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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →In 2001, outdoor retailer REI used SPS Commerce’s hosted supply-chain applications to avoid operating the software on its own infrastructure, paying a monthly fee instead. But REI had not achieved measurable return on investment at the time: slow supplier rollout, data-accuracy problems and system response times were getting in the way. The case shows why outsourcing software changes who runs it, but does not remove the need to manage implementation, vendor continuity or the cost of an exit.
What an application service provider meant in 2001
In the terminology used by L. Pender’s July 15, 2001, CIO article, an application service provider (ASP) hosted and operated software for a customer and delivered it over the Internet for a recurring fee. REI used SPS Commerce’s hosted supply-chain execution applications rather than keeping the application running on its own infrastructure. REI inventory and logistics director John Strother described the arrangement as a bet on a business-critical implementation.
This is a historical example of an ASP arrangement, not a guide to current providers or a claim that 2001 ASPs and modern SaaS services are interchangeable.
Why REI had not realized measurable value
At the time of the article, REI had not achieved measurable return on investment from the arrangement. Strother attributed that to SPS being slow to extend the technology to REI’s suppliers, along with unresolved problems involving data accuracy and system response time. These were REI’s reported difficulties in this implementation, not evidence that hosted supply-chain software generally fails to deliver value.
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The distinction matters: a service can be hosted and available without delivering the business result a customer expected. For a supply-chain application, supplier adoption, reliable data and responsive systems all affect whether the software supports day-to-day operations.
How to evaluate hosted and internally operated applications
The REI case illustrates questions a company would need to answer before choosing who operates a business-critical application. It does not establish that outsourcing or in-house operation is best in general.
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| Decision area | Hosted arrangement | Internally operated arrangement |
|---|---|---|
| Hosting and routine operations | The provider hosts and operates the application; REI paid SPS a monthly fee. | The customer keeps the application running on its own infrastructure. |
| Implementation and supplier reach | REI reported that SPS was slow to extend the technology to its suppliers. | The case does not report how REI would have performed this work internally. |
| Data quality and response time | REI cited unresolved data-accuracy and response-time issues. | The case does not compare performance with an internally operated system. |
| Fees and return | REI paid a monthly fee and had not realized measurable ROI at the time. | The article does not state an internal operating cost or comparative return. |
| Continuity and exit | REI contemplated obtaining source code, buying equipment and bringing the application in-house, but had not budgeted for that contingency. | The case does not provide a cost or transition plan for internal operation. |
Why vendor continuity entered the calculation
The article reported that SPS Commerce laid off just under 30 percent of its workforce in March 2001 and that its CEO resigned. 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. Those were statements and events reported at the time; the article supplies no independently audited financial measure and does not establish SPS’s current condition.
For a customer relying on a business-critical service, provider continuity is part of the practical risk assessment. A provider’s reassurance or financing claim is not a substitute for understanding what the customer can do if service, support or the provider itself is no longer available.
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REI considered obtaining the source code, buying equipment and bringing the application in-house. Strother acknowledged the contingency was not budgeted: “We haven’t budgeted for it.” That gap is the case’s clearest practical warning. A fallback that requires code, hardware, staff and transition work may not be usable if the customer has not secured the rights and resources in advance.
Before outsourcing a critical application, a company should establish contract terms and operational plans for:
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- Access to data and, where relevant, source code, along with the rights needed to use them during a transition.
- Who is responsible for implementation, supplier onboarding and resolving data-quality issues.
- Performance expectations for response time and a process for addressing service problems.
- Transition assistance, equipment or infrastructure needs, and the people required to operate the system internally.
- A realistic budget and trigger for an exit, rather than an unfunded contingency.
The 2001 REI-SPS case is useful as a reminder to assess the operating relationship as well as the software: a monthly fee can shift routine hosting work, but it does not by itself secure supplier adoption, reliable performance or a workable exit.
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