DiGiTech is an international retail company that deals in the sale of digital cameras of its own brand going by the same name. the company has been in business for the past five years and as such has expanded its boundaries to become an international corporation. As an MNC (multi-national corporation), the company has come face to face with stiff competition from its rivals that include Nikon and Kodak both of whom have dominated the international market for handheld and pocket size digital cameras for centuries. Faced with the challenge of globalization, DiGiTech finds itself in a dilemma where advancements in information communication technologies, development of software and hardware have served to edge up the stakes of competitiveness in the global market. To that extent, the operations of the company have become costly to the extent that the firm’s profitability is put to risk. The management at DiGiTech decided to evaluate options in operations management that can essentially serve to put the company back on its path to profitability. The company’s executive board resolved on Enterprise Resource Management (ERP) to ensure that the company’s resources are balanced out where profitability is the main premise of proper management of company resources. In their long-term ERP planning, the company opts to outsource most of its operations in an effort to manage costs and ensure that the company stays on its trajectory towards profitability.
In Chapter 14 of the book Operations Management Slack, Brandon-Jones, and Johnston (2014, p. 439) discuss ERP as a method of enhancing company’s profitability through intelligent resource planning. Notably, outsourcing is one of the ERP approaches that result in the reduction of operational costs of the business. The reduction of operational costs eventually leads to the enhancement of profitability since proper management of costs serves to improve the company’s profit margins.
Outsourcing as an operations management approach has several advantages as well as disadvantages. It is important that the management at DiGiTech considers the advantages and disadvantages before it to effectively or adequately meet the objectives of the organization in ERP. Globalization has forced modern firms to reduce operational costs in the aims of maintaining competitiveness while enhancing profitability. Outsourcing is one such strategy of dealing with the impact of globalization head on and ensuring that the business processes are aligned to produce multiple benefits that serve to support the objective of ERP (Espino-Rodriguez & Padrón-Robaina, 2004, p. 289). Among the advantages that present in the use of outsourcing as a strategic ERP, the process is that it results in the reduction of operational costs (Slack, et al., 2014, p. 441). Outsourcing also allows for downsizing where staff that becomes redundant are retrenched making the company have a leaner more efficient workforce by restructuring and reorganizing the staff structure of the institution (Ahmad & Shroeder, 2003, p. 26). Outsourcing eventually ends up ramping up the company’s profits which serve to improve on the working capital of the organization to enhance the quality of products and services that the company can offer (Lee & Kim, 1999, p. 35).
Moreover, the more capital investment at the disposal of the company, the higher the chances that the company can expand its business using monies at its disposal. In other words, the business risks are reduced to the extent that the business can venture into untethered territories. Additionally, outsourcing also presents the advantage of reducing the instance of conflict among the workforce by the elimination of wasteful activities such as payroll processing leading to fewer employees, hence, less interactions and confrontations between staff members (Yu & Lindsay, 2011, p. 309). The premise of this report is to present a comprehensive analysis of the options that DiGiTech is faced with in regards to its outsourcing ERP strategy towards the enhancement of its business operations.
Benefits of Outsourcing for DiGiTech
As a digital camera manufacturer, DiGiTech is face to face with changing tastes and preferences in the market. In that esteem, staying competitive will require that the company regularly innovates to enhance its chances of an appeal to the market. Development of photography technologies places a lot of pressure on the business in that the company has to invest heavily in innovation to edge a place in the digital camera manufacturing sector. Sentiments by Boulaksil and Fransoo (2012, p. 2) advance that Original Equipment Manufacturers (OEMs) have an obligation to maintain a sense of exclusivity to ensure that the differences between the company and the competitors are significant to get noticed. In other words, OEMs must innovate and differentiate themselves from the competition in an effort to remain competitive. To that extent, the digital camera manufacturing industry is thronged by various camera manufacturers with devices that simply take photos. It becomes quite necessary for DiGiTech to convince customers that its cameras are the best among the rest. To achieve this end, differentiation is necessary through innovation. That is where outsourcing comes into place the company competitively (Gupta & Zhender, 1994, p. 70).
Outsourcing creative ideas can generate knowledge from the unlikely of sources such as designers as well as opinions from the clientele or fanatics of the brand. Outsourcing knowledge is also advantageous in the sense that it generates information that is not confined to the limits of the organization. Moreover, the company can evaluate specific needs of each market and with it develop strategies that will serve to adequately tend to the needs of specific market segments in the industry (Boulaksil & Fransoo, 2012, p. 19).
ERP, as stated earlier in the introduction, incorporates automation of data analysis through the use of ERP software as an intelligence gathering option to the development of the business (Slack, et al., 2014, p. 449). In other words, ERP allows for the company to make sense of data associated with input and output in an effort to balance costs and benefits in the financial equation of business success (Addo-Tenkorang & Helo, 2011, p. 7). Attributes ranging from raw materials data, the number of orders, employee’s working hours, and capital investment among other financial information relating to the operations of the business are factored into the ERP system (Matende & Ogao, 2013, p. 520). The ERP, therefore, offers the company an overall outlook of the performance of the institution in regards to the soundness of the business engagement. It is imperative to acknowledge that the ERP platform provides DiGiTech solutions with the appropriate measure of the company’s success by evaluating strengths and weaknesses of the organization towards achieving the objectives of operational management. In that esteem, ERP comes in handy when evaluating the cost of outsourced services in relation to the performance of the organization (Tsai, et al., 2010, p. 28).
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