Ingram's Bradley Details Outsourcing, Restructuring

Ingram Micro North America President Keith Bradley spoke with News Editor Steven Burke about the company's offshore outsourcing and restructuring imitative that will eliminate 550 positions in North America.

CRN: What segment VARs are going to be affected by this move?

BRADLEY: I want to be clear that the vast majority of the impact to the VAR community is going to be the fact that we are moving West Coast (inside) sales (reps) to the East Coast to consolidate into the Buffalo facility where today 80 percent of our sales organization already resides. From a pure VAR perspective there should be very little noticeable impact. We are going to leverage the Buffalo facility and transition it smoothly. We are going to take our time doing it. I have been looking at this as to how do we transition from the West to the East being the main impact to the VARs. The bigger customers who are much more transactional and don't need that same level of value add we provide are more impacted by the offshoring arrangement than the VAR community. That is not to say that some of the VARs aren't going to be serviced by some element of offshoring.

I want to make it clear that the vast, vast majority of VARs are still going to experience the same level of customer service from within the U.S., and a small percentage are going to experience the same level of customer service they experience today but it will be from an offshore provider. The SLA (service level agreement) is still going to be there. The experience is still going to be there.

CRN: Will VentureTech members be affected by any of this?

BRADLEY: From a customer touch perspective the e-commerce group would be the element of the VAR community that will be impacted potentially by this. When I say potentially that is because the vast majority of the (VARS working with the) e-commerce group today have done the majority of their business using the e-commerce tools that we have invested in together. They only ever talk to an Ingram Micro sales associate when they have a query or an exception to their normal process using the Web or EDI, etc. Those exception questions would be answered by an overseas location.

The data, the systems, the process, the telephone numbers stay exactly the same, and then we manage the outsource provider to very tight SLAs. I went to the overseas location and one of the things that was very important to me was to make sure that customers would experience the same level of customer satisfaction.

We put a lot of due diligence into this over the last six months. The thing that is personally important to me is that unlike others who have outsourced functions, we have been very open and honest with our customers and vendors because we do have a partnership of trust and reliability that does require us to have this open and honest communication. We are not going to do anything that is ever going to negatively impact the customer.

CRN: How many sales reps on the West Coast will lose their jobs as you consolidate inside sales in Buffalo?

BRADLEY: That is the larger element of the story. The consolidation into Buffalo impacts more sales associates and does impact more customers. The consolidation has a bigger impact on customers than the outsourcing. It does affect who your sales rep is going to be, but again from an experience perspective and a service perspective it should be minimal given the fact that 80 percent of our core (inside sales group) is already in Buffalo. We have a large center of excellence already to leverage. We have got Six Sigma as part of our process.

The methodology we are using to transition will make sure this is seamless because we are doing this over a six-month period and we are sharing all the information we can with our associates. We were on call monitoring as normal Monday, Tuesday, Wednesday this week and all of our sales associates are motivated. They are still dedicated to working with customers.

Eighty percent of our national (VAR) revenue is served out of Buffalo already. The remaining 20 percent will now move across (to Buffalo). CRN: What is your message to West Coast VARs who feel they will not be well served by an East Coast inside rep?

BRADLEY: An important thing that everybody understands is that management positions and field positions are not being impacted. It is inside VAR sales that is impacted by this consolidation. Not the field sales. Anyone that would actually leave the (Santa Ana, Calif.) building and go and talk to a customer on the West Coast is not going to be impacted. So they still get their local visiting sales field rep.

CRN: Does the 550 number include the sales force consolidation?

BRADLEY: It does. A rough breakdown is 80 percent of the 550 is an outsourcing ballpark number and 20 percent is a consolidation number.

The biggest department being impacted by outsourcing is finance. So when you look at finance, it is expense payables, accounts payable, the process of matching up the PO (purchasing order), receiving the product, getting the invoice. By far the largest group affected when you look at individual departments is exactly what you and I think it should be: the transactional support functions — back office.

We have spent six months working on this initiative and obviously we are doing it in an environment when we are growing our revenue base. We are continuing to invest in the value add back to the customer. We are not going to do anything that would be even remotely disruptive.

