management software is used to support specific segments of its supply ... Organizations are called to pay more attention to how they manage their ... up and down a supply chain to speed product, fund flows, and information to ... from Spain in 1810 (CIA, 2011) and is a member of the free trade agreement (NAFTA) with.
Running head: INFORMATION SYSTEMS EXPANSION PLAN
Information Systems Expansion Plan by Dr. Hesham Mohamed
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2 Abstract Riordan manufacturing’s supply chain management begins with the efficient management of its processes, from product design to consumption by end users. Activities include transformation of raw materials into finished goods, material acquisition, transportation, and shipping. Supply chain management also involves warehousing and inventory levels, order fulfillment, vendors and distributors, and the information needed to manage it. Riordan has a major opportunity to reduce costs while increasing operating efficiencies with an effective management of its supply chain but it needs to know in what sequence and how much it will invest in the efforts of its supply chain to leverage the technology’s benefits. This paper analyzes Riordan Manufacturing’s move to extend its supply chain management software to its new plants in Nigeria and Mexico. Riordan’s supply chain management software is used to support specific segments of its supply chain such as in scheduling, transportation, inventory control, and manufacturing. It concentrates on improving decision making, analysis, and optimization. The analysis will involve preparation for contingencies and risk management with considerations to multinational politics, language and culture, virtual teaming, system infrastructure, privacy, and issues relating to off-shoring.
3 The Supply Chain Organizations are called to pay more attention to how they manage their supply chains in today’s competitive business environment. When customers make purchases, they expect faster order fulfillment, more responsive services, and greater value, but supply chain costs and complexity have been increased by shorter product life cycles, greater product variety, and global sourcing (Kopczak and Johnson, 2003). In today’s business competitive advantage may be based on entire supply chains rather than individual firms because the value chains of so many businesses are linked together. Supply chain management (SCM) is not limited to order fulfillment but is tied to strategic issues such as the ability to create and implement new business models or to create and deliver new products (Kopczak and Johnson, 2003). The close linkage and coordination of processes used in making, moving, and buying products and services is referred to as supply chain management. It integrates business processes up and down a supply chain to speed product, fund flows, and information to reduce redundant effort, inventory costs and time. A network of business processes and organizations used to purchase raw materials, turning them into finished goods, and shipping the final goods to customers is called supply chain (Croom, 2005). It aligns retail outlets, production plants, disbursement centers, customers and suppliers, to supply services and goods from input sources through final usage. Payments, materials, and information flow in both directions through the supply chain. Goods begin as raw materials, move through production systems and logistics until they reach customers and returned items flow in the reverse direction from buyers back to the sellers (Croom, 2005).
4 Global Supply Chain Issues Most organizations must operate supply chains across multiple countries and regions since they have outsourced their manufacturing operations, they sell abroad, and they obtain supplies from other countries. Global supply chains with participants from many different countries span greater time differences and geographic distances than domestic supply chains (Siau & Tian, 2004). Companies all over the world can now use the Internet which provides a standard set of tools to coordinate transportation, communications, financing, overseas sourcing, and compliance with customs regulations. The way businesses work internally with each other is been changed by Internet based supply chain management applications. These systems reduce costs and facilitate customer response efficiency by enabling businesses to be driven more by customer demand (Siau & Tian, 2004). Earlier systems were driven by a model called push based in which master production schedules were based on best demand guesses or forecasts for products that were shipped to customers. In a pull model or build to order system, events are triggered in the supply chain by actual customer orders or purchases. These systems have been made possible with new flows of information triggered by web based tools in which transactions to produce and deliver only what customers ordered move up the chain from retailers to distributors to manufacturers and eventually to suppliers, and only products to fulfill the orders move back down the chain to retailers. Only actual order demand information is used by manufacturers to propel production schedules and the purchase of raw materials or components (Siau & Tian, 2004). The move from sequential supply chains has been made possible by the Internet and its technology. In these systems materials and information flow evenly from organization to organization and to active supply chains simultaneously in all angles within the member networks who can immediately
