This article is an excerpt from the report Agile Demand-Supply Alignment — Part Two: Evaluating ASDA Solutions.
A copy of the full report can be downloaded here.
In the previous Part 2E of this series, we looked at demand management and analytics functionality required for an ADSA platform. Here in Part 2F, we talk about the role of implementation, services, pricing, ROI, and TCO when evaluating a solution.
Implementation, Services, Pricing, ROI, TCO
Implementation — What Does it Take to Get Started?
Implementation can be as short as a few days up to many months. The speed of implementation depends on many factors, such as how many systems need to be integrated, how many trading partners onboarded, the scope of functionality being rolled out, and the organizational scope of the rollout.
Integration
Some solutions provide a base level of value without requiring any external data integration, and thereby can be implemented very quickly (as little as a day or two, in some cases). However, much of the kind of ADSA capabilities we have been discussing requires ingesting many kinds of external data, as described in the section Data and Supply Chain Visibility — Getting the Complete Picture and illustrated in Figure 2 in Part 2A of this series.
Most solutions provide some set of pre-built connectors to common enterprise systems, such as SAP, Oracle, NetSuite, and others, to integrate things like purchase orders, supplier master data, and SKU master data. Other platforms provide prebuilt EDI-mapping/ integration with major trading partners, particularly large retailers such as Walmart, Amazon, Costco, Walgreens, Kroger, and others. It is important to understand not just which pre-built connectors a solution has, but also the extent and nature of those integrations — which data elements and workflows are included. If there are legacy systems that need to be integrated, then an understanding of the effort involved to do custom integrations becomes important as well.
Time-to-Value – Agile Implementation, Templates, and Minimum Viable Implementations
Some solutions take longer to implement than others. It is a good idea to try and get a handle on what the typical implementation time is, including understanding all the things that must happen after go-live before you start gaining value. Most solution providers have some variation of an agile implementation1 methodology.
One element of this is templates or blueprints. These are pre-configured implementations, which act as starting points, providing 70%-80% of what is needed in most cases. The idea is to get started quickly with a ‘good enough’ solution to start getting value right away, then make customizations as needed. As the company uses the system, it will become more clear which customizations are truly needed and will provide the most value. The other major aspect of agile implementation is the ‘minimum viable implementation’ philosophy, i.e., don’t try to boil the ocean, start small to start receiving value that can be used to fund further expansion of the implementation.
Network Onboarding
ADSA solutions require data from suppliers, LSPs, carriers, channel partners, customers, and potentially others. Onboarding of trading partners thereby is an important element required for gaining the full value. The time and effort required to onboard trading partners needs to be considered both for the initial implementation and the ongoing maintenance of the platform, as new trading partner relationships are formed. Some platforms have large networks of pre-connected trading partners, which can help reduce the initial effort required for onboarding, depending on how many of a company’s existing trading partners are already on the network.
Value-Add Services
Core Implementation Services
ADSA solution providers offer a wide variety of services along with their SaaS2 subscription services. Virtually all offer core implementation services such as installation, configuration, training, and onboarding of trading partners. Onboarding services typically include supplier outreach, training, setup, and support. Some vendors charge separately for the core implementation services, while others include some or all these services in the SaaS subscription fee. Some will provide additional services, such as discovery, design, and customization for an added fee. Some providers supplement the core services with more advanced training (e.g., for super users and IT), and advanced services like process design and change management, typically for an additional fee.
Post-go-live Intensive Support
One provider we reviewed includes ‘Hypercare,’ which is a period of intense support to ensure a successful launch for a period of one to four months after going live. This support is provided by the same team that did the deployment, who are therefore very familiar with the client and the client’s systems and supply chain by that point. This service is designed to ensure that critical supply chain processes running on the platform are working, transactions are flowing, and workflows are running as intended, so that the business continues to operate uninterrupted during the transition to the new platform.
Data Management and Monitoring
Some solution providers offer data management and monitoring services. The more robust of these provide a staffed network management center that monitors EDI and other transactional traffic 24 X 7, detecting whenever there are integrity issues with data being passed back and forth with trading partners or missing expected responses (like no acknowledgement message received within a specified period of time). Whenever an issue is detected, the staff will take steps to resolve it, including, as needed, contacting the appropriate IT personnel at the source of the data to help resolve it. This service helps keep transactions flowing — such as customer orders, purchase orders, invoices, and payments — as these are the ‘lifeblood’ of the company.
