 
“It is estimated that over $690 billion
dollars are lost each year by American businesses alone due to ineffective
commodity costs management”
Institute for Advance Purchasing Studies
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Case Study
Executive Summary
The i4Cast suite of products is the result of a joint application
design effort and partnership between Alliance Data Corporation
(ADC) and pre-merger Compaq (the new HP). Upon identifying a need
for a forecast costing system that integrates with several established
systems within HP, including an Activity-based Costing system (OROS)
and HP’s Enterprise Resource Planning system (SAP), HP and
ADC worked together to collect requirements from the appropriate
business groups and to design the system that is now iCost. The
i4Cast product suite consists of iCost, xCost and CCS.
iCost is a Product Cost Forecasting and Financial Modeling system
that allows HP’s internal business groups, as well as HP’s
alliance partners, to enter forecast costs for base-level manufactured
parts. The system features detailed views of the material cost,
labor and overhead, royalty, warranty, rebates and other any applicable
costs associated with the total cost of manufacturing a specific
part. The system also sets current standards and calculates transfer
price for specific parts and organizational levels.
iCost gives HP visibility into the real time, line-item details
that make up total product cost and therefore provides HP the ability
to accurately cost new products and negotiate new part contracts
for the lowest cost possible. As a result, iCost has yielded a 500
percent return on investment for HP.
Currently, iCost is used by HP’s Finance, Quote Review, Procurement,
Engineering, Marketing, Product Pricing and Sales teams, as well
as by HP’s external alliance vendors. The ability of all these
groups to share the latest costing and assembly information has
provided HP with a more efficient and successful supply chain integration,
thereby reducing purchasing costs and expediting the time to market
of new products.
The success of iCost at HP has led to the inception of the joint
venture i4Cast, between HP and ADC, where the two companies have
joined forces to enhance the iCost application and offer it as a
commercial software product.
Project Overview
The Challenge
HP’s need for a product cost forecasting system was identified
as HP recognized disconnects among both corporate systems and various
business units. HP needed a system that could integrate into the
existing ERP system, consisting of multiple instances of SAP, and
provide visibility of detailed costing data to all necessary business
units.
HP needed an enterprise decision support tool to house all aspects
and factors of total product costing data and allow for worldwide
access at multiple organizational levels, such as plant, region
and sales distribution locations. In order to meet HP’s needs,
this application would have to provide open data sourcing and supply
chain-wide costs, as well as facilitate the maximization of alliance
relationships.
In their current state, HP was sacrificing valuable time and resources
in a highly competitive marketplace due to inaccurate and disparate
costing information. In many instances, HP had inaccurate and/or
outdated cost data, from which to make pricing decisions. Additionally,
HP was unable to take full advantage of alliance vendors’ best
costs across the entire company. As a result, the HP sales force,
in some cases, was losing bids and submitting bids that were ultimately
proven not only unprofitable but resulted in a financial loss to
the company.
The Decision
HP evaluated several existing and established systems, but found
that none met all of the requirements put forth for a new system.
HP determined that a new system would have to be custom built to
meet both the functional requirements and time constraints.
After considering proposals from some of the larger, Tier 1 consulting
firms, HP determined that the budget and time constraints could
not be met by such entities. An established Houston area software
development firm, Alliance Data Corporation, was asked to submit
a proposal for the project.
ADC impressed HP with their technical expertise, their understanding
of the project as demonstrated through a system prototype, their
appreciation for the limited time frame in which the system must
be developed and for their ability to develop the system at almost
one third the cost of the larger consulting firms. ADC also presented
HP with an impressive list of exceptional referenceable accounts.
Ultimately, HP viewed ADC as providing the most value for HP’s
consulting and development dollars and ADC was selected to take
on the project. HP and ADC began work immediately with only one
year to design, develop, test and deploy the system, as well as
train the users.
"Early in our project, certain 'experts' told us that our
requirements stretched beyond the limits of currently available
technology. i4cast delivered this critical project on time, on budget
while meeting or exceeding all of our demanding requirements. We'll
continue to work with them on future projects for three key reasons;
1) they know how to deliver the best technology for the best value,
2) they have an ability to quickly understand business requirements
and translate them into useful solutions and 3) they are extremely
customer driven. At Compaq, we not only view i4cast as a key supplier,
we consider them a partner.”
Pete Ginouves
Corporate Finance Director
Hewlett Packard
The Result
After several months of working out the finer points, heads-down
development and relentless system and end-user testing, the iCost
system was deployed to the HP production environment.
iCost is a web-based product costing application that integrates
current and forecasted engineering, manufacturing and supplier cost
information to drive lower costs and more rapid product pricing
and design decisions. The system provides real time updates for
all shippable and configurable product modules, visible over the
web. iCost also provides the ability to model and analyze the cost
impact of product configuration changes to system-level costs.
