About ten years ago in my small rural town, while I was Chairman of the Auburn, New Hampshire, Solid Waste Commission—a.k.a. "dump committee"—one of the three Selectmen said at a board meeting that he'd "rather sweep the whole thing under the rug and forget it." The "thing" he was referring to was the dump and recycling.
He got his wish about eight years later. The largest city in New Hampshire, which borders my town, decided to place its waste transfer station in and on the edge of Auburn. Because Auburn was now the "host" town, we got to use this transfer station for "free." No longer did our town budget include line items for running the dump, including employee wages and insurance, equipment and equipment maintenance, incinerator fuel, and recycling transfers. Also gone was a small swap shop and a burgeoning recycling program.
In short, Auburn's handling of garbage was outsourced. Snide comments aside, information technology (IT) outsourcing is no different.
Ideally, IT outsourcing sweeps all the trials and tribulations of running IT—costs, management, and even equipment—out of your enterprise and into someone else's. In reality, that's only partially true. Plus, experience gained in the last couple of years has shown that only certain enterprise applications can safely and economically be outsourced.
Minimizing IT costs
Way back when, replacing mainframe-based systems with client/server systems was all the rage. This would supposedly minimize computer obsolescence, simplify IT upgrades, and keep Total Cost of Ownership (TCO) manageable—or at least be better than the legacy systems being replaced. That didn't happen. First, IT systems (hardware and software) got more complex. So too did the management of this stuff. Second, costs got spread across several different areas, including computer hardware and software, data communications, operations and management, application development, and systems integration. That wouldn't have been so bad if the costs related to the individual areas were reasonable. However, the sum of the parts lead to the third misgiving about today's IT operations: TCO skyrocketed.
In the meantime, IT marched on. Mainframe systems begat timesharing operations, which begat client/server systems, which begat distributed computing. The Internet mixed all of these computing environments together and begat application service providers (ASPs) and application outsourcing.
Product functionality over web
Access anytime, anywhere
Total Cost of Ownership
Annual support fees
Shadow support online
|Conventional Rented Software|
This latest computer system architecture is intriguing. For a fixed, seemingly inexpensive, monthly fee, you get your very own "plug ‘n play" computing department and enterprise software application. What you really get is access to a black box—a computer operation—that runs somewhere "out there" on the Internet. Plug your desktop computer into that box—granted, through some data communications network—and you get to use whatever application you contracted for. There's no enterprise software or computer servers to buy; they're contained in the black box. No longer do you have to hassle with software upgrades; that's all handled by the ASP's IT staff within the black box. And if the application's transaction response time degrades, the ASP is responsible for putting more hardware into the black box to service your needs.
At your end, you will need a desktop computer or a networked group of desktop computers that can link to the black box. (You'll also need ancillary data communications and firewall security to make that link.) Once you're connected to the black box, you can use the ASP's software application to your heart's content, or at least to some contracted transaction volume. You're simply renting the use of the software; you still own your data.
Lost in this discussion is the fact that application outsourcing eliminates most of your IT requirements and costs. It will never completely eliminate IT within your enterprise; you will still need desktop computers plus a staff to manage those computers and the associated local and wide area networks (LAN and WAN).
Outsourcing CMMS May Be a Good Idea
Minimizing IT-related headaches is very enticing. However, that benefit is often not enough to counterbalance the data security concerns of companies running enterprise resource planning (ERP). Many enterprises consider ERP data being the "crown jewels" of the company, and they'd rather control that themselves, thank you very much. This is one of the reasons that ERP-based outsourcing has not taken off, despite all the fanfare in the past two years promoting this approach. (The other reason is cost, which I'll get to in a moment.)
|Should You Consider Web-enabled Software Applications?|
Another approach is often touted for reducing the total cost of ownership of enterprise software: Replace legacy software applications with web-enabled application. This bastardization seems to combine the worst of conventional IT operations and the limitations of "webified" software. First, you still need to buy software—application, database, and now web software—and pay an annual license (read rent) for the use of that software. (You never own enterprise applications.) You still need to buy hardware, namely the application, database, and now the web servers. You're responsible for the whole operation, including installing hardware and software upgrades, new code development, and systems integration.
On top of all that, web-enabled software typically does not feature all the functionality that conventional software offers. (If that web-enabled software is browser-based, you can be sure it has limited functionality.)
