[From iSource Business, July 2001] Sometimes, great isn't good enough. That was Larry Caltagirone's philosophy when, a year ago, he surveyed the state-of-the-art enterprise resource planning (ERP) system he'd woven together for Randell Manufacturing, a Weidman, Mich.-based maker of refrigeration equipment for restaurants and hospitals. Caltagirone, Randell's manager of information sciences, had just spent three long years installing the ambitious information system throughout the company. He wanted a way to leverage the considerable investment he and his firm had made by expanding its uses. The likeliest solution was to hook the system up to the Internet and allow purchasers to conduct Web-based transactions. But, in order to reap the same efficiencies they had experienced by installing their new information system, how was that to be done?
The fortuitous answer came from an unexpected source: a Chicago-based aggregator of manufacturing materials and supplies, named Prime Advantage, that Randell had started working with two years earlier. By working together closely, the companies were able to develop a transactional process that integrated the two systems, resulting in even further benefits for Randell.
How It All Began
Caltagirone first came to Randell four years ago with a weighty mission: develop and implement a top-of-the-line information system that would give the company a definite leg up in the highly competitive refrigeration equipment market. Randell, a 25-year old company, which had been bought by manufacturing giant Dover Corp. in 1986, was struggling to stay on top in an industry going through heavy consolidation. We needed a system that would allow us to thrive at a time when it was getting more and more difficult to be successful, he says.
So, Caltagirone set out to install an ERP system that would turn Randell into an efficient fighting machine. It would integrate just about every function imaginable purchasing, accounts payable, logistics, shipping, manufacturing, sales into one process. Once an order was made, it would automatically trigger the shipping or manufacturing of a product; and every step of the way would be visible to customers who could tap into the system whenever they wanted to see the status of their orders.
It wasn't an easy job. Some areas in the company weren't even computerized. Purchasing, for example, still kept track of inventory levels on index cards. So Caltagirone unfolded his plan systematically over a period of three years. He rolled out the system functional area by functional area, with each department spending about six months in intensive training. By 1999, with three Hewlett-Packard minicomputers hooked up to 100 workstations in two locations, every department was up to speed and Caltagirone's work was done.
Or was it? The system, which cost in excess of six figures, was a hefty investment for a company with $70 million in consolidated sales. Caltagirone determined that, to get the biggest bang for the company's buck, he could use the system as the foundation for other technological innovations, which, in turn, would create more benefits to the operation. He had designed the system to be Web-enabled. The logical step was to transform it into a source for making interactive transactions and linking the purchasing and ordering systems to suppliers' order-entry systems. And, since purchasing was one of the first areas to get up and running on the new system, the department was particularly proficient at using the technology. But how to do it? We couldn't afford to link up with each individual supplier, says Caltagirone. And we didn't know how to go about it otherwise.
Getting Bang for Your Buck
That's when Prime Advantage came knocking. About two years before, Prime had recruited Randell to be a founding member of their consortium, which offered pre-negotiated discounts to participants and organized buyers and sellers of raw materials; components; maintenance, repair and operations (MRO); and other services and supplies. Since about 80 percent of Randell's total spend went to purchase the stainless steel needed to make its refrigeration equipment (the company won't say how much that comes to), signing on with a cooperative that promised to reduce costs seemed a good idea. It also didn't mean a big change in the way purchases were made. While payments were done electronically Randell paid Prime, which in turn paid suppliers orders were still put through the traditional way, through fax and phone. What Prime now proposed was an online B2B system through which all transactions between Prime's 182 buyers and 58 suppliers would be conducted over the Web.
Just what the doctor ordered? Not exactly. In fact, the initial response among Caltagirone's nine purchasers was decidedly lukewarm. The reason: Prime's proposal would actually mean more work for purchasers, who would have to input purchase orders into their new system and then, a second time, on the Web site. We had worked long and hard to get this system up. However, they weren't open to adding on new work, says Caltagirone. What they needed, he realized, was a system that better integrated Prime's with Randell's. And Prime responded that they could work with Randell to make that happen.
What he didn't know, of course, was that accomplishing that feat required more than a little rejiggering on Prime's part. Plus, the company planned to do a similar job for all of its buyers. Each member had a different system, and we had to develop a way to format and translate the data so any supplier could receive it, says Louise O'Sullivan, Prime's president and co-founder. That meant working hand-in-hand with each buyer to tailor the links to their internal system.
After about four months, Prime had revised technology that was ready to go. The next part was easy: Prime's representative John Kochavatr and Randell systems administrator Jim Touchtone teamed up to do the integration; in just two days, it was completed.
How does it work? Randell purchasers create an order and transmit it electronically to the supplier either through fax, a traditional electronic data interchange system or directly to a computer, depending on the supplier's setup. Prices are at a discount, negotiated by Prime. For direct materials like steel, Randell also can go to a protected area on the Web where special rebates are listed. It all takes a few seconds, compared to the hours, or even days, of the old, error-prone system in which purchasers would fax or phone orders, crossing their fingers that it got there and then waiting for an acknowledgment to be sent back.
While the system has even further reduced costs Caltagirone won't reveal the amount he points to overall increases in the efficiency of the operation as the most important benefit. We get more done in less time, he says. Purchasers devote more attention to productive tasks like analyzing costs, choosing the best products and controlling inventory, rather than spending an inordinate part of the day with the busy work of order processing, he says.
And that's not the end of the story. Caltagirone might extend the purchase order interface to non-Prime suppliers for a fee. He's also considering ways to include independent reps and customers. And, he's planning on extending the capability to another Dover-owned manufacturing company, DovaTech; Caltagirone became DovaTech's information technology director in January. Our goal is to gain a competitive advantage in our industry, to offer something other manufacturers aren't able to, he says. From the look of things, he's well on his way there.