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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsIn 2001, REI paid SPS Commerce a monthly fee to host and operate supply-chain software over the Internet rather than run it on its own infrastructure. The arrangement shifted routine software operations away from REI, but it did not deliver measurable return on investment at the time: REI reported delays extending the system to suppliers, along with data-accuracy and response-time problems. The case shows why outsourcing the application does not outsource the work of making it useful—or the need to plan for a provider’s failure.
What an application service provider meant in this case
In L. Pender’s July 15, 2001 CIO article, an application service provider, or ASP, was a company that hosted and operated applications for a customer over the Internet in return for a recurring fee. REI, the Seattle retailer, used SPS Commerce’s hosted supply-chain execution applications. Instead of keeping that application running on its own infrastructure, REI paid SPS monthly for the service. REI inventory and logistics director John Strother described the implementation as a bet on a business-critical system. Read the CIO case article.
This is a historical example of the ASP model as described in 2001, not a survey of today’s SaaS or supply-chain software market. The article does not establish SPS’s current offerings or the present condition of the ASP market.
Why hosting the software did not guarantee value
At the time of the article, REI had not realized measurable ROI from the arrangement. Strother attributed the shortfall to SPS being slow to extend the technology to REI’s suppliers and to unresolved problems with data accuracy and system response time. Those are REI’s reported obstacles in this implementation, not evidence that hosted applications generally fail to produce returns.
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The case distinguishes between getting software hosted and getting an operational network working. A supply-chain application depends on accurate information and timely responses, and its usefulness can hinge on suppliers and other trading partners being able to participate. Moving hosting and routine operation to a provider does not, by itself, ensure implementation support, supplier adoption, data quality, or performance.
What the case says about provider continuity
The article reported that SPS laid off just under 30 percent of its workforce in March 2001 and that its CEO resigned. Those events made continuity a material concern because REI’s application was business-critical. SPS chief strategy officer and executive vice president Jim Frome said the company would be fine, citing a new financing round in May and sales in early 2001 above the same period in 2000. These are statements reported at the time; the article provides no independently audited financial measure, so they should not be read as verified evidence of the provider’s financial condition.
The practical point is not that those events prove a provider will fail. It is that outsourcing a critical application makes the provider’s ability to continue operating part of the customer’s risk calculation. A customer needs a contingency that can work even if assurances prove insufficient.
REI’s fallback plan—and its gap
REI considered obtaining the source code, buying equipment, and bringing the application in-house if necessary. But it had not budgeted for that fallback. Strother put it plainly: “We haven’t budgeted for it.”
A contingency that depends on source code, infrastructure, and internal operation is not ready merely because those options have been discussed. Before relying on a hosted service for critical work, a company should establish what transition rights it has, what materials and access it would need, who could operate the application, and how it would pay for the transition. REI’s unbudgeted plan illustrates the distance between identifying a possible exit and being able to execute one.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Questions to settle before outsourcing supply-chain software
The REI case does not prove that hosted or internally operated software is best in general. It does show which questions deserve answers before the customer’s operations depend on the service:
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- Hosting and operations: Which routine tasks move to the provider, and which remain the customer’s responsibility?
- Implementation and partner adoption: Who is responsible for extending the system to suppliers and trading partners, and how will progress be assessed?
- Data and performance: What standards and escalation paths apply to data accuracy and response time, and how will the customer know when they are not being met?
- Cost and value: What recurring fees apply, what outcomes are expected, and how will the customer assess whether the service is producing measurable value?
- Continuity and exit: What source-code or transition rights exist, what equipment or expertise would be needed to take over, and is the fallback funded?
These questions keep the decision focused on the full operating arrangement, not just the convenience of paying a monthly fee instead of running an application internally. REI’s experience is a period-specific case: it supplies no industry-wide ROI statistic or basis for generalizing the company’s outcome.
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