When Outsourcing Back Office, It’s All in the Family for Penske Truck Leasing | Article

truckSeveral years ago, as it was purchasing rival Rollins Leasing, Penske Truck Leasing executives knew their back-office processes needed a total makeover, not only to increase its own efficiencies, but also to better absorb Rollins’ data management and customer-care units.

At the time, Penske’s primary customer-service operations were in four different US cities which, according to CFO Frank Cocuzza, were becoming more difficult to justify from a cost perspective. In addition, they didn’t offer consistent service levels. “We needed to transform this portion of our leasing operation,” he says.

But he quickly grasped the fact that it would be better to outsource to a provider in a low-cost nation such as India to help renovate and then manage Penske’s new back-office operation rather than do it internally. “I couldn’t have centralized all these functions as cost-efficiently in the US,” Cocuzza says.

“Many CEOs are saying, ‘Don’t tell me how much I can save. Show me how we can grow by 40 percent without increasing our capacity in the US,'” says Atul Vashistha, CEO/Chief Analyst of neoIT and co-author of the book The Offshore Nation.

General Electric owns 70 percent of Penske, which leases over a quarter million trucks in over 1,000 locations in North America, South America, Europe, and Asia. At the time, GE owned another firm that turned out to be Cocuzza’s solution–an Indian provider named GE Capital India Services (now Genpact after GE spun off the unit in 2004).

Today, the relationship involves well over 30 different business processes for the now seven-plus-year-old partnership between Genpact and Penske. The engagement to date has saved the leasing giant an average of $15 million annually in direct cost savings. But more to the point for Cocuzza, Penske’s business has grown sharply since 2001, but the size of its US staff has increased very little.

Diligent Planning Produces Smooth Rollout

Cocuzza, convinced early-on the engagement would work, still started small shortly before 2000. Together, Genpact and Penske carefully mapped all of the company’s work processes, then redesigned them using Six Sigma performance standards. Then Penske began sending data processing to its 30-worker team in Mexico, which entered the data that then went directly to Genpact’s IT facility in Hyderabad, India.

But Penske managers are in ultimate control of all processes, according to Cocuzza; Genpact workers use a system that mirrors Penske’s own computer system. “Everything I have there supports what we are doing here,” he says.

When Penske leases a large commercial truck for an interstate customer, Genpact’s Indian staff checks the customer’s credit status and arranges all necessary road and state permits. If there are challenges like a truck held up at a weigh station because it lacks certain documentation, the driver calls a toll-free number. Indian workers then transmit the proper documents directly to the weigh station and the truck’s back on the road, usually within a half-hour.

When the trip’s complete, the driver log goes to Penske’s Juarez, Mexico data-entry facility where Penske workers enter mileage, tax, toll, and fuel data into Penske computers, which send the data to India for processing and archival. Penske managers can easily retrieve the data if needed.

“It used to be that companies struggled for a few years to show a five or ten-percent increase in productivity from outsourcing,” says Genpact’s CEO Pramod Bhasin. “But by offshoring work, they can see savings of 30 to 40 percent in the first year.” Cocuzza says he saw comparable first-year savings percentages himself, though would not elaborate. But there was more.

Prior to this engagement, Penske managers didn’t know whether they were losing money because customers were paying bills late or because its finance department was paying them early. And its decentralized agents were making more collection calls than necessary to customers who weren’t delinquent.

Now, a single call goes to customers for invoices once they become 38 days old. Cocuzza says this improvement alone has sharply reduced delinquencies while requiring a third less staff.

Chris Disher, a Vice President of Booz Allen Hamilton, says moving work to lower-wage countries is no longer just a tactical option to help companies save money. It has emerged as a strategic operational necessity.

“Companies are developing global labor strategies to address the question of ‘who should do what and where most efficiently?'” he explains.

Provider Gradually Assumes More Back-Office Tasks

Genpact is taking on even deeper responsibilities in Penske’s back office. “We are helping define what the company of the future will look like,” says Genpact’s Bhasin.

With the assistance of its provider, Penske is building a team of 40 statistical analysts in India to help design its supply-chain management services in the US, Europe, Brazil, and China. Such services involve managing vast volumes of customer data; these analysts typically require master’s and PhD degrees in statistics. “To get such resources affordably in the US would be quite difficult,” Cocuzza says.

Penske also has learned some valuable lessons from the engagement. Cocuzza feels one of the most critical was smoothly transitioning this profound change. “The cost of not getting a transformation done seamlessly is traumatic,” he says. “It’s hard for me to explain to a customer why they have a problem because we relocated work offshore.”

Today, transferring additional business processes from Penske to Genpact is easier. “I have people there who are like our people here in Reading, Pennsylvania,” Cocuzza says. “Both have been through four or five process upgrades and they’re still together. It gets easier. Now our receivables and accounting groups in all locations work together almost seamlessly.”

Lessons from the Outsourcing Journal:

  • Penske Truck Leasing’s back-office outsourcing engagement to an Indian provider saves the firm an average of $15 million annually and improves efficiencies in previously unexpected areas of its operations.
  • As Indian back-office outsourcing relationships mature, not only do buyers realize continued lower costs, they also discover greater productivity and better interaction due to the provider’s increased familiarity with its processes.
  • Improved processes have increase profitability. A better collection process has cut delinquencies.

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