Nearshore, offshore, onshore, best shore

Although “nearshore” is a favorite model and buzz term bandied about in outsourcing news and advisories today, it will soon fall by the wayside. First of all, it’s a misnomer. “Nearshore” to Japan, for example, is China or Vietnam; but those two service delivery locations to U.S. and European businesses are “offshore.” Brazil is a nearshore provider but also a large onshore provider.

Genpact predicts nearshore service delivery centers will likely continue to grow, but not as significantly in dollars or percentages as the offshore centers. According to Robert Pryor, Executive Vice President of Sales, Business Development and Marketing, we’ll likely see an increase in the use of onshore centers. “Federal, state, and local governments will drive this growth in terms of the attractiveness of incentives they create to stimulate domestic job growth.”

Deepak Patel, CEO, Aditya Birla Minacs, says the decision between nearshore, onshore, or offshore is “not so much about achieving scale but, rather, is about delivering the right value to companies by providing the ideal mix of the right delivery destination and the right knowledge set available. In the coming years, newer geographies will emerge, but smart outsourcers will choose the destination that brings the most value.”

John A. Haslinger, Vice President, Product Marketing at ADP, says, over time, he expects labor arbitrage advantages will remain but increasingly companies will balance them against the need for particular skill sets. In HR, for instance, “companies will balance labor arbitrage with the service provider’s ability to foster long-term relationships.”

Allied Digital Services’ President, Kevin Schatzle, believes nearshoring will increase over the next two years because outsourcing in general will increase. He predicts that in five years, as the industry matures, Canadian pricing will start to approach U.S. costs.

Gordon Coburn, Chief Financial & Operating Officer at Cognizant says globalization initiatives are evolving “from a point-to-point delivery model to a many-to-many model where the provider delivers from many locations in the world to a client’s locations in many other parts of the world.”

Rajan Kohli, CMO, Wipro Technologies, adds that “best shore is the way to go. That may mean a combination of nearshore and offshore, or it may mean just offshore. Buyers will need to make decisions based on cost, business value, and business availability.”

Ritesh Idnani, COO, Infosys BPO, says “the trend of nearshoring will continue to gather steam. But the global economic landscape has definitely mooted the call to a more protectionist outlook by countries, and that trend will continue in the short term. They will, however, have to bear the brunt of continuous monitoring to ensure they continue to be cost effective and build in efficiencies. The ‘offshore train’ left the station several years back; hence, offshore will continue to grow in volume and market share.”

Dina Kholkar, Head, BFSI, TCS BPO Services, predicts that the definitions of onshore, nearshore, and offshore will blur over the next couple of years because providers “will increasingly expand their base to build a global network delivery model to address the diverse demands. There will also be an increasing creation of Centers of Excellence by function,” she states.

The future shift from focusing on nearshore / offshore / onshore debates is nowhere more evident than at HP where there is now a “Best Shore Services” division. Even so, Jeff Womack, Vice President Global Enablement, HP Best Shore Services, says HP believes that nearshoring will “continue to have a seat at the global delivery table because companies – especially in the European Union region – will want the cultural affinities and languages as well as aspects of data privacy.”

Womack also points out that some nearshore locations are already maturing to the point that they no longer meet the requirements to qualify as a true nearshore location because costs begin to reach parity with major markets such as the United States, Western Europe, and Japan.

Yugal Joshi, Senior Analyst, Everest Group, says that, “with offshore suppliers seeing their tax exemptions going away, the cost-effectiveness of their large offshore centers will reduce significantly, which will prompt them to go nearshore.”

Don Schulman, General Manager, Global F&A and SCM, IBM, predicts nearshoring will grow in the short term because organizations will continue to perform high-level activities (such as budgeting and corporate tax) discretely and locally – regardless of whether shared services or outsourcers are doing the work.

“This is less about nearshoring and more about growth due to more complex work moving into a shared-services environment,” Schulman explains. “Success in outsourcing has led to this kind of work moving to a centralized environment. Organizations are beginning to look at their shared-services strategy as a hybrid model. It is not an either/or decision but, instead, a multi-dimensional approach that leverages both internal shared services and outsourcing.”

Industries increasing adoption of outsourcing

Nearly all of the service providers whom we tapped for insights anticipate that the U.S. healthcare industry will experience a dramatic increase in outsourcing over the next two to five years.

Pryor at Genpact says the significant cost pressure and large number of additional people that will need coverage will require that the industry adapt rapidly in leveraging technology, outsourcing, and reengineering to change business models and cost structures.

Most of the executives we interviewed also predict a large uptick in government outsourcing in the next few years. Schatzle at Allied Digital Services says government and education will migrate to outsourcing for IT support and “will receive great benefits of modern approaches.” He advises that buyers in these segments especially need to evaluate IT services from security and redundancy perspectives.

Kohli at Wipro predicts the next few years will see “BPO opportunities arising in retail, manufacturing and media, but in forms as not serviced before.” He says the driver for this growth is the convergence of the Software-as-a-Service (Saas), cloud, and ITO/BPO models “plus the ability of Tier-1 providers to do business function outsourcing.”.

Gopal Devanahalli, Vice President, Infosys BPO, believes the banking industry “will undergo big changes post the financial meltdown.” Increased regulation will lead to a focus on more outsourcing of such processes as treasury, cash management, and custody. He also predicts the intersection of mobile and social technologies will disrupt traditional branch banking, which will lead to more outsourcing.

Patel at Aditya Birla Minacs points out there is a huge pent-up demand in the midmarket, and these companies will turn to outsourcing as a strategy for becoming more competitive in the marketplace. (Also see Risks and Complexities in Outsourcing Decisions in the Midmarket.)

“Practically every industry today is grappling with challenges associated with the global financial crisis, increased regulatory compliance requirements, and content digitization / Web 2.0 environment leading to newer paradigms. There is a need to be able to respond agilely to the market through leaner, meaner organizations,” says V. K. Raman, Head, Domain Services, TCS BPO Services. This is especially true in the Banking, Financial Institutions and Insurance (BFSI), life sciences and healthcare, retail, and government sectors. Raman says these industries will drive outsourcing in the next few years.

Miles Lafferty, Vice President, Hinduja Global Solutions, believes currency fluctuation, particularly the U.S. Dollar and the Euro, and related cross-regional economic policy and ideology will create uncertainty in global sourcing decisions. “That said, this uncertainty will reduce the appetite of many organizations to build captive centers, thereby creating opportunity for outsourcing service providers.”

Regional hot spots

There was a definite consensus among the experts we interviewed regarding opinions on which regions will have more companies turning to outsourcing in the next two years to address their business needs (other than the United States or Europe). The top regions they cited are:

1. Asia Pacific
2. Middle East
3. Latin America
4. Japan
5. Australia
6. India

Most believe that the BFSI industry will lead the way in these countries, just as it did in the U.S. and European early adoption of outsourcing.

Japan is at the forefront because it continues to struggle with a difficult economic climate, says Schulman at IBM. He says that the driver for growth in Latin America and parts of Asia is the large numbers of organizations with a disparate spread of employees and business units across multiple locations and borders

Infosys BPO says the drivers in these regions are cost and process efficiencies at the lower end. But there is also some outsourcing of analytics related to understanding market customer behavior, as well as some outsourcing of vertical-specific functions.

Deepak Rastogi, Senior Vice President, Global Strategy at Hinduja Global Solutions, says ultimately much of the growth in these regions will be consumer driven in the telecom, financial services, and healthcare industries.

