Information Systems for Managers: Husqvarna Group Sourcing

Information Systems for Managers: Husqvarna Group Sourcing 

Abstract 

The focus of this paper will be the Husqvarna Group sourcing department and the various technologies utilized currently by that department. The company is over 300 years old, and in that time has manufactured a wide variety of goods, ranging from rifles to outdoor power products. This paper will show the strengths and weaknesses of Husqvarna in the current industry through the use of Porters Five Forces analysis. Finally, each technology currently being used by the sourcing department will be described and analyzed for current and future uses.

Keywords:  Husqvarna Group, Sourcing Department, Information Technology

Information Systems for Managers: Husqvarna Group Sourcing 

Business and Industry Information

Husqvarna Group opened its first factory in 1689 in Huskvarna Sweden. The initial factory produced Swedish weapons most famously known for their shotgun made in 1989. As the company expanded through the years so did their manufacturing capabilities. Husqvarna began making sewing machines, motorcycles, and eventually outdoor power products. (Timeline, 2018). Although the company shifts it’s product categories to align with changing times, they stand true to their original commitment to increase usability while decreasing their carbon footprint to protect nature. In recent years this commitment has led Husqvarna to focus more on ergonomic products with lower emissions and more efficient energy consumption. (Timeline, 2018).

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The global forest and garden industry is growing steadily over the last few years. “Market value is estimated to have increased around three percent per year…the addressable market for forest, lawn and garden products in regions and segments where Husqvarna Group is present is estimated at SEK 185b” (The Market, 2018, para 1). Additionally, the construction market applicable to Husqvarna construction products has an estimated market worth of SEK 45b. The forest and garden industry is an attractive market with stable growth over the past 5 years. Some of the important drivers of this industry include general economic trends such as employment levels and consumer purchasing power. However, new technology is a major driver as in almost all other industries these days (The Market, 2018). Product innovation backed by new technology is key drivers of demand. The drastic change in weather patterns in recent years due to global warming have had an impact on drivers for this industry. Weather patterns changing means often means a change in season and a shorter season for lawn maintenance. However, more hurricanes and forest fires could mean an increase in demand for chainsaws.

Overall, based on Husqvarna’s 2017 annual report, “the company enjoyed another year of strong development. The Group’s net sales increased by 7 percent… the operating margin continued to improve, reaching 9.6%” (Husqvarna Group, 2017, p. 5).

Porter’s Five Forces Analysis

Michael E. Porter was a famous theorist who developed Porter’s Five Forces of Competitive Position Analysis. Porter, of Harvard Business School, developed this theory as a simple framework for evaluating the strength and position of a business’ competitiveness. The theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market (Gallaugher, n.d). Using Porter’s Five Forces, a business can better understand where power lies in current and future business situations and use this information to develop a more competitive position.

The five forces this framework considers are (1) the intensity of rivalry among existing competitors, (2) the threat of new entrants, (3) the threat of substitute goods or services, (4) the bargaining power of buyers, and (5) the bargaining power of suppliers. This theory is commonly used when a business is attempting to understand whether new products or services will potentially be profitable. “As Porter puts it, analyzing these forces illuminates an industry’s fundamental attractiveness, exposes the underlying drivers of average industry profitability, and provides insight into how profitability will evolve in the future” (Gallaugher, n.d., p. 62).

Intensity of Rivalry

This force considers how intense the competition currently is in the global forest and garden industry. Competition is considered strong when there are few businesses selling the same product or service when the industry is growing making it relatively easy for consumers to switch to a competitor’s offering at a low cost. In reference to the Annual report (2017), Husqvarna considers its competitors to be the German company Stihl and the American companies John Deere and Toro. Stihl competes with Husqvarna mostly in the petrol-powered handheld products which include chainsaws and trimmers. John Deere and Toro pose competition to Husqvarna largely in professional equipment for lawn and garden. In the construction division, Husqvarna’s only recognized competitor is Hilti. With such few competitors in a steadily growing market, the intensity of rivalry for Husqvarna is considered to be strong.

Threat of New Entrants

This force determines how easy or difficult it is for new competitors to join the marketplace in the global forest and garden industry. According to Porter’s Theory, the easier it is for a new competitor to join, the greater the risk of Husqvarna’s market share being depleted.  Porter describes some examples of barriers to entry as; absolute cost advantages, access to inputs, economies of scale and well-recognized brands (Gallaugher, p. 39). Working to Husqvarna’s favor is their 300+-year-old brand name and established a sense of quality among consumers globally. The companies that currently dominate this market are large and have many resources financially as well as supply chain relationships. It would be hard for a new company to compete unless they too had the financial resources to build a competitive infrastructure. In comparison with the FreshDirect example from Getting the Most Out of Information Systems, Gallaugher (n.d) explains how,

“Traditional grocers cant fully copy the firm’s delivery business because the entry costs for would-be competitors are high (the firm spent over $75 million building infrastructure before it could serve a single customer), and the firm’s complex and highly customized software…continues to be refined and improved each year” (p. 36).

