Consider Owens Corning. A mid-’90s SAP implementation at the construction materials manufacturer boosted the credibility of its CIO, David Johns, throughout the company. But it took an extreme circumstance to vault Johns into the dual role of CIO and chief supply chain officer. In October 2000, the Toledo, Ohio-based company filed for Chapter 11 to protect itself from court judgments in excess of $5 billion stemming from earlier sales of insulation that contained asbestos.
After emerging from bankruptcy, Owens Corning began a companywide restructuring in April 2001 aimed at increasing efficiency across the company. Johns’s new position is a direct result of that. Before the April reorganization, Owens Corning had separate heads for IT, supply chain and customer service. The three departments tried to work closely together, says Johns, but the structure "didn’t work as efficiently as it could."
The separate departments within Owens Corning were often victimized by conflicting goals. For example, the transportation group, whose expenses consumed 60 percent of the company’s $600 million supply chain budget, tried to cut transportation costs. The transportation manager believed that the cheaper the carrier, the better he was doing his job. But the lowest-cost carrier was dirt cheap for a reason: It didn’t pick up or deliver the order on time. Similarly, the inventory group’s goals conflicted with customer service’s goals. The warehouse manager wanted to drive inventory down to zero, but when the warehouse ran out of an item, it extended the time to ship and again resulted in dissatisfied customers. Each group did its job?and did it well?but the lack of alignment among the organizations ended up increasing the overall cost.
Johns compares what happened to a stool, which is useless unless all three legs are the same length. "Having two legs going for lowest cost doesn’t sit with the third leg that is working for customer service," he says. "By bringing those three organizations together, we have a better idea of how inventory, transportation cost, technology and customer service all fit together."
The restructured organization now has one head, Johns, who oversees customer service, logistics and IT, and has a deputy for each. With that structure in place, Johns is able to make decisions with the whole company in mind. For example, he used some of the tools in the SAP package to find the best shipping routes?considering on-time arriv-als, cost and other factors?and rerouted as much traffic as possible along them. In total, Owens Corning sliced $32 million out of the supply chain budget in the eight months after the reorganization, and Johns expects to save an additional $60 million this year.
Johns insists that separate organizations, no matter how close together they work, could not attain the same savings. In order to coordinate the employees who execute the day-to-day decisions, the organizations needed to be combined. For instance, the transportation manager who decides which shipper handles which route now works in the same group with the person who handles service for the customer. And both use the same system to do their job. "We learned [from installing] our SAP system that you can’t fix a problem by just throwing a system in there," says Johns. "One could say that there is more of a technology focus in supply chain, but that is not the fundamental reason that we combined them. We understand that it is not just technology but the relationship between the people, process and technology."
The people, process, technology mantra is repeated almost verbatim by Orton. Like Owens Corning, the IT department at Wilsons gained broader credibility after implementing a companywide software package. Although Wilsons considered ERP, it ultimately decided to link several different best-of-breed solutions and Lawson’s financial and human resources packages. In the process, the IT department learned how each functional area’s systems affected one another?and how they could best work across the company to improve the supply chain. The packaging of wallets?Wilsons’ best-selling product?is a good example. Data from the stores showed that it would be most efficient to replenish wallets in batches as opposed to individually, the practice at the time. They were bought by retail stores in batches, so why not manufacture and ship them that way? Armed with that information, Orton insisted that Wilsons change the way the factories packaged the wallets and the way the distribution centers processed them. The shift incurred a major financial charge in two functional areas, but it improved efficiency across the supply chain. "The point is you have to see across departments and understand more than your own process," says Orton. "There is no way you can look at one part of the supply chain and say, ’I am done.’ You have to look at the whole."
Combining IT and logistics also ensures timely execution. "Logistics may have a number-one priority of implementing an advanced ship notice system," says Orton. "For [IT], this priority could be down the list. Managing both departments helps us get to a better alignment faster."
Orton says the CEO put him in charge of logistics because the company understood IT’s potential to help the supply chain. However, even the CEO’s endorsement didn’t ensure a peaceful transition. Vendors weren’t the only ones that tried to take advantage of his inexperience. Veteran Wilsons employees were slow to accept his leadership. "I hate saying this, but people did try to take advantage," he says. "They had an expertise, but they wouldn’t volunteer answers. If I didn’t ask the right questions, I wouldn’t get to where I needed to go." To help win their loyalty, Orton wrote personalized Christmas cards to all his employees, specifically mentioning how each was helping the business.
Other CIOs have had to overcome a similar culture clash. When Johns took over as chief supply chain officer at Owens Corning, he says, supply chain employees initially thought, Jeez, we will be turned into tech-weenies. But he worked hard to convince them that they weren’t just working for IT but a new umbrella organization, and employees eventually realized the benefits of realignment.
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For the past 60 years or so, com-panies have structured themselves into functional divisions or silos that evolved in part because a large company has too much going on for one person or group to handle. In this traditional organization, IT is a department with a titular head, as are logistics, finance, HR and so on. The model makes sense. It allows workers to become experts in one particular field and provides for a clear career path. In the 1980s and mid-’90s, IT fit nicely into this structure; IT’s job was to implement systems that improved other departments’ efficiency, such as an accounting application for the finance department.
The coup de gr‰ce was ERP, which linked the different departments through a common system. Prior to ERP (or any other enterprise-unifying IT project) there was no easy way to measure the impact of an event across the company, and employees were forced to work in relative isolation, focusing on the more manageable question of how an event impacted their specific area of the company. Now technology can provide a data intensive understanding of how each action affects other areas and the company as a whole.
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