RESEARCH NOTE D1 ROI ANALYSIS YOU CAN TRUST

TM






The Real ROI from i2 Supply
Chain Management


i2 SOLUTIONS
i2 Technologies provides companies with an integrated suite of supply
chain management software for improving the efficiency of business
operations. i2s supply chain management suite of products includes
the following key modules:
Demand Planner is a forecasting tool enabling retailers to predict
and manage customer demand through statistical forecasting
capabilities.
Factory Planner supports materials planning, capacity planning, and
scheduling functions for production facilities.
Supply Chain Planner generates material plans, providing companies
with information about products needed at various locations along
the supply chain.
Supply Chain Strategist helps companies identify and evaluate
alternative strategies for product mix and optimal locations for
stores and warehouses.
Transportation Manager is used to manage the life cycle of the
transportation process, from order fulfillment through final
settlement.
Transportation Optimizer provides logistics analysis and information,
allowing companies to better utilize their transportation networks
and resources.
Transportation Modeler allows companies to perform what-if
scenarios, evaluating the potential impact of various transportation
strategies.
Rhythm Collaboration Planner is a collaborative commerce
application that allows companies to communicate in real time with
their partners and customers.

An increasing number of manufacturing and services organizations have
invested in supply chain management software with the aim of
optimizing the efficiency of business operations and reducing the costs
of distributing goods to partners and consumers.

Nucleus Researchs objectives in surveying i2 customers were to assess
whether supply chain management applications delivered a positive ROI
for companies and to determine the common themes and best practices
followed by i2 customers that were achieving positive returns from their
software investments.


THE BOTTOM LINE
Fifty-five percent of i2
customers interviewed did
not believe that they had
achieved a positive ROI
from their deployments
after having used i2 for an
average of 2.2 years.
Since the average i2
deployment costs more
than $7 million over a 3-
year period, companies
should carefully estimate
the hard-dollar benefits
from the software and
assess the probability of
achieving that return
before making an
investment decision.
2003 Nucleus Research, Inc.
Reproduction in whole or part without
written permission is prohibited. Nucleus
Research is the leader in the return on
investment analysis of technology. Please
visit www.NucleusResearch.com.
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THE PROCESS
Beginning in September 2002, Nucleus searched the i2 Web site to
identify customers that could be included in the study. Nucleus did not
focus on a particular customer vertical or i2 solution but attempted to
contact and interview every company listed as an i2 reference customer
on the Web site.

Nucleus found 70 customers profiled as success stories on the i2 Web
site and contacted each one:
Seven companies reported that they were no longer i2 customers
and had stopped using the solution for various reasons.
Twenty-two agreed to participate.
Eleven declined to participate.
Thirty never responded to repeated requests for interviews.

i2 was made aware of this analysis while it was still in progress by one
of its customers, and an i2 representative then contacted Nucleus.
Nucleus agreed to interview any reference contacts provided by i2 as
part of the sample. However, i2 did not provide any.

Companies that participated were asked questions relating to various
factors of their i2 implementation that would affect ROI. The following
is a partial list of questions that respondents answered:
How long have you been using i2?
How long did the deployment take?
Did you stay within the deployment budget?
What have been the greatest returns from i2?
Has there been a reduction in inventory costs since you started
using i2?
Has there been a reduction in order-to-fulfillment cycle time since
you started using i2?
Has i2 led to any gains in productivity?
How much did you spend on the project, and in particular, how
much did you spend on software, consulting, hardware, personnel,
and training?
What have been your key deployment challenges?
Have the costs of the solution been outweighed by the benefits?

Fifty-five percent of i2 customers interviewed did not believe
they achieved a positive ROI from their i2 deployment. The
average customer interviewed had been using the solution for
2.2 years.

THE BENEFITS FROM i2
Nucleus found customers achieving benefits from i2 in three key areas:
reductions in inventory costs, shortening of order-to-fulfillment and
planning cycle times, and gains in employee productivity.

Inventory Cost Savings
Hoped-for reductions in inventory costs were the most common
justification for investing in supply chain management software. The
efficient management of inventories, both finished goods and work-in-
process inventory, is critical to controlling costs in a production
environment.

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However, Nucleus found that not all i2 customers achieved the expected
reductions in inventory costs as a result of deploying i2. Only 64
percent of customers interviewed reported noticeable reductions in
inventory costs. These companies saw a double-digit percentage
reduction in inventory costs, ranging from 15 percent to 50 percent.
However, only four customers said that their inventory savings were
large enough to yield a positive ROI on the implementation.

In addition, several customers noted that their inventory reductions
could not be entirely attributed to the technology but were also subject
to demand and supply functions and economic conditions.

