[From iSource Business, October/November 2002] While technology can help you streamline your operations and set your company on the path to Process Nirvana, it can also put you on the road to Process Perdition. One global chemical company is working to avoid the pitfalls and reap the benefits of aligning technology and process.
Companies are not just collections of people, processes, structures and strategies, writes James Champy, chairman of Perot Systems' consulting practice and one of the deans of business process re-engineering. Rather, Champy asserts in his 2002 book X-Engineering the Corporation, companies are essentially "combinations of processes," with customers, suppliers and business partners participating alongside the companies' own employees in the flow of processes that allow enterprises to function, survive and even thrive.
Technology, the author writes, will be a key element in helping companies improve the performance of the processes upon which they depend. But while Champy allows that the application of technology, in many cases, has helped reduce cycle times and improve quality, he warns that in other cases "it has made some processes so impenetrable that you need a pilot's course in navigation to find your way."
[From iSource Business, October/November 2002] While technology can help you streamline your operations and set your company on the path to Process Nirvana, it can also put you on the road to Process Perdition. One global chemical company is working to avoid the pitfalls and reap the benefits of aligning technology and process.
Companies are not just collections of people, processes, structures and strategies, writes James Champy, chairman of Perot Systems' consulting practice and one of the deans of business process re-engineering. Rather, Champy asserts in his 2002 book X-Engineering the Corporation, companies are essentially "combinations of processes," with customers, suppliers and business partners participating alongside the companies' own employees in the flow of processes that allow enterprises to function, survive and even thrive.
Technology, the author writes, will be a key element in helping companies improve the performance of the processes upon which they depend. But while Champy allows that the application of technology, in many cases, has helped reduce cycle times and improve quality, he warns that in other cases "it has made some processes so impenetrable that you need a pilot's course in navigation to find your way."
If charting a course through process re-engineering is indeed akin to piloting an airplane, Kathy Chrien and Jeff Heller likely have earned their wings. Chrien is enterprise resource planning (ERP) process team lead for both the supply and demand planning process and purchase-to-pay process at Philadelphia-based Rohm and Haas, working on the $6 billion chemical company's five-year ERP implementation. Heller is procurement process manager at Rohm and Haas, where, among other things, he has been helping to implement e-procurement across the company's 15 business units.
The challenges that Chrien, Heller and their respective teams have encountered in the course of the technology implementations at Rohm and Haas, as well as the strategies they have used to align the company's processes with the new technologies, offer an instructive case study in how one enterprise is striving for Process Nirvana in the age of e-business, especially because the ERP rollout impacts every Rohm and Haas supply chain function. However, this article highlights the sourcing and procurement functions in particular.
Three Questions about Processes
But before we get to Rohm and Haas, let's take a look at three fundamental questions relating to process. First, in the age of all things "e," why do processes still matter?
Earlier this year John Bermudez, an analyst with Boston-based consultancy AMR Research, reported that just 15 percent of manufacturers had successfully implemented more than a handful of the applications they had purchased from supply chain planning solution providers, despite the cost of the software and the claims of the providers. But rather than pointing the finger at the software companies, Bermudez suggested that often manufacturers have only themselves to blame for implementation failures. "Many corporations find that to use the new supply chain applications, they must not only learn the technology, but really understand how their existing supply chain processes work now and the transformation required to gain the desired cost reduction and responsiveness," the analyst wrote. Trouble is, too few companies have an organizational structure that can support the cross-functional process changes necessary to best take advantage of the new technology.
Meanwhile, Forrester Research analyst Bruce Temkin, in a report entitled "What Drives e-Procurement Success," draws a direct link between the willingness of a company to redesign its processes and the extent of the benefit the company is likely to reap from moving its purchasing online. Citing the Report on e-Business prepared by Cambridge, Mass.-based Forrester Research and the Tempe, Ariz.-headquartered Institute for Supply Management (formerly the National Association for Purchasing Management), Temkin says that "extreme renovators" - companies that report significant changes in their purchasing processes - report cost savings levels from online purchasing that are twice as high as the average for all buyers in the ISM/Forrester Research survey.
