the core of current computer support. Many changes and additions have been made and the maintenance of the systems now forms a substantial part of ZigZag’s business overheads. There are also a number of manual systems still in existence that are struggling to provide sufficient support for the volumes of business that ZigZag now have.
With recent expansions, particularly into games and books, and with plans to move into e-commerce with the public, ZigZag have decided to review and re-develop the existing systems.
As part of the first phase the Accounts Division has purchased a new package to manage its day to day operations.
The second phase of the strategic review covers the stock management and customer ordering systems.
This second phase will consist of a single project to be undertaken by the computer services team from within ZigZag.
Project Definition
As part of its high level strategic review, ZigZag’s senior management have identified some major problems with current system support which any new system must address as key objectives:
§ The current systems provide no facility for direct sales to the public, or internet/e-commerce sales to the existing wholesale customers;
§ Expansion of trade over the next few years means that the current systems and manual processes will not be able to cope with future volumes of data. For instance, the system will need to cope with up to 10,000 products;
§ Existing systems are inflexible, and difficult to adapt to new working practices;
§ Currently suppliers must deliver an entire purchase order at a time. This means that delivery has to wait until all items in the order are available, causing unnecessary delay;
§ Stock is only recorded as being held in a particular zone. As each zone is fairly large this sometimes causes problems with the location of stock when assembling a customer order;
§ Inadequate information is available on the performance of suppliers in:
- Promptness;
- Condition of delivered goods;
- Accuracy of order satisfaction.
Clearly many more detailed problems and requirements will be uncovered during the project, but the above points must be addressed.
One of the key aims of the project will be to analyse requirements for e-commerce, and establish whether a true business case exists for its development. While future growth in their current wholesale operation (i.e. sales to shops rather than direct to the public) requires and will justify expenditure on new systems, senior management are concerned that the potential internet expansion is not just driven by fashion and hype.
Scope
The functional areas to be investigated include the following:
§ Placing of purchase orders with suppliers;
§ Receiving of deliveries from suppliers;
§ Recording and monitoring of levels of stock and its location within the depot;
§ Placement and despatch of customer orders;
§ Monitoring of supplier performance.
The system that monitors customer sales is felt to be fairly effective and will be retained with some small improvements. It is therefore outside the scope of this project.
Project Approach and Organisation
Initial Fact-Finding Results
Initial information gathering activities lead to the following textual summary of the current ZigZag depot system:
Purchase Order Placement: Purchasers examine estimates of future customer orders and compare these with the current levels of stock held in depots. Records of stock levels are available in the form of a daily computer generated report sent by the Stock Clerk which highlights products which have fallen below their ‘standard’ order points. The report also includes details of customer orders awaiting despatch. Purchasers decide if new supplies are required to supplement current stock and if so details of the required quantities are sent to each depot.
The Purchase Order Clerk at each depot groups these purchase requirements by supplier into purchase orders. The delivery date and time are agreed with the supplier of each order, either at order placement time or later if necessary.
Two copies of the purchase order are filed for later processing when goods are received.
Goods Receiving: Suppliers deliver one complete order at a time with a delivery note that is checked against the original copies of the purchase order.
If goods are in poor condition or fail to match the order the delivery may be rejected. In this case the purchase order copies are marked as ‘Order Cancelled’ and passed to the Purchase Order Clerk. The Purchase Order Clerk sends an official cancellation to the supplier, files one copy of the purchase order and sends the other to the Purchaser.
If the goods are accepted one copy of the purchase order is sent to the Purchasing department, and the other is placed in a tray for collection by the Stock Clerk.
Stock Keeping: The Stock Clerk enters details of the newly accepted items onto the depot PC system and assigns the goods to a zone depending on their type, e.g. dvd to the dvd, cd to the cd zone, etc.
The Stock Clerk then passes the purchase order copy to the Purchase Order Clerk for future matching with invoices.
Stock Keepers are provided with a printout of where to store each product, and the products are put away.
Stock-takes occur regularly and totals of goods checked with the PC-held records. Any differences are entered as amendments to stock levels. Occasionally stock may pass its sell-by date resulting in further amendments.
Despatch: Customer orders are sent to the Despatch Clerk by the Sales and Marketing division. Each order may contain detail of several products and will refer to quantities required by a single customer. Although a customer may have several food outlets, each outlet is known to the system as a separate customer.
The Despatch Clerk matches customer orders with the delivery runs timed for the next week and assigns them to specific runs. Details are then entered on the depot PC and the customer order placed in a pending file.
Every morning a report of dispatches for the day is printed and given to the Despatch Supervisor by the Despatch Clerk. Delivery runs are put together using this report and a stock listing from the Stock Clerk. The despatch report is marked with quantities despatched and a copy sent to the Stock Clerk who updates the stock levels on the PC system.
The despatch report is then passed back to the Despatch Clerk who checks the quantities against the customer order and sends this back with details of despatched goods to Sales and Marketing. A second copy of the order is sent to accounts for invoicing.
Invoice Processing: Suppliers send invoices for completed purchase orders to the Purchase Order Clerk, who matches them against the annotated purchase order copy and sends them to accounts for payment.
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