5 adjust to orders or schedules. The Internet ultimately creates a logistics digital nervous system throughout the chain that permits simultaneous, multidirectional information about inventories, capacities, orders, and participants and would work to optimize the activities of the firms in ecommerce marketplaces (Siau & Tian, 2004). Supply Chain Management Systems’ Business Value Firms are able to streamline both their internal and external processes through supply chain management systems with more accurate information about what to produce, move, and store. Through integrated and networked supply chain systems, organizations can speed up the time a product gets to the market, more effectively use assets, synchronize demand and supply, drastically bring down inventory levels, and boost service delivery. Excelling in supply chain management has been found to produce higher growth in an average organization’s market values in the industry (D’Avanzo et al., 2003). Performances in the following areas are enhanced by effective supply chain management systems: improved customer service and responsiveness. Having the right product at the right time and place improves sales, because if a product that a customer wants at a specific time is not available that customer will likely get it from somewhere else (Handfield, 1999). Cost reduction: costs associated with moving products through the supply chain including planning costs, transportation, inventory carrying, and material acquisition is contained or often reduced through supply chain management systems. While the costs of carrying inventory by itself may represent 30 to 40 % of the entire inventory, the total supply chain costs represent the majority of an organization’s operating expenses, up to about 75% of total operating budgets in some industries (Handfield, 1999), so reducing supply chain costs makes a big dent on a company’s profitability. Cash utilization: leading companies in supply chain efficiency have cash in hand two to three
6 months faster than companies that do not because the sooner a company delivers a product the sooner that company gets paid. Mexico Considerations Mexico is an oil producing country (part of North America), has a population of approximately 114 million people, and a literacy rate of 86% (CIA, 2011). This country is bordered by the US in the north and by Guatemala in the south. The nation’s capital Mexico is one of the largest cities in the world, home for 20 million people. Mexico gained independence from Spain in 1810 (CIA, 2011) and is a member of the free trade agreement (NAFTA) with Canada and the US. Although Mexico and the United States have historically faced armed conflict, the countries have enjoyed a piece relation. Mexico, however, continues to treat the United States with suspicion and is therefore relatively nationalistic. The country is presently having serious clashes with drug cartels. The United States and Mexico agreed in 2008 to jointly combat illegal drug trafficking and problems that affect both nations. Many multinational corporations such as Volkswagen, GM, Ford, Microsoft, HSBC (bank), Wal-Mart, McDonalds, Pizza Hut, and numerous other corporations invest in this country. Mexico is considered a democratic type government with free elections. Mexico is home for Telmex (Telefonos de Mexico), a multinational telephone and Internet service provider corporation. The company’s owner, Carlos Slim, is one of the richest men in the world. According to a British Broadcasting Corporation (BBC) report (2009), drug-related crimes are extremely high south of the United States border. The same report indicated that because more than 7,000 people were killed in Mexico in 2009, the Mexican government added 45,000 troops and extra police to combat the drug-related crimes. President Barack Obama
7 approved sending to the Mexican border more than 1,200 National Guard troops to keep criminals and illegal drugs from crossing into the United States (The White House, 2010). Because crimes could adversely affect the United States, its government is assisting Mexico through the Merida Initiative, by donating more than a billion dollars over the next four years in equipment, training, and other support (United States Department of State, 2010). The Merida Initiative program office in Mexico City, Mexico is responsible for project planning, purchasing supplies and services, delivering equipment, and conducting training to assist the government of Mexico with improving law enforcement, preventing crime, strengthening institutions, and building rule of law (The White House, 2010). English is widely spoken throughout the country although Spanish is the official language in Mexico and many people strive to send their children to the United States to attend college. About 76% of Mexicans are Catholic and still celebrate many of the Spanish religious holidays. The population is mostly mestizo, composed of 60% (Spanish-Amerindian), 30% Amerindian or predominantly Amerindian, 9% white, 1% other (CIA, 2011). Nigeria Considerations Nigeria is an oil producing country (part of the African continent), has a population of approximately 155 million people, and a literacy rate of 68% (CIA, 2011). This country is located between Benin, Cameron, and the Gulf of Guinea. Abuja, the nation’s capital, is home for 1.8 million people. The country gained independence from Great Britain in 1960 (CIA, 2011). Nigeria assumed a nonpermanent seat on the UN Security Council in January 2010 for the term 2010-11 (CIA, 2011). According to the CIA World Fact Book (2011), Nigeria’s revenues like most other African nations have been misspent through mismanagement and
8 corruption. The country is now facing the task of reforming its petroleum based economy by trying to re-institutionalize democracy. With continuous ethnic and religious tensions the 2003 and 2007 presidential elections faced significant violence and irregularities. In the country’s history, April 2007 general elections marked the first civilian to civilian transfer of power (CIA, 2011). The official language in Nigeria is English but Hausa, Yoruba, Igbo (Ibo), Fulani, and more than 500 additional indigenous languages are spoken. In Nigeria approximately 50% of the population is Muslim, 40 %Christian, and 10% practice indigenous beliefs. It’s considered the most populated country in Africa with more than 250 ethnic groups made of 29% Fulanis and Hausas, 21% Yorubas, 18% Igbos, 10% Ijaws, 4% Kanuris, 3.5% Ibibios, and 2.5% Tivs (CIA, 2011). Cultural Differences Impact Cultural differences can affect collaboration if the culture does not naturally share knowledge or project related information within the organization. For example if an organization is developing and implementing a software project and some software developers indentify ways to expedite software development and how to reduce coding errors, the organization could benefit from sharing this knowledge. Technology could be used to promote information and knowledge sharing between teams, but knowledge-based organizational leaders should generate an environment in which best practices are shared across the organization. Best practices could be disseminated if the organization provides periodic forums and rewards team members who share information and knowledge for the benefit of the organization.