Processes, therefore, clearly are important to the success of supply chain technology implementations, and Temkin's colleague at Forrester, analyst Navi Radjou, sees two seemingly opposing trends pushing processes to the fore. On the supply side, companies increasingly are outsourcing the design and manufacture of their products. Automakers, for example, have been relying on greater numbers of component and assembly suppliers since the 1970s, but the trend has extended beyond Detroit to encompass other sectors, too. Over in the electronics industry, original equipment manufacturers (OEMs) will outsource as much as 30 percent of their production by 2005, up from about 16 percent this year, according to predictions by Alameda, Calif.-based consultancy Technology Forecasters. As more production moves outside the four-walls of a given enterprise, many of the processes that previously ran internally at that company - from design, buy and make to move and serve - now are extending to outside partners. "That means the original design of many current processes no longer reflects today's business realities," Radjou says.
On the demand side, companies are contending with customers that increasingly want configured- or engineered-to-order goods and components. Forrester Research reports that 45 percent of manufacturers already engineer the majority of their products to order. "The problem," Radjou explains, "when you want to sell custom-made products to your customers is that in many cases the customers can end up wanting changes to the products at any time." Unfortunately, according to Forrester Research, 60 percent of manufacturers don't have a rigorous electronic engineering change order process in place, so it can take days for an OEM to get back to a customer to say they have received a change order and will apply it. Thus, the need to respond rapidly to shifts in customer tastes or requirements places a premium on well-streamlined processes, backed up by the necessary technology, for managing engineering changes in those sectors where speed-to-market can lend a competitive advantage.
The Technology Impact
Now that we've established that processes continue to be important in the e-Business Age, the next question is, how exactly does e-business affect processes?
The obvious answer, of course, is that technology reduces the cycle time, labor intensity and inefficiencies associated with manual processes, so automation can make processes faster and more efficient. But Jim Harms, Chicago-based director of Deloitte Consulting's manufacturing and supply chain practice, argues that e-business can improve the quality of processes, too.
Harms points to the impact that e-technologies have had on issues relating to customer integration, whether it's creating and entering customers' orders, handling inquiries, or communicating with customers regarding the current status of committed items, the promise of when items can ship and the status of shipments. Technology can improve the utility of these processes from the customer's perspective by empowering a buying organization to access, and make use of, that type of information at will.
In the logistics arena, for example, as transportation providers have adopted new technologies, customers have increasingly sought to leverage information from the providers not only to optimize the selection of freight mode but also to select the appropriate pricing given the type of service required or requested by either the shipper or the customer. From the supplier's perspective, e-business technologies have produced advances in demand management by allowing companies to integrate customer demand requirements with their forecasting applications, helping companies reduce the asset base required to ensure they have the right product in the right place at the right time.
Which brings us to perhaps the most important question regarding process and technology: What are the dangers of mixing the two?
Analysts and supply chain practitioners seem to agree that the paramount risk in any e-business implementation is the danger of mistaking technology for anything other than a tool. Too often, these experts agree, companies either turn to technology to automate bad processes, thinking that the mere act of automation will improve those processes, or they put technologies in place without thinking about the process changes necessary to help them derive the greatest benefit from the new level of automation. "There are some industry segments or firms that take the mindset or the behavior set of saying the improvement is all in the software," Harms says. "But there are process changes that have to take place, there are organization changes that have to take place, and there are policies and procedures that not only complement the tool but in fact, in many cases, drive the success of the tool. And if you don't take the changes to heart, register the changes, and get them properly and enthusiastically embraced, you might not get any benefit."
Offering an example of technology getting ahead of process, Kip Martin, vice president for electronic business strategies at META Group, says that too often companies buy into the hype surrounding applications that provide real-time information. Besides the risk of investing untold amounts just to squeeze the last few seconds out of the communications chain for no clear benefit, it's not necessarily good that you can see all your supply chain information all the time. If a company's sourcing staff has access to designs in progress, they might begin making arrangements with manufacturers and suppliers to provide components when, in fact, the design has not been finalized and the company ultimately will not need those components. "So everyone's got real-time access, but that doesn't necessarily mean that everyone is being more efficient," Martin says.
