Collect tips and tricks to scale your business from SmartTurn’s experts
Collect tips and tricks to scale your business from SmartTurn’s experts
Posted: December 02, 2009 by Ly Phan
Customer successes using SaaS (Software as a Service) applications from vendors such as Salesforce, NetSuite and SmartTurn have proven that the benefits of the SaaS model are real and measurable. If you count yourself ready to move forward, this chapter is for you. Best Practices for Selecting a saas warehouse management system (WMS) is designed to help you reduce mistakes when selecting a vendor, increasing the likelihood that your SaaS migration will be a positive and profitable experience.
The old experiences you may have had previously selecting and implementing on-premise software no longer apply with the saas wms model. In the former world, your relationship usually didn't linger much longer than the time it took to pay the PO. In contrast, the SaaS vendor-customer relationship is very different; the relationship extends for the length of time that you will use the application. By entrusting your business data (sensitive or not) to a third party, you become dependent on that vendor for training, application availability, upgrades, and on-going support. Therefore, vendor selection should follow a careful and methodical evaluation process.
Below is a list of some of the issues and questions you should investigate and answer during your courting period with potential SaaS vendors. The vendor you ultimately choose should be the one best able to support your business needs day after day, month after month.
Before getting to our list, however, it is time for that characteristic of all good lists - the caveat. Depending on your unique priorities, the relative importance of one issue may be greater or less than another. For example, Fort Knox-level security access may not be that important to you if your data isn't critical. Mobile access may be a low priority for you, yet may be very important for someone else. You need to decide where you can be flexible and where the absence of something is a deal killer.
If you've seen the TV series Deadwood (a fictionalized portrayal of an 1870's South Dakota boomtown), you know what happens when a bandwagon materializes. Everyone rushes in to make a buck. The contemporary SaaS field isn't much different. You'll find a lot of hungry wannabes.
Interest yourself more in a vendor's staying power than its website or slick sales pitch. Look for a vendor that has been around for while (balancing its track record against the inescapable fact that the SaaS marketplace is a relatively new market). The number of paying customers is one indicator of the quality of the SaaS solution and service. These are customers that, happy with the service, have continued to pay month after month.
Experience counts for something. If you were going to have laser eye surgery, would you opt for the newly-graduated surgeon with a dozen operations on his resume or a surgeon with several hundred or even thousands? Look for a vendor whose SaaS offerings have kept customers happy long enough to suggest that you, too, will be able to depend on the technology, service availability, and customer support.
Understanding how to develop and host a remotely-access application is just one part of being successful as a SaaS vendor to warehouses and 3PLs. Does the vendor understand your marketplace? Look for relevant expertise among the executive team, funders/investors, salesforce, implementation staff, and customer support folks. Is the supply chain world of inventory and warehouse management foreign to them? Does the executive team have experience working for other SaaS vendors? Can the sales reps and technical support staff talk your lingo? Have they ever worked in a warehouse before? Do the employees in charge of your implementation understand process flow? Do they know the difference between a container and a pallet (a basic test) and understand advanced wave planning (a little more advanced)?
Tip: Ask about the experience that vendor staff may have gained from working in the warehouse and 3PL industries.
SaaS has created a complex set of problems for traditional software vendors. Their legacy cash cows-the installed masses of customers paying annual software licenses of 18-20%-conflict with the potential cannibalization represented by the SaaS opportunity. Yet, as more and more companies dip their toes into the SaaS waters, the traditional vendors want their cake...well you know how that clichÃ© goes.
As a result, many software companies have pursued a shortcut of "webifyng" their existing applications. This often produces heavily rejigged software offerings that are newly branded as SaaS. You don't want this. You want a vendor experienced in both application development as well as application hosting. Porting an existing application to the SaaS delivery model is reactive. It typically does not address issues of availability, scalability or (of importance to many) security (which we discuss below).
Warehouses and 3PLs are looking to SaaS to deliver value. Value generally begins with subscription pricing. Understand the bold and fine type of your subscription contract. Are you going to be locked into your original pricing commitment or can you revisit it in the future, subject to changes in your organization? Staff turnover (whether through attrition or growth), as well as merger and acquisition activity, can vary your usage.
