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                        SYSTEMS DEVELOPMENT MANAGEMENT


      COLLABORATIVE
INITIATIVES: SERVICE LEVEL
      MANAGEMENT,
   QUALITY-OF-SERVICE
(QOS), AND PERFORMANCE
      MEASUREMENT
                                       Steve Rabin


                                            INSIDE

            The Internet; Electronic Commerce; B2B Service; Management Plans; Metrics



Businesses are being constantly bombarded by messages describing the
unique opportunities presented by the Internet and the availability of
mature collaborative solutions. However, to successfully capitalize on
this opportunity, the risks associated with business and technology
change must be properly managed, and the substantial investments in
existing enterprise systems must be leveraged and protected.
   Despite the ups and downs, the
Internet has proven to be a signifi-                  PAYOFF IDEA
cant channel for business-oriented      Changing business processes offers both oppor-
commerce. Activity levels are ramp-     tunities and pitfalls. Those businesses that
ing up and revenues from online         exceed customer requirements while anticipat-
                                        ing the demands placed on the business and
sales are growing accordingly. This
                                        infrastructure will put themselves in a very strong
trend will accelerate as businesses     competitive position. A service level manage-
continue to understand the merits       ment plan is one of the key pieces toward ensur-
and leverage the benefits of this       ing that the business operates consistently
channel. Collaborative business inter-  across the spectrum of Internet collaborative
                                        activities. To communicate results and maximize
actions and the automation of man-      success, performance measurement and feed-
ual trading documents (POs, ASNs,       back must be an integral part of the collaborative
invoices, etc.) are providing the       mix.



                                      Auerbach Publications
                                        © 2002 CRC Press LLC
                    S Y STEM S DEVEL OP MENT MA NA GEMENT



foundation for businesses and associated trading partners to successfully
interact online. In addition, XML-based transaction semantics and the
morphing of electronic data interchange (EDI) are helping to fulfill the
promise of true business-to-business (B2B) collaboration. Market leaders
are harnessing the power of the Internet because of the revenue poten-
tial, customer service opportunities, and operating efficiencies offered by
this medium.
    Success does not come without problems. In fact, the greater the suc-
cess of an E-commerce initiative, the greater the challenges. High trans-
action rates, unbounded page requests, concurrent usage, security, and
constrained back-end system integration are some of the problems that
occur. Collaborative business initiatives are inherently complex, both
technically and from the business perspective, and must provide trading
partners with a reliable, secure, intuitive, and efficient environment.
    The importance of the above factors must be recognized by busi-
nesses as well as addressed by solution providers. Solution providers
include software vendors and Internet service providers, including both
internally managed and outsourced solutions. Corporations hosting their
collaborative initiatives need to master new software and hardware tech-
nologies to meet the technical demands of the enterprise-owned imple-
mentation. Organizations turning to professionally managed outsourced
services must be sure to select a firm that understands the needs of both
the business and its clients. Internally managed and outsourced solutions
are both appropriate, depending on the expertise and resources avail-
able. Equally important is the ability to measure the success of the imple-
mented solutions, internally and across the trading community (vendors,
customers, and trusted third-party partners).
    Recognizing the depth of these challenges is important for several rea-
sons. First, establishing the information flow with trading partners is
inherently complex. After a reliable infrastructure for doing business with
partners is in place, a trading partner activation program must be estab-
lished. Building a sustainable transaction flow is key to achieving a state
of efficient flow between various collaborative participants.
    Think critically about the investment required to sustain your collabo-
rative B2B business ventures. Because the Internet is not managed, band-
width along with a variety of other operations management expertise are
required. Internet operations are mission critical and affect a company's
bottom line and ability to communicate with its clients and partners.
Ensuring the quality, reliability, availability, and redundancy of the Inter-
net operation requires a substantial investment in state-of-the-art soft-
ware, facilities, and networks that are monitored and managed every day
(24 × 7) by experts. Implementing a best practices operations environ-
ment, and defining the rules that will govern the site's service levels, are
critical to the long-term viability of the online operation.

