INFORMATION SYSTEM FOR THE
Aalsmeer Flower Auction
Introduction and Problem Context
Aalsmeer Flower Auction (AFA), known as the Bloemenveiling Aalsmeer among the locals, is reputed as the largest flower auction in the world (McEwan 1999), located in the small village of Aalsmeer in west Netherlands. The history of the auction can be traced back to the earlier part of the 20th century, when local flower growers got together to form a cooperative unit to counterbalance the effect of middlemen. This manifested in the formation of two different auctions, namely “Flowerlove” and “Central Aalsmeer Auction.” The Aalsmeer Flower Auction was born on the 6th of March, 1968 when both Flowerlove and Central Aalsmeer Auction merged.
AFA’s current information systems are outdated and are inefficient in supporting further growth of the business. The company is faced by numerous threats that warrant a revolutionary information system. Some of the most pertinent changes, that the AFA safely perceived as threats, according to the case study, include:
- The emergence of alternative, electronically driven flower markets.
- The auction met the needs of growers, but not those of retailers.
- Mergers and acquisitions among retailers increased their size and power.
- Professional growers.
1.2. Project Goal
AFA’s goal is to develop a new information system that meets its business requirements and is in accordance with changing stakeholder needs.
1.3. Project Objectives
Project objectives (sub goals) that must be realized so the project meets its overall goals include:
- To enable innovation
- Redefine the value chain
- Reduce transaction costs
- Strengthen the link with wholesalers and retailers
- To increase market share
1.4. AFA Organizational Background
The AFA facilitates auctions, which are characterized by inspectors examining merchandise held in the cool stores. Bidders seat themselves in auction rooms prior to trading; the auction is then conducted through a sophisticated, computerized system that comprises of “auction clocks.” Auction clock bring together demand and supply in a festinating process that sells both small and large groupings of flowers within seconds. Millions of flowers and plants are sold on a daily basis through the 13 clocks within the one million meter squared area facility—the largest trade building in the world.
1.5. Value Chain and Industry
The growers of the flowers and plants are the initial suppliers. Demand is made by wholesalers, importers, exporters, retailers and cash and carries. The auctions themselves play a mediating role and auction flowers at global market prices.
Developments warranting change in the existing setup include changing customer needs, electronic networks, professionalization of growers, buyer acquisitions and mergers.
1.6. Aalsmeer Flower Auction Structure
Business Analysis and Environment
2.1. SWOT Analysis of the AFA
2.2. Porters Five Forces of Competition
Image credit: Strategies Innovation
Michael Porter’s “Five Forces Model” is used to analyze the macro-environmental forces that affect a business. Porters Five Forces Model defines the nature of competitiveness that exists in a market. According to Porter, every market, irrespective of its type or product/services offered, includes five different types of competitiveness:
- Rivalry Among Competing Firms
- Potential Entry of New Competitors
- Potential Development of Substitute Products
- Bargaining Power of Suppliers
- Bargaining Power of Consumers
Rivalry Among Competing Firms
The AFA has to compete with other firms within its industry. Its competitors include all other flower growers, whether local, national or international. The AFA has to ensure that it responds in a timely manner to any changes in the market if it wants to maintain a competitive edge over its competitors, who are a direct threat to its profitability and long-term survival. According to the case study, marketing flowers can now be easily facilitated through an electronic channel or electronic market, which is a high threat to the AFA.
Potential Entry of New Competitors
New competitors pose threats to organizations especially when it is easy for them to enter existing markets. The AFA is not significantly threatened by new competitors because of the excessive capital requirement needed. The AFA is, however, threatened by small auctions that may enter; however, the threat posed by these auctions is significantly low and not cause for alarm for the AFA.
Potential Development of Substitute Products
Businesses are at constant threat of other companies that offer substitute products for the same or lower price. Competition from substitute products increases when their price declines and when consumers easily shift between products. The threat for substitute products for the AFA is not a significant one since fresh flowers and plants do not have any other substitute and are always in demand.
Bargaining Power of Suppliers
The bargaining power of suppliers affects competition when raw materials are limited and have only few good substitutes, when the number of suppliers is high and when it is costly to shift between raw materials. The primary suppliers include the growers. The bargaining power held by them is significantly high.
Bargaining Power of Consumers
The bargaining power of consumers for the AFA is high due to the acquisitions and mergers among retailers. Buyers can wield significant influence in driving down prices and gain economies of scale.
2.3. PEST Analysis
The PEST analysis includes four important environmental influences: political, economic, social and technological and how they affect an organization. The underlying assumption is that no industry works in isolation and its effectiveness and profitability is directly and indirectly affected by external environmental influences.