Current SaaS pricing options for warehouses and 3PL can be generally divided into the following buckets:
Will you have to sign a one year or three-year contract? Is monthly pricing an option? Do the number of users or the number of transactions affect pricing? Does the vendor offer tiered pricing based on volume? What is the setup or implementation fee? Opt for a fixed price implementation fee whenever possible. Hourly billing for implementation work can be a budget killer.
Costs and billing include both how much you are going to pay and the payment terms you are agreeing to. Define both in the contract. If the Service Level Agreement includes guarantees, find out the compensation should the vendor fail to meet them? If the vendor falls short, you should be able to gain at least service credits or possibly even payment refunds. Service credit, however, is much more common in the SaaS industry. Avoid vendors unwilling to disclose additional charges in advance, as well as charges for options that may or may not apply.
Your future with the vendor may well include a decision to end the relationship. Don't wait until that moment to learn what the switching process and costs will be. Ensure that your original contract clearly spells out the termination details. Think of this as a "SaaS pre-nup."
ROI: Never agree to a contract that includes either "software maintenance fees" or on-going "user licenses." Avoiding those are one of the chief benefits of switching to a SaaS model.
Note: The cost of the service can indicate the level of support. It is really cheap, the service and support may be really cheap, too.
Your relationship with your SaaS vendor will be on-going, with technology evaluation just the beginning. It will start with courting by the sales force and continue through the implementation process and the future calendar of service upgrades. From helping to refine (and often define) your business processes, to initial staff training and on-going assistance, the vendor should be vested in your long-term success, not just getting the initial deal closed. Here are some thoughts on what you should discuss with potential vendors:
ROI: Look for a vendor that provides implementation support on a fixed cost basis.
Note: When the use of an application will touch your entire organization, it is worth investing in training time. Take advantage of the cumulative knowledge and expertise of the vendor and the training staff. Don't take the self-training shortcut.
Would you buy a car without a test drive? Well, some people do. The majority of car owners, however, get behind the wheel before deciding whether they really want to assume the monthly payments. Ask for a 30-day free trial. SaaS evaluations with minimal commitment are usually far simpler to create and manage than on-premise applications.
The vendor wants you to be happy and remain as a paying customer, generating recurring revenue over a long period of time. SaaS vendors, even if they charge a fixed set-up fee, look longingly to you as a customer in years two, three and four, because that is when they really make their money. They're not looking to keep you only for a short time. Unless the implementation fee is really high, SaaS vendors are probably losing money for the first six months or more on each new customer. They want new customers to hang around. Use this fact to conduct a thorough test drive.
Where does your potential SaaS vendor host its application and who is responsible for managing the servers? Does the SaaS vendor host it? What is the server configuration? Some vendors have hosting agreements with third parties (called either managed serviced or co-location, co-lo for short). Savvis is such a hosting provider.
What credentials does the third party host posses? Has it passed a SAS 70 audit? Request a copy of the report. It is unlikely that you will be able to personally visit the data center but there is no harm in asking the vendor if a tour is possible. (Many data centers provide virtual tours on their websites).
Note: A good and (revealing) question to ask is "What other companies (both SaaS vendors and other companies such as content providers( host data in the same data center. Knowing that a big media company has a couple of hundred servers there should provide some comfort.
You know that saying about the weakest link in the chain....there are few situations where it applies more than with data security. To some companies considering entrusting really sensitive data to a third party's data-center, security is be a deal stopper. For starters, security is more than SSL (Secure Sockets Layer). Ask the vendor a few more questions beyond "Do you use SSL?"
How can you be sure your data will remain safe as it traverses the internet? Should you trust that your data will be safe in someone else's data center? Has the vendor documented the security infrastructure, security policies, and protocols, and written a formal BCP (Business Continuity Plan)? Will it share this information with you? Your concerns about data center integrity are completely valid. You want to educate yourself about the following security issues:
Tip: Ask your potential SaaS vendor it has a formal BCP (Business Continuity Plan)? Is the vendor willing to share it with you? Does it satisfy you?
Access control is closely linked to data security. Your SaaS application will be accessible inside and outside your company. To ensure that employees, partners, and customers enjoy appropriate access levels to data within the system, you must be able to create policies and then implement permission control, password access and event tracking and administration.
Data backup is critical and encompasses a couple of areas. One is the backup of data. The other is restoration and access should something bad and painful happen to the primary servers. At the very minimum, you want a nightly backup. In addition, some kind of regular off-site backup must be scheduled. Make sure that the servers on which your data resides are mirrored, ensuring that your data is still secure and backed up live. Data availability in the event that the primary server crashes should be restored with minimal disruption and interruption.
