Questions re IT infrastructure on costs

[dyow]

Very general question.  Let's say we have a retail company with smaller type 1000 stores, makes 2 Billion in revenue and net margins of the business are slim 1-3% (after selling and admin and cost of goods sold).  About 1500-2000 employees, max 100 work at head office. 

 

The company currently has a very dated system and uses old systems and outsources back office work to a 3rd party.  It looks very inefficient.

 

They are overhauling the whole IT system (new system provided by Netsuite Inc.), cloud computing.  They are also putting in new point of sale systems in all the stores.  They expect to have better control of information and make processes more efficient.  They will use the new system to buy directly from suppliers which they have not been able to do in the past.  They are calling the new system "new and state of the art".

 

So my question is what the hell does this mean?  I know very little about this stuff but am trying to learn and mgmt has not provided guidance.  When looking from the outside it is very difficult to assess this, especially if you know very little about IT.

 

How much money can be saved here (I don't need a number obviously, but I am trying to quantify this as best I can).  Does anybody here have experience with something like this at a high level?  Does this impact costs throughout the value chain?

 

Thanks in advance

 

 

[beerbaron]

The way you have to see it is not on the cost saving side. Most of the time those softwares allow for much more streamlined operations and it reduces the employee's workload. But what ends up happening is that the new IT platforms can generate so much reports that all of a sudden employees managing POs, supply, etc... end up reading reaports and acting on it. Sometimes the implementation completely fails and it's a big waste of money and efforts. Even worse, sometimes management refuses to revert back to avoid losing face or because it's just impossible.

 

However, a proper IT platform also allows for a much more scallable business, usually companies that failed to properly invest into their IT start losing ground as they add more SKUs, place bigger orders, add suppliers, etc... A quick rule of thumb can be seen as every time you double the employee size you quadruple the information flow. Having a software to support all those complex tasks allows to add people to support the business without being affected by this exponential loss of efficiency (or less of).

 

On a final note, IT investments should be seen as cost of doing business. You always have to invest in it, when it's not new software implementation it is support and upgrades. Most companies rely heavily one knowledge workers, hence knowledge has to be stored, process and acted upton.

 

Regards

BeerBaron

[dyow]

Thanks, you make points I did not even consider.  I would assume it would be a net benefit, but who knows, implementing and executing is another story.

 

I see what you are saying about costs, expense/cost efficiencies might really come into play if they scale the business, which makes sense.  This business is is actually shrinking/maintaining stores, which makes things less clear.  The more I think of it I might also be looking at it wrong in that the main benefits might actually come from employees having more free time/and more real time data to focus their energy on serving customers, which might help revenue, but is hard to quantify.

 

Thanks for the info.

[dyow]

Beerbaron is money.

 

I spoke with management, everything you said is pretty much right, i was looking at it the wrong way.

 

beerbaron for president of COBF.