InformationWeek

Mega projects: Taming The Beast

Huge projects give IS managers the creeps. But Inland Steel cracked the whip on a 7-million-lines-of-code system and got it done on time and under budget. Here's how.

By Bruce Caldwell
Issue date: March 10, 1997

Gamblers at the casinos in Northwest Indiana would have blanched at the odds against nearby Inland Steel Industries Inc. In 1993, Inland started to plan its Order Fulfillment System, a massive systems-development project with 7 million lines of code, a $37 millio n budget, and a timetable of three years to completion. Such grand projects fail four times out of five, saysCapers Jones, a respected software consultant.

But Inland beat the odds. When it finished the project for its flat-steel operations in Indiana Harbor last November, the company had added capabilities to provide the best, most consistent customer service in the steel industry. Inland had created a data warehouse to store customer information. It had also built 27 integrated applications, supporting 18 reengineered business processes, and had replaced 60% of its legacy code. What's more, Inland did it all on time--and within budget.

"There's absolutely no question in my mind that we have the best system for this purpose in the industry," says Robert Darnall, CEO of Inland, the nation's sixth-largest steelmaker with 1996 revenue of $4.6 billion. "We're a few years ahead of our competition."

How did Inland succeed where so many others have failed? Three ways:

By ensuring that the new syst ems were aligned across several business processes, not just one-as in Inland's earlier, failed efforts.

By gaining the unshakable support of the company's top business executives.

By delivering results in phases, not all at the end. "We wanted early deliverables so we could see the benefits without having to wait for a big bang," says Bill Howard, Inland's VP of IT.

Inland's hard work is getting noticed by competitors and industry analysts. "Inland's doing better in customer service than it has in the past two years," says Michael Gambardella, a steel analyst at J.P. Morgan and Co., an investment bank in New York. "They had some delivery problems, but they've made good strides at improving. That will continue as the year progresses."

Inland's Order Fulfillment System, known internally as OFS, was designed specifically for both the company's flat-steel production business and its cost- and quality-conscious customers in the automobile and appliance industries. The system provides Inland wit h a clear view of all activities involved in the business-from sales and marketing, through the plant, and out to the trucks carrying rolls of steel to customers.

OFS's promised benefits include improved customer service, reduced head count, higher product quality, and more accurate customer and manufacturing information. By integrating systems more tightly with business processes, from market forecasts to shipping, OFS helps Inland handle more orders than ever before. In financial terms, these improvements are expected to bring Inland $25 million in one-time benefits and $9 million in annual benefits.

Though Inland says it will take at least a year for OFS's benefits to be fully realized, the system is already paying dividends. In December, just one month after OFS was completed, Inland shipped one-third more steel than in any other December in its history-a record Howard says is directly attributable to OFS.

OFS's completion came none too soon, according to Darnall. "We fell asleep at the switc h and thought we could just ride with our existing systems," he says. "We found our lunch getting eaten."

Inland's earlier, less-ambitious projects to develop order-entry and manufacturing systems were stillborn because they lacked management support. But those failures served as object lessons for VP of IT Howard, who was hired from Bechtel Group Inc. in 1990.

Inland's previous efforts had focused on technology in narrow, vertical functions and were not aligned with the business processes that cut horizontally across those functions. Because management never signed on, adequate funding never materialized.

"We had some bad experiences," recalls Howard Ludwig, program manager for OFS. "If you don't get the business on board, you don't have a chance."

VP of IT Howard used change management right from the start. In 1992, he brought in management consultants from one of the top strategy firms, McKinsey & Co., to chart Inland's business and organizational issues. A year later, he retained An dersen Consulting to provide software tools and to help manage the project. Inland then contracted with USX Engineers and Consultants for software skills andbusiness-process design. USX used a design developed at its sister company, U.S. Steel Group, as the template for Inland's changes-and it brought hard-won, relevant expertise from that project.

Next, Inland assembled a core team of business and technology managers to see the project through from design to implementation. The project was laid out in phases. Early deliverables were assigned to sales, operations planning, manufacturing, and other areas to minimize business risks and deliver value to Inland throughout the three-year effort.