Keeping in mind FreshDirect is approximately 20 years old, consider Husqvarna at 350 years old and Stihl at 93 years old. The amount of research and process refinement that has been done would be difficult to stack up against.

    Other barriers to entry opposing new entrants include; patents, federal and state laws, emissions regulations, international laws, and many more. Failure to comply with any of these policies and laws will lead to fines, penalties, and lawsuits. The threat of new entrants to Husqvarna Group is currently considered to be weak.

Threat of Substitutes

This force studies the difficulty of consumers switching from Husqvarna’s products or services to that of a competitor. This study is based on the number of competitors, which we discussed previously,  as well as their prices and quality compare to Husqvarna’s. Additional considerations include competitors profits, grass replacement, and new technology. The top competitors share many of the same raw material suppliers so it’s safe to say the quality across them is comparable. However, the global forest and garden industry’s consumers are brand-centric much like the automotive industry. These consumers tend to contribute time in the industry with quality. Quality is also largely based on perception created by marketing and service experience. In general, this perceived quality is fairly even among the top competing brands. With pricing and quality at comparable levels, the threat of switching from Husqvarna products to competing products for higher quality at lower cost is considered weak.

    Studying the financial report of Husqvarna compared with competitors can help Husqvarna determine if they can or should lower or increase the pricing of their products. Many other aspects go into this decision as well, but realizing how much profit competitors are making versus how much they charge for pricing could give Husqvarna opportunities to increase or decrease their margins to gain or keep market share. Based on the annual reports from 2017, Stihl and Husqvarna had similar profit margins, so this threat is also weak.

There aren’t many industries that won’t be – if they aren’t already, affected by technology. Therefore, when considering the threat of substitutes, technology must be considered. In the global forest and garden industry, there are several technologies to consider including robotic mowers, artificial turf, handyman apps. The trend in many markets has been to automate the tasks that consumers find inconvenient. Lawn maintenance is an inconvenient task, so the invention of the auto mower is inevitable. Luckily, Husqvarna created a research and development team for just that. Since its introduction into the market, Husqvarna’s auto mower has received various awards.

“Husqvarna Group was recognized as a distinguished ‘Innovation Vendor Partner of the Year’ by Lowe’s, a leading American retailer, for the robotic lawn mower Husqvarna Automower®. The award acknowledged Husqvarna Group for setting the highest bar in innovation.” (Husqvarna Group, 2017, p. 3).

The threat of automation doesn’t currently affect Husqvarna’s construction or forestry products so the threat of technology substitution is weak. However, with consumers becoming more focused on saving the planet’s resources, the threat of grass being replaced is strong. More than half of the resident’s water is being used in the summer to watering the lawn or even for landscape irrigation. Not to mention most of that water usage is being lost by either run-off or evaporation. Consumers may consider replacing their grass with artificial turf, rock beds, or even low maintenance lawns. This threat is high given the critical impact of climate change and consumer’s heightened sense of environmental responsibility.

Overall, Husqvarna is doing an exceptional job at staying ahead of new technologies and threats of substitution. They took the initiative to devote resources to developing new technologies to avoid being left behind. The threat of substitutes is considered to be weak.

Bargaining Power of Buyers

In Porter’s Five Forces, buyer bargaining power refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices. A strong buyer can make an industry more competitive and decrease the profit potential for the seller (Grundy, 2006). According to the director of sourcing, Manish Mathur (personal communication, January 15, 2019), there are two tiers of customers to consider when determining the bargaining power of buyers. Tier one includes big-box retailers like Lowes, dealers, and e-commerce such as Amazon. These customers are few in number, large in terms of quantity purchased, price sensitive, and can easily substitute for other brands. The other tier of buyers includes individual users, fleet owners, and municipalities. These customers are many in size, small in terms of quantity purchased, price sensitive, and can substitute for other brands easily. Based on Grundy’s definition (2006) and the interview with sourcing’s Director Manish (M. Mathur, personal communication, January 15, 2019), the bargaining power of buyers is considered to be strong in both tiers. In many cases, Husqvarna must rely on their brand backing to leverage their competitive advantage and bargaining power. Because it’s such a well-known brand that comes with many loyal customers, Husqvarna is still able to function in an environment where buyers have the upper hand.