Business processes

Which business processes/functions will move to the outsourcing model in the next two to five years? Our experts listed the top three:

1. Analytics – The driver is the need to leverage fact-based insights to improve reporting results, recognize and understand potential opportunities, and deliver better business outcomes.
2. Manufacturing supply chain – Factors driving growth in this area are purchasing cost reductions, cash flow advantages, operations cost savings; and increased business effectiveness (such as shortage management and the capacity to implement advanced logistics models).
3. Work that today appears extraordinarily complex (such as industry accounting, external reporting, planning, budgeting, forecasting) will move to outsourcing as these processes become standardized.

Selecting a service provider

Charlie Bess, HP Fellow, HP Enterprise Services, advises that buyers in these hot spots should look at how service providers invest in making their processes more standardized and their capabilities more flexible, as well as what they are doing to prevent unnecessary business interruptions.

“Investing in automation, for example, is important,” says Bess, “but you need to look under the covers and see what the provider’s approach is when the automation doesn’t work. Rowing harder with new tools may not always be the right answer; you might have struck something unexpected and need to change course.” He advises buyers to ask: “What is the escalation process when the unexpected occurs?”

Abid Ali Neemuchwala, Global Head, TCS BPO Services, warns buyers to seek providers that have the ability to scale and grow across new geographies to support green field ventures.

According to Kohli at Wipro, the most important criteria should be whether the provider can show significant value beyond labor arbitrage and can deliver on the commitment. “All other criteria such as a combination of BPO and IT, cultural fit, quality, and scalability are reflected in the above two major criteria.”

Selecting healthcare service providers will be a big risk, according to Kohli at Wipro. “The key selection criterion should be the provider’s commitment towards timely and quality deliverables, as there is no scope for errors in this zero-error industry.”

Kholkar at TCS advises buyers’ provider-selection criteria should include cultural fit, relationship management ability, and certification from compliance authorities.

IBM’s Schulman says buyers should ensure that their service providers are able to view their processes at a granular level on an end-to-end basis including any portion that the buyer retains. “This is critical to truly understanding a client’s business and being able to effectively collaborate with them to optimize business outcomes.”

Syntel, Inc. was established in 1980 as a local company with a single service offering. Since that time, we have grown into a $410 million global corporation with a market cap of more than $1.5 billion, 16,200+ employees, more than two dozen offices and Global Development Centers around the world, and a full range of ITO and KPO solutions and service offerings.

Syntel has achieved 19% compound annual growth over the past five years (2005-2010). Our growth is attributed to our “customer for life” commitment and ability to continually reinvent ourselves and expand our services to adapt to the shifts of the market and needs of our clients.

Service Lines

A. Industry-specific solutions. At Syntel, our prime objective is to provide targeted solutions to solve your business challenges. Our vertical industry practice groups fuse technical knowledge with business expertise to develop solutions targeted to your business and the competitive challenges you face.

• Financial Services/Banking: End-to-end ITO and KPO solutions for banking, capital markets, and cards and payments industry sectors including risk management, asset management, brokerage, core baking, compliance, fraud solutions, reconciliations, and more.
• Healthcare/Life Sciences: Solutions for compliance, analytics, testing, claims management, records management, and more, spanning payers, providers, medical devices, and life sciences needs for both ITO and KPO services.
• Insurance: KPO and ITO solutions for P&C, life, and retirement including agency management, analytics, policy admin, and more.
• Retail: Targeted solutions for green retail, store systems, POS testing, SCM, and an award-winning Store Service Workbench solution.
• Logistics: Solutions focused on warehouse management systems, package shipment, transportation management systems, supply chain and distribution, freight management, and more.
• Telecom: Solutions tailored for global telecom service providers/carriers and telecom software product vendors including BSS and OSS solutions for billing, revenue assurance, order and service management, and analytics.
• Manufacturing: Framework of solutions fine-tuned to address the unique challenges of the motor vehicles and parts, aerospace, industrial and heavy manufacturing, and medical equipment and supplies industry.

B. Technology solutions and COEs. Syntel’s technology solutions and COEs complement and support our vertical industry solutions. These include:

• Application Development services include new development, enhancements and application consolidation and are focused on helping clients meet emerging business and technology challenges.
• Application Management including our AMO 2.0 offering, a suite of value-added end-to-end services including business and technology alignment, monitoring and alerts, green IT, portfolio rationalization and ITIL-based process consulting to provide your company with a service-oriented, metrics and performance-driven application management function.
• Architecture Services encompass architecture consulting, enterprise content management, enterprise data management and architecture support to enable your organization to achieve an efficient and effective means of driving and validating the value of your technology environment.
• Business Analytics/Business Intelligence provides a full suite of data and analytics services to help extract the real value of your technology, making the data inside your systems work to deliver business intelligence and subsequently improve efficiency, reduce costs, and accelerate ROI.
• Cloud Labs from Syntel provides Portfolio Analysis and Cloud Strategy; Cloud Migration, Re-architecture and Testing; Private and Hybrid Cloud Deployment and Management; PaaS Development, and SaaS Integration.
• IT Infrastructure Management services span the entire spectrum, including consulting and system integration, monitoring & event management, end-user and enterprise computing, network management, security management, and IT helpdesk services.
• Knowledge Process Outsourcing (KPO) industry-specific offerings are tailored to your business needs, and eliminate the costly and time-consuming manual processes that can be a drag on your business operations.
• Migration Center of Excellence (COE) with a dedicated team, focused migration solutions that reduce effort, cost and time to market.
• Oracle and SAP services include implementation, customization, upgrade and migration, systems integration, maintenance/support, performance tuning, optimization, feasibility analysis, and business process reengineering.
• Testing services address the operational, tactical, and strategic requirements of organizations by creating customer-specific solutions using a phased approach and innovative frameworks like our innovative iTAP framework built to lower testing TCO.

Distinctive Capabilities

• Custom, flexible solutions. The biggest difference between Syntel and our competitors is that we will never take a “one size fits all” approach to your business and technology challenges. We collaborate with you to adapt our business model to fit your needs, and align ourselves to your corporate culture to deliver the largest impact on your business.
• Small enough to listen, big enough to deliver™. We leverage our midsize status to focus on client service and create maximum value for our clients by delivering innovation, unique engagement models and closely aligning with our clients’ businesses. Together with our robust Global Delivery Model, world-class infrastructure, and highly skilled IT professionals, this flexibility truly makes us “Small enough to listen, big enough to deliver.”™
• US-based, financially sound, growing organization. Syntel is a U.S.-owned and operated company that has been creating innovative, flexible, adaptable technology solutions for the past 30 years. Publicly traded (NASDAQ: SYNT), our balance sheet is solid, we operate with zero debt, and have more than doubled revenues since 2005, despite economic downturns.
• Extended value – our partnership network. Another way we deliver value is by partnering with the most innovative, value-driven technology and software companies in the world. Whether technology, domain, or solution specific, we integrate our partners’ solutions with our services and frameworks to deliver game-changing technology solutions.

