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The Factory Expansion

Role of a management support system

Introduction
Management support systems (MSS) are currently being used in many industries in the world.
According to Sharda, Delen and Turban (2014), the rapid growth of the industry made the business
more complex (p. 32). Cabrera (2012) reveals the new trend of introducing MSS in the milk
industry. In the last twenty years of time, information systems have been used by New Zealand
farmers for fertilizer management, fleet management, feeding, breeding, herd structure
management and in many other areas. However, Leaman (2016) points out, the industry is
undergoing a crucial time and New Zealand farmers know how important it is to protect the
industry. This essay analyses the implementation of Systems, Applications and Products (SAP)
platform for real-time decision making, its advantages and disadvantages to the dairy industry
expansion and further implications. Furthermore, it analyses and evaluates the decision-making
theory being used on the particular platform.

Industry and the expansion

McCloy (2014) states, since the first cattle were brought to New Zealand in 1814s, the dairy
industry has become the backbone of the countrys economy (p. 15). Ministry for primary
industries (2015) reports the industry earned $18 billion through exports in 2014 (p. 6). It appears
that one of the main problems facing the industry is, decreased milk prices. McCloy (2014)
describes the importance of the milk industry to the nation (p. 9) yet, the statistics exposed
slumping milk prices.
DairyNZ (2014) reveals the recorded price is $8.47 per kilogram of milk solid (kg MS) paid in the
2013 and 2014 season (see figure 1). However, Piddock and Leaman (2016) show, the milk price
went down to $4.60/ kg MS at the beginning of the year 2016 and giant Fonterra slashed its
buying price forecast to $4.15/ kg MS in February 2016. According to Walls (2016), Fonterra chief
executive Theo Spierings indicates that low global dairy prices are the main factors behind the
price crisis. Farmgate Milk Prices (2016) confirms the downward trend in milk price forecast.
However, the industry leaders are keep adopting new technology to improve production and are
searching for new opportunities in the industry.

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Figure 1: Trend in milk solids payout in last 30 seasons

(Source: DairyNZ, 2014, p. 50)

Fonterra had recently made an $11 million investment to upgrade its lactoferrin plant in Hautapu
(see figure 2). Though they analysed the information and planned to produce the expensive
formula, not only for the current market but for the market in the year 2025. According to Piddock
(2016), Fonterra predicts one-third of Japans population would be over 65 in 2025 and lactoferrin
could be potentially used for health products.

Figure 2: Panning for pink gold: Fonterra expands lactoferrin capacity. (Source: Foodworks, 2015)

There are various advantages of producing lactoferrin. Scoop Media (2013) reports, the price of
this protein is over US$500 per kilogram. Unlike the milk powder, lactoferrin was not sold in an
auction system, but through a partnership with customers. In addition, Fox (2010) shows the
demand for this protein formula is high because only 100 tons make in the whole world per year.
The financial risk of this product is low in the market whilst the market potential is medium for
infant formula and a bit higher for dairy products (see figure 3).
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Figure 3: The world lactoferrin and lactoperoxidase market. (Source: UBIC Consulting, 2015)

However, some disadvantages found in manufacturing this formula. The technology being used is
yet to reveal. To produce one kilogram of lactoferrin it needs about 10,000 litres of milk and the
remaining acid whey liquid need to be disposed.

Decision support systems are MSS

Cuffe (2005) states, the authors of MSS has improved its definition since 1970s to cover the new
areas such as telecommunication, information technology, e-commerce and intranet. This author
emphasizes that the managers use executive support systems (ESS), decision support systems
(DSS) and management information systems (MIS) for make decisions at different organizational
levels. DSS are capable in senior management level and semi-structured decision making. MIS are
adequate in semi-structured and management level whilst ESS are more suitable in strategic level
for unstructured decision making. New business trends influenced organisations to change into
web-based technologies due to the need of high-level accessibility. Cuffe (2005) describes
extensible management support system model can be used to customise the best decision-making
software models (see figure 4).
Decision support systems had been developed in past few decades. Beginning of the 1970s, it
defined as computer-based system to help to make decisions and later at the end of the decade,
it was known as interactive systems to make decisions and solve unstructured problems. In the
1980s, Sol, Takkenberg, and Robbe (1985) defined it as using best available technology to take
managerial decisions and improve effectiveness (p. 1-2). Devi (2009) states, a DSS is an
integrated set of computer tools allowing a decision maker to interact directly with computer to
retrieve information useful in making semi structured and unstructured decisions.