CRN: Talk about the capital investments that Ingram is making for the U.S. VARs?

BRADLEY: The one that is going to open up this month is the solution center in Buffalo on the East Coast. We have had the West Coast solution center for awhile. We continue to make enhancements in the Web. We will also be looking at what is the next evolution of the (Ingram Micro) service network. Whether that is going to be a capital investment or not, that will be up to the members to advise us where they want to see us evolve IMSN (Ingram Micro Service Network). The Service Network is a great value add for customers. We are looking to the customers to advise as to what the next evolution they need to see. As soon as we get consensus from the membership, we will be making investments there as well.

CRN: Will the majority of product returns now be handled overseas by an offshore rep?

BRADLEY: For return authorizations, again, where it is the norm we have made investments in Web tools so a large piece of our RMA (Return Merchandise Authorization) process is now automated. Customers can go to the Web and request their own RMA, but again if they need to have an exception request and talk to somebody, yes the first level of RMAs from customer service will be answered overseas.

CRN: Is there any kind of number you can give us that provides a feel for just how widespread or small the outsourcing effort is?

BRADLEY: I can't give you exact numbers on transactions. But at the end of the day 95 percent of our sales-touching associates are still within the U.S. So less than 5 percent of our associates are going overseas. From a revenue perspective less than 3 percent of revenue is impacted by our outsourcing arrangement.

CRN: When will VARs start feeling the offshore touch?

BRADLEY: It will start in the August-September time-frame. We will actually start to ramp up that overseas location late Q2 from a training perspective.

CRN: Is the continuing price war between Ingram, Tech Data and Synnex responsible for this?

BRADLEY: I don't think there is a price war going on. It is just the normal competitive stuff. Regardless of that, it has nothing to do with the pricing environment. It is basically how do we determine the best way to serve the customer with a balance of effectiveness and efficiency. It is about how do you get that balance going. One reason we have invested in the Web is because it is a more efficient tool for the customers. Let's be honest, it is a more cost effective tool for us. So outsourcing is the same type of thing: How can we maintain the same level of service but be a little bit more productive on our side?

CRN: Do you think we will see more outsourcing from Ingram down the road?

BRADLEY: We have taken six months to look at this. What we are doing is an appropriate number of functions. That is what we have got plans to execute against today.

CRN: Did you look at the Dell scenario where some years ago they took tech support offshore and brought some of it back?

BRADLEY: We have had the benefit of doing this properly. We spent the last six months trying to work and learn from everybody else's mistakes. So obviously we did see a number of large companies take functions overseas and then bring them back to North America. We have definitely learned from that, and none of those activities are even remotely close to the scope of what we are doing. We visited a lot of the outsourcing providers and one of them did support Dell. We were able to understand what came over and more importantly a lot of it is the timeline people have done this in the past. That was one of the lessons learned.

A lot of other companies who didn't do this properly had the idea and it was a reaction to something and they had to get it done in three months and they did way too much way too fast. And then they had to pull back a percentage. We are doing this properly. We spent six months working out what we think is the right answer is. We are going to spend nine months on the transition. This is a 15-month project as opposed to others who did it wrong and took three months to do it. This is very thought out and deliberate on our part.

CRN: What is your response to those who say that customer service, technical support and sales will suffer as a result of the initiative?

BRADLEY: All I can say is the Ingram management team and the Ingram board of directors are fully committed to making sure this is seamless and that the customer gets the same level of service and the exact same level of customer experience they do today. If I didn't announce this, the customer shouldn't notice it. Because of the relationship we have with our customers we always want to be open and honest. But you've got everybody's commitment that this will be seamless.

CRN: So you are promising that VARs will see no fall off in support?

BRADLEY: Absolutely. They should see the same level of service level agreements, the same metrics that we manage our internal associates today within North America. Those same metrics will be applied to the outsourcing provider, and we will be meeting with the outsource provider on a monthly and quarterly basis making sure that all of those commitments are lived up to on both of our sides.