Slaying the paper dragon.

Are paper costs chewing up your bottom line? Optical-disk imaging systems may help take the bite out by saving you time, space and money.

When Sandler Foods, a food distributor, decided to upgrade its microfiche invoice system, it quickly decided to switch to optical storage. Why? The firm's microfiche system cost about $43,000 per year, while the optical imaging system costs $22,000 per year. Sandler, like many other companies, also has used its new system to reduce space requirements, speed up document retrieval and improve customer service. Some companies have even found optical-disk imaging opens up new business opportunities. Could it work for you?

Every day, U.S. businesses churn out over 950 million pages of letters, computer printouts, photocopies and other paper documents. According to IDC, a Massachusetts research firm, the cost of managing these documents is about $100 billion annually.

In addition to filing, retrieving and routing paper records, businesses also bear the tremendous burden of storing them. The average cost of the rental space needed to store a typical file cabinet in New York's World Trade Center is $2,250 a year. In Boston, the cost is $1,131 and in Houston, $917. Paper is one of the biggest stumbling blocks to improving productivity and lowering costs.

Although optical-disk imaging alone won't solve every productivity and cost problem, it can save space and time, improve customer service (not to mention your cash flow) and generate revenue. What's more, it can help you make the most of your employees' time. According to a recent study by the Yankee Group, a Boston market-research firm, an optical imaging system on a computer network can increase worker productivity by as much as 50 percent (measured by transactions per second) and can also reduce staff needs by one-third.

WEIGHING THE BENEFITS

Tempus Fugit -- For Sandler, saving time was an important consideration in installing its optical system. The company has begun to add bar codes to its invoices so they can be scanned right at the loading dock and recorded. Questions that arise about a specific invoice can be routed to the right person, and the resulting decision can be cross-referenced to the optically stored data.

The changes have spurred management to rethink other processes as well. Greg Lee, the company's vice president of finance, explains, "One of the things you learn when you break from the tradition of handling paper is that you have to closely examine every step of the process to make certain nothing slips through the cracks or if certain steps can be eliminated." As a result, the company has revamped its entire workflow to end inefficiencies and improve productivity.

MasterCard also decided to beat the clock with optical-disk imaging. For years, the company stored most documents in paper form. When an employee or a customer needed a report or file, it had to be manually retrieved, so employees spent a great deal of their time looking for materials. Locating misfiled documents sometimes took more than a day. According to GS Research, that's a significant problem, because finding misfiled information costs on average about $120 per document. Now that MasterCard is replacing its file cabinets with an optical-imaging system, it can retrieve documents in seconds.

Space Plights -- If you can't fit another document in your storage facility, you've got another good reason to go paperless. National Fuel Gas Co., a New York natural-gas utility company, was adding 10 four-drawer file cabinets to its storage facility each year to handle the continual influx of audit reports and documents it created. Since the state required the company to keep all documents for at least five years, storage space was rapidly disappearing. To solve the problem, National Fuel incorporated an optical-disk imaging system into its existing personal computer system. Since one optical disk can store up to 20,000 documents, the company has saved the cost of the complete system in floor-space savings alone. An entire year's worth of paperwork can be stored on one or two pocket-sized disks.

The Customer Wins, Too -- Because optical imaging makes your operation more efficient and accessible to customers, it can help you attract and keep business. MasterCard found that the ability to locate documents quickly not only saved its employees time but allowed it to deliver faster, more efficient customer service. And Discount Corporation of New York Futures, a Chicago brokerage firm, switched from computer output microfilm to optical mainly to improve data access for its customers. Previously, when a customer wanted a statement, employees had to locate the proper microfiche, photocopy the data and fax it, a process that could take hours. In the fast-paced stock-market business, that was just too long. Now copies of the requested documents are faxed directly from the computer system to the customer in a few minutes.

At Sandler, trucks that are unloading have specific invoice forms that are immediately scanned and digitized, providing instant access. Salespeople can even retrieve invoices in the field calling the accounts receivable department, which can quickly fax them a copy.

Revenue Raisers -- One lesser-known benefit of optical imaging is its capacity to generate more revenue, especially by freeing up dollars once used for microfilm. Traditionally, companies have stored financial and business records on microfilm to conserve valuable storage space. However, microfilming is expensive and requires one to two weeks to complete. Typically, the data is downloaded to tape, which is delivered to an external bureau, where the data is converted to microfiche.

