Can Information Systems Restore Profitability to Restoration Hardware?

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1. Evaluate Restoration Hardware using the value chain and competitive forces models. How is the company responding to the forces that influence it?

Value chain model, popularized by Michael Porter in 1985, views companies as series of activities that add value to products or services. Main drive for such a system to emerge is highlighting the activities where competitive strategies of the company can best be applied. Model determines how information systems can improve operational efficiency and improve customer and supplier intimacy at every single stage.

Inbound/Outbound logistics are the two important primary stage activities at value chain model. Due to the IT infrastructure deficiencies, Restoration has variety of problems at inbound and outbound logistic activities. The very striking error, that Restoration is confronted, is working with an obsolete warehouse management system, although they have the chance to utilize new technology covered by their service agreement between NSB. This aged and low capability warehouse management system prevents the company to establish a healthy communication with its suppliers. Because Restoration needed to work with variety of suppliers, company even could not track their own inventory and keep it in line with the customer demand. On the other hand, it is not guaranteed that the desired product is present in the inventory of that specified supplier. This kind of arbitrary relations creates long delivery times and high costs for the company.

Lack of a well-established IT system makes the inventory tracking very difficult and unreliable; therefore, Restoration cannot control its inventory turnover rates effectively when compared to competitors. Ineffectiveness of this costly inbound and outbound logistics stages increases with the variables comes into existence by working with foreign vendors.

Operations stage is another important primary activity at value chain model. Restoration was trying to working with a traditional way of conducting the operations. Producing furniture without an order-tracking system results in a fail of fulfilling the delivery times of customer orders. Actually, the company does not even have accurate records of its inventory. Thus, Restoration loose its customers or sell them ordinary products which are in low price campaign in stead of customized high quality productions. On the other hand, selling the good quality products does not always guarantee high profit. Because of not having enterprise wide knowledge management systems, Restoration was not able to make an accurate cost control and ends up with a very low gross profit margin compared to its competitors.

Sales and marketing stage is the last but not least primary activity at value chain model. Restoration has many successful applications valuing sales& marketing side of their business. Their business strategy of honoring the traditional American house decoration is a pure value adding approach which was successfully reflected on the stores and outlets of Restoration. Their fascinating store formation is supported by a user friendly website and eCatalog with product links. Restoration’s success can be seen from their increasing internet orders up to 8000 percent. Despite their striking business strategy, highly inviting stores and website, company was trying to cope with the decreasing profit margins. Again the reason was the same; lack of a well-established enterprise-wide knowledge systems. Restoration’s old-fashioned way of in-store ordering with no automation which expects the customers to fill out an order paper and pay via an aged credit card system with physical signature makes it difficult to accumulate high amount of customer orders. During the ordering process, due to the lack of IT infrastructure, customers could not get the information about whether the fabric they desired or the furniture they plan to order is available at the inventory. Due to indefinite delivery times,...
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