ASPs and Inventory Planning: Tools That Work Hand-in-Hand
(Originally published in the January 2002 issue of AFSMI's Sbusiness.)
By Bryan Scott
What Is an ASP?
At Baxter, we take this concept of ASP one step further by defining it essentially in terms of Web-Based Application Hosting. We believe that there are many services sector businesses that have internal service parts planning organizations that are deeply in need of inventory planning software solutions to help them meet increasingly demanding customer service requirements. However, many of these organizations are often consumed with other business-critical projects and simply do not have the available resources required to support an additional implementation project. Even if they do, the costs associated with supporting such a project may be much higher than expected.
However, the use of an ASP allows these types of businesses to focus exclusively on their prioritized business-critical activities, thereby eliminating the burden of taking on another time- and resource- consuming activity. An ASP can then provide online use of the desired software, server hardware, software maintenance and upgrades, production support, system administration, database administration, and training - everything that the business requires - accessible instantly over the Web, but without many of the requisite implementation, management and maintenance tasks typically required in supporting a third party application.
Why Have ASPs Become So Popular?
According to Cherry Tree, there are a significant number of drivers, or factors, that are impacting the growing acceptance of the ASP model. These include both technical and business drivers, as follows:
Sometimes, the deciding factor in whether or not to utilize the services of an ASP relies more on the basis of whether the ASP truly has the "killer app" (e.g., inventory planning) that will make it easier for the enterprise, or whether it merely represents just another way or providing the "same old, same old" with respect to applications support (e.g., a "generic" third-party ASP essentially hosting somebody else's "off-the-shelf" software).
Cherry Tree also lists a set of specific business drivers that may represent the deciding factors for the most "bottom line"-oriented businesses. These include:
How Well Have ASPs Been Accepted in the General IT Marketplace?
According to the results of a CIO Magazine/ASP Industry Consortium (ASPIC) joint special survey conducted in 2000, roughly 91% of users were at least "somewhat satisfied" with their current ASP, including half (50%) that were either "very" or "extremely" satisfied (Figure 2). Other key findings revealed from the 2000 survey results include:
What Are the Principal Differentiators Among ASPs?
Cherry Tree identifies eight representative types of ASPs supporting clients today, each with their own respective capabilities (or limitations) with regard to providing an individual enterprise with a "total" solution (Figure 3):
The two principal types of ASPs currently being used in the services sector are:
Vertically Focused ASPs, or Vertical Service Providers (VSPs), offer industry-specific applications (e.g., financial services, healthcare, telecommunications, professional services, etc.). VSPs generally provide fully-developed, vertically-oriented, templated methodologies that can easily deploy across multiple clients within the same industry. They know the industry they serve, and can generally tackle even the most complex issues facing their clients in the vertical industry segment.
Other types of ASPs include:
What Are the Major Benefits of Using an ASP?
CIO Magazine sums up the major benefits of utilizing the services of an ASP by stating that, "the ASP model allows businesses to enjoy much higher levels of technology refresh without continual investments in new technology. New features and services become easier to roll out. Without having to independently evaluate, test, debug and develop expertise in a new technology area, trial and adoption is significantly simplified."
Among the key benefits that can be provided through the use of an ASP, according to CIO, are:
Cherry Tree lists the most important benefits that can be gained through the use of ASPs and business process outsourcing vendors in terms of three sets of market "drivers" (i.e., "value-added", outsourcing and macroeconomics), as illustrated in Figure 4.
By and large, this list is representative of the consensus of ASP users in terms of weighing the anticipated benefits against any potential risks that may be associated with the use of ASPs and/or business process outsourcing vendors.
Do ASP Providers also offer Inventory Planning Services?
The inventory planning organization within a company is often short on both time and resources, resulting in more time spent expediting than planning. Beyond that, some companies may not have a planning organization at all. These represent excellent opportunities for benefiting through the use of an ASP that can serve either as an extension of the client organization, or as the client's exclusive planning staff.
However, not all ASPs have the expertise, proven track record and highly trained resources to ensure a successful outsourcing relationship. Strategies For GrowthSM's Pollock also believes that, "Only by finding, selecting and implementing an ASP that has the required application expertise and management skills can client companies become totally free to focus on their respective core competencies and business operations. In these cases, the outsourced application provider must be sufficiently knowledgeable with the customer's business, and the support it provides must be tailored to meet the exact needs of each individual client."