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Figure 4: Extensible management support system model. (Source: Cuffe, 2005)

Role of the decision supports systems

Devi (2009) states several key roles of a DSS. It must be mainly helpful to make a decision over illstructured situations. In various stages of decision making, it must support the process. The
system should be able to encourage managers to combine human judgments with system data
and make reliable decisions. Moreover, DSS must help managers to understand the business by
dealing with models. It should also provide group decision-making options.
According to Berkeley, Widmeyer, Brezillon and Rajkovic (1998), management support system can
help employees understand their disputes and make collaborative decisions. According to
Cascante, Plaisent, Maguiraga and Bernard (2002), DSS work as a knowledge hub within the
organisation. Therefore, expert knowledge can be transferred to the management.
Without a DSS, it is difficult to determine the profitability of the business expansion. There is no
measurement to forecast the product outcome of the new factory units. Experts might challenge
this opinion, saying that human judgments of an experienced manager can be reliable. What
happens if expected production could not be reached with the addition to the factory? The risk is
always involved in business, but when there are time-tested management support systems
available, it is better not to gamble when making managerial decisions.
Why Fonterra decided to make a huge investment on SAP as their DSS? Fonterra Co-operative
Group (2011) explains the consequences they faced without an advance DSS. Because of the old
systems and processes, their teams put unnecessary effort. Across their sites, material and cost
control is inefficient. Lack of transparency in the end to end process and audit trials put the
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business at risk. They have been using Excel to manage and manipulate information which needs
to put significant additional effort. Inconsistent information had breached the trust in results.

The Fonterra story

Fonterra has first implemented SAP platform in their business in 2004 (Fonterra Co-operative
Group, 2011, p. 9). At that time, SAP involved in 35-40 percent of their business and they expected
to increase it to 85 percent in 3 years (p. 7). Currently, Fonterra had virtualised their business
platform to make strategic management decisions. According to Fonterra Co-operative Group
(2011), initially, they have listened to other organisations who successfully implemented SAP (p.
7). The Program Pyramid had then been used to create a sustainable environment for the
implementation and to reduce total cost of ownership (TCO) (see figure 5). New implementation
gains consistency in processes of business units. SAP provides online access to real-time and
dynamic organisational information. Furthermore, they expect improved quality of information,
reports and visibility. Reduce data duplication and automate every possible process is desired (p.
5).

Figure 5: Pyramid program. (Source: ASUG)

SAP is not just an enterprise resource planning (ERP) software

SAP had been recognised as an ERP software for a long period. Brust (2012) shows SAP is not just
an ERP software but it also provides business intelligence (BI), customer relationship management
(CRM), and enterprise social networking collaboration applications to handle Big Data.
SAP implicates multiple advantages to the profitability of an organization. Primafruit (2012) case
study emphasizes, they could manage profitability by managing packing operations. They carefully
manage each consignment to maintain a profitable supply chain. In addition, SAP could address
85-90 percent of the problems of their old system. Moreover, Primefruit states, Intelligence has
also been instrumental in helping us tailor the system to our requirements. They related well to
our business and the quality of their consultants is very high. Id be happy to recommend them to
any other company. ASUG Webcast (2011) reveals the profitability analysis capability of SAP HighPerformance Analytic Appliance (HANA) platform using faster, flexible and unlimited reporting
(see figure 6). Since the SAP has online access to organisational data, Fonterra could open access
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to their distributors to analyse the market trend and minimise the conflicts in distribution areas.
However, the main disadvantage of SAP platform is high implementation cost.

Figure 6: Analysis of the profitability with SAP HANA. (Source: ASUG Webcast, 2011, p. 10)

SAP Solutions (2016) reveals their platforms for real-time decision making. SAP HANA Cloud
Platform is recognised for effective and timely decision-making processes. SAP HANA Live is
designed to provide real-time analysis and operational reports. SAP strategic workforce planning
application allows managers to generate complex reports (see figure 7). In addition, their range of
applications helps organisations to analyse Big Data in real-time and make strategic management
decisions. Furthermore, SAP (n.d.) states, by a combination of the in-memory processing power
of SAP HANA with Hadoop open-source software framework it is possible to extract maximum
value from Big Data.

