Tuesday, May 04, 2004

Outsourcing Lightens the Load

By offloading the administration of its freight management system, Air Canada Cargo can focus on its core business and maintain its competitive advantage.

When Air Canada acquired Canadian Airlines in 2000 to become the world's 12th-largest airline, the merger nearly doubled the cargo division's handling volumes. As a result, Air Canada Cargo knew it would have to upgrade its freight management system to deal with the increased workload.

But the company wanted to do more: Could it simultaneously find a way to reduce costs, provide better service and avoid ongoing investments in hardware and software?

It could. By moving to a new solution and outsourcing its technology operations, Air Canada Cargo reduced overall IT development costs, implemented an easier-to-use system and provided more reliable and comprehensive services to its customers by adopting a Web-based process.

From Point A to Point Z

Air Canada, a $6.5 billion company, transports passengers and cargo to more than 150 destinations worldwide. Air Canada Cargo accounts for approximately 7.5 percent of Air Canada's overall revenue and carries more than 2 million pounds of cargo every day. Because of the reliability of this division's service, Air Canada Cargo has become the carrier of choice for the government postal service, Canada Post, for which the airline delivers more than 75 million pounds of mail annually on 200 daily flights.

Because of the nature and scope of its work, Air Canada Cargo needed to quickly expand operations to ensure business continuity after the acquisition of Canadian Airlines. But it simply couldn't afford downtime. "There was a timing issue because of the increase in both the physical volume of traffic and the number of transactions that needed to be supported," explains Norbert Kotscha, director of revenue and network management of Air Canada Cargo. With the increased volumes of cargo to handle, the company couldn't halt operations to accommodate the expansion project.

The carrier approached Unisys for a solution. The two companies had been working together since 1991, and Air Canada Cargo was already running an earlier version of the Unisys Logistics Management System (LMS). LMS handles the standard tasks and operations that the carrier, ground handlers and freight forwarders use to move cargo, including booking, tracking and tracing, accounting, and load planning.

After careful review, the carrier decided to upgrade to the latest version of LMS because it found the system to be easier to use, easier to train end users to operate, and a more dependable flow of information to its customers. Because this new version is Web-based, Air Canada Cargo and its customers now have the visibility and tools needed to track cargo online from initial booking to delivery. This system also gives customers more flexibility by allowing electronic bookings.

After deciding to upgrade the LMS system, Air Canada Cargo chose to go one step further: It outsourced its entire system to Unisys. "We decided that developing and running computer systems wasn't our core business," says Claude Morin, vice president of Air Canada Cargo. "So we considered other options that would allow us to focus on delivering superior cargo service."

Only a decade ago, outsourcing was seen by industry observers as simply a stopgap, cost-reduction strategy. But Air Canada Cargo was looking to take advantage of several long-term benefits. According to the Outsourcing Institute (Jericho, N.Y.), such benefits include improved focus on business strategy, reduced operating costs and freed-up resources.

The key benefit for Air Canada Cargo was getting "a more modern system without the huge capital investment we needed to develop this system specifically for our own use," says Kotscha. "That's the beauty of a hosted environment."

The first phase of implementation began in 2000, in which Unisys took over the actual operation of Air Canada Cargo's existing system and hardware.

But the real challenges lay ahead with phase 2, which began in mid-2002. Air Canada Cargo wanted Unisys to host LMS as a managed service, which meant that the carrier had to offload its entire logistics management function: implementation, management and ongoing support. This complicated transition from an in-house to an outsourced application meant moving vast amounts of vital information to a new vendor quickly -- and with no interruption in service.

Reaching the Destination Safely

While hosting and outsourcing sounded like a winner on paper, there was some natural trepidation on the part of Air Canada Cargo employees who were comfortable with the old way of doing things.

"Anyone who had been on the old system for the full life cycle of it was very familiar and content with it," Kotscha explains. "But it was a system for which you had to memorize lots of different abbreviations."

Air Canada Cargo tried to offset any transition fears by providing plenty of training upfront, and the company arranged additional support at the critical juncture when the change actually occurred. "What really helped was that when we implemented the new solution, we had Unisys staff at all of our key centers," says Kotscha. "This helped to solve problems quickly wherever they happened and made for a smooth transition."

Kotscha explains that as employees are increasingly exposed to the new system, they become more accepting of it and appreciate its benefits. "The new system looks like the Microsoft Windows operating system. It's much easier to use," says Kotscha. "You don't have to memorize all the codes anymore because the software memorizes the codes for you. This is great for our current staff, and it will be a significant advantage in the future since it is much easier to train a new person on the system."

Another key success factor is the working relationship between Air Canada Cargo and its outsourcer. "We're talking almost every day and working things out, so it's a very close relationship," says Kotscha.

Rewards at the End of the Line

As the second phase of the process comes to a close, Air Canada Cargo is looking forward to enjoying a variety of benefits. By outsourcing both the hardware and software components, the company won't incur the sizable and inconsistent expenses of trying to keep up with the latest technology. It also will not incur the high costs associated with a highly trained IT staff. The carrier estimates this cost savings to be more than $1 million.

In addition, Air Canada Cargo's costs for the system are based on usage, which both saves money and makes expenses more predictable. For example, when the carrier had experienced a major IT disruption in the past, it needed to allot the time and money to fix it. This created two problems: finding the money and trying to predict when an issue might arise again. By outsourcing, Air Canada Cargo not only avoids the expense of fixing the problem, but also can better predict costs.

In the next phase of its strategy and implementation, Air Canada Cargo will refocus its attention on other projects that will further enhance its reputation with customers as a leading global cargo carrier.

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