Outsourcing as preventive medicine

All too often, companies don’t think about safeguarding their IT systems until it’s too late – until disaster has struck and they learn the hard way that perhaps they should have put their data warehouse in a more secure location and done due diligence to back up their systems.

Hospital Logistics Inc. (HLI) didn’t want to make that mistake. Its computer room was located in its warehouse — and this worried David Yundt, the president and chief operating officer of the Oakville, Ont., supply chain manager.

It recently decided to move its data systems to Teranet Enterprises Inc. HLI’s computer room didn’t have the same standards as a company that specialized in providing secure data hosting services, Yundt says. While HLI had power backup systems in place, it didn’t have protection against such possibilities as water damage or even proper air conditioning.

In addition, HLI’s business — providing just-in-time inventory management and distribution of medical supplies to hospitals — was growing and physical constraints made it difficult for it to expand its systems.

“Also, we had our data system in the same location as our warehouse. We didn’t want to lose our inventory and IT systems at the same time,” Yundt says.

Although cost was a consideration, this move wasn’t about saving money, he says. “This wasn’t done with a view to save cost — but we didn’t want to spend more.”

Due Diligence
HLI actually put out an request for proposal a few years ago, but wasn’t happy with any of the prospects so it decided to stay with the status quo. During the last round, HLI expanded the scope of what it was looking for and Teranet also entered the bidding process.

Before making a decision, HLI did its homework. It looked into Teranet’s financial stability, and at who its current customers were. It had meetings with the company to ensure it had the required expertise and visited the company’s facilities.

“There was a lot of due diligence until we got comfortable,” Yundt says. “We are a small company, but have very big customers. So we wanted someone our customers would be comfortable with. We felt comfortable they were going to be around in three or four years.”

These are the kinds of steps all companies should take before outsourcing, says Dale Hedges, director of Western Management Consultants in Calgary.

Companies should begin the outsourcing process by making sure they clearly understand their goals and objectives, he says. A company must decide whether the activity it’s considering outsourcing is strategic to the company business or not. If it’s strategic or a key way in which it differentiates itself from the competition, then it might be better off keeping it in-house.

It should also consider whether it fully understands the activity and whether it knows what the costs are. Companies should then ask themselves if the outsourcer can do it better.

“It’s almost like a decision tree that you go through,” Hedges says.

It’s not easy for companies to hand over a part of their business, says Donald Stokes, the healthcare practice lead at Teranet in Toronto. “They’re giving up the hands-on feeling,” he says.

However, outsourcing can come with many benefits, he says. Companies can focus on growing their business, he says.

Once the decision is made to outsource, companies should then investigate prospective partners, Hedges says. They should check to see if they have the right techniques and knowledge and ensure that they can be responsive and deliver on the service level agreement (SLA).

The SLA should take into account factors such as response time and should include a process for escalation if a provider doesn’t deliver and a promise.

Companies often forget to include performance metrics in SLAs, Hedges says. These include criteria such as responding to calls in “X” amount of time as well as providing “X” amount of uptime.

Companies should also stipulate the level of capability of the people working on their account to ensure that someone can’t walk off the street and start handling their business. The person should either have a certain amount of knowledge, some certificates or go through a training program. They should also understand the customer’s business.

Finally, Hedges says, companies shouldn’t think that just because they’re handing over a part of their business, they can forget about it. Rather, someone in-house still needs to take responsibility for that business process.

“Outsourcing doesn’t mean you’re washing your hands of it.”

For HLI, an important factor in deciding who to outsource to was to make sure the provider could handle a smooth transition. HLI operates six days a week, and it wanted to make sure there were no interruptions, as the medical supplies are critical to the hospitals.
HLI and Teranet created a very detailed project plan, Yundt says. It did a lot of planning and testing and enlisted the help of IBM — its equipment provider — when it came time to do the move.

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Jim Love, Chief Content Officer, IT World Canada

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