Consulting
At least one ADSA solution provider we reviewed provides business strategy consulting, helping with strategies such as how to become a more strategic partner to big retailer customers. However, most providers rely on partners, such as system integrators, to provide consulting services.
Supplier Management, Sourcing Services
One provider we looked at offers fairly extensive supplier management services including supplier certification, onsite audits, quality management (going onsite to fix quality issues), as well as new product launch services and sourcing services (RFQ and selection assistance).
Custom Reports and Analytics, Benchmarking Services
Many ADSA solution providers offer services to create custom reports and analytics. All provide some preconfigured, standardized dashboards and reports out-of-the box. A couple provide benchmarking services, to compare various performance metrics and KPIs against the averages of peers in the network.
Solution Pricing
SaaS Subscription Pricing
All of the ADSA solutions we reviewed are sold as SaaS, paid for primarily via a recurring subscription fee. Most also have one-time charges for some of the implementation and value-add services, such as integration with other system or data management services. The SaaS subscription fee is typically based on pricing factors designed to try to scale with the value being provided. Below are some of the pricing
factors we have seen used to calculate the subscription fee. Keep in mind that no provider uses all of these factors, but most will typically use between two to five factors as the basis for their fee
- Functionality Used — The scope of functionality available to the user is the most common basis for pricing. A couple of solutions give all users access to all functionality — i.e., they do not charge a different amount for different modules. But most
have per module or per application pricing, with anywhere from three to a dozen or so modules. One provider charges per ‘network service’ — their functionality is delivered as dozens of fine-grained services integrated together and the customer only pays for those services they use. - Number of Trading Partners — The number of trading partners the user’s company is connected to or transacts with.
- Number and complexity of Integrations — The number of other systems integrated into the platform for the user, how complex those integrations are, and whether or not they are custom integrations.
- Network Complexity — Measured as number of SKU-location combinations. Sometimes including frequency or volume of transactions.
- Savings Realized – percent of the savings realized by using the platform. Typically used when part of the value proposition is a reduction in spend on materials or transportation cost, and that reduction can be reliably measured and agreed to.
- Revenue Transacted on Platform — One provider charges suppliers a percent of the revenue those suppliers receive through the platform. Another charges a percent of the value of goods flowing through the platform or managed by the platform.
- Number of Users — Only one of the platforms we reviewed charges per user and even they charge per named user, with unlimited guest users. Most ADSA platforms want to encourage widespread usage of the system and thereby allow unlimited users at no additional charge.
- Revenue of Business Unit – percent of the revenue3 of the business unit using the software.
- % of Spend Managed Through Platform — For things like sourcing and procurement, supplier management, logistics, and global trade functionality, the charge may be a percent of the total spend being managed via the platform.
- Transaction Volumes — Number of orders and/or shipments flowing through the platform.
Pricing of Services
Pricing for services — such as implementing integration to other systems, providing extra training, data management, consulting services, and custom analytics development — are usually based on either time and materials or a fixed fee. Some services are priced using different pricing basis (besides time and materials), such as the complexity of an integration determining the price of implementing the integration.
Typical Annual Pricing Range
There is no ‘typical’ price for ADSA solutions because the range and variety of functionality is so large and varied. Furthermore, ADSA functionality is often wrapped up in other broader solution functionality and wider initiatives, as described in Part 2A of this report (first paragraph in section What Problem(s) Are You Trying to Solve, Now and In the Future?). This makes it quite difficult to do an apples-to-apples comparison. Ultimately, a solution buyer must do their homework, looking at all aspects of the competing solutions they are considering, weighing the cost and benefits of each different solution, and the fit for their unique situation. Once a methodical evaluation has been done, the choice often becomes obvious.
In our research, none of the solution providers were willing to let us publish actual pricing information, though most of them shared price ranges with us, off the record. Thereby we can provide some broad generalizations. Solutions that are narrower in scope and smaller deployments tended to come in at subscription prices of around $50K to $100K per year. For mid-sized companies and solutions with broader functionality, including more execution and planning capabilities, the price ranges were in the several $100K range. At the high end, large rollouts to F500, even of relatively narrow functionality, were over $1M per year. Looking at broader functionality to large corporations, like significant portions of a complete supply chain suite sold to F500-sized companies, the price tag was typically several million dollars per year.
