Fabricio David, the head of IT at one of the most traditional drugstore chains in Brazil talks to IT Decisions exclusively about IT skill shortages, cloud computing, IT spending and a massive technology-driven revamp.
Drogaria Onofre, one of the most traditional drugstore chains in Brazil, is pressing ahead with a large-scale enterprise resource planning (ERP) platform rollout and the revamp of its back-end infrastructure despite the challenge of acute skill shortages.
Founded in 1925, Drogaria Onofre started out as a family business and today has a store network based in the states of São Paulo, Rio de Janeiro, Minas Gerais, Espírito Santo and Rio Grande do Sul. It was the first pharmacy chain to launch an e-commerce channel in 1999 and also the first to adopt the checkout payment style in its segment back in the 1970s.
Most of the company’s systems were built internally based on Cobol and, like most legacy set-ups, the platforms began to creak and the company’s server farm also required a refresh. Churn within the retailer’s IT team was also high, so the firm needed to build a sturdier foundation for growth.
The company’s head of IT, Fabrício David, formerly the top man in technology at online shoe retailer ShoeStock, came in 14 months ago to reverse Onofre’s fortunes in IT and undertook a review that resulted in the projects that are now being delivered.
A complete systems refresh
Onofre had been a customer of Brazilian software supplier RMS for systems covering most of its core business areas and had been investing for about five years in the development of a new ERP platform – that never came to fruition.
The review undertaken on the work that had being carried out thus far showed that the system would not be appropriate to cater for the firm’s needs, so a competitive process was launched to choose the new supplier for a platform that would serve areas such as finance, purchasing and distribution.
“The [RMS] system was not scalable enough for us and the amount of money that was spent in the attempts to develop a new version over five years was quite significant and spent in vain,” said David.
“Our management had already made some attempts to continue the work [with RMS] prior to my arrival, but after doing some work together and looking at the system we arrived at the conclusion that it was best to start again and look at other market alternatives,” he said.
Onofre is paying R$800,000 ($510,000) for the work including the rollout, support and licensing in the first stage of the project. The SAP choice is about 30 per cent cheaper than the alternative offered by Totvs.
“There is a considerable absorption of SAP products by the pharma sector: we have many partners that also use their systems as well as competitors, so that was also one of the points we considered when selecting them as a supplier, as well as the financial factor,” said David.
According to the IT chief, the target go-live date for the new system, which is being implemented by SAP consultancy Constru Software is September 2011. The idea is to extend the reach of SAP software across areas including customer relationship management.
By next year, David intends to move all of the company’s IT services to the cloud. His team is already looking at alternatives to replace, for example, the Office suite the company has in place by the Microsoft cloud alternative or Google Apps.
Onofre has also started an update of its point-of-sale (POS) system, which is being supplied by Itautec. The same supplier will also progressively revamp the company’s 220-strong fleet of POS machines in a project that should be completed by mid-2012.
According to David, the options of technology to speed up and improve payment processes, such as mobility, are few and far between in the pharmacy space. The IT executive also commented that providing technology to improve customer service in retail is always a challenge.
“It is never easy, you are always catching up. That’s one of the reasons why we are very careful when choosing suppliers just so we can have agility and buy solutions that can be scalable and aligned to what the business may require in future,” said David.
“The thing is, the retail sector doesn’t always know what it wants and requirements can change extremely quickly, so the only way to manage is to know that you have a strong partner behind you to deliver what’s needed,” he said.
“Smaller companies suffer a lot more in that respect due to planning issues. We have a horizon of one year at the most, whereas bigger companies manage to have 24-month plans and a more comprehensive IT strategy.”
Also on the back-end, the company is looking to exploit the unified communications (UC) approach in the next 12 months and generally “close the telecom tap” – the company has already renegotiated its contract with GVT/Telefonica and achieved a 30 per cent cost reduction.
The possible adoption of telepresence units is also being considered to improve remote communication between offices.
The outsourcing dilemma
Onofre is also involved in a major revamp of its server farm, which is run by its internal IT equipment.
David mentioned that, despite the company’s cultural tendency to retain functions in-house, he has been successful in shifting some activities such as printing, as well as data collection and maintenance.
But the manager was not as enthusiastic about handing over his datacenter, now being refreshed, to an IT services company due to high charges.
“When we analysed the options, we concluded that it was hard to justify spending that much on managed services for the datacenter.”
According to David, the total cost of renewing the server farm in house was R$620,000, whereas top suppliers in the IT services market that have pitched for the maintenance of Onofre’s servers quoted monthly charges of about R$100,000.
“But there are other options out there. I know of some firms that sought datacenters in Argentina or Chile, so it could have been one of the alternatives if we hadn’t decided to stick to the in-sourcing route,” he said.
Following a competitive process for equipment, which also involved Dell and HP, the retailer will carry out its server renovation with IBM Blade equipment with virtualization software provided by Vmware.
One of the most testing parts of managing IT at Onofre is dealing with the shortage of highly skilled professionals to help out in the transformation the company is undergoing.
“The scarcity of qualified professionals in Brazil is extremely high. It took me about six months to hire a network administrator,” said David.
“There are qualified professionals out there, but the amount of people that have exactly what you are looking for is very small. So you have to rely on the expertise provided by specialized [IT] suppliers – but all of that comes at a cost,” he said.
David’s view is that IT services companies are better equipped to provide career development opportunities and therefore are more attractive for skilled technology professionals.
“The competition for good resources between an IT services company and us, a retailer in the pharma sector, is unfair. It is obvious that the technology companies will offer much better career prospects around career development and even salary,” David said.
“And that leaves [non-IT companies] in a position of having to outsource and seek professionals from those specialist firms.”
Retaining personnel, alongside ensuring that Onofre’s various IT projects are ticking along nicely, is David’s biggest challenge for the foreseeable future.
“We have a lot of interesting projects going on and very clear objectives, but we need to make sure everyone buys the idea of this IT reestructuring. It may seem clichéd, but if you do not have motivated professionals, nothing happens.”