Application Development Outsourcing Provides Transformation for Motorcycle Assembler in Latin America | Article
Auteco Kawasaki S.A. headquartered in Bogota, Columbia, is the second largest motorcycle assembler serving Latin America with over 600,000 vehicles currently on the road. Competitive products with similar performance as well as an influx of lower-priced Chinese vehicles mandated that Auteco differentiate its value proposition. It needed to establish best-in-class response times to customer service requests, increase tracking and accounting efficiency, and improve business visibility via technology.
A major problem was that Auteco was unable to track the service and warranty records on individual motorcycles by either its affiliated 300 dealers or 350 service shops. “We have to service these vehicles to provide a warranty,” explains Daniel Vasquez, general manager of special projects for Auteco. “Before, we did not have an electronic record of each vehicle. Our dealers and service shops handled the warranty work but did not report what they did to each vehicle.”
Auteco needed an application developed to address these business pains and accomplish specific objectives:
- Track any mechanical incidents a vehicle had during its lifetime
- Track the registered owner
- Allow shops and dealers to report quality incidents in real time to the factory through the Internet
- Allow shops and dealers to solicit spare parts or the payment of repair jobs via the Web
- Tally, analyze, and summarize all quality incidents so to report to the product providers in Japan, India, and other locations
To accomplish these goals, the application, IMPACTA, had to be Web based. Up to 10,000 users had to be able to use it simultaneously. IMPACTA had to interact seamlessly in real time with a proprietary legacy ERP system, an import/export system, a materials requirement planning (MRP) application, and a warehousing/inventory system.
“Despite having several software engineers inside the company, we knew the development of such a complex application was beyond our capabilities,” Vasquez recalls. “Previously, we had worked with a provider on a marketing portal that they delivered full of bugs and twice as late as estimated. That was a sour experience that we wanted to prevent at all costs. We wanted a provider that had a proven track record and that had a strong emphasis in quality.”
Due diligence with a complicated project
After narrowing down a list of candidates to three, in November 2004 Auteco selected PSL headquartered in Bogota, Colombia. The firm, founded in 1984 with 300 software engineers in-house and CMMi 5 certification, “had engineers and architects that got their hands dirty with the project. They then suggested better implementations than the ones we had initially come up with. PSL also was clear from the get-go about the difficulties and risks the project could face. They were transparent and had the fortitude to say ‘no’ when it was required,” reports Vasquez.
“PSL took the time to understand our business model in detail,” Vasquez points out. ” “From ground zero, we had the PSL team including architects, engineers, and even testers meet with the Auteco business leads to understand the context of after sales warranty service,” recalls Jorge Aramburo, PSL CEO. “We also visited different service points throughout the country, talking to mechanics, salespersons, and dealer administrators to get a feel for the type of solution we would be developing and how it would impact the Auteco after-sales network.”
PSL suggested Autoco do a small proof of concept on the core architecture of the software. The parties tested the core architecture — especially the security modules, the performance of the heaviest transactions, and the connection with other applications first. “The tests helped us fine-tune the architecture and diminish project risk in the future,” says the Autoco executive.
“We receive feedback from the client, then build, then test, then deliver a functional artifact of code, all in a cycle that spans three to six weeks, iteratively,” Aramburo explains. “In this manner, we correct errors and misunderstandings quickly, before they become reified within a mountain of code. We can also incorporate new ideas that develop quickly.”
Within three months, IMPACTA was providing functional value to internal personnel. Within seven months, the service shops began to directly benefit from the efficiencies and information the system enabled. Over the course of the 20-month project, the application involved over a quarter of a million lines of code with a rate of less than 0.4 errors per 1,000 lines of code.
Why firms are outsourcing to South America
“What makes all these firms different from their India-based competitors is that they cut their teeth in vibrant domestic markets before they went into export services, i.e. ‘nearshore’,” says Dana Stiffler, analyst, AMR Research. “They tend to have deeper industry and functional expertise as well as more experience interacting with business stakeholders.”
Stiffler says on a pure rate-card to rate-card basis, Latin America is more expensive than Asia. “Companies that offshore to Latin America successfully are doing it for reasons other than pure cost,” Stiffler adds. “They take a ‘total quality of experience’ view, adding up total benefits: less time spent traveling back and forth, same time zone allowing for complex, real-time conversations.”
IMPACTA enabled Auteco to cut the time it took to resolve a quality incident to a fourth of its original time by having parts available. Customers get their motorcycles repaired in one day instead of four. The application cut the cost of handling a warranty or service repair transaction to less than half. Dealers increased the payments collected for warranty parts and labor expenses by 25 percent.
“Because we handle 20,000 – 25,000 warranties and check-ups per month, this meant that the software paid for itself in 14 to 16 months,” Vasquez points out. “More importantly, we have been able to detect and proactively correct product flaws present in new vehicle launches much faster, as we have real-time consolidated access to all warranty and after-sales quality incidents.”
PSL has now become Autoco’s software development arm for several key projects,” Vazquez concludes. “We learned the hard way in previous development experiences that software is more about total project cost than rates per hour. We are an automotive company. We know how to assemble, distribute, market, and service automotive products, but we do not know how to make software. We partner with PSL because that is their specialty.”
Lessons from the Outsourcing Journal:
- South America is becoming an effective service delivery location for outsourced application development because it has software application developers with over 20 years of experience and they cut their teeth in their local markets.
- Rolling out a new application in functional phases shortens the time to benefit.
- Meeting with end users in the field adds insight into achieving their needs in the application design.