Some reasons as to why I added QCSC. Lengthy reading but thought provoking. I feel this stock is at the beginning of a long and healthy life span.
I suggest if you are thinking of purchasing this stock and HOLDING it take your time reading this !!!!!! as always, comments welcome
OVERVIEW OF THE MARKET BEING ADDRESSED BY THE COMPANY
As the worldwide retailing industry grapples with competitive pressures and shifts in consumer demand, traditional sourcing methods are coming under heightened scrutiny, especially in light of proven emerging technologies which can now offer dramatic improvements in efficiency, costs and business process management. Most purchasing automation efforts address the Post-Order end of the Merchandise Flow. The Pre-Order and Order processes - the crucial "upstream" lengths of the spectrum, may soon be automated.
All retailers experience the need for more efficient and effective buying systems, but the major global and national retailers feel the need most strongly and are actively exploring purchasing automation solutions.
THE MARKET NEED IN FOCUS
- The Retail Supply-Chain needs: efficient electronic flow of goods/services, enabling Just-In-Time receiving, lower overall costs, fewer data errors, closer relationships between retailers and suppliers for better service and planning.
- Major Retailers need: buying efficiency and integration, supplier
partnering, lower costs, fewer data errors, and mapped input into existing systems
- Qualified Suppliers need: customer partnering/closer relationship via system tie-in to retailers, sales and bidding efficiency, Internet
presence, qualified presence in a network system with visibility and
mapped output to an array of customers and prospects
GLOBAL RETAIL MARKET
The retail industry is characterized by intense competition, consolidation and tightening profit margins. Consumers are ever more discerning and consequently demand that retailers offer more value in return for their purchasing dollar. Pressure on retailers affects all players in the sourcing environment.
To attract and keep consumers, retailers must offer more desirable products and prices, while optimizing factors such as product variety, inventory carrying costs, retail prices and costs of goods. Successful buyers must now sort, view, decipher and effectively act upon immense volumes of product and purchasing data. The average large department store carries more than one million SKUs (stock keeping units) at any one time, each unique in terms of product style, size, color, features, packaging, and so forth. Retailers need to source these SKUs from hundreds, or in some cases thousands, of vendors worldwide.
Sourcing-related communications between retailers and their vendors is a continuing dialogue about products, pricing, delivery, special promotions, packaging and a host of other issues. To date, these communications have largely been carried out through paper-flow, phone calls, faxes, courier services, or through travel and personal visits. It is time-consuming, challenging and expensive to maintain retail supply communications in this manner. Moreover, to compare different merchandise buying programs on a consistent and meaningful basis requires a major undertaking for which buyers often lack adequate resources.
Current sourcing methods often result in less than optimal merchandise
buying, characterized by frequent misalignment between what the consumers want and what is actually on the store shelf, not to mention lost sales, costly retail price discounts, or even unsold merchandise returned to the supplier.
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE IN RETAIL
The expanding number and variety of products sold by each retailer along with pricing pressure and geographic diversity, drives the globalization of retailer-supplier partnerships. Growing volume and complexity in merchandise sourcing relationships requires an information systems solution. Long considered an art, merchandise buying must now be approached as a science, with the help of technology.
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To better manage their relationships and merchandise flow, retailers and suppliers alike are turning to information technology, and specifically to electronic commerce solutions. QCS believes that the electronic commerce market is at the start of a long-term expansion driven by adoption of the Internet as a marketing venue and data highway. Electronic commerce in the retail sphere represents a significant opportunity for systems application and service providers who understand the unique requirements of the retail industry and can provide the reliability and security necessary to consummate and manage sourcing transactions.
The retail industry and its major participants have been early adopters of electronic commerce technologies, initially in the form of Electronic Data Interchange (EDI) managed over private Value-Added Networks (VAN). EDI addresses the post-ordering flow of basic transactional data. In addition to addressing a limited range of the merchandise flow, EDI systems can be expensive to develop and are based on closed and proprietary system technologies. The range of workflow capability is limited and costs tend to exclude smaller participants, such as suppliers, from enthusiastic involvement.
In order to successfully face these challenges, retailers and suppliers are increasingly turning to information technology, and specifically electronic commerce applications, as a means of managing their retailer-supplier relationships. The Company believes that this trend towards electronic commerce solutions represents an opportunity for application and service providers who understand the unique requirements of the retail industry and can provide the necessary reliability and security to consummate and manage sourcing transactions.