Ask the vendor if they have ever had to restore data from backup drives or tapes. How long did it take before the customer or customers were operational again? Do they test database restoration? If so, how often? Does the vendor have the resources to handle multiple restorations at once? Have they tested this ability in a live-fire scenario?
Tip: Ask your vendor if they have a backup plan that covers worst-case scenarios? Has it ever been tested? Under what circumstances?
Ideally, your SaaS applications will integrate with and play fair with whatever applications you need to use to maximize your SaaS experience. Can the SaaS application integrate with your existing software? Data transfer in and out using the file or web service-enabled data exchange should be relatively painless.
Note: Clarify who owns your data. Is it available to you on a regular basis? Can you move it to another platform/vendor if you need to?
Customization does not mean configuration. The configuration is much cheaper and initially handled during implementation. As changes occur in your operations, such as new hires and updating access privileges, you'll need to reconfigure the application. In contrast, customization typically incurs additional payments to the SaaS vendor. Are any workarounds available that can meet your needs? Compare the perceived benefits and whatever development budget you may have. Is the ratio in your favor? Maybe you'd be better off continuing your search for a SaaS offering that won't require customization.
Another type of customization is language. Will your partners and customers (or employees in foreign countries) require localization in their language? If you want to completely localize a SaaS application (help documentation, for example), you're probably going to have to pay for it. Or, find a SaaS vendor who already does business in that language and has done what you're going to have to pay for. Someone has to pay for translation costs.
ROI: If you do business overseas, will you need to provide a SaaS application with some degree of translation? This location may incur upfront and on-going expenses. Research who will require access to the SaaS application whether they need access in a language other than English.
The SaaS application should work in multiple environments. By environments, we mean various operating systems (Windows, Mac, Linux, Unix) as well as browsers (Internet Explorer, FireFox, Safari, Opera, and Chrome). Look for a SaaS application that is fully functional in these environments because you never know what employees and customers will be using to access your SaaS data.
Tip: Ask if the SaaS application runs on all browsers or just Internet Explorer?
One of the key advantages of using a SaaS solution is the ability to receive automated upgrades. Make sure that the vendor regularly upgrades the offering, and that upgrades are free and are non-intrusive (meaning they don't require retraining of your staff). Inquire about the vendor's upgrade history for the previous 24 months, especially the frequency.
We discussed this briefly in the section on billing. Make sure the vendor has an SLA that defines the commitment and obligations and penalties for delivering and failing to deliver the promised service. Uptime is just one of several metrics that you can judge your vendor on. There is no universal, industry standard SLA so each vendor will have a unique set of promises.
Yes, it may work for a small workgroup, but does the SaaS application scale? You may not be able to predict your growth (or, less appealingly, shrinkage), but you will want to know before signing the contract whether you have any flexibility in the future. Can the vendor grow with you? How will it provide this assurance? What are the vendor's growth plans? Inquire about the largest current customers. Will your needs go beyond their largest current customer? You may assume that the vendor can and will grow as your business grows but you can't be sure unless you ask.
If you've read all or most of our Best Practice chapters, you know that SaaS provides the warehouse and 3PL industries with a tremendous number of benefits. Yet, many companies hold back, unconvinced that the sum of the benefits exceeds the perceived risks. A Q4 2008 study conducted by Forrester Research (sampling 352 US packaged application software decision-makers who are not interested in SaaS) found a variety of reasons preventing them from moving forward, including total cost concerns (37%), security concerns (30%), we can't find the specific application we need (25%), Integration issues (25%), lack of customization (21%), application performance (20%), and complicated pricing model (16%).
If you ask the right research questions, you can learn whether individual vendors have addressed these issues. If their answers aren't convincing, keep looking. Drop a vendor off your shortlist if you aren't comfortable. Vendors should also be able to furnish a list of reference customers. Understand that these are the ones that have been well vetted by the vendor's marketing team. Talk to them for sure, but also try and find others who can answer some of the above questions. Whether the answers come from potential vendors or customers, you want to feel warm and fuzzy before making the leap.
Having written this chapter to help you avoid mistakes during the vendor selection phase, we want to help you avoid mistakes when you are getting your SaaS implemented throughout your organization and supply chain. That's why the next chapter is Best Practices When Implementing SaaS.
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