Functionality
The primary purpose of the iCost system is to accurately forecast
the standard cost of base level parts based on site, labor and overhead,
and contracted material cost associated with the part while rolling
those costs upward to all part assemblies, and ultimately to all saleable
SKUs. Additionally, the system allows HP Product and Pricing Managers
to conduct cost modeling for individual and assembly parts. As a result,
HP users are able to adjust any of a part’s line-item costs and
see how those adjustments affect the total forecast cost of the part
as well as any top-level assemblies for which the part is involved.
The system is designed to run complex calculations and preferencing
logic, accounting for all data feeds, user updates and triggered events
so users have access to real time part costs and details.
In short, the iCost system has been developed to provide the following:
 Total Product
Cost Visibility
Advanced Cost
Modeling
Cost Impact Analysis
Real Time Costing
Data
Forward Costing
to 18 Periods
Cost Management
Throughout the Product Lifecycle and Product Development
Transfer Price
Calculations
Current Standard
Costs
System Interaction
In order to conduct the necessary costing calculations and allow
for cost modeling, the iCost system interfaces with a number of
external systems operating within the HP environment. Among these
systems are OROS (the Activity-based Costing system), SAP (HP’s
Enterprise Resource Planning system), xCost (the iCost add-on for
vendor bid quoting) and CCS (the iCost add-on for manual entry of
contract and forecast costs). Likewise, the iCost system passes
data back to the same systems any time changes are made and when
standard costs are set.
Infrastructure
Because many desktop applications can incur a great deal of administrative
costs and are often difficult to maintain in a global environment,
the iCost system has been developed as a web-based system and is
supporting more than 2000 users worldwide. For the platform, the
HP Intel-based ProLiant 6500 servers were chosen, running at 450
MHz with 2 GB RAM and 1 TB disk space. Additionally, an Oracle database
was chosen to support the application and Microsoft IIS was selected
for the web servers.
The Proven Success of iCost
Summary of iCost Benefits
Global decision
support tool for cost optimization of the entire enterprise
Enhanced visibility
and control of enterprise costing data including customers, OEM’s,
partners and
suppliers to all
affected global business units
Faster time to market by bridging gap between sales, finance,
procurement and engineering
Granular real-time
product costing that drives revenues and lowers product cost by providing
a
global view of
materials, LOH, Logistics, Warranty, Royalties, etc.
Increased accuracy of Supply Chain “Wide” Costs
Extensive “What if” modeling and Impact Analysis
capabilities
Improved product profitability
Improved Customer Service Levels
The Success of iCost at HP
Thanks to iCost, HP has realized a return on investment of 500 percent
with an estimated $35 M in annual savings.
The following items have been identified as the key drivers contributing
to both the realized ROI and annual savings:
Consolidation
and replacement of 9 costing systems into 2 systems has since lead
to savings in both
system administration
and maintenance costs.
The creation
of buying synergies among manufacturing sites has resulting in HP
saving millions of
dollars, annually,
in “best cost” purchases and configuration of saleable SKUs.
Improved bid/no-bid
ration, resulting from accurate and timeline costing information,
has allowed HP
to dramatically
cut losses due to unprofitable sales.
“iCost is a sophisticated, but user-friendly application.
It allows users unparalleled access to all costing sources –
from raw material to finished good. It can build a best cost, standard
cost, just-in-time cost, blended cost, forward cost, value inventory
and “what if” scenarios all with real-time data. It ensures
that any changes flow to all users. Its lightening fast and it revolutionize
HP costing process. It helped HP remain competitive in a challenging
marketplace”.
Beth Tompkins
Financial Manager
Hewlett Packard
The Partnership
Since it’s deployment, both HP and ADC have recognized the
value of a cost system such as iCost and have formed the joint venture
i4Cast to take the software to market as a commercial product.
“The entire system and response time have exceeded our expectations,”
said Pete Ginouves, the original project sponsor for the iCost project,
“Once the system was developed and was so successful, other
companies showed an interest. We figured ‘Hey, it’s marketable
– let’s sell it.’”
i4Cast is focused on providing leading edge product costing, financial
modeling, e-procurement and collaboration tools for the supply chain.
i4Cast now offers three products, iCost, xCost and CCS, and continues
to develop software applications in conjunction with customer requirements.
The Future of i4Cast
The i4Cast “best of breed” collaborative costing, e-procurement
and financial modeling solutions will allow customers to reduce
cost though real time product and vendor costing and supply chain
product management, thereby maximizing existing ERP infrastructure
to deliver measurable and sustainable ROI.
In the latest development of the i4Cast product suite, functionality
and configuration is being added to accommodate Service sites, allowing
for enterprise-wide visibility and management of service related
inventory, repair fees and refurbished part costs. Additionally,
iCost, CCS and xCost are all being enhanced to accommodate a higher
level of configuration for both organizational and site hierarchies,
as well as cost types and corresponding calculations.
All those who have witnessed the success of iCost at HP are certain
of its bright future as a commercial product. Ginouves believes iCost
is one of a kind, “Nobody, but nobody has a faster, easier cost
system than iCost… Nobody.”
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