One California building supplies manufacturer is reducing its SAP support costs by loaning its IT staff to a handful of local companies at reduced rates. In one case, it’s even helping another company with its ERP implementation.
The informal “co-op” arrangement makes perfect sense from financial and efficiency points of view, said Mike O’Dell, chief information officer for Pacific Coast Cos. Inc. in Rancho Cordova, Calif.
“Part of it is the economy, and part of it is a good idea of leveraging resources,” O’Dell said.
Pacific Coast currently runs SAP ECC 6.0 with the enhancement pack 4.0, SAP Business Intelligence (BI), SAP BusinessObjects, and the NetWeaver Portal. This is the 10-year anniversary of the company’s ERP go-live, he said.
The IT staff needed to run those applications and keep them up to date consists of Pacific Coast employees, O'Dell explained. However, he also shares them with five other businesses that need help running their SAP landscapes, but also don’t want the expense that goes along with hiring consultants or new full-time employees.
“If you think about a database administrator, for example, it’s a highly specialized skill. And if you have four-terabyte databases like we do, you need one," O’Dell said. "It’s probably best to not leave that one to chance.”
But a database administrator spends about 25% of an average day doing database administration, O'Dell said. The rest of the day is spent on assorted, less complicated tasks that could be handled by others with less expertise.
“So our model is to [share] that same DBA [with] other companies and treat them like subsidiaries,” he said.
The ultimate goal, he said, is to find companies that can “share back” IT workers, so that neither side has to go to outside consultants for help and that the arrangement becomes more like a true "co-op."
“The problem that we kept running into, is that because it’s not a common-type idea, it ends up being more of the sharing from my side than from their side,” O’Dell said. “It’s hard to find people that are going to share back. We’re trying to make this a two-way idea.”
Better than a service or support vendor?
The model O’Dell and his colleagues employ isn’t much different from one used by companies that go to a service or support vendor for help, according to independent SAP analyst Cindy Jutras. In either case, however, companies can get specialists they normally might not be able to afford to keep on staff, she said.
How good this arrangement is depends on whether the other companies are paying less than they would to a vendor, she said. “And the level of efficiency depends on how similar their [SAP] environments are.”
The SAP support savings
The companies in the outsourcing arrangement are midsize companies that are big enough to need a significant amount of SAP support, but not yet big enough to need them full time, according to O’Dell. Four are in the same area as Pacific Coast’s offices. IT members typically do the work remotely, O’Dell said, though there are times when IT members travel to do the work on-site. Work with a fifth company in Idaho takes place almost entirely remotely.
Under the arrangement, which began roughly two years ago, Pacific Coast shaved about 10%, or about $1 million, off its annual IT costs, O’Dell said. The other companies get his staff at about 25% less than what they’d pay a vendor, he said.
Pacific Coast has a little more than 20 SAP specialists on its IT team, but the co-op arrangement also applies to the other 20 or so non-SAP IT staff the company employs, O’Dell said.
"If someone needs SharePoint, I’ll [outsource] the SharePoint guy. We don’t need a SharePoint guy full time. It’s not a full-time job. But when you need him, you need him,” O’Dell said. “So you get someone with that kind of expertise and you share him around.”
Ideally, he’d like to find companies that could loan him some IT professionals he needs, namely employees with expertise with VMware and Cisco USC blades.
He says the fifth company he recently began loaning staff to may end up being able to “share back” with him in that area; it’s a building materials company named Woodgrain Millwork Inc., located far away in Fruitland, Idaho.
Expanding into systems integration
While the two companies are currently talking about sharing their IT resources around server virtualization, Pacific Coast recently began helping Woodgrain with some of its more immediate needs.
For the last few months, Pacific Coast has helped Woodgrain with implementing the human capital management (HCM) portion of the new SAP ERP system it purchased, according to Connie Moylan, Woodgrain’s director of information systems. The company is currently debating between going with Pacific Coast or Itelligence -- a more traditional systems integrator, based in Cincinnati -- for the rest of the full SAP supply-chain implementation.
The advantage of going with Pacific Coast is that the company could be more flexible, Moylan said, and would have more time to teach the Woodgrain team along the way. Outside consultants could be called in if there was something Pacific Coast couldn’t address, she said, but she indicated it wasn’t a major concern at this point.
“It is somewhat of a unique method of implementation, in terms of the coaching and mentoring type of approach,” Moylan said. “But they have a real strong IT staff with a lot of years with ERP implementation experience on other systems.”
So far, most of the work has taken place remotely, with the help of webinars and conference calls.
She said she was also saving money by going a nontraditional route but declined to say how much. The downside, she said, is that the project would take longer if Woodgrain decides to go with Pacific Coast. “You’re taking the time to get your people up to speed.”
Regardless of whether Woodgrain uses Pacific Coast for the rest of the ERP deployment, Moylan said she’s looking forward to both companies sharing resources in the kind of two-way arrangement O’Dell has in mind.
Moylan said she met O’Dell in the course of talking to SAP reference customers once her company had decided to ditch its Epicor Avante ERP system. Sharing IT made sense, she said.
“Our companies are very similar in terms of culture. Both are privately held building products companies. The way we do our IT governance is also very similar,” Moylan said. “Both operate very frugally, always looking at how to get the most value out of something with the least amount of cost.”