One goal of the project was to eliminate Inland's functional islands of automation. Manufacturing, for example, was doing what it needed to optimize its functions-as was sales-but the departments were not working together.

Yet integrating such systems carries a huge risk, says James Hayes, a partner at Anderse n Consulting who worked on the Inland project. "If OFS didn't work," he says, "steel wouldn't go out the door, and that would cost the business millions of dollars a day."

Members of the core team of Inland business and IT leaders were assembled and assigned to one of 18 business processes. Then they regularly reviewed processes under a total quality theme of "plan, do, check, and act."

The regular meetings, reports, and measurements of key criteria such as order-entry cycle times meant that "the business leaders knew both the systems and the business, and they couldn't be flim-flammed," says Timothy Trela, CIO of Inland's flat-steel products unit, which is responsible for 85% of Inland's steel-production business.

Like the three branches of the federal government's checks-and-balances system, this core team kept the business units and the technologists on track.

It helped that Inland's business managers fully understood the importance of the OFS project. "I had two of my best management fol ks involved in the project," says Steven Bowsher, VP of sales and marketing for Inland's flat-steel products unit.

Along the way, the OFS core team fought one of the biggest threats to any big development project: scope creep. This phenomenon happens whenever requirements are continuously added to a systems project, bloating the system until the original deadlines and budgets become an impossible fantasy.

To avoid that, more than 500 requests from the business units for changes and enhancements were carefully reviewed by Inland's core team. In the end, they approved only a couple of dozen, all of them what Howard calls "show-stoppers"-serious problems discovered in the original OFS design.

In all, says Ludwig, scope creep expanded the project by less than 10%, and most of the changes never threatened the budget or deadlines. In fact, just one addition-a "model factory" environment to train users on the new systems and business processes-extended the schedule, and that by just three months. The c ore group deemed that delay acceptable because the model factory provided valuable feedback for fine-tuning before OFS systems were deployed.

Now that the system is completed, Inland will implement some of the other noncritical additions and enhancements.

Inland also is assessing the project's impact. OFS already hasbrought wholesale change throughout the company's flat-steel business. It has upgraded and expanded some jobs from clerical to professional functions, while automating, consolidating, and eliminating others.

OFS also has integrated information in an IBM DB2 relational database that previously had resided in isolated pockets. This integration has improved speed and accuracythroughout the business process. Inland expects those improvements to continue as its business units learn how to use the technology more efficiently.

Some of the improvements have been dramatic. In sales and marketing, for example, Inland has slashed by 50% the response time to customer inquiries.Before OFS, I nland was virtually unable to ship an order the same day it came in, says Ed Richards, Inland's shipping manager and a member of the core OFS team. OFS has shortened the time needed to move an order into the plant, schedule shipping, find the steel, and get it loaded onto a truck. This lets Richards "handle more spot customers and give a quicker turnaround to contract customers," he says.

Other expected gains from OFS are equally impressive. They include: cost savings from staffing reductions, improved cycle times, less manual intervention to correct errors, lowered inventories, reduction in customer claims, improved freight rate control, elimination of unearned discounts, and improved invoicing and accounts-receivable processing.

For Howard, the moment he sensed that his $37 million technology gamble had paid off came in December, when he visited the company's Indiana Harbor Works plant facilities. Howard learned that Inland would ship a record 400,000 tons of steel in December. "Every 1% improvemen t in tonnage shipped is $16 million to the bottom line," Howard says.

OFS is changing the way Inland looks, too. In fact, employees already refer to pre-OFS days as the Old World, and to the time since the OFS implementation as the New World.

Inside the offices of the flat-steel unit's IS group, housed in the Indiana Harbor Works complex, the sense of stepping from an old world into a new world is keen. Half of the floor space is occupied by old office equipment; the newer half, still under construction, is filled with brand-new dividers, desks, and computers.

