A logistical challenge

Never ending acquisitions, cost cutting targets and a major outsourcing project are just some of the challenges facing Alex Pilar, CIO of DHL Supply Chain. But, he tells Diana Milne, nothing will dent his passion for the job.

When you're in charge of technology for a logistics company that claims to be Europe's most punctual, inefficiencies simply aren't an option.  And for Alex Pilar, CIO of DHL Supply Chain, the pursuit for procedural perfection is a full time job. A DHL veteran, having started his career there in the 1990s, Pilar is constantly involved in projects to further streamline the business and cut costs.  And, he says this is no easy task at a company that is constantly adding new businesses to its existing portfolio. Most recently it completed the integration of the UK based logistics firm Exel following DHL's acquisition of the firm in 2005. During such projects, Pilar says the biggest challenge he faces is integrating the companies' legacy systems and applications into DHL's own IT infrastructure without adding unnecessary applications or layers of complexity. "Our group has been built to some extent on acquisitions," he says. "This means always bringing in legacy systems such as platforms and technologies. So despite all our efforts we are always facing new complexity as we consolidate. It's an ongoing process and there are major projects going on currently in Europe."

Trimming the fat

Pilar describes how his team successfully integrated Exel's legacy systems with DHL's own - a process which involved a massive 900 separate projects.  "It was a very successful integration programme and involved 110,000 people from Exel and 30,000 from DHL. There were 900 projects in different functions executed, a really signification programme."  He says the company is currently in the process of "aggressively" streamlining its application portfolio to cut costs: "We have, through the acquisitions we've made, far too many applications and too much complexity and this is a significant challenge because of the costs." The drive to cut costs is greater than ever with the economic downturn having hit the European logistics business hard.  DHL has suffered badly having reported a slump in net profits of 71.4 percent for the second quarter of this year with sales nose diving by 17.7 percent generating €11.1 billion compared to €13.3 billion the previous year.  =Its aim is to cut its costs by US$1 billion by the second quarter of next year with IT a major part of the programme.
"Like everybody else we have been challenged a lot on adjusting our costs," says Pilar. "We are formulating a strategy for all business areas to make sure that we minimise the complexity and maximise the potential of the strategy applications and avoid further investments in these. We must also continue the brutal streamlining of our applications and leveraging all the opportunities we have."

One major cost cutting exercise, that preceded the credit crunch but continues today is the centralising of DHL's support services to three hubs in the Czech Republic, Malaysia and the US which started in 2004. The programme was aimed at slashing 60 percent off its US$1 billion IT budget and involved establishing three global IS centres and one IT infrastructure in Kuala Lumpur in Malaysia, Prague and Scottsdale in the US. It was also done as part of a plan to have IT support available to its 120,000 users 24-hours a day. At the time Pilar was in charge of the project, which he says has now reached all DHL's targets: "We have reached all the parameters we hoped for in terms of the cost efficiency and time and business case but we continue to build that operation and consolidate and optimise infrastructure in Europe." He goes on to describe the benefits to DHL of having centralised its IT services, in terms of both cost and efficiency. "We have had three benefits. One is labour arbitrage. We had workers based in locations like the UK, Switzerland and Brussels. Consolidating meant there was the opportunity to optimise or virtualise many services.  The move also created a critical mass of IT experts all sitting together in one place, which helped to improve productivity too. So we were quite successful in executing this programme too."

Pilar now hopes to build on the success of DHL's own successful internal shifting of IT services to a central hub by embarking on the outsourcing of its telecoms infrastructure. To date it has signed deals with Telefónica O2 in Europe and AT&T in the US and it is currently working on sourcing outsourcing partners in Asia Pacific, Latin America and the emerging markets. The project is, he says, a team effort between the CIOs of all DHL's various divisions. "These programmes will bring significant savings into our telecoms cost. We are working together across all divisions and we have a core programme called telecoms optimisation where CIOS from each division are steering the different programmes for each region.
He says the challenges of the project are the same as for any large scale outsourcing programme. However he says he is confident that DHL's outsourcing partners are now strong enough to take on the weight of the firm's complex telecoms infrastructure; a situation that he says didn't exist two years ago: "I think the industry has matured. A couple of years ago we were considering doing this but the complexity we have, would have been hard for any of the partners to accommodate. We feel much more confident these days."

Staying simple

Cost cutting is by no means the sole driver behind the various IT consolidation projects Pilar and his team are embarking on. He says a major aim of the organisation is to achieve simplicity, both in its own internal operations and in the services it offers to its customers as part of its 2015 strategy. Pilar acknowledges however, that when it comes to IT, simplicity can be a difficult goal to reach compared to other industries. "Simplicity is something that is very close to my heart as the CIO of a big company. If you compared IT to other industries, such the automotive industry it is very behind. Indeed I would say the automotive industry is 20 years ahead of IT in the way it manages to hide the complexity of a sophisticated car behind an interface, which is simple and doesn't irritate you. IT still has a long way to get to that level of simplicity and sleekness of operation."

Achieving simplicity is a key goal behind the logistics and supply chain projects, which DHL takes on for its customers.  These include the likes of the NHS in the UK for which DHL has provided supply chain services for two years, and British Airways with which it has recently won a deal to provide logistics to parts of its business. Selling these solutions to companies wanting to improve the efficiency of their operations means the pressure is on for Pilar to prove DHL can also manage its own IT as smoothly as possible. He says too that as DHL is both a provider of IT services and heavily reliant on IT for the running of its own business, technology is very closely aligned with the company's business objectives. Indeed, Pilar says he believes that if it didn't play a key role in boardroom decisions, he would be failing in his role as CIO. "The innovation of the business and IT's ability to support that in the contracts logistics business is very important. We are working very closely with our business partners and interactions between CEOS and CIOS are very intensive and regular. We aim to bring IT as close to the business as possible.  We are looking at the ways that the business is thinking so that we can work together to create the right solutions for our customers.  Business and IT at this stage and in this century must be intimately close. You should not even be able to put a piece of paper between the two. It should be one entity. I keep saying that if IT doesn't bring value in the boardroom it doesn't belong there."

Pilar is helped in his aim by the fact that he worked for five years on as Managing Director of the Express Division at DHL. He says: "Because I've spent some time in the business as well as in IT, I know that IT is the business. It its part of it and if it's not it's set to fail. I'm absolutely passionate about the fact that IT is absolutely part of the business." It's this missionary zeal for IT that has spurred Pilar on throughout countless efficiency drives and IT transformation projects. And with DHL about to embark on the complex outsourcing of its telecoms infrastructure, coupled with taking on the supply chain and logistics services of several major European organisation he'll need even more passion for the job in the months to come.