OVERVIEW OF QCS SERVICES
The QCS Network is designed to address the retail industry's sourcing
communication and workflow management needs, for both the retailers and their vendors. Based on an industry standard groupware software development platform, Lotus Notes/ Domino, and industry standard networking and electronic mail systems, the QCS Network and QCS's software products and services link retailers and their trading partners through electronic mail, data and full page image exchange. This is done through the interactive exchange of product description documents with text and color images, and administrative documents and forms customized to each retailer's unique requirements. QCS's software products and services include (1) application software for a one time licensing fee, and (2) unlimited network access for a fixed monthly fee or, for most retailers and certain high volume vendors,
network access for which the Company charges volume-based recurring usage fees. Hardware requirements are simple -- the single user service requires an industry standard desktop PC with a high quality color display, a color scanner, and/ or a digital camera. The multi-user service requires an image acquisition PC, a QCS server, and multiple local area network ("LAN") workstations. Through the Lotus Notes/ Domino replication feature, the QCS Network constantly updates and synchronizes all its data residing both in centrally located system servers and multiple distributed local desktop stations at client sites. Lotus/ Domino server connected users access the
QCS Network via QCS' Web site (qcsnet.com) on the Internet.
Once on the QCS Network, the retail buyer can select and retrieve the
up-to-date information from a worldwide pool of vendors regarding their product offerings. Similarly, a manufacturer or vendor can access the buyers at the large department store retailers, mass merchandisers and specialty chain stores. Product information is input by the vendor following a series of computer prompts, both textual and in color image. When retrieved by retail buyers, the data from all different vendors will appear on the retailer's desk top screen in the retailer's own pre-specified and familiar format, thus making it meaningful and relatively easy to compare products across multiple suppliers for the same merchandise program offering, and at the same time allowing easy interface to the retailer's in-house information
systems. Communication between each pair of trading partners on the QCS Network is totally private and on a "store-and-forward basis" or "on-line".
The product color images can be edited easily to customize it to the
retailer's own private label or for other design, packaging and marketing purposes. Flexibility has been built into the QCS Network, allowing users to establish exclusive links with a particular trading partner, to conduct exclusive communications between groups of users, or to use the QCS Network exclusively for internal purposes to connect a client's worldwide business locations. Access to the QCS Network is executed automatically in the background through a local telephone number dial-up. When traveling on the road, QCS Network users have access to "Traveling Mailboxes" via local phone dial-up numbers in most major cities in the world or via local Internet Service Providers ("ISP's").
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PRODUCT DEVELOPMENT AND/OR ACQUISITIONS
The Company's research and development efforts are exclusively driven by market needs and directed towards technologies that enable and facilitate the mapping and translation of information between trading parties in retailing.
QCS uses a product strategy that combines internal development, alliances, and licensing of applications from third parties. New product development and enhancements of existing products are typically performed within QCS.
Responsibilities include design, development, documentation and quality assurance. Contractors are involved in non-critical projects.
QCS follows an open-environment strategy and supports, to the extent
possible, standard operating systems, LAN environments, communication
protocols and industry-specific message formats. There will continue to be rapid changes in technology standards, and QCS intends to incorporate new technologies and methods into its product and service offerings in order to continue to provide leadership products.
International networking uses a combination of private (IBM Global Network -IGN) and public networks (Internet). QCS maintains its hub servers both under a facility management agreement with IBM, and internally in a self-hosted fashion in its own facilities.
Security concerns play a major role in technological choices. Lotus
Notes-TM-and Domino-TM- technology guarantee user authentication and
controlled access to the Company's servers. Critical documents exchanged between QCS Network users are encrypted using Lotus Notes-TM- secure protocol over the private network and standard SSL (Secure Socket Layer) protocol over the Internet. Both provide the highest level of security permitted by U.S. export laws.
CURRENT OFFERING
The QCS product line currently allows a supplier a variety of functions revolving around its product catalog. Various functions allow a supplier to maintain its product catalog, send portions of it to global listings, and to send confidential detailed offers from its catalog to buyers on the QCS Network in a point-to-point mode.
Documents sent by suppliers are processed by an intermediary QCS server, incorporating various filtering and mapping functions, before being delivered in the buyer organization in its own tailor-made format. This centrally-managed form-based messaging system guarantees flexibility by shielding the seller from buyer specificity and ensuring the interoperability with a large number of messaging standards. Additional modules geared towards communication of documents with forwarders and inspection companies enable the buyer to follow-up the merchandise flow up to the delivery. In order to smoothly integrate in a variety of site configurations, QCS offers its
customers various connectivity options to the QCS Network.
Launched in December 1996, QCS v2.4 is deployed at the customer site over Lotus Notes-TM-, in either single station or LAN configuration. It is typically chosen by large organizations and is available for suppliers, retailers, forwarders and inspection companies. Hardware platforms running Windows 3.1, Windows 95 or Windows NT on the client and Windows NT, OS/2 or Netware on the server are supported. Access to the QCS hub server is achieved through local X.28 dial-up calls to IGN X.25 private network.
The Supplier Sales Station v3.0 was introduced in May 1997. QCS v3.0 is a web-based product that capitalizes on the low-cost and interactivity offered by the Internet. It is available to any supplier with a standard Internet connection and a web browser. Access to the QCS hub server is achieved through local ISP calls using TCP/IP protocol over the Internet.