That said, some applications are just right for outsourcing. Computerized maintenance management system (CMMS) is one example, judging by the number of CMMS vendors in the past year who are now offering their applications in outsourced arrangements. The reason for this, says Marty Osborn, TabWare's (Greenville, SC)executive director of Sales and Marketing, is because no value is really gained in managing maintenance logs and work order completions, tracking asset entries, generating preventive maintenance (PM) orders every day, documenting labor time, and looking up spare parts inventory. "There's no competitive advantage in knowing when somebody does a PM on a certain piece of equipment," he continues. "Let's be honest; we're not talking mission critical here. Yes, it's mission critical if a machine goes down, then your plant might go down. But in terms of the data contained in that PM, that doesn't invoke the same emotion [as ERP]."
Moreover, the price may be right. TabWare OnLine, an ASP-based CMMS applications, costs $295 per month per concurrent on-line user. (ASP-based ERP typically costs $900 per named user.) Osborn reckons that for a company with 15 users, the CMMS purchase price would be about $100,000. Add to that the costs of hardware, database software license, and IT infrastructure—about $240,000 in the first year and about $80,000 per year for on-going hardware and software maintenance. If you're running an Oracle database, allocate $40,000 to $50,000 per year for a database administrator. Over five years, the total cost of ownership would be about half a million dollars.
With TabWare OnLine, a CMMS customer would pay: 15 users times $295/user times 12 months/year times 5 years, or $265,000—roughly half the leased system cost, and without the associated IT hassles.
LTV's CMMS approach
One company that liked those numbers is the Chicago coke plant of LTV Steel Company, Inc. LTV Steel is this nation's third-largest integrated steel producer and the second-largest producer of flat-rolled sheets. LTV's Chicago coke plant supplies half of LTV Steel's Indiana Harbor Works coke needs by producing about 1,650 tons of metallurgical coke daily from 60 ovens.
Throughout the 1980s and 1990s, all of LTV's plants used a legacy in-house-developed CMMS to manage maintenance requirements. That changed in 1999, when LTV began implementing SAP R/3 as the corporate ERP system. To ease the implementation of the SAP Maintenance Planning (MM) module, all LTV plants went through an intermediate step: They loaded legacy parts and equipment data (and entered additional equipment data as required) into Fluor Daniel's TabWare CMMS. They did this because TabWare was more compatible with SAP MM than the legacy system. The plants stopped using TabWare when the migration to MM was complete—except the Chicago coke plant, which starting using TabWare's new on-line CMMS product, TabWare OnLine.
TabWare OnLine is the same software application as the Fluor Global Service's conventional TabWare CMMS/EAM system. "You will not see any differences between the CMMS running in-house or running as an ASP-based application," says Suzanne Eckstein, LTV's Manager of Information Technology (Whiting, IN). (The only users who notice any differences in system response, adds Eckstein, are those who can type ahead of the system.)
|Requirements for Web-enabled software||Requirements for ASP-based applications|
Where the two systems differ is in how users are connected to the CMMS. The conventional CMMS follows the standard client/server distributed computing model, which requires linking mainframe-class application and database servers to desktop computers by LAN. The on-line version is a true thin-client, three-tier client/server system; the application and data servers are located off-site at the TabWare OnLine server site in Virginia, and they are accessible through the Internet.
At the very least, TabWare OnLine requires a Java-enabled PC and a connection to the Internet. This connection could be through a 33-kilobaud modem; however, about 120 maintenance people process 400 PM orders per month at the LTV coke plant. Consequently, the plant has a fiber optic-based Ethernet LAN connected to the Internet by a T1 line through the plant firewall. Upon signing up for the service, users get a user ID and security token (dynamic password authentication) based on 128-bit encryption.
The TabWare system consists of several modules that cover asset, inventory, and resource management. The Chicago coke plant uses the modules that focus on management (managing plant equipment and maintenance parts inventories) and both scheduling and assigning planned PM work.
"From a cost-benefit and risk perspective, the on-line approach was cost-effective. It really works well for us," says Eckstein.
No longer do you have to hassle with software upgrades; that's all handled by the ASP's IT staff within the black box.
CMMS Software Delivery Comparison
The total cost-of-ownership and complexity of software applications can be dramatically different, depending on whether that application is ASP-based, web-enabled, or a conventional software rental. Each software delivery method also takes varying amounts of resources for installing, implementing, and maintaining that software application, which can be a major distraction from the business at hand. (Source: TabWare)