A major national supermarket chain sought to pursue its vision of continuing leadership in grocery retail sales, but was confronted with the same challenges that face other grocery chains; operational cost pressures, competitive pressures and the ability to provide customers with a unique shopping experience.
Like most grocery retailers this client had not kept up with changes in information technology and was late in implementing technologies that could help them reduce manual efforts and cycle times for the order-to-cash and other critical business processes. Only recently had they considered using technology to enhance the customer shopping experience mostly in the form of self-checkout lanes.
While their overall operating budget was low, they had been experiencing a consistent increase in their annual budget for IT services. They had recently launched an upgrade initiative, which included leasing new technology to upgrade processing and avoid spending precious internal capital. New business applications were also licensed and rolled out as a part of the initiative; however, the initiative did not produce the intended financial and operational benefits.
They decided that they wanted to explore outsourcing and eliminating redundancy as a means to assist them in implementing appropriate technologies, curb operational costs and avoid future capital requirements.
Upon engagement the CIO requested that TBI not solely focus on outsourcing as a solution but to evaluate their computing environment and produce a set of recommendations that in our collective opinion would be the best solution. Conducting due diligence became a significant effort as the Client had done little work in establishing a financial baseline or in consolidating the facts surrounding their computing environment. Additionally the line of demarcation was drawn and the scope was limited to commodity type services and initially we could not go into the computing environment at the stores.
In evaluating the human component of the computing environment we found that there were an abundance of people assigned to operations and other functions; however the skills of the people within the organization were in question. A highly political environment presented further complications should they decide to outsource. Further due diligence indicated approximately 270 affected employees could be impacted through outsourcing.
Typical support and functional processes normally found in the computing environment were either non-existent, insufficient or were not adhered to. SLA’s and other operational metrics were lacking and in some cases were non-existent. Business processes were found to be mostly manual and were prime targets for the application of technology for automation and efficiency improvements.
The main issue that the chain had with technology was that they are highly dependent on mainframe operations running legacy applications for primary processing capacity. Efforts to move toward a server environment had been hampered by costs associated with migration. This limited options for consolidation, optimization and outsourcing. The distributed computing environment suffered from a lack of standardization and overdue refreshment.
Newer servers and related technologies were leased and were generally recognized to be underutilized.
The chain had two data centers; one data center housed the mainframe systems and hosted all financial applications. The other location hosts a server environment and existed to run the applications that process store merchandise. These were inadequate recovery and business continuing plan in place. Neither had been updated for a significant period of time. This condition presents significant risk to the business. Moreover the Montvale facility is a high priced leased facility and should the data center be relocated it would allow the business to reconsider that location for the corporate headquarters facility for a building smaller in size and less expensive.
The Client had over 120 legacy applications running on mainframe computers that they supported and maintained. In addition to these applications the Client had recently licensed more contemporary server applications for the business but was having difficulty in cutting over to full production using the new applications.
The business units that were responsible for store operations in both the US and Canada are pressing the CIO and IS Department to help them become more competitive through the use of new technologies, both information related and store related technologies.
While the CIO recognized that full scope outsourcing of commodity services would help them free up key resources allow them to become responsive and control costs, he was concerned about vendor capabilities and the competitiveness of the overall deal. The Client engaged TBI to assist it through the entire decision making process which was to outsource or not the subsequent outsourcing decision making process; from RFP development and vendor selection to contract negotiation or to develop a set of viable alternatives.
TBI’s structured, yet flexible methodology, combined with its extensive database of outsourcing information, enabled us to rapidly collect requirements, develop an RFP, produce a set of vendor selection requirements, develop service levels and generally frame the potential outsourcing deal and the competitive bid process.
Moreover, TBI’s oversight of the process ensured that all bidders were given fair and equal access to all information and to the client; and were given fair and equitable consideration to their proposals based upon a consistent set of selection criteria. The flexibility of TBI’s approach was critical in reducing the time required to frame the requirements, and complete the entire process within the short deadline; dictated by business needs.
Successful Business Solutions
When suitable, TBI normally promotes a dual-negotiation process for two finalists in order to ensure the best possible terms, conditions and price. However, dual negotiations are a time consuming, expensive, and exhausting process which requires commitment of all parties to see the process through to its ultimate end, the selection of a winning bidder and a completed contract. Not all clients can afford the time and cost this process demands. TBI creatively suggested a fast track or “mini” dual negotiation with two finalists, focusing on a smaller, critical set of requirements that were most important to the client. Both vendors were allowed ~3 weeks in which to put their best proposal’s forward, followed by an additional one to two weeks of discussion focused on gaining greater clarity around the their proposals, negotiating the final details of the key requirements and in analyzing the financial aspects of the proposed deals.
This fast track approach saved several months. TBI, with its benchmarking database and its library of outsourcing deals, and its experience was able to successfully guide the client and the vendors to achieve the information required for the Client executive management to make a decision.
The time saved with the modified approach, together with TBI’s experience and assistance, resulted in having robust information for the decision making process. In this case the client decided to carve out the networking and telecommunications part of the environment and pursue a renegotiated outsourcing deal with their existing telecomm carrier and instead of moving forward with an outsourcing deal for the remainder of the computing environment, they asked for TBI to assist them in developing an alternative strategy.