Syntel at a Glance

• Founded: 1980
• 2009 Revenues: $419 million
• 16,200+ employees
• Headquarters: Troy, Michigan
• Global Delivery Centers in Chennai, Mumbai and Pune, India; Memphis, Nashville and Phoenix, USA
• Service Lines/COEs: Application Development & Management, Architecture, Cloud, Business Analytics/DW/BI, IT Infrastructure Management, KPO, Migration, Oracle, SAP, Testing
• Industry Practices: Banking & Financial Services, Healthcare & Life Sciences, Insurance, Logistics, Manufacturing, Retail, Telecom and Tours & Travel

For More Information

Phone: (972) 653-0559
kishore_ramnani@syntelinc.com
www.syntelinc.com

Certifications

• SEI CMMi Level 5
• ISO 9001:2000
• ISO 27001
• ISO 20000
• SAS Type II

Awards and Recognition

• Microsoft India “Partner of the Year” award for Store Services Workbench Retail Solution – 2010
• FinTech 100 – 2010
• Healthcare Informatics 100 – 2010
• International Association of Outsourcing Professionals “The Global Outsourcing 100″ and sub-lists (Banking, Markets, Insurance, Healthcare) – 2010
• Global Services Media and NeoAdvisory “Global Services 100″ and sub-lists (TOP ITO Vendors, Top ADM Vendors, Top Industry-specific BPO Vendors) – 2010
• VAR 500 – 2010
• Software Magazine’s “Software 500″ – 2010
• Dataquest India – Top 50 IT Companies – 2010
• World HRD Congress: “Best Overall Recruiting & Staffing Organization,” “Most Innovative Recruiting & Staffing Program” and “Excellence in HR through Technology” awards – February 2010

What the Analysts are Saying about Syntel

• “Providers like Syntel . . . blend benefits of domain knowledge and experience with strong account management. Apart from deploying senior subject matter experts and IP on the project, these firms also leverage business analysts and senior account management teams to serve the clients effectively.” – Forrester, Right And Wrong Reasons To Work With Tier Two Offshore Providers, August 2010
• “Consultancies such as Syntel are highly verticalized in order to exploit [long-term cost-reduction activities]. Syntel in particular has established labs, automation tools, centers of excellence, and offshore facilities for the redesign of both business and IT processes.” – Forrester, Reducing The Costs Of IT — Views From Consultancies, October 2009
• “Syntel, by emphasizing strong client-centricity, further reinforces its value to its clients beyond the simple relevance of its solutions.” – Forrester, Why Do you Need Tier Two Providers? (And you Do Need Them!), September 2009

Case Studies

Read about the successful relationships Syntel has built with our clients, and how we are creating new opportunities for their businesses: http://www.syntelinc.com/Internal.aspx?id=133

Wipro Voice: A Conversation with NS Bala, Senior Vice President and Global Head, Manufacturing Business Unit, Wipro Technologies and Member, Wipro Council for Industry Research

For more than a century, the decisions manufacturers made were related to cost, function, and quality. Now they are adding another dimension: sustainability. “Sustainability has become a profound, board-level issue for manufacturers. Apart from compliance with existing and upcoming environmental legislations, a sustainable manufacturing initiative can help a manufacturer cope with increased global competition and growing supply chain pressure,” says Bala.

Sustainable manufacturing – a challenge and an opportunity

Depending on how you look at it, companies can view sustainability either as a constraint in manufacturing or as a tremendous opportunity to transform the way they do business. “The goal is to achieve more while spending less,” notes the Wipro executive.

Sustainability in manufacturing, while easy to state, is difficult to interpret and adopt. Organizations trying to embracing the concept across the enterprise face a variety of challenges. According to Bala, organizations struggle to:

• Define their collaborative sustainability road map because multiple divisions own the sustainability
• Arrive at a measurable and quantifiable return on investment (ROI) from sustainability projects
• Execute and manage sustainability projects because multiple stakeholders are involved.
• Find appropriate reporting systems because sustainability data lies across the enterprise in multiple systems and formats. The current reporting systems are incapable of providing sufficient intelligence to aid in decision making.

Sustainable manufacturing’s key focus areas

Today, a manufacturing organization’s sustainability champion faces a lot of pressure from internal as well as external stakeholders in four key areas of focus:

1. Operations. Manufacturers must lessen their energy and resource usage, reduce emissions and waste generated across facilities/plants/offices, etc. and still maintain product quality. Bala says the solution lies in implementing concrete action plans based on comprehensive assessment and analysis of the as-is landscape of operations with assistance from IT-enabled decision making.
2. Compliance. An increasingly stringent and government-driven regulations atmosphere, especially in the European Union, is slowly beginning to take shape, which goes beyond the Kyoto protocol in driving and enforcing a sustainable enterprise. Bala says the answer is being ready. That requires putting all the relevant facility, product, and material sustainability data points that may be lying across the organization into a single repository. This move enables reporting and complying in all the required formats.
3. Product sustainability. Customers and industry watchers are increasingly demanding products that have a reduced environmental impact during their life cycle of usage. The challenge lies in ensuring that an organization has visibility into the life cycle environment impact of a product through all the life cycle stages from raw material acquisition, design, and manufacturing to usage and disposal. “Manufacturers have to apply that visibility to design greener products,” Bala suggests.
4. Supply chain sustainability. Today, manufacturers have to enforce their manufacturing procedures across their complete value chain. Manufacturers have to have end-to-end knowledge of the best practices across their multi-tier supplier organization as well as their logistics and fulfillment practice. “This allows them to enable and enforce a sustainable supply chain. It is important both for short-term compliance as well as long-term business viability,” Bala says.

The common theme running across these four focus areas is sustainability, visibility, intelligence, and reporting. Today, however, Bala says manufacturers end up wasting a lot of time and effort in collating data, and analyzing and reporting on sustainability parameters. The Wipro executive says the result is assessment exercises are manual with minimum automation or auditing capability. “This leaves a question mark on the accuracy and reliability of data manufacturers use for decision making,” Bala notes.

The SMART platform

This is where Information technology can help. Wipro has designed and developed a platform — Sustainable Manufacturing Analytics and Reporting Tool (SMART) — that helps address some of the manufacturing pain points in sustainability across all four focus areas. SMART enables multiple stakeholders (such as senior executives, plant managers/controllers, and compliance managers) to make informed decisions on sustainability programs by providing a consolidated, organization-wide view across five key dimensions of sustainability:

1. Energy
2. Resource
3. Emission
4. Waste
5. Recovery

Wipro’s system brings three components to the table:

1. A robust sustainability data gathering and integration framework that is non-intrusive yet can collect and maintain data manually as well as automated from diverse systems (ERP/MES/PLM), whether on the manufacturing plant floor or throughout the extended supply chain.
2. A strong, custom-built, manufacturing industry-based hierarchical data model and analytical engine that provides a range of spatial, temporal, and predictive analytics along with flexible data entry and reporting.
3. Management-level drill-down reporting, compliance disclosures, external communication, and performance management via a host of features such as dashboards, trending, projections, benchmarking, and root-cause analysis. This data moves reporting to intelligence on all sustainability parameters across the manufacturing value chain.

The future of the sustainable automotive business: supporting green driving

The final responsibility for achieving the benefits of green driving rests with the driver on improving his driving behavior. A dashboard display could monitor aggressive acceleration, sharp braking, speeding, tire pressure, engine idling, etc. Wipro Technologies has developed such a solution. The EcoMeter Connect supports various stakeholders involved in emission-reduction efforts across all categories of cars.

This information would guide the driver to improve, with the Eco-Index providing the reference. The EcoMeter could transmit this data through a Telematics gateway to a server, which could provide driving inputs to owners, consumers, and fleet users, even various governmental agencies.

Insurance organizations could offer a green insurance benefit to drivers who drive greener. Fleet owners could improve their profitability by evaluating the fuel consumptions and driving habits of their drivers. Automotive dealers and service centers could use this powerful information to set used-car prices and arrive at extended warranty costs. Governments could use this data to substantiate decision making on policy matters. “All this would result in one final goal: to reduce the emissions and control energy consumption across the global road transport industry,” says Bala.

Wipro set up the Council for Industry Research, comprising of domain and technology experts from the organization, to address the needs of customers. It specifically looks at innovative strategies that will help them gain competitive advantage in the market. The Council in collaboration with leading academic institutions and industry bodies studies market trends to equip organizations with insights that facilitate their IT and business strategies. For more information on the Research Council visit www.wipro.com/industryresearch or email industry.research@wipro.com

Tom Rooney, Vice President and Treasurer, says the company realized it needed a more efficient process. It believed moving to an electronic system would reduce processing costs as well as provide easy access to accounts payable documents once they were in a centralized location. G&K desired to achieve this transformation through an outsourcing service provider.