With an optical-disk jukebox system, the data can be downloaded from the computer to an optical disk overnight, freeing the expensive hard disk storage of the main computer for daily transactions. Users can immediately access the files, and several people can simultaneously use the same data.

The financial industry, which generates a tremendous volume of paper, was one of the first to adopt optical-disk storage, and many banks now use it to reduce the monthly microfiche bills plaguing them. For instance, Klein Bank in Houston used to spend about $2,000 per month on fiche. Today, the bank can store an entire month's reports and records on a single 940-MB write-once disk for about $145. These disks also meet the legal requirements for archival storage, since banks are required to keep financial records up to seven years.

Some companies have even found ways to make existing businesses more profitable through optical technology. For instance, the San Jose Medical Center receives many requests from outside parties like attorneys, government agencies and insurance firms, so it charges for the records it furnishes. Historically, the charges barely covered the staff time required to locate and assemble the records for the requester. But with the imaging system, records can be located at the computer terminal and printed out in minutes. The medical center now earns $150,000 annually for its service.

And Border Abstract & Title Co. of Texas says that its title, deed and document search services would be only marginally profitable without optical-disk storage. "Our original plan was to sell our services just for Webb County," recalls Evan Quiros, president of the company. But customers began to clamor for the same service and support in other counties.

Because of optical imaging, "We've been able to quadruple our market without sacrificing customer service," Quiros reports. In addition, the time and labor savings mean "We could handle two or three times the number of requests we receive today and the increased overhead would be insignificant."

Going With the Cash Flow -- The technology can improve your cash flow, too. OK Trucking in San Leandro, California, receives more than 600 documents from its customers every day, all of which must be recorded and tracked. Because unscrupulous customers sometimes took advantage of an inefficient paper trail, the company had to retain some documents for years. "Some customers will wait for a long time -- sometimes a year -- after they've gotten a shipment and ask the shipper for proof of delivery, hoping the shipper can't find it," explains Barry Prince, president of the company. "In the past, if we couldn't come up with the documents, we were forced to eat the cost of replacing the shipment. The payout for a few 'lost' shipments can easily justify an imaging system."

In addition, the system enables employees to call up the information while customers are on the phone. Copies of the documents are sent automatically at the customer's request. The company has significantly improved its cash flow because it can send a customer an invoice in one day instead of seven.

WORDS OF CAUTION

Since many of the advantages of optical-disk imaging technology accrue directly to the firm's bottom line, many financial executives are playing a major role in deciding whether to switch and then in selecting the right system. If you do decide to switch to such a system, be careful in your implementation. Here are some pitfalls to watch for:

* Despite technical advances, document-imaging systems are not plug-and-play systems. Many successful installations require a dealer or reseller who can integrate the system with the best applications for your needs. Resellers are usually more involved in helping customers than are typical computer retailers.

* Before you begin contacting imaging resellers, identify your specific requirements, applications and limitations. Determine your objectives, problems, site-plan and legal requirements. Information such as typical file sizes, daily document quantities, projected workloads and storage volumes is important, and you should also make some growth projections. This will help the reseller make the best recommendations for meeting your objectives.

* If you need a reseller, don't select one that has no experience in installing document-imaging systems similar to yours. Ask whether it has software and network engineers on staff.

* Investigate the accessibility of technical support. Beware of resellers that refuse to let you meet the technical support staff. A hands-on demonstration before the purchase is usually a good precaution.

* A good proposal will account for the possibility of future growth and expansion. In addition, the reseller should have technical material and other resources to help you justify the cost of imaging to management. Find out whether it offers lease and pilot-installation programs. Shy away from those who don't.

* Don't forget about the cost of training, documentation and support.

* Once you choose a system, don't rush to convert all of your operations at the same time. Making the transition too fast is one of the best ways to ensure failure, so start with one department or one area. Once you have the system set up, employees trained and everything operating smoothly, you can move on to the next area.

* Remember that employees often initially oppose giving up their paper documents, but once they see how it simplifies and improves their work loads, they usually are eager to take advantage of the new technology.

Mr. Kalstrom is executive vice president of Plasmon Data Systems, Inc.