Value Assessment

Tangible Benefits

The tangible benefits are generally in dollars or time saved. The time saved can be converted to dollars by applying an hourly rate or daily rate. In SAS system of Wal-Mart the tangible benefits may include increases revenue, resource cost saving, hardware cost saving, software cost saving and process improvements. As Wal-Mart is one of the large company it would definitely get the benefits by using SAS system. In our cost analysis we did rough estimate of the system cost but by that it helps to understand the cost and its benefits of the system.

1.       Increase revenue: It is a benefit when a system has a direct impact on the revenue of the organization. Other additional revenue will come through the lunch of new products

2.       Resource cost saving: After SAS system is implemented in the organization there will be certain cost saving from resources which will be the key benefit. The cost benefit will come from the reducing in manual work, process improvements or fixing system issues. In general resource saving can be calculated by hourly basis which involves taking an hourly rate and multiplying it by the number of hour saved.

3.       Software Cost Saving:

We can divide this software cost benefits into two parts-First license and savings maintenance costs. We had estimated it according to the cost analysis.

 Running Costs of Current system

Operating System Cost: $8000

Oracle Database Software: $30,000

Web server software: $40,000

SAS supply chain intelligence: $200,000

 Total Cost of current system: $278000

              Running costs of new system (after a first year)

Product support cost: $10,000

Hardware cost: $ 15,000

Total cost: $25,000

4.       Reducing software Maintenance Costs: Let’s assume that software developer would cost $150,000 with team of 4 the cost to the company is around $600,000 per year then we will assume the hardware costs would be the same.

Another one is technical developer which will cost around $100,000 with team of 4 the cost benefit to the company will be a saving of $200,000 per year simply by reducing the resources.

Intangible Benefits

On a Global scale supply chain management for Walmart means tracking and becoming verse with the movement of goods wither it be from supplier to Walmart or Walmart to customer. For a firm this large, value is assessed based on its transparency. From a qualitative standpoint we can measure the intangible benefits of buying SAS based on the satisfaction and simplicity in which transparency brings to Walmart’s Supply chain. In the book “Developing Sustainable Supply Chains to Drive Value”, Author Robert Sroufe introduces Metrics; a simple verifiable measure assessed in qualitative terms.  Managers pursue multiple types of operations and supply chain metrics at different labels as a means to increase their visibility over aspects of the supply chain they do not control, yet they know will have an impact on their own companies performance (Sroufe 2013 72). Metrics provide five different functions; Communication, Control, Expectations, Leaning and Improvement and Transparency. All 5 functions spit out large amounts data that in one way or another accumulate over weeks, months and years. This data need to be stored organized, managed and analyzed.  This accumulation of data, SAS regards as “Big Data”. Big data is defined as a situation where the volume, velocity and variety of data exceed and organizations storage or compute capacity for accurate and timely decision making. (SAS 2015 2) thrives in the analysis of big data, bringing unique and effective outcomes. Take for example Canada’s Alberta Tourism, Parks and Recreation. Responsible for 250 campgrounds and 14000 camp sites that receive more than 1.8 million overnight visitors every year, they have implemented SAS analytics to tease insights from its customer surveys in an effort to improve satisfaction ratings of visitors to the park. Prior to using SAS, they would spend weeks at the end of the season inputting text data manually and assigning a code to each comment. With SAS, phone calls, email, surveys and social media (both structured and non-structured can be stored, retrieved, analyzed and assessed via information retrieval and data mining tools exclusive to SAS. (Holder 2015 5). With SAS, the day to day processes of hundreds of thousands of products each day can me managed, tracked, maintained and evaluated for the supplier, the consumer, and Walmart the host, with readouts readily available at any time. This level of communication, and transparency is the intangible benefit of incorporating SAS.

Value/Cost Benefits Analysis

 The Austin book highlights, quite candidly, that measuring the value from IT investments is very difficult. IT investments are very hard to determine due primarily through competition in the sense that the same IT investments your company makes, are available and often also adopted by the competition. IT investments are necessary but also often fail to provide a competitive advantage….

“we might not have a business without it (IT investments). But because everybody also has it, we can’t say it provides competitive advantages” (Austin).

In terms of Walmart, they have traditionally found competitive success via IT investments. Walmart’s IT success stems primarily from the way they view and handle their IT investments. This cultural factor that Walmart possesses is what gives them an edge; it is something their competition cannot copy.

“Walmart gets a lot more value from IT than K-Mart…the success with which it (IT) is adapted within the company culture yield competitive differentiation” (Austin).

                Walmart’s competitive advantage via IT adoption is further highlighted by Kathleen Hartley in her supply chain management blog…

“Wal-Mart very early on focused on controlling costs by mastering its supply chain in innovative ways that included sophisticated, pioneering use of product, consumer behavior, and sales performance tracking technology, Kmart was late to recognize that such technology could be useful, and never really bought totally into the concept.

As a consequence, Kmart in the old days – and today – too often stocks higher-margin, but higher-priced and slower-moving goods than either Wal-Mart or its other big rival, Target. Thus, its inventories don’t turn over nearly as fast and it produces significantly less revenue per square-foot of store space.

That, in turn, leads to weaker cash flows, less growth (or actually shrinkage), less investment in existing facilities (documented in Sozzi’s photos) and technology, higher operating costs, steady erosion of brand value and, ultimately weak, or no profits”. (Hartley)

                This Walmart/K-mart example highlights the points made in the Austin book. Although IT advantages are universal in a market, it is how that IT investment is applied/adopted via the company’s culture that generates a competitive advantage. Walmart, although starting slow in the K-Mart/Walmart race, eventually emerged as the clear and unchallenged champion. Their culture ultimately led to their astounding success in their market. Our SAS proposal for Walmart will only generate more success because the Walmart culture has already proven it can generate success from such IT investments. As mentioned in the Austin book, it is very difficult to calculate the true monetary values of these investments.

                “IT didn’t bring in revenues from external sources, so it could not point to growth in revenues or profitability in terms of revenues less cost…. Business units tend to claim that huge savings would result from anything they wanted to do in order to get the project approved” (Austin).

                With this in mind, it will be very hard to weigh any ROI claims presented by a business proposal, however a more realistic ROI projection would offer some valuable insight into whether or not Walmart should invest in SAS. Below is an estimate ROI projection for Walmart regarding the SAS investment.  

Reference

Holder, S. (2015). Big Data is (still) a Big Deal. Retrieved June 14, 2016, from http://www.sas.com/en_ca/insights/articles/big-data/bigdatastillbigdeal.html

Sroufe, R. P., & Melnyk, S. A. (2013). Developing sustainable supply chains to drive value: Management issues, insights, concepts, and tools. New York, NY: Business Expert Press LLC.

Troester, M. (2015). Big Data Meets Big Data Analytics. SAS White Paper. Retrieved June 18, 2016, from http://www.sas.com/content/dam/SAS/en_us/doc/whitepaper1/big-data-meets-big-data-analytics-105777.pdf

Hartley, K. (2013, December 30). Kmart Vs. Wal-Mart: A Study in Supply Chain Approaches. Retrieved June 16, 2016, from https://blog.apptricity.com/2013/12/kmart-vs-wal-mart-a-study-in-supply-chain-approaches/

Austin, R., Nolan, R., & O'Donnell, S. (2009). The Adventures of an IT leader. Boston, Massachusetts: Harvard Business Review Press.