How the process works

G&K’s U.S. plants and branches send their invoices to G&K’s corporate offices in Minnesota for payment. The company transports the accounts payable invoices and supporting documents to its outsourcer, API. API scans and indexes the documents into Doc Archive, a central image archive repository, within 24 hours of receipt.

The system matches and merges additional vendor and invoice information from G&K’s ERP system with the document index API captured. The system also captures different invoice types such as fax, e-mail, and EDI.

Once the documents are in the system as images, authorized personnel can view, print, or e-mail the images from their desktops through Doc Search, API’s Internet portal, or through their system, which interfaces to the archive system with API’s Archive Link.

This provides G&K’s authorized personnel with the ability to seamlessly retrieve and view archived documents with a single click and eliminates the need to log into another system.

To meet related Sarbanes-Oxley requirements, API archives the images for seven years. It then destroys and recycles all paper documents.

A 3PL speeds the approval and payment process

G&K also uses a third-party logistics (3PL) company to consolidate low-volume, single-shipment orders by different companies into high-volume shipment orders from a single entity, the 3PL. This results in the shippers’ obtaining lower pricing through volume discounts that they cannot obtain individually. However, this too created a more complicated document management process.

In 2005, G&K asked API to also manage G&K’s document management process for its logistics group. The process entails the freight carrier picking up the shipment from G&K and creating a bill of lading at the consolidated rate. Then the carrier delivers the freight to the receiving company and gets a delivery receipt.

At this point, the carrier puts the carrier receipt, bill of lading, and invoice in an envelope and mails it to API. API scans the documents and enters all the information from the invoice. API workflow routes the invoice to the 3PL’s audit engine, where it runs the invoice against the record of what the shipper ordered, which it maintains on the audit engine. If the invoice reconciles, it’s routed to G&K for approval. After G&K approves the invoice, API workflow routes it for online payment.

Capturing P-Card receipts and supporting documents electronically

Rooney says a third function, which API began performing for G&K in 2007, captures all of the support documents and receipts for G&K’s P-Card (Purchase Card) transactions for reconciliation. Authorized G&K employees use P-Cards to buy commodities just as they would with credit cards. This reduces the number of accounts payable invoices and the cost associated with processing them.

However, P-Cards have limitations because employees have spending limits and can only use them with certain vendors. “Since 2007, we’ve grown our usage to a multimillion-dollar amount of purchases transacted through the use of P-Cards,” says Rooney.

API captures the receipts and identifies them by the P-Card number, which enables G&K to match the receipts to the P-Card statements. “P-Cards are yet another way G&K has automated its processes,” says Rooney.

Outsourcing’s benefits

According to Rooney, as a result of API’s automation capabilities, G&K has been able to increase productivity in the AP department, is experiencing few duplicate payments and late fees, and has virtually eliminated vendor disputes. There are fewer data entry errors as well.

API’s customer base is enterprise and middle-market companies, which tend to incrementally add functions. According to Gary Halleen, President and CEO of API Outsourcing, “API’s claim to fame is to let you go at your own pace to achieve your outsourcing goals. We fill the gaps — if you have an underperforming area, we’ll start there. Companies give us additional projects because they see the value we bring.”

Rooney is impressed with API’s commitment and willingness to act. In the first two weeks when he joined the company, he says, Halleen met with him and G&K’s chief financial officer to introduce his company and its services and ask what they could do for G&K. Since then, “they’ve always reached out and listened to us,” he says.

A month ago, he continues, they had his core treasury team out to API’s headquarters to brainstorm how G&K could improve its AP processing through the implementation of additional best practices. API has also visited two of G&K’s locations and the company’s corporate headquarters to view the accounts payable processes. “They want to understand the process and make it better for us, and they do it on their own nickel,” says Rooney. “That’s the sign of a great business partner. They go the extra mile” to ensure their customers are satisfied, he reports.

Lessons Learned from the Outsourcing Journal:

• When a buyer’s accounting and related paper documents are geographically dispersed across an organization, centralizing them at one location, then digitizing them with a document management system, allows users to retrieve them in less time at less cost. Companies can resolve payment disputes quicker. An outsourced document management system eliminates long-term storage costs.
• Though using a third-party logistics (3PL) provider lets shippers get lower pricing through volume discounts, it can complicate the document management process.
• Outsourcing document management increases productivity in the accounts payable department, reduces duplicate payments and late fees, and cuts down on data entry errors. When the buyer can send an image over the Internet instantaneously to prove it hasn’t received a customer payment yet, it expedites collections as well, a key activity to increasing cash flow.

“Our delivery system at the time was putting parts on every one of our sites. That would not work with this engagement,” says Duane Ahrens, Vice President of Service and Delivery for Wellington. “We did not have the resources to manage a large number of depots.” What’s more, Wellington had a parts delivery time line agreement with its customers that had penalties. After being hit with those penalties, Ahrens knew he needed the help of outsourcing to meet these delivery challenges and enhance its capabilities.

Rapid transition

“Businesses rely on third-party logistics providers (3Pls) because they believe they have the levels of experience, expertise, and infrastructure required to assist them with all of their logistics needs,” explains William K. Pollock, Vice President — Principal Analyst, Strategic Service Management Practice for Aberdeen Group of Boston, Massachusetts. “A 3PL that already has a local presence with people ‘on the ground,’ distribution centers, and tried-and-true channel partners can assist its customers more readily with respect to finding, assessing, and ultimately opening new depots in new locations.”

In the spring of 2007, Wellington began looking for an outsourcing logistics provider by reaching out for suggestions. Following recommendations from trusted colleagues and then evaluating real-time proprietary software, Wellington selected Flash Global Logistics of Pine Brook, New Jersey. Founded in 1983, Flash has over 700 depots worldwide including 300 in North America.

“Companies that engage in relationships to deploy parts for service contracts are now expanding to overseas and emerging markets,” explains John Miller, Senior Vice President of Global Business Development for Flash. “Our engagement gives them a dynamic approach to their markets because they can quickly react to client needs anywhere in the world.” Flash’s partners provide the physical locations and transportation following the supplier’s process mapping and systems that they installed in their facilities.

Wellington set up an aggressive time line for ramping up the transition, according to Ahrens. The company set up 11 depots initially through its on-site Flash representative. “She delivered everything we asked for, making the changes we needed for the delivery model to work for us. They were up in less than four weeks with parts available. They exceeded our expectations and went above and beyond everything we asked for,” says the Wellington executive.

“A 3PL representative on the client’s site represents a distinct advantage,” according to Pollock. “Time is the most valuable currency in the logistics business. Waiting for an off-site representative to answer a client’s emergency call can cost both real money and customer satisfaction.”

However, in many cases, he says the real value of a full-time, on-site representative comes from his or her ability “to contribute to the execution of the client strategy with a clear focus on facilitating shipments, satisfying clients, and managing costs.”

Ahrens says there were times where Wellington thought its depot could deliver the parts in the customer’s timeframe, but didn’t. “Flash took over the whole process and moved the parts and depot seamlessly. It didn’t affect our service level during the transition,” he says.

Over the rest of 2007 and into 2008, the depots increased to 48 including one each in Canada and Mexico. Expanding the number of depots is easy for Ahrens. “We can add a new depot and have it running in two weeks, typically in as little as one,” he reports.

Expanding outside of the United States

Outsourcing allowed Wellington to grow its business. “We had a challenge delivering parts to a critical customer in Mexico. We had no experience there,” Ahrens recalls. Once again Flash came to the rescue. Through the use of outsourcing, Wellington had ready access to the resources it needed to fulfill its contractual obligations with a major client.

