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The ROI of Nice

The ROI of Nice

Instead of sweating vendors for every last nickel, FedEx Ground collaborates with them

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  • Why vendor management is a strategic activity
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  • How to group technology providers by strategic importance

Can this relationship be saved? That was one of the questions in the mind of Mike Hmel, FedEx Ground's senior vice president of IT and CIO, as he prepared for a meeting with Sun Microsystems.

The IT department at FedEx Ground was struggling to develop a transportation management system (TMS) using what was a new technology in 1998 — Sun Microsystems' Java software. The TMS would help determine the most efficient and cost-effective way for the $US5.3 billion company to move its tractors, trailers and dollies among its 29 hubs and more than 500 pickup/delivery terminals. As such, it would be the backbone of the Pittsburgh-based FedEx Corp. subsidiary.

The experience of struggling to deploy new, complicated technology made Hmel realize that he needed to maintain more constructive relationships with his most important technology providers

But the multimillion-dollar development effort was "stuck in the mud", according to Hmel. Implementing the software was far more complicated than Hmel had expected. Java was more than a programming language: It was a technology that would have a profound impact on FedEx Ground's IT infrastructure, requiring a shift from two-tiered client/server computing environments to multi-tiered Web-based computing environments. It also demanded a new approach to application development. What's more, FedEx Ground's IT department wound up having to buy more products to support the development of the TMS. Consequently, the relationship between Sun and FedEx Ground grew strained, which didn't make resolving the problems any easier.

Tired of the impasse his company had reached in its development efforts, Hmel was meeting with Sun to address the issues and come up with a plan for completing the transportation management system. "Sun was a trusted business partner at the time. We had a lot of their equipment, people and services at FedEx Ground," says Hmel. "We had some problems with their hardware, and they had problems supporting us with the TMS. We made a real effort to work with Sun, but [the relationship] never got better."

Eventually, the TMS was completed, and it saved FedEx Ground $US100,000 a day in staffing and administrative costs and helped shave a day off the time it takes the company to move shipments in many of its shipping lanes.

But the experience of struggling to deploy new, complicated technology made Hmel realize that he needed to maintain more constructive relationships — partnerships, really — with his most important technology providers if he was going to get the help he needed to deploy such expensive, mission-critical applications in this brave new world of open systems and Internet-based computing.

"We were getting into much bigger [IT] projects [at the time] with more impact on the company. We couldn't afford failures," says Hmel.

His epiphany led him to rethink his methods for working effectively with vendors. Over the next four years, he and senior technologist John Aiello established a series of best practices that includes channelling all vendor communications through a single group within IT; dividing vendors into different categories according to strategic importance; and meeting with vendors regularly to fill them in on FedEx Ground's financials, business goals and strategic initiatives. (For a full list of best practices for vendor management, see "Eight Tips for Working Effectively with Vendors".)

Technology analysts laud FedEx Ground for its unique approach to vendor management, which hinges on collaboration instead of sweating vendors for every last nickel. CIOs, they say, would do well to appropriate these practices for vendor relations.

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