value case

8/16/2019 Value Case

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Example of a Value Case Workbook

A comprehensive tool for evaluating the

benefits and justifying the implementation yoursolution



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Introduction

This Value Case Workbook has been designed to assist you in evaluating the validity of an InternetElectronic Commerce system for your organization. The workbook addresses two major areas ofconcerns: how an Internet Electronic Commerce system will fit with your business pr ior i t ies , and thef inancial imp act of implementing such a system.

We at Acme Technologies strongly believe in the value and benefits of deploying electronic commerce.However, we are sensitive to your need to justify such an investment, to ensure that an electroniccommerce system is going to fit with your business and financial requirements.

We have created this workbook to help you with this process. By completing this workbook on your ownor with an Acme representative, you will have the opportunity to delve more deeply into the electroniccommerce marketplace and technologies; and you will understand how an Acme eCommerce solutioncan be customized to suit your unique requirements. To arrange for an Acme representative to visit youroffice location, call us at 1-800-xxx xxxx. And if you have questions while completing your Value CaseWorkbook, telephone us, or send us an email at [email protected].



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Part I: Business Priorities

It is essential that you base your electronic commerce strategy on your corporate goals and objectives.The following list provides you with a selection of business priorities. Rank your top three to four prioritiesfor the next 24 months then turn to Appendix A on page 12 to understand how Internet electroniccommerce can help you achieve these business priorities. When you proceed with your internal

justification process for an electronic commerce system, you will find this information valuable indemonstrating how it can meet your corporate business goals.

Rank Business Priority

Reduce costs

In today’s business climate, constant attention to cost reduction is imperative — and in mostindustries is a key to increasing profits.

Improve supply chain efficiencies

Streamlining your supply chain process is significant in running your business optimally. Notonly does it translate into reduced costs, it enhances supplier relationships and improvescustomer satisfaction.

Increase your capacity for processing customer orders

As your business grows, so does your need to process more customer orders. If your capacityis not increased in a timely fashion, you will experience customer frustration and dissatisfaction.

Increase sales from your existing customer base

Your existing customer base can provide you with one of the most cost-effective methods ofincreasing your revenues.

Win new customers within your current market(s)

You may have developed a particular strength or niche within your current market(s), and wishto further strengthen and capitalize upon your position.

Increase geographical territory in which you market your products and services

In this global economy, many organizations find that moving beyond their existing geographicterritory is an effective way to increase revenues.

Comply with your customer demands for electronic commerce services

Many organizations are now finding that their customers are already in tune with the benefits ofelectronic commerce and are demanding that level of service from their suppliers.

Increase your market share by displacing your competition

In many markets, growing your business means displacing your competition, then maintainingyour competitive edge.



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Increase the quality of your customer service

More than ever before, customers are demanding higher levels of service at lower costs. Quiteoften the quality and breadth of your customer service is the factor that determines the loyalty ofyour customer base.

eCommerce is now becoming a competitive necessity

You may be faced with the need to implement Internet electronic commerce as a way toestablish a lead over your competition, or to maintain your position relative to your competitors.

Other – be as specific as possible

What other business priorities are important to you?



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1. Part II: Financial Justification

Most organizations agree that a capital investment like electronic commerce must positively impact thebottom line. As you proceed through these formulas, it will become clear how an Acme solution canincrease your sales, decrease your costs, and work in conjunction with your business priorities. Pleasenote that not all formulas may be relevant to your organization.

1. Projected Increase in Revenue

(A) Win New Business (A)

Organizations are starting to win more and more business (from ½% to 10% sales increases) when theyoffer online ordering capabilities to their customers. In many circumstances, Internet electroniccommerce becomes the key differentiator in a competitive situation, helping the organization to win thebusiness, or be awarded the coveted contract. As well, many suppliers implementing online services arewinning the business of new customers who prefer the Internet for their ordering because of its speed andconvenience.

Based on your business and competitive environment, choose a realistic percentage increase in your

revenue that you can expect to attribute to winning more contracts due to Internet electronic commerce.If you cannot project a percentage, use ½%.

Formula: x = (A)

Current Revenues x % increase (½% to 10%)

(B) Increase Line Items Per Order (B)

Providing that the online ordering system is quick and easy to use, customers are more likely to preferthis as their ordering method. In the experience of organizations implementing an Acme Poweredelectronic commerce solution, they have found that their customers will order up to 30% more line itemsper order via an online system. However, it is best to be conservative and use between 5% and 10%.

