In some cases, the advantages of investing in a particular software solution are obvious. When modern features drastically outpace those of legacy applications or when an end-of-support date looms on the horizon, it makes sense to either upgrade or consider a new investment. However, difficulty emerges when considering the benefits of one software solution over another. With many vendors adding functionality to their offerings, there is significant overlap between different options. Furthermore, how can prospective buyers determine whether one program will deliver expected results?
A look at order management ROI
Order management software has had to evolve considerably as new purchasing channels emerged and businesses faced higher expectations regarding speed, accuracy and reliability. Before delving into specific return on investment considerations, it's important to understand the motivations behind more sophisticated order management tools. These may vary between organizations, but all of these solutions should be able to streamline complex processes.
Beyond automation, business leaders will need to consider the unique factors their organizations face. For instance, those that work with suppliers and other partners that have vastly different technology ecosystems will need to make integration a top priority. Smaller businesses, however, may opt for solutions that are accessible to non-technical staff and are easy to deploy. All of these factors will affect the long-term value of the chosen solution as well as total cost of ownership. It may be helpful to first outline the key business priorities that need to be addressed before even looking at different solutions, as this will help to narrow the field of possible choices.
The process of calculating ROI for order management solutions must be similarly comprehensive. One of the key pieces of information to identify is the payback period of the solution. However, this can depend on factors that extend beyond the software itself. Another issue when comparing the TCO of different offerings is that it can be difficult to conduct a true apples-to-apples comparison. For example, a white paper from cloud accounting software provider Intacct explored many of the problems that emerge when comparing cloud offerings to on-premises applications. An overly simplistic TCO model would only look at factors such as software licensing costs and cloud subscription expenses. This fails to account for differences in labor hours spent managing each solution, as well as ongoing maintenance costs and infrastructure expenses.
The same issues are likely to emerge when looking at order management solutions, so it is critical to account for all of the factors that go into TCO. For instance, if the organization's existing IT infrastructure is unable to handle the data collected and generated by the new software, it would have to purchase additional storage capacity or new servers to better handle the load - these expenses should also be included when determining the payback period. Intacct identified a number of key items to consider, including:
- Software: The cost of initial deployment and any licenses as well as ongoing maintenance expenses
- Hardware: Expenses associated with infrastructure upgrades and costs related to additional data storage or other strains on existing resources
- Personnel: The cost of labor for implementing and maintaining the software
- Professional services: This includes any outside services, such as a third-party implementation provider or consulting firm
- Training & Education: The number of labor hours spent in training as well as the cost of trainers
- Other: Expenses such as on-site visits or labor hours spent on product demos
After implementation and ongoing costs have been identified, businesses can move toward assessing the benefits of the software. It is essential to include direct and indirect advantages in this calculation. The former is easily quantifiable and includes factors such as decreased order cost. The latter may have to rely on some estimation, but it is still a critical element to determining true ROI. For example, an increase an order efficiency may lead to improved customer satisfaction. While it may be difficult to accurately quantify, customer satisfaction matters because it could lead to increased revenue.
Once all of these factors have been outlined, the ROI calculation itself is fairly easy. It may be helpful to identify specific ROI estimations on a per-year basis, as this helps organizations set specific benchmarks. IBM provides a clear explanation of how to calculate several different types of software ROI, but the basic ideas in each case are similar: Calculate a ratio of the total value of a solution to the costs of investing in that solution. A basic ROI calculation would take the following steps:
- Identify the total value of the investment
- Subtract the cost of the investment from the result of step one
- Divide the result from step two by the investment cost
- Multiple the answer from step three by 100
There are a few factors to keep in mind when going through these steps. First, the total cost of an investment should be the TCO of the solution to date. For instance, calculating ROI in the third year of deployment should account for total resources invested to year three. In the planning phase, it may also be helpful to estimate ROI for individual years so that the organization can establish clear goals and expectations prior to picking a solution.
Crocs: An order management case study
While all of these benefits may seem like minor advantages individually, businesses that perform a comprehensive analysis of their unique needs and the solutions available on the market are likely to find that those advantages significantly add up. For example, when Crocs, Inc. began researching order management software, it performed a workshop to help stakeholders identify the needs that a chosen solution would need to fulfill.
"Crocs had been relying on a heavily customized ERP system to process orders from their customers," an IBM report stated. "The system required manual processes to manage orders, resulting in lengthy response times, with inaccurate information."
The company ultimately went with IBM Sterling Commerce because it addresses the three core objectives that were outlined at the beginning of the process:
- Improved inventory management functionality
- More accurate data and real-time information
- Configurable and easily modifiable rules-based system to respond to market changes
In addition to meeting these objectives, Crocs was able to quantify the value IBM Sterling provided after deployment and compare these to its pre-implementation estimates. For example, the solution met expected ROI numbers within 12 months. Furthermore, the fill rate on Internet orders increased from between 10 and 13 percent to close to 100 percent.
What is notable about this experience is the time that stakeholders spent in the planning phase. This allowed the organization to identify the sources of its business challenges and relate these to order management software features. For example, data quality suffered because of the manual processes involved in entering orders using the previous system. After identifying this issue, Crocs prioritized automation, resulting in a direct increase in information accuracy. Other organizations may not face precisely the same problems, but they can maximize the ROI of any software by following a similarly in-depth strategy to identify their unique challenges.
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