University Ss “Cyril and Methodius” Skopje Faculty of Economics – Skopje

Digitalization plan of MZT Pumpi

Project team: Mentors: Bocevska Vanja 51998 Prof. Naumovska Vera Mitevska Maja 51982 Ass. Santa Mijalche Anastasovska Ivana 51984 Despotovska Elena 51885 Ilievski Martin 50778

December 2010

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Table of content 1. Introducing the company MZT pumpi..................................................................3 1.1 Organization…………………………………………………………..………..4 a) Structure ……………………………………………………………………….4 b) Purchasing activity……………………………………………………………..5 c) Warehousing activity…………………………………………………………...6 d) Production activity……………………………………………………………..7 e) Sales activity …………………………………………………………………...8

2.Environment……………………………………………………………….……...9 a)Suppliers….……………………………………………………………………....9 b)Buyers ……………………………………………………………………………9 c)Competitors……….………………………………………………………...........10 3. Current situation…………………………………………………………………11 4. Plan for digitalization……………………………………………………………12 5. Conclusion – customer expectations…………………………………………….16

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1. Introducing the company – MZT pumpi

MZT Pumpi - Macedonia, has a long history of success with international growth as the biggest Developer and Manufacturer of Industrial Pumps, within the region of South-Eastern Europe. Throughout its extensive experience ofmore than 60 years it comprises broad product range comprised of Centrifugal and Rotary pumps with a broad application in the Oil & Gas Industry, Process Industry, Irrigation and Water supply, Chemical Industry, Mining and Civil Engineering and many other. The quality management system of our company is according to ISO 9001:2000 and we have obtained the CE Mark for the overall product range. For the category of Screw Spindle pumps, we have obtained theLloyd’s certificate. Company History Established in 1945 as a small fire fighting pump manufacturer in order to give an impulse in the reconstruction and development process during the post-war period, MZT Pumpi has grown into the biggest manufacturer of Pumps within the territory of Former Yugoslav Republic. During the process of transition and privatization of the state-owned companies, MZT Pumpi was transformed to Stock company with 96 % of the shares in private ownership. Since its privatization, major changes have been made in order to adjust to the competitive environment accompanied with higher customer demands oriented towards non-standard (specialized) products. Combining over 60 years cumulative experience with intensive investments in technology and equipment, we have succeeded to build a company with an impressive track record within the pump industry in the Republic of Macedonia, the region and worldwide as well.

Today: Prepared for the future Today, MZT Pumpi is among the biggest manufacturers of Industrial Pumps for transport of water, oil and oil derivates. The key elements to survive in this globalized market are flexibility towards market changes and ability to innovate-both in product designs as well as business processes. In addition, we explain how our company works and what is its structure, purchasing activity, warehousing, production activity and sales activity,

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1. 1 Organization a) Structure Organizations can be regarded as people management systems. They range from simple hierarchies along traditional lines to complex networks dependent on computer systems and telecommunications. As main resource of one company, the management team is directly responsible for the day-to-day operations (and profitability) of the firm. The management structure of the company MZT pumpi is composed of system of managing with two stages: - the first one is Supervisory Board which include three participants, and one of them is external member; - and the second stage is the Managing Board which include three members, where the President is the General Director. The company numbers 99 employees, separated in 5 sectors such as: Production, Development and construction, Marketing, Commerce and procurement, Finance, law and common staff, one General Director and Deputy General Director. The structure of the employees counts mainly males with higher education, and the number of women working here is a little bit smaller because of the specific kind of work – combined Mechanical and metal industry.

Education Total Men Women Magisters 3 2 1 University education 24 20 4 Advanced high-school 3 2 1 Highs-school 23 13 10 Highs-school occupation 41 40 1 Low qualified occupation 4 4 / Elementary school 1 1 /

The management structure of the firm divided with its sectors and departments, looks like this:

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The working time is in one shift, but if necessary, some extra working hours are added. B) Purchasing activity Purchasing refers to a business or a organization attempting for acquiring goods or services to accomplish the goals of the enterprise. In a manufacturing company usually this is very complex process.