QCS-enablement of independent software vendors or proprietary solutions is done through the support of standard EDI messages. This service is currently available to forwarders but will be further generalized to other types of messages.
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The back-end architecture of the QCS Network is built over Lotus Notes-TM- and Domino technology, which allows shared database replication, user authentication and controlled access, messaging and workflow management, and offers support of industry standards such as HTTP, SSL or SMTP.
The QCS Solution addresses the workflow management of merchandise sourcing for major retailers worldwide, with special emphasis on the "upstream" processes of Pre-Ordering and Ordering. In alliance with IBM, the QCS Network provides this well-defined market with a private, secure and web-enabled network integrating retailers with their qualified vendors worldwide.
Through the QCS Network, retailers, manufacturers and distributors can
exchange their sourcing information electronically in a secure and
confidential environment. The QCS Network is designed to provide accuracy, speed, format standardization, comparability and on-screen product images that can be manipulated with relative ease by the end-user. Access to the QCS Network is available to its retail industry clients 24 hours per day in over 180 countries and territories throughout the world.
QCS operates an "Electronic Merchandise Flow" service using Lotus Domino technology as the common presentation manager between its own collaboration applications and existing in-house solutions of all members of the retail trading community.
The QCS Network blends an industry standard groupware development platform, Lotus Notes-TM- with the web enablement tool Domino, together with industry standard networking and electronic mail systems. Retailers and their trading partners are linked through electronic mail, data and full page image exchange. The system offers the interactive exchange of product description documents with text and color images, and administrative documents and forms customized to each retailer's unique requirements.
The recent Internet-enablement of the QCS product line effectively joins together the private and public networking application worlds, making their differences transparent to the end-user. Supplier and retailer alike can access the system from either software platform, and carry out their trading dialogue with all supplier-originated communications automatically "mapped" to the retailer's in-house systems.
By making many of its current network functions available through the
Internet via a standard Web browser (Netscape, MS Internet Explorer), QCS removes much of the necessity for suppliers to maintain sophisticated local hardware and software on site. QCS believes that suppliers will more readily accept and use QCS via the Internet, thereby increasing adoption of the technology.
SOLUTIONS FOR RETAILERS
QCS' retailer solution includes collaboration server software, an Electronic Commerce implementation plan with the Retailer's MIS department, and a detailed implementation project with the Retailer's Merchandising department.
The Collaboration Server is based on the Lotus Domino technology and consists of a retail sourcing-specific electronic commerce server. The server can be either housed by the Retailer or by QCS in Facilities Management. The QCS Collaboration Server can be completely "firewalled" from the Retailer's existing in-house systems. Data from the Collaboration server is transmitted and interfaced ("mapped") through the firewall to match the Retailer's in-house standards for Electronic Mail and Graphical User Interface, as well as Management Systems handling data such as Purchase Orders, Point-of-Sale,
Quality Control and Shipping information.
Once on the QCS Network, the retail buyer can select and retrieve up-to-date information from a worldwide pool of vendors and request information concerning their product offerings. All data from all vendors appears on the retailer's screen "mapped" automatically by QCS into the retailer's pre-specified and familiar format. This makes it simple to compare products across multiple suppliers for the same merchandise program. Supplier input flows seamlessly through QCS into the retailer's existing systems.
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Global retailers can now review, select, negotiate and purchase consumer goods over an image-based network using IBM's Global Network. Information is exchanged in a confidential secure environment. The overall objective is to enable the retailer client to obtain lower cost, increased sales volume, faster inventory turnover, fewer involuntary price discounts, fewer inventory buying errors, and improved margins and profitability. Enhanced merchandising
productivity yields substantial savings, directly impacting the client's bottom line and bolstering price competitiveness.
When utilized to its full capability on a wide-scale basis, the QCS Network can substantially shorten the sourcing process and more effectively manage the vendor performance quality. It enables merchandising, manufacturing and shipping decisions to be made by all parties closer to the selling season, thus helping to provide better informed and timely critical business decisions.
SOLUTIONS FOR SUPPLIERS
To take advantage of the advent of the Internet, the Company has introduced a new web-enabled product. The Supplier Sales Station offers vendors a cost-effective way to get in front of all QCS private network retailer members. A server facility located in Mountain View, California links the Web with the QCS private network. The home page (http://www.qcsnet.com) tells the viewer about the QCS services and benefits and allows him to register online and to become a member at a basic service level. This provides the supplier with free email directly between himself and individual buyers. Many suppliers will get onto the Internet using a free 30-day trial of IBM Internet Connection Services offered via direct mail.
