First they calculated savings on COD costs. PSC sends 95% of its orders COD. Most orders comprise more than one box, but because of the old system's limitations, there was no good way to write up a multibox order under one invoice; each box was shipped with its own invoice, and had its own costly COD tag. The new system, however, can write up a multibox order under one invoice. So now PSC sticks a COD tag for the entire order amount on one box, and ships the other boxes in that same order by regular delivery, which is much less expensive. (There's always the risk that customers will refuse the one COD box and accept the others, essentially stealing most of the order, but Cowan believes it will happen so rarely that the losses will be negligible.)
Expected savings: $144,000 a year.
Second, PSC has been paying about $40,000 a year to outside accountants to prepare the company's financial statements. The new system will prepare most of those statements automatically.
Expected savings: $50,000 a year.
Finally, because the old system did not have credit-management capabilities, at least $3,000 in unpaid receivables fell through the cracks each month. That meant roughly $40,000 might be carried over into the next year. The new system, however, alerts the company to past-due accounts, and Fenske says that extra help has already reduced delinquencies by 95%. Savings will come in the form of fewer write-offs, faster collections, and fewer customers being cut off.
Expected savings: $40,000 a year.
Total expected yearly savings: $234,000.
With maintenance costs for the system expected to run about $10,000 a year, the net estimated hard benefits come out to $224,000. That means the system should pay for itself in less than a year. But as is often the case with new systems, the greatest expected paybacks aren't easily quantified. In the case of PSC, the main motivation for getting the system was to improve customer service through the availability of more detailed customer information. "I wouldn't want to put a number on it," says Fenske, "but we believe that being proactive translates into revenue growth." Few would argue with that assumption.
WHAT THE EXPERTS SAY
We asked three experts to pick out the lessons companies can learn from PSC's experience. Here are their responses:
Dan Karleskint, chief engineer at Scitor, a Sunnyvale, Calif., consultancy that helps distributorships computerize.
There are three ways to avoid some of the "new-system trauma" PSC experienced:
1. Don't buy on the basis of demonstrations or recommendations; you'll end up buying a demo expert's personality rather than a system. Prepare a specification document that defines all the features you want in your new system and have each vendor bid to those specifications. The specifications can then become part of the contract, and you won't have to deal with nasty surprises such as missing features.
2. Develop and document a plan for testing the system. The plan must include tests for all the features you've specified as well as the various real operation problems the people and the system will face. Do not go on-line until the system can pass all the tests. CEOs often forget that people and processes are as much a part of the system as the computer and the software.
3. Make sure, via testing, that you can get all the reports and information you want before you go on-line. Look at the information needed on a daily, weekly, and monthly basis, and establish procedures tied to those frequencies.
Phil Varney, MIS director for S-K-I Ltd., in Killington, Vt., a corporation that operates ski resorts. S-K-I is renowned in the resort industry for using computers to monitor its customers and operations in real time.
First of all, Cowan recognized Terri as an outstanding talent, and he should have used her to manage the computerization process better.
Then PSC should have developed a written project plan for tracking all tasks, from the software-selection process to implementation. Such a plan can highlight weaknesses in the system and reveal timing problems.
PSC shouldn't have paid for the software in full before it was completely and successfully implemented to the company's satisfaction. Vendor guarantees about performance and features should have been written into the initial contract.
End users should have been involved in the selection of the system, and more time should have been allocated for their training.
Remember the six key points to implementing a new system: Plan, plan, users, users, train, train.
Jack Barry, senior principal with EDS Management Consulting Services, in Cambridge, Mass.
Spending $200,000 on a new system sounds like overkill. PSC probably could have gotten most of the key benefits from a $20,000 system; the extra benefits may not have been worth the extra cost. In any case, you should never buy "vaporware" -- features that are promised but that aren't quite ready.
Pain is inevitable in this sort of process. But up-front pain isn't as bad as back-end pain. PSC didn't have a strong enough implementation plan. Instead of gambling on a "D-day" switch-over to the new system, the company should have done more extensive pilot testing and had a backup plan in case of problems. Training was shortchanged, too.
One thing Cowan always seems to do right is to see things from the customer's point of view. That helped him keep things from being worse than they were.