There are three pr inc ipa l reasons w hy th is increase in l ine i tems occurs:

Customers can easily browse around inside the application and order products they may have notrealized are carried — or they make impulse purchases.

Instead of losing an order to the competition because an item is out of stock, organizations are able toprovide their customers with recommended substitutions, ensuring that they capture the entire order.

The up-sell and cross-sell function makes recommendations for complementary products, extendsspecial offers or reminds them of price breaks based on their unique buyer profile.

For this formula, you will need your current number of orders that are received by fax and phone and theaverage value of each order. Decide upon a percentage of your customer orders that would move to yourelectronic commerce system from your current method(s) — if you are unsure of this number, we suggestyou use 20%. Also decide on a percentage increase in line items per order that may be realistic for yourorganization, given the above information.

Formula: x x x x 250 = (B)

# orders byfax/phoneper day

% ordersmoving to

eCommerce

Average totalorder value

x % increasein line items(5% - 30%)

days

Case Examples : Put in an example of what one of your clients benefits was



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(C) Advertising Sales Revenue (C)

With an Acme electronic commerce system, you are provided with a revolving sponsor bar, which can bedesigned to show the advertisements of your suppliers. Organizations who use this feature sell therevolving sponsor bar to their suppliers for a monthly fee. They sell the bar in the form of rebates, co-opadvertising, or cash from their suppliers or industry associations. Typical fees are $1,000 to $5,000 per

month, depending on reach and frequency. This is a very attractive approach for manufacturers that areinterested in reaching their end user target group through the distribution channel.

Formula: x x 12 months = (C)

# of sponsors $ per sponsor bars per month

Total Projected Annual Revenue Increase ( A…C)



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2. Projected Decrease in Costs

(A) Cost of an Order (A)

For many organizations, the primary justification for an electronic commerce system is in the reduction of

the cost of sales. Customer telephone and fax orders can cost an average of $5 to $35 to enter them intothe order entry system; while the cost of an electronic commerce order can be less than $1 per order.Many companies today are receiving more than 20% of all of their orders via the Internet, which isproviding them with a significant reduction in the cost of taking orders.

Formula:

Number of orders per day via fax or telephone (a)

Total annual orders via fax or telephone (a x 5 days x 50 weeks) (b)

Number of people in your call center (c)

Average yearly cost (salary + overhead) of each employee (d)

Total employee costs for the call center (c x d) (e)

% of call center employee time spent processing orders (f)

Total employee costs of taking orders (e x f) (g)

Call center's toll-free phone lines & fax bill last year (h)

Cost per order [(e + h) / b] (i)

Yearly Internet hookup charge for your eCommerce system (use $30,000 ifunknown)

(j)

Cost per eCommerce order (j / b)(k)

Savings per eCommerce Order: (i – k) (l)

% of Orders moving to eCommerce (m)

Operating cost savings of orders processed via your eCommerce system:(b x l x m)

(A)

Case Examples :

(B) Reduced Number of Backorders (B)

Backorders represent a significant cost to an organization because of the additional time and resourcesrequired to handle, trace and ship these goods to the customer. The typical costs of handling backorderscan range from $75 to $200 per line item. Backorders are directly related to a company’s service level fortheir customers. For example, if a company’s service level is 89%, they are able to ship what thecustomer orders 89% of the time and their back order rate is subsequently 11%. Every percentagereduction in backorders generates a corresponding percentage increase in the company’s service level.Companies must constantly make the trade-off between backorder rates and inventory levels.

Internet electronic commerce is a way in which you can increase your service levels (decreasebackorders), without having to increase inventory. This is done by providing complete product



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(D) Reduce Costs of Promotional Material (D)

As customers learn more about who is viewing and ordering from their online system, they cansignificantly reduce the number, frequency, and size of the physical catalogs and promotional flyers thatthey produce and send to their customers. Some large business-to-business companies are projecting

that they can cut the cost of printed catalogs in half, saving millions of dollars each year.

Formula: x = (D)

$ Printed Materials Related toCatalogs

x % decrease (up to 50%)

(E) Cost of Customer Calls and Fax-back Inquiries (E)

Almost immediately, your site will save you from responding to costly customer calls and fax-backinquiries. If you are like many companies, as much as 70% of the calls you receive are placed to ask oneof three questions:

What's the price of the product?

Is the product in stock?

What's the status of my order?

At a limited cost to you, all of these questions can be answered by the customer through your Internetelectronic commerce system. Most companies are experiencing savings of at least 15% to 30% of theircurrent customer service and fax-back costs by making this information available over the Internet.