Flash educated Wellington on the requirements, legalities, trading positions, and requirements for an importer of record in Mexico. “One of the key roles we play is providing the intelligence and design to actually do business in those countries. Sometimes it may be the first time they are engaged in international activity,” Miller explains. “This took longer than the deployment,” he adds.

Flash simplified the process for Ahrens. “All we had to do was get the part to Laredo, Texas, to a partner of Flash. They took the part into Mexico as the importer of record and delivered it to our depot without any complications,” he reports.

Ahrens appreciates the enhanced capabilities outsourcing provides. “We can grow internationally at will; they make us look like a much larger global organization. We can set up operations in another country in a short period of time with a successful delivery model where we don’t have to add staff because it’s their feet on the street. We are able to move wherever our customers are, knowing we have Flash behind us.

“They were a big part of our 300 percent growth from 2008 to 2009 because of their expediency in opening up depots,” Ahrens submits. “They have probably saved us $8 million annually in inventory procurement. We wouldn’t be where we are today without Flash.”

Lessons from the Outsourcing Journal:

• Outsourcing allows manufacturers to rapidly expand their depot facilities when opportunities require it.
• Outsourcing reduces the risk for companies doing business in a foreign country for the first time.
• Having a provider representative at the buyer’s site enhances strategic planning and more rapid implementation.
• Outsourcing provides worldwide resources to enable global expansion.

Here’s what else the experts expect.

Going global: the move to right-shoring

Navanit Samaiyar, Senior Vice President, Procurement and Supply Chain services for Genpact, says there is a big push for “right-sizing, right-costing, and right-shoring.” Suppliers will send work to “the right location to get the best cost and performance,” he explains. To do this, suppliers will consolidate work in multiple operational zones across many time zones.

For example, a company that now has 400 warehouses across the globe could instead store goods in local warehouses. The integrated supply chain would allow suppliers to “triage with warehouses across the globe to move goods anywhere in the world depending on need. That would mean faster service and repairs,” the Genpact executive explains. This also supports green, another supply chain trend.

Companies are now adopting this global view to their supply chain. To run properly, the consolidated process needs 24/7 support. “Companies will be consolidating these processes, which are becoming complex. This will drive the need for outsourcing,” says Samaiyar. He adds that this increasing complexity will keep new suppliers from entering the space.

Moving to an integrated supply chain

Such cooperation requires greater process visibility, Samaiyar’s second prediction. That will be possible because on the IT side there’s a “huge trend toward end-to-end collaboration,” says Ravi Kapoor, Practice Manager, Supply Chain Management for Wipro. Andrew Pery, Chief Marketing Officer, Kofax, adds supply chain outsourcing will grow because organizations want end-to-end processes. “They will be much more open to outsourcing procure-to-pay and order-to-cash functions,” he says.

Kapoor explains an integrated supply chain will “minimize imbalances.” Adds Samaiyar, “An integrated global supply chain with consistent processes will be more effective and efficient, generating significant cost savings for buyers.” Consolidated processes make roll-out, change management, and buyer acceptance of the new processes easier, he continues.

The complex, consolidated processes will force outsourcing relationships “to become deeper,” Samaiyar predicts. He says this will result in “increased stickiness” because buyers will send an increasing amount of work to the same supplier. “They will move up the value chain as confidence levels go up,” he says.

Going green

“It will be an obligation to make supply chain processes and their IT footprint certifiably green. It’s not a ‘nice to have’,” says Kapoor.

Outsourcing buyers, he says, “have to insure they do the right thing.” That includes tracking the green levels of their outsourcing processes and the supporting IT. “Buyers have to be aware of the greenness of everything they do,” he says. He believes corporations will eventually “only look at suppliers that have a road map to green.”

Another way for buyers to comply with green is to check their vendors’ green scores. For example, he mentions a French electric company that has prepared a 140-page handbook for its suppliers listing every vendor’s green score.

Kapoor, however, warns buyers “to be careful as you proceed.” Monitoring will be “an ongoing obligation” because some suppliers may share spurious data about their greenness.

Suppliers, for their part, have to share their green scores with their buyers. “Suppliers have to have a green quotient as well as ethical and ecological practices,” Kapoor says. Many suppliers will publish their social policies and their data “to show how much they are progressing.” The Wipro executive also predicts green will be a source of investment for them.

Regulatory bodies all over the world are putting pressure on companies to comply with their green initiatives, Kapoor adds. Importers in Europe, for example, have to register their products in a database. The goal is to inform buyers and encourage them to purchase from companies in the database.

Kapoor says the emphasis on green will force changes in logistics. In the past, speed was a primary driver when determining modes of transport. In the next five years, Kapoor predicts shippers will prefer mixed modes of transport to cut down the creation of greenhouse gases. “Shippers will select slower modes of transport,” he predicts. And manufacturers are opting for storing their goods as kits in local warehouses until they get a confirmed order — another green initiative.

Green will predicate “more collaborative” relationships between buyers and suppliers, in Kapoor’s view. “Buyers must commit to long-term relationships so together they can undertake these green initiatives.” That also means owning processes jointly. In the end, he predicts buyers and suppliers will create “stronger partnerships.”

A future opportunity: after-market service operations outsourcing

Samaiyar says manufacturers need to include service operations also beyond their source-to-pay discussions. “I hope to see a smarter way to manage after-market service operations because it reduces their cost and time and provides a smarter handle on warranty management,” he explains.

When this happens, the Genpact executive believes manufacturers will “realize some parts of this process are outsourcable, creating efficiencies and business impact.” He says outsourcing this segment of the supply chain “provides a much larger cost arbitrage than just labor arbitrage. It has business impact, so I see fairly high cost savings coming out of service operations outsourcing in the days to come.”

However, Samaiyar notes that this will require a fundamental change in buyer thinking since after-market services support “is not intuitively outsourcable. It will take some doing.” But he posits the change will be worth it. He estimates a company with $5 billion in annual sales spends about $150 million servicing warranties. Currently most companies approve warranties at different entities “so they can’t consolidate recovery.” Aggregating the activity “provides clear business impact.”

Similarly within the after market services space, a field engineer who is supposed to repair a machine only spends half his time doing repairs, the Genpact executive explains. He spends the remaining time on administrative jobs, parts of which the manufacturer can outsource. “Outsourcing creates two times the capacity of field engineers without adding more head count. Companies will also have more visibility into the process. Service will be faster, which generates greater customer satisfaction. And the outsourcing environment is cheaper. That’s a significant advantage,” Samaiyar says.

He reports this trend is still in “its early days. But he sees “some strength picking up” in 2010 and beyond.

Another new line of business for suppliers is consulting. “We are investing heavily in supply chain solution consulting,” says Kapoor. In addition, Wipro also is offering green consulting. The supplier completes a company-wide assessment, then presents an enterprise-wide plan to attain green IT, Kapoor says. This is something buyers find difficult to do on their own.

Finally, Pery predicts buyers will “increase their focus on vertically-oriented suppliers.” Supply chain outsourcers will have to specialize.

Lessons from the Outsourcing Journal:

• Procurement and supply chain outsourcing will have a more global focus in the next five years.
• Green will become an imperative initiative.
• End-to-end will become the new standard.
• As buyer mindsets change, after-market services outsourcing will grow.

GoldLantern has to get its goods from distant manufacturers to U.S. markets quickly. When he established his company in 2001, CEO George Stepancich saw how outsourcing would keep it “lean and mean.” In fact, he saw it as his only true path to success.

The CEO decided to outsource his supply chain, distribution, and logistics tasks to a third-party logistics provider (3PL). He wanted one that could efficiently move products from these overseas manufacturers to his North American customers that buy anywhere from individual units to thousands. Stepancich wanted a provider experienced in “just in time” (JIT) delivery so GoldLantern didn’t have to invest in expensive warehouse facilities and personnel.