The new member enjoys a limited version of the full spectrum of QCS Network services. The vendor will be able to submit information about himself and his product offerings to the catalog viewed by all QCS members. The data is input by the vendor himself on the QCS Internet home page. The QCS server then "maps" it into the QCS standard format and posts it on the QCS private network catalog. Supplier input is thus in one standard format that is "mapped" by the QCS system to each retailer's internal specifications.
The QCS product line currently allows suppliers a variety of functions
revolving around his product catalog. Various functions allow him to update his catalog, send portions of his product catalog to global listings, and to send confidential customized and detailed offers from his catalog to buyers on the QCS Network in a point-to-point mode. This base functionality shall remain in all future product offerings, however the underlying technology will be enhanced to incorporate the most current market standards.
Supplier equipment requirements depend on whether they are a large-usage vendor tied into the QCS private network and interacting extensively with retailers, or a new supplier subscribing to free e-mail services through the Web and considering additional options. The large user requires an industry standard desktop PC with a high quality color display, a color scanner and/or a digital camera, a QCS server and a local area network ("LAN") workstation.
The entry-level service requires only a PC running Windows and an Internet connection with web browser.
SALES AND MARKETING
MARKETING ALLIANCE WITH IBM
In December 1996, QCS and IBM formally announced a broad alliance to enable international electronic trading between retailers and their suppliers on IBM's Global Network. IBM and QCS cooperatively market the QCS service. IBM provides a global infrastructure that includes help desk support and a worldwide sales and marketing force, some of which is expressly dedicated to QCS. QCS operates its service on the IBM Global Network Interconnect Service for Lotus Notes-TM-.
In addition to providing customer care centers and a worldwide sales force to recruit suppliers, IBM also has responsibility for supplying, installing and packaging the QCS Supplier Installation Kit and to provide telephone support for Lotus Notes-TM- and the related QCS Software to suppliers. QCS pays IBM for access to the IBM Global Network and makes revenue based payments for IBM's sales and marketing services.
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IBM Electronic Commerce, Global Trade Services, the IBM entity which
sponsored the strategic alliance, was formed within the Internet Division in 1996 with the mission to develop business with companies engaged in International Trade. Global Trade Services' objective is to leverage IBM's worldwide sales and services capabilities, current and emerging technologies and global network in cooperative business relationships that will capitalize on the opportunities existing in the electronic commerce marketplace. Global Trade Services introduced QCS to IBM's Distribution Industries Solutions Unit. Their operational presence in the field and commitment to the QCS
vision brings market acceptance, local infrastructure to leverage, and deep knowledge of retailers and emerging supply-chain solutions.
COMPETITION
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The general market sector for what QCS does can be broadly defined as firms offering business to business electronic commerce applications, such as General Electric Information Services (GEIS), Sterling Commerce, Harbinger and IBM Corporation. They are large companies serving diverse markets, and are not focused on the upstream part of the retail merchandise flow, especially the Pre-Order area. QRS Inc. is an established firm that serves the retail industry, the same vertical market as the Company, but it does not focus on the Pre-Order area of the upstream flow, and offers EDI products entirely.
Of the many electronic commerce providers, large and small, some offer a proprietary network product and others apply an Internet based solution. The trend is clearly moving toward Internet functionality, as big e-commerce providers create products in this domain or at least web-enable existing and largely EDI-based offerings to serve more areas of the Merchandise Flow chain.
UPSTREAM VERSUS DOWNSTREAM RETAIL SOLUTIONS
Within the upstream area, QCS addresses the Pre-Order and Order sourcing flow needs of major retailers, with connectivity to applications, workflow functions and service providers. QCS serves this well-defined market with a private, secure and web-enabled network integrating the retailer with his qualified vendors and service providers worldwide. It offers retailers and suppliers a comprehensive, independent, industry standard solution supporting
upstream processes. Other upstream electronic commerce providers serving the retail industry focus on rapid replenishment systems (just-in-time inventory management). Downstream electronic commerce firms provide point of sales, data warehousing and micro-marketing (analysis of consumer purchasing behavior). Downstream systems do not overlap with the QCS Network in any material fashion.
EXTRANETS VERSUS IN-HOUSE DEVELOPMENT
In-house systems development, a traditional internal competitor to new
technology applications, is not a strong competitor today because of the direction in which Internet based technology is evolving. In 1996, intranets were embraced by corporate users of information services and made substantial inroads in strategic vision documents and procurement practices of many IT departments within major companies.
The new Extranet, or extended Internet, is a private business network of several cooperating organizations located outside the corporate firewall and utilizing existing Internet interactive infrastructure such as standard servers, email clients and Web browsers. This makes it far more economical than the creation and maintenance of a proprietary network. It enables trading partners, suppliers and customers with common interests to form a tight business relationship and a strong communication bond. It is the first non-proprietary technical tool that can support rapid evolution of electronic
commerce. QCS Network is an extranet system for which development experience and costs have already been borne.
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