Keep in mind, too, that the 15% to 30% reduction in these types of calls means that your telesalespersonnel now have 15% to 30% more time to make proactive sales calls, which can also provide youwith a revenue increase.

Formula:

Cost of Customer Calls and Fax-back Inquiries

Cost for Call Center [(e) from (A)] (a)

% of call center employee time spent dealing with customer inquiries (b)

% of orders moving to eCommerce [(m) from (A)] (c)

Reduction of call volume (15% to 30%) (d)

Total projected cost savings (a x b x c x d) (E)

(F) Reduced Purchase Order Processing Costs (F)

For many manufacturers and distributors, generating purchase orders and submitting them to theirsuppliers is a cumbersome manual process that is costly and time consuming. It typically costs between$75 and $300 for each PO, which at times is more than the value of the PO being generated. By

automating the issuance of purchase orders through an electronic commerce solution that extends toyour suppliers, you can greatly reduce costs and expedite the procurement process. In addition, theefficiencies gained by Purchasing Agents in automating these routine tasks, can free up their time formore strategic sourcing tasks that can lead to a further reduction in your overall procurement costs.

Formula:

Cost of Purchase Order Processing

Number of Purchasing Agents (Managers, Buyers, etc.) responsible for themanagement of direct purchase orders.

(a)



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Average annual cost (salary + overhead) of each Purchasing Agent (b)

% of Purchasing Agent time spent handling purchase orders (c)

Average yearly cost of processing PO’s:

(a) [agents] x (b) [cost] x (c) [% of time spent on PO handling]

(d)

Projected % of PO’s to be handled via automated system (e)

Projected time savings of automating PO process (30% to 50%) (f)

Total Projected Reduced Purchase Order Processing Costs (d x e x f) (F)

Projected Yearly Decrease in Costs ( A…F)



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Summary of Financial Justification

Once you have completed your projected increase in revenues and projected decrease in costs, you arenow ready to calculate the final projected impact on your bottom line.

Impact on your Bottom Line

Total projected annual revenue increase (from page 5) (A)

Average margin % (B)

Increase in gross profit (AxB) (C)

Projected yearly decrease in costs (from page 9) (D)

Annual increase in income before tax (C+D) (E)

To calculate your project costs, we suggest that you work with an Acme representative who can provideyou with detailed information regarding the cost of an Acme eCommerce solution. For more information,

or to have an Acme expert visit you, feel free to call us at 1 –800-495-IRON.

Project Costs

Software (F)

Hardware (G)

Consulting Services (H)

Total Estimated Project Costs (F+G+H) (I)

Estimated Investment Recovery in Years (I/E) (J)



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Appendix A - Business Priorities

Rank Business Priority

Reduce Costs

Implementing Internet electronic commerce will help you to significantly reduce costs.

Long Distance, Toll Free Services and Fax Services

These costs can quite often be a significant portion of the operating budget of your telesalesgroup. To reduce these costs, you can consider replacing a portion of your incoming lines withan Internet hookup for an electronic commerce system. Depending on the type of link yourequire — 56 Kbps leased line, T1 line, ISDN line — your costs for an Internet hookup could be10% or less of the cost of your current telephone and fax costs.

Reduce Costly Returns

In some environments, product margin can be totally eliminated, or at least severely eroded byproduct returns. By allowing your customers to place their own orders, you are reducing theincidences of incorrect shipments due to miscommunication. In addition, because customershave the ability to view products online, if they are offered a substitution for an out of stock or

discontinued product, they will know what the substitute is like, again reducing the chances of itbeing returned as unsuitable.

Reassign Telesales Personnel to Revenue Generation

When you operate a telesales group, a large portion of the group’s incoming calls areassociated with price checks, inventory checks and status inquiries regarding backorders.These activities are not generating revenue. By implementing an electronic commerce system,you are putting the onus on your customers to dial in to your system to retrieve this information,freeing up your telesales personnel to concentrate on proactive selling (revenue generating)activities.

Reduce Costs Involved in Marketing Your Products

An electronic commerce system can provide you with a way to reduce the costs involved in

marketing your products, while increasing the reach and frequency of your marketing. Onlinecatalogs are a cost-effective element of an electronic commerce system. Once a catalog ispublished, changes are easily accomplished and don’t require redoing the entire catalog. Inaddition, publishing an online catalog will provide you with significant cost savings overtraditional printing and distribution.

Special offers can be published in the same manner. It is far more cost effective to post aspecial offer to your online system than it is to have the art created, then print and distribute theflyer.

