InformationWeek
Defining The Business Value Of Technology
September 14, 1998
Information Sharing Boosts IT's Value
Companies improve communication and collaboration by using the Internet, ERP, and supply-chain apps
By Tom Stein
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Manufacturing companies may be leveraging the concept of the extended IT value chain better than companies in any other industry. By using the Internet as well as enterprise resource planning and supply-chain management applications, manufacturers are reaching out to their business partners and conducting business anytime, anywhere, and any way. The result: better communication and collaboration with their suppliers, distributors, retailers, and customers.While the idea of sharing information such as forecasting data, inventory levels, and order status with business partners is not altogether unique, today's Web technology is helping to create tighter partnerships and greater overall value for this industry. "The whole notion of collaboration is taking off in manufacturing," says Ann Grackin, an industry analyst with Benchmarking Partners, a consulting firm. "In the old world, anything you needed done, you did yourself. But that's changing. There is a new generation of business leaders that understands the value of partnerships. These people realize that companies cannot achieve their business goals by working alone."
Newport News Shipbuilding Inc., which builds submarines and aircraft carriers for the U.S. Navy, is a prime example. Over the last few years, the Navy decided it wanted to become more involved in ship design. It also started awarding shipbuilding contracts to consortiums of shipbuilders, meaning that the Newport News, Va., shipbuilder would have to start working hand-in-hand with its principal competitors.
"This forced us to do a lot of rethinking," says Steve Hassell, CIO of Newport News Shipbuilding. The company was using some packaged software, but it was heavily customized and couldn't be integrated with suppliers' and customers' systems. "We looked at ourselves and said 'we can't get there from here,'" says Hassell. "We had to do a wholesale revamping of IT."
Newport News Shipbuilding plans to scrap its legacy systems within the next 12 to 14 months and replace them with a series of packaged applications, including SAP R/3 for manufacturing and financials, i2 Technologies constraint-based planning for supply-chain management, and the full PDM suite from IBM for product data management. In moving from a mainframe to a distributed environment, the company has rolled out 8,000 interconnected PCs and standardized on Windows NT 4.0 over the past two years.
Newport News Shipbuilding also developed a common Web-based environment-an extranet that contains information such as product documentations and designs, and lets the company exchange critical business information with suppliers. "When you build an aircraft carrier, you have lots of documentation," says Hassell. "So we created a common vault on the Internet that allows us to exchange design drawings, financial data, and calendar information back and forth." As a result of the process, ships can be built simultaneously at a number of different shipyards. "A competitor on one project may be a teammate on another," says Hassell. "By creating this vault of information, we can act as partners" when need be.
Manufacturers have long realized that the key to making products better, faster, and less expensively is to improve the way they share information with suppliers and customers. But it is only now that they are truly starting to reap the benefits of collaboration. The reason for this, according to Harry Tse, a research analyst with IT advisory firm the Yankee Group, is the Internet. "Collaboration didn't suddenly appear, but it's finally coming to a head," he says. "The need has been there all along, but the Internet has done a lot to make it easier for companies to communicate in a standard way with their business partners."
Customers Monitor Inventory
United Stationers Supply Co., a $3 billion distributor of office supplies in Des Plaines, Ill., also believes in forming tight partnerships with its customers and suppliers. For instance, United Stationers has created its own application called the Automatic Dealer Order Transfer System, which essentially lets United Stationers' customers peek into the company's 62 warehouses and see exactly what is and what isn't available. Customers can monitor inventory levels at the United warehouses for themselves over the Web, so they know what is available and at which locations. United sells office supplies to about 10,000 independent dealers, who, in turn, sell directly to the customer.
"The issue here is that our customers want to fill orders they have gotten from their customers," says Ergin Uskup, CIO of United Stationers. Giving customers Web access lets them check the inventory in the company's warehouses so if they have a prospective customer on the phone, they can let them know if an item can be delivered the next day.