From the outside, the vast complex of long black and red buildings looks like a dark reminder of the industrial age. Indeed, some of the plant floors were designed more than a century ago. But just a few hundred yards from the entrance gate, the Lake Michigan harbor is filled with gleaming white yachts. Many are tied up next to one of the big casinos that now share the region with heavy industry.

Back inside, the plant floor seems untou ched by computer technology. It's a hard-hat environment where 25 overhead cranes pluck 20-ton coils of steel with their giant claws. Yet inside the cabs of the cranes are Telxon Corp. radio-frequency terminals that provide pinpoint accuracy for the location of every one of some 2,500 coils moved each day across 2.5 million square feet of floor space.

The Telxon terminals, along with 25 handheld Telxon units carried on the floor for verification purposes, are part of OFS. Each coil receives a new identification tag after each processing step, whereas before OFS one number was used throughout all processes. Reports are logged into the system every step of the way.

For shipping manager Richards, that's changed everything. "I used to get beat up every time a coil didn't ship on time," he says. "Now everybody is working from the same set of numbers, and the system points out where the bottleneck is."

But Richards didn't have long to enjoy his newfound freedom from taking the blame. He retired in Dec ember, a casualty of the new OFS technology, which has eliminated about 30 positions previously required by the old, manual inventory-tracking process.

The shipping office's clerical staff is on its way out, too. First it was halved to six people, then cut to one. By this November, the last shipping clerk will be gone. Similarly, billing and invoicing used to have about 40 clerks, often required to work overtime on weekends. Automation and systems integration have eliminated all but a handful.

OFS wasn't designed as a neutron bomb-to get rid of people while leaving buildings intact. But cutting the payroll has been a long-term goal at Inland, and OFS helps.

While no one likes to talk about job reductions, everyone at Inland knows that the Chicago company's survival is an ongoing issue. Between 1990 and 1993, the company bled red ink, posting a string of losses. Those losses were due partly to investments in two new steel mills it was building in Northern Indiana with Nippon Steel, and partly to I nland's decision to close its structural steel operations.

Profits returned in 1994, and the company's stock price topped $40 a share. But since then, quality problems and low prices for steel have hammered Inland's stock. It's currently trading at about $20 a share.

A decade ago, Inland had 22,668 employees. Today, there are fewer than 15,000, and annual workforce reductions of 5% to 7% will continue. In January, for example, 450 salaried workers in the flat- and bar-steelmaking units were dismissed, resulting in a $26.3 million charge against the fourth quarter's earnings of $17.1 million.

The 10,000 employees now in the steelmaking unit will be cut to 8,000 by the end of this decade. The across-the-board reductions will shrink the IS organization, too, according to Howard.

With OFS in place, improved IT is now the focus for Inland's distribution business. Last December, for example, Inland purchased licenses for SAP's R/3 installations at new distribution operations in China and India.

Looking ahead, Inland plans a host of improvements to OFS. Among them: a pilot of PointCast's I-Server "push" technology software for broadcasting useful information from OFS-current production numbers, for example- directly to managers' desktops over the corporate intranet. As part of the change management involved in OFS, Inland's managers have given up their standalone reporting systems and now rely solely oninformation generated by OFS.

Pushing that information to managers should reduce or eliminate their need to request reports from OFS, easing their adjustment to the change. "All of us have our favorite reports, and it's too easy to hang on to our old security blankets," says CEO Darnall.

Darnall admits to being something of a "dinosaur" when it comes to computers. "Bill [Howard] is trying to make me computer literate, and I have done some kicking and screaming as he's tried to drag me along," Darnall says. "But I'm trying to learn to raise my sensitivity about the power of the computer, ho w it can be used, and how the new technologies can change business for the better."

Also, Inland still has some old systems-the 40% untouched by OFS-that must yet be brought into year-2000 compliance. (OFS was made year 2000-compliant as the development work took place.) Rather than convert these legacy systems, Inland will replace them with packaged applications, convert them to client-server systems, or outsource them.

Darnall estimates the cost for all this will come to a few million dollars. If OFS succeeds, that could start looking like petty cash.

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