Example of a Value Case Workbook

A comprehensive tool for evaluating the

benefits and justifying the implementation your
solution

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Introduction
This Value Case Workbook has been designed to assist you in evaluating the validity of an Internet
Electronic Commerce system for your organization. The workbook addresses two major areas of
concerns: how an Internet Electronic Commerce system will fit with your business priorities, and the
financial impact 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 electronic
commerce 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 own
or with an Acme representative, you will have the opportunity to delve more deeply into the electronic
commerce marketplace and technologies; and you will understand how an Acme eCommerce solution
can be customized to suit your unique requirements. To arrange for an Acme representative to visit your
office location, call us at 1-800-xxx xxxx. And if you have questions while completing your Value Case
Workbook, telephone us, or send us an email at information@iacme.com.

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 priorities
for the next 24 months then turn to Appendix A on page 12 to understand how Internet electronic
commerce 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 in
demonstrating how it can meet your corporate business goals.

Rank

Business Priority
Reduce costs
In todays business climate, constant attention to cost reduction is imperative and in most
industries is a key to increasing profits.

Improve supply chain efficiencies

Streamlining your supply chain process is significant in running your business optimally. Not
only does it translate into reduced costs, it enhances supplier relationships and improves
customer satisfaction.

Increase your capacity for processing customer orders

As your business grows, so does your need to process more customer orders. If your capacity
is 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 of
increasing 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 wish
to 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 geographic
territory 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 of
electronic 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 maintaining
your competitive edge.

Increase the quality of your customer service

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

eCommerce is now becoming a competitive necessity

You may be faced with the need to implement Internet electronic commerce as a way to
establish 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?

1.

Part II: Financial Justification

Most organizations agree that a capital investment like electronic commerce must positively impact the
bottom line. As you proceed through these formulas, it will become clear how an Acme solution can
increase your sales, decrease your costs, and work in conjunction with your business priorities. Please
note 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 % to 10% sales increases) when they
offer online ordering capabilities to their customers. In many circumstances, Internet electronic
commerce becomes the key differentiator in a competitive situation, helping the organization to win the
business, or be awarded the coveted contract. As well, many suppliers implementing online services are
winning the business of new customers who prefer the Internet for their ordering because of its speed and
convenience.
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 %.
Formula:

x
Current Revenues

(A)

x % increase (% 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 prefer
this as their ordering method. In the experience of organizations implementing an Acme Powered
electronic commerce solution, they have found that their customers will order up to 30% more line items
per order via an online system. However, it is best to be conservative and use between 5% and 10%.
There are three principal reasons why this increase in line items occurs:

Customers can easily browse around inside the application and order products they may have not
realized 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 to
provide their customers with recommended substitutions, ensuring that they capture the entire order.

The up-sell and cross-sell function makes recommendations for complementary products, extends
special 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 the
average value of each order. Decide upon a percentage of your customer orders that would move to your
electronic commerce system from your current method(s) if you are unsure of this number, we suggest
you use 20%. Also decide on a percentage increase in line items per order that may be realistic for your
organization, given the above information.
Formula:

x
# orders by
fax/phone
per day

x
% orders
moving to
eCommerce

x
Average total
order value

x
x % increase
in line items
(5% - 30%)

250

(B)

days

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

(C) Advertising Sales Revenue

(C)

With an Acme electronic commerce system, you are provided with a revolving sponsor bar, which can be
designed to show the advertisements of your suppliers. Organizations who use this feature sell the
revolving sponsor bar to their suppliers for a monthly fee. They sell the bar in the form of rebates, co-op
advertising, 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 are
interested in reaching their end user target group through the distribution channel.
Formula:

x
# of sponsors

12 months

(C)

$ per sponsor bars per month

Total Projected Annual Revenue Increase ( AC)

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 into
the 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 is
providing 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 if
unknown)

(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 resources
required to handle, trace and ship these goods to the customer. The typical costs of handling backorders
can range from $75 to $200 per line item. Backorders are directly related to a companys service level for
their customers. For example, if a companys service level is 89%, they are able to ship what the
customer orders 89% of the time and their back order rate is subsequently 11%. Every percentage
reduction in backorders generates a corresponding percentage increase in the companys 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 (decrease
backorders), without having to increase inventory. This is done by providing complete product

information to your customer at the time of their order placement. Internet order entry provides the
following additional information versus fax and phone transactions:

Product technical specifications;

Alternate product (substitutes) that can be immediately ordered;

Online delivery and availability information, displayed in real time.

Backorders can be reduced because your customers have the information to assist them in ordering the
correct item, as well as providing them with sufficient information regarding substitutions so that they can
complete their order with you.
In this formula, we are dealing only with those orders that would move to your Internet electronic
commerce system, as this is the area in which you would realize a reduction in your backorder levels. We
will compare this segment of your orders at your current backorder rate against the projected reduced
backorder rate that you can realize through the implementation of an online system with product catalog
and substitution information.
In order to estimate the degree to which you can reduce your backorder rate, consider how easily your
products can be substituted, and how many substitutions you offer. If your products are easily substituted
and you offer a wide range of options for your customers, then you may be able to significantly reduce
your backorder level to only 1% or 2%. On the other hand, if you do not offer substitutions, or if the
products are not easily substituted, then you may find that your backorder rate may be only marginally
affected.
Another factor to consider in reducing the number of backorders is in the efficiencies gained by
automating the procurement processes through an eCommerce solution. Shorter lead times and
improvements in order accuracy during the procurement cycle can directly reduce the number
backorders, thus increasing customer service levels.
Formula:
x
% of back
order line
items

Avg # of line
items per
day

Avg cost of a back

order ($75 - $200)

x
% of
Internet
orders

x
% improvement
in customer
service (50% 75%)

250

(B)

days

Case Example:.

