HDMT1303 Supply Chain and Operations Management

Group Assignment (4-6 members)

Case Analysis - Pagoda.Com

Introduction

Pagoda.com is an Internet Service Provider (ISP) that caters to individual consumers and small
businesses who require a high level of service and are willing to pay a premium for it.
Specifically, Pagoda.com offers state-of-the-art e-mail applications and web-building software, as
well as plenty of storage space and fast access via its high-speed servers. The Marketing VP,
Jerry Hunter, puts it this way: “There are a lot of companies out there distributing free CDs and
promising the cheapest Internet access. But what do you get for your money? Slow- or no-
access, a mailbox full of Spam, and an endless stream of system crashes. And I won’t even
mention the lack of support if you have a technical question! For a few dollars more a month, we
give our customers the environment they need to be productive – without having to think about
whether they can retrieve their e-mail, or whether their web site has crashed. It’s no surprise,
then, that we have the highest customer satisfaction and retention rates in the industry.”

The On-line Help Desk

One of Pagoda’s services is its on-line help desk. The on-line help desk works as follows:
Customers who are experiencing technical problems, or who simply have questions about their
account, enter a one-on-one “chat room”, where they can “talk” directly with an expert.
Problems are usually resolved within 10 minutes, and customers have listed it as one of the top
three reasons why they stick with Pagoda.com. Presently, Pagoda has enough capacity to handle
up to 900,000 requests per year, although management doesn’t expect the number of requests to
change much from the current level of 800,000 per year.
A firm located in New Delhi, India has approached Pagoda about outsourcing the on-line
help desk. Their offer is attractive. The New Delhi firms’ own personnel would handle the help
desk function. These personnel all speak English fluently, and have college degrees or
appropriate technical backgrounds. And because they are in India, labor costs would be a
fraction of what they are in the U.S. – a savings that would be passed on, in part, to Pagoda.
And since the help desk “chat room” exists on the Internet, Pagoda’s customers should be
unaware of the switch.
Pagoda management has put together the following figures, outlining the yearly costs associated
with the current system and the Indian proposal:

Current On-line Help Desk

Personnel Costs:
40 full-time equivalent (FTE) technical experts @ $40,000 per year (salary and benefits)
3 supervisors @ $70,000 per year (salary and benefits)

Equipment Costs:
4 servers @ $2,000 per year
20 PCs @ $1,000 per year
Variable Costs:

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$1.50 per request (office supplies, fax paper, etc.)
New Delhi Proposal

Fixed Cost: $1,500,000 per contract year (to cover administrative and IT costs)

Charge: $0.50 per request

Questions

1. Calculate the total cost of outsourcing the on-line help desk versus staying with the
current solution. Which option is cheaper? To what extent?

2. What other factors, other than costs, should Pagoda consider? How would you weight
these factors? (Hint: Please reserve a weight for cost factor)

3. Given the above, how might you use a weighted-point evaluation system to evaluate the
two options? Should Pagoda.com outsource its on-line help desk? Why or why not? Be
sure to justify your choice.

4. For whatever the final decision of outsource or not, work typically specifies performance
measurements that the buying firm can use to determine whether the service provider is
meeting the terms of the contract or for not outsource decision the current operations
might need improvement. What performance measurements would you recommend be
put in place for either the case of outsource or not outsource?

You are required to submit a written report of around 1000-1500 words (+/- 10 %).
Group of 4 members target wordage is 1000, 5 members target wordage is 1250 and 6 members
target wordage is 1500.

The report should be 3-5 pages of A4 size excluding cover page, 1.5 line spacing of pt. 12
Times New Roman font type is recommended.

Date of Submission: 13th Class Meeting (the last class session)

Assignment cover page is required.

Criteria of Assessment: 20 % @ question and overall written skills and APA format etc 20 %
totaling up to max 100 %. The whole group is needed to attend a group project meeting via Zoom
conferencing for 10~15 min to answer questions raised by the lecturer.

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