                                 Auerbach Publications
                                   © 2002 CRC Press LLC
                        COL L A BORA TI VE I NI TI A TI VES



   Regardless of whether the implementation is internally or externally
administered, a service level management plan is required. This plan
defines the quality and levels of service provided through the infrastruc-
ture and delivered by the site. It must be developed in conjunction with
both business managers and IT professionals to ensure that the goals of
the online business are met. This plan, owned by the commerce business
manager, should be viewed as the contract defining how the profession-
ally managed site is administered.
   There are many factors that must be included in the plan, including
issues of performance, redundancy, replication, and disaster recovery.
These factors express the level(s) and quality-of-service (QoS) the site
provides to its customers. The plan also defines the recovery mecha-
nisms and procedures should the site experience problems. It is also
important to understand and ensure that remote maintenance and report-
ing requirements are included. Remote, browser-based maintenance
allows business and systems professionals to view activity and administer
the site from anywhere in the world the Internet can be accessed. Report-
ing provides information as to the characterization of the load through-
out a given time period, as well as associated dynamic feedback.
   Service level management plans have been implemented by compa-
nies large and small, and from both the business and consumer sectors.
While these plans can be developed internally, it is often useful to con-
sult a professional with experience in the operational execution of an
E-commerce site. The expense of this service is trivial compared to
implementing a plan that does not include key issues (such as disaster
recovery and peak load handling).
   Once finalized and implemented, the plan should be reviewed on a
periodic basis, no less than every six months. Site activity and the ser-
vices provided change over time, requiring a review of the basic assump-
tions from which the plan was originally designed. If the current
infrastructure does support the future, then contingencies and thresholds
need to be put in place. Be sure a performance regression test on all
application changes is part of the agreement. In general, it makes sense
to run a performance regression test on a regular basis (e.g., quarterly),
regardless of changes to the site.
   The best management plans are developed by well-informed business
and IT professionals who understand the goals, objectives, and require-
ments of the site. While the goals and objectives are often business ori-
ented, requirements are often system oriented. For example: How many
pages need to be served in a given period? Are the pages simple (static)
or complex (dynamic)? What types of front/back-end services will be uti-
lized to satisfy site visitors (consumers and business partners)? Consider
the following when determining the load that will be placed on the site,
and the corresponding infrastructural requirements:

                              Auerbach Publications
                                 © 2002 CRC Press LLC
                    S Y STEM S DEVEL OP MENT MA NA GEMENT



 ·   Revenue per period
 ·   Transactions per day
 ·   Concurrent users
 ·   Pages viewed per order
 ·   Average dollars per order
 ·   Pages viewed per visitor
 ·   Transaction ratio peak period

   These figures need to be converted into metrics and used to identify
required service levels within the agreement:

 ·   Dynamic to static pages
 ·   Transactions per second
 ·   Pages viewed per day
 ·   Pages per second
 ·   Acceptable downtime

Keep in mind that the higher the level of service required, the greater the
expense in terms of dollars, professionals, and hardware/software
resources. Maintaining a high level of service in terms of response time,
uptime, and reliability comes at a price. Because many of the above com-
ponents are unknowns, best guesses need to be made based on antici-
pated loads, competitive site experiences, and industry statistics.
   The best service level plan is only as good as the cooperation and
sharing of knowledge between the operations and business parts of the
business. A cost/benefit analysis of new features versus performance
should be performed on a regular basis, especially around anticipated
periods of peak load. Legacy connections and back-end transaction loads
also need to be accessed and accounted for. Operations and system pro-
fessionals must ensure that customers obtain the same performance
regardless of the location from which they are connecting.
   Should problems arise, specifying how the site will deal with heavy
traffic and peak load periods minimizes finger-pointing and conflicts, as
well as identifying contingencies and alternatives. Determining how reli-
able the site is (in terms of connections refused, connection timeouts,
and page timeouts) must be well understood and defined.
   Plan for success by designing scalability, recovery, and flexibility into
the infrastructure and operations management plan. Beware of the allure
of high bandwidth or excessive amounts of hardware and carrier ser-
vices. It is not necessary or advisable to oversize the infrastructure up-
front because this does not necessarily make things work faster. Collect-
ing and analyzing data leads to more information and smarter decisions.
Defining and building operational procedures ensures consistency
between the business, operations management, and customers. Plan for,

                                 Auerbach Publications
                                     © 2002 CRC Press LLC
                        COL L A BORA TI VE I NI TI A TI VES



