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September 27, 1999

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Mergers Require New Efficiencies

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Meanwhile, price fluctuations are making it difficult to estimate how much fuel to keep on hand. "Sometimes it comes down to hedging and guessing, and there can be some significant swings where you can get caught with a fuel supply that's more expensive than what's selling," says Earle Compton, VP of MIS and CIO at AmeriGas

Partners LP, a Valley Forge, Pa., distributor of propane. The company is looking to build tighter relationships with customers and suppliers so it can both anticipate demand for propane and react quickly to meet it. Compton says that the company is building a system consisting of legacy and packaged software that will let it schedule and plan oil shipments and handle the logistics required to move propane to AmeriGas' 600 distributors.

For Phillips Petroleum Co., the key to competing both on domestic soil and in a global energy market is maintaining tight relationships with suppliers. VP and CIO Gene Batchelder says that the Bartlesville, Okla., company depends on the latest manufacturing and refining technology for its physical facilities, so it struck a deal with Honeywell Inc. that will let the two companies share research. Although Phillips has had rudimentary E-commerce transactions with some of the suppliers of crude oil for its refineries, Batchelder says it's looking to make those connections more dynamic: an order placed would be entered simultaneously and directly into Phillips' SAP systems and the partner's enterprise applications.

Such technology is even more critical when Phillips leaves the confines of the United States for countries such as Venezuela, Australia, China, and Qatar. "It's stretching our infrastructure," says Batchelder. "It's stretching our partner base. The ability to communicate electronically is a huge benefit."

Williams Companies is developing a system that combines both supply-chain processes and logistics. Built on top of GX Mainstream enterprise applications, the system will let customers place orders, reserve pipeline capacity, and check order status over the Internet. It also will perform billing and integrate the logistics management of six separate gas pipelines that Williams picked up in various acquisitions. "We're trying to pull them together and operate as one pipeline network," says Foster. That means customers have more flexibility in how and when they receive their orders.

Logistics is a challenge for any type of company. But for energy companies like Enron Corp., the complexity is magnified. Enron, in Houston, has to move power and natural gas to industrial customers and utilities. There are stiff penalties if the goods-which can be transported through pipelines, over power grids, or over land-don't arrive on time. "If you don't deliver the gas, they can't generate power for industrial or residential customers," says Phillippe Bibi, Enron's managing director of information technology. Energy is particularly tricky: by the time it reaches the ultimate destination, it can have changed hands five or six times. Regulation also limits how energy can travel.

To meet those needs, the company has developed custom logistics systems. The systems track all movements for both gas and power. Enron also is planning a Web site that will let customers and trading partners place orders and check order status; Bibi declines to give further details.

Although Enron has SAP in place for its general ledger and financial functions, Bibi says there are few energy-specific applications that the company can buy because the energy market is under-served. "If we can buy it, that's our choice. But if it doesn't exist, we have to build it," he says. So the company has done extensive custom development, to the tune of several hundred million dollars per year. It's worth it, though, because those projects address the company's specific needs and generate a high return on investment.

Industry-Specific Apps
Enron is not atypical. Other companies have followed similar tacks, either building their own applications or dramatically modifying packaged applications. Even when there are applications built specifically for the energy industry, they're often not integrated well with the ERP applications that run core financial functions, say IT managers. Clark uses specialty applications-such as Aspentech for production management and PSDI Maximo-to maintain Clark's network of pipes and other physical equipment, along with ERP package Sterling STP for financials. But the vendors don't necessarily provide integration links to each others' apps. "The offerings of out-of-the-box interfaces are limited," says Chasney.

Integration Challenge
But Chasney says the links between applications are vital-so much so that he calls integration the industry's biggest challenge. Application integration, which also helps Clark absorb its acquisitions, means that its core operations run more efficiently and are better integrated with the rest of the company. Without dynamic links to financial systems, for example, a contractor scheduled to perform maintenance won't get paid right away and therefore won't start right away. So Clark, which spends $100 million annually on maintenance, is building tighter, real-time custom interfaces to tie outside contractors and the maintenance-management system into the financial applications. "You spend a lot of money with outside companies, and you'd like to have them tied into your system," Chasney says.

Despite the importance of integration to Clark, Chasney says that the company is not adopting any of the new enterprise application integration packages. "Some of them aren't ready for prime time yet," he says. Instead, the company is using IBM's MQSeries messaging middleware coupled with the Extended Markup Language to build its own interfaces.

The integrated systems feed is another critical piece of Clark's technology story. Clark has linked its production systems into a custom business-intelligence system that analyzes the production environment for possible performance improvements to an optimized mix of fuel types, such as gasoline and jet fuel. For example, if prices are low for commodity fuel, such as gasoline, the business-intelligence system can change the "cut points" of the process to boost the volume of high-margin jet fuel the refinery produces. "Each of our refineries is pushing several million dollars of products per day. If I'm less optimal than possible, I'm missing out on significant revenue," Chasney says.

So it comes back to efficiency, speed and agility. They're all necessary to make the elephant dance.