ZIFFPAGE TITLEQuantifying a Return

By Larry Dignan  |  Posted 2006-02-07 Email Print this article Print
 
 
 
 
 
 
 

CEO Bill Strauss pushed online retailer Provide Commerce to install a cost-effective Web services system. The goal: Get perishable products like flowers, meat and fruit to customers faster and more efficiently.

Quantifying a Return

The idea, which made a lot of sense to Strauss, cut Provide Commerce's business down to a series of modules such as payment processing, shipping notification and finding the right suppliers. Web services modules could be built for each process and then connected.

Why did that appeal to Strauss? Provide Commerce could change modules without rewriting code for multiple systems, within an enterprise suite for an investment Hall describes as "very low six figures." In the previous system, eliminating a few steps in a process required a change in the business rules underlying a database that might touch multiple systems.

Provide Commerce can now focus on one problem, say, credit card processing steps, and change one module instead of installing financials-processing software or an enterprise planning system.

QUESTION: What is the biggest challenge involved with getting technology workers to deploy Web services? Learning the technology? Or learning how the business operates? Tell us at baseline@ziffdavis.com.

Once these Internet services modules were perfected, manual processing could be cut, thereby reducing errors in orders. "We don't want to throw big dollars at technology," Strauss says. "The alternative to what we did was to get some Oracle or SAP system with a big mainframe architecture."

Gogia's team was charged with building the messaging systems between the components of the company's business, and automating everything from payment processing to credit card authorization to picking Federal Express or United Parcel Service packages for shipping.

Provide Commerce automated its payment processing in 2003 by simplifying processes and installing Sonic's software. Its supplier communications network was automated in 2004, and its shipping systems followed last year.

Both Gogia and Strauss say the biggest hurdle in implementing a Web services system is training technology workers. The architecture requires technology staffers to know the business, break down functions step by step, and then follow up and monitor the system to make sure it continues to work. Training I.T. workers to think in terms of specific business processes "requires more thought," Strauss says.

Have Web services delivered a return? Strauss says they have, but acknowledges it's hard to quantify items like enhanced customer service. Gogia says automation will cut down on errors and returned packages, and speed order processing. Provide Commerce wouldn't disclose figures on these particular metrics.

But if it saves a nickel on each one of 8,500 daily orders, it can save $155,125 a year, in line with Hall's low-six-figure price tag.

More important, Web services have allowed Strauss to meet his 3% tech-spending goal. For the year ended June 30, the company spent $5.54 million on technology systems, or 3.13% of its $177 million in annual sales. In 2004, Provide Commerce spent $4 million on technology systems, or 3.10% of $128.8 million in annual sales. For 2003, it spent $3.56 million on technology, or 4% of its $88.68 million in sales.

And there won't be a big enterprise planning system expenditure on the horizon. AMR Research estimates that a planning system for a company of Provide Commerce's size would run roughly $700,000.

Meanwhile, any upgrades or technology changes will focus on functions, or processes within functions, to keep projects modest and spending within the 3% target.

It's not that Strauss isn't open to big ideas, but he prefers to keep spending in line and get returns in increments. As he puts it: "If you come in with a plan to spend big dollars, you'd better have a bunch of little dollars in savings."

Automating Savings
TProvide Commerce automated many of its processes by using software from Sonic Software. Here's what a business rationale for a similar company may look like.

EXPENDITURES 2003 2004 2005
Software costs* $300,000 $50,000 $50,000
Consulting costs** $75,000 $0 $0
TOTAL: $375,000 $50,000 $50,000
SAVINGS
Investment in planning software*** $0 $700,000 $0
Lowered shipping costs**** $0 $0 $155,125
TOTAL $0 $700,000 $155,125
NET (375,000) $650,000 $105,125
NET in first-year dollars (2003)
Discounted to present at 10% a year
($375,000) $590,909 $86,880
Dashboard Decision

GREEN LIGHT Go

YELLOW LIGHT Evaluate

RED LIGHT Stop

GREEN LIGHT Quick return.
NET PRESENT VALUE:
$302,789.26
*Six licenses at $50,000 for six servers, each responsible for a location. Adds one server each year to boost capacity and add new functions. **includes consulting services and training required to teach developers how to work with web servers. ***provide maintains that its web services architecture substitutes for an enterprise planning system. Amr research provided cost estimate. ****automating systems with shippers cut 5 cents in cost for each daily order. Assumes 8,500 orders a day. source: sonic software, amr research


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Business Editor
ldignan@ziffdavisenterprise.com
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
 
 
 
 
 
 

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