Supply Chain Management

Pagoda.com Pagoda management has put together the following fig-l d ‘ ures, outlining the yearly costs associated with the current sys-0 uctlon‘ . . tem and the Indian proposal:Pagoda.com is an Internet semce prOVider (ISP) that caters toindividual consumers and small businesses who require a high Current Online Help Desklevel of service and are willing to pay a premium for it. Specifi-Personnel costs:cally, Pagoda.com offers state-of-the-art email applications andW . . 40 full-time-equivalent (FTE) technical experts @ $40,000eb-building software, as well as plenty of storage space and fastper year (salary and benefits); 3 supervisors @ $70,000access Via its high-speed servers. I’he marketing vice preSident, ea ‘h er ear (sala and benefits)Ierry Hunter, puts it this way: “There are a lot of companies out L p Y rythere promising the cheapest Internet access. But what do you Equipment costs:get for your money? Slow- or no-access, a mailbox full of spam, 4 servers @ $2,000 per yearand an endless stream of system crashes. And I won’t even men- 20 PCs @ $1,000 per yeartion the lack of support if you have a technical question. Por a Variable costs:few dollars more a month, we give our customers the env1ron- $1 50per request (of (ice supplies, fax paper, etc.)ment they need to be productive-without haying to thinkabout whether or not they can retrieve their email, or whether New Delhi Proposaltheir Web site has crashed. It’s no surprise, then, that we have the I“ edhighest customer satisfaction and retention rates in the industry.” ix “St$1,500,000 per contract year (to cover administrative andThe Online Help Desk IT Co5”)One of Pagoda’s services is its online help desk. The online help Charge:desk works as follows: Customers who are experiencing tech- 3050 per requestnical problems, or who Simply have questions about their ac-count, enter a one-on-one chat room, where they can interact Questionsdirectly with an expert. Problems are usually resolved within 1. Calculate the total cost of outsourcing the online help desk10 minutes, and customers have listed it as one of the top three versus staying with the current solution. Which option isreasons they stick with Pagoda.com. Presently, Pagoda has cheaper?enough capacity to handle up to 900,000 requests per year, al- 2. What other factors, other than costs, should Pagoda con-though management doesn’t expect the number of requests to sider? How would you weigh these factors? Given thechange much from the current level of 800,000 per year. above, how might you use a weighted-point evaluationA firm located in New Delhi, India, has approached Pa- system to evaluate the two options?goda about outsourcing the online help desk The offer is at- 3. Should Pagoda.com outsource its online help desk? Whytractive. The New Delhi firm’s own personnel would handle the or why not? Be sure to consider Tables 7.6 and 7.7 whenhelp desk function. These personnel all speak English fluently framing your answer.and have college degrees or appropriate technical backgrounds. 4. A statement of work typically specifies performance mea-And because they are located in India, labor costs would be surements that the buying firm can use to determinea fraction of what they are in the United States. The savings whether the service provider is meeting the terms of thewould be passed on, in part, to Pagoda. And since the help desk contract. What performance measurements would youchat room exists on the Internet, Pagoda’s customers should be recommend be put in place? What should happen if theunaware of the switch. service provider fails to meet these requirements?