General Director

Production

- On the machines 35 - Service and installation 15 - Operative 13 - Administrator4 - executives 2 - Production Director 1

Development and

construction

- engineers 5 - technicians 2 - Director 1

Marketing

- Director 1

Commerce and

procurement

- commercialists 4 - procurement 3 - Director 1

Finance, law and common

staff

- Director 1 - Finance 4 - chauffeurs 2 - secretaries 2 - information 1

Deputy General Director

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MZT pumps have contact with 1000 suppliers. This company supplies with manufacturing materials from Macedonian companies and with electro motors from foreign companies. The decision what should be purchased and in which quantity is made by the commercial sector. The worker who tracks the orders for company`s products makes the schedule and purchasing plan for the needed materials that are not present in the warehouse. Purchases like this are made on a daily bases. The company always tracks records weather the purchased materials are received in the projected date with the purchasing plan. c) Warehouse activity Warehouse is commercial building for storage of goods. They are usually large plain buildings in industrial areas of cities and towns and have loading docks to load and unload goods from trucks. MZT Pumpi have own depot where we store their products. Our warehousing process include several steps from getting the goods to delivering them to customers. The steps are: • Receiving • Accommodation – putting away • Order preparation • Shipping These steps are also called Warehousing Management Services. A warehouse management system (WMS) is an execution system used to manage people, inventory, time and equipment related to picking and processing customer orders. When we receive products first thing we have to do is control. Control may include comparing it to design tolerances, quality measurement, visual inspection for defects. This is necessary for avoiding further complications and having products that are not supportive for their quality specifications. For putting-away products they ensure that there is enough space and ensure safety and secured storage. Order preparation is important step when they must communicate with sales department. From order details get from them they get necessary information for preparing orders. MZT pumpi have their own trucks for delivering products so costs are smaller because we don’t have the need for renting and have short delivery terms. For conducting these activities we have employers specialized in this filed. Each delivered product by MZT Pumpi is susceptible to installation and commissioning by a specialized work team which is also responsible for servicing the products in the warranty and post-warranty period. Prime goal is to make our customers work more efficiently and trouble-free. In one word, we offer a complete service solution required to ensure efficient running of every installation. MZT Pumpi have control of before warehouse, after warehouse( before delivering)

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for ensure quality of products. Our main goal is to offer high-quality and efficient solutions to the ultimate customers by taking the advantage of the market trends within the pump industry and with these activities we fulfil that. d) Production activity In MZT pumps the production is done through ordering. Production process lasts 60 days since the day of the order is made. The production type is industrial. We make 30 pumps per month and they use a technology for mechanic processing for the parts of pumps. In one year the produce 2,5 tons. The capacity of the machines is not fully used at this time. MZT pumps have a specific drawing for each and every pump that they make and if some pump deviates from the usual pump they are sketching new drawing for that pump. We do not produce pumps with other companies. The preparation of the drawings and some parts that are prepared on the CNC machines are digitized. We also have a quality checkups between stages and intermediates. MZT pumps possess certificates for quality of production and they are: ISO 9001, 14000 and 18000. In the future the company is planning of adding a new product. MZT pumps have a wide range of products which are:

1. Centrifugal pumps End Suction Centrifugal Pumps Split Case Double Suction Pump Multistage Pump – (KCP) Multistage Pump – (MS) Sewage Pump Deep Well Pump Petrol Centrifugal Pumps Multistage Vertical Pump Vertical Turbine Pump Propeller pump 2. Rotary pumps Screw Spindle Pump Vacuum Pump 3. Diesel pump units Diesel Pump Aggregate 4. Booster sets Booster sets

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e) Sales activity Sales activities are a set of activities and processes that help a sales organization run effectively, efficiently and in support of business strategies and objective. MZT Pumps uses some different sales activity to improve its work and contact with customers. The company has only one sales place which is in the factory. MZT Pumps is Retail Company because their products are specific, usually customers buy only one product. If customers ordered many products, then they will receive discount. For every purchase customers must make order, and then company producing that product, that means company do not have all products on stock. The company has developed its own distributive network. Distributive department distribute products to customer. Policy of company allow for some customers payment to be postponed. MZT Pumps is brick-and-click Company that meaning it has informative web site where its customers can find information about all products that the company own. Also that means that customers do not have a opportunity to buy products online. Company has developed communications with its customers at many ways. Communication by telephone is most used in the business process of the company, also the company communicates with the customers by e-mail, skype and fax. Problems with communications appear in communication by skype, which is initiated from low Internet connection especially in Macedonia.

