Case Study: A Leading It Outsourcing Service Company Provides An Erp Outsourcing Solution

The following case study depicts how a leading American mid-size manufacturer decreases

IT costs and increases distribution worldwide after hiring an IT outsourcing service company to implement an ERP solution.

The Challenge

In 1997, a leading mid-size manufacturer in the U.S. outsourced its legacy information systems. However, by early 1999, they were unhappy with their chosen IT service company - one of the world's largest outsourcing companies. The outsourcer's poor performance affected the Company's ability to conduct business, and several attempts to fix the relationship were unsuccessful. The manufacturer experienced regular network outages, which affected employee productivity; invoicing fell behind, and critical financial processing and order fulfillment was often significantly delayed.

In addition, while outsourced, the Company had chosen to purchase and implement Baan's enterprise resource planning (ERP) solution, in part to mitigate its Y2K issues. The outsourcing provider, along with other consultants, had configured and built the Company's new ERP environment. Unfortunately, Baan's ERP application appeared to be a poor fit for the Company by not meeting critical business requirements. Further, the project was behind schedule, a "go-live" date was not planned, and the Company's busy season and Y2K were approaching fast. Because of these issues, the Company considered bringing its entire IT infrastructure and support back in-house.

To help navigate these challenges, the company hired a seasoned IT executive. After weighing available options, the IT executive decided rather than go through the expense, upheaval and multi-year process of rebuilding an in-house IT staff, The Company would find a new IT outsourcing service company. The criteria for a new partner were: 1) be knowledgeable of mid-sized manufacturing company IT requirements; 2) have deep Baan expertise; and 3) have business process knowledge that would enable them to optimize the company's Baan ERP environment. The IT executive reviewed the usual list of big brand IT outsourcers but wasn't encouraged given the company's recent experience. He decided he needed a partner that could move fast, be flexible and add value beyond the traditional scope of outsourcing services. After an exhaustive evaluation process, the IT executive selected a new IT outsourcing service company.

The Solution

The IT outsourcing service company was selected to manage the Company's IT operations with contract commencement in July 1999 - just months from the company's busy season and Y2K. With its work cut out for it and nearly impossible deadlines, the IT outsourcing service company developed a plan to swiftly transition and later optimize the Company's Baan environment.

With a unique approach by staffing this customer with resources at both the Company's headquarters and at the IT outsourcing service providers headquarters, the Baan experts worked directly with the Company's users to understand and resolve all mission critical issues as quickly as possible during the transition.

The IT outsourcing service company's team created manual workarounds for poorly developed interfaces between Baan and the Company's warehouse management system, while in parallel developed and tested automated solutions that would replace the transitional workarounds. During this period, down time was incredibly costly, and the IT service company needed to keep the environment available while developing better, optimized and permanent IT solutions for the company. Today, the same IT outsourcing service company manages 100 percent of the Company's IT operations.

The Benefits

The Company has realized significant benefits since the IT service company took over, including an immediate savings and a broader scope of services. Additionally, IT costs have decreased year over year as a percentage of revenue from 4.0 percent to 3.1 percent in 4year's time. But more important are the savings the Company has realized as a result of having a stable IT environment. Initially, the IT executive thought Baan was a poor fit for the Company's business and believed the "useful life" of the application was only five years.

As a result of the IT outsourcing service company's optimization of Baan, the application has met the Company's needs for years. The stabilized environment also enabled significant process improvements and cost savings in distribution/logistics functions. The manufacturer increased distribution volume by a CAGR of 17 percent per year with a decrease in distribution/ logistics costs of 20 percent per year - at the same time, improving service levels such as on-time delivery. Since then, the Company has signed a four contract extensions with their IT service outsourcing company and is still a customer today.

by: Chuck Vermillion

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