The political factors that affect the AFA include:
- The stability of the government
- Social policies
- Trade regulations: (e.g. the EU & NAFTA)
- Tax policies
- Entry mode regulations
Economic factors that affect the AFA include:
- Disposable income of buyers
- Credit accessibility
- Unemployment rates
- Interest rates
- Inflation levels
Social factors that affect the AFA include:
- Population demographics
- Distribution of wealth
- Changes in lifestyles and trends
- Educational levels
Technological factors that affect the AFA include:
- New innovations and discoveries
- Pace of technological innovations and advances
- Pace of technological obsolescence
- New technological platforms
Information Technology Systems and Information Systems
Information systems have helped organizations to achieve a quantum leap in the way that business it conducted. These systems help to automate mundane and repetitive tasks, and also ensure that all resources and departments of an organization are brought together on a single enterprise-wide platform. Information systems are essential in organizations because they allow them to capture and manage essential data regarding its employees, suppliers, customers and partners that will support all organizational functions.
3.1. Proposed Information System: Web-Auction System
In response to the requirements and threats faced by the flower auction, I will propose the development of a web-auction system as the proposed information system for the AFA. In essence, the web-auction system will allow the AFA to conduct its auction market online and allow the system to easily connect sellers and buyers. The system will be advantageous in the sense that it will bring together buyers and sellers from farthest corners of the world without them having to be physically present. Furthermore, the system can facilitate buyer-customer linkages for low cost and greater efficiency than the existing in-house auction system provides.
The web-auction system proposed will be facilitated via a portal, similar to that facilitated by eBay. The system will allow continuous, real-time bidding online. The auction catalogue will be presented in the form of HTML pages, allowing buyers to browse the system without necessarily having to register themselves. However, all bidders would have to register to the system.
Image credit: Roger et al. 1998
Primary web-auction components that will comprise the system will include the catalogue interface, the bidding interface, the registration interface, the administration interface, the content provider interface, the web-auction database and the web-auction server. Each interface can be thought of as an independent module and the system can be thought of being comprised of separate modules, which will provide the overall system flexibility.
It is imperative that the AFA employ fool-proof security systems for its online auction. Security mechanisms must guarantee the anonymity of bidders and their privacy; authenticate all bids; and facilitate encrypted and protected financial transactions.
3.2. System Development Methodology
Systems development methodology is a formalized approach to the systems development process; a standardized process that includes the activities, methods, best practices, deliverables and automated tools to be used for information systems development (Stahl 2008). In essence, system development methodology translates a proposed system into programming or implementation.
The four essential steps of system development include:
- System Initiation: In this step the problem is identified and its solution is planned. System initiation is important because it produces a project plan based on a business problem that identifies the scope, schedule, goals, and budget for solving the problem with a technical solution.
- System Analysis: In this step the problem is analyzed and further understood. Solutions for its expectations and requirements are also formed.
- System Design: In this step, all alternative solutions are identified and the best course of action is chosen. That course of action is then designed.
- System Implementation: In this step the system that is designed is implemented and its results are evaluated.
A system development methodology “executes” the systems development stage of the system life cycle. The two major types of system development methodologies include the waterfall methodology and the spiral methodology.
Waterfall Methodology: The waterfall methodology essentially consists of four stages, namely system analysis, system design, system implementation and system testing. The methodology entails a systematic approach to the development process and requires that all project plans and requirements are defined, detailed and improved before the system can be implemented. The waterfall methodology has the drawback of putting excessive emphasis on planning, as it requires that all details must be comprehensively defined before the system can progress to its design and implementation stage. This inflexible methodology leaves zero room for error and is not designed to incorporate problems and feedback during the design phase.
Image: Waterfall Methodology
Spiral Methodology: The spiral methodology consists of the same four stages that comprise the waterfall methodology. However, each stage has several loops and iterations, which provide the methodology flexibility. The spiral methodology allows room for improvement and each stage can be altered based on feedback received. The spiral methodology has the disadvantage of scope creep; the loops can grow excessively without end and the project can lose focus. The spiral methodology can be costly and it does not work well for projects smaller in scope.
Image: Spiral Methodology
3.3. Which Methodology to Choose
The most feasible methodology for the AFA would depend on the situations they can be applied for. The waterfall methodology will be best recommended for:
Project with Clear Goals and Objectives
The goals and objectives of the AFA are clear and the solution required to address them are also clear. The waterfall methodology is most feasible in situations that are unambiguous in terms of objective and solution.
Project Requirements are Clear
The waterfall methodology is recommended for those situations that entail clear project requirements. The project requirements for the AFA are clear since the project entails a website-based auction system that will connect buyers and suppliers electronically and offer an online-trading/auction system.
