632598256894

Exhibit 13.5 Transaction processing detail.
This drove the customer identification process to focus on those companies with low variation in
demand. Companies such as Flowers Are Us, Godiva Chocolates, and the like, with high peak
demands for only short periods, were eliminated from the target group. In addition, Company Z was
experimenting with offering off-peak pricing and batching rather than offering only real-time
processing. Mathematically, it was easy to solve for the amount of volatility that could justify a
business model, but it was much more challenging to build a customer base to match this targeted
volatility. As Exhibit 13.6 illustrates, if all volatility was eliminated, the cost per transaction would fall
to $0.048 ($2.1 million in annual costs spread over 120,000 transactions × 365 days). This, of course,
would be impossible, but Company Z targeted a volume of 88,500 thousand transactions per day,
which was equivalent to a productivity factor of about 75% or, stated another way, a spread between
peak and average demand of about 25%. At this level, the cost per transaction would be $0.065,
yielding a reasonably high 35% gross margin for this type of high-volume business ($0.10 -
$0.065)/($0.10).
Exhibit 13.6 Transaction processing detail with and without volatility.