The system is also programmed to locate inventory from warehouses within a 10-hour delivery radius of any particular dealer. For instance, if the Chicago warehouse doesn't have a particular item in stock, the system will automatically check the St. Louis and Milwaukee warehouses and make sure the item is delivered promptly. This reduces cost in the customer's supply chain because customers no longer have to carry as much inventory.
For United Stationers, the payback comes in the form of improved service levels and an increase in repeat business. "The key thing in our organization is that we strive to have alignment between our MIS activities and our business goals," says Uskup.
Manufacturers are pushing the boundaries of traditional business models through the use of IT. They realize that to be more competitive, more responsive, and more profitable, they must find new ways to use technology to collaborate with their business partners and customers. "Organizations that don't evolve will find themselves dead," says Byron Miller, an analyst with Giga Information Group. "If you can't share information outside your own four walls, you won't have any business at all."
La-Z-Boy Inc., a $1.1 billion maker of chairs, sofas, and sleepers, plans to avoid such a fate. "For the next year, one of the biggest issues we face is changing the way we communicate with our business partners and customers," says Stan Kirkwood, VP and CIO of La-Z-Boy. But unlike a lot of organizations, La-Z-Boy's IT department won't take a leading role in this project. Instead, the onus is on the company's business managers to identify areas in which La-Z-Boy can better interact with partners. They then involve IT at a strategic level to determine what has to be done from a technical standpoint to achieve the objectives. "It's up to the business units to come up with ways to fix or improve a process," explains Kirkwood. "Then, it's up to us to prioritize the proposals that come in and then allocate our resources."
Kirkwood uses an example from La-Z-Boy's fabrics group to illustrate his point. The group was having quality problems with a particular fabric coming from one supplier. To resolve the issue, the business group solicited the help of the IT department, which devised a method of using a digital camera to photograph the problematic fabric, Kirkwood explains.
The picture was E-mailed to the fabric supplier, which could then see exactly what needed to be corrected. As a result, the problem was fixed in a couple of hours, as opposed to a couple of days, and the production process was back on track without serious consequences.
Chopping Costs
For Harley-Davidson Inc., collaboration is all about reducing costs. The motorcycle maker works closely with suppliers to help design the parts it needs, such as seats and handles. "We work together to design cost out of these products and come up with the optimum performance," says Cory Mason, Harley-Davidson's director of IS. Not only does Harley-Davidson have a product development center on site where it can work side by side with suppliers, it has begun exchanging information, such as CAD models, in real time with key partners. "Why wouldn't you want all your stakeholders working together for the common goal of delivering the product to market?" asks Mason. "We have a great enabling capability with IT."
Harley-Davidson is also a big proponent of just-in-time manufacturing, which requires a high level of collaboration and information sharing to ensure that suppliers provide-and replenish-the right parts at the right time. Thanks to electronic data interchange (EDI) technology, says Mason, "suppliers can know exactly what our rate of consumption is. And as [the content of] our basket goes down, the supplier can start reproducing parts."
Some innovative businesses are also extending their applications to the Internet, thereby allowing even a tiny supplier on the other side of the world to become an integral supply-chain partner. That's several leaps ahead of the sometimes complex, expensive, and labor-intensive EDI systems that only deep-pocketed companies can afford.
Newport News Shipbuilding, for instance, will soon begin extracting such information as sales data, inventory levels, and consumption schedules from its SAP system and put it directly on a secure extranet. The idea is that when the shipbuilder is running low on, say, steel, the supplier will realize this immediately and replenish the stock without having to be notified first. Essentially, this is vendor-managed inventory for suppliers, because they're responsible for monitoring inventory levels on their own.
"We give our suppliers access to our data, and they make sure we never run out of supplies," explains Newport News Shipbuilding's Hassell. "They can use our sales data to create a forecast for restocking our shelves. This way they become more than just suppliers; they become an extension of our shop."
In the new, collaborative world of manufacturing, that's a sure-fire path to success.
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