Bargaining Power of Suppliers

In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing the availability of their products. … Furthermore, a strong supplier can make an industry more competitive and decrease the profit potential for the buyer (Grundy, 2006). According to the director of sourcing, Manish Mathur (personal communication, January 15, 2019), there are also two categories of suppliers that must be considered when determining the strength of the supplier’s power. The first category includes highly technical suppliers that supply parts like engines, transmissions, batteries, and electronics. These suppliers are few, large in size, unique in terms of parts manufactured, can be substituted, and are expensive to re-source. The other category of suppliers are low technical parts suppliers. These suppliers manufacture things like plastic parts, metal components, wiring etc. This category of suppliers are many, small in size, not unique in terms of parts manufactured, can be substituted, and are not expensive to re-source. Based on Grundy’s (2016) defining factors of a supplier’s bargaining power, supplier powers are considered to be weak in both categories.

Current Technologies – Sourcing Department

Currently, the sourcing department for Husqvarna uses a variety of technologies to make daily objectives more effectively. As an older company, Husqvarna’s technology is effective but in the grand scheme of technology, a bit archaic. Nonetheless, the sourcing department makes great use of what’s available to ensure the supply chain runs smoothly. These technologies include a computer network, phone systems, computers, computer programs, and web pages.

Computer Network

A computer network is a set of connected computers which are referred to as nodes. The connection between the computers is established via cabling (ethernet cord), or wirelessly through radio waves (Shinde, 2009). On the network, computers are able to share resources easily like internet access, printers, file servers, and others. In summary, a network is a multipurpose connection which allows a single computer to do many tasks. There are various forms of computer networks of which Husqvarna sourcing uses a local-area network (LAN). “A local-area network is generally a privately owned network within a single office, building or campus covering a distance of a few kilometers” (Shinde, 2009, p.48).   The Husqvarna sourcing group currently uses the computer network for various purposes which include:

Resource sharing

2.    Server-client model

3.    Access to remote information

4.    Communication medium

5.    Provides users maximum performance at minimum cost

6.    To provide centralized management and allocation of network resources

7.    To process daily tasks and functions

As a very large company spread among various locations worldwide, the computer network is a very valuable resource which enables the sourcing department to remain connected with all of the essential lines of business. The computer network allows sourcing employees to share resources such as contracts, negotiations, procedures, news, etc. This makes all programs, equipment’s(like printers etc.), and especially data, available to anyone on the network without regard to the physical location of the resource and the user. With various locations and employees traveling to meet with suppliers this is valuable to the sourcing department to have unlimited data at their fingertips. One of the essential was the commodity group uses the computer network is to communicate. Later in the report more in-depth detail will be provided about the various means of communication. This is an essential function for the group as various laws and regulations change on a daily basis. This needs to be communicated quickly among the group so the supply chain won’t be affected.

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Daily tasks of each employee are contingent upon the computer network, as the sourcing team accesses various data to complete reporting and keeping a smooth process running. The network allows for one central location for all resources to be centralized. For example, each employee maintains a process document for their job on the network so in their absence others can complete essential tasks.

Phone Systems

A system is a technology that enables multiple telephones to be used by businesses in an interconnected fashion that allows for features like call handling and transferring, conference calling, call metering and accounting, private and shared voice message boxes, etc (Shinde, 2009). The phone system used by the Husqvarna sourcing department is called Voice over IP (VoIP), by Cisco. With VoIP, analog voice calls are converted into packets of data. The packets travel like any other type of data, such as e-mail, over the public Internet and/or any private Internet Protocol (IP) network (Shinde, 2009). Sourcing uses this VoIP service to call landline and cell phones. This system is also used to call computer-to-computer, typically with Skype, with both parties speaking into a computer microphone and listening through computer speakers or headsets. The team also uses cell phones as traveling is prevalent among employees in the department. The cell phones are used to make communication easy on the go so suppliers and team members can always be reached during working hours regardless of their physical location.

Computers

A computer is an electronic device that manipulates information or data. It has the ability to store, retrieve, and process data. A computer can be used for many business functions like typing documents, sending email, or browsing the Web. The uses for computer among the sourcing department are limitless. Each employee has a laptop as well as a smartphone. The laptops currently being used are made by Fujitsu and the smartphones are Apple. Tech support for both of these devices is outsourced so employees call a toll-free number to get assistance 24/7 from a live technician. Many of the software on the laptop is easily accessible from the smartphone which makes working remotely easier. Computers are used for various functions of the business which work together to keep the supply chain running smoothly. Some of the other common uses for computers in the Husqvarna sourcing department include; presenting, checking email, communicating with peers, viewing and adding data to centralized databases, and more. The computer programs specifically are listed in the next section.

