Sept. 11, 2000

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Applied Divides IT, Conquers E-Business

By Tony Seideman

t Applied Industrial Technologies Inc., IT has become too important to be the responsibility of just one department. About a year ago, the $1.53 billion distributor of industrial products fundamentally altered the way it handles IT, dividing responsibilities between two groups. One side--about 10%--of the IT department deals with traditional, internal, operation-oriented functions, says James Hopper, CIO and VP of E-commerce for the Cleveland company.

The other 90% focuses on IT's new role as an ambassador to the outside world. "The first group is responsible for developing legacy systems and overall production support. The second group is responsible for all facets of E-commerce, including marketing and sales," Hopper says.

In some companies, splitting up resources in this way has created tension, with legacy IT staffers feeling they're overshadowed by the E-commerce elite. That hasn't happened at Applied, because Applied is organized functionally along lines-of-business responsibilities, Hopper says. Different departments have their own IT groups, each with about 10 people. Applied has about 80 IT staffers, and reporting structures vary depending on whether they're involved in a functional or direct IT position. Functional staffers report both to their department heads and to Hopper; IT-focused departments deal directly with IT managers.

Industries such as concrete aggregate manufacturers, corrugated cardboard suppliers, and poultry account for much of Applied's customer base. These customers demand high-quality services and support. At the core of Applied's systems is a Tandem mainframe that drives 5,000 terminals and handles about 2 million screens a day in about 400 locations. Web applications run on a Windows NT system; financials are done on an AS/400; and the company's distribution centers have five Unix systems.

Web applications are a top priority across the board. "Every meeting with suppliers or customers contains a discussion about the Internet," Hopper says. Customers want data, support, and services delivered quickly and in ways they can use. Applied's E-commerce unit is converting the company's 1.5 million-item text catalog to a digital Web format. The unit also is moving beyond traditional electronic data interchange and File Transfer Protocol to using the Internet and the Extensible Markup Language for sharing information, Hopper says.

For Hopper, one of the most exciting things about the shift in responsibilities is the IT department's direct and intimate relationship with customers. The E-commerce unit built and maintains Applied's E-commerce infrastructure, which has been taking orders electronically for two years. Shrink-wrapped E-commerce solutions weren't available then, but now that they are, Hopper will take advantage of packages such as those from Commerce One Inc. or Ariba Inc.

By managing the E-commerce channel, Applied's IT department has shifted from its traditional role as a cost center to that of a revenue contributor, a decision Hopper initiated. Through E-commerce, the IT department is opening several marketing and revenue-generating channels, he says. These include creating after-business-hours purchasing for customers, taking part in Datastream Systems Inc.'s iProcure marketplace, and joining in E-marketplaces, such as FarmWarehouse.com and Maintenanceamerica.com.

The IT department also implemented several new projects in 1999, including two process-improvement projects that saved 1,600 staff hours annually and resulted in a $6 million savings. The department also upgraded the company's mainframe system, buying updated Tandem systems. The new Tandem system cost Applied less to buy than the old mainframe. Maintenance costs are less, too, resulting in a combined savings of $290,000 a year. At the same time, the company made $323,000 by selling the old system.

In addition, Applied plans to improve supply-chain efficiencies and create quantitative tools for measuring the benefits of new technologies.

Return to main story, "Beyond Just Moving Goods"

illustration by Jeffrey Fisher

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