Information Systems Outsourcing/ASP/ERP

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Information Systems Outsourcing/ASP/ERP

• MIS 503
• Management Information Systems
• MBA Program

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Global Sourcing

• The process of deciding where in the world a
  firms activities will be performed and who will
  perform the activities.
• Fundamentally any activities that does not
  require direct customer contact, extensive local
  knowledge, or complex interactions can be sourced
  anywhere

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Global Resourcing
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Outshoring and Outsourcing
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Definition of Outsourcing

• IS outsourcing is the commissioning of part or
  all of the IS activities an organization needs,
  and/or transferring the associated human and
  other IS resources, to one or more external IS
  suppliers
• IS Offshoring is the commissioning of part or all
  of the IS activities an organization needs to one
  or more other countries
• IS Insourcing is the sourcing of a business
  function within the firm (e.g., Kingland Systems)

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IS Outsourcing

• Four Types of Outsourcing Relationships
• Support
• Reliance
• Alignment
• Alliance

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Outsourcing Grid
High
Extent of Substitution by Vendors
Low
Low
High
Strategic Impact of IS Applications
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Outsourcing Decision Variables

• Relationships
• Division Among Suppliers and Contracts
• Management Structure
• Operational Structure
• Internal Organization of Outsourcing Coordination

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Backward Vertical Disintegration

• Car manufacturer purchasing pre-assembled engines
  instead of purchasing and assembling the
  component parts themselves
• Decreasing the number of phases a firm performs
  by commissioning another entity within the
  production chain to perform those functions

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Horizontal and Vertical Integration

• Diversification - increasing the number of
  products and services
• Differentiation - aka disintegration -
  decreasing the number of subsequent phases in the
  production chain

• Specialization - reducing the number of products
  and services
• Integration - performing a larger number of
  phases in the production chain

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What is ASP?

• ASP- Application Service Provider
• ASPs buy, install, and manage enterprise
  applications at remote data centers and host them
  for customers via a broadband connection, usually
  over the Internet.
• User only purchases use of application not an
  installation license
• User pays for use depending upon the specific
  arrangement with the ASP

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ASPs
Lee, Huynh, Kwok, and Pi, 2003
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ASPs Necessary Changes

• Enable existing client/server apps with multiuser
  display technology
• Web-enabled applications, adding browser access
• Rewrite applications specifically for a rental or
  ASP model using OO technology
• Add business-to-business technology such as XML,
  Enterprise Javabeans

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App Provider Concerns

• The delivery model is only as strong as the
  service-level agreement for each component, they
  all have to work in harmony. Jeff Anderson,
  Vice President Strategic Development, Sprint
  Business
• Is there a need for 99.9999 uptime?
• The cost of going from 99.5 to 99.9999 can be
  tremendous!

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Determinants of Competitive AdvantageMichael
Porter

• Threat of New Entrants
• Intensity of Rivalry Among Direct Rivals
• Degree of Concentration
• Rate of Industry Growth
• Lack of Switching Costs
• Pressure of Substitute Products
• Bargaining Power of Buyers
• Bargaining Power of Suppliers

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Porters Competitive Forces Model How the
Internet Influences Industry Structure
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The Death of CompetitionJames F. Moore

• Business Ecosystem. An economic community
  supported by a foundation of interacting
  organizations and individuals.
• The economic community produces goods and
  services of value to customers, who are
  themselves members of the ecosystem.
• Members include suppliers, competitors, and
  other stakeholders.

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The Death of CompetitionJames F. Moore
Over time, they coevolve their capabilities and
roles, and tend to align themselves with the
directions set by one or more central companies.
Those companies holding leadership roles may
change over time, but the function of ecosystem
leader is valued by the community because it
enables members to move toward shared visions to
align their investments, and to find mutually
supportive roles.
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Scope of Strategic Management
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Challenges Across Stages of Ecosytem Development
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What is ERP?

• Continuation of MRP development
• Connects legacy applications, critical business
  systems and custom applications within a single
  set of software modules.
• Runs on client-server networks
• Generally has multi-site management capabilities
• Involves migrating from an internally developed
  supported legacy system to commercially packaged
  systems

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ERP Systems

• Integration of all business areas of company
• -Manufacturing
• -Distribution
• -Human Resources
• -Finance

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Functions of ERP

• Product Planning
• Purchasing
• Inventory Management
• Order Processing and Order Tracking
• Customer Service
• Financials
• Human Resources
• Supply Chain Management

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Potential Benefits of ERP

• Cost Savings
• More Efficient Sharing of Information
• Increased Customer Responsiveness
• Supporting decision making through access to
  consolidated data/information
• Transparency across the entire organization
• Integration of all standard business process
  (human resources, financials, operation)

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Potential Benefits of ERPCost Savings

• Reduced Data Entry
• Reduction of Process Duplication
• Centralized Data Yields
• Better Data Integrity
• Lower Data Redundancy
• System Training Synergy and Simplification

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Potential Benefits of ERPInformation Sharing

• Simultaneous information processing facilitates
  cycle time reductions
• Streamlined Budgeting
• Information Inventories Replace Physical
  Inventories

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Potential Benefits of ERPCustomer Responsiveness

