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Bankrupt auto supplier looks to cut costs in the cloud

Auto-parts supplier Delphi is closing data centers and outsourcing its applications to SaaS providers in an effort to wring costs out of its infrastructure.

When automotive parts giant Delphi Corp. filed for Chapter 11 bankruptcy protection in 2006, Ed Mutz found he was the only IT architect left standing in a department that once employed 18 specialists.

As manager of engineering and systems architecture at the Troy, Mich.-based company, Mutz has sole responsibility for keeping the department operational while also dramatically reducing costs.

"You need to have thick skin to be in automotive these days," Mutz said." Those that are still employed at [Delphi] are working five to six people's jobs and don't know from one day to the next how long their employment will last." Delphi's former parent and largest customer is General Motors, itself close to filing for bankruptcy protection.

Experts agree that the U.S. automobile industry has been run inefficiently for decades and every department within these large corporations, including IT, has been overstaffed. However, typical cost savings measures such as reducing headcount, extending hardware refresh cycles and keeping equipment up and running until it breaks, do not go far enough to fix the problem.

Closing data centers, moving to services

For several years Delphi has owned its largest data centers, located in the US, Germany, Singapore and the UK, but farmed out operations to three service providers, Hewlett Packard, EDS and CSC. Now, Delphi is closing down these facilities, turning off servers and moving applications to data centers owned and run by HP. Two of the company's largest applications, Microsoft Exchange Server and SAP, run in an HP data center in Toronto. Mutz estimated it will cut Delphi's IT management costs for these apps by roughly 30%.

Mutz said it was hard to convince email reliant business executives to outsource the company's Exchange servers. "It was thrashed about for over a year... there's a sense of ownership and concern over where the email is and the protection of it," Mutz said. "They wanted to know if we could achieve the same business requirements in a cloud setting."

In the end he said it came down to cost. "It was glaring us in the face that this was cheaper," he said.

The manufacturing company has outsourced its CRM software to and supply chain management system to Covisint, a subsidiary of Compuware Corp. A handful of standard HR applications such as payroll are also handed off to different SaaS providers. But it's a miniscule number as the company still has over 3,000 applications running internally. "How many of these can be moved to the cloud is a work in progress," Mutz said.

Cloud in this instance is really managed hosting. Mutz's said he's still not sure of the value of cloud infrastructure services such as those offered by Amazon. He said the challenge is to get enough compute capacity at a cost below what a company could stand up in internal virtual environments themselves. In addition he said he believes companies that may be trying to develop some intellectual property may not yet be comfortable doing so in the cloud.

Virtualization, nice to have...

In some cases, Mutz could save money on the electric bill by squeezing in VMware ESX Server virtualization technology as part of a server consolidation project. But getting the upfront capital to pay for the software is a battle. To get any new technology approved, he has to show a 90-day ROI.

Two successful virtual desktop pilots, one in-house and another hosted by a company called Secure-24 Inc., were abandoned. Despite showing an ROI, the savings did not come fast enough. For the in-house pilot, Mutz created a knowledge worker profile and deployed it across 105 desktops using VMware Inc.'s virtual desktop technology. It worked great, he said.

Mutz said VMware had extended its license during the pilot but he expects now that the trial is over that generosity will end. "There is significant upfront capital to shift people to the virtual world and right now, management just doesn't have the stomach for it," he said.

Contractual issues prevent upgrades to new technology

Further complicating Mutz's efforts to cut costs are existing outsourcing contracts that bind Delphi to older, more expensive ways of installing technology. The old style of refreshing desktops and servers by upgrading to new hardware and software is costly and does not take advantage of new, more efficient virtualization techniques which can save enterprises time and money. In some cases Mutz has convinced partners to rework their technologies in ways where it can be more cost efficient when it's sold back to Delphi, Mutz said.

In the end Mutz said it's hard to decipher exactly how much his effort saves Delphi because the company is shutting down lines of business, which makes it hard to see how much is being saved that way, versus using SaaS providers and managed hosting services. He has several white boards in his office covered in cost saving initiatives. "It's paying off," he says. "We just need some time."

But Mutz acknowledges that within the auto industry, time is one luxury in very short supply.

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