Gain Sharing
Only one of the providers we spoke with offers gain sharing. This is where the solution provider offers to reduce the monthly subscription fee in exchange for sharing the value of gains realized by implementing their solution. Gains are measured based on one or more value-quantifiable metrics improvement. An example might be a reduction in transportation spend or a reduction in spend with suppliers. Both parties must agree on how the metrics and improvements will be measured, how the financial value of those improvements will be calculated, and how those gains will be shared — i.e., a certain percentage of the value gained will be paid to the solution provider. Gain sharing enables risk and reward sharing and better alignment of interests, but it is not so common, in part because of the challenges in measuring and agreeing on the value realized. If interested, more on this topic can be found in Outcome-based Business Models for Enterprise Software.
Financial Assessment and Comparison of SaaS Systems (ROI, TCO, et al)
When considering a new system, decision-making executives and financial managers often want to make a financial comparison of the different possible investments and outcomes. Common financial analytic tools for making these comparisons include ROI, NPV, IRR, and BCR.4 These have in common the need to understand 1) the stream of investments or total costs involved and 2) expected benefits over time, quantified in monetary terms.
Total Cost of Ownership
It is important for the buyer of the solution to thoroughly understand all elements of the total cost of ownership. Misunderstandings or surprises later in the process (after a deal has been signed) can be quite painful and disruptive. By far the largest element of TCO for most of the solutions we looked at is the monthly subscription fee. Most require relatively little training and typically quite modest ongoing administrative labor by the customer (usually a fraction of an FTE). Some of the more functionally extensive systems required a full-time internal support person to provide front line help desk support.
The largest costs, other than the subscription fee, tend to happen during implementation. These may include fees for implementing integrations to other systems, special or extra training, and other specialized services. We found quite a large variation in the size of implementation and consulting fees.
An important consideration in TCO analysis for implementation of a new ADSA solution is to factor in the avoided costs of maintaining and upgrading existing on-premise or hosted single-tenant enterprise-centric legacy systems. The avoided future costs can be substantial, particularly when the ADSA solution replaces capabilities across multiple legacy point solutions and ERP instances.
Calculating and Monitoring Expected Benefits
Most solution providers provide some sort of expected ROI or benefit numbers. Buyer should have some skepticism and perform some diligence to make sure they understand how these numbers are calculated, what the mechanism of value creation by the solution is, how well that mechanism applies to their situation, and the extent to which the solution provider has derived their ROI numbers from actual measurements by their customers vs. more theoretical exercises about expected benefits. Drivers of ROI can be quite varied. Converting qualitative benefits into precise dollar value figures can be challenging. Some of the benefits and drivers we heard about in our research include:
- Revenue increase — Due to fewer out of stocks, higher customer satisfaction.
- Higher customer satisfaction, fewer chargebacks — Due to more reliable performance (e.g., higher OTIF, better compliance adherence, fewer quality issues, etc.), more strategic customer relationships, fewer out of stocks, improved supplier performance.
- Improved competitiveness — From greater on-shelf availability and service levels.
- Margin uplift — From better markdown management, cost reductions, less spoilage and waste.
- Reduced total landed cost — By reduction in original product cost, transportation and expediting costs, duties and tariffs, insurance, etc.
- Performance improvements — Higher speed and efficiency, reduced labor costs, fewer errors (by automating manual activities), faster resolution of issues.
- Reduced inventory levels — Via better alignment of supply and demand, freeing up working capital while maintaining or improving service levels.
- Reduced waste – By better matching of supply with demand (resulting in less expired or obsolete inventory) and better inventory and mix management for trend-sensitive industries such as fashion apparel, cosmetics, and consumer goods (resulting in less discounted sales).
- Growth enablement — Doing more with same resources, via automation and performance improvements.
In Part 2G of this series, we provide ideas on discovering, shortlisting, and selecting an ADSA solution.
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1 For more on this topic, see Agile ERP: Continuous Improvement Through Rapid, Incremental Implementation and Value Realization — Return to article text above
2 SaaS = Software-as-a-Service — Return to article text above
3 Usually in tiers, like companies below $10M pay $X/month, $10M – $50M pay $Y/month, $50M – $200M Pay $Z/month, and so forth. — Return to article text above
4 ROI=Return on Investment, NPV=Net Present Value, IRR=Internal Rate of Return, BCR=Benefit-Cost Ratio — Return to article text above
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