Retooling for E-Business
Retooling for E-Business
Youve just spent $280 million and the last six years executing an ERP-centric IT strategy only to find that, in some important ways, its incompatible with the companys e-business push. Meanwhile, the slowing economy is producing softening demand for your companys products and a need to cut costs. Oh yes, and lawsuits and restructuring charges last year forced you into Chapter 11 bankruptcy protection.
Time to pull the plug on that ambitious IT strategy and go back to the drawing board, right?
Not if youre Owens Corning, the $5 billion maker of building materials. Rather than tearing its IT strategy down and starting over, the Toledo, Ohio, company is remodeling it by surrounding its SAP AG SAP R/3 ERP (enterprise resource planning) system with a series of Web-based CRM (customer relationship management), supply chain management, and enterprise portal tools and technologies that officials expect will help transform Owens Corning into a true e-business. In fact, CEO Glen Hiner has mandated that, by 2004, the company slash costs significantly by increasing the percentage of customer transactions it does over the Web from about 5 percent to at least 50 percent.
If Owens Corning is able to pull it off, the company will serve as an exampleindeed an inspirationto many manufacturing-oriented enterprises struggling to transform the internally focused ERP systems they spent the last few yearsand many millions of dollarsdeploying into the foundation of e-business. And what will they learn from Owens Cornings example? That the race to e-business is not necessarily won by the quickest to the Web but by those who approach new technologies with caution and purpose. That, while a single vendor for enterprise applications may have made sense before e-business, it makes less sense today. And, finally, that it takes more than deploying Internet technology to become an e-business. Youve also got to work closely with customers and suppliers to change core business processes.
"The Internet is clearly the direction were trying to move toward, but e-business is just another tool, another technology that can be used to drive costs out or make it easier to do business," said Owens Corning CIO David Johns.
Executing Plan A
Executing Plan A
In 1992, owens cornings top executives, including CEO Hiner, thought they knew the secret to driving out costs and making the business more efficient: Re-engineer internal business processes and deploy integrated ERP software from a single vendorSAPthroughout the enterprise. The ERP deployment, one of the most comprehensive at the time, included most modules of R/3 and was part of a broad re-engineering initiative dubbed Advantage 2000. Pushed by Hiner, the initiative had ambitious goals, including increasing revenue from $3 billion to $5 billion and growing earnings twice as fast as revenue growth.
In 1994, Owens Corning started its 100-week global redesign and legacy systems replacement project centered around R/3. The goal: to build an information system based on access to real-time information across multiple business units in multiple countries. Owens Corning wanted to build a single system that could support a global sales and services organization. The new system was to replace 200 disparate legacy systems. Although companywide rollout was completed in mid-1999, Owens Corning has continued to upgrade and extend R/3, for example, deploying Release 4 of the software last year and the data warehouse components from SAP in 1999.
The good news for Owens Corning is that Advantage 2000 delivered on most of its key goals. The company boosted sales to the $5 billion level while streamlining key processes such as customer invoicing and inventory management.
The most significant efficiencies resulted from taking the company paperless. Owens Corning automated human resource functions and purchase orders and eliminated paper-based requisitions in favor of automated receipt generation. Even though there are still customers who insist on doing business via fax, the company has been able to reduce the amount of paper it uses by one-third and has cut the number of printers it has in its world headquarters by half.
"Weve been successful in getting rid of as many nonvalue paper transactions as possible in some areas like procurement but not so successful in other areas," Johns said. "We are not quite the 800-pound gorilla like Home Depot where we can absolutely dictate what people who do business with us will do. Its a long road to haul, to be honest."
Owens Corning was also able to streamline internal processes by obtaining better and more up-to-date data. Using SAPs Business Information Warehouse data warehouse and reporting software, Owens Corning can get and analyze targeted sales data from across the company to improve quality control, pricing and product development. This has helped it to rapidly discern which goods or packing will be in high demand by customers, Johns said.
Moving to Plan B
Moving to Plan B
As successful as the advantage 2000 initiative was in meeting its original objectives, however, it turned out to have a major flaw. Like many major IT-led initiatives of the mid-1990s, Advantage 2000 was almost exclusively focused on improving processes within Owens Cornings walls. When e-business came along, customers and partners expected to be able to use the Internet to work with manufacturing companies faster and easier. Yet Owens Corning and many other companies discovered that, despite huge investments in ERP, they were no closer to e-business.
"We took more of an internal view vs. an external view and started thinking about how we could eliminate costs without being focused on our customers," said Johns, recalling the early days of Advantage 2000. "Not that we ignored the customer, but if we had to do it all over again, I would have started with the customer and worked backward. Thats what were trying to do today."
