Putting A Price Tag On Information: A Study Of Electronic Data Interchange

816 words - 3 pages

Information technology (IT) can be viewed as a financial drain on a company since it is a huge investment that requires justification. Previous studies have not been able to accurately return information that would lead to a valuable return on investment (ROI) because of the complexity of the technology. The necessary factors had not been taken into account. Factors like the quality of the design of a system and the length of time data had been collected. A study was conducted that was dedicated to one particular technology, EDI, because of the rise in use of it by large companies. It was also one technology that had been in use long enough to obtain a large amount of data over a long period of time.Two students of the Graduate School of Industrial Administration at Carnegie Mellon University, Tridas Mukhopadhyay and Sunder Kekre; and Suresh Kalathur who is employed at Cimnet Systems, Inc. in Illinois, sought to establish more accurate formulas in calculating a more effective ROI for EDI and make their findings available for management to make more informed decisions.The researchers chose Chrysler Corporation to use in the study because the company had been using EDI for the last 10 years. This gave the researchers over a decade of data to use to find out if the company had achieved its goal of reducing the cost per vehicle by 30 percent. After Chrysler had outsourced their component and subassemblies, they were still experiencing issues with communications with suppliers and their assembly plants. EDI was brought in to change material flows and implement JIT practices to reduce inventory levels and the need for rush deliveries (Mukhopadhyay, et al, 1995). The data integrity was challenged and becoming costly to the company.The theory behind the study is that EDI should make inventory management more effective by improving the communication between Chrysler and its suppliers. While EDI was expected to improve this situation, management still questioned if EDI affect the total transportation costs. To address this issue, the study took both regular transportation costs and premium freight into account. The main focus of the study included Inventory Holding Costs, Obsolete Inventory Costs, Transportation Costs, and Premium Freight (Mukhopadhyay, et al, 1995).Cross-sectional and time-series data were combined in the study. It covered nine assembly plants over a period of 1981 - 1990. This allowed the same assembly plants to be tracked and...

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