Magazine Article | January 22, 2008

Should You Outsource Your Technology Service Needs?

Source: Innovative Retail Technologies

Companies that specialize in equipment rollouts and maintenance can relieve you of the headaches of keeping your front and back end retail technology operational and up-to-date.

Integrated Solutions For Retailers, February 2008

Technology plays an enormously important role in the retail environment, powering both front end and back office operations. As a result, downtimes can have immediate negative impacts on customer satisfaction, sales, and productivity. And with technology becoming increasingly more complex, having a reliable and cost-effective plan in place to service it and keep it up-to-date is essential. This month, we examine one of the options retailers have for managing their technology servicing needs — outsourcing — with input from David Anderson, chairman and CEO of ExpressPoint Technology Services, a rapid repair service with more than 20 years of providing retailers and other markets with depot repair and logistics support, and Micky Long, research director, Strategic Service Management Practice, AberdeenGroup.

Why should retailers consider outsourcing their POS rollout/maintenance/repair needs?
Anderson: Retailers should spend their internal resources on their core competencies — servicing their customers — not on servicing and supporting the equipment they use to service their customers.

Long: This is a classic core competency issue. Given the critical nature of POS systems to the retail environment, as well as the increasing profitability pressures, outsourcing — particularly the maintenance and repair of systems — to service partners with the capability, processes, and scope to efficiently manage repair operations is a strong option.
What benefits does outsourcing provide?
Anderson: Retail solutions are typically multivendor, with most lanes combining equipment from a variety of manufacturers. When something doesn't work, rather than a retailer spending time calling three different places to get its printer, scanner, or scale serviced or replaced, it can simply call the service company to manage the repair and service, in or out of warranty, with the appropriate manufacturer.
Equipment rollouts for a new store system typically need to happen very quickly and without a lot of manpower. Ideally, they should be plug and play. These days, most installs consist of multiple pieces of equipment from a variety of manufacturers, shipped from all over the country. An equipment service outsourcer can take the complexity out of rollouts. Outsourcers provide what could be referred to as a 'store in a box,' complete with each piece of equipment that is needed, including all cables, instructions, etc., all packaged to arrive and be installed by the retailer's employees in little time with minimal training.

Long: Outsourcing can actually be more cost-efficient, and it can provide greater maintenance coverage, especially in outlying geographic regions. It also avoids the challenge of maintaining a service staff well-versed in multiple hardware systems and minimizes the potential for service delay when a system goes down by having a single source of maintenance to contact. Additional advantages can be achieved through partnerships with providers that offer consulting and other business services in addition to maintenance and repair.
What kinds of equipment and services are typically covered by a service contract?
Anderson: Typical services covered by outsourced repair contracts include repair and refurbishment, upgrades, technology refreshes, warranty administration, reverse logistics, and advance exchange.

Long: Service contracts can cover a wide range of equipment, hardware, and software related to retail POS and other ongoing functions. Most individual hardware vendors are moving to a contract-based structure, and outsourced contractors cover the majority of equipment used in day-to-day retail environments. This can extend to network support and software upgrades, as well as hardware maintenance, repair, and replacement. We are seeing increasing use of performance-based agreements in which the provider guarantees a certain level of equipment uptime and availability with strong penalties for missing target performance. 

Is there a type of retailer for which outsourcing makes more sense?
Anderson: Outsourcing makes sense for all types of retailers, so the choice comes down to finding a vendor that will be flexible enough to meet your needs. Do you have 20 lanes or 500? The vendor you choose should have a depth of experience in working with retailers of your size, geographic distribution model, etc.

Long: While a case can be made for retailers of all sizes to consider outsourcing, the larger and more complex environments, with the most intricate and multivendor-based POS systems, make a stronger case. Also, retailers that are experiencing fast growth and those looking to open new markets that are somewhat geographically distant from existing operations should give serious consideration to using an outsourced strategy for maintenance. Above all, the decision to outsource or not needs to be made after careful consideration of these and other factors, including a review of the provider's business model and approach. 

What kind of response time can retailers expect when they have a problem that needs to be resolved?
Your supplier should have a sophisticated enough operating system in place that response times can be met within 1 hour, 24/7. Different equipment requires different turnaround times, based on the effect downtime has on business operations and customer satisfaction. A variety of fulfillment options should be available, such as advance exchange, first flight out, and remote stocking.

Long: Overall, Aberdeen has seen service response times that used to be measured in days now measured in a few hours or less, depending on the type of equipment and the criticality to the customer's business. Better outsource suppliers offer 24/7 support of mission-critical equipment. And preventive maintenance agreements are a significant way to minimize downtime. One thing to consider for effective management of outsourced service agreements is to make sure you match the response time to the critical need and don't end up overpaying for response time performance on equipment that is important but not critical to operations.

What terms and conditions should retailers ask for in an outsourcing service contract?
Anderson: Retailers should ask for and expect a completely defined scope of work that includes the requirements and specifications for repair, packaging, shipping, payment terms, and escalation procedures. You should get a confidentiality agreement, service level agreement (with penalties), and a succession and transition plan. The agreement also should address how parts or products are going to be disposed of (e.g. how environmentally responsible and hazardous waste requirements will be met). Some red flags to look for include providers that won't provide you with quality reports or data, are unwilling to give you references, don't have formal quality programs (e.g. Six Sigma, ISO), don't come to you proactively with suggestions for quality improvements or cost-saving suggestions, or don't have the ability to support wide fluctuations in demand. Retail is a volatile environment, and your provider needs to be able to shift gears quickly and plan accordingly. You should feel as if you are truly a partner, not just a customer.

Long: First and foremost, make sure the agreement identifies clearly the total scope of work, including what will be performed and what isn't covered. If the contract calls for field replacement of components, ensure that it details all of the logistics items and processes related to replacement of that equipment, how repairs will be made, and whether the equipment will be returned or replaced. Make sure there are penalty clauses in the contract for failure to comply with the terms regarding response time and maintenance parameters, as well as a clearly defined escalation process and contact information to facilitate escalation. Watch for service contracts with vague terms, providers that can't or won't offer regular reporting of performance, and those that don't seem to have a deep demonstrated knowledge of the particular POS equipment you are using. Retailers should seek suppliers that understand the equipment and the retail environment — and always demand references.

What other information would be useful to retailers considering outsourcing POS?
Anderson: Look for ways to take advantage of cost savings, such as being located in a low-cost region or facility, teardowns, and end-of-life extension programs. A good vendor should be able to custom tailor everything to your needs, including end-of-life extensions, innovative engineering, and machine shop capabilities. Look at whether your vendor invests in training and research in emerging technologies and whether the vendor is an active participant in industry associations, staying involved and abreast of retailer issues and concerns.

Long: If possible, look for a partner that approaches the service business as a long-term partnership approach rather than simply a vendor/customer relationship. These organizations can offer more than standard repair and maintenance; they can often perform predictive and preventive maintenance, assist with fine-tuning business processes, and suggest alternative maintenance strategies that reduce cost and improve operating efficiency.