“I didn’t outsource with the idea that GoldLantern would save a lot of money over our doing it ourselves,” says Stepancich. “I was most interested in avoiding the challenges and headaches of distribution. We’re product developers and marketers.”

He was confident that GoldLantern could do a good job managing its own supply chain if need be. “But it’s not core. Others can do it as well or better. So why bother?” Another key reason Stepancich outsourced this function was scalability; he wanted the ability to grow his market share rapidly when opportunities arose, but without the obligations of maintaining a large distribution infrastructure during times when sales might not be as brisk.

“The relationship between production and supply chain behavior is important because the planning decisions play a major role in determining how demand propagates through the supply tiers,” according to Mary J. Meixell, PhD, professor of Industrial Management at Quinnipac and Lehigh Universities.

Stepancich chose Suddath Logistics/Centra Worldwide, a global logistics and third-party supply chain service provider, to manage his product delivery chain. GoldLantern’s ability to respond to customer demands and competitive pressures also relies on having accurate information about where goods and products are at any time if it is to meet JIT delivery. So his provider needed to demonstrate strength in delivering such “snapshot” intelligence as well.

A responsive distributor for GoldLantern’s growing retail line

GoldLantern has access to 16 Suddath-owned and operated warehouses across North America, and – if necessary – even more space through the provider’s corporate allied partners. This service package includes warehouse staff, shipping and fulfillment experts, and all other services found in an efficient supply chain manager. The provider’s online, location-intelligent inventory control system produces better visibility for GoldLantern managers.

Suddath’s single contact person with Stepanchich streamlines communication and eases stress during events that pose problems or concerns. This is bound to happen from time to time with a supply chain based on JIT delivery, which displays peaks and valleys more than a consistent flow of goods.

“Like all retailers, we experience such challenges,” explains Stepancich. For example, shortly after digital picture frames first appeared on the market, they became a big demand item around Mother’s Day. “We had to plan, manufacture, and deliver a lot of product to the market quickly,” he says.

The CEO says his supplier’s experience made communication easier, and the situation much less stressful as Suddath’s market intelligence was able to give him and his partners a “heads up” to the coming spike in demand through that single point of contact.

Reuben Salazar, vice president of sales and marketing with Suddath, notes that Suddath has over 90 years of experience in supply chain management and product delivery. He cites this experience as a reason why the supplier was able to deliver the frames in time for Mother’s Day when demand for the gift was high. He says it also creates confidence and eases buyers’ uncertainty about a product’s JIT delivery.

Provider enables planned buyer growth

The business partnership between Suddath and GoldLantern enables Stepancich to maintain a scalable business with low fixed overhead costs. Because they are not tied up in the day-to-day details of filling orders and managing inventory, GoldLantern executives can devote their time and energy to develop, brand, and market new products.

As Stepancich’s firm eyes its tenth anniversary, he knows why outsourcing is the key to his growth. “Without it, my company would be very different, and maybe not as successful.”

His company of less than 15 employees is about to expand modestly. “I’ll gradually add specialists to manage my outsourcing relationships so I, too, can focus more on product development. That is my passion.”

Given the confidence that they could fill orders in a timely and efficient manner, GoldLantern now actively embraces retail Web distribution, selling directly to consumers through major online partners in addition to its own Web site.

Not counting Amazon, direct sales from the GoldLantern site run about 10 percent of total receipts, a growth channel which Stepancich finds encouraging. His ability to penetrate major consumer product retailer markets efficiently and with minimal distribution fanfare enables his company to cut a noteworthy slice of the almost US$165 billion retail consumer electronics industry, even in a down economy.

“Providing our customers with innovative products and services is what gets me up in the morning. Knowing we are delivering these products to our customers reliably and on time lets me sleep at night,” concludes Stepancich.

Lessons from the Outsourcing Journal:

• Firms that use just-in-time inventory management find that an experienced third-party provider can help smooth out the typical spikes in product demand and get the optimal number of their goods to market when that demand is high.
• Without outsourcing a company with few employees could never successfully nor profitably develop and maintain product distribution relationships involving millions of units with the largest retail outlets in the United States.
• A single contact person streamlines communication in an outsourcing relationship and eases stress during events that pose problems. These are bound to happen from time to time with a supply chain based on JIT delivery, which displays peaks and valleys more than a consistent flow of goods.

Each day, the oil giant has 150 company-owned tanker trucks on America’s roads and about the same number of short-haul contractor-driven trucks. Each distributes up to 15,000 gallons of gasoline and diesel fuel to filling stations across the United States.

But a glaring shortage of qualified drivers, both long-haul employee and short-haul contractors, was so acute that it became a critical HR challenge. Martin Pullman, the new U.S. fleet manager, lamented too many tankers sat idle because of this driver shortage.

“When trucks sit, not only does it cost us in undelivered fuel, the fixed costs for depreciation and taxes continue,” according to Pullman. “Plus, there is always the extra cost of bringing in spot (on-demand) drivers.”

Idle hands, in this case, idle trucks, were indeed the devil’s workshop to Pullman and a very expensive one. So he did something radical in October 2007 by engaging a Recruitment Process Outsourcer (RPO) that knew the trucking industry. ExxonMobile signed a five-year contract with MTS’ Driver Recruiters for end-to-end RPO.

In the first eight months of the engagement, MTS delivered over 100 new ExxonMobil drivers at a savings of several thousand dollars for each, relieving supervisors of most of the hiring process headaches and reduced turnover.

More buyers outsource recruiting because of talent shortages, according to Jason Corsello, former HR analyst at the Yankee Group and current vice president of Knowledge Infusion, a management consulting firm. But he believes buyers also find that large providers don’t always have the capabilities to deliver what’s needed when looking to fill less-than-traditional positions. “No matter what industry, the topic-du-jour is talent management,” he says. “Buyers often wonder if large service providers are able to do that for them, so they look to niche specialists.”

Getting the right prospects sooner via RPO

Before Pullman turned to MTS, supervisors at each ExxonMobil distribution depot recruited drivers via traditional channels such as advertising in local newspapers, distributing fliers at key driver locations, and using word of mouth to keep the candidate pipeline stocked.

“But it diverted a lot of their valuable time, which would be better spent on improving driver safety and efficiency,” Pullman says. For every 10 candidates the refiner interviewed, only one met the qualifications. “But now we’ve seen a dramatic improvement in the quality of candidates,” he adds.

ExxonMobile presents MTS a list of the open driver positions. Within a week MTS identifies the best candidates, who then interview with the local supervisor and take a test drive. Prior to submittal, MTS handles all screening, including drug and alcohol testing, an initial interview, license verification, employment checks, and Federal Department of Transportation compliance.

Most MTS-referenced candidates receive a conditional offer that becomes official once they successfully complete Exxon/Mobil’s drug and alcohol test, medical check-up, and final interview.

“Ninety-five percent of the cost savings to the buyer come from significant reduction in non-hire screening and processing candidates who are not suitable,” according to MTS principal Ken Walker. “A large carrier might waste untold thousands of dollars sorting through 20,000 potential candidates to get 200.”

“Our HR department interfaces with MTS,” Pullman notes, “but now the provider handles a lot of the administrative work.” He adds that supervisor response to the RPO arrangement is very positive. “It’s a weight off their shoulders. The time to hire is much faster and the candidate quality is much improved,” Pullman says.

Driver stability in an industry where such constancy is rare

The ongoing shortage of truck drivers occurred because of adverse demographic trends and qualification barriers for applicants. “Transportation is a very different challenge,” Walker says. “With 80,000-pound trucks moving at high speeds, often in congested areas, there is a lot of government regulation that makes it difficult for new entrants to get the good jobs.”

The entry point for any new driver is commercial long-haul work, which takes drivers away from home for weeks at a time, according to Walker. Commercial carriers are limited to what they can charge for shipping, so those wages are not the best.

