Collaboration is about more than squeezing out supply-chain costs

InformationWeek Staff, Contributor

December 7, 2001

15 Min Read

When Deborah Crooke came home from the hospital after giving birth to twins, she checked on her new baby boy and girl before she went to bed, the moment she woke up, and often during the night. Not surprising for a new mom--except that Crooke's babies were 20 miles away in a Boston neonatal unit because they were born 11 weeks premature.

Crooke relied on a private Web page from Beth Israel Deaconess Medical Center, where neonatal staff provided updates on weight, feeding, and medical care, as well as frequent digital photos of the babies. Other parents use the system, called Baby CareLink, for holding videoconferences with doctors after bringing a child home from intensive care. That way, parents and patient can get home sooner, and doctors can still see the baby often. It's one of several Web-based services that CareGroup Healthcare System, a network of physicians and six Boston-area hospitals, uses to increase communication between the health-care group and its patients. CareGroup's dynamic relationship with its patients is an example of where business collaboration is headed and the critical role technology plays.

Early efforts at technology-enabled collaboration focused on cost-cutting and efficiency--such as taking the paper out of transactions and sharing data with suppliers to create better forecasts--and there's still lots of money to be saved. CareGroup's Baby CareLink has a clear financial advantage: A day in neonatal intensive care costs about $5,000, so getting a child home earlier by leasing a T1 line and videoconferencing equipment pays off. But getting a child out of the hospital and into a parent's direct care does more than save money; it gives the patient and parents a better experience. And it's representative of the next stage of collaborative business, where cooperation among customers, suppliers, partners, and colleagues lets companies do business in different and better ways. InformationWeek has highlighted 25 companies such as CareGroup that see that opportunity and are leading business in that direction.

Deborah Crooke

A private Web page from Beth Israel Deaconess Medical Center let Crooke, mother of twins born preterm, check on her babies, though they were in the neonatal unit at the hospital and she was home.

Collaboration can also be difficult, messy, and often frustrating. Like any good strategy, if it were easy, it wouldn't provide an edge to companies that are good at it. Even these 25 innovative companies have collaborative efforts that fall short of their promise because of a lack of participation, inadequate technology, or resistance born of business tradition. And some companies intentionally limit their collaborative efforts because the investment of time and attention isn't worth the payoff.

Craig Smith, president of Owens & Minor Inc., checks his optimism about the unlimited promise of collaborative efforts with the gritty reality of what it takes to get them done. The $3.5 billion-a-year Glen Allen, Va., health-care products distributor works with suppliers, customers, and even competitors on collaborative projects, and it sees at least $1 billion in costs that could come out of the health-care supply chain if everyone cooperated on projects such as devising a single bar-code system for the industry. "There's a huge pot of gold at the end of the rainbow if everybody works collaboratively in the supply chain," Smith says.

An example of such cooperation is the integration of OM Direct, Owens & Minor's Internet order-fulfillment system, with the product catalog system of a key supplier, Kimberly-Clark Corp.'s Roswell, Ga., health-care business, which makes disposable surgical masks, gloves, and sterilization wrap. Integration of the systems means that when an Owens & Minor customer clicks for more information on a Kimberly-Clark product, there's a connection to Kimberly-Clark's own product information, such as safety data sheets, videos on proper usage, product substitution notices, and any Food and Drug Administration recall announcements. It also means Kimberly-Clark gets a direct link to its customers, Owens & Minor doesn't have to maintain a catalog, and both companies know that the information is as up to date as possible.

Yet a huge effort is needed to nurture that relationship. Owens & Minor has employees from inventory management, finance, operations, and technology meet face to face with their Kimberly-Clark counterparts about once a month and they discuss projects more frequently through regular telephone calls. Together, they decide how cooperation and technology can help them streamline processes, forecast customer demand, and more efficiently manage inventory levels, as well as what key data they can capture and share about the products that hospitals buy and how they're used.

Smith meets three times a year with his counterpart at Kimberly-Clark's health-care business; late last month, he met with Joanne Bauer, the newly named president of the Kimberly-Clark unit. At these meetings, which have been going on for six years, the presidents discuss ways to improve their relationship. "We've had such a long relationship with Kimberly-Clark, it's almost like we've been married," Smith says. It's impractical for Owens & Minor to pour that much executive and management time into every supplier relationship, so it directs the bulk of its collaboration effort toward the top 10 suppliers that provide 60% of sales. "What you try to do is get the biggest impact you can on the supply chain," Smith says.

