ROUNDTABLE – United States of Integration

Integrating one company’s systems is not anend in itself, and it’s not just a means to aligning corporate and IT goals. As the discussion below among three executives from this year’s CIO-100 honorees demonstrates, integration is all about embracing players who work outside your company’s walls. That means sharing information from different parts of your organization and convincing suppliers, business partners and especially customers that they and you will both profit from this information exchange. This trio of CIOs represents companies of different sizes and different industries, but each faces famous competition: Paul Ingevaldson, senior vice president of IT at Ace Hardware, battles for consumers with the likes of Home Depot, while Quaker Chemical CIO Irving Tyler vies for business with the likes of Dow Chemical, and Solectron Corporate Vice President and CIO Bud Mathaisel competes with Flextronics among others in the electronics trade. But each of the three reach a common conclusion: The knowledge that comes from this effort yields both value and a competitive advantage.

Rick Swanborg, president of ICEX, moderator: Tell us what you mean by integration. What does it look like? How is it changing? And does it really represent a competitive advantage?

Paul Ingevaldson: We are right in the middle of the supply chain, as a wholesaler with 15 distribution centers. We have 65,000 items in those distribution centers that we’re distributing to 5,000 retailers. On top of that, we end up with thousands of vendors supplying products to our distribution centers and directly to the stores. We continually look at ways to automate and integrate the supply chain. Even though we don’t control the whole supply chain, we are trying to integrate it though significant automation.

We’ve been aggressive in vendor-managed inventory and have recently been aggressive with something called CPFR [collaborative planning, forecasting and replenishment]. This is where the [suppliers] actually look at our files on our computers and automate supply functions through us. That’s been a very positive development [because] supply chain automation is extremely important to us. Any time we can automate part of the relationship with our dealers and eliminate paperwork, it really makes it easier for everybody.

Bud Mathaisel: Our definition of integration is inter-enterprise process reengineering. The whole movement toward reengineering has shifted to inter-enterprise, and it includes suppliers, it includes customers, it includes visibility up and down the supply chain to the next point of contact.

What’s happened in most organizations is that the monolithic ERP movements where integration was one large ERP project have been replaced with separate instances of ERP, and integration between and among those. Integration within the enterprise characterized by the EAI movement and inter-enterprise integration goes to levels within the supply chain.

Irving Tyler: Our story is very different. We have large commodity-type companies as [suppliers]. A lot of our raw materials are base chemicals. Our customer base is large, multinational companies such as automakers, steel manufacturers and aerospace companies. We’re a very small company supplying critical technology to those industries, but our customers don’t value our supply chain per se. So for us, it’s about integration with our main customers so we become invaluable to them and they are willing to work with us on the basis of value as opposed to price. What we do is provide process knowledge. We couple that with technology and then solve unique problems for our customers in their production process.

Swanborg: Can you give me a specific example?

Tyler: Consider a company that is making engines out of aluminum, a very difficult, sensitive metal to work with. If you’re taking a big block of aluminum and creating an engine block, there are a huge number of processes where you’re boring cylinders, gouging channels for the fluids and drilling holes to insert wiring. As this engine block moves through the customers’ process, they’re adding value. We’ve developed coolants and lubricants that match those processes. We try to integrate our knowledge of customers’ processes with unique solutions in terms of product development. Integration of those two components gives us the differential edge. If we can integrate all those things, the customer gets a better value. We’re supplying what the customer needs in a timely way, when they need it, and to the specifications that they require. For us, that’s the big challenge?to do that in an integrated way, consistently, for every customer. We spend a lot of time trying to integrate our knowledge across our regions and across product lines. If we learn something is working in an automotive plant, we can use that same knowledge working with Boeing to make an airplane.

Swanborg: Do you have to show data that using this lubricant will decrease your throwaway of the engine block by a certain percentage? Are you getting it to that level?

Tyler: Yes, we use a lot of case studies. That sort of tacit knowledge is very hard to leverage. We’re trying to use all sorts of knowledge technologies and communications vehicles to take that information out of their experience to share amongst ourselves and with our customer base in a more formal way. It’s a big challenge.

Secure Connections

Swanborg: With all this sharing of information with business partners, how do you deal with the privacy and security issues?

Ingevaldson: We have multiple vendors of the same product lines. Oftentimes, you’ve got to have Black and Decker and you’ve got to have Skil, so there are multiple vendors in the same categories. Access is controlled based on the vendor. We just have to be careful as to who gets access to what information. That has not been an issue for us at all.

Tyler: Most of our customer requirements are unique, so we manage through a key account process where we define the content and the support team for each customer both in terms of the field and our development laboratory. They manage the channels. We don’t want to eliminate the human aspect of account management, but we want to get that information to customers faster and more directly.

Mathaisel: There are two forms of security. One is preventing competitive information from getting into the hands of other competitors. We have terms written into our agreements that provide specific protection. The second form is the kind of abuse that can occur from insider trading. Just last week every single officer and senior employee had to re-up their signatures on business ethics guidelines issued by internal audit that reviewed the [guidelines] that have been in place and reminded everybody of it.

It’s not easy to do because you’ve got to protect down to field element level, you’ve got to protect prices, you’ve got to protect inventory amounts. A lot of the tools being used on the Internet are not adequate to provide you with this kind of assurance. We’ve had to rework tools to get the security we need.