But compensation is higher with private carriers. For example, ExxonMobil drivers can earn up to $90,000 annually. Drivers must pass through the lower commercial levels before they can land a job with a private carrier. “That’s where the gravy is,” Walker says.

MTS uses its proprietary database of 300,000 commercial truck drivers to cut screening costs. This reduces the time to hire. The database represents the “best 10 percent” of the almost three million drivers in the United States, adds Walker. “We reach more qualified drivers in the first few hours after receiving a request than most companies themselves can contact in weeks.”

MTS has its buyers’ clients answer a long series of initial questions so the supplier can “remove all the ambiguity,” Walker adds. “They specify the pay rate and amount of travel required with real numbers, not ballpark figures. This lets us share an exact picture of the job with each candidate.”

Such close matching reduces turnover, which for truck drivers is concentrated in the first 30 days on the job. Turnover for MTS’s hires averages a mere 10 percent in the first month compared with the commercial segment average of 30 percent.

The MTS/ExxonMobil partnership is also producing real progress toward a longstanding objective to improve diversity by recruiting more female drivers. “We didn’t have much success with that, but MTS is improving the picture,” Pullman adds.

He believes the most significant RPO savings for ExxonMobil comes from freeing up supervisors so they can focus on coaching drivers and improving performance and safety. Additional cost savings come from less dependence on contract carriers because more of the company’s rigs are on the road.

“Now we take fuller advantage of our distribution assets, and a lot fewer of our trucks sit idle,” concludes a satisfied Pullman.

Lessons from the Outsourcing Journal:

• When greater-than-normal employee verification is needed, Recruitment Process Outsourcers (RPO) can relieve Human Resource departments of much of that burden.
• In all successful RPO engagements, providers produce a larger number of better qualified candidates faster, especially in high-turnover areas.
• An additional benefit of recruitment process outsourcing is leveraging the suppliers’ capabilities of facilitating the buyer’s goals toward greater diversity in its workforce.

He recalls his shock years ago when dealing with a leading international retailer that needed data about incoming products. The company had 9,000 suppliers; 3,000-4,000 had good systems, but the remaining suppliers had small or medium-sized warehouses, lacked good systems, and could not provide the data.

Many manufacturers outsource their logistics to 3PL providers, including warehousing and inventory processes. “There are hundreds of thousands of warehouses in the United States in the small- and medium-sized category, and many of the owners or 3PLs are trying to run those businesses off of Excel, QuickBooks, or something similar. Others are running sophisticated businesses through legacy systems or pumping data into Web applications of one of their big vendors. So when a company with a big supply chain tries to get data from them, it just doesn’t work,” explains Burleigh.

These businesses have another problem: lack of flexibility to make changes to their cumbersome supply-chain technology if they get a better deal from another supplier and make supply-chain changes. Many make changes manually.

In addition, most of the companies with small to medium warehouses deal with multiple suppliers and cannot manage visibility across the entire supply chain.

A good warehouse management system (WMS) is prohibitive for these businesses. It would cost $40,000-$50,000 in license fees and another $40,000 for implementation and infrastructure. “So they have locked in their mind that the entry-level price to solve their problem is $50,000-$150,000,” Burleigh says. “They don’t know that they can solve their problems for $500 a month.”

The $500/month solution

Burleigh, who was formerly employee number six at Salesforce.com, explains that SmartTurn applied “the world of software-as-a-service (SaaS) and the concepts of social-networking technologies to supply-chain technology for inventory management, warehouse management, and overall supply chain visibility.

Employing the SaaS model in the SmartTurn Warehouse Management System enables the ultimate in flexibility. Instead of not being able to make system changes quickly if a new supplier comes into the supply chain (or making manual changes), the SaaS model just sets a new security permission for the new supplier coming on board.

Best of all, the SmartTurn WMS is available for $500 per site, per month, with unlimited users and unlimited transactions.

Argent Associates is a 3PL supply-chain management company providing managed services and warehousing assistance, and is also a distributor of various products. It counts Fortune 100 companies and government agencies among its customers. Argent outsourced to SmartTurn about nine months ago to manage a distribution center in North Carolina and for warehouse management in Arizona.

Ray Moya, COO and vice president of technology at Argent Associates, says he considered many other products available at the time, but it was “a no-brainer” to choose SmartTurn. He says the time to implementation was “compelling” (30 days versus six months) and was the major driver; the second driver was cost.

At that time, a client had awarded a contract to Argent and expected Argent to implement a solution in three weeks. Argent’s typical timeframe for developing applications in house was three to six months. They didn’t have that much time.

“We also needed to integrate with EDI and with QuickBooks without hiring a bunch of consultants,” says Moya. “Our accounting system is QuickBooks, and our employees and accountants are extremely familiar with it. I didn’t want to migrate to a warehouse-management system that would force us into a new accounting system; that was going to be problematic from a budget and process perspective.”

Migrating to other systems, including the cost of customization, would have cost between $40,000-$50,000 versus the SmartTurn solution for only $500 a month. He adds that SmartTurn was able to complete the implementation for Argent’s client in about 30 days instead of six months.

Moya adds that there are plenty of off-the-shelf warehouse and inventory management products, but they are not quick to implement. Other products for asset management and control lack necessary functionalities for warehouse management. And some applications are too complicated to use. “Most are very ERP centric, which makes them not very user friendly. None of the alternatives to SmartTurn were anything that I could live with. I made the right decision with SmartTurn,” he states.

The SmartTurn solution also allowed Argent to make all its processes electronic, thus saving time, money, and errors. “We wanted to eliminate paper,” says Moya. “Seven years ago, we did a study and found that paper transactions cost us $73 per transaction at that time, but electronic transactions cost 34 cents.”

Security layers in a SaaS WMS

The situation Argent encountered with needing to integrate with QuickBooks is not unusual. “It’s almost a guarantee that a warehouse management system will need to integrate with something in every implementation,” says Burleigh.

A supply chain has at least a manufacturer or a warehouse business that is trading with someone else upstream or downstream for the flow of goods, and they need to share information with each other. “The standard way of doing that through technology is EDI. But that’s an archaic way of doing things,” Burleigh states. “It’s a pretty cumbersome, painful process to have to integrate the software with different nodes, facilities, processes, barcode scanners, and other physical devices in a warehouse, etc.” The challenge multiplies with the size and complexity of the supply chain. Obviously this amount of complex communication functionality requires building significant security into the system.

Burleigh says the complex security model that companies need to put in place to manage across a supply chain is one reason why developers did not apply the SaaS model to supply-chain technology sooner. He explains that supply-chain technology differs from the Salesforce SaaS model, which was built with the concept of visibility and security applying to the support, sales staff, and sales manager of one “tenant.”

A supply chain, however, usually has multiple tenants, each with distinct warehouses. Each tenant could also have a 3PL operating a warehouse on an outsourced basis and also a 4PL (a provider arranging services across multiple logistics operations and transportation modes with multiple 3PLs). Each of these is a separate security role and layer. Adding to the complexity, a 3PL could be operating multiple warehouses, and in each warehouse there might be multiple customers.

“Each customer only needs to see their own goods, so that’s another layer of security,” says Burleigh. “And then there are agents and truckers in a security layer that might be over multiple customers and multiple 3PLs. A trucker may need to see the status of orders that are ready for pick-up, for instance. And some customers would need to see what’s in some warehouses but not see into other warehouses.”

SmartTurn’s SaaS model WMS solution allows information sharing to happen securely between trading partners with just a click of a button – almost like allowing someone to share information with others in the popular social networking sites LinkedIn or Facebook.