communicate, and adjust for special events (such as holidays, special
promotions, business shutdowns, etc.).
   Once infrastructure issues have been settled, the real work of collab-
orating with trading partners can begin. In fact, when it comes to trading
partner collaboration, it does not matter what the question is because the
answer is always: "your supply chain." Achieving lower costs, shorter
lead times, higher accuracy, and greater information flow requires that
supply chains evolve toward more and more integration. In fact, the ide-
ally balanced supply chain operates as a single organism, delivering
value by integrating processes and removing barriers between functions,
product movements, and companies.
   Determining a set of metrics and then collecting the associated mea-
surement data is the best, least subjective way to analyze program per-
formance. Because conducting trade between business partners is more
than a singular exchange of documents, metrics are specific to the trad-
ing goals of each enterprise. There are a myriad of interactions encom-
passing relationship, negotiation, commerce, and content. Performance
measurement may also be domain specific and include, for example,
supply chain, customer service, or financial-based metrics.
   Moving from simply connecting with partners to active and ongoing
collaboration requires a business model that supports and adapts to the
individual requirements of trading partners. This is complex because
trade partners come in a variety of sizes. The same large buyers that pur-
chase goods from billion-dollar suppliers also purchase goods from small
regional suppliers. This disparity in size creates significant problems for
buyers and suppliers alike. While the trade life cycle remains the same
regardless of partner size, the methodology of communicating with each
partner varies.
   What this means is that the metrics used to measure performance must
be flexible to take into account the diverse nature of the dynamics of the
trading community. Because enterprises have a multiplicity of trading
channels, trading partners must maintain multiple business rules. Pricing,
inventory, delivery, seasonal promotions, and the exchange/turnaround
of business-document-associated interactions also requires careful atten-
tion from the metrics perspective.
   The management of inter-enterprise transactions and the flow of
goods can be daunting and result in serious business problems -- poor
customer service, lost information, data entry errors, and slower manual
business processes. This underscores the importance of measuring the
consistency of the supply chain experience across varied customer types
and logistics providers. It helps to reduce the complexity involved in
achieving the cost-effective management of trading relationships if a
company determines which vendors deliver product on a timely basis, in
what regions of the country order errors are highest, and who does not
comply with collaborative mandates.

                              Auerbach Publications
                                 © 2002 CRC Press LLC
                    S Y STEM S DEVEL OP MENT MA NA GEMENT



    The collaborative sharing of performance information can benefit the
entire trading community. Building a sustainable transaction flow is key
to both achieving a state of efficient flow between collaborative partici-
pants and collecting enough data to be statistically meaningful. The
greatest barrier to transaction liquidity is the difficulty in getting trading
partners connected and ready to exchange documents. Partner activation
should not involve complex implementation requirements or technical
inconsistencies. The enterprise must be able to articulate a reasonable
value proposition and technology plan that cost effectively addresses the
issues of collaborative integration and automation.
    The best way to address these issues is by defining a joint implemen-
tation plan -- with executive sponsorship and management accountabil-
ity. This plan should not be overly complex and should include the
definition of performance measurements. Performance metrics and the
ability to measure the success of the collaborative effort are key to the
ongoing project. While the metrics (such as forecast accuracy, delivery
performance, and cycle times) will differ by organization and trading
partner, the critical issue is that the data be available for analysis.
    Metrics are valuable to all sides of the trading equation and can be
used as both a carrot and a stick. Offering partners a controlled view into
the trading relationship is a powerful inducement because of the cost
and customer relationship implications. Predictive performance models
allow the published metrics to help anticipate and plan for the future.
These same metrics can also be used to validate critical issues and their
potentially negative impact on the relationship.
    Companies have been measuring the performance of their operations
for quite some time. Extending this measurement into the realm of col-
laborative, inter-enterprise operations is challenging. This is because it is
difficult to know if the right things are being measured and what the per-
formance targets should be. Metrics must be established that are appro-
priate and realistic to the process and collaborative participants.
Customer service, procurement, logistics, and distribution must each be
measured independently. It is ineffective to use generic metrics (such as
if sales are up or down) to measure the performance of a specific oper-
ational discipline.
    The art and science of choosing performance goals is tricky because
it involves the often conflicting nature of departmental goals. For exam-
ple, procurement may be measured on a cost-per-unit basis with ven-
dors. While this drives down costs, it also negatively impacts
warehousing operations with excess inventories. Similarly, logistics
departments may have incentives to work with transportation partners to
ship on a full-truckload basis. This results in logistics efficiencies, but
only at the expense of on-time deliveries. These issues do not minimize
the value of collaborative performance measurement, but they do point
out the complexities involved.

                                  Auerbach Publications
                                    © 2002 CRC Press LLC
                         COL L A BORA TI VE I NI TI A TI VES



   As companies become more integrated and externally focused, met-
rics can help drive strategic change across the trading community. Elec-
tronically connecting with partners allows firms to operate more closely.
This virtual enterprise represents a supply chain that is highly integrated
and acting more like a single organism. In this case, measurements can
help identify if:

 · The collaborative relationship is being leveraged beneficially -- for
   my enterprise, or for my trading partner's enterprise
 · Costs are being reduced -- from the operations, overhead, and mate-
   rial perspectives
 · Collaborative partners are more responsive than traditional
   partners -- that is, customer service has improved or errors have
   decreased