Corporate culture is another challenge that collaboration often has to overcome. At New York ad agency Ogilvy & Mather, there's a long history of cooperating with clients to produce memorable advertisements, from the eye-patch-wearing Hathaway shirt man in the 1950s to the recent "you're so ready for IBM" E-business campaign. Yet the place is also full of perfectionists, the kind of intense, creative types who obsess over making every word and image tug at just the right emotion and who want everything flawless before showing their work to a client. Those conflicting forces had reached a balance when the agency's back-and-forth with clients was done mostly by Express Mail, because there was a moment when ad execs could say, "OK, it's good enough to ship."

Atefeh Riazi

When Ogilvy & Mather executives make a sales pitch to a potential client, they often emphasize the advertising agency's ability to collaborate with its clients electronically, says CIO Riazi.

But now, a rising number of clients want to check out the words and images in their ad campaigns more often via extranets, and that's required a cultural change at Ogilvy & Mather. "We like to make sure things are perfect before we send them out," CIO Atefeh Riazi says. Collaboration technology "makes it easier to share our work throughout the process, but I don't think we've completely overcome that culture."

Riazi's strategy on the IT side is familiar to innovative executives: Encourage collaboration by making the tools and process as easy to use as possible. By making collaboration software tools easy for clients to use, they're more likely to demand collaboration. Clients' demands tend to get everyone's attention. Internally, the agency has concentrated on making sure every office worldwide has the high-bandwidth network needed to work with large files, whether with a client or a colleague in one of the 104 countries where Ogilvy & Mather has staff. "In North America, when we look at bandwidth, it seems like a trivial issue," Riazi says. "In parts of Latin American and Europe, it can be very costly and difficult."

Ogilvy & Mather's IT team has created two collaboration platforms. The IT team first built a client extranet in 1994 when the agency took over IBM's advertising, which had been spread across 40 agencies. IBM and Ogilvy & Mather together built a Lotus Notes-based system that lets people view files--images, text, radio, multimedia--online rather than as network files. The agency has since customized another system, based on Intraspect Software Inc. software for clients that don't use Lotus Notes, which it's rolling out to American Express, Ford, and others.

Security quickly becomes a key concern in collaboration. If Ford is preparing a new product or promotion, the automaker doesn't want word to leak out. Beyond software protections such as firewalls and a virtual private network Internet connection, some companies have Ogilvy & Mather keep work on a separate server in the agency's headquarters, with a dedicated data line. "There's a lot of sensitive information on these extranets," Riazi says. "We give them any level of security they want."

The ad agency also has started selling collaboration early in the pitch process. Many clients come to Ogilvy & Mather because they're trying to manage global brands and want an agency that can monitor how a brand is represented in advertising around the world. That means global, multimedia information-sharing internally and externally.

Anita Valdes, an Ogilvy & Mather partner in worldwide management supervision, is using the IT tool as the key selling point to attract additional business from a major multinational packaged-goods company. The client now catalogs tapes of its advertising in a manual system. Ogilvy & Mather is proposing to manage all the client's marketing worldwide--TV commercials, direct mail, print, and billboard ads--as digital assets through its collaborative network. "The demands for how you work globally are constantly changing," Valdes says.

Collaborating with customers is one thing. But what about a company that doesn't sell directly to a user--how does it understand its customer's customer? It's a thornier problem that many of these innovators are working to solve. In the case of automotive-parts manufacturer ArvinMeritor Inc., the customer it wants to learn from is the truck driver who rides on its axles. The Troy, Mich., company makes a diverse product line, from axles to moon roofs to spark plugs, that it sells through dealers or directly to car and truck manufacturers. Because the company doesn't have direct contact with drivers, information about defects and problems can be slow to filter back down the supply chain.

So ArvinMeritor is exploring ways to speed the process. The company has focused on warranty claims--when a vehicle owner or fleet manager returns a part for repair--because they offer the first clues that there might be a recurring defect. But the average mechanic shop took 75 days to file a warranty claim form after it made a repair. That meant months could pass before ArvinMeritor's engineers could spot a trend of returns that suggest a defect.

Since it started offering that claim form on the Web in February, the company has been able to cut the average reporting time in half. Engineers get much quicker access to data, and it contains fewer errors because the company doesn't have to recopy data from a form. Fleet managers and repair shops that use the online system get their claims paid much faster. Almost a third of Web claims are processed within a day.

