InformationWeek

February 8, 1999

Inside the IT Value Chain

Links Mean Value

Competitive Edge

Customer Service Has Its Costs

Value Chain Benefits Still To Come

Slow Revolution In E-Commerce

Get Creative In Sharing Knowledge

Business Value Of Communications

Tighten Links In Value Chains

Executive Reports:
Time And Money Pay Off

Benefits of value chains are big-but many are still in the future

By Bruce Caldwell

any companies are finding that the time and money they invested in electronic value chains are paying off.

The cost savings and other benefits from value chains are dramatic, but they only hint at the radical changes brought about within companies by the implementation of value chains. How well companies manage the changes plays a large part in determining what benefits will be realized.

Take Owens Corning: Staggering with debt from fending off a takeover attempt in 1986, and hammered repeatedly over the past several years with asbestos litigation claims, the $5 billion building materials company has undergone several transformations. It snapped up 20 companies around the world and built a completely new IT infrastructure, creating a fully electronic, paperless work environment. Last year, the company took advantage of its new business and IT assets by combining its IT, customer-service, logistics, materials-management, and supply-chain planning groups into one organization called the System Thinking Information Group. "We are the linkage point with all our customers and suppliers," says Mike Radcliff, head of the new group.

The System Thinking organization is part of a companywide restructuring begun last year to eliminate $175 million in annual costs. The results, released last week, show the goal was exceeded. Restructuring yielded $110 million in savings, plus $25 million in savings from improved logistics and purchasing, and $32 million from integration of acquisitions.

There's more to value chains than new technologies. The mantra these days is "people, process, and technology." But getting those three items in sync can be a long, drawn-out process. Productivity can take a nosedive during the turmoil and periods of adjustment.

bar chart

What's the key to making value chains work? Time and attitudes, says Ken Valentine, director of marketing and customer relations at Shell Chemical Co. Time has to be squeezed out of processes everywhere, and employee attitudes must change before the time element can be compressed. A production manager, for example, may not want to work from real-time inventory-level readings at customer sites, because it demands too much responsibility. If, instead, the manager depends on sales forecasts from headquarters, then they'd have to bear responsibility for producing too much of the wrong thing.

An essential component of making value chains work is helping the individual find value as well, so personal interests can mesh with business interests.

For Brinker International Inc., a $1.5 billion, Dallas restaurant operator, linking the personal and business interests in value chains mayhelp increase franchise owners' profits. "Our biggest fear," says Michael Nettles, the supply-chain program leader at Brinker, "is that once they see the value of it, we won't be able to keep up with demand."

Bruce Caldwell, an editor-at-large for InformationWeek, covers IT services.

Illustration by Matsu