Reduced ICT costs – ‘Only part of the story’

07 June 2012

Kiwi Fruit image on Cell PhoneZespri has just bucked the trend.  At a time when New Zealand companies of all sizes are being hit by rising fixed costs and sinking profits, the kiwi fruit marketing business has managed to push their phone, data and networking costs down by almost a third.  But surprisingly, this cost reduction hasn’t been the best outcome of their recent contract negotiations according to Zespri Information Systems Manager, Andrew Goodin.   Lynn Wrightson goes down the line to find out what could possibly top that?

Running a global supply chain that markets and delivers New Zealand’s flagship fruit to four corners of the planet all year round is a complicated business and one that relies heavily on the latest telecommunications solutions to connect growers to their markets.

“The big challenge for us was to find a way to improve our use of ICT while managing the associated costs,” said Andrew Goodin.  “The technological environment moves so quickly that plans operating well for us three years ago were no longer valid by the time we hit the contract expiry date.  Both the technology available and the way in which we were using it had changed.”

“When our contract came up for renewal, we needed to gain a clear understanding around how and why our telecoms usage patterns had changed.  We also needed to question and analyse what benefit that change was bringing to our growers.  As a management team, we can’t make sound decisions without that sort of detailed information.”

Due to the complexity of Zespri’s requirements – which include international networking, mobile phone and mobile data worth around $2.4 million over a three year period – getting the structure and scope of the RFP right was critical.  The company needed to identify the Cinderella among its supply options.  There was only one glass slipper – the fit had to be right.

“Procurement is a specialist discipline,” said Andrew Goodin.  “Having an in-depth understanding of all the different contract terms was crucial when we were making this very strategic decision.  Knowing what break points to embed in the final agreement could prevent us from getting locked into a contract that we would quickly out-grow.  We needed to factor in what the penalties would be if we had to change the terms of our contract before it was due for re-negotiation.”

Zespri brought in utilities procurement specialists, Total Utilities Management Group (TUMG) to help shape the tender process.  “We were looking for a partner to help us through the process.  We needed to make sure that we were aware of all the available options before making a final decision.

“TUMG were not only focused on reducing costs.  They became an extension of our business and worked hard to get the best overall result for us.  Analysts helped us to manage the RFP process and presented the contract information clearly so that we could make accurate comparisons between the different contracts on offer.”

The Zespri/TUMG team started work on the RFP at the end of December 2011 and by the end of February a new three-year ICT supply contract had been agreed and signed off until 2014.

TUMG analysts introduced a framework to the process.  The executive team from Zespri selected key criteria against which to measure the different supplier offers.  The combined team then developed a weighting for each criteria (and sub-criteria) reflecting the importance of each, taking into account any technological developments on the horizon.  “The approach was genuinely collaborative,” says Andrew.  “Not just between Zespri and TUMG but also between us and the short-listed suppliers.”

Having clear benchmarks in place against which to measure technology usage and performance against cost was essential in the new contract.  “This in-depth information can only come directly from the telecommunications supplier, so reporting became one of our key requirements from the successful bidder.  In many ways reporting was more important to us than straight cost savings.  We needed to make sure that the partner we selected could provide the information to help us continue to get the best from our investments.”

Once the RFP had been issued, the team quickly narrowed their search down to three potential suppliers.  “We invited the companies to come and present their proposals and we evaluated each one based on the criteria we had set.  The resulting evaluation was then shared with each supplier, so that they had the opportunity to correct any error and clarify any misperceptions.  The process was extremely transparent and was geared to getting the best possible result for both parties – by creating a clear understanding of needs and capabilities.

Andrew Goodin likened the process to building a house.   “You don’t just throw it up.  You plan the rooms, the aspect and the functionality.   Along the way you make minor adjustments but you do it methodically.  By putting the framework of the RFP up first we were able to work quickly but accurately.”

Once the bidders had been narrowed down to two quality suppliers – Andrew admits that it was very hard to make the final decision.  Zespri was genuinely happy to work with either supplier.  Ultimately the slightly lower risk presented by one, sealed the deal.  The successful supplier delivered 28% savings year on year, plus some usage savings and a better engagement model than its competitors.  And added value and reduced costs for Zespri is good news for kiwifruit growers.

“TUMG worked with us to develop a robust and repeatable process that will have on-going value to our business.  They were able to lift up the rocks so that we could get a clear view of the various contract details and gave us a real understanding of the potential impact of those details on our business.”

The reduction in telecommunications costs was great, admitted Mr Goodin.  But with Zespri’s ICT usage currently growing at a rate of around 30% year-on-year, these savings would soon be eroded.  The real value of the company’s engagement with TUMG lay in the establishment of the benchmarks that would enable Zespri to continually improve its telecoms use.

“Going forwards, the selected criteria and weightings we established will act as a set of checks and measures against which we can chart the performance of our supplier partner and track changes in our own technology use.  That way we can make sure that we are able to maintain the value of our investments and retain our place as world leader in kiwifruit.”