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Cost Benifit - Ibm Ilog Software Investment

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Letter to executives

IBM has announced its new software technology for transportation companies and Next Day Air Service will benefit from this new software/program. Our Operations & Financial departments have determined that with the new software from IBM the company's Revenue will increase 12% and our Operation Expenses will decrease 10% for the first year. This is an overall 22% increase in Profits for Next Day Air Service.

Benefits of IBM ILOG Transportation Analyst

IBM ILOG technology offers our transit units and dispatch management the ability to increase competitiveness with entrants in the Tampa area and internationally, improve our customer service and lower our operation costs. Initially IBM's ILOG Transportation is route planning software that will assist our vehicle routing and shipment planning to optimize transportation assets.

The program will reduce our overall operational costs by initiating better usage of our transportation resources. ILOG Transportation Analyst will assist our fleets to determine optimal load consolidation, route sequences and help with our shipping schedules. The program will also perform scenarios to test different pickup and delivery windows, delivery frequencies and vehicle types to maximize delivery service. ILOG also offers site mapping to show vehicle schedules and delivery points so we are able to have a visual aspect of our fleet deliveries. The mapping system also shows updated routing to show distance and travel times. This will improve Next Day Air Service's reactivity and safety by real-time visualization of traffic conditions.

ILOG will assists in improve our service to customers in case of a disturbance or disruption in our business obligations by reducing service errors. Eliminating or reducing mishandled shipments by 5% will affect overall performance and increase revenue 12% because of the costs occurred in damaged goods, wrong shipments, lost packages, and timeliness.

The improvement of punctuality and quality of service will assist with our marketing and name recognition with future and current clients. We could use this as a competitive edge to regain any lost profit margin for outside competition.

Software Cost

The cost of the initial program provided by IBM is minimal, because the software is compatible with our present operation system and hardware. Implementation of the program could be up and running in a weeks' time. The software is also internationally compatible which will benefit our expansion internationally which would give Next Day Air Service a competitive edge in other countries in the future.

We have decided a Floating license agreement with IBM would best benefit the company. The Floating license from IBM is a license for a single software product that can be shared among multiple Next Day Air Service members; however, the total number of concurrent users cannot exceed the number of Floating licenses we purchase. This was a cost incentive since multiple networks or individuals will be able to access the program and we will not have to purchase software for each individual computer on our network, although we will have to purchase individual



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