You probably encounter bright-yellow-labeled Sunoco products in many different places. The company buys crude oil and then processes it through its refineries and turns it into products such as automotive lubricants, petrochemicals, and coke (an essential ingredient in making steel). It also sells gasoline. “It’s a complex business, and for each product set we have a totally different customer base,” explains Pat Renzulli, CIO of Sunoco, Inc. Besides being complex, it has become an extremely competitive business in recent years.
Most of what Sunoco needs in order to operate as a company runs on big mainframe computers. “That service is an absolutely critical resource to us as a company,” states Renzulli. “It’s a service that can’t fall down. Even, for example, just allowing truck drivers to pull up to one of our terminals and get gasoline at a rack, that assumes that the system that lets the truck get in the gate will work; that we can recognize that truck as a customer; and that they’re not over their credit limit and haven’t paid their bills. We’ve got a lot of mainframe applications that track all that information and much, much more — and they absolutely have to be there for us day and night.”
Renzulli, who has been CIO for about four years, says Sunoco deals with a lot of suppliers, but for the outsourcing of the company’s mainframe services, she says they have “what I consider to be a very unique partnership.” The supplier, (i)Structure, Inc., has far exceeded Sunoco’s expectations “in quantitative and qualitative benefits, and they are really a very fine vendor,” she says. (i)Structure’s customer-centered approach and customizable service offerings were just what Sunoco had been looking for.
Sunoco’s data center in 1990 was located in Dallas at one of its operations that was divested as a result of major corporate restructuring. With the company’s headquarters, refineries and chemical plants in the northeast, far from Dallas, they decided to outsource the data center. Tom Kovalich, Manager of Planning and Operations for Information Systems at Sunoco, says the company set out to divest itself of the real estate, find an employer for the staff that ran the data center, and then negotiate a services agreement for the continuation of the mainframe support services. That three-pronged plan worked for a while but, by the mid 1990s, they began searching for a different supplier — one that would take the time to learn and understand Sunoco’s business needs and then tailor its services to meet those needs.
In the selection process, Kovalich says that (i)Structure stood taller than its competitors. “(i)Structure presented themselves as being very responsive and very open to really giving us whatever we needed to do the kind of services and provide the kinds of things needed for our business. They also have a very high reputation as being committed to customer service. And they are very much committed to administrative simplicity, as opposed to bureaucracy. All of that has proved to be exactly as we thought it would.”
The scope of their 1996 outsourcing agreement is for mainframe processing services, database administration, production control for all application services and help desk services. During the first three months, there were challenges and issues relative to production schedules, priorities and deadlines. Kovalich explains that it took time for the supplier to understand Sunoco’s operation and uniquenesses. (i)Structure rose to the challenge and deployed its staff to meet personally with Sunoco staff so they could understand the expectations and issues. “Instead of letting it fester or just handling it on the phone,” Kovalich says, “they took it down to a personal level and really nipped it in the bud within a very short timeframe.”
Sunoco’s CIO is astounded at the benefits of working with (i)Structure. She says that, even though the supplier has proposed reengineering changes in the configuration of Sunoco’s environment, the strategy is to reduce the supplier’s cost base so that year after year it can then reduce Sunoco’s cost. “What other vendor says I’m going to lower my price to you every year for the next few years?” ask Renzulli. She explains that it is part of an expectation held by both parties that they will work cooperatively to improve both of their businesses.
(i)Structure, located in Omaha, realized that much of what needed to be accomplished in the beginning (as well as Sunoco’s extensive projects inY2k readiness) required face-to-face planning. The supplier designated one of its people as a liaison role and located him onsite at Sunoco, demonstrating a high level of commitment to the relationship. Now that the relationship has smoothed out over the years and he is no longer needed full-time on the account, (i)Structure has assigned him to other accounts. He’s still located on Sunoco premises, however, because it is more cost effective to the supplier and because Sunoco has taken an interest in the young man’s personal and professional development.
In addition to monthly operations meetings, the two companies have joint goal-setting processes on an annual basis. They also meet twice a year for a technology planning session to talk about trends and how to achieve goals. They keep in touch and communicate at all levels. “As the CIO,” Renzulli says, “I think it’s very important for me to stay familiar with what’s going on in the relationship. It sends a signal to (i)Structure that I think the relationship is important.”
Over the life of the contract, the value of the deal is well over $10 million. The services running on (i)Structure’s mainframes are essential to Sunoco’s business, and that makes (i)Structure a key part of the company’s strategy. Kovalich says that (i)Structure has a deep sense of the industry and Sunoco’s marketplace. “They are not indifferent to activities and issues that are going on outside their core business,” he says.
The supplier’s true value, though, is its willingness to evolve as Sunoco evolves. Renzulli says she is confident that this is a supplier whose “business strategy will do well and who will be there for us in the future.”
Lessons from the Outsourcing Primer:
- The supplier must take whatever steps necessary to learn and understand the buyer’s business, industry and marketplace.
- Relationships where the supplier and buyer meet together to discuss joint goals and technology trends are far more successful in the long run.
- A supplier that provides mission critical services is a key part of the buyer’s growth strategy and must learn to evolve as the buyer evolves.