(C) Reduced Product Returns

(C)

A product return is not only considered lost revenue but also represents a significant additional operating
cost for the re-handling of the product. The cost of handling a return line item can be in the range of $50
to $900 per line item. These handling costs include product inspection, re-packaging, and restocking
activity. Returns can be substantially reduced by 35% to 50% by providing complete product information
to the buyer at order entry time. Real-time Internet ordering by the customer also significantly reduces
the chances of misinterpretation over the telephone and errors during the order entry process.
In this formula, we are dealing only with those orders that would move to your Internet electronic
commerce system, as this the area in which you would realize a reduction in your product returns. We
will compare this segment of your orders at your current product return rate against the projected reduced
return rate that you can realize through the implementation of an online system. We will then multiply the
difference between the two return rates to define your yearly cost savings through the reduction in
product returns that can be achieved by real-time online customer ordering.
Formula:
x
% of line
items returned

x
Total # of line
items/day

x
Avg cost of a
return ($50 $900)

x
% of
Internet
orders

x
% reduction
in returns

250

(C)

days

(D) Reduce Costs of Promotional Material

(D)

As customers learn more about who is viewing and ordering from their online system, they can
significantly reduce the number, frequency, and size of the physical catalogs and promotional flyers that
they 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
$ Printed Materials Related to
Catalogs

(D)

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-back
inquiries. If you are like many companies, as much as 70% of the calls you receive are placed to ask one
of 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 Internet
electronic commerce system. Most companies are experiencing savings of at least 15% to 30% of their
current 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 telesales
personnel now have 15% to 30% more time to make proactive sales calls, which can also provide you
with 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 their
suppliers 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 to
your suppliers, you can greatly reduce costs and expedite the procurement process. In addition, the
efficiencies gained by Purchasing Agents in automating these routine tasks, can free up their time for
more 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 the
management of direct purchase orders.

(a)

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

(b)

% of Purchasing Agent time spent handling purchase orders

(c)

Average yearly cost of processing POs:

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

(d)

Projected % of POs 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 ( AF)

Summary of Financial Justification

Once you have completed your projected increase in revenues and projected decrease in costs, you are
now 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 provide
you 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 1800-495-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 telesales
group. To reduce these costs, you can consider replacing a portion of your incoming lines with
an Internet hookup for an electronic commerce system. Depending on the type of link you
require 56 Kbps leased line, T1 line, ISDN line your costs for an Internet hookup could be
10% 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 by
product returns. By allowing your customers to place their own orders, you are reducing the
incidences of incorrect shipments due to miscommunication. In addition, because customers
have 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 it
being returned as unsuitable.
Reassign Telesales Personnel to Revenue Generation
When you operate a telesales group, a large portion of the groups incoming calls are
associated 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. Online
catalogs are a cost-effective element of an electronic commerce system. Once a catalog is
published, changes are easily accomplished and dont require redoing the entire catalog. In
addition, publishing an online catalog will provide you with significant cost savings over
traditional printing and distribution.
Special offers can be published in the same manner. It is far more cost effective to post a
special offer to your online system than it is to have the art created, then print and distribute the
flyer.
Depending on your geographic market, regular distribution of printed materials could be a
significant portion of your marketing budget and an area in which an electronic commerce
system can have great impact.
By utilizing these online marketing methods, you are also able to enhance your customer
response to your programs. With an online system, customers can immediately respond to
specials, placing their order immediately, ensuring that you realize immediate revenue from your
programs.
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 7
days per week, 24 hours per day availability, the company no longer needs the 3-hour shift to
allow 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 capacity
is 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 the
growing 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 answers
to their inquiries regarding pricing, inventory levels, and their pricing again, with no wait. As
your needs for capacity increase, your Acme system can be expanded to handle higher
volumes, 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 order
size by up to 30% because they can browse around and order products they may have not
realized 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 with
recommended 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 large
organizations now insist that their suppliers offer electronic commerce. An electronic commerce
system positions your company to become a preferred supplier for these organizations, as you
are able to do business the way they want to. By increasing your service options, you are able
to 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 Proposal
business because they comply with the customers strict requirement that they provide Internet
electronic 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 electronic
commerce system, your only geographic restriction is imposed by the logistical issues
surrounding product distribution. The World Wide Web is a truly global marketplace, which
means 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 bidirectional. The language is programmed based on the user ID, which means that a single
electronic commerce system can provide multi-national support, allowing you to expand globally
without 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 your
products or services to your customers in the fashion that they prefer. Acme solutions allow
customers to reach you through multiple online channels, which include, web browsers, wireless
devices, 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 maintaining
your competitive edge.
If your competition doesnt offer electronic commerce by
implementing electronic commerce you will be able to give their customers an alternative that
provides 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 or
inventory levels. At the same time, they can place their order, and even order substitutes in the
event of out of stock or discontinued products. Online catalogs, special promotions, and
product literature provides convenience and a wealth of information.
When your customers place their order, they immediately know the cost of the order, whether it
will be a complete or partial shipment, and when the product will be shipped. With this level of
service, they can conduct their own business, confident that the correct supplies will arrive when
needed.
One Acme customer bought their system because they could save their major customers
significant time in their procurement process by offering an Internet electronic commerce
system. While this shows great dedication to servicing their customers, it also shows that this
organization views themselves as their customers partner, and works hard to help them save
money.

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