An offshore/onshore approach to IT development saves Somerfield £1m and keeps UK staff
Supermarket chain Somerfield plans to outsource 30% of it software development to India, after a systems integration project with Asian IT services giant Tata Consultancy Services (TCS) cut costs by more than £1m and vastly improved overall efficiency.
The retailer, which has 1,400 stores across the UK, believes offshore outsourcing will allow it to improve efficiency in e-business, finance and supply chain systems, without cutting any UK jobs.
The decision follows Gartner's advice that offshore outsourcing is a "must do" for IT directors trying to reduce costs and maintain service quality. The analyst firm has predicted that the European outsourcing market will grow by 40% this year.
"Access to high-quality staff with key skills, lower costs and 24x7 support services means service levels can be improved while maintaining healthy margins," said Ian Marriott, research director at Gartner.
Rival supermarkets Asda and Sainsbury's have also recently signed deals for offshore outsourcing, along with blue-chip firms such as British Airways.
By outsourcing finance, supply chain systems, process modelling, software testing, business intelligence and web-based projects, Somerfield hopes to keep IT costs low and improve overall business efficiency, said Tom Scott, IT director at the retailer.
"TCS is at least as efficient as our internal IT team and 20% cheaper than doing projects in-house," he said. "Although we have not finalised the projects yet, TCS will account for at least 30% of our IT development work during the next financial year."
The move to outsource follows the success of Somerfield's "Sword" systems integration project, which will be fully completed in two months.
The project, which cost £2.4m, aims to reduce complexity within Somerfield's IT department by reducing the number of systems it uses, which include 300 applications, 900 interfaces, 4,000 batch jobs and 120 different databases.
By using TCS to unify three coding systems for stock items and consolidating data, the retailer saved more than £1m on the cost of in-house work, Scott said. TCS was paid on a fixed-price basis with payments being linked to the completion of major milestones throughout the project.
Offshore outsourcing has become a contentious issue, with union leaders warning businesses to consider the future of their UK workforce.
However, by adopting an offshore/onshore approach, Somerfield avoided job cuts by allocating the specification and most of the implementation work to the head office in Bristol, while the development work was carried out in Calcutta.