Sixty-four percent of i2 customers reported reductions in
inventory costs following their i2 implementations. However,
only four customers believed that their inventory savings alone
justified their i2 investment.

Reduced Order-to-Fulfillment Cycle Time
Fifty percent of i2 customers interviewed cited a reduction in order-to-
fulfillment cycle times as a result of using the application. Typically, the
shortening of order-to-fulfillment lead times results in improvements in
customer satisfaction, increases in market share, improvements in
profitability, and a more rapid inflow of revenue. However, no i2
customer told Nucleus that the returns from lead-time reductions they
received from i2 could justify the investment in the solution.

Fifty percent of i2 customers reported some reduction in order-
to-fulfillment cycle times.

In certain cases, Nucleus found that i2 had overstated the scope of the
benefits in its customer profiles. For example, one i2 customer profiled
stated that its solutions brought an improvement in on-time delivery
rate for a certain customer, increasing sales by millions of dollars. When
Nucleus interviewed the same company, the project manager for the
implementation told Nucleus: I think Im going to have to get in touch
with i2 and tell them to change that because that is kind of a misquote.
Actually, the improvement in on-time delivery rate was achieved even
before we bought i2, as a result of the re-engineering of our business
processes. So I dont think that benefit is really connected to i2.

In another case, i2s customer profile claims that one company was able
to reduce its planning cycle time by 75 percent. When Nucleus
interviewed the same company, the customer said: I definitely
wouldnt place the benefit as high as 75 percent. It was more in the
order of 40 to 50 percent.

Increased Employee Productivity
Although increased productivity from time saved through the
automation of planning processes and protocols can sometimes be a
factor for deploying a supply chain management technology, only 27
percent of i2 customers reported gains in user productivity as a result of
using various i2 tools. Of those that did save employee time, a total of
three companies were able to reduce headcount.

Twenty-seven percent of i2 customers reported some returns
from increased employee productivity.
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One customer had the following advice to give to other companies
evaluating the potential productivity benefits from i2: Even though we
received a productivity return [from i2], not every company can expect
one. Dont try to justify the costs of the solution purely on expected
productivity, but look for hard-dollar benefits instead.

The majority of i2 customers felt that returns from productivity from the
solution didnt justify their i2 investments. Many companies found that
the long training periods and steep learning curve associated with i2s
modules prevented most companies from realizing notable time savings
from the solution.

i2S ROI CHALLENGES
Many i2 customers interviewed by Nucleus reported that they had
achieved direct and indirect benefits from their use of deployment. Yet,
most of these companies have not achieved a positive return from their
investment in i2 software because of the license price of the solution as
well as consulting problems and delayed deployments.

License Pricing
Several customers told Nucleus that i2 priced its licenses based on an
ROI analysis performed by i2s own sales and services staff during the
sales process. In these cases, customers were charged for licenses
based on i2s estimate of the magnitude of benefits that companies
would derive from the use of i2 software. Not surprisingly, this process
of calculating ROI resulted in very high software prices that exceeded
the real value that customers could reasonably expect from their
deployments, and demonstrates the danger of using any vendors
proprietary ROI methodology.

i2s reference customers had the following specific comments about the
impact of i2s pricing on their ROI:
One customer, that is still cited on the i2 Web site as a success
story but that stopped using i2 more than a year ago, told
Nucleus: What killed the ROI was the fact that i2 priced their
modules based on an ROI calculation that they themselves
estimated during the sales process. They forecasted saying that
this would lead to $40 million in benefits. There are definitely
benefits to the solution, but their pricing is too high. Sometime, I
should take the time to contact i2 and say you really need to look
at your pricing.
Another company, whose i2 deployment was two years behind
schedule because of problems with consulting and i2 software, told
Nucleus the following: i2 did an ROI calculation for us during the
sales process . It was very positive. But based on our
experience now, we will [independently] evaluate ROI in the
future.

In addition to high software prices driven by i2s ROI claims, Nucleus
found that certain customers purchased modules that they would never
use. In these cases, i2 had bundled several modules as part of a
discounted package, and these customers later discovered that they
needed only a fraction of the modules in the package. One i2 customer
that has spent nearly $3 million on i2 licenses and is listed on the i2
Web site as a reference contact, told Nucleus the following: Of the
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modules weve licensed, were probably using only a million dollars
worth of software. We tried some of the other supply chain planning
tools and found that they didnt really do the job.

In other cases, companies discovered that they had purchased the
wrong software for their business needs and had to drastically re-
engineer their processes in order to fit the tool and get some return
from their i2 investment. Therefore, companies should closely evaluate
discounted software packages to ensure that the suite does not exceed
the needs of the business processes.

