Before migrating its procurement process to a hosted IBM service, a deal which has so far saved it hundreds of millions of dollars, Telstra not only did an evaluative check on the best technology for the job, it also had talks with its peers to ensure it would make the right decision.
The telco is now in the second phase of its supply chain agreement with IBM, which was first signed in September 2006 and went live in July 2007. In its first two years, the deal delivered $355 million in cost savings.
Read Part 1 of Supply Chain Management in Australia.
Telstra’s plan is ambitious: it has overhauled its procurement processes and also hopes to drive efficiencies in logistics and inventory management and achieve a total supply chain cost reduction of $700 million over the seven-year period of the agreement.
“Before we made this decision I would spend a lot of time speaking with a lot of our key partners. Not only our strategic partners, but our other key providers about what they were doing with their own supply chains and transformation,” Telstra procurement executive director Ian Wheatley said.
“And I had also taken the opportunity of spending time with some international companies because best practice around the supply chain doesn’t reside in Australia. There is aspects of it that you see in other major corporates,” he said.
“We didn’t want to be bleeding edge but certainly leading edge.”
To transform its supply chain, Telstra decided to split the undertaking in into two phases.
In the first phase, IBM took over its indirect procurement such as travel, temporary labour and office products. It built an automated procure-to-pay system with Telstra’s suppliers, taking out the consuming paper trail that typically featured slow cycle times.
“It was time consuming for us to gather the information out of our existing management system so IBM have built that system,” Wheatley said.
The second phase was signed in December 2007 and places IBM as the lead logistics provider which includes the warehousing and distribution of product, service and components to Telstra’s field workforce.
In this instance IBM will bring logistics and IT capability to reduce inventory levels and stock. “It is a better focus on spares levels because while you have got spares sitting on the shelf it is costing you money. This provides a better delivery of spares to the field workforce; we will have visibility of inventory down to man level.”
The telco will now know what is exactly in the vans of its communications technicians that are driving around the country – what it calls truck roll. This will give it a complete view of the van so that its technicians have the right inventory at all times.
Part of this process will feature what Telstra calls predictive maintenance. For example, how many times is it drawing on that item of equipment and whereabouts is it consuming it.
“So then you start to ask ‘do I need to carry stock in certain locations?’ It then starts to drive your stock level because you know rapidly and accurately you are consuming it. In Australia, depending on the geographic location, there is different demands for types of equipment in the network. So areas like in Queensland that are flood prone have certain types of equipment that we will have to carry there. We can start to do that so we have got the right part in the right place at the right time. You can’t predict floods but it is a better whole arrangement to support the field workforce.”