Inexperienced Team Members
The waterfall methodology is best in those situations and for those projects that are characterized by inexperienced team members. The concept of the electronic auction market is new and both buyers and sellers are inexperienced in the regard.
Conservation of Resources
The waterfall methodology is best recommended for projects that require resource conservation and system security. The electronic/web-auction system will require stringent safety technologies that ensure that the process is conducted safely and all user information is kept secure from malicious intent.
The spiral methodology, on the other hand, is most appropriate in situations and projects in which:
Risk has to be Avoided
The spiral methodology lays excessive emphasis on risk analysis and mitigation and is best in those situations that require high levels of risk avoidance.
Resource Reduction is not a Priority
Resource reduction is not an absolute priority in the spiral methodology. The AFA, however, wants to streamline its processes so it can effectively reduce transaction costs. In this case, therefore, spiral methodology will not be effective for the objectives of the AFA.
The spiral methodology is most feasible when a high accuracy system is required. However, this accuracy comes at increased price and that is not the prerogative of the AFA, which does not want to implement an overly expensive system.
Skilled Personnel/Project Manager
The spiral methodology is most effectively implemented by a skilled team. The new system being implemented by the AFA is characterized by novice users and managers will most likely have minimal or no experience in the regard.
Based on this evaluation, it can be safely stated that the most effective methodology for the electronic auction system is the waterfall methodology. The methodology is not expensive, does not require expert team members, conserves resources and facilitates a system with clear goals and requirements.
Impact and Effectiveness of New Information System
The impact and effectiveness of the new, electronic/web-based auction system can be gauged with respect to organizational, management and employee effectiveness.
4.1. Organizational Effectiveness
The new, electronic/web-based system will help the AFA to realize its business objectives comprehensively. Electronic commerce will allow the AFA to redefine its value change, facilitate innovation, increase market share, make the link between retailers and wholesalers stronger and reduce transaction costs.
Redefine Value Chain
The new system will allow the AFA to redefine its value chain and remove all those items that do not add value to the organization. Removing all non-value items can significantly lower transactional costs for the organization. For example, filling up and pushing flower carts and arranging auction seating arrangement will no longer be valuable to the electronic system and can be safely eliminated.
The electronic system will allow the AFA to conduct business in a wholly innovative way. The system will allow it to connect with buyers and sellers in the most remote corners of the world and offer unique, electronic products and services that can add value to them.
The new system will allow the AFA to increase market share since it will allow it to engage a global audience of buyers and sellers. Furthermore, increased information about flowers/plants, their prices and other data will increase customer loyalty.
Reduced Transaction Costs
The AFA will be able to effectively reduce transaction costs with its new electronic system. While the costs of implementing the system may initially be high, once the system is implemented and established, it will allow the AFA tremendous cost savings. For example, overhead costs can be reduced in terms of rent, electricity, utilities, etc.
Improved Production Processes
The electronic system will allow the AFA to improve its production processes, including stock ordering, procurement and replenishing; electronically linking with suppliers; processing payments; controlling production processes, and others.
Better Customer/Buyer Focus
One of the primary advantages the electronic system will provide the AFA will be better and improved buyer focus, including more effective marketing and promotional efforts, quicker customer order and payment processing, effective customer service, and others.
4.2. Management Effectiveness
The new information system will benefit the management of the AFA in the following ways:
Faster Flow of Information and Goods
The flow of information and goods will be faster via the electronic system between buyers and sellers.
Faster and Effective Decision Making
The electronic tools the system will provide to the AFA will allow it to make faster and more accurate decisions pertaining to the type, number, quality and other details regarding flowers it wants to offer.
The electronic system will allow the AFA to accurately determine and keep up-to-date with the latest trends in the market. Management can determine which flower or plant is in the highest demand, supplier habits and customer buying preferences.
The electronic system is expected to improve internal management and internal processes within the AFA in terms of employee recruiting, information sharing, training and others.
4.3. Employee Effectiveness
In order to ensure that the AFA gain maximum benefits from the electronic system, it is imperative that it train its employees/workers effectively in the new system. The AFA will require fewer employees once it successfully implements its electronic system but it has to ensure that those employees allow it to effectively realize its business goals and objectives. For example, if the AFA hires 27,000 physical employees for sales, it would require a mere percent of that, say, 600 employees for its electronic system. This will translate into significant cost reductions for the AFA.
In the existing global economy, e-commerce has become a significant catalyst for economic development and an integral component of business strategy. The use of information technology in business has allowed organizations to reduce costs, encourage greater buyer and supplier participation and improve productivity.
Web-based and Internet technologies are narrowing down the differences between electronic and traditional markets. This report has highlighted how an electronic system of auction can improve processes for the Aalsmeer Flower Auction and allow it to survive in a rapidly changing technological environment.
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