Deployment Time
Sixty-eight percent of i2 deployments studied lasted longer than
planned, and it took these companies nearly three times longer than
expected to fully implement and roll out i2 to users. For many of these
delayed deployments, i2 greatly underestimated the deployment
duration during the sales process because of a lack of understanding
about the complexity of planning requirements, business models, and
constraint types at different companies.

Based on what Nucleus found, companies can use the following figures
to estimate the time and personnel they will need to devote to an i2
implementation:
The average i2 deployment lasted 1.5 years, with a high of three
years and a low of six months. The median time to deployment was
1.4 years.
Companies staffed an average of 9.7 personnel and a median of five
personnel to their i2 deployments for the entire project life cycle.

Nearly 70 percent of i2 deployments lasted longer than project
teams had planned. For these companies, deployments took, on
average, nearly three times longer than expected while
increasing consulting and personnel costs and slowing the
realization of benefits from the solution.

Customers had the following comments explaining the postponement of
their deployments:
i2 gave us an estimated deployment time of six months, but it
wasnt worth two cents Basically, what happened was that they
sold [our company] the wrong software for what we were looking
for, and so we had to spend all that much more time in deploying
it.
First, i2 tried to install Factory Planner for the first four months,
which didnt work. So we basically had to keep on FTEs for 1.5
years longer as it became clear to us that they would not be able
to fix the problem.
We attempted to deploy the client-server version of
Transportation Planner in 1998, but we gave up after seven
months. It was a disaster the software was not ready. So, we
went ahead with the AS/400 version and only recently switched to
client-server in 2001.
With the implementation of Demand Planner, it took us twice as
long [to deploy]. A lot of it was based upon the technology. At
the time, [i2] did not have a good browser interface.

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Delayed deployments increased consulting and personnel costs beyond
what companies had initially budgeted for and slowed the realization of
benefits, hence preventing many companies from achieving a positive
return from their supply chain management investments. In addition,
several companies were forced to reduce the scope of their deployments
in order to avoid further delays and project costs.

Consulting Challenges
The majority of companies interviewed engaged i2 services staff or i2
consulting partners for deploying the software. Forty-five percent of
these respondents attributed prolonged or unsuccessful deployments to
i2 consultants lack of expertise with their own software, inability to
address and rectify problems inherent in early versions of i2 software,
or inexperience in successfully aligning companys business processes
with i2s technology.

Forty-five percent of customers reported that prolonged or
unsuccessful deployments were directly caused by consultants
lack of expertise with i2 software and inability to fix software
glitches.

i2s reference customers had the following specific comments about the
consulting challenges that they faced during deployment:
Their software was really, really bad at the point. We were using
version 4.1 of Factory Planner at the time, and unfortunately, the
i2 people who we consulted with did not know what they were
talking about.
[Our deployment] took twice as long. From a technical
standpoint, i2 consultants didnt know how to align the solution
with our business processes. That was my biggest disappointment
with i2.
One customer is cited on i2s Web site as saying that the
deployment went smoothly and the company has achieved
significant benefits from i2. When interviewed by Nucleus, the
same spokesperson for the same deployment said: We never will
deploy Supply Chain Planner and Optimizer. Once we bought the
software, i2 consultants did not know the software well enough to
deploy it to our specific situation.

Matching a technology solution to the business processes specific to an
organization is key to achieving any benefits from the software.
However, the inability of consultants to align i2 in a manner that
supported business needs prevented many companies from achieving a
positive ROI from their deployments.

THE COSTS OF i2
Nucleus surveyed the initial and ongoing costs associated with
implementing and maintaining i2s supply chain management software.
These were software, consulting, hardware, personnel, and training
costs.

The average 3-year cost of an i2 deployment was $7.2 million,
including the costs of software, hardware, consulting, training,
and personnel.


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Software
Nucleus found that the average initial license investment in i2 was
$1,866,407, and the median license price was $1,500,000.
License investments for i2 modules ranged from a high of
$5,770,000 to a low of $300,000.
The average annual license maintenance fee for i2 ranged from 5
percent to 17.50 percent, with an average of 12 percent, or
$186,967 a year.

The average software license price for an i2 deployment was
$1,866,407, with a high of $5.7 million and a low of $300,000.

Table 1. The Average 3-Year Costs of an i2 Deployment
Initial Costs
Average Data Components
Software

$1,866,407

Average initial license price
Consulting

$2,352,597

Average standalone consulting
expenditure of customers interviewed
Hardware

$429,744

Average hardware expenditure of
customers interviewed
Personnel $1,164,000 Average number of personnel needed
to deploy i2: 9.7
Average time of deployment: 1.5 yrs
Assumed fully-loaded cost of an
employee: $80,000/year
Training $111,000 Average number of users: 60
Average training time: 74 hours
Assumed fully-loaded cost of an end
user: $25/hour
Total $5.92M Total initial costs of an i2
deployment
Ongoing Costs
Software
maintenance
$560,901

Average annual cost of license
maintenance: $186,967
Personnel $696,000

Average FTEs required to support i2:
2.9
Assumed fully-loaded cost of support
personnel:
$80,000/year
Total
3-year costs
$7.18M Total 3-year costs of software,
hardware, consulting, personnel,
and training.