A further danger is investing in technology to automate a process that already is very effective. Martin says he has spoken with companies that have invested in e-procurement solutions despite the fact that they have highly effective procurement and sourcing specialists. In such cases, the return on investment (ROI) proved disappointing because the companies' procurement processes were already in line with industry best practices, and the opportunities for using the technology to improve those processes proved minimal.
Forrester's Radjou offers a couple reasons why companies continue to apply technologies without giving sufficient consideration to the process implications of those technologies. First, installing software is just easier than changing processes. "A lot of companies are putting the cart before the horse," the analyst says, "trying to circumvent the more challenging thing they should do, which is structural change at the process level and the people level." But the broader problem, Radjou asserts, is the financial imperatives driving business decisions today. "Wall Street wants you to deliver rapid-fire performance improvements," he explains. "It's changing now, but as recently as last year financial analysts loved hearing that you were investing in [a supply chain application], because that sent a signal to your competitor that you're smart and to Wall Street that you're doing something to improve your bottom line. But go talk to Wall Street and say you're embarking on a three-year process-changing project, you'll see the ROI in five years and you are going to turn the company around radically; they're going to laugh at you."
Process Chemistry at Rohm and Haas
Notwithstanding the perils of process and Wall Street's qualms, the hyper-competitive global market clearly is driving companies to adopt new technologies in the quest for greater efficiency and higher sales, and Rohm and Haas is no exception.
Headquartered in Philadelphia, 95-year-old Rohm and Haas, with 2001 revenues of about $6 billion, is in the mid-tier for all chemical companies but ranks among the world's largest specialty chemical companies. The company's 17,000 employees work in 140 manufacturing or research facilities in 27 countries, with the bulk of the firm's operations in North America and Europe, although Rohm and Haas also has a significant, and expanding, presence in Asia.
The chemical company reports its results in five major business groups, including Coatings, Performance Chemicals, Adhesives and Sealants, Electronic Materials, and Salt (through its 1999 acquisition of Morton Salt Co.). Rohm and Haas also has, within its business groups, distinct business units that often act independently, and where possible the company has devolved control for profit and loss, strategic decisions, and research into the hands of the business units, in line with the vision of the company's CEO, Raj Gupta, to maintain a thin corporate layer in support of relatively autonomous business units.
With its decentralized structure and rapid growth ?the company more than doubled its revenues over the past five years, including through acquisitions ?Rohm and Haas found by the late 1990s that it was operating with a hodgepodge of enterprise systems and processes. As a result, the company's executives no longer had the kind of integrated view of the corporation to which they were accustomed. "Where we used to have very good information, now there were gaps," says Kathy Chrien, and moreover, those gaps had consequences. For example, following the Morton acquisition the company had gone through a strategic sourcing process in an effort to consolidate its spend under national procurement contracts, but the disparate purchasing systems and processes running within Rohm and Haas made it difficult to track compliance with those contracts.
To restore a more unified view of the company, Rohm and Haas elected in 1999 to replace its disparate enterprise platforms and software packages with a single instance of the SAP R/3 ERP package across all its groups and facilities. To coordinate the company's ERP project, in October 2000 Rohm and Haas set up an internal "e-transformation" group headed by Chrien's boss, Director of e-Transformation Bruce Hoechner, who reports to the company's president and chief operating officer, J. Michael Fitzpatrick.
The five-year, phased project, with an estimated total price tag of slightly under $300 million, reached its first benchmark in November 2001 when Rohm and Haas rolled out the new ERP processes and systems for a significant part of its Plastics Additives business, including two plants in the United States and one in Europe. The company's Electronic Materials plants and sales offices in North America went live on the system this past July, along with its European Coatings emulsions and Plastics Additives businesses, for a total of five plants in the United States and six plants in Europe. Successive rollouts are planned for other business units through the target completion date in 2004. The ERP implementation is affecting business functions across the company, including finance, human resources, customer relationship management, materials management, production scheduling, procurement, maintenance, sales and distribution. In addition, Rohm and Haas has deployed supply chain and demand planning solutions from Manugistics (with whom the chemical company has been working since 1991) and, on the purchasing side, an Ariba e-procurement platform, hosted by USinternetworking, to supplement the company's procurement card system.