    At the end of the day, financial performance will dictate the success or
failure of collaborative initiatives. Data collection, analysis, and the com-
parison to defined performance metrics will determine how to
proceed -- and even if to proceed. Partner automation and integration
provide the visibility to understand the actual effect on the enterprise.
    As previously discussed, there are a variety of supply chain perfor-
mance indicators that can be measured. This assumes that the appropri-
ate data is being collected and submitted for analysis. To ensure that
enterprise and departmental goals are being balanced, it is necessary to
include measurements that take both into account. This includes, for
example:

 · Delivery performance: requested versus actual dates at the line-item
   level
 · Cash-to-cash cycle time: measuring the time it takes to close the loop
   between funds utilization (material acquisition) and collection
   (invoice payment)
 · Pay on receipt: measuring the time required to match and reconcile
   invoices
 · Material availability: the number of days required to achieve a sus-
   tainable increase in production
 · Total supply chain costs: the total cost, as a percent of sales, to man-
   age order processing, acquire materials, manage inventory, and man-
   age supply chain finance, planning, and MIS costs
 · Order accuracy: products delivered vs. what was ordered
 · Replenishment: the time it takes to replenish inventory and the accu-
   racy of the replenishments
 · Demand management: SKU ordered versus what was forecast
 · Customer service level/fill rate: items available in stock for delivery
   per purchase order

                               Auerbach Publications
                                  © 2002 CRC Press LLC
                   S Y STEM S DEVEL OP MENT MA NA GEMENT



These metrics represent different aspects of the supply chain. When they
are viewed holistically, a significant reduction in costs is achievable if
trading partners can work together to identify areas of improvement and
increase efficiencies. The key to this involves automating, integrating,
and then monitoring trading partner processes and the associated
exchange of trade documents and data.
    Studies have shown that an effectively managed collaborative supply
chain can save a $600-million company as much as $42 million annually.
For example, companies operating in collaboration function with as
much as 60 percent fewer inventory days than nonaligned competitors.
Lower inventory means more working capital. Collaboration can also
produce reduced lead-times and decreased cycle times. This leads to an
advantage in "cash-to-cash" cycle time.
    Knowing how to work with and measure the effectiveness of trading
partners also allows the best suppliers and logistics partners to be used
on a go-forward basis. Quality, delivery performance, costs, and service
can be evaluated, resulting in a reduction of partners and associated
material acquisition costs. Changes in customer demand can be met with
less disruption. Finally, performance analytics can be used to measure
and help iterate plans. This allows companies to become even smarter
about how they interact and where further efficiencies can be derived.
The end result is reduced inventory costs, better customer service, and
improved cycle time and fill rates.
    All of these benefits are quantifiable but can only be achieved by com-
panies that have jointly defined processes and goals. This includes the
collection of data necessary to measure those processes. Performance
metrics do not in themselves result in savings, but instead point to spe-
cific initiatives that are successful or need tuning. A feedback monitoring
mechanism is required to ensure that all parties are alerted when refine-
ments are indicated. In this case, an event-based solution is best because
it can be automated across the trading community and minimizes the
amount of information that needs to be reviewed. Ultimately, a perfor-
mance dashboard should be implemented that allows management to
quickly and graphically review key metrics.
    Collaborative performance metrics should be used to evaluate both
the progress in implementing as well as the final results of inter-enter-
prise initiatives. Performance review must occur routinely by both gen-
eral and departmental management. While senior management owns the
overall strategic goals of the business, it is the actions of individual
departments that make a collaborative relationship work.
    A balanced set of focused metrics and the sharing of operational, plan-
ning, and performance information are the keys to successfully collabo-
rating with trading partners. These new business strategies need to be
consistently monitored and measured. It is also a good idea to implement
collaborative programs in a phased manner. Select trading partners that

                                Auerbach Publications
                                  © 2002 CRC Press LLC
                                    COL L A BORA TI VE I NI TI A TI VES



have a stake in the success of the program, and be sure to include everyone
when determining what metrics to analyze and how to measure success.
   Business activities are extending beyond the boundaries of the enter-
prise. Technology innovation, the Internet, and an awareness of the
potential benefits are the primary factors driving this dynamic forward.
Changing business processes offers both opportunities and pitfalls.
Those businesses that exceed customer requirements while anticipating
the demands placed on the business and infrastructure will put them-
selves in a very strong competitive position. A service level management
plan is one of the key pieces toward ensuring that the business operates
consistently across the spectrum of Internet collaborative activities. To
communicate results and maximize success, performance measurement
and feedback must be an integral part of the collaborative mix.



Steve Rabin is chief technology officer at eB2B Commerce, Inc.




                                           Auerbach Publications
                                              © 2002 CRC Press LLC