 | Management Information Systems 4/e - James A. O'Brien | |||||
|---|---|---|---|---|---|---|
| Online Learning Center |  | |||||
Chapter 12: Information Systems for Strategic Advantage
|
1. Strategic Marketing Information System for Action Products
Action Products is considering the development of a strategic marketing information system. The proposed system would use customer information gathered each time a sale is made to target mailings to those customers most likely to purchase particular product lines. The new system is expected to increase sales by improving market penetration. Because of the speculative nature of the system's benefits only the first four years of operation are to be considered in evaluating its profitability. The information systems department estimates that the system would cost $200 000 for initial development to be completed in one year. Once the system becomes operational its maintenance is expected to require $30 000 per year. The best estimate of the impact of the system on sales is that it would increase sales from their current projected levels by 5 percent in the first year of operation and by 7.5 percent for the second third and fourth years of operation. The level of sales for products affected by this system is currently $18 500 000 and sales are expected to remain constant through the projection period unless the new system is developed. The marginal contribution of a dollar of sales to profit is 30 percent.
2. ABC Company Purchasing System The information system that ABC Company uses for purchasing is substantially outdated. Inadequacies of the system require Purchasing Department employees to make numerous manual calculations and to call vendors to accommodate standard requests that could be generated automatically by a well-designed modern purchasing system. Three alternative solutions to this problem have been proposed: (1) Modification of the current system (2) development of an entirely new system by ABC's IS department and (3) purchase of a third-party purchasing software package and modification to meet ABC's needs. A spreadsheet will be used to estimate the costs and benefits of these alternatives over the next 10 years. Modifying the existing system would be the least costly alternative; the modified system would cost $155 000 to develop and could be operational within a year. Purchasing of a third party package would cost $255 000 plus and additional $125 000 to adapt it to meet ABC's needs. A purchased system could also be operational within a year. Development of a new system by ABC's IS staff would take two years to complete and cost $475 000. The development cost would be spread evenly across the two years. Benefits of the new system would come in the form of reduced time required by the purchasing staff to answer requests and process orders. These benefits have been measured in staff hours saved compared to the current system. The following table lists expected work hours per year saved (as compared to the current system) for each alternative. The amount of time saved is not identical since only an internally developed system can completely implement the desired improvements. The cost of an hour of work time by the average purchasing department employee is $17 including all fringe benefits. Assume that the cost of a clerical hour and the number of hours saved will not change over the 10-year period.
|
MHHE Home | About MHHE | Help Desk | Legal Policies and Info | Order Info | What's New | Get Involved
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.
For further information about this site contact mhhe_webmaster@mcgraw-hill.com.