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2. Environment a) Suppliers As a production company, MZT pumpi has to make some procurements in order to build the main product (and its secondary products too), with several raw materials and parts. Our company make procurements from many small companies from Macedonia, but from big ones too. One of the bigger ones is Metalex, which in the same time is owner of MZT pumpi's shares in about 80%. This company, as bigger one, is classified as brick and mortar, because they have a website but they operate strictly offline. Their website helps people who want to know something about the company, to locate it or contact with it, but the digitalization of processes is still not made. About the e-business orientation of our smaller suppliers, or more specifically digitalization of processes of our suppliers, we can say that the companies that operate in Macedonia should put an accent on doing that in near future. They are working with metals and other parts and materials that we use in our production process of pumps, and they think that they don’t need digitalization of processes, because they work with certain, big-player-clients which make procurements frequently, so that’s why they don’t emphasize the need of online advertisements or digitalization. They communicate with their clients through mail, phone or even with direct contact, and this kind of communication is justified because they know each other well because the long term relationship. As we already mentioned, our procurements are made from many smaller companies, mainly from Macedonia, so we can conclude that the degree of e-business and digitalization of the same is really low. b) Buyers As one of our customers, we should mention Lukoil, firm working in the field of petrol oil products. Our company has supplied and installed pumps and hydro mechanical equipment, for fire fighting system and transport system for petrol products for them. When talking about Lukoil, and their degree of digitalization as our buyer, it is necessary to say it’s on a low level, because they only has information on their site, about prices, card that can be used in their stores, and job apply.

Makpetrol AD is one of the biggest companies in Macedonia for distribution and trade with oil products, and as a significant part of the Macedonian energy sector, the company has made several purchases with our company, which for us is meaningful, as a big company name in the list of buyers, even if it’s only in short term. They are currently in phase of digitalization of their database, and they have their own kind of cards which are used in their stores, so on their website you can find the electronic

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form for applying about that card (and you will get it through mail), and also getting information about the status of the card with your own username and password. JP Vodovod I kanalizacija is also one of our customers, so that they are a company that works for a public purposes, supplying every citizen with water in every way. MZT pumpi has made a supplying project with them starting this year, so they are one of our bigger company-customers in the moment. Their digitalization level is low to medium, because they have only informative kind of site, including several request forms that you should print out and fill if you want something from their services, and information about laws and prices of this kind of services.

c) Competitors MZT pumpi have small competitors from Macedonia which are firms that are producing parts and just one model of pumps. These firms are not direct competition because they don't have that variety of products, big customers, capacity for production and tradition like MZT Pumpi. Also MZT pumpi has a long history of success with international growth as the biggest Developer and Manufacturer of Industrial Pumps, within the region of South-Eastern Europe. So the conclusion is that there are no direct treats or competitors. For MZT Pumpi, understanding the structure of competition within a specified market is a crucial prerequisite for development of strategy for sustainable competitive advantage. In order to better address the needs of our customers on separate markets, MZT Pumpi applies different competitive strategies for different markets. For the ExYugoslav markets, it uses combination of differentiation and focusing strategy. The main argument of using focusing strategy is because the needs of a narrow segment can be better serviced by focusing entirely on them. This strategy provides opportunity to focus on a narrow segment on a well known market for well known clients.