Indeed, in an attempt to give customers and suppliers online access to its systems, Owens Corning has begun retrofitting its SAP core infrastructure with a series of new Web-based applications. One is an extranet that gives customers and partners access to supply chain tools that determine how much product theyll need to order, when products will be delivered and where in the supply chain their orders are. Information is extracted from key R/3 systems and presented to extranet users along with the tools. Owens Corning also uses the extranet to survey customers to determine their levels of satisfaction.
Owens Corning is also installing SAPs mySAP.com portal software as part of an effort to make CRM and business collaboration capabilities available over the Web.
Finally, Owens Corning has begun to turn to vendors other than SAP for Web-based applications. Last summer, for example, the company went live with a new logistics system developed and hosted by e-BizChain Inc., a supply chain software vendor and application service provider in Pleasanton, Calif. All in all, Paul Fortner, Owens Cornings director of e-business and new digital technology, estimates the system saves Owens Corning more than 5 minutes per shipment. This savings is achieved by automating Owens Cornings logistics operations and allowing employees to use Web browsers to interact with trucking carriers, check the status of shipments and input data upon customer demand. Tied in to Owens Cornings back-office SAP system, the software sends information about carrier loads and delivery status, using XML (Extensible Markup Language) to translate EDI (electronic data interchange) data into a Web format.
Five minutes per shipment might not seem like a big improvement, but consider that the company handles more than 3,500 shipments a day.
While turning to suppliers such as e-BizChain to enable its ERP environment for e-business, Owens Corning has slowed its deployment of new R/3 functionality in some areas. The company has so far, for example, decided not to deploy SAPs Advanced Planner Optimizer set of supply chain management tools, said Johns.
Owens Corning is doing the right thing by focusing on how it can integrate customers online before adding new R/3 functionality, said Michael Burkett, an analyst at AMR Research Inc., a consultancy in Boston.
"Its like being the Monday-morning quarterback, where hindsight is everything," Burkett said. "Today, the way you interact with your trading partners outside your own four walls has become much more prevalent than eight years ago. But Owens seems to understand that the easier it is for you to bring in new partners and get connected, the easier it is to do business."
While Owens Corning will continue to rely on R/3 to run its businessand to upgrade its R/3 environmentJohns said the need to retool its IT strategy has taught the company that, in the e-business era, a single-vendor enterprise software vendor strategy may not make sense. A best-of-breed approach may be necessary, he said.
"We are an SAP customer, and we are moving forward with SAPs new release of products, mySAP.com," said Johns. However, he said, "we are a little smarter than we were in the past, and whether our solution will always be SAPI dont think its realistic to say it will. SAP cannot be the end-all for everybody, and we certainly learned it is not for us. We will use the ERP infrastructure as a platform, but we will pick and choose what makes sense for us. Were not going to change our approach, but itll be a modified approach. Well be a little more open to other solutions and alternatives in the future."
Thats not the only lesson Owens Corning has learned as it attempts to rebuild its IT strategy for e-business. Its also learned that its important to be flexible in working with customers and suppliers.
A year ago, the company was actively pushing large customers onto EDI or to use XML-to-EDI-based technologies. In some cases, the company insisted that customers use EDI or they couldnt place orders.
It soon became clear, however, that customers werent taking the bait. After realizing that it had automated only 5 percent to 10 percent of its transactions, the company suddenly changed its hardball tactics and adopted a kinder, gentler approach. In July, the company deployed a suite of applications from BroadVision Inc. to consolidate groups of Web pages into customized portals for customers based on their locations and needs. It is also offering technology help to customers who want to take advantage of Owens Cornings XML and EDI capabilities.
"We are approaching our extranet rollout much differently from our EDI rollout," Fortner said. "We dont want to force people to use things they dont really want to use. Our direction has changed in that now were looking toward profitable growth for our customers, and were retooling our strategy to be consistent with that."
And Owens Corning is rethinking how and when it will use e-marketplaces. While the company continues to take advantage of public exchanges such as FreeMarkets Inc. and ChemConnect Inc. for some online procurement, it pulled out of a private consortium-backed exchange initiative being discussed by other large building suppliers last summer.
"There are just very few Internet marketplaces that are actually working and operating, and building materials is such a fragmented industry that its difficult to really get something going," Johns said. "Strategically, I think we made the right choice."
Johns is aware that, given his go-slow approach to e-marketplaces and his need to rework Owens Cornings strategy for e-business, he might be accused of getting to the party too late. But, particularly compared with dot-coms and others that placed all their bets on capturing so-called first-mover advantage in e-business, being a little late might not be such a bad thing.
"Our strategy is slow and steady. We never look further than 18 months ahead," Johns said. "Could we move faster? Im sure we could. Are we moving too slow? I dont know. Based on our problems and the opportunities we have available to us today, I think were doing all right."