• Integrated data provides more accurate and more
  timely information for customer queries
• Problem resolution is expedited and service
  levels are increased

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Potential Disadvantages of ERP

• ERPs can be expensive to install and maintain
• ERPs are occasionally too rigid and difficult to
  adapt to an organizations workflow and business
  processes
• ERPs can be difficult to use
• ERPs are integrated systems, so a problem in one
  module or department will affect all the other
  users

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ERP Implementation Requirements

• Alignment with firms strategic plan
• Top management support
• Process re-engineering prior to software
  installation
• Adequate employee training is needed
• Needs to be developed as an Enterprise-wide
  solution
• Abundant testing is needed prior to conversion

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ERP Venders

• Epicor
• Exact Software
• Lawson Software
• Microsoft Business Division
• NetSuite Inc.
• Oracle Applications
• The Sage Group
• SAP
• SSA Global Technologies
• QAD

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Quotes from the Field

• What was your firms primary objective in
  implementing an ERP system?
• Our major focus was on our total supply chain
  costs. We wanted to drive down the cost of our
  inventories and improve our customer service. It
  was our belief that an integrated information
  system could provide the functionality required
  to accomplish this goal.

Director Global Transportation, Amway Corporation
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Quotes from the Field

• What problems did you experience that you didnt
  initially anticipate about the implementation?
• Our first objective was to standardize our
  processes, leverage that standardization and
  provide that global set of information across all
  modules. We wanted a fully integrated
  manufacturing, financial, as well as sales and
  marketing system. We phased in a full scope of
  modules, by location, over a 4 year period. This
  required complete replacement of legacy systems
  at each location over 6 to 9 months. We probably
  underestimated the need and effort required to
  ensure the cleanliness of data. The information
  driving your ERP system today demands accurate
  data from the start. Additionally, I dont think
  we understood the scope of training, not only how
  to push the buttons, but how do I teach someone
  ERP and how to use it from start to finish.
  Moving people from a stand-alone task orientation
  to a fully integrated process orientation. The
  diversity of firm expertise in sites around the
  globe added to the complexity of this task.

VP - Information Systems, Molex Corporation
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Quotes from the Field

• What problems did you experience that you didnt
  initially anticipate about the implementation?
• Some of the problems were getting around
  traditional ways of thinking versus complete
  supply chain . . . what I call dust to dust.
  The ERP system is a multifaceted, multifunctional
  system, so the people working with the system on
  a daily basis need to be multi-skilled to ensure
  their decisions and data input reflect a total
  supply chain perspective, in terms of both costs
  and functionality.

Director Global Transportation, Amway Corporation
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Quotes from the Field

• Are there benefits the ERP system provided that
  you didnt expect? If so, what were they?
• We, like everyone, did not fully anticipate the
  explosion of e-commerce, but having a single
  system platform has substantially helped our
  ability to implement e-commerce applications.
  You have all your data in one spot, you have one
  set of interfaces to write, and you arent
  dealing with 20 different legacy systems. We
  think the ERP system will allow us to expand
  into the e-commerce area more quickly.
  Additionally, we have been able to create a
  quality notification system that gives us ability
  to see returns and problems from customers
  anywhere in the world. We have been able to
  centralize that within our customer service and
  field sales groups. Our ability to fully
  integrate that within our workflow has been much
  easier given our single system ERP application.

VP - Information Systems, Molex Corporation
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Quotes from the Field

• Are there benefits the ERP system provided that
  you didnt expect? If so, what were they?
• The system allows us to make decisions quicker
  and to make better decisions. With customers
  being more demanding it was imperative that data
  we provide customers is accurate and our
  responses are fast. We are getting into a
  click, click, and ship environment. It is no
  longer JIT, JIT just isnt good enough. So in a
  click, click, and ship environment if you dont
  manage effectively and efficiently your inventory
  costs, your distribution costs, and your
  transportation costs will deteriorate your
  margins. So the ERP system allows us to make
  better short and long term decisions in
  supporting our customers.

Director Global Transportation, Amway Corporation
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Quotes from the Field

• What advice would you have for others
  contemplating an ERP implementation?
• You have to make sure what your business
  strategy is and then drive to that. I give our
  executives credit, they had a vision and they
  stuck with it in spite of some rough rides. ERP
  systems dont provide everything, they are not a
  panacea. If we had to do it over we probably
  would have implemented some of the systems data
  warehousing and reporting functionality earlier
  in the process. We eventually created a site
  readiness review process that we should have
  implemented in the beginning. We also could have
  centralized the management and development of the
  system faster. Finally, management support and
  the dedication of the firm to provide adequate
  resources are both key to making an
  implementation successful.

VP - Information Systems, Molex Corporation
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Quotes from the Field

• What advice would you have for others
  contemplating an ERP implementation?
• All systems are great, but you still need people
  to perform the functions within the systems. The
  key is the people you have working with these
  systems. These people have to be multi-skilled
  and multi-talented in working with the entire
  supply chain. Its just that simple.

Director Global Transportation, Amway Corporation
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Future of ERP Systems

• Integration of the entire supply chain
• Integration of ERPs across multiple organizations
• Wireless access
• Real-time updates throughout the system
• Outsourcing via ASPs