Comdata Turns To IBM For A New Spin On Cash Flow | Article

Most Strategic Relationship

1998 Editor’s Choice Award

overhead on a highwayFrom the editor – In the Most Strategic designation, we looked for a relationship in which the parties recognized the difference between important functions and core functions. In this case, Comdata clearly has made this differentiation, building a successful relationship in which one of the company’s most important fuctions is outsourced to IBM.

While Comdata certainly is capable of competing successfully on its own in the fleet management field, the company has chosen to use IBM in a truly strategic way to build and grow its business. IBM has responded by providing an impressive level of service and satisfaction that allows Comdata to flourish in a manner that it could not otherwise. These two companies have turned the often overused statement of strategic outsourcing partnership into reality, making their relationship an obvious choice for this award.

When a long-haul truck pulls in for a fuel fill-up, it typically costs about $150. More than 15,000 fleet operators turn to Comdata to provide credit cards for truck drivers to use as they ply the nation’s highways. Comdata verifies and pays the bills, and forwards an invoice with a small mark up to its clients. With trucks continually on the road, the Comdata network that handles these transactions must be absolutely reliable, accurate, secure, and always available.

Just Charge It

Long-haul truck drivers rely on credit cards to pay for fuel, and a centralized system eliminates record-keeping, tracking, and reconciling thousands of credit receipts. “We pay the fuel bill on behalf of the fleet, so there is a lot of money outstanding at all times. We bill our fleet customers daily, so the reliability of our information technology (IT) performance can have large financial consequences,” explains David Wolverton, Executive Vice President of Operations for Comdata. Because their fee is small relative to the amount of each purchase, cash flow is extremely important. “We need to keep the money moving,” says Wolverton.

Drivers for Change

“In 1991, Comdata anticipated a very significant growth in this business, and we needed to be sure we had the professional resources and capabilities to handle that growth smoothly,” Wolverton reveals. “We also expected the rapid pace of change in technology, and we felt outsourcing could be a way to get us close to what was happening from the technology point of view.” These factors along with Comdata’s expectations for improved productivity, assured reliability, and cost improvements made outsourcing a desirable strategy.

Outsourcing for the Long Haul

The selection of IBM to operate all of Comdata’s IT function was based on IBM’s reputation and their ability to provide the level of reliability required. The original contract began in 1991, and was extended in 1995 to a 10-year term. In 1998, the contract scope was expanded for the remainder of the term. Wolverton expects the scope to be expanded again soon. “It’s an indication of the continuing good relationship and our view of the service provided by the IBM Company, notes Wolverton.

IBM has served Comdata for seven years, and the original staff was populated with former Comdata staff, many of whom remain. Their industry knowledge, the understanding of Comdata’s business and customers were very important to the success of the operation from the start.

Wide Load

IBM has responsibility for every aspect of the IT function: hardware, operations, application development, network design, operation, management, and maintenance. Unlike many other IBM Corporate Services arrangements which rely on a centralized computing facility to service multiple clients, the IBM facility is dedicated to Comdata exclusively. The IBM operations center operates 24 hours a day, seven days a week, all entirely dedicated to serving Comdata, just 15 miles away. The IBM account management staff is located in Comdata’s facility along with approximately 1,000 employees. “Network reliability is extraordinarily important to us in our electronic point-of-sale oriented environment, and IBM manages that on our behalf,” adds Wolverton.

Sharing the Road

With about 160 IBM employees assigned to the account, communications and direction are critical. The IBM project executive sits in on Monday executive committee meetings with Comdata’s CEO. “That is an illustration of how IBM as our outsourcer gets plugged in to what it is that the corporation is thinking, doing, feeling, and considering, because IT plays such an important role in anything that we do,” says Wolverton. The IBM senior managers on the operations and AD side and the project executives attend Comdata company-wide monthly management meetings. “IBM knows our business, is in our business, is comfortable in our business, can advise us on our business. None of this is at arm’s length; they truly are an extension of the company, not just a source of technical capability,” Wolverton explains.

The two firms prepare an annual plan together. Comdata works with IBM to ensure agreement about what resources will be available, what applications need to be developed, what operating and capital funds will be available. “Tactically, we deal with goal-setting monthly and weekly,” notes Wolverton.

Avoiding Accidents in Heavy Traffic

Comdata bills most of its 15,000 clients daily using an automated fax process. Keeping cash flows moving promptly is the only way for Comdata to avoid financial losses. “We certainly want to make sure that we get the right bill to the right customers not just from a cash flow perspective, but more importantly, we don’t want to create any uncertainty about our controls if we send the wrong bill to the wrong customer,” explains Wolverton.

One big accident waiting to happen for the unprepared is Y2K compliance. Wolverton cites one way that IBM has taken the initiative to help Comdata solve problems and save money. IBM recommended a plan that will allow Comdata to get Y2K integration testing done at reduced cost. Notes Wolverton, “It’s the kind of thing they do with frequency, and it’s to their credit.”

IBM is also proud of the fact that Comdata is the first user of the IBM web sphere application server on the Internet. “We communicate with our entire customer base regarding our Y2K status on our web page, which is refreshed every month,” says Wolverton.

Cruising in the Passing Lane

While IT is important in business everywhere today, there is absolute reliance on it in Comdata’s market. “It is beyond simply important. It is indispensable. So the reliability question is ever before us and that’s where our relationship with IBM has paid such huge dividends,” Wolverton asserts. He concludes, “It’s probably obvious that we as a company are very, very satisfied, very, very pleased with the role that IBM plays on our behalf; we are happy that we have outsourced to them, and we look forward to a continued, growing relationship.”

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