Telstra extends outsourcing deal with IBM

Not all staff will be transferred under the deal

Telstra has extended its seven-year supply chain agreement with IBM Australia which is set to deliver up to $200 million in additional cost savings via improvements in the company's supply chain management.

The next phase of Telstra's expanded supply chain transformation program will focus on improving Telstra's efficiency in ordering, managing and delivering telecommunication parts needed by its communications technicians and engineers to perform network maintenance, fault repairs and activation of customer services.

Telstra procurement executive director, Ian Wheatley said the phase one partnership with IBM has been a great success and is on track to deliver $500 million in reduced costs.

"We will now take what we've learnt from phase one to drive further efficiencies in Telstra's logistics and inventory management and achieve a total supply chain cost reduction of $700 million over a seven year period," he said.

"In the first phase of our supply chain transformation, we replaced four payment and ordering systems with IBM's out-of-the-box software. The benefits for Telstra have been significant, including greater automation of procurement processes, removal of duplication and paper-based processes, and providing a single, company-wide view of our vendor spend.

"In phase two of the program, IBM will provide a single end-to-end view of our inventory supply chain and enable us to deliver the right part, at the right place, at the right time - improving customer service and reducing costs."

At least two-thirds of the 335 Telstra employees and contractors currently performing this work will be offered employment opportunities with IBM or its suppliers between March and July 2008.

Remaining employees will continue employment with Telstra assisting with knowledge transfer until at least June 2008.

Telstra will support impacted employees right through until transition to IBM is completed. It will also work with other logistics operators that might be interested in recruiting people affected by this change.

From March 2008, under the new and expanded agreement, IBM will manage logistics and inventory management functions and legacy system repairs resulting in improved inventory and forecasting as well as three new IT systems and tools to replace legacy systems and provide a single view for more efficient workflow management and planning.

It will also result in the standardisation of business processes for requesting materials, managing repairs and inventory management.

Finally, there will be a review of locations for legacy system repairs and holding stock, leveraging IBM's existing infrastructure and scale where practicable.

IBM managing director for the Telstra account, David Burns, said the consolidation of Telstra's supply chain and procurement is not just about enhancing back office systems.

He said IBM will enable a focused, flexible, resilient and variable integrated supply chain - that means competitive advantage, enabling Telstra to respond more quickly to market shifts and the needs of their customers.

Page Break

The expanded agreement is part of Telstra's smarter approach to procurement through partnering with world-class suppliers and streamlining supply chain processes.

This approach has enabled Telstra to reduce its procurement costs by $159 million since September 2006.

This includes savings from the phase one supply chain transformation agreement awarded in September 2006, which implemented an integrated supply chain platform for contract management, purchasing and accounts payable over this period.

IBM has transformed its own supply chain, saving US $20 billion over three years.

- with Sandra Rossi