9 Potential Business Opportunities and Considerations Some businesses, for instance corporations owned and controlled by Alaskan native Indians, ANCs enjoy significant support from the United States government as small disadvantaged businesses (FAR, 2010). One significant support is that ANCs can receive multiple contracts from the United States Small Business Administration for up to $3 million for services or $5 million for manufacturing without the need for competition (FAR, 2010). The United States government is not presently executing large projects needing services from IT companies in Nigeria. The United States Department of State budgeted more than $500 millions dollars for Nigeria to combat family planning and health related issues such as HIV/AIDS, and Malaria (DoS, 2011). In Mexico the United States Congress funds hundreds of millions of dollars each year for the Merida Initiative program office in Mexico City, Mexico to purchase equipment and services for the Mexican government (Seelke, Wyler, & Beittel, 2010). The ability of project managers to process thousands of new pieces of data each week and to manipulate data stored in hundreds of spreadsheets is critical to projects’ success in Mexico. The United States Government Accountability Office (GAO) reported that Department of State was missing indicators to measure the program’s outcome and that Mexican officials were frustrated by the lack of information available to make decisions (GAO, 2010). The GAO report indicated that project information (such as deliveries) was tracked using spreadsheets instead of using more appropriate data management tools. Data or information overload is caused when the data or information supply exceeds the individual’s or systems’ processing capacity (Becker, 2009). Bell (2000) highlighted in a case study that as a strategy to cope with data overload, organizations should ensure managers are technologically experienced should provide training in effective e-mail use, and should understand the impact technology has on managers. The ANCs
10 may have the opportunity to support United States government contracts to address the data overload situation and support the projects discussed above. Offshoring is the same as outsourcing except that in offshoring the work is sent offshore to another country (McNurlin & Sprague, 2006). In the IT industry, outsourcing is defined as turning over information and communications technology support, such as network management, and other IT related functions to an outside organization (McNurlin & Sprague, 2006). The outsourcing agreement can be for a short term (months) or long term (years), within the same country or to a different country (offshoring). Outsourcing can allow global organizations to contract out routine work to another organization inside the same country or offshore to a different country (Lan, 2005). The outsourcing can include such tasks as accounting, payroll, administrative services, or IT help desk. Outsourcing to a country such as Mexico or Nigeria, for example can have many advantages, to include saving on labor costs. For example, according to Department of State official pay schedules (2011), IT help desk engineers in Mexico earns approximately $1,000 to $3,000 American dollars per month versus $6,000 to $8,000 if the engineer comes from the United States. Issues Related to Off-Shoring The following is an interesting example of outsourcing or off-shoring and perhaps could even be considered global telecommuting. A semi-retired American photographer works via the Internet in small towns in Mexico. He takes pictures in Mexico and uses “Prodigy Infinitum, a Mexican broadband service, which makes broadband Internet available even in many small towns” (Reed, F., 2006). The American photographer takes his pictures, makes his edits in Photoshop and e-mails the finished project back to the states for publication. His payment is put
11 electronically into a bank account in America where he can have it electronically transferred to his bank in Mexico. “It is interesting though that more and more people, including expatriates, seem to run their careers entirely online, some of them without having a fixed address” (Reed, 2006, p. 1). This scenario can be true in many business settings, especially in the information technology (IT) field. The slowdown in the United States’ economy has caused companies to look outside the United States for IT solutions. This has caused IT vendor consolidation, layoffs among IT workers and even bankruptcies in IT related organizations. During 2005 global expenditures regarding outsourcing for tech support and web design saw an amount close to 90 billion spent globally (Scott, 2007). Challenges can abound for the outsourcing company including a need for employees can manage the outsourcing contracts. This can lead to restructuring within the organization because there will be