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Vol. 7, No. 3, May 2007, pp. 201222 issn 1532-0545 07 0703 0201

informs

I N F O R M S Transactions on Education

doi 10.1287/ited.7.3.201 2007 INFORMS

A Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply ChainPsychology Department, Harvard University, Cambridge, Massachusetts 02138, jimrd@instituteforstrategicclarity.org Department of Information, Risk, and Operations Management, Red McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712 {morrice@mail.utexas.edu, Edward.Anderson@mccombs.utexas.edu, Jim.Dyer@mccombs.utexas.edu}

James L. Ritchie-Dunham

Douglas J. Morrice, Edward G. Anderson, Jr., James S. Dyer

I

n this paper, we present a computer-based simulation exercise designed to help students understand the impact of an enterprise system on business performance in a service supply chain. The particular service supply chain simulated in the exercise is a wireless telecommunications rm. In this exercise, students perform simulations to experience managing the supply chain of the telecommunications rm with and without an enterprise system. The simulator tracks their business performance. Then the results are used as the basis of discussion in a subsequent debrieng session. We describe the educational goals of the simulation exercise and how the exercise can be structured in order to achieve these goals. The latter is illustrated by the use of the simulation exercise in a masters level supply chain management course in the Red McCombs School of Business at the University of Texas at Austin. The simulator includes realistic details. In fact, it is based on the extensive consulting experiences of the rst author with two North American telecommunications rms. We describe the simulator in detail under the various scenarios, explain how it was validated, and provide the simulator equations in system dynamics format in Appendix B.

1.

Most large organizations have implemented or are considering implementing some form of an enterprisewide information system (ES). Proponents of these ESs suggest they provide many benets over the legacy systems they replace, such as better systems integration, standardization of data and processes, end user visibility across the business enterprise, and improved decision support functionality (Davenport 2000, Ettlie 2000, Gattiker and Goodhue 2000, Mabert et al. 2000, McAfee 2000). ESs cost millions of dollars and take many months to implement fully (OLeary 2000). Thus, when evaluating different ESs, decision makers need to understand the potential benets and costs. In practice, quantifying the impact of an ES (both costs and benets) may be difcult due to lack of good benchmarking data and the challenge of isolating the impact of an ES from other potentially confounding factors. This paper describes a computer-based simulation exercise designed to teach students about the potential impact of a successfully implemented enterprise201

Introduction

system on business performance in a service supply chain. The system dynamics simulator allows students to experience the value added by running the supply chain of a wireless telecommunications rm under two different scenarios: with and without an ES. The simulator tracks the performance of decision-makers as they manage the supply chain of the simulated telecommunication rm under one of the aforementioned scenarios. Thus, this exercise isolates the impact of an ES implementation. The results from these exercises are compared to determine whether or not the proposed ES benets inuence the bottom line under the use of a typical manager. It is not always clear if an ES will help managers run dynamically complex systems (Sharda et al. 1988). Therefore, besides providing a hands-on management training experience, this exercise also provides an opportunity for a rich discussion of the issues with which companies, the academic literature, and the popular press are wrestling. A paper containing a preliminary proposal for this simulation exercise was

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Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply ChainINFORMS Transactions on Education 7(3), pp. 201222, 2007 INFORMS

presented at the 2000 Winter Simulation Conference (Ritchie-Dunham et al. 2000). We have designed the simulation exercise to be a three to six-hour self-contained module that can be used as part of a longer course in supply chain management or information management, or as a standalone executive education short course. In 5, we demonstrate its use over two 75-minute sessions in a masters level supply chain management class in the Red McCombs School of Business at the University of Texas at Austin. The students performed the simulation in the rst session. The second session was spent discussing the simulation results and how these results related to actual company experiences and to those studied in the academic literature. We selected a service sector rm, in particular, a wireless telecommunications rm, as the basis for this simulation exercise for four reasons. First, our students and corporate partners have requested more service sector related exercises be added to our curriculum (Anderson and Morrice 2000) because the majority of our graduates nd employment in the service sector. Second, games and other exercises are more common for physical goods supply chains (Littleeld Technologies, Bates 2002; e.g. The MIT Beer Distribution Game, Senge 1990). Third, wireless telecommunications is a business with which the students can easily identify. They nd the application area interesting making it easier to motivate the exercise. While there is the potential downside that this specic example might provide a narrow experience for the students, we do not believe this to be the case because the simulator contains elements (both nancial and operational) common to rms in many other industries, such as those involved in other aspects of information technology services, consulting, retail services, third party logistics, and call centers. The nal reason for selecting a wireless telecommunications rm as the case example is that the rst author has extensive consulting experience in the telecommunications industry. In fact, the simulator is based on system dynamics simulation models developed and used for strategic policy analysis at two North American telecommunications rms. It is well validated, comprehensive, and easy to understand (see Appendix B for simulator equations). Throughout the paper we often use the term ES synonymously with Enterprise Resource Planning (ERP) systems especially when citing some of the more recent academic literature. We have consciously decided to use ES because we think it is more general than a specic business term used in current practice (namely, ERP). Additionally, we believe that the signicance and purpose of our simulation exercise

transcends the current issue of implementing Enterprise Resource Planning (ERP) systems. The business value of information technology to the enterprise has been a topic of interest in the literature for the last 1520 years with more recent literature focusing on the value of specic applications such as ERP systems (Hitt et al. 2002). Based on the results of the study by Akkermans et al. (2003), this topic is likely to be of continuing interest to business executives and academics for some time into the future especially in specic application areas such as supply chain management. Therefore, the overall worth of this exercise is to help students understand the impact of the aforementioned principles of integration, standardization, visibility, and improved decision support on business performance in service supply chains. It is important to note that the simulation exercise does not include all the details and complexities involved in implementing an ES. These are accounted for in the simulator by ES implementation costs. This was done to simplify the exercise and narrow the focus down to exploring the potential benets of a successful ES implementation. In other words, the exercise focuses on before and after the ES implementation but not the transition between these two states. It is our experience that such focusing is necessary in order to mitigate the risk of making the exercise too complex to yield any meaningful results. To provide a proper context for the students and balance the discussion, we emphasize to them that they should view the results of this exercise as the potential for ES implementation at its best. Then we discuss case studies and other literature illustrating ES implementations that have been costly and challenging (Grifth et al. 1999, Hong and Kim 2002, Songini 2004). The latter serves as a launch pad for a discussion on what factors can lead to a successful ES implementation. The rest of the paper is organized in the following manner. Section 2 details the nature of operations of a wireless telecommunications rm and how the system dynamics simulator captures that nature. Section 3 presents the enterprise systems. Section 4 outlines the validation of the simulator. Section 5 provides an example of the simulation exercise conducted with masters students at the University of Texas at Austin. Section 6 contains a concluding discussion.

2.

The simulator presented here was abstracted from a more complex system dynamics simulator that was developed by one of the authors and used by two national telecommunication rms for strategic decision making. The original simulator was simplied

The Wireless Telecommunications Simulator

Ritchie-Dunham et al.: Simulation Exercise to Illustrate the Impact of an Enterprise System on a Service Supply ChainINFORMS Transactions on Education 7(3), pp. 201222, 2007 INFORMS

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