Section B – TWO questions ONLY to be attempted
Introduction
Flexipipe is a successful company supplying flexible pipes to a wide range of industries. Its success is based on a very innovative production process which allows the company to produce relatively small batches of flexible pipes at very competitive prices. This has given Flexipipe a significant competitive edge over most of its competitors whose batch set-up costs are higher and whose lead times are longer. Flexipipe’s innovative process is partly automated and partly reliant on experienced managers and supervisors on the factory floor. These managers efficiently schedule jobs from different customers to achieve economies of scale and throughput times that profitably deliver high quality products and service to Flexipipe’s customers.
A year ago, the Chief Executive Officer (CEO) at Flexipipe decided that he wanted to extend the automated part of the production process by purchasing a software package that promised even further benefits, including the automation of some of the decision-making tasks currently undertaken by the factory managers and supervisors. He had seen this package at a software exhibition and was so impressed that he placed an order immediately. He stated that the package was ‘ahead of its time, and I have seen nothing else like it on the market’.
This was the first time that the company had bought a software package for something that was not to be used in a standard application, such as payroll or accounts. Most other software applications in the company, such as the automated part of the current production process, have been developed in-house by a small programming team. The CEO felt that there was, on this occasion, insufficient time and money to develop a bespoke in-house solution. He accepted that there was no formal process for software package procurement ‘but perhaps we can put one in place as this project progresses’.
This relaxed approach to procurement is not unusual at Flexipipe, where many of the purchasing decisions are taken unilaterally by senior managers. There is a small procurement section with two full-time administrators, but they only become involved once purchasing decisions have been made. It is felt that they are not technically proficient enough to get involved earlier in the purchasing lifecycle and, in any case, they are already very busy with purchase order administration and accounts payable. This approach to procurement has caused problems in the past. For example, the company had problems when a key supplier of raw materials unexpectedly went out of business. This caused short-term production problems, although the CEO has now found an acceptable alternative supplier.
The automation project
On returning to the company from the exhibition, the CEO commissioned a business analyst to investigate the current production process system so that the transition from the current system to the new software package solution could be properly planned. The business analyst found that some of the decisions made in the current production process were difficult to define and it was often hard for managers to explain how they had taken effective action. They tended to use their experience, memory and judgement and were still innovating in their control of the process. One commented that ‘what we do today, we might not do tomorrow; requirements are constantly evolving’.
When the software package was delivered there were immediate difficulties in technically migrating some of the data from the current automated part of the production process software to the software package solution. However, after some difficulties, it was possible to hold trials with experienced users. The CEO was confident that these users did not need training and would be ‘able to learn the software as they went along’. However, in reality, they found the software very difficult to use and they reported that certain key functions were missing. One of the supervisors commented that ‘the monitoring process variance facility is missing completely. Yet we had this in the old automated system’. Despite these reservations, the software package solution was implemented, but results were disappointing. Overall, it was impossible to replicate the success of the old production process and early results showed that costs had increased and lead times had become longer.
After struggling with the system for a few months, support from the software supplier began to become erratic. Eventually, the supplier notified Flexipipe that it had gone into administration and that it was withdrawing support for its product. Fortunately, Flexipipe were able to revert to the original production process software, but the ill-fated package selection exercise had cost it over $3m in costs and lost profits. The CEO commissioned a post-project review which showed that the supplier, prior to the purchase of the software package, had been very highly geared and had very poor liquidity. Also, contrary to the statement of the CEO, the post-project review team reported that there were at least three other packages currently available in the market that could have potentially fulfilled the requirements of the company. The CEO now accepts that using a software package to automate the production process was an inappropriate approach and that a bespoke in-house solution should have been commissioned.
Required:
(a) Critically evaluate the decision made by the CEO to use a software package approach to automating the production process at Flexipipe, and explain why this approach was unlikely to succeed. (12 marks)
(b) The CEO recommends that the company now adopts a formal process for procuring, evaluating and implementing software packages which they can use in the future when a software package approach appears to be more appropriate.
Analyse how a formal process for software package procurement, evaluation and implementation would have addressed the problems experienced at Flexipipe in the production process project. (13 marks)