Depending on your geographic market, regular distribution of printed materials could be asignificant portion of your marketing budget — and an area in which an electronic commercesystem can have great impact.

By utilizing these online marketing methods, you are also able to enhance your customerresponse to your programs. With an online system, customers can immediately respond to

specials, placing their order immediately, ensuring that you realize immediate revenue from yourprograms.

Reduce Telesales Costs

One Acme customer has been able eliminate an extra 3-hour shift in their telesales department,which was originally added to service customers outside of their particular time zone. With 7days per week, 24 hours per day availability, the company no longer needs the 3-hour shift toallow their customers to place orders.



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Increase Your Capacity For Processing Customer Orders

As your business grows, so does your need to process more customer orders. If your capacityis not increased in a timely fashion, you will experience customer frustration and dissatisfaction.Increasing your capacity for order processing has traditionally meant increasing staffing levels,which also increases your costs significantly. Instead, an electronic commerce system can

provide you with an efficient and cost-effective method to grow your business without thegrowing pains.

With an electronic commerce system, your customers are able to enter their orders themselves,without waiting on the telephone for the next available operator. They can also receive answersto their inquiries regarding pricing, inventory levels, and their pricing — again, with no wait. Asyour needs for capacity increase, your Acme system can be expanded to handle highervolumes, with little cost or effort, and no re-work of your business logic.

Increase Sales From Your Existing Customer Base

Experience shows that customers entering orders through Acme solutions increase their ordersize by up to 30% because they can browse around and order products they may have notrealized you carry, or that are impulse purchases. In addition, instead of losing an order to your

competition because an item is out of stock, you are able to provide your customers withrecommended substitutions, ensuring that they complete their order with you.

Win New Customers Within Your Current Market(s)

Many companies are already doing business on the Internet and now prefer it. Many largeorganizations now insist that their suppliers offer electronic commerce. An electronic commercesystem positions your company to become a preferred supplier for these organizations, as youare able to do business the way they want to. By increasing your service options, you are ableto attract new customers, and potentially win customers from the competition because of your

offering.One Acme customer found that they are now able to win significant Request for Proposalbusiness because they comply with the customer’s strict requirement that they provide Internetelectronic commerce.

Increase Geographical Territory in Which We Market Our Products And Services

Many organizations are looking to move outside of their existing territory. With an electroniccommerce system, your only geographic restriction is imposed by the logistical issuessurrounding product distribution. The World Wide Web is a truly global marketplace, whichmeans you can accept orders from customers in whatever geographic territory you wish.Because your electronic commerce system is available 24 hours per day, seven days per week;you are able to eliminate business hour restrictions that may have presented you with service

issues in the past. Acme electronic commerce solutions can be deployed in all languages with the exception of bi -directional. The language is programmed based on the user ID, which means that a singleelectronic commerce system can provide multi-national support, allowing you to expand globallywithout high system costs.

Comply With Your Customer Demands for Electronic Commerce Services

You may find that many of your customers are moving to an electronic business environment. As their supplier, you must be prepared to do business in the way that they want, or risk losing



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the business. An electronic commerce system ensures that you are positioned to provide yourproducts or services to your customers in the fashion that they prefer. Acme solutions allowcustomers to reach you through multiple online channels, which include, web browsers, wirelessdevices, eProcurement systems, direct ERP-to-ERP connections, and eMarketplaces.

Increase Your Market Share by Displacing Your Competition

In many markets, growing your business means displacing your competition, then maintainingyour competitive edge. If your competition doesn’t offer electronic commerce — byimplementing electronic commerce — you will be able to give their customers an alternative thatprovides more options and better service than they can get from the competition.

Increase the Quality of Your Customer Service

For many customers, the ordering process involves telephoning in to state their requirements,then waiting for a fax or return call with the information. With an electronic commerce system,ordering is fast and easy. Customers can immediately check on information such as pricing orinventory levels. At the same time, they can place their order, and even order substitutes in theevent of out of stock or discontinued products. Online catalogs, special promotions, andproduct literature provides convenience and a wealth of information.

When your customers place their order, they immediately know the cost of the order, whether itwill be a complete or partial shipment, and when the product will be shipped. With this level ofservice, they can conduct their own business, confident that the correct supplies will arrive whenneeded.

One Acme customer bought their system because they could save their major customerssignificant time in their procurement process by offering an Internet electronic commercesystem. While this shows great dedication to servicing their customers, it also shows that thisorganization views themselves as their customers’ partner, and works hard to help them savemoney.

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