NRFtech 2010 Business Impact of SaaS

Family Dollar is a chain of budget-priced stores specializing in food and household products that operates more than 6,700 locations in 44 states. “We’re like a mini Walmart,” senior vice president and CIO Joshua Jewett said, “except, of course, we have a much smaller selection.”

Bad times have been good for Family Dollar: The recession, which crippled so many retailers, generated a steady stream of new business. Between 2008 and 2009, sales increased 7 percent (to $7.4 billion), even though the basic customer profile and business model didn’t: The average basket is still $9.84, meaning the additional $500 million in sales was generated by 50 million more transactions — an average of a little more than 200 additional transactions per store each day. This, of course, placed increased demand on the chain’s inventory management and replenishment capabilities.

Meanwhile, management was expressing a desire to maximize the overall profitability of sales by adjusting the margin mix of the products in the assortment, while at the same time maintaining the ability to vary the mix as needed by region or, in some cases, individual store.

To accomplish all of this at the same time, Family Dollar was going to have to beef up its IT capabilities. “At the time we were the No. 1 performing stock on the S&P 500,” Jewett said. “We were successful, but we realized that to stay successful, we were going to have to challenge ourselves to do better.”

Better, faster, cheaper
The mandate from Family Dollar management was not only to do it better, but to figure out how to do it faster and cheaper as well. One problem: “To the people running the business,” Jewett said, “IT is sort of like highway construction: It costs a fortune, it takes forever and every time you drive by, all you see is a bunch of people standing around doing nothing.”

So whatever strategic decision Jewett and his team made, it was going to have to make a significant positive impact on the bottom line — and it needed to do so quickly.

“On the business side, we needed to increase speed to value, enable critical capabilities and reduce capital risk,” he said. “On the IT side, we needed a technology refresh, we had to have supportability, we needed to develop some new competencies and we needed the ability to keep up with changes in the market.”

Family Dollar evaluated the three options open to an organization wanting to make this kind of change: build, buy or rent. Adapting the existing tools and infrastructure – building — would have involved a low infrastructure cost, but it would have required additional staff and taken a good many iterations to achieve the results the company wanted. Buying a new system promised a better solution, but it also meant a long path to realization and represented a risk of capital.

That left Plan C. Family Dollar chose to work with a company called 4R Systems on a SaaS basis. Jewett defined software as a service as a delivery model that provides users with web-based applications accessible from a shared hosting facility. With SaaS, you don’t own the software; you subscribe to it and access it through a web browser.

There were, said Jewett, three primary areas of consideration he and his business partners thought through on the way to adopting this model. One was integration: security of access, impact on the existing network, the ability to move data effectively and maintaining the company’s intellectual property and the confidentiality of its data. Another was vendor management: contracts, viability, expertise, scalability, support and training. The third was access to value-added business services like analytics and best practices.

Early in the discussions, Jewett said, it became clear that the members of the 4R team were not only knowledgeable IT technicians but statisticians and business analysts who could dig deeply into Family Dollar’s operating numbers and come up with across-the-board strategies for improvement.