The logistics sector has experienced an important evolution in the last 20 years. This sector has been able to innovate in business processes and how to apply technology in operations and administration, achieving not only efficiencies and benefits, but also a transformation of the business model.
In the beginning of the 90’s most companies – producers and distributors – had their own network of warehouses and transportation. Nowadays, 85 % of transport and 15% of warehousing is outsourced to a Logistics Operations supplier.
If we compare this fact to the IT sector, we are not even near to these figures. Only in case of the Telco market the operations of the communications are totally outsourced to the Operators. The operation and administration of IT Infrastructures and IT Systems is still largely done by the companies themselves – in-house or in hosting mode – in most of the European countries. If you analyze the statistics o market studies available in I
Internet, you can easily find out that the IT Outsourcing is done by companies those annual turnover moves between 500 – 1.000 million €.
Now, if we compare the functional area of logistics with functional area of IT operations, both have several similarities. Both offer critical services to the business operations of the company and both have high requirements for quality and reliability.
In Logistics sector there has been a huge effort to standardize the communication and procedures between suppliers, logistic operators, transporters and customers, making it possible to have a common business model in the market and offer services to multiple customers. Now – if we compare this GP1 chart with the requirements that ICT outsourcing sector has with its customers, we can realize that these are very similar:
- management of complex and critical processes,
- data warehousing,
- Information transmissions from one location to another… (although the Cloud is coming),
- Security aspects for customer and supplier.
I would like to invite you all to think about the best practices Supply Chain Management already has, before reinventing new ones for IT. ITIL, GOBIT and other regulations in IT market define in detail how IT should be operated and managed, but I miss the definitions of the efficient relationships between customers – operators and suppliers, and not only in service management.
The success of logistics sector to create a new market which didn’t exist before, could be a good example for IT operations. The keys success factors has been among others:
- Professionalization of services,
- Excellence in execution and reliability (in time and service),
- Lower cost level than customer had before,
- Visibility in the execution for customer,
- Technological capability without asking customer to invest in it,
- Specialization in clusters according to market segments,
- Global coverage geographically for customer ,
- Offer flexibility for the customer (elasticity),
- Offer information to customers about the operations end to end,
- Offer complementary operations to the customers to cover the whole business process (e.g. administration).
Each of these criteria could easily be converted to objectives to be achieved by IT Outsourcers, but unfortunately not yet happened.
Especially the capability to apply technology in the business processes of the operators has been key issue to achieve efficiency, reliability and flexibility for customers.
There has been a lot of discussion about the reasons why IT sector doesn’t achieve higher penetration of outsourcing and normally we hear that the customer reluctance to transfer their infrastructures and systems in third parties is the problem. Indeed it is, but the real reasons why – behind the reluctance – are the right ones. In my opinion, the missing market organization and industrialization (or professionalization) of the services and quality incidents in them, as well as the cost aspects at least for midsize market, are the real reasons why IT Outsourcing doesn’t break out as Logistics Outsourcing.
Definitely it shouldn’t be the objective of corporate IT departments to exercise as IT provider in software development, integration, infrastructure operator or user support center, but the actual market prices and service offerings doesn’t help midsize companies to outsource efficiently and then to concentrate how to add value to the company through IT. Of course there would be a different view on the reasons to outsource if we add aspects like quality, reliability, technological evolution to the decision criteria, but in many midsize companies these arguments aren’t still valid for the CFO .
The information technology as sector is still very young and immature. The arranging of the sector into producers (raw material, finished goods), operators, integrators, distributors etc., hasn’t still happen. We have providers and customers and in between everybody is trying to offer huge range of services and products.
There are methodologies, standards and best practices in each IT segment, but one general and common misses. Secondly the possibility to standardize and industrialize IT services due to customer requirements is culturally still very difficult, and doesn’t allow the advantages of critical mass on service prices.
The evolution in logistics sector, how they invoice and based on what they invoice, has been very important for the growth, applicable for IT also. The price should be related to the value the service produces, and in consequence to the quality objectives of the service.
Secondly in the Logistics sector the importance of the sustainable relationship or better “partnership” between operator and customer has been understood and applied to commonly share the objectives of the critical processes.
Just a reflexion!