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Going to the Source
By Mary L. Carlin — July 27, 2006
Outsourcing is moving from the traditional areas of maintenance and development support for legacy applications to newer areas that are customer focused and in support of mission critical applications such as call center operations and the supply chain. Best practices and change management are vital, as retailers outsource increasingly strategic areas of their businesses.
Its easy to underestimate the impact of outsourcing, and its not always obvious what the best practices are, explains Nikki Baird, senior analyst, consumer markets at Forrester Research. There are hidden costs, time and distance, which you have to get used to operationally. Watch what the leaders are doing, and learn from their mistakes. Baird says that retailers are naturally very cautious, and that 2006 will see the basics proven before experiencing an uptick in outsourcing in 2007.
Indian consultancies [Wipro, Tata/TCS, Infosys] in particular are moving beyond maintenance to service offerings in more strategic business areas, like parsing data for valuable input into customer segmentation strategies, Baird continues. Tata has recently joined with Microsoft to offer a New Store Opening expanded project management platform with tools for retailers to assign, monitor and report in real time on the manifold tasks involved in opening a new store. Outsourcing is not just putting old legacy systems on life support for the cheapest possible amount of money, she continues. Retailers can free up resources for innovation.
Outsourcing spending has continued to increase, but the focus has shifted from cost savings to achieving process improvements. Access to additional resources and technical expertise is now the primary reason for outsourcingAMR Research expects the growth in transformational outsourcing services the combination of consultant-driven process change with operational efficiencies from outsourcing to accelerate, according to the IT Services and Business Process Outsourcing Spending Report, 2005-2006, researched and published by AMR Research.
In its most recent report on projected IT spending, Forrester Research predicts: IT outsourcing will reach saturation. Firms will continue to outsource ongoing new development work, individual applications and telecom networks. Growth will slowas the number of outsource prospects shrinks with adoption. This slowdown is not expected until sometime between 2007 and 2009, when market growth is predicted to have reached its highest point.
Unable to handle inbound contact from customers and in-store personnel in a timely manner, Ulta Cosmetics made the decision to outsource its call center and e-mail support to Echopass, enabling the company to integrate it with its CRM database from RightNow Technologies to improve and personalize service across all touch points. Ulta (cosmetics, fragrance and salon) operates more than 165 stores in 21 states, and is opening more at a rate of 20 to 30 per year. This rapid growth has precipitated the need for the outsourcing support.
The new system has exceeded expectations, says Ron Brown, director of service and communications for Ulta. ROI was reached within nine months and savings are projected to be seven percent higher than expected, he notes. In addition, customer wait times have been reduced from an average of 3.5 minutes to 45 seconds, and abandoned calls from 25 percent to seven percent.
This is light-years ahead of our previous archaic system with a receptionist and two-to-three-person call center, Brown explains. We were fairly cautious rolling this out, and hit the ground running with just the key features we needed. There was no equipment to install on-site, and the only hindrance was our own staffing and training. It was a couple of weeks turnaround for the vendors.
The ability to decrease staffing has afforded Ulta significant savings despite bringing their Web site in-house (previously outsourced to a third party). Costs are based on the number of agents accessing the system, the number of page turns for FAQs, and database accesses for CRM.
Before, we just used an Excel spreadsheet to log phone calls and emails, says Brown. Now the system populates a single database with call information and manages our rewards program with amounts spent and current point balances. Now that were getting the data in, were looking at ways to exploit that information.
The system uses VoIP with phones at each workstation to route different kinds of incoming calls. Caller ID self-populates onscreen fields with pre-entered information. It manages incoming e-mails and calls through a single interface, and offers self-service access to FAQs such as store hours and directions.
This gives us flexibility and lower costs, explains Brown. There was no need to install in-house systems or hardware, and there are no maintenance requirements. Were more effective at handling things now, especially because of the reporting capabilities. I can see the number of hang-ups, compare times of day, and identify and address any issues. We have more control now, and provide a consistent message to our customers. I imagine that there could be benefits for some companies to outsource everything.
BPO at A&P
As part of its turnaround strategy, The Great Atlantic & Pacific Tea Company (A&P) has outsourced its supply chain (warehousing, transportation and replenishment buying) to C&S Wholesale Grocers. Outsourcing is expected to drive efficiencies and control costs for the regional supermarket retailer. According to A&P, the new arrangement is expected to produce an estimated $40 million in annualized savings, based on C&Ss logistics expertise and purchasing efficiency, and the removal of internal costs associated with self-distribution.
Business process outsourcing can benefit companies looking to cut costs and improve efficiencies. As part of the planning process, retailers must evaluate the actual costs of keeping the processes internal versus the projected costs of outsourcing, including change management. When handled correctly, outsourcing can be an integral part of a successful IT strategy and a companys overall business processes.
To achieve consistent strategy across hundreds, and sometimes thousands, of stores, some larger companies opt to outsource their entire IT operations. Gap, for one, recently signed a 10-year, $1.1 billion contract with IBM for IT infrastructure services. Through the deal Gap will receive support services for its mainframe, server, network, helpdesk and desk-side throughout its stores and corporate locations in North America.
To meet the needs of the worlds largest specialty apparel retailer, IBM has developed a virtualized server and storage platform strategy that is designed to scale and react to increasing and decreasing demand for inventory. Transferring our technology infrastructure operations to IBM enables us to deliver and implement these solutions faster, reports Michael Tasooji, chief information officer and executive vice president of Gap.
The IBM system will help migrate the 2,850 Gap stores in North America to become a leading-edge wireless network. IBM also will consolidate Gaps IT systems and leverage its resources to extend its support globally. Support for Gap employees s access to IBMs Innovation Center, which offers IBM subject matter experts.
A world leader in the grocery industry also has entered into two significant outsourcing initiatives worth approximately $565 million in total. Royal Ahold has signed a five-year, $500 million global IT agreement with EDS, and Ahold USA has engaged Fujitsu Transaction Solutions as its primary services provider for in-store technology in a $65 million deal.
Ahold, the worlds fourth largest global grocery retailer, has enlisted EDS to support its strategic growth initiatives. EDS will provide a flexible IT infrastructure and applications management services for more than 4,000 supermarkets and retail outlets in Europe and the U.S. EDS will host Aholds mainframe and midrange servers, providing local area network and voice network support.
Ahold USA is further supporting its parent companys initiatives by engaging Fujitsu to provide in-store IT services at its 600 Stop & Shop and Giant-Landover stores in the U.S. Under the agreement, Fujitsu will be responsible for multiple vendors to support and deploy in-store technology, systems and devices. As part of the agreement, Fujitsu acquired 26 IT professionals from Stop & Shop who will help support upgrades for a variety of systems including POS, scanners, scales, communications equipment and radio frequency (RF) technology.
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