Planning for Processes
Process has taken center stage in each step of the implementations, including before Rohm and Haas had selected a particular solution to perform a given task or set of tasks. According to Chrien, the company has worked to streamline its processes prior to introducing new technologies as a way of avoiding the pitfalls of "e-enabling" less-than-optimal processes. "We're trying very hard not to pave the cow paths," she says. For example, as part of its strategic sourcing effort prior to implementing an e-procurement system, the company investigated best procurement practices, asking suppliers about their processes and working with a consultant to ensure that Rohm and Haas' practices were best in class.
The implementation teams typically have put process first in selecting solutions. "We like to look at the process, understand how we do things and then employ the proper tool to accomplish that process," says Heller, who has worked at the chemical company since 1966, including the past 17 years in procurement, and who reports to Jean-Francois Mayer, the company's vice president and director of procurement. For instance, Rohm and Haas' procurement staff divided the company's spend into three buckets, depending on the appropriate process for purchasing a given good, and then assigned a tool to each bucket: the e-procurement system for high-volume consumables, the procurement card for low-volume consumables and the ERP system for inventory items, such as spare parts.
In another case, the ERP implementation team opted to offer the business units a choice of two methods for entering demand forecast modifications, either at the level of the individual salesperson (using Manugistics' Collaborate product) or centrally through a demand planner in cases when a statistical model required modification (using Manugistics' DPEE - Demand Planning Extended Edition - tool). In this instance, Chrien says that, while Rohm and Haas is trying to standardize processes across the company, the available tools allowed for supporting both processes. "Ultimately, somebody needs to update the system, whether it's the demand planner or the salesperson, and that's a business decision: Who in your organization is allowed to do this?" Chrien explains. "Once the business makes that decision, they can chose the tool that makes it easiest to do the job."
On the other hand, flexibility can have its limits. One business unit has been using a homegrown system to make forecast changes and has asked the ERP implementation team to write interfaces so the business can continue to use its old system. Chrien says the ERP team is working with the business to come up with a win-win solution, "but we don't really want to start supporting different tools and interfaces because that would require more resources to maintain."
Managing the Change
At times the technology's capabilities have allowed the company to streamline an existing process. Prior to the e-procurement implementation, Rohm and Haas used the standard "req-to-check" system: requisition, purchase order, receipt, invoice, three-way match and payment. "Then we put in Ariba," Heller says, "and it gave us the opportunity to say, 'Do we really need a receipt?' And we said, 'For certain areas, we may need a receipt, but at this point, a receipt in the system does not really ensure that the ultimate customer got the material. It just means that somebody at the loading dock received it.' So we decided not do receipts in some cases since there's no value-add."
Sometimes the technology, through no fault of its own, is not capable of supporting a "wished for" or "target state" process. One of the original intents of the e-procurement implementation at Rohm and Haas, Heller relates, was to channel a greater percentage of the company's spend through national contracts by using online catalogs. However, it turned out that individual plants placed a higher-than-expected share of their spend with local suppliers that were not necessarily capable of supporting an online catalog or the "punch out" functionality that would allow the chemical company's buyers to place orders with a given supplier through the e-procurement system. To ensure the company's plants can continue to purchase the supplies they need, the e-procurement team has had to expand the use of the tool to accommodate the local spend. "We've really had to expand the ad hoc," Heller says, "where it really turns into being a requisitioning system. We're not sure where that's going to take us, but we know it will require more purchasing involvement, which we were trying to get away from."
Occasionally, the technology actually necessitates a process change, which in many cases, Heller believes, can be a good thing: "Every system I've seen is based on a process. We really want to understand the process it uses and then compare it to the process that we have. If it's no worse ?or maybe it's even better ?why keep the current process when the process that the new system is based on will give you equal or better results?" As an example, Heller points to the new ordering process implemented along with the Ariba online procurement system, which requires end users to order goods through Web-based catalogs rather than, as Heller puts it, "calling up Joe in purchasing and saying, 'Order me up one of those things that you got me last week.' Well, we don't have Joe anymore."