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As a company that works in an environment with no direct competition, we can say that something that leads us to the top of the market is that we view the process of certification as a continuous goal and it is very important for us. It is not only evidence for us and for our customers, but it a stimulus for continuous improvement of the quality of our products. Our globally accepted Quality Management System complies with national and international standards having ISO 9001:2000 as its basis. Implementing the ISO 9001 Quality Management System was one of the essential endeavors of our company that will facilitate its long-term objective for sales in the international framework. We are in procedure of obtaining ISO 14001 Certificate and OHSAS 18000 Certificate. We expect to complete the certification process until June 2010. In order to improve their competitiveness MZT pumpi should implement e-business in their sales, the warehousing and the purchasing activity. With this they can solidify their position on the South-Eastern market and also have a chance to spread in West Europe.

3. Current situation MZT pumpi made the first step of its digitalization process – it already has a website. Working as a brick and mortar company, it also has the intention of leveling up the current situation of digitalization. It has, first of all, information about the company itself on its website, which make people aware of its work field and products; customer communication with using the e-enquiries for all kind of comments, questions and inquiries about the products and their services, installations, warranties etc; furthermore you can request catalogues online for all kind of products which are delivered via e-mail; and one digitalized part of the process of production is making drawings and certain parts made on CNC machines. In order to improve their competitiveness MZT pumpi should implement e-business in higher degree. E-business is essential in this dynamic environment nowadays because people like to access information from everywhere and every time they want. To improve their work and to make it easier MZT Pumpi have to implement e-business in their warehousing and the purchasing activity. E-business in warehousing is good option because will make easier tracking parts and materials that they have on stock and have current information about what they need to purchase about normal production. With that information, communication between warehouse and purchasing sector can be more accurate and more reliable. Also with this MZT Pumpi can also track products that are on stock and can provide information for their customers and sales sector about products that at that moment are available for sales. Sales is the main thing that today the customers would want to do – to save time, nerves etc while buying. Our company should think of that in digitization of its processes. As something that our company should also automate is matching sales with the CRM (customer relationship management) in every way of working in every

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environment, so another thing that should be digitized is following the sales and automate CRM with it or only a part of it. 4. Plan for digitalization 1. When talking about warehousing digitalization, material direction and tracking in a warehouse can be coordinated by a Warehouse Management System (WMS), a database driven computer program. Initially a system to control movement and storage of materials within a warehouse, the role of WMS is expanding to including light manufacturing, transportation management, order management, and complete accounting systems. The implementation of a WMS along with automated data collection will likely give us increases in accuracy, reduction in labour costs (provided the labour required to maintain the system is less than the labour saved on the warehouse floor), and a greater ability to service the customer by reducing cycle times. Expectations of inventory reduction and increased storage capacity are less likely. While increased accuracy and efficiencies in the receiving process may reduce the level of safety stock required, the impact of this reduction will likely be negligible in comparison to overall inventory levels. The predominant factors that control inventory levels are lot sizing, lead times, and demand variability. It is unlikely that a WMS will have a significant impact on any of these factors. And while a WMS certainly provides the tools for more organized storage which may result in increased storage capacity, this improvement will be relative to just how sloppy your pre-WMS processes were. Beyond labour efficiencies, the determining factors in deciding to implement a WMS tend to be more often associated with the need to do something to service the customers that a current system does not support (or does not support well) such as first-in-first-out, cross-docking, automated pick replenishment, wave picking, lot tracking, yard management, automated data collection, automated material handling equipment, etc. Logistics personnel can use the WMS to improve warehouse efficiency by directing put-away and to maintain accurate inventory by recording warehouse transactions. In this database can be found information about materials and products that are stored, about their availability when new production and when sale is made. It can be very helpful and time reducing activity, and also will improve their competitiveness and customer satisfaction from their value adding services. 2. Business processes that cover activities of requesting (requisitioning), purchasing, receiving, paying for and accounting for goods and services, and can help us in automating this kind of processes, refers to Purchase-to-pay. Purchase-to-pay systems automate the full purchase-to-payment process, connecting procurement and invoicing operations through an intertwined business flow that automates the process from identification of a need, planning and budgeting, through to procurement and payment.

