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TCO Methodology Offered to Demonstrate Economic Value, Cost Savings of Outsourced B2B
GXS methodology aimed at helping companies capture cost benefit, overcome risk aversion to embarking on B2B outsourcing
Gaithersburg, MD — February 9, 2009 — B2B connectivity specialist GXS has launched a methodology for identifying the total cost of ownership (TCO) of managing a B2B program in-house versus outsourcing to a managed services provider like GXS itself.
The current economic environment is forcing many companies to cut costs while maintaining the same or better functionality. GXS said its "TCO Advantage" methodology enables companies to more concretely establish whether B2B outsourcing can lower their spend on B2B e-commerce operations.
Ryan Kraudel, director of product management, said that companies have been struggling to understand the potential benefits of B2B outsourcing, hampered in part by the complexity of the B2B program management cycle and the various roles and functions involved in a program. "Companies have been struggling to understand what they needed to measure, and there wasn't always agreement internally within companies on how to measure the benefits," he said.
The Excel-based model from GXS takes into account all the costs and resources associated with B2B and provides companies with a detailed cost comparison for both avenues, according to the solution provider. GXS' own Managed Services offering provides a single connection point to a company's trading community, so that the company only needs to connect once, to GXS, to enable B2B transactions with its suppliers, partners and customers.
According to GXS, the model should take about one hour to complete, and the target user is someone like a company's vice president of e-commerce, director of supply chain or e-commerce, or another executive who oversees the company's links with its trading community.
Marco de Vries, director of market intelligence at GXS, said while the current economy has made cost cutting a priority goal for companies looking to outsource their B2B programs, organizations have struggled to understand the potential payoff from outsourcing. In addition, he said, "the fact that budgets are tighter has made companies more averse to taking risks or changing their business processes. We believe that this new methodology addresses the opportunity to take out costs but also helps overcome that barrier of risk aversion."
To ensure a financially sound model based on actual customer results, GXS contracted an independent vendor with in-depth experience in TCO and return on investment (ROI) modeling, Hobson and Company, to create it. Hobson interviewed multiple existing clients of GXS Managed Services to establish and confirm B2B-related expenses.
Source: GXS.
Hobson also tested the model with additional customers and applied it to their deployment. Doing so helped the firm not only determine all the costs associated with B2B, but also helped established the immediate and long-term cost savings achieved by several existing customers. For example:
The model is not limited to pure TCO measurements. The methodology also helps customers establish present value of their B2B spend. Present value provides an assessment of future cash flows in today's dollars over a specified period of time and is an indicator of how much value an investment or project adds to the company. In addition, the model provides an itemized view of B2B program cost to demonstrate where the opportunity for cost savings is greatest.
The current economic environment is forcing many companies to cut costs while maintaining the same or better functionality. GXS said its "TCO Advantage" methodology enables companies to more concretely establish whether B2B outsourcing can lower their spend on B2B e-commerce operations.
Ryan Kraudel, director of product management, said that companies have been struggling to understand the potential benefits of B2B outsourcing, hampered in part by the complexity of the B2B program management cycle and the various roles and functions involved in a program. "Companies have been struggling to understand what they needed to measure, and there wasn't always agreement internally within companies on how to measure the benefits," he said.
The Excel-based model from GXS takes into account all the costs and resources associated with B2B and provides companies with a detailed cost comparison for both avenues, according to the solution provider. GXS' own Managed Services offering provides a single connection point to a company's trading community, so that the company only needs to connect once, to GXS, to enable B2B transactions with its suppliers, partners and customers.
According to GXS, the model should take about one hour to complete, and the target user is someone like a company's vice president of e-commerce, director of supply chain or e-commerce, or another executive who oversees the company's links with its trading community.
Marco de Vries, director of market intelligence at GXS, said while the current economy has made cost cutting a priority goal for companies looking to outsource their B2B programs, organizations have struggled to understand the potential payoff from outsourcing. In addition, he said, "the fact that budgets are tighter has made companies more averse to taking risks or changing their business processes. We believe that this new methodology addresses the opportunity to take out costs but also helps overcome that barrier of risk aversion."
To ensure a financially sound model based on actual customer results, GXS contracted an independent vendor with in-depth experience in TCO and return on investment (ROI) modeling, Hobson and Company, to create it. Hobson interviewed multiple existing clients of GXS Managed Services to establish and confirm B2B-related expenses.
Source: GXS.
Hobson also tested the model with additional customers and applied it to their deployment. Doing so helped the firm not only determine all the costs associated with B2B, but also helped established the immediate and long-term cost savings achieved by several existing customers. For example:
- an energy company saved nearly $1.7 million in the first year alone using GXS Managed Services ($2.3 million on-premise costs versus $649,000), an immediate cost savings of 72 percent;
- by year three, a large consumer products company is anticipated to realize a cumulative savings of $500,000 using GXS Managed Services, a benefit growing to $1.2 million by year seven;
- by year three, another company is anticipated to realize a cumulative cost savings of $3 million; and,
- by year seven, that same company is anticipated to save $7.4 million by reducing full time employee requirements for B2B from seven to one.
The model is not limited to pure TCO measurements. The methodology also helps customers establish present value of their B2B spend. Present value provides an assessment of future cash flows in today's dollars over a specified period of time and is an indicator of how much value an investment or project adds to the company. In addition, the model provides an itemized view of B2B program cost to demonstrate where the opportunity for cost savings is greatest.
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