less of a need for developers and analysts. Often-times the perception is that the cost benefit to the company will outweigh any potential difficulties that the company may face and often the IS department is pushed “ into a defensive position with a role more as a cost center than as a strategic partner with the business” (Scott, 2007, p. 140). “Information systems (IS) outsourcing means that the physical and/or human resources related to an organization's IT are going to be provided and/or managed by an external specialized supplier” (Gonzalez, Gasco, & Llopis, 2005, p.399). Riordan manufacturing’s expansion of new plants in Nigeria and Mexico brings outsourcing opportunities for both IT technical support and IT software development. Riordan will consider factors such as cost, quality, delivery, and flexibility when determining if outsourcing these IT functions will be costeffective (Dou & Sarkis, 2010).
12 “In the vast majority of cases, when organizations move a business function from intraorganizational to third party control, significant efficiency gains are expected by focusing time, effort and capital on value-creating activities that yield a competitive advantage, an improved overall performance, and security for the organizations' long-term survival” (Clegg, Burdon, & Nikolova, 2005, p. 37). Cost effectiveness is often a main reason that many companies are moving into outsourcing for either certain aspects or all of their IT functions. Critical success factors are important to consider when a corporation is embarking on an outsourcing endeavor. “Longevity is a factor influencing the scope and quantity of work given to an outsourcer, general knowledge skills of outsource workers, trust” as well as considering “size as a critical success factor in the selection of an outsourcer” (Jennex & Adelakun, 2003, p. 12). However, it is known that doing business in developing counties, while possibly offering extensive rewards also can be considered risky. Distinct social and cultural backgrounds exist that can differ greatly from the United States. Language differences and customs that are simply the daily norms in a foreign country exist. There are differences in legal systems that can complicate transactions and contracts. Government restrictions must be overcome by understanding the domains that foreigners are allowed to occupy. Rules regarding telecommunication must be understood. The situation with the differences in language must be addressed (Chen & Lin, 1998). Often the lack of communication and problems with foreign language can lead to the failure of an outsourcing attempt. This also can be a problem for countries looking to bring foreign companies into use their outsourcing services. If the country has language, social customs, and legal controls too difficult to overcome, companies may look elsewhere for their outsourcing needs. It needs to be understood that not only must the language barrier be addressed
13 but if interpreters are to be used the companies on both sides must ensure that the interpreters are proficient with technical terms (Chen & Lin, 1998). Cultural differences are sensitive issues that cannot be underestimated. This can be especially important in developing countries. What western countries consider to be normal employer-employee relationships can be complicated in a foreign country. The assignment of tasks can be challenging because these assignments may not be based on skill sets alone. “Some other factors such as seniority, personal relationship to authority, and socialism principles are also playing an important role in job assignment” (Chen & Lin, 1998. p. 109). This can be especially challenging if there is a politically sensitive undertone between the foreign employer and the local employee. This can be daunting for the western employer when a local government grows involved and regulations become difficult. Examples could include the limiting of Internet-based data transferring activities and overseas financing (Chen & Lin, 1998). While difficulties can always occur with IT and IS operations, these difficulties increase with overseas projects. The technology may not be as advanced as-needed, there could be changes to the business requirements as the project progresses, and implementations may be considerably challenging and surprising. Time and budget controls are excessively important but the controls need to be managed so that the product achieves the expectations. The foreign outsource companies need to understand the contract obligations and often it is advisable to bring in an international consulting firm that can help ensure that all parties understand the negotiations and project feasibility. In reality new system developments may often take longer than expected and so some building in some flexibility will save companies penalties and possible litigation that can be very complex if international.