Consulting
The majority of companies interviewed had invested in standalone
consulting engagements with i2 services staff or i2 consulting partners.
Certain companies had purchased fixed-price offerings from i2 in which
the price of consulting support was included as part of the overall
package.

The average consulting spend for companies that had separate
consulting engagements was $2,362,597, with a high of $6,000,000
and a low of $200,000. The median consulting spend was $2,500,000.

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Table 2. The Median 3-Year Costs of an i2 Deployment
Initial Costs
Median Data Components
Software

$1,500,000

Median initial license price
Consulting

$2,500,000

Median standalone consulting
expenditure of customers interviewed
Hardware

$160,000

Median hardware expenditure of
customers interviewed
Personnel $560,000 Median number of personnel required
to implement i2: 5
Median time to deployment: 1.4 yrs
Assumed fully-loaded cost of an
employee: $80,000
Training $7200 Median number of users: 12
Median training time: 24 hours
Assumed fully-loaded cost of an end
user: $25/hour
Total $4.72M Total initial costs of an i2
deployment
Ongoing Costs
Software
maintenance
$562,500 Median annual cost of license
maintenance: $187,500
Personnel $360,000 Median number of FTEs required to
support i2: 1.5
Assumed fully-loaded cost of support
personnel: $80,000/year
Total
3-year costs
$5.65M Total 3-year costs of software,
hardware, consulting, personnel,
and training.

Hardware
Almost every company interviewed invested in servers to support the i2
infrastructure. Nucleus found that the hardware requirements for
supporting i2 software made up a significant portion of deployment
costs. The average expenditure on hardware was $429,744, and the
median cost was $160,000. Hardware requirements for supply chain
management applications depend upon factors such as the complexity
of the business processes involved and the number of locations
supported.

While hardware requirements for supply chain management applications
are generally a significant portion of project costs, certain i2 reference
customers noted that their deployments exceeded their budgets
because initial estimates of hardware costs were too low:
[Our hardware investment] was five times what i2 said we would
need. They severely underestimated the size of our model.
They made some unacceptable assumptions about the scale of our
need.
We did not stay within our deployment budget because we
underestimated the size of our hardware requirements. Hardware
amounted to one-fourth of total project costs. This was our first
time, so we couldnt forecast hardware needs.

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Personnel
Nucleus interviewed companies about both the initial and ongoing
personnel costs associated with their i2 deployments. Personnel
required to complete the deployment accounted for a sizable portion of
total deployment costs.

For the actual implementation, companies staffed an average of 9.7 full-
time IT and business personnel to their i2 deployments and a median of
five staff. On an ongoing basis, it took an average of 2.9 full-time IT
personnel to support the application internally.

Training
The average training time for end users was 74 hours. For super
users, the learning curve was even higher, requiring the
completion of courses that lasted anywhere from two weeks to
two months.

Training requirements for supply chain management software are driven
both by the extent to which business processes are being re-engineered
and by the intuitiveness of an application. Nucleus found that i2s
solutions involve a fairly high learning curve and require a significant
amount of training. The average training time for end users was 74
hours, and the median training time was 24 hours. Companies reported
that, following initial training, it took users anywhere from several
months to an entire year before they were entirely comfortable using
the application. For super users, the training time lasted anywhere
from two weeks to eight weeks.

RECOMMENDATIONS
Managing the scope and timing of a supply chain management
deployment is key to achieving a positive ROI. Vendors often
underestimate the duration of deployments for various reasons, and
companies should therefore perform an internal estimation of the time
and cost of the deployment. Companies considering implementations of
supply chain management software or currently deploying the
technology should do the following:
Before making an investment decision, conduct an independent
evaluation of benefits and costs, and use ROI as a roadmap for
effective deployment.
Plan business requirements in advance and allow scope for the re-
engineering of business processes as the need arises during the
deployment.
Dont let vendors dictate your expectations of how long it will take to
deploy a certain tool in your environment. Make an independent
estimation based on internal planning and the experiences of similar
companies that have implemented i2.
Ensure that the software is mature and suitable for business
requirements and that it has been tested and validated by previous
deployments.
Scrutinize the components of any discounted packages to ensure
that vendors arent selling you modules that you will never use.
Devote an adequate number of key personnel to the project from
the beginning and follow the implementation with business as well
as IT support.