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Key benefits of using this software are increased financial and procurement visibility, efficiency, cost savings and control. Automation allows for reduced processing times and straight-through processing where the incoming invoices are handled without any manual intervention. Purchase-to-pay systems are designed to provide organisations with control and visibility over the entire lifecycle of a transaction – from the way an item is ordered to the way that the final invoice is processed – providing full insight into cashflow and financial commitments. Finance departments can also enforce internal spending controls and have instant access to data that tells them who is spending, what they are buying and paying for, and with which vendors. As a result, efficiency and cost saving benefits can be substantial - now achieving our payment-on-time policy, while ensuring the whole process runs smoothly. But more connected with the customer’s side of the interaction with them, we can include the SFM systems - Sales force management systems are information systems used in marketing and management that help automate some sales and sales force management functions. They are frequently combined with a Marketing Information System, in which case they are often called Customer Relationship Management (CRM) systems. Sales force management systems are essentially the same thing as Sales Force Automation System (SFA). SFA systems are a type of program that automates business tasks such as inventory control, sales processing, and tracking of customer interactions, as well as analyzing sales forecasts and performance. Businesses may have a custom version developed specifically for their needs, or choose from among the increasing number of sales automation software products, such as Interact Commerce's ACT! and GoldMine Software's GoldMine. Sales automation software is sometimes called sales automation software, and sometimes called customer relations management ( CRM ) software. A SFA, typically a part of a company’s customer relationship management system, is a system that automatically records all the stages in a sales process. SFA includes a contact management system with which we can track all contact that has been made with a given customer, the purpose of the contact, and any follow up that might be required. This ensures that sales efforts are not duplicated, reducing the risk of irritating customers. SFA also includes a sales lead tracking system, which lists potential customers through paid phone lists, or customers of related products. Other elements of an SFA system can include sales forecasting, order management and product knowledge. More developed SFA systems have features where customers can actually model the product to meet their required needs through online product building systems. This is becoming more and more popular in the automobile industry, where patrons can customize various features such as color and interior features such as leather vs. upholstered seats. The major players in the Sales Force Automation System includes: 1. Oracle Siebel 2. Salesforce.com 3. Microsoft Dymanics 4. Oracle EBS (E-business suite) 5. Peoplesoft; from which we suggest our company to decide and start using it, for meeting the needs of the customers, order processes and tracking sales, and sales done in general.

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The term sales force automation refers to a system designed to track and manage sales activities for individuals and even large sales forces. With this integrated system we will get: - integration among different departments - a good sales force automation system that allows information about sales opportunities to be easily accessible so it can be reviewed. This information stored in a sales force automation system may relate to individuals, companies, and even specific transactions. - busy sales manager to quickly find out what is happening with each sales opportunity and sales representative. - identification of the sales trends that affect the business. - providing comprehensive information on how each team member is performing. - forecast future trends and company profits and help make improvements. - automatically send out personalized e-mails to individuals or companies to make sure contact is maintained. - should assist the sales team in closing sales. The only thing we should do after explaining all of this is get the software and enjoy in the benefits of using it, with more satisfied customers and management system. 3. Automating parts of the sales process is now virtually a requirement to be competitive in the marketplace. Selling physical products such as heavy pumps online? Before making any decision, first to decide is storage space for the products, where the products will be shipping, who should pack the products - is a need before shipped to the customer and who will ship the products and how much the cost will involve. For selling huge types of physical products online definitely you need to establish e-commerce web site or online store, something that we can do. We are selling few types of physical products so we can only establish the normal web site integrated with shopping cart or web merchant account with a minimum cost. Other option is WebsiteWizard, 1ShoppingCart or StoreFront. They have great products and services to develop selling online capabilities. They can create an e-commerce web site for us, integrate our web site with shopping cart or web merchant account but you have to pay for their services. Basically, e-commerce web site is much more expensive then normal web page. We leave the choice of these options to the company. How to sell our products on internet? Definitely, to sell products on the internet we need to register with Merchant Account or Credit Cards Processor. A merchant account is an account at a financial institution such as a merchant bank, into which payment card receipts are deposited. A merchant account provider partners with financial institutions and payment gateway services,

