Outsourcing Protects Company’s Cash Flow through Managed Services Solution | Article

retail paint store uses outsourcing for IT“We had a broken IT system,” recalls Carl Sweetland, CIO, Kelly-Moore Paints. Each store had its own isolated data in its own database, which it periodically transmitted to the district office. This presented obvious problems. Data migration was slow, and the data available to central management was not real time. “We needed a centralized database and application that all of our stores could use,” says Sweetland.

In a way, the solution is almost back to the future. Centralized computing using mainframes used to be the norm. Outsourced Web-enabled systems now use servers and thin clients to achieve centralized computing. Today the application and servers are located in one location for easier maintenance and operation.

Kelly-Moore Paints, which manufactures its own line that it sells through its own and other retailers’ stores, solved its problem when it outsourced its retail application to Tomax in 2004. Today it uses this application in 170 stores.

Why Kelly-Moore outsourced

Building the kind of infrastructure in house the manufacturer needed with just its own IT staff would have been a daunting task. What’s more, Sweetland continues, when Kelly-Moore Paint’s IT department estimated the manpower it would take to ensure the application was always available, an outsourced solution proved more feasible and economical. In addition to these problems, the old retail system offered no method for performing sales trends analysis, a critical retail function.

There were other problems too. For instance, there was no way to catch abuses of credit from store to store. Sweetland explains that a paint contractor with a fixed credit balance could go into one store, maximize his credit limit, and then go to another store and purchase more products. The second store would go ahead with the purchase because its staff would not know he had exceeded his limit since the retailer didn’t synch up systems with the district office until the following day.

Sweetland also admits that Kelly-Moore Paints had inherited a system whose vendor had gone out of business. Kelly-Moore Paints had necessarily customized it a good deal to provide necessary upgraded functionality. Further changes to the old system would be futile, however, because it had reached its maximum potential for growth.

The new solution’s nuts and bolts

As a result, Kelly-Moore Paints opted for an outsourced solution from Tomax called Tomax Retail.net solutions. Sweetland says the infrastructure and application run off site, and the solution is a multi-server application with application servers load balanced together. “These run on top of a database that serves up all the data related to all the stores’ transactions,” he adds. The system takes care of merchandizing, inventory control, customer management, store management, and account management in all 170 stores. Store and IT personnel access the application via thin clients.

Tomax also provides a point-of-sale, Java-based application that runs locally in each store. “If stores lose network connectivity, there is a remote server in each store that runs in ‘resilient mode.’ It’s a dumbed-down version of the networked point-of-sale system that allows the store personnel to at least ring up customers and get them out the door,” says Sweetland. Later, when the network is back up, the system loads sales data to the external central database.

The new system has a surplus of functionality

The merchandizing module tells what products Kelly-Moore Paints offers to its customers. The single, centralized database has all the items the company sells; “if you have to make changes or understand the sales through the merchandizing relationships, you can do it instantly. You don’t have to aggregate the data from 170 locations.”

The customer pricing module lets Kelly-Moore Paints see trends about what customers are purchasing and at what price. “This lets us make adjustments to pricing to make sure we’re maintaining the margins we want to have,” says Sweetland. The module also tracks when a customer stops doing business with one store and starts shopping at another, so there’s no interruption in customer purchasing tracking as there used to be.

The store operations module monitors the transactions that clerks ring up and does cash management. This module is linked to the physical inventory module automatically adjusting inventory as sales dictate.

And the customer management module lets sales representatives see what the customers are buying and what type of margins they’re getting so that they can alter their sales pitches accordingly.

Centralized real-time data access

The big benefit of the new system for Sweetland is the fact that he has real-time data so he knows how the business is running and can fine tune the system to make adjustments quickly. Sweetland’s team’s travel and on-site work have decreased enormously.

Sweetland says the business benefits are also due to the type of relationship Kelly-Moore Paints established with Tomax. He explains that “they are more of a boutique company so you can work one-on-one with individuals. They really try to foster personal as well as business relationships. It really does feel like a partnership. Tomax is an extension of my existing team.”

Because of a constantly changing business climate, Sweetland now has weekly calls, which have improved the competence of the combined team. Kelly-Moore Paints is also in the middle of a major ERP deployment. Tomax has gone out of its way to build interfaces to it from Tomax to integrate the two systems, he says.

Outsourcing’s benefit to retailers

Bryan Griffith, vice president of Client Services for Tomax, says retailers “are acutely aware now more than ever that focusing on world-class operations and their customers’ total experience are what drives their business.” He says they want to rely on technology like it is a dial tone. He says “outsourcing offers the benefits of specialized managed services tailored to retailers’ needs in an economically viable package that lets retailers focus on doing what they do best.”

Despite the fact that business has decreased with the recession, Kelly-Moore Paints is better off than many of its competitors, according to Sweetland. Because the solution is outsourced, the company can scale resources up or down without adding permanent full-time employees or laying off anybody. Its cost to Tomax doesn’t change.

Griffith agrees. “In fat times, a retailer might not take into account the in-house costs associated with complete ownership of these kinds of solutions. During lean times, the ROI of outsourcing is clear. For us the recession has been a good thing overall.”

Sweetland says the ultimate benefit is the system will also net a nice ROI this year. “We forecasted a 19 percent return on investment in four years and we should hit that or come very close.”

Lessons from the Outsourcing Journal:

  • In a slumping economy, an outsourced retail solution allows the buyer to scale resources up or down without adding permanent full-time employees or laying off anybody to scale cost. In a managed services solution, the buyer’s cost to the supplier doesn’t change. Of course, the same applies during a boom when buyers suddenly need more employees.
  • Retailers know that focusing on world-class operations and their customers’ total experience is what drives their business. Technology is one enabler always to be “on.” Focusing on the complexities of enterprise systems management and the costs of staffing the competencies required to manage those systems is a diversion from their mission. Outsourcing solutions in a managed-services model provide an affordable package that lets retailers focus on their core competencies.
  • Real-time data lets retailers know how the business is running and allows them to fine tune the system and make adjustments quickly. This can reduce executive travel and on-site work.

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