Case Study One: Adlassian

Adlassian Corporation (Adlassian) is a company listed on Bursa Malaysia (stock exchange) with its financial year end on 31 October. It was established by Ms. Udezue 25 years ago. Adlassian has two major businesses, namely retail clothing and microchip manufacturing. The following chart shows the structure of Adlassian group of companies.

Adlassian Clothing Ltd (ACL)

Udezue learned about clothing trading from her grandparents who migrated from India to Malaysia in the 1960s. Adlassian Clothing Ltd (ACL) was officially set up 20 years ago for this purpose. ACL operated 28 shops throughout the country, selling a variety of clothing. Some of the clothing were imported while others were sourced locally. Ten years ago, ACL set up a website selling the clothing to consumers throughout Malaysia. Over the past five years, ACL had slowly transitioned its business to its website and had sold 23 of its physical shops, taking advantage of an increase in the property prices. 30% of the funds from the disposal of the shops were re-invested into the business for the expansion of the online business while the balance was remitted to Adlassian for the purpose of setting up a company that manufacture microchips, i.e., Adlassian Microchips Ltd (AML).

The strategic objectives of ACL were to offer a wide range of products to customers and provide excellent customer service. The board feels that while performance has been good compared to other retailers in general, it is lagging behind the growth of the online retail clothing sector. It is felt that many of the systems and processes have yet to adjust to the new reality of web-based business. As a result, Catherine Smith, the chief executive officer, has been asked to review the customer performance in order to identify areas for improvement.

Current Customer Performance

Catherine has obtained some information from the accountant of ACL, Brandon Cannon, who is in charge of the customer performance monitoring as well as the inventory system. The following table shows data from the customer system concerning the online sales:

Detials	2019	2020	2021
Number of customer account (000)	780	960	1,150
Customer account with at least one purchase each year	34%	67%	72%
Average purchase per customer	$350	$620	$680
Number of customer complaint	83	102	91
PercentageDetails of on-time delivery	98%	89%	92%
Average customer satisfaction overall rating (out of 5 points)	3.00	3.20	3.28

Table 1. online customer performance

Considering the pandemic situation in Malaysia, Catherine feels the performance on online sales has been satisfactory. 'With the full lockdown for about four months started on 17 March, 2020, I think the sales for 2020 has been quite satisfactory. Overall, there was a growth over the past three years. Even for 2021, despite partial lockdown, so far, the sales have continued growing. The average purchase per customer has increased from $350 to $680. I would have no doubt that the total sales should have increased by the same proportion. With such kind of performance, we are surely ahead of competition'. Although agree in general, Udezue warned the board. 'Although we have managed to improve the sales, I feel that we are not as competitive as other online retail clothing sites. The quality of our customer service has deteriorated'. The board feel that more information is needed in order to understand the customer performance.

In order to catch up with the rest of the online retail sector, Catherine believes that the key step will be to effectively use the vast amount of customer data which the website collects. In a further step forward in the use of information technology at Adlassian, she plans to create a data warehouse and use its information to help to achieve the objectives of Adlassian. The data warehouse will collect data from customer activities on the website and also, from social media.

Enterprise Resource Planning (ERP) System for ACL

Catherine recently introduced a new enterprise resource planning (ERP) system for ACL. This system will provide a single database, operating across the whole division, to replace systems which have been built up in each function around Adlassian's basic website. The functions, for example, purchasing, warehousing and logistic, and sales and marketing, will now all work on a common technology platform. Her plan is to move more decision making to individual managers of cross-functional teams who will work on all aspects of a given selection of product lines, such as women's or sports clothing. For example, purchasing will now liaise more closely with sales and marketing in order to ensure that the best possible and most profitable product range is available. It is hoped that this will flatten the organisational hierarchy, hence improving the operational efficiency and reducing non-value-added activities.

Adlassian Microchips Ltd (AML)

In 2018, Adlassian set up a microchip manufacturing company, Adlassian Microchips Ltd (AML) in partnership with Die Spitze AG (Spitze), a well respected microchip manufacturer from Germany. The objective was to reach out to some of Spitze's key customers in the country, with shorter delivery time and better customer support. The management of Spitze feel that this move was necessary as many microchip manufacturers have either relocated their plants from other South East Asian countries to Malaysia or setting up a new plant in Malaysia. Adlassian saw this as an opportunity to venture into high-tech industry. This could be a form of diversification. As Spitze has years of experience in the microchip manufacturing, Adlassian has copied Spitze's quality control systems into its plant. The objective was to accelerate the attainment of quality standards in order to remain competitive. Adlassian manufactures microchips based on the product specifications from its customers. These customers are manufacturers of computers and handphones. Although there are different brands, the structure of the microchips for products, e.g., handphones, laptops, etc, could be substantially similar.

Note: For a better understanding on the manufacturing process of microchip, you are advised to refer to the following video: https://www.youtube.com/watch?v=_VMYPLXnd7E

The accountant of the Microchip division has produced the following quality cost report (Table 2) and presented in the recent divisional management meeting.

'I don't understand why the quality control costs need to be calculated as a percentage to sales. I don't see any relationship between sales value and the quality control costs', commented Anna Lisa McGowan, the sales manager. 'Furthermore, why are we spending so much on supplier quality certification. Isn't it the suppliers' responsibility to ensure the materials that they sent to us are of good quality? Why must we conduct a formal study to determine our suppliers' overall quality performance pertaining to delivery performance, product quality and process capability?'. She added.

The quality assurance manager, Robert Brown, believed that the quality performance of the company for these two years have improved. 'The percentage of the quality control costs has dropped by 20% of sales to 16.67% of sales. Don't you think this is good?', remarked Robert.

	2020	% of sales	2021	% of sales
Prevention cost:
Quality training for staff	240,000		600,000
Supplier quality certification	900,0000		1,800,000
Total	1,140,000	3.17%	2,400,000	6.67%
Apprasial Costs:
Process inspection	0		300,000
Incoming material inspection	360,000		400,000
Product inspection	300,000		180,000
Total	660,000	1.83%	720,000	2.00%

Internal Failure Cost:
re-testing of faulty product	870,000		210,000
re-inspection of product before shipping	600,000		300,000
Total	1,470,000	4.08%	510,000	1.42%
External Failure cost:
Product recalls	1,200,000		600,000
Estimated lost sales	1,800,00		1,200,000
complaint management	930,000		570,000
Total	3,930,000	10.9%	2,370,000	6.58%
TOTAL	7,200,000	20%	6,000,000	16.67%

Table 2 Quality Cost Report

Required:

(a) Based on the information in Table 1 and any relevant information from the case,

(i) comment about the company' customers' performance, on a year-to-year basis and the overall trends or performance; (6 marks)

(ii) calculate suitable ratios using the data in Table 1 in order to support your evaluation in (i) above. (2 marks)

(iii) discuss the comments of Catherine and Udezue concerning customer performance and explain whether you agree with them. Suggest any further information needed before a conclusion about the customer performance can be made.

(b) Based on the information in Table 2 and any relevant information from the case,

(i) Discuss the concept of quality control and comment on the effectiveness of company's quality control programme. (6 marks)

(ii) Discuss the comments by Anna Lisa McGowan and Robert Brown on the quality control issues and state whether you agree with them. (4 marks)

(c) Regarding the implementation of ERP system, discussthe objectives of any ERP systems and explain how Adlassian could benefit from it. You need to draw some relevant examples from the case to demonstrate your answers and make any needed assumptions.