14 As mentioned previously, foreign governments need to provide a stable political environment for foreign investors if they want to keep foreign companies coming into their developing country. Companies coming into a developing country may often need to seek advice to understand the political environment they are entering. This advice is very important when there is a lack of political stability, economic difficulties within the country and changing governments that can lead to new laws and government policies. From the viewpoint of the outsourcing company if in a developing country where there could be uncertainties it is best for the country to bid at a lower level. The best contracts to begin with could be data entry and system software development. Once credibility has been established higher level contracts will be easier if there are well written lower-level contracts (Chen & Lin, 1998). Privacy The introduction of outsourcing does introduce privacy concerns. One area of concern is in the area of protecting intellectual property. Chen and Lin describe the following privacy concern and requirement when outsourcing, “A developing country must ensure the foreign clients that the final and intermediate product from the outsourcing activities, and all materials utilized in these activities are protected by contracts and related laws” (1998). Riordan will consider this and other privacy issues in relation to outsourcing IT functions as Riordan must take on the responsibility to protect its intellectual property by outlining a written agreement with the Nigeria and Mexico region locations. Riordan must consider how the global social networks such as Facebook and Twitter will play into their new global environment. One way that the company Supersaver handled the social networks was to avoid storing login credentials from their users while still allowing users to
15 easily post a message to their accounts. To solve this problem they “spent a considerable amount of time developing two interfaces using a new industry standard mechanism called OAuth that enabled SuperSaver to publish messages to those networks with the consent of our user without storing the credentials” (Rainsberger, 2007, p. 8). It is often the case that intellectual property rights are not protected adequately in developing countries. However, protection of intellectual property is definitely a need when a company chooses to outsource. One example of this problem involves compact disc factories in southern China that were producing counterfeit discs and exporting them throughout Asia. Around 80 million counterfeits were sold (Chen & Lin, 1998). New technology makes it easy for popular Western recordings to be duplicated and sold much cheaper than the originals. Western pressure has pushed many developing countries to have better enforcement of their legal systems. “The administration of law is increasingly being pushed down to the level of provincial and city court systems. The crackdown on distributions of pirated products showed the local government's determination to overcome the country's weakness” (Chen & Lin, 1998, 110). Developing countries must be able to ensure that the product from an outsourcing project will be protected via contracts and the law. Companies need to ensure that an agreement regarding the protections of intellectual property and privacy has been addressed. Privacy obligations are further complicated within global outsourcing in developing countries because of possible primitive legal systems. These systems are often ill equipped to deal with disputes that can arise between local and foreign companies or even more difficult the disputes that may occur between companies and the government. Western companies need to do their homework because often many rules or regulations are changed without warning or may never be published at all (Chen & Lin, 1998).
16 Virtual Teaming and System Infrastructure Virtual team is defined as a group of geographically dispersed workers sharing a common principle and capable of using the information technologies to attain effective communication. Virtual teams assembled through using a combination of communication and information technologies to accomplish an organizational task. The advancement in technologies predominantly, the web-based facilitated the development of the electronically virtual organizations presenting the organization to a new level of global reach with high capability of collaboration. The “flat” organizational structure has become a common norm to improve the organizational productivity and customer service, reduce costs, and hasten the product growth cycle. The organizational structure of the flat organizations disbands employees both organizationally and geographically (Kuruppuarachchi, 2009). Virtual organization on the other hand, uses information and communication technologies to function and to expand globally to achieve new markets, utilize the diverse of employment, and access the scientifically talented people from around the globe. The information technologies used by virtual organizations are ranging from simple application as communicating through emails to advanced groupware (Kuruppuarachchi, 2009). Within the enterprise environment, virtual organizations infrastructure are formed through communications using the organizational computerized data resources and organizational network aggregation to create number of mutual interactions and connections to accelerate the globalized processes of production (Kierzkowski, 2005). In multinational organizations, the information systems and technologies have provided the needed communication tools to assemble virtual teams of global workers and consequently, a new facet of team management has evolved to manage highly diverse teams of workers within a
17 virtual workplace. The information system of an organization supports the virtual teams’ performance within the virtual workplace through structuring the technology portfolio such as webinars, messaging, and virtual private networks. Because most of the technological tools are independents, thus it is empirical to categorize them under infrastructure, collaboration, and instant communication categories (Seilheimer, Ishman & Seilheimer, 2006). Infrastructure Technologies The core functionality of virtual teams is the internet infrastructure such as World Wide Web, remote connectivity, bandwidth, extranets, intranets, and virtual private networks (VPNs). As the hardwired networks have been replaced by wireless networks, the internet functionality demanding bandwidth and creating global networks have become relying the World Wide Web Transfer Protocol/Internet protocol (TCP/IP) rules to allow individuals and organizations utilize the global network (Seilheimer, Ishman & Seilheimer, 2006). Intranets As coordination of tasks is crucial for organization’s functionality and performance, sharing the organizational information and enhancing the communication within the organization have changed the organizational structure radically through computerized databases, managing the information within distributed systems, decentralizing the decision-making creating a groupware that use web-based, open platform programs to assemble an intranet as virtual workplace. (McNaughton, Quickenden, Matear & Gray, 1999). The intranets is considered a close network uses the web browser as client’s universal application but it is accessible only for individuals working in a particular organization to provide team members with the tools and capabilities to complete certain organizational task working from any location in conjunction with the VPNs (Seilheimer, Ishman & Seilheimer, 2006).