Integration, a Competitive Edge

Swanborg: Do you feel your investments give you a competitive advantage?

Ingevaldson: The easier we are to deal with both on the manufacturer side and the retailer side, the better we’re going to win in the marketplace. If the vendors have insight into what’s going on at wholesale, they can do a much better job of planning their raw materials and their subcontractors. The more automated we can make the supply chain, the more efficient everyone becomes. Our biggest asset is our inventory, and we maintain our inventories over 16 support centers. At the same time, we have to maintain very high service levels so the dealers are not out of stock. It’s a tremendous opportunity to keep our supply chain automated and moving more quickly. Everybody reduces inventory and makes more money, and that’s about as big of a competitive advantage as you can get.

Tyler: We have hundreds of formulations, so our product mix is very different. As our customers become more integrated with our technology, they can get consistent solutions [and the same level of service] in all of their facilities anywhere in the world.We don’t make you navigate through our company and renegotiate and reorganize your service levels. We do that [work for customers], and then behind the scenes we still comply with all sorts of tax regulations and legal issues. We have integrated ourselves in terms of facing the customer, and we continuously find that to be an advantage.

Mathaisel: Managing supply chain is the essence of our business, and therefore integration is strategic. We are also being told by our more progressive global customers that this is a mandate for doing business with them. If you want to do business with Cisco, IBM and Sun in the future, you must provide this kind of integration and visibility across the supply chain. They expect this is going to lift the performance expectations for all of the other players, and we agree. It’s the price of doing business with progressive global companies.

They want to cooperate as well. Right now, that pain is being shared across OEMs, contract manufacturers and suppliers. Think of the word inventory as representing waste. It is an acknowledgement that you don’t understand something or that you have to adjust for something. If you want the opposite example, look at Dell. Its supply chain is whistle clean, partly because it pushes all the inventory management on its suppliers.

Sharing Knowledge That Comes from Data

Swanborg: When we are talking about integration, there is the transaction level. Do we manage our inventory, our logistics? Do vendors have stuff ready to go? Then there’s the next level that Paul [Ingevaldson] raised that is the integration of forecasting and trendsetting. It’s not enough to know where the inventory is, but what’s fast selling versus slow selling? Then there is a third level that Irving [Tyler] pointed out, which is integration of knowledge and use of the product. How do I integrate knowledge into the supply chain so our customers are smarter about using our products? It sounds like we’re pushing integration into knowledge integration.

Mathaisel: There is a hierarchy to integration, and clearly process is the context. Within that is function and data. The apex of the pyramid is process, the foundation is data. In the high-tech industry, we’ve had an industry consortium working on this for awhile called RosettaNet. It describes processes for business conduct. You invoke these processes through PIPs, the Partner Interchange Processes. What does commit mean? What’s the timing of the cycle? We have already worked this out. The RosettaNet model allows us to transact business within the process already defined. Tyler: When we put our global IS strategy together about two years ago, the idea of using technology was to make sure we have products in the right places at the right time. The key is to make sure your customer sees that you’re making them successful, and then they want to come back. That’s all about knowledge and expertise. For us, it’s important to get experts in customer processes or product application, experts in product development and experts in delivery, then somehow make sure all those experts are working on the same thing. That’s where integration comes in. If you can integrate the knowledge of these people, they can collaborate intelligently and provide value throughout the supply chain.

Swanborg: This means you’ve got to have people actually learn how customers are using the product.

Tyler: We find that if we work to the customer’s integration point, we find other opportunities. For example, a steel manufacturer rolling sheet steel is involved in a very specific process with tremendous quality requirements. We were really into what’s called cold rolling. After the steel cools down, you roll it again for greater strength. We have the majority of the market share in that business. We started looking upstream and downstream. Sure enough, with upstream there is what’s called hot rolling. Historically, customers would never use any lubricants at all. They would only use water. We discovered we could take a modified version of our cold rolling lubricant and apply it to the hot rolling process to improve the speed and the consistency of that output. That’s the kind of integration we’re trying to do in a very broad way.

Integration Essentials

Swanborg: What are three top factors that are critical for integration success?

Ingevaldson: There is a whole [rack] of different computer systems in our outlets. We’re currently embarking on a program to install a single computer system in all of our 5,000 stores. Now there is a challenge, especially when they have to pay for them. If we’re going to make the supply chain seamless and integrated, we have to get common systems in all phases of the supply chain.

The second thing is we have to continue to develop trust with our independent dealers such that they’re willing to give up a bit of their independence so that we can take advantage of these powerful technologies. That’s a very tough thing for us to do, but it’s very important.

Finally, we have to make sure the strategy that IT develops is not an IT strategy but rather a corporate strategy. We have to have the whole company involved and understanding the power of these technologies and make sure every officer involved is committed to and focused on integration.

Mathaisel: Three things need to be done in integration. One of them is the ability to do extracts and imports [of data]. The second level is the ability to communicate information using Internet protocols with all the privacy and security you need. The third is this process reference and the ability to dynamically alter process and have it work backward.

Tyler: The most important thing for integration is to have common objectives [across your organization]. We also have been working to develop commonality of communication everywhere in the world.

Then finally, we have to be able to support all of this. In information services, we see it as our job to learn from others, to see how they’re using and enabling these capabilities. We bring that knowledge into the strategic discussion.