Inventory Planning is a specialized subset of Business Process Outsourcing (BPO) that can only be offered by a provider with expertise and infrastructure in this area to support its software offerings with the necessary professional services and support. While some ASPs, particularly of the third-party variety, may not even be able to support such application-specific software, Inventory Planning represents a core competency of Baxter Planning Systems.
Where Do We Go from Here?
Gartner, Inc. suggests that "the current ASP model is not appropriate for all application software products or all potential customers. The ASP market has yet to display much vertical characterization. The bulk of applications currently being sold via an ASP model are, by their very nature, non-vertical applications (for example, human resources, messaging or groupware)." However, the firm goes on to say that "it is becoming clear that the real value of ASP offerings for organizations is not in the delivery (via the web) but in the services themselves." As such, we believe that the Baxter ASP model for Inventory Planning is an attractive example, in that it embraces both the domain expertise and vertical industry focus that allows it to transcend the limited appeal of the more "commodity-like" ASP offerings that presently "litter" the market.
We believe that as long as companies with service parts inventory have the challenge of reducing inventory while increasing customer service levels, in the face of increasingly limited resources and downsized budgets, there will be pressure on solution providers to rise to the occasion by offering new, innovative and more cost-effective ways to provide the required solutions. Thus, in the coming year, in order to become a credible solution provider, software vendors will need to provide additional services around their proprietary software that address the reality of limited resources and budget.
We also believe that this is where the true value of the Application Services Provider (ASP) and Business Process Outsourcing (BPO) providers will be - particularly in the area of Inventory Planning in the services vertical segment. We further believe that these two support services go "hand-in-hand" with respect to providing the total solution that enterprises in this segment demand.
Baxter ASP Users Are Reaping Significant Benefits
Baxter Planning Systems notes several client case studies that illustrate the benefits of using an ASP - especially one that is both domain expertise (i.e., inventory planning) and vertical industry-focused (i.e., services segment).
According to Mark Anderson, Strategic Supply Chain Manager, Agilent Technologies, "Agilent has realized the benefits of not only utilizing this state-of-the-art software to plan its support business, but we have also shifted some of our Planning functions over to Baxter. We have outsourced some of our mature product/part business to Baxter allowing our planners to focus on new products and end-of-life issues. As our partner, Baxter has demonstrated real value not only in the development of sophisticated planning tools, but also in their ability to understand our business and relieve us of some direct costs with their planning resources."
Enterasys Networks is a new type of company that combines a single market focus with a strong technology heritage to provide communications infrastructures for enterprise-class customers. Enterasys' networking hardware and software offerings deliver the innovative security, availability and mobility solutions required by Global 2000 organizations coupled with the industry's strongest service and support. Ted Heywood, Enterasys' Director of Global Service Logistics, said "The flexibility and professionalism of Baxter's people allowed us to not only bring their capabilities on line quickly but also develop solutions to some nagging problems that had been difficult to solve in other ways. Using their capabilities we have been able to assure the proper location of our global depots, reduce our inventories and improve our on time customer deliveries. They are a valued partner and have allowed us to do a better job for our customers and Enterasys."
Lucent, a leader in broadband and mobile Internet communication systems, utilizes the Prophet by BaxterTM software suite. The use of the software has resulted in a reduction in service parts inventories by over 50%, and a dramatic increase in the company's customer service levels, in some cases to over 99%. Even before reaching full operational capability, Lucent's Service Logistics division believes it will be able to achieve 98% of its same- and next-day response commitments. According to Lucent Service Logistics Business Development Manager, Dana Primiano, "The application will significantly increase the company's service levels for delivering customer spares while reducing our investment in inventories."
Bryan Scott is vice president sales & marketing for Baxter Planning Systems, Austin, Texas. He may be reached at (512) 323-5959, ext. 206, or via e-mail at email@example.com. For more detailed information on this same topic, please contact AFSMI directly for a copy of Baxter's white paper entitled, "Application Software Provider (ASP) and Business Process Outsourcing (BPO): Planning and Implementation Tools That Work Hand-in-Hand."
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