Daily Archives: May 13, 2009

Who Reads Sourcing Innovation?

Educated, informed, driven individuals like you … who care more about education, innovation, and self-improvement than the gossip of the day. You’re in good company. Last week, over a 5 day period, a sample of approximately 1,000 randomly-selected unique IPs were traced back to 888 unique organizations. Here are 88 random companies from the full list. As one smart and informed individual remarked, it’s a “who’s who of global sourcing“.

  • Aerospace Distributors
  • Alcan Aluminum Corp
  • Amazon.com
  • Ameriprise
  • Army & Air Force Exchange Service
  • AT&T
  • Bank of America
  • Bell Canada
  • Boeing
  • Canadian Tire
  • Caterpillar
  • Chevron
  • Cisco Systems
  • Computer Sciences Corporation
  • Continental Airlines
  • Cox Enterprises
  • Data General Corporation
  • Deere & Company
  • Defense Research Establishment (Canada)
  • Deutsche Post
  • Earnst & Young
  • Eaton Corporation
  • Emerson Electric
  • Ericsson
  • Fisher Scientific
  • Fox Entertainment Group
  • Fujitsu
  • General Electric
  • GlaxoSmithKline
  • Google
  • Harcourt General
  • HCL Technologies
  • Henry Ford Hospital
  • Hertz
  • Hewlett-Packard
  • Hitachi Credit America
  • Home Depot
  • Honda
  • Honeywell International
  • IBM
  • Intel Corporation
  • Johns Hopkins University
  • Johnson & Johnson
  • JP Morgan Chase & Co.
  • Kohler Company
  • KPMG
  • Kodak
  • Kroger
  • Loblaws Companies
  • Loyola University Chicago
  • MIT
  • Merck and Co.
  • Molson Coors
  • Motorola
  • NBC Universal
  • Nordstrom
  • Northrop Grumman
  • Oracle Corporation
  • Oxford Brookes University
  • Perseco North America
  • Pratt & Whitney Canada
  • Praxair
  • Raytheon Company
  • Research in Motion
  • Rhodes University
  • Royal Melbourne Institute of Technology
  • Samsung
  • SAP
  • SAS Airline
  • Schneider National
  • Shell
  • Siemens
  • Solar Turbines, Inc.
  • Sony
  • Staples
  • Sun Microsystems
  • Suncor
  • Tata
  • Texas A&M University
  • Time Warner Telecom
  • United Nations Office
  • United Parcel Service
  • University of California
  • Uponor
  • Virgin Media
  • Wachovia
  • Wal-Mart Stores
  • Whitepages.com
  • Like you, these readers are globally focused … and global. Even though about 95% of Sourcing Innovation’s readership, as you would expect, is from North America, Europe, and Asia, in that order (in a rougly 63%, 17%, 15% split), Australasia, South America, and Africa are also increasingly represented. In fact, the last month saw traffic from 168 countries.

    SI’s readers are also numerous (and growing monthly). On an average day, around 1,000 of your intelligent and innovative peers will visit Sourcing Innovation, and in an average month, at leat 11,000 of your global counterparts will be here with you, collectively hitting the site about 150,000 times. (And, as I’ve pointed out before, that traffic is on par with many of the “leading” publications in the space, and was enough to secure Sourcing Innovation top blog on three of the five top external traffic ranking sites. See the archived posts, linked on the sidebar.)

    I’ve seen some ridiculous claims on websites about readership levels, which is a shame, because it penalizes those of us who provide accurate data. For example, if a site that publishes new content daily claims to have a regular readership of 10,000, yet it only gets 20,000 hits a month, that says the “average” reader only visits the site 2 times a month, which makes no sense. Remember, the numbers have to add up and make sense. If they don’t, they’re just wrong.

    I’ll outline in my next post about how to make sense of the confusing jumble of web statistics thrown at you. In Sourcing Innovation’s case, the “average” reader visits 2 to 3 times a week and accesses about 10 pages a month. Most accesses are home page accesses (which allows the reader to catch up on all the posts since their last access). This is about the regularity you’d expect from experienced and informed supply chain leaders who are too busy to spend a lot of time reading blogs, yet take the time to make Sourcing Innovation an integral part of their news, research, and continuing development efforts.

    An Enterprise Software Buying Guide, Part VI: Cost Model Calculations

    In our last post, we talked about how you defined lifetime total cost of ownership models and what the key cost components of each major software delivery model were, reviewed below. In today’s post, we discuss how you will usually calculate each of the cost components.