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and can provide the entire payment card processing package: a merchant account payment processing software and equipment, and a connection to a payment gateway. You apply for a merchant account much in the same way you would apply for a personal credit card account, by supplying requested financial information. Once registered with them, we can place a simple Merchant Account link or Credit Card Processor link on the web site, then start our online internet business and sell products online immediately. Merchant Account or Credit Cards Processor is one of the ecommerce services that allow sellers to conduct business and accept payments on the internet from local and international buyers. Most Credit Cards Processors are free but to get the Merchant accounts service we need to pay them on a monthly basis or yearly basis. For those just starting their online internet business and sell products online like us, we are recommended to choose Credit Cards Processor to accept credit cards payment on the internet such as PayPal and PayDotCom for the Merchant Account. PayPal or PayDotCom will take the orders for you and then send your money directly to your bank account. We have some information that these days PayPal has some negotiations with our government to use this payment in our country- so it’s a great opportunity and advantage for our local and global reach to try and implement it as one of the first here. You simply can't compete if you don't accept credit cards on your web site. Once a particular product has been found on the web site, most online retailers use shopping cart software to allow the consumer to accumulate multiple items and to adjust quantities, by analogy with filling a physical shopping cart or basket in a conventional store. So we decided to put it in our site too, explained how it works in the section below. A "checkout" process follows (continuing the physical-store analogy) in which payment and delivery information is collected, if necessary. Some stores allow consumers to sign up for a permanent online account so that some or all of this information only needs to be entered once. The consumer often receives an e-mail confirmation once the transaction is complete. The System Itself – how it works looking from the side of a customer The Shopping Cart system works like the name suggests. Firstly, the customer must choose the product desired from the source. Once this step is done, an option to add the product to the cart will be given, this step will assure that the item you desire will be bought. Once the customer has finished browsing for other potential purchases and has decided that the product he chose previously is the one that he wants to buy, the user must then follow the steps provided by the website in order to fulfil the transaction (normally requires an active account and/or registration method). Lastly, the order will then be sent to the desired address at a predicted date, which may alter depending on the speed of the process. Once a payment has been accepted our product will be delivered in the following ways for our kind of product like:

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In-store pickup: The customer orders online, finds a local store using locator software and picks the product up at our closest store. Printing out the warranty that we give them; or userguide, even the bill ( assurances that the right of admission or use is redeemed at the correct time and place, for the correct dollar amount, and for the correct number of uses). Shipping: The product is shipped to the customer's address or that of a customer-designated third party. When the e-commerce web site is ready then we can upload the product photos, set their price and promote our online store. If a visitor buy a products online, the next step must be taken is to pack and ship the products to the customer's address. The web merchant account will automatically request the customer’s shipping address when they buy our products through our e-commerce web site or online store. We can also hire any reputable shipping companies such as USPS, FEDEX, MAILBOXES or UPS to deliver the products to the customer's address. 5. Conclusion - Consumer expectations Why we think electronic shopping should exist? For customers it will not only be high level of convenience, even if it’s purchasing of a bigger physical product like our, but also broader selection of our assortment; competitive pricing and greater access to information. For organizations it increases their customer value and the building of sustainable capabilities, next to the increased profits. In our opinion the main idea of online shopping is not just in having a good looking website that could be listed in a lot of search engines or the art behind the site. It also is not only just about disseminating information, because it is also about building relationships and making money. Rather than supporting the organization's culture and brand name, the website should satisfy consumer's expectations. For achieving this we digitalized the process of warehousing, purchasing and parts of CRM matched with sales in order of being still on the top. A majority of consumers choose online shopping for a faster and more efficient shopping experience, so we want to be the ones who will bring that to them. Organizations, which want people to shop more online for them, should consume extensive amounts of time and money to define, design, develop, test, implement, and maintain the website. Also if a company wants their website to be popular among online shoppers it should leave the user with a positive impression about the organization, so consumers can get an impression that the company cares about them. Our organization wants to be accepted in online shopping and e-business field which is one of the main goals of this digitalization plan and emphasizes that it is easier to lose a customer then to gain one.