Of course, the end user in this case may perceive the new process as being less efficient, since ordering online could involve multiple clicks through a Web catalog rather than a single, quick call to the purchasing department. In such instances, the company's processes may become more streamlined on a macro level as a result of the technology implementation, while on a micro level the process that a particular person or group of people uses actually becomes more complex. For instance, Chrien says that with the new ERP system being deployed at Rohm and Haas, because purchasing data is tied more closely to accounts payable information, purchasing staff must spend more time up front to input complete and accurate information about a new supplier ?a hassle for them, but the overall effect is that the company's payment processes run more smoothly.
Outside the Four Walls
Rohm and Haas' implementation teams must also consider processes that extend beyond the four walls of their own company to involve customers, suppliers and business partners. The process-related work outside the enterprise includes ensuring that the technology can support current practices. For example, the company has put a good deal of effort over the past couple years implementing Class A MRP II processes to share short-term supplier schedules and long-range supplier plans with key members of their supply base. The company's ERP team is duplicating the tools necessary to continue this practice, although Chrien says Rohm and Haas is considering solutions to resolve certain formatting issues with the new reports generated through the ERP system.
But the company is not automatically replicating all its legacy processes. Take the practice of communicating with customers and suppliers via electronic data interchange (EDI). Theoretically, Chrien explains, Rohm and Haas would like to maintain EDI, and part of the ERP implementation for a given business unit would encompass the duplication of existing connections in SAP. However, before the implementation team does that work, it first asks an EDI-connected customer or supplier whether electronic data interchange has provided value and is therefore worth converting. "We've had cases where there is value and we've converted," Chrien says, "and in other cases, the customer or supplier says that Rohm and Haas sends them EDI information, and then they print it out and type it into their computer themselves. So if that's the case, we don't recreate that work."
Reaching Process Nirvana
What are the challenges when process meets technology? Not unexpectedly, change management looms larger than the purely technical issues. "The technical stuff can be challenging in areas, but fundamentally you can get there," says Chrien. "With the cultural stuff, no matter how hard you work, there can always be people in the organization who aren't going to change, so that's a struggle." Heller echoes that sentiment, but it is important to note that both of the process leaders empathize with their colleagues who must contend with new ways of going about their jobs, and Chrien and Heller emphasize the evangelization and education components of their respective implementations. Speaking of the e-procurement team's efforts to move increasing amounts of purchasing transactions through the online system and the procurement card, Heller notes that, in the Rohm and Haas culture, the company trusts its employees to make the right decision rather than trying to dictate use of the e-tools. Therefore, it is incumbent on the e-procurement team to educate end users on the value of the system to the company as a whole, even in those cases where the new tools may add a step ?or several steps ?to a particular user's purchasing process. As part of the effort to get employees using the proper channel for procuring particular goods, the e-procurement team developed a matrix to tell people where they should be putting a given piece of spend, whether on the procurement card or into the e-procurement or ERP systems. The team also created a "How Do I Buy Stuff" section for the company's intranet.
Chrien, while noting the top-level support the ERP project enjoys at Rohm and Haas, also underscores the need for support that runs up and down the corporate ladder, so that the business unit and functional managers buy into an implementation. As part of the SAP project, the implementation team has performed impact assessments for each process area to understand how particular people's jobs will change as the technology comes online, and the company set up a "Change Leadership Team" to help the businesses understand the impact the implementation will have on processes and job roles. And over time, the project team has refined, and placed greater emphasis on, the process-related messages it uses in working with business managers prior to and during implementations. The company is also looking to have its human resources department and the ERP team work with the business units six months following an implementation to determine how people have adjusted to the new process, to re-evaluate job levels and categories, and to identify areas for additional process tweaking, putting Rohm and Haas on the path to continuous process improvement.
Will Rohm and Haas ever reach its own Process Nirvana, a point at which the company will be ready to set its processes in stone? Chrien doubts it: "I don't think there is a Process Nirvana. There is never any one perfect process. This project will end, but there is ongoing improvement work." Moreover, a company can fix its current problems, but frequently those solutions have ripple effects elsewhere in the business, and those effects may require fixing, too.
"The other piece of it," Chrien continues, "is that technology is always changing, and your business and your markets are dynamic. Maybe you have a process that is optimized for a particular business situation, but things change. You're living in a dynamic environment, so I don't think you can ever say, 'Yeah, I'm totally done and I never have to improve my process again.'"