Software

Software is a program that enables a computer to perform a specific task, as opposed to the physical components of the system (hardware). The previous section discussed computers which are the hardware that enables users to use the software. There are many software applications currently used by the sourcing department which include: Microsoft suites, Lotus Notes, Skype, AS400, and share drives.

Microsoft Suites

 Microsoft offers a wide array of software to which the Husqvarna sourcing team uses many. Currently, the sourcing group uses Excel, Outlook, PowerPoint, OneDrive, Word, and Skype.

Excel

Microsoft Excel is used to organize data into meaningful reports by which the team can track the progress of various business processes. This software enables the sourcing team to be able to understand what processes need improvement and which ones are working well today. Excel is used to create Pivot charts from the various data that easily organize large amounts of data into simplified reports. This information is then translated into graphs and information that can be communicated with the rest of the team and company if needed. Excel also allows for the organization of many daily tasks of employees. Repetitive processes can be made more efficient with the use of spreadsheets and automated calculations via formulas.

Outlook

Microsoft Outlook is the email database used by Husqvarna’s entire organization. Employees of the sourcing department can use this software to communicate with an employee across the organization as well as external contacts. The directory stored in Outlook makes keeping the thousands of employees companywide organized easily. Users just need to know a person’s first and last name and they’re able to pull up contact information on another employee with ease. Outlook also has other helpful functions like a Calendar which is useful for reminders and keeping busy schedules organized. This software also has meeting capabilities that can be used to request online or in person meetings.

PowerPoint

PowerPoint is Microsoft’s widely-used presentation or slideshow software. With PowerPoint, you can easily get your point across, and share your stories with your audience. Instead of verbally describing your product, you can simply show people an image of your product. In addition to being a powerful presentation software, PowerPoint is also very versatile. You can use it to create many other types of files, such as posters, infographics, PDF, and more.

PowerPoint is used for many sourcing department meetings to convey messages or translate data from excel and other databases in meaningful ways that tell a story for the entire department. It’s especially helpful to understand how sales and marketing data will translate into tasks that must be done by the sourcing group. For example, if sales are up this month that would mean more work for the commodity group as they will need to procure the parts to make these units sold. Additionally, charts and graphs that capture year to date data compared side by side with last year, gives the team vision into how to prepare for what’s to come as it relates to previous years. This ensures every member of the department is on the same page and is able to see the same reports and ask questions to clarify in the meeting.

Lotus Notes

A large portion of Husqvarna’s sourcing functions is carried out in as called Lotus Notes. Lotus Notes is an application suite that includes the following components:

•    e-mail

•    calendaring and scheduling

•    address book

•    database

•    web server

•    programming

“Unlike other application suites [like Microsoft Office] that split these pieces of functionality into separate products [like Outlook, Access, FrontPage, etc.], Lotus Notes presents all of these components using a single front-end. For many people, Lotus Notes is an e-mail system. While this is not necessarily it’s largest strength as a product, e-mail is probably the most recognizable component that it has”. (V. Gaitonde, personal communication, January 12, 2019).

Essentially everything in Notes is a database, this is the more commonly used feature of the application. Individual users have their own e-mail databases, and different sets of users can share application databases that can display, add, or manipulate information. Due to programming code, the application will perform background, scheduled, or on-demand tasks for a user.

The current use for Lotus Notes within the Husqvarna sourcing department is to house all past and present parts being sourced or awarded. This database is where all business is awarded in regards to parts for production and aftercare (service parts). The database is highly customized to present the data necessary for the sourcing department on a daily basis. Put simply, Lotus notes is where Husqvarna’s sourcing department organizes pricing for parts, initiates quotes for new parts, awards business, stores all data for each part such as drawings, test results, contracts, etc.

References

Husqvarna Group. (2017). 2017 annual report of Husqvarna Group. Retrieved from http://www.husqvarnagroup.com/sites/default/files/spot/files/husqvarna_ar_en.pdf

Gallaugher, J. (n.d.). Getting the Most Out of Information Systems.

Grundy, T. (2006, August). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, pp. 213-229.

Johnston, R. P. (2005, October). A Tour of Tomorrow’s Technology. Jounral of Accountancy, pp. 95-97.

Shinde, S. S. (2009). Computer Networks. New Delhi: New Age International.

The Market. (2018, September). Retrieved from Husqvarna Group: http://www.husqvarnagroup.com/en/about/market

Timeline. (2018, February). Retrieved from Husqvarna Group: http://www.husqvarnagroup.com/en/about/history/timeline