1. Information Systems
Outsourcing/ASP/ERP
MIS 503
Management Information Systems
MBA Program
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2. Global Sourcing
• The process of deciding where in the
world a firm’s 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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3. Global Resourcing
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4. Outshoring and Outsourcing
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5. 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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6. IS Outsourcing
• Four Types of Outsourcing Relationships:
Support
Reliance
Alignment
Alliance
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7. Outsourcing Grid
Reliance Alliance
Support Alignment
Strategic Impact of IS Applications
ExtentofSubstitutionbyVendors
High
High
Low
Low
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8. Outsourcing Decision Variables
• Relationships
• Division Among Suppliers and Contracts
• Management Structure
• Operational Structure
• Internal Organization of Outsourcing
Coordination
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9. 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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10. 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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11. 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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12. ASPs
Lee, Huynh, Kwok, and Pi, 2003
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13. 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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14. Determinants of Competitive
Advantage
Michael 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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15. Porter’s Competitive Forces Model: How
the Internet Influences Industry Structure
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16. Challenges Across Stages of
Ecosytem Development
Stage of
Ecosystem
Development
Overall
Leadership
Challenges
Cooperative Challenges Competitive Challenges
Pioneering Value Cooperate with
Customers/Suppliers to
define and provide new
value where none
previously existed
Protect your ideas form
other who might be
working toward defining
similar offers
Expansion Critical Mass Cooperate with
Customers/Suppliers to
increase supply and achieve
market penetration
Defeat alternative
implemenations; ensure
your approach as market
standard
Authority Lead
Coevolution
Create a vision of the future
that encourages cooperation
to improve the ecosystem
Maintain strong bargaining
power in relation to other in
the ecosystem
Renewal Continuous
Performance
Improvement
Cooperate with innovators
to bring new ideas to the
existing ecosystem
Maintain high entry barriers
and switching costs to buy
time to evolve your offers
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17. 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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18. ERP Systems
• Integration of all business areas of
company
-Manufacturing
-Distribution
-Human Resources
-Finance
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19. 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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20. 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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21. Potential Benefits of ERP:
Cost 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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22. Potential Benefits of ERP:
Information Sharing
• Simultaneous information processing
facilitates cycle time reductions
• Streamlined Budgeting
• Information Inventories Replace Physical
Inventories
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23. Potential Benefits of ERP:
Customer 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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24. Potential Disadvantages
of ERP
• ERPs can be expensive to install and
maintain
• ERPs are occasionally too rigid and
difficult to adapt to an organization’s
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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25. ERP Implementation
Requirements
• Alignment with firm’s 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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26. 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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27. Quotes from the Field
What was your firm’s 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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28. Quotes from the Field
• What problems did you experience that you didn’t 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 don’t 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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29. Quotes from the Field
• What problems did you experience that you didn’t 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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30. Quotes from the Field
• Are there benefits the ERP system provided that you didn’t 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 aren’t 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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31. Quotes from the Field
• Are there benefits the ERP system provided that you didn’t 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 isn’t good enough. So in a
‘click, click, and ship’ environment if you don’t 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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32. 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 don’t provide everything, they are
not a panacea. If we had to do it over we probably would have implemented
some of the system’s 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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33. 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. It’s just that simple.”
Director Global Transportation, Amway Corporation
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34. 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
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