    On-Premise Hosted ASP (True) SaaS
    • License Cost (Up Front)
    • Maintenance & Support (Annual)
    • Dedicated Server Costs
    • Supporting Software Costs, usually Database and Application Server at a minimum
    • Implementation & Customization Costs
    • Integration Costs
    • Training Costs (Up-Front)
    • Internal Support Costs
    • Major Software Upgrade Costs, usually every 2-3 years
    • Hardware Upgrade Costs, approximately every 3 years
    • (Re)Training Costs (on Upgrade)
  • Annualized License and Maintenance Cost
  • Annualize Hosting Cost that consolidates hardware, bandwidth, and support costs
  • Major Software Upgrade Costs, usually every 2-3 years
  • Implementation & Customization Costs
  • Integration Costs
  • Training Costs (Up-Front)
  • (Re)Training Costs (on Upgrade)
    • Annualized License, Hosting, and Maintenance Cost
    • Implementation & Customization Costs
    • Integration Costs
    • Training Costs (Up-Front)

    Based on these model requirements, you can build a spreadsheet that allows you to calculate and capture each cost component using all of the information available to you. These spreadsheets can then be modified during negotiations to capture the true total cost of ownership over the projected lifetime to understand the true cost of each proposal put before you, or your expert negotiator. Each of the costs above can be calculated as follows:

    • License Cost
      The license cost will either be a fixed price or an annual fee. In the first case, it’s a simple input, and in the second case, it’s the annual license fee times the number of years you intend to use the solution. (It’s a good practice to also calculate the costs for a range of years in multiple columns. If you think you’ll use the application for 10 years, calculate values for at least an 8 year and a 12 year ownership term as well to understand how costs change over time.)
    • Maintenance and Support Cost
      This is usually a percentage of the license cost each year. As such, it’s easily modeled as a percentage of the license cost multiplied by the number of years you intend to use the solution.
    • Dedicated Server Costs
      You’ll likely have to add servers to support your new acquisition. The cost will be the number of new servers required times the expected server cost. (Note that tough times will get you great deals on hardware using a reverse auction.)
    • Supporting Software Costs
      Many enterprise applications require database licenses and application server licenses (and some will require middleware licenses as well). These applications generally have license fees, maintenance fees, and per CPU and/or per seat fees. If you are lucky enough to already be licensing the supporting software, the cost will just be the costs to support the new application, calculated either as the number of new CPUs times the per CPU cost or the number of new seats times annual seat cost. If not, you’ll have to add in the license costs and the annual maintenance costs of the supporting applications as well.
    • Implementation & Customization Costs
      In the world of enterprise software, there really is no such thing as “it works out of the box”. At the very least you have to load your data. Usually, you’ll have to bring in a hired gun to install it, customize it, and get it working efficiently on your systems. If you’re lucky, this will be a reasonable fixed fee. If not, it will be a by-the-hour fee (and you’ll need to ask current/past customers to get an idea of the number of person-hours that will be required.)
    • Integration Costs
      If you need your new system to talk to, or work seamlessly with, other systems, you’ll likely have to do some integration. You’ll probably have to consult with a third party integrator to get an idea of project size, which will determine what will likely be a day rate based quote.
    • Training Costs
      Although it’s getting better, most enterprise software is still a long way from “Web 2.0” and your staff will generally need to be (extensively) trained to take full advantage of the system. This will usually be a fixed rate per course or student.
    • Internal Support Costs
      Even if the vendor installs and configures the software and includes “support” as part of maintenance, the support will generally be limited to bug fixes. You’ll still need internal IT resources to manage the instances, manage the servers, and support your users (and the required operating environments). The annual cost will be the estimated number of annual resources required times their average annual salary.
    • Software Upgrade Costs
      Depending on the vendor, every 2 to 4 years they’ll release a major new version of their (on-premise/ASP) solution and discontinue support for an older version around the same time. This means that, every 2 to 4 years, you’ll have to upgrade, for a hefty fee, or risk losing support. This cost can be estimated by looking at the vendors historical major release cycle and average upgrade cost as a percentage of previous system price.
    • Hardware Upgrade Costs
      Every 3 years, your hardware will need to be replaced. Even though the cost per performance unit continually decreases, you’ll need a more powerful machine at upgrade time as your users will be using the system more heavily, the software upgrades will demand more computing power, and you’ll need to support your (hopefully) growing business. A safe bet is to expect the upgrade costs will be roughly equal to the initial hardware costs.

    In our next post, we will tackle negotations and how you should go about defining your ultimate objective.