SmartTurn was spun out of Navis, the world’s largest supplier of container terminal management software. “In addition to our insights from Salesforce.com and the expertise of our chief technology officer, Miguel Pinilla, we learned a lot from the highly specialized, extremely complex inventory management software of Navis,” Burleigh says.

Other financial benefits

SmartTurn’s WMS provides complete real-time visibility across the supply chain, connecting islands of information on the quantity, location, and status of inventory flowing in and out of multiple warehouses. This helps companies decrease order lead time, reduce physical inventory counts, and minimize overstocks and costly stock-outs. The visibility also helps manufacturers know when shipped materials are actually consumed for manufacturing a product, thus enabling them to know when to pay a materials vendor in time to get a discount. These discounts can amount to thousands of dollars each month.

The solution helps 3PLs consolidate and manage all inbound purchase orders through a centralized system, thus streamlining the procure-to-pay process. It also helps eliminate duplicate data entry and improves productivity.

In addition, SmartTurn’s WMS solution is a “green” solution. Carbon reduction in the warehouses results in cost savings. The WMS also enables a mid-sized warehouse to eliminate using a pallet of reams of paper for operations each week.

Cost savings arise from several sources. As Figure 1 displays, the cost savings possible with a SaaS WMS for a small- or medium-sized warehouse (or for one-fourth of a large warehouse) with a $2-10 million inventory level is $330,000 savings the first year and $230,000 in subsequent years.

Figure 1

Moya says Argent is now working on its third customer implementation with SmartTurn. “Their WMS scales as fast as we can establish additional warehouses at significant cost savings and meaningful environmental savings.”

“Another good thing about the SmartTurn solution is that the software is very flexible,” says Moya. Argent requested some functionality for generating custom reports of orders that Argent can then trend out into the future. “Nobody’s product can do that today, but SmartTurn is working on it for us.”

He reports that, although there is no such thing as one warehouse management system fits all, SmartTurn’s system is flexible enough to model to different implementations. “So far, we have implemented eight different models for our customers, and that’s hard to do in most applications,” says Moya. “It’s even flexible enough that we’re getting ready to use it for a customer implementation in a products-assembly environment and inventory management process.”

Cost savings, cost avoidance, flexibility, faster implementation time, and improved customer satisfaction are some of the highlights that characterize the state-of-the-art SaaS model WMS, all of which have traditionally proven to be benefits of outsourcing. “The more we use this solution, the more we like it,” says Moya. “And the SmartTurn guys are a good team. I couldn’t be happier.”

Lessons from the Outsourcing Journal:

• Small- and medium-sized warehouse owners and 3PL outsourcing providers face challenges in managing visibility of inventory and information-sharing across an entire supply chain. They also lack flexibility to change their cumbersome systems (or must use manual processes) if they want to change or add another supplier to the supply chain. Applying the software-as-a-Service (SaaS) model to warehouse management, inventory management, and supply-chain management solves these challenges.
• Time to implementation (days instead of months) and cost (low monthly fees versus tens of thousands of dollars) are compelling drivers for a SaaS model warehouse management system and management processes.
• A supply chain has multiple trading partners as well as customers and others who need to share information and need visibility into some warehouses but not others; this creates a complex security challenge for automated systems. Applying modern social-networking technologies to the SaaS model facilitates building the necessary security layers and yet allowing permission access to certain information with just a click of a button.
• An effective supply-chain management and warehouse-management system must have the flexibility to enable modeling the solution for implementation in different types of manufacturing environments.

Tibor Beles, VP Sales, Global BPO, heads Oracle’s BPO practice. Read why he thinks automating BPO can increase service provider sustainability by cutting cost and adding capabilities. He also discusses new BPO areas like pharmaceutical clinical trials and new growth in BPO segments such as fourth-party logistics; he believes service provider expertise as well as lowered cost are key to buyer adoption of BPO in these areas.

Q: Have BPO buyers changed their focus?
A: Yes. Today the focus is on automating BPO operations by changing the supporting IT infrastructure. This is the fastest way to gain efficiencies.

Q: Why is this a welcome change?
A: Automating BPO operations creates a significant improvement in service provider sustainability. It also helps their service delivery.

Q: What has been the biggest change in BPO in the last 12 months?
A: The expansion of BPO offerings into parts of the company that the market previously had thought was not capable of outsourcing.

Q: Like what?
A: Clinical trials in the healthcare area. Clinical trials are an important phase in the life science/pharmaceuticals space. BPO providers saw that pharma companies needed help.

Outsourcing clinical trials is an exciting trend because it goes well beyond the traditional horizontal processes like human resources or finance and accounting. It’s industry specific. It highlights the expertise of the provider. And it’s not just about cost savings. The pharma companies are outsourcing because of the savings the service provider can produce as well as its industry expertise.

Q: How does this differ from the most well-established areas of BPO?
A: In HR, for example, the cost benefit is still the primary driver to outsource.

Q: How does Oracle work with outsourcing service providers?
A: We have always worked with the providers to help them with their IT platforms. But now they engage us more often than before in determining how to set up their IT platforms for scale and sustainability.

Q: Is this a new mindset?
A: Yes. Suppliers have changed their perception of IT in the BPO equation. Now the suppliers are paying more attention to building reusable service delivery platforms. Before, BPO providers wanted to build unique products in house. Now they want to leverage a prepackaged solution. This changes how the providers are deploying IT.

Q: Why is this an advantage?
A: First, a solution like ours is scalable; suppliers can handle greater volumes as the business grows. Second, they have the ability to link to other packages.

Q: How does this change how Oracle works with suppliers?
A: This calls for a new approach. Now we have the opportunity to explain what we can do for them. We understand the industry’s changing needs. I see this as a mutually beneficial trend for both us and the outsourcing suppliers.

Q: How do suppliers innovate their service offerings given their service level agreements (SLA) and margin pressures?
A: Suppliers can use companies like Oracle to innovate their offerings. We are keen to have these conversations. We can help them outline their new offerings and then deliver the IT infrastructure to initiate them. In addition, our technology can help them provide better service and easier and faster adoptions. These lead to increased customer satisfaction.

Q: Does this trend apply to any particular group of suppliers?
A: Surprisingly, we see suppliers who work with the Fortune 20 and suppliers specializing in the small to medium businesses taking this approach. I believe this is a long-term trend.

Q: This sounds like the ERP adoption cycle of the late 1990s.
A: Yes, back then companies were adopting standard applications rather than building their own in house. Now the same thing is happening in BPO.

Q: Why?
A: Cost: Companies that have offshored are finding the cost savings provided by large arbitrage have become limited. For one, the cost of the resources has become more expensive. Foreign exchange rates have worked against Western companies. So they had to find a new way to reduce cost. Now companies can adopt better technology, which is cheaper to run than their in-house platforms. We help suppliers run their infrastructure with smaller IT budgets and more capabilities.

Q: How can you do this?
A: In the past, companies either wrote their own platforms or cobbled together existing products from a variety of vendors. This resulted in a high cost of ownership. It’s more cost-effective to have all the software as a suite from one vendor.

Q: Any other advantages beside cost?
A: Standardized technology also is a source of efficiency gains. For example, suppliers can set up service delivery in a shorter time period. And they can incrementally add capability easily. These reasons are why a standard platform is a better choice.

Q: What about new markets?
A: There it’s not about cost at all. It’s about introducing new capabilities as fast as possible. For example, fourth-party logistics (4PL) is a new opportunity for us that is growing aggressively. Another fast-growing area is loyalty and marketing management for consumer-focused businesses. These companies have to be able to handle volatile transaction volumes.

Q: How is Oracle innovating?
A: We are continuously adding to our own product offerings. Our customers can rely on our ability to add functionality to our existing productions. As the business world in the future changes, our customers will benefit from our flexible products.

We have an acquisition strategy for new products as well. We will keep adding industry-specific capabilities.