1 / 20

Outsourcing reduces costs Reduces one type of risk Introduces other risks

ERP Outsourcing Evaluation David L. Olson, Evaluation of ERP outsourcing, Computers & Operations Research 34:12, 2007, 3715-3724. Outsourcing reduces costs Reduces one type of risk Introduces other risks. Scope of ERP Outsourcing. ERP rental estimated at $6.4 billion in 2001

wyarbro
Download Presentation

Outsourcing reduces costs Reduces one type of risk Introduces other risks

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ERP Outsourcing EvaluationDavid L. Olson, Evaluation of ERP outsourcing, Computers & Operations Research 34:12, 2007, 3715-3724 Outsourcing reduces costs Reduces one type of risk Introduces other risks Olson: ERP4

  2. Scope of ERP Outsourcing • ERP rental estimated at $6.4 billion in 2001 • Forrester Research Inc. • Induced by competitive pressures • Gartner: monthly outsourcing fees $300 to $1,000 per user Olson: ERP4

  3. Relative IT CostsT. Hoffman, P. Thibodeau, Wage inflation unlikely to soon end India’s offshore dominance. Computerworld 38:14, 2004, 11-12. Olson: ERP4

  4. Dial soapSchwartz (2003) • Installed SAP suite run by EDS • 18 month, $35 million project • Overall transfer expense $110 million • Replace mix of Siebel, Oracle, Manugistics, and other applications • 50 IT employees transferred to EDS • Only a small governance team retained by Dial Olson: ERP4

  5. Other outsourcings • Sun: • Will outsource about 90% of IT jobs • California State Automobile Association • Accenture to run PeopleSoft system • ASAT Holdings • IBM to run SAP system Olson: ERP4

  6. Targeted Outsourcing • Informatica Inc. • Outsourced HR, felt could operate even if it went down • Didn’t outsource other modules • Federal-Mogul Corp. • Experienced quick growth through acquisitions • Needed to consolidate 27 different ERPs • Outsourced only technical work such as SAP programming Olson: ERP4

  7. Government ERP Outsourcing • Can lower costs of software ownership • Avoid problems of developing & retaining IT staff • More difficult to get approval for large ERP projects • Need to defend proposals in public hearings • Reduction of State jobs has led to difficulties with information workers’ unions Olson: ERP4

  8. Reasons to OutsourceBryson & Sullivan (2003); Clymer (2004) • Reduced capital expenditure • ASP economies of scale • More flexibility & agility • Increased service levels at lower cost • Gain expertise unaffordable in-house • Allow focus on core business • Continuous access to the latest technology • Reduced risk of infrastructure failure • Manage IT workload variability • Replace obsolete systems Olson: ERP4

  9. Reasons Against OutsourcingBryson & Sullivan (2003); Clymer (2004) • Security & privacy • Dependency on vendor (lock-in) • Availability, performance, reliability • High migration costs • ERP expertise may be critical to organizational success • ERP systems tied to IT infrastructure • Key applications may need to be in-house • May have existing efficient operation • Corporate culture Olson: ERP4

  10. Russ Berrie & Co.Nash (2002) • Gift-related retailer • 1998 & 1999 spent $19.2 million on SAP • Problems tracking orders • Wrote off $10.4 million to revert to old systems • 2001 supply chain inefficiencies • Investigated 4 ERP vendors (not SAP) • Gave hard technical criteria • User ability to access via Web • Software resident on user PCs • Installation in stages • Used weighted scoring system, selected JDEdwards Olson: ERP4

  11. General MotorseWeek (2003) • Outsourced ERP in early 1990s • One of first to outsource such a large system • Acquired EDS • Problems: no management control • Second generation: • Combination of outsourcing companies • 2003 Third generation: • Outsource all IT • Retain control over everything • Wanted competing outsourcing companies • In 2003 spending $1 billion less on IT than in 1996 Olson: ERP4

  12. Soft Impacts of OutsourcingMcCarthy (2001) • Software upgrades over time • Integration, implementation, testing, maintenance • User functionality, technical support, service • Servers • Disaster recovery • Staffing Olson: ERP4

  13. Selection CriteriaVan Everdingen et al. (2000) Olson: ERP4

  14. ASP Evaluation FactorsEkanayaka et al. (2003) Olson: ERP4

  15. Example: Start with Life Cycle Cost Olson: ERP4

  16. Criteria, Scores by Alternative Olson: ERP4

  17. Develop Weights • Rank order criteria by importance • Identify worst measure by criteria • Give worst 10, others assigned proportionally • Identify best measure by criteria • Give best 100, others assigned proportionally • Compromise Olson: ERP4

  18. Weight estimates Olson: ERP4

  19. Value = Weights time Scores Olson: ERP4

  20. Summary • Outsourcing ERP an important new option • Hard to figure impact on: • Cost • Risk • Multicriteria methods can help evaluate Olson: ERP4

More Related