[SIDEBAR]
Big Wins, Big Risks for Processes and Technology
Technology can improve business processes by:
1. Reducing cycle times by automating processes.
2. Eliminating the errors and efficiencies associated with manual labor.
3. Improving the quality of processes.
But the risks of mixing technology and business processes include:
1. Automating a bad process.
2. Failing to modify processes to take full advantage of a new technology.
3. Investing heavily in technology to automate what already is an efficient process.
[SIDEBAR]
e-Processes in Practice: Product Design at Plantation Key Design
Dennis Steffen remembers when the design process amounted to a roomful of engineers sweating over drafting boards, and collaboration meant rolling up blueprints and flying off for meetings with clients. "There were no computers; it was all manual, pencil work," says the design veteran, who now is an independent design consultant with Plantation Key Design but who started with heavy equipment manufacturer Caterpillar in 1976. "Back then it would take about 70 people to do a job that today four or five people can do."
Today, of course, designers like Steffen can avail themselves of a variety of computer-aided design (CAD) tools that not only make their jobs easier but also accelerate the design process and, perhaps more important, the redesign process.
Steffen, a long-time user of PTC's Pro/Engineer (he literally wrote the book, a user's guide, on the solution), says CAD tools have evolved over time to better accommodate the way designers actually work. For example, the latest release of Pro/Engineer, dubbed Wildfire, includes interface revisions that put more of the tools and functionality that designers need closer at hand, an upgrade that Steffen estimates could cut his design times by as much as 30 percent. An integrated Web browser and the ability to more easily e-mail files from within the application also have the potential to accelerate the design cycle.
But perhaps the greatest benefit that enterprises can derive from today's CAD tools is the ability to share data and designs more readily among the company's own design staff, across the company's functional boundaries, and with suppliers and customers. "We all need to be able to share data and share it in real time," Steffen says, noting that the software available today allows him to demo designs for clients over the Internet without having to travel to customer sites and without the customer even having any software other than a Web browser. That accelerates the design process considerably just through the elimination of travel time, but it also allows customers to receive more regular updates and comment more frequently on designs. In addition suppliers can contribute input earlier in the design process, and sourcing, marketing and other staff within the enterprise can get a heads-up on, or contribute to, designs in progress. This functionality reduces the amount of re-designing work, Steffen says, again accelerating the design process.
What about the risk of slowing down the process by giving too many back-seat designers the opportunity to comment on works in progress, a problem that Steffen calls "design by committee"? There is that danger, the designer says, but overall, the effect is positive. "There is more value-add than there is a negative impact, because you need that level of expertise everyone brings to the table."
[SIDEBAR]
e-Processes in Practice: Order/Demand Capture at Lycoming Engines
Lycoming Engines, a division of Textron that manufactures high-performance piston engines for general aviation aircraft, is streamlining its order entry process and reducing order fulfillment cycles by using a sell-side e-business solution from Comergent to capture parts orders from its distributors.
Orders for the company's 7,000-plus products traditionally have come in by phone, fax, e-mail and regular mail to Lycoming's Williamsport, Pa., headquarters, where customer service staff hand-keyed the orders into the company's Oracle enterprise resource planning (ERP) system for processing. Now distributors can place orders through a Web storefront, and the orders flow directly into the ERP system. Lycoming aims to have 75 percent adoption of orders going through the system by the end of this year.
The new process has eliminated much of the manual work for Lycoming's five customer service representatives, and Dan Curtin, the company's director of business systems development, says that as more of the manufacturer's customers put more of their orders through the system, the reps will have the opportunity to do more problem solving for clients or the kind of proactive selling they previously have not had time to do. The system has also improved the order fulfillment cycle, particularly for international orders: Since orders coming in overnight from abroad flow automatically into the ERP system, they are ready for fulfillment when the first shift walks in the door at 7 a.m, rather than waiting to be entered into the ERP system and fulfilled later in the day or the following day.
Lycoming prepared a 50-page, step-by-step brochure that walked the company's customers through the new ordering process, although Curtin says that order-entry is fairly intuitive with the Comergent system. "If you've ordered anything online, you can get through it, but this was a way to give them a safety net," Curtin says.