18 Instant Communication Technologies Electronic Mail (E-mail) Virtual team members use the instant communication tools in order to accomplish daily task. Electronic Mail (E-mail) considered the older communication technologies and the most used technology on the internet and heavily used by organizations’ teams and individuals. The Email is tool that communicates simple information and contents between individuals or one way communicating tool between an individual and eth other team members within a group through the mailing list. With the advances in communication applications, many Emails provide a group thread discussion that allow team members to trace the other team members responses and feedbacks of a certain topic using feature as “Reply-All” to involve in a team discussion assuring that each team members will receive the feedbacks from all other team members (Seilheimer, Ishman & Seilheimer, 2006). Newsgroups The newsgroup considered the better tools of communication for virtual teams because it is threaded the discussion that stored on the organizational internet server allowing the users to participate in a multi-way communication to other team members within the group. Virtual teams may use to communicate through forum discussion structure to reduce the broken discussion threads that may occur using the email tool (Seilheimer, Ishman & Seilheimer, 2006). Instant Messaging Instant Messaging (IM) is a multi-user chat technology that allows team members to conduct chats through PC-to-PC, phone voice (using speakers and microphones). IM is considered the evolution facet of the web-based chat software that used within a controlled environment such as hosted website. Using IM as a communication tool within the organization
19 is facing controversy because it is used as a cheap advertizing tool that send email advertizes to all customers’ lists who are using the IM including pornographic sites. To resolve this problem, Microsoft Corporation has developed workflow application and migrated within Microsoft Exchange for organizations to use as a standard back-office tool replacing Lotus Notes to leverage a control over the emailing system in the organization. As a mechanism, IM is considered an inexpensive communication tool - comparing to the international and longdistance phone charges - that allow virtual team members to communicate around the clock despite their locations (Seilheimer, Ishman & Seilheimer, 2006). Collaboration Technologies The collaboration technologies are used to create the interaction environment needed for virtual teams to interact among each other or with another part of the organization to accomplish certain project. Collaboration technologies are characterized by the capability of providing realtime, synchronous exploitation of common data project between virtual team members and allow them to communicate visually and orally among each other for live discussion (Chinowsky & Rojas, 2003). The exploitation of the modern collaboration technologies provide a bridge for distant partners and virtual team members to collaborate in projects despite the geographical distances (Seilheimer, Ishman & Seilheimer, 2006). Conclusion Global supply chains have several challenges resulting from different degrees of coordination and integration between members within the supply chain (Pearlson & Saunders, 2010). Information integration is at the basis level in which partners must agree on the information type to share, the technological standards to use to share it, the format of the information, and the security to use to hinder unauthorized access to the information. To ensure
20 that the different plants can solve arising higher level issues, trust must be established. Next level issue is synchronized planning. Partners must agree on a joint planning design, forecasting, and replenishment at this level. Having agreed on what to share, they must now agree on what to do with this information. The third level is workflow coordination which involves integration, coordination, and automation of critical business processes (Pearlson & Saunders, 2010). This might mean using a third party to link the procurement process to preferred vendors or an integration of order processing and payment systems.
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