The deal covers Kraft’s global IT operations, including services for data centers, hosting, telecom, servers, desktop management, and relevant support for more than 60,000 employees. About 670 Kraft employees will transfer to EDS as part of the deal.
Mike O’Hair, the head of EDS’ US consumer industry and retail practice, told us that retail and consumer goods companies have been slow to embrace outsourcing, but that the past 12 to 18 months has seen a lot of deal signings, which are first-time deals for these companies.
O’Hair said EDS’ pipeline was growing strongly and that EDS sees the industry as one of it significant growth areas. EDS currently brings in about $1bn a year from its consumer and retail practice. Moreover, the industry is one that is undergoing consolidation, and newly merged firms present a good opportunity for outsourcers to come in and drive down costs.
Large retail and consumer companies require large global capacity and an integrated delivery model for all of their worldwide locations, O’Hair explained. For example, EDS will be supporting Kraft locations in 70 countries. These clients also need quick turnaround to accommodate the rapid changes in their organizations.
This includes improving the quality and flow of data from retail sites to firms’ corporate operations, O’Hair said. He described supply chain optimization and RFID as the two areas that stand out in terms of expertise in the retail and consumer segment.
The demands for scale and capacity of large companies in this vertical mean that only a handful of well-known services providers worldwide can realistically compete for these deals, O’Hair added.
EDS will work with its industry partners such as Dell, Microsoft, Cisco, and EMC to deliver hardware and software to Kraft. These companies will be paid both under the $1.7bn transaction, as EDS fulfills its contractual obligation for technology refreshments, and as incremental upgrades outside of the deal, O’Hair said.
Annica Johannson, a Kraft spokesperson, declined to comment on which other companies were in the running for the deal. Although she said Kraft wouldn’t specify the exact cost savings expected over the seven-year term of the contract, the company has factored those savings into its guidance. Previously all the services under the contract were performed in house, Johannson said.
