SMBs and Collaboration: How to Play with the Big Boys

It takes two to tango, two to speak truth (said Thoreau) and two to get one in trouble (said Mae West). Here’s another thing two people can do: run the IT operations for a company with more than 300 employees, revenue of about $65 million, and a 175,000-square-foot warehouse that runs three shifts seven days a week and ships more than 20,000 cases of snack food per day to stores such as Wal-Mart and Target.

Snak King’s IT director, Brad McClave, who is one of those two people, uses time-tested technologies such as Web-based EDI applications, firewall and antivirus software, and warehouse management systems to get his company’s products onto the shelves of much larger, extremely demanding customers. In conjunction with judiciously chosen IT service providers, these basic technologies have enabled the company to quickly grow to the largest snack food manufacturer on the West Coast—without all of the traditional IT overhead. When it comes to a big staff and expensive systems, McClave says, "I don’t have the time and money to do that."

Small companies, and even many midsize companies, can’t afford gargantuan ERP, CRM and supply chain management systems that take large IT staffs many months to install and cost millions. Yet the established behemoths demand electronic data transfer, purchase orders and invoices, as well as other digital shipping requirements. To do business with the big boys, the deal is simple and clear: "If you don’t cut it, the next person is in. You’re out," McClave says.

But the opportunity is too good to pass up; a small company can quickly become a big one by working with industry giants. If you want to get in the game with the likes of Wal-Mart, Travelocity and Nordstrom, it can be done—with tried-and-true technologies and some help from outside IT services providers.

Just ask Emily Harrow, who started a cosmetics company two years ago in her parents’ home and now sells her Mixed Emotions line of bath and beauty products on the Home Shopping Network and in several large retailers. She has no IT staff whatsoever and uses a Web-based EDI product to transact with the giant retailers.

"It would not have been possible to work with these larger companies without [EDI]," Harrow says. As for the technology’s ease of use: "It doesn’t take a brain surgeon," she says.

EDI, for one, certainly isn’t leading-edge technology, "but it’s low-cost, low-tech, stable and not going anywhere," says Ken Vollmer, a principal analyst at Forrester Research. As a result, EDI transaction volumes have been increasing by 5 percent to 10 percent every year, Vollmer says, driven in part by smaller companies such as Snak King and Mixed Emotions that are turning their big dreams into realities.

How Small Companies Look Big

So just how does Snak King’s IT duo of McClave and IT Manager Mario Sanchez get the job done? "A bunch of partnerships," answers McClave. The company relies on four IT vendors or outsourcers, each of which provides critical services. The snack foods industry is cutthroat, and technology-dependent functions such as electronic invoicing, credit tracking, purchase orders and warehouse product inventory are baseline requirements. If technology fails, the company can’t move a product that has a short shelf life.

McClave was recruited by Los Angeles-based Snak King four years ago for his strong ERP and warehouse management chops. "I’m not an IT techie guy," he says. After senior management had what McClave terms "bad experiences" with the previous IT regime, they brought him in to fix the company’s supply chain management systems and secure everything.

The four technology partnerships enable ERP and warehouse management systems, EDI transactions, Web development and security applications (firewalls, antivirus, antispam and power backup). The ERP system from Epicor is at the heart of Snak King’s operations, bringing together EDI, wireless bar-code inventory management and other back-office functions.

With the EDI systems, McClave has to deal with both low- and medium-volume retailers (convenience and grocery stores) and high-volume retailers (such as Target and Wal-Mart). McClave calls EDI a "complicated beast," especially since the high-volume retailers adopted the AS2 EDI-over-the-Internet standard in 2002. "It made us have to switch our methods," McClave says. EDI transactions now have to be faster, more flexible and secure. But due to his partnerships with Epicor and iSoft, he has been able to maintain the relationships with the big trading partners without big technology headaches.

For Snak King’s smaller retailers, which make up the majority of its clientele, McClave uses Web-based GroceryEC.com EDI tools from Edict Systems. "[The vendors] handle all the overhead and the hard part of EDI trading relationships that has to be done," McClave says—by which he means the guts of the technology that enables seamless data interchange that he has neither the staffers nor the inclination to manage.

To lock down Snak King’s IT systems, McClave turned to software providers Far West and ServGate. The company’s network infrastructure—Unix servers, Web servers and file servers—is onsite, but a managed firewall solution provides the "bridge" from the outside world into Snak King’s operations. "I don’t have to deal with configuration and constant updates on it," McClave says. The same goes for antivirus, antispam and backup power functions. If the company loses power and the mail server goes down, a service partner has front-end mail server capabilities, so "to the world, I never look dark," he says.

Next up is an e-commerce rollout via Snakking.com that will give salespeople real-time online access to customer data as well as provide a portal so that distributors can access their order and shipment information. McClave won’t go it alone, of course. "There’s no way I can do that in-house. Someone needs to know ERP and the database and write those Web integration tools," he says. "The only way you can do that and be a small company is that you have to work smarter and harder." And partner a lot.

Preparing for Greatness

Groople may not yet be a household name, but that hasn’t deterred the small, privately held company from laying a solid technology foundation just in case it grows to, say, Google proportions. Groople’s name derives from "groups of people," and its market focus is to connect travelers—Groople’s clients, which include sporting groups, military organizations and social clubs—with Groople’s partners, which are hotels, cruise ships, airlines and other travel services providers that love group business. The company values this niche market at about $4 billion a year.

