‘Lean Distributing’
with Flexible IT Resourcing
While business activity is robust in the steel industry today, it wasn’t long ago that dozens of mills, and many more distributors, struggled to stave off bankruptcy. Even though the price of steel has regained healthy levels, service centers have learned to do more with less, relying on smaller and smaller staffs to shoulder the work. Nowhere is this truer than in the information technology department.

How do we address the cyclical ups and downs of the metals industry and still meet the IT support requirements of our increasingly complex businesses? The solution rests in extending lean manufacturing concepts to the staffing of IT organizations, even at metal distributors.

Lean manufacturing is an operational strategy meant to achieve the shortest possible cycle time by making use of highly flexible and responsive processes. Flexible IT resourcing offers companies the ability to rapidly scale up or down depending on business conditions and needs.

The traditional approach to IT staffing has been to increase staff when making investments in new systems, then reducing staff when cost cutting is required. But this is an expensive way of doing business, leading to severance pay, unemployment compensation, decreased morale and productivity, and anticipatory resignations by key personnel.

Full-time employees also require more management time. As of December 2004, employer-paid costs of employee benefits amounted to 26 percent of total compensation, according to the U.S. Bureau of Labor Statistics. All told, hiring more than a small core of IT staff in a cyclical business is an expensive proposition.

Rather than staffing up for major IT changes, such as a new enterprise resource planning system, lean companies can make use of third-party staffing resources to complete large-scale implementation projects. By augmenting their staffs during the busy times, they can easily reduce staff when activity flags. Functional IT areas such as help desk and application maintenance can be individually outsourced with agreements that enable the company to reduce staff by a set percentage.

When engaging IT outsourcers and project consultants, it is important to select the right partners and approach. According to management consultants McKinsey & Co., more than a quarter of all outsourcing deals fail in their first year, and half of all outsourcing deals fail within the first five years. How can companies avoid this fate? They must ensure that the relationship has built-in flexibility and shared risk.

Without shared risk, the client-provider relationship can become adversarial, while both sides use their own statistics to point fingers at each other in dealing with service level issues. Some clients prefer to retain responsibility for deliverables, but want IT resources reliably managed by the solutions provider. Others want the solutions provider to also take responsibility for the final deliverables.

In large-scale consulting engagements, the clients need to ensure that their staffing partner assembles and retains a project team consisting of experienced staff, not just a few veterans and an army of novices unfamiliar with the industry or the work, who are gaining experience on their clients’ nickel.

Flexible IT resourcing can be provided by a team of salaried consultants working for the solutions provider, or by the solutions provider’s use of a “virtual bench”—a team of consultants assembled dynamically to meet the needs of a specific client and project.

The virtual bench offers many advantages to the client: A project team with exactly the industry and IT experience needed—not just consultants who happen to be available at the time. Another advantage is better pricing, because the consultant is paid only for actual time worked and not for vacations, holidays, sick time, training hours, etc., which can amount to 40 percent or more of a consultant’s rates. Also preferred is the ability to hire a small team of the consultants to provide ongoing application support.

Under both models, the service provider hires the team as its own employees only for the length of the project. These experienced and proven temporary employees are then provided to the client on a contract basis. The service provider is responsible for their pay during the full employment cycle.

As an example, one major steel company needed to select, implement and integrate a new ERP system. A project of this magnitude requires more than 50 IT staffers with skills in both systems integration and the specific ERP system. But what happens after this project is done? Only a small ongoing support team is required.

Outsourcing a project of this nature to a qualified solutions provider and overseeing the outsourcer with core internal staff is the lean manufacturing extension of the IT staffing model. When the project is completed, the implementation team is done. The client does not have to deal with the painful aspects of terminating full-time staff. The phrase “just in time” becomes “just what I need and only for as long as I need it.”

n this case, the project ran for more than three years, and the steel company never had to address human resource issues such as hiring, firing, training, etc. The outsource partner handled it all. The project was run by an on-site engagement management team, which reported to a client executive.

Unlike a traditional consulting engagement, the resourcing firm only paid for time worked and did not pass downtime costs on to the steel company—neither directly nor buried in the rate structure. And the client gained a 50-member IT team with a minimum of 10 years experience each. At the end of the engagement, the client decided to hire a core group from the team as permanent employees to support the system.

Such flexible staffing of IT functions is a way for service centers to extend lean manufacturing concepts to lean distribution.

Chicago-based Eric Marcus is senior vice president of Hudson IT Solutions, a unit of Hudson Highland Group, a global provider of information technology services and staffing. For information, visit www.us.hudson.com/itsolutions.