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Keegan WorleyDr. MarleySCMG36729 March 2012

Homework #4 – “Pagoda.com” Case StudyCurrent Solution Outsourcing

Personnel Costs 40 FTE * $40,000 = $1,600,0003 * $70,000 = $210,000

N/A

Equipment Costs $2000 + $1000 = $3000 $2000 + $1000 = $3000Variable Costs $1.50 * 800,000 = $1,200,000 $0.50 * 800,000 = $400,000Fixed Cost N/A $1,500,000

TOTAL $3,013,000 $1,903,000Outsourcing would be the lesser cost of the two options, yielding $1,903,000 compared to the

current solution of $3,013,000 (a $1,110,000 difference).

2. While an important factor, cost should not be the sole consideration in making an informed

decision. Other factors that may be of issue to Pagoda, for instance, is delivery reliability: what

happens if, somewhere along the way, India’s access to the internet is temporarily down? In

addition to delivery reliability, Pagoda should consider the skill level of the personnel in New

Delhi. While these individuals may have a college degree and/or the “appropriate” technical

background, the full-time technical experts that currently run its online help desk are the ones

who build Pagoda.com’s outstanding customer service reputation, based on efficiency and

reliability. Assigning weights based on importance, cost and delivery reliability should be

deemed equally important at a weight of 0.4 each, leaving skill level of personnel weighted at

0.2. Consequentially, a weighted point evaluation system can be put into place as follows:

(1=poor to 5=excellent)

Dimension Weight Current Solution New Delhi Proposal

Cost 0.4 2 * 0.4 = 0.8 5 * 0.4 = 2.0

Delivery reliability 0.4 4 * 0.4 = 1.6 3 * 0.4 = 1.2

Skill level of personnel 0.2 5 * 0.2 = 1.0 3 * 0.2 = 0.6

1.0 =3.4 =3.8

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PAGODA.COM

MEMORANDUM

TO: Thad Matta, President

FROM: Keegan Worley, Manager of Risk & Assurance

DATE: March 29, 2012

RE: New Delhi Help Desk Proposal______________________________________________________________________________

It is in my estimation that the New Delhi Help Desk Proposal should be accepted based

on three factors: cost of the overall project, delivery reliability to our customers and skill level of

personnel involved.

Outsourcing our online help desk to New Delhi will greatly cut costs, from $3,013,000

per year to $1,903,000—a savings of $1,110,000 per year.

Though the personnel in New Delhi will have a college degree and/or the appropriate

technical background to handle our service, I am concerned with the difference in skill level as

our current employees are technical experts.

Furthermore, I am concerned (should we accept this proposal) that the delivery reliability

to our customers may lag or cut out, as New Delhi is not based in the United States. Our

customers pay a premium for our expert service; therefore I do not want encounter problems

with interruptions in service and, as a consequence, lose our customer base.

While there is a small potential for problematic issues to arise, the New Delhi Proposal is

one that will further Pagoda.com’s already broad customer base and strengthen its image as a

reliable Internet service provider and customer-friendly business. Again, I recommend that you

accept this proposal in light of the aforementioned information.