Sound like a classic win-win situation? Not quite. The problem is that four out of five claims still come to ArvinMeritor on paper, amounting to 70% of the dollar value of claims. That's mainly because many repair shops have no or slow Web access. The company is redesigning the online claims process to inject even more interaction with repair shops, says Yomi Famurewa, senior director of IT supply-chain product design for ArvinMeritor. By putting employees experienced with warranty issues on the receiving end of the Web claims, instead of general customer-service representatives, the company wants to be able to give an instant response. Reps might, for instance, be able to tell the shop that a basic repair should be quoted for only two hours of a mechanic's time, not five. Famurewa expects that could save the company roughly 50% of its warranty costs.

Intel's expectations for electronic collaboration start with a simple goal: CEO Craig Barrett has charged the company to become a 100% electronic corporation. The task of making that happen falls to people like Tracy Nielsen, co-manager of Intel's private E-market office. He's part of an effort to extend the company's already-impressive collaboration strategy.

Many companies would be content with what Intel has achieved in collaboration. Suppliers can access their account information online to see Intel's demand forecasts, engineering changes, and orders and invoices. Its factory systems automatically communicate demand, inventory, and receipt information to suppliers without an Intel buyer's involvement. But to Nielsen, those steps are the easy part. "Once you get past the low-hanging fruit of automation, that's where it gets difficult," he says.

Online design collaboration is one of the key trends that Intel and other innovators are eagerly embracing. When developing products, Intel works closely with suppliers, particularly those that build manufacturing equipment or provide direct materials such as silicon. By customizing commercial software (Intel is secretive about what kind), the company creates online spaces to communicate with suppliers, share documents and files, exchange messages, and track comments and corrections concerning product design. That tracking is particularly important, because following which company added a particular piece of intellectual property to a discussion is a potentially contentious element of collaboration, and the electronic discussions create an audit trail. The system aids development with companies in Asia--where more than half of Intel's direct material suppliers are--by cutting two days from each exchange of work compared with Express Mail.

When the IT staffers delivered the collaboration software, they weren't entirely sure how engineers would use them. They focused on providing good tools that were easy to use, and then trusted engineers to experiment with them, figure out the best uses, and come back with suggestions for improvement. They knew the tools would be used for technical work, but they're also being used for contract negotiations with distant suppliers and for other communication such as working out the details of joint press releases. Nielsen compares the collaboration tools with spreadsheets, which started out as handy aids for accounting and ended up being used to run entire businesses. As expected, the users want more. In the coming year, Nielsen and his team will work on a system that can connect all parties at the same moment, in real time. He's confident they can deliver, because collaboration software vendors see the need and are filling in the gaps in their products, something they weren't doing aggressively two years ago.

There's a lot left to do at Intel. Nielsen's group and other units working with suppliers use different collaborative systems than those used by groups that work with customers, which include manufacturers such as Compaq and Dell Computer. Intel is combining those systems so it's easier to move new products from the system used for internal design process to the one used with computer manufacturers, which need early access to new chip designs in order to build their own new products. About a year ago, Intel combined its buy-and sell-side IT departments. And the company's pushing hard for industry standards in data transfer, advocating the RosettaNet standard. While qualitative collaboration in areas such as design is progressing, and processes such as ordering and inventory monitoring have been automated, broader adoption depends on companies speaking the same business language. "The collaboration is reliant on the data that's flying back and forth," Nielsen says.

Some of the greatest collaboration challenges are internal. At British pharmaceutical company GlaxoSmithKline plc, research into a new drug often starts with scientists looking at past tests of a particular molecule. However, the company has 4,000 researchers, and the work they've done resides in any one of more than a dozen databases in several different formats, with separate databases for chemical and biological information, and yet another for the inventory of specimens. In June, the company created a Web-based tool that searches all those databases and external sources to create what it calls a Compound CV, which is a list of all the research that's been done on that molecule. The tools are part of a three-year effort to speed early-phase research, so the company can focus its $4 billion-a-year drug-research budget on the best prospects for new medicines. "One problem kept coming up: We had problems getting our information," says Jim Koch, director of strategy and consulting for discovery technology.

Of course, increasing the amount of information without tools to manage it is a formula for failure. "The gap we're going to face in the pharmaceutical business is an analysis gap," Koch says. GlaxoSmithKline created a spreadsheet that recognizes chemical symbols to allow easier sorting, as well as the Spotfire visualization application that helps researchers look for trends among the hundreds of thousands of compounds identified in a search. Giving researchers those tools will become increasingly important as computer-based modeling and research take on a greater role as the first step in screening compound candidates.

Koch and the GlaxoSmithKline IT team are similar to their peers on the Innovators in Collaboration list in that they're doing more than building collaborative tools to answer an immediate need. They're also opening connections, which urges technology users to answer the question: "Now, what's possible?"--with Eric Chabrow and Jeff Sweat

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