Outsourcing Conveniently Aligns Retailer's Operations with Competitive Business Strategies | Article

Outsourcing Conveniently Aligns Retailer's Operations with Competitive Business Strategies | Article

Kathleen Goolsby, Senior Writer | July 1, 2004 | no comments

A few years ago, the typical 7-ElevenÆ store had a myriad of electronic devices that were not "connected." For example, cash registers were not linked to the fuel pumps, which forced clerks to manually enter fuel sales into the registers, slowing the process and missing impulse sales. The situation prevented 7-Eleven from maximizing its profitability. Nor could the store managers effectively manage inventory; there was no way to know with certainty which items were moving well and which ones were simply taking up space. Shelf space in a small store is at such a premium that allowing five or 10 items to sit unsold for a week affects the bottom line.

Keith Morrow, 7-Eleven's Chief Information Officer, says the company turned to outsourcing so it could refocus on its core business — operating stores, not data centers. Motivation for outsourcing also included an objective to shed some IT assets and gain cash flow from the value of the assets. Through a contract acquisition, Affiliated Computer Services, Inc. (ACS) became responsible for 7-Eleven's core mainframe applications, application development, and store help desk in 1988.

Working in cooperation with 7-Eleven, ACS developed an in-store processor program called the Retail Information System, which integrates fuel pumps, money order machines, point-of-sale systems, credit card networks, payroll, cash management, and hand-held scanners into a single system that allows stores to track inventory immediately and adjust it accordingly. Manual entry of information was nearly eliminated, speeding up transaction times and improving sales volume and customer satisfaction with the retail experience.

Opening the Doors to Transformation

Their business transformation endeavors began later, Morrow explains, when 7-Eleven and ACS had some collaborative discussions about how to leverage ACS' scale and expertise in imaging, workflow, and accounts payable.

"We then had a similar conversation around the transformation of our retail system that runs all our stores," Morrow says. "We went at that with a collaborative approach — very win-win. We said that we wanted more modern business capabilities in our retail store system, and we didn't know if we would be outsourcing it or not. It was a very business-centric collaboration that came out of our joint planning sessions."

Gradually, ACS' scope of responsibilities expanded to include not only the retail system and some accounts payable functions, but also HR, payroll, legal and property records, sales coupon auditing, and electronic data interchange (EDI) applications. "If we find a business relationship wherein both of us are going to benefit and both of us are going to get to focus on what our strengths and better capabilities are, that is an approach 7-Eleven and ACS would take," Morrow states." "We both think to that level."

7-Eleven is as well known for its innovative products — such as Slurpees — as for its convenience in quick shopping. Morrow says the popular retail chain does not go into products-supplier relationships in a transactional manner. "Six million customers a day come through our stores, and we have the data about what they are buying. We partner with suppliers who invent products and want to test them at 7-Eleven," he says. "We can get immediate feedback through our data about customer purchase decisions."

7-Eleven approaches technology the same way. The company expects its major technology partners to innovate their products around 7-Eleven's needs. "We develop relationships and contracts that are unique," the company's CIO claims. "ACS is willing to do that, and for us it's a requirement; so this is a good cultural fit. We do this with a lot of companies, to varying levels of success; but ACS has been the most forthcoming with this approach."

Innovation, Morrow adds, is a real key to success for business transformation. "We're in the ‘constantly-getting-better' mode."

When the contract was up for renewal in 2001, 7-Eleven wanted to change the original service-level agreements (SLAs), which were no longer appropriate for the retail giant's new transformational objectives. Together, they developed new SLA metrics for the business transformation outsourcing (BTO) contract; and they added a shared risk-reward structure with penalties and credits for missed or met service levels.

The BTO arrangement also includes several opportunities for gainsharing connected