Figure 7: SAP strategic workforce planning application. (Source: Elliott, 2010)

Like in many other Business Intelligence (BI) solutions, OLAP (Online Analytical Processing) is the
technology, provides online real-time analysis in SAP HANA platform (see figure 8). OLAP (n.d.)
states, OLAP is a powerful technology for data discovery, including capabilities for limitless report
viewing, complex analytical calculations, and predictive what if scenario (budget, forecast)
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planning. SAP (n.d.) remarks, web-based data analysis as part of an integrated BI platform
solution.

Figure 8: Creating a workspace in the SAP BO analysis edition for OLAP.

(Source: Mankala & Mahadevan, 2013, p. 154)

Decision modeling concept and theory

According to Taylor (2015) decision modeling generates proper, a defined model of a decisionmaking approach (p. 4). The Business Dictionary (n.d.) defines it as a computer-based system that
predicts the outcomes of decisions. Decision modeling process consisting of four continual steps
(see figure 9). Firstly, it is important to identify the decisions. Secondly, describe and document
how this decision will effect on business objectives and metrics. Thirdly, specify the knowledge
and information required and generate a decision requirements diagram. Finally, refine that
requirement using graphical figures. Object Management Group (2014) shows decision modeling
often use to make strategic decisions.

Figure 9: Iterative decision modeling cycle. (Source: Object Management Group, 2014, p. 4)

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SAP NW DSM (NetWeaver Decision Service Management) combined with DecisionsFirst Modeler
to create decision requirements diagrams (see figure 10). DecisionsFirst Modeler is an application
for decision modeling, based on the Decision Model and Notation (DMN) standard. DMNs
common notation is easy to understand for both technical and business users. Some decisions can
be automated using SAP NW DSM. Taylor (2012) illustrates repeatable, non-trivial and measurable
business impact decisions can be automated in NW DSM (p. 2). To calculate return on investment
(ROI), an effective method is to compare the cost of a traditional development effort with rulesbased development cost and then to factor in the additional maintenance projects to balance the
system over time value (p. 3). Advantages of using SAP NW DSM in decision modeling are it
increase business value, development efficiency and maintenance efficiency.

Figure 10: Decision requirements dagram. (Source: Taylor & Ziegler, 2013)

The concept in SAP HANA decision table is columns represent the operations and definition of the
rules and rows describe the value associated with the operations and definition. IF, ELSE and THEN
conditions are being used to model the decisions. For example: IF MODEL= Y1 AND
MANUFACTURER = XYZ AND QUANTITY > 10 THEN set DISCOUNT = 18 (see figure 11). Another
example: IF Customer.ID = CUST_120000 AND Customer.CurrentBalance <= 2000000 THEN set
Customer.Type = Silver ELSE set Customer.Type = Gold (see figure 12). These decision tables can
be exported as Microsoft Excel worksheets to use to manage the business rules.
Fonterra could use these mathematical logics to analyses their employee structure, production
data, stock data, distribution processes and various trends in the market. Moreover, they can
evaluate the facts and drive their future business to the right direction.

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Figure 11: Decision table. (Source: Singh, 2015, p. 151)

Figure 12: A decision table to set the customer type in credit card department.
(Source: Shukla, 2013)

Portougal & Sundaram (2005) points out, intelligence density (ID) is the key concept to
understand the role of an enterprise DSS (p. 140). According to them, ID can be measured using
the utility concept, which is initially introduced in decision theory and game theory. Utilities of
decision-making power extracted should be divided by the units of analytic time spent by the
decision maker to calculate the ID. In addition, DSS with integrated databases provides large
amount information within the organisation, hence help to maintain lower levels of the ID
pyramid (see figure 13).

Figure 13: ERP and DSS support for increasing intelligence density.
(Source: Portougal & Sundaram, 2005, p. 141)

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Conclusion
The significance of the factory expansion is to upgrade the processes to manufacture various new
products. The demand for the products such as lactoferrin are open up the opportunities to
ensure the business profitability and increase the milk price. This essay critically analysed the
immense contribution of MSS within the industry to make managerial decisions. Moreover, the
essay evaluated the theory and the model being used in SAP platform by analyzing its decisionmaking processes. The study gained the knowledge of the decision modelling concept and how it
can be used in actual environments to make real-time decisions. A further implication of the study
is; the application platform can be customized according to results analysed and the data can be
used to model the management decisions.

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