Until Groople launched its website in 2003, "no one on the Internet had a group-booking utility or storefront for people to do" group travel, claims Scott Larsen, Groople’s IT director and employee number six. "If you went to Travelocity or Expedia, you couldn’t book more than five rooms without getting an agent involved." Group travel managers couldn’t tap into the vast inventory of services available.

For Groople to work, then, all of the heavy lifting—application-level integration with hotel systems and travel sites such as Travelocity—would need to take place via the Groople website. "IT is our business," Larsen says. "We have to plan more like a large enterprise would, with large generators, redundancy, multiple service providers and a much higher level of network capability."

Groople’s main application was a client-facing interface that hooked into an inventory management system with hotels. Groople staffers knew the online travel industry (most employees had worked in it) and how hotel inventory systems worked. "It was just a matter of building it," Larsen says—and of ensuring that connections to legacy hotel applications and the newer Web-based systems of the travel companies could in many cases go both ways, so that Groople could see into their systems and they could see into Groople’s. "We’ve had to jump through several technological hoops," Larsen says.

Yet as with Snak King, the IT staff is lean: Three full-time IT workers support 50 Groople employees who manage development, marketing, product design and call center operations, as well as a website that has to have 24/7 capability. "To be able to provide what we’re providing and have only 50 employees is huge," Larsen says. "How we do that is through strategic hosting partnerships and security partnerships—the two major areas for any Web-based company."

Where Groople departs from the typical startup is in having to scale to the service levels of its larger partners. Travelocity, for example, expected five nines of availability—no small feat for a fledgling company. Groople needed to meet Travelocity’s service levels for redundancy, backup power generation, architecture and hardware. "Small companies are usually not trying to get to that level of service," Larsen says. "It’s an added level of complexity."

And an added level of cost. Groople designed its systems and negotiated a partnership with third-party security provider TrendMicro that raised Groople’s security level to that of publicly held companies. "It costs a whole lot more to do that, but the results of not doing it for us, from a business perspective, were much higher than the cost of doing it initially," Larsen says. "One breach or one failure could cost us all of our partners."

Yet the infrastructure costs were lower than if Groople had to build everything in-house. "We realized we can’t spend a billion dollars and do this ourselves," Larsen says. Partnering allowed the company to grow securely and stay in favor with the likes of Travelocity and Cendant. But without having to break the bank.

Automation on the Cheap

Wise Foods is no startup. It’s been in business for 80 years and, with sales of about $400 million, is the largest regional snack food manufacturer on the East Coast, selling to giant customers such as Wal-Mart, Target and Kroger. The company boasts that its manufacturing facility in Pennsylvania, at 20 acres, is the largest snack food plant under one roof. Neil Bixler, the director of IT, has been with the company for 29 years, starting off as a junior programmer and witnessing firsthand the IT department’s roller-coaster evolution. "We have grown and shrunk and grown and shrunk" during a series of acquisitions, sell-offs, centralization strategies and buildouts, Bixler recalls.

These changes inevitably led to some strange legacy problems. Scheduling for the 26 potato- and 20 corn-related production lines in that huge plant was done manually by three people and took anywhere from three to four hours each time. "This little silo had all the knowledge of how that’s done," Bixler says. "They had that power and knowledge."

Snack food manufacturing is complex, with stringent timing demands and fast turnover. "The potato chips you eat next Tuesday came out of the manufacturing facility last Thursday," Bixler says. Orders from distributors and retailers come in on Monday; from there a consolidation of all the orders is generated: How many bags of Puff Cheese Doodles, BBQ and Salt & Vinegar chips must be produced, for example; and how many will go to customers in New York City, Boston and other destinations. With some 260 product variations to factor in, the schedule for the plant had to be determined each day—which production lines, on which shift, will do which jobs.

The trio of planners retained all of the tacit knowledge of how to make the schedule work, such as which particular fryer makes a better kettle chip than the others. "It was all in their heads," Bixler says. The planners would key the daily schedule into a J.D. Edwards ERP system, but most scheduling was manual. (J.D. Edwards’ production scheduling offering was cumbersome and unusable, Bixler says.)

By the end of 2003, Wise executives decided they needed to automate the planning process. But Bixler’s IT staff of 24 didn’t have the skills or time to build a Web-based solution. Rather than trying to create an in-house Web development shop, he contracted with JRG, a supply chain services provider that offers an on-demand Web-based production scheduling application. With some modifications to the software, Wise went live with the new system in May 2004. Bixler describes it as an easy-to-use, drag-and-drop-based approach with built-in intelligent rules. The system allows the manufacturing plant to schedule and produce more accurately to order. "I call JRG the silo buster," Bixler says. "The biggest value was that it caused us to break the production silo and get that intelligence into the production scheduling."

Scheduling now takes less than an hour (performed by two of the longtime production schedulers—the third was moved to customer service). Setup and changeover time on the production line has been reduced by 35 percent, and with more accurate inventory, Wise has reduced its frequency of "stales"—products that are overproduced and go undelivered. Most importantly, Bixler says, customer satisfaction measures have improved by 99.9 percent.

Yet for all the obvious benefits, Bixler says changing over to the new system was "a little scary" because the scheduling system is the heart of Wise Foods’ supply chain. With demanding customers such as Wal-Mart, there’s little margin for error. "We’re selling over $1 million a day in snack products," Bixler says. "If we miss a day, that’s a million dollars."

Good customer service is a requirement today rather than an option. Basic IT and third-party partners make it possible for companies with constrained resources to emulate the service levels of their much larger counterparts. "It makes customers happy when they get exactly what they order," Bixler says. And that’s true for companies of every size, every time.

Copyright © 2006 IDG Communications, Inc.

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