Owens Corning's Enterprise System Struggle
In the early 1990s Owens Corning was a United States leader in the production and sale of such building materials as insulation, siding, and roofing, but management wanted the company to grow. The company had only two possible paths to growth: offering a fuller range of building materials, and/or becoming a global force. To increase its range of products Owens Corning decided to acquire other companies. To become a global force, management realized the company would need to become a global enterprise that could coordinate the activities of all of its units in many different countries.
Headquartered in Toledo, Ohio, Owens Corning had been divided along product lines, such as fiberglass insulation, exterior siding, roofing materials. Each unit operated as a distinct entity with its own set of information systems. (The company had more than 200 archaic, inflexible, and isolated systems.) Each plant had its own product lines, pricing schedules, and trucking carriers. Owens Corning customers had to place separate telephone calls for each product ordered---one each for siding, roofing, and insulation. The company operated like a collection of autonomous fiefdoms.
Owens Corning management believed that implementing an enterprise system could solve these problems. The company selected enterprise software from SAP AG to serve as the foundation for a broad company overall. "The primary intent with SAP was to totally integrate our business systems on a global basis so everyone was operating on the same platform with the same information," answered Dennis Sheets, sourcing manager for the insulation and roofing business. Sheets wanted to centralize purchasing. "Prior to SAP," he said, "we were buying widgets all over the world without any consolidated knowledge of how much we were buying and from whom. Now [using SAP's R/3 software] we can find out how many widgets we're using, where they're being purchased, and how much we paid for them, [allowing] us to consolidate the overall acquisition process." Now, he added, "we can. . . make better business decisions and better buys." Sheets expected the company's material and supply inventories to drop by 25 percent as a result.
However, the project to install SAP's enterprise system would ultimately cost Owens Corning about $100 million and take several years, too expensive and time consuming to be justified only by the reasons given by Sheets. The company hoped that the new system would also enable it to digest acquisitions more easily. Owens Corning wanted to acquire other companies to expand its product line so it could increase sales from $2.9 billion in 1992 to $5 billion within a few years. That meant that Owens Corning would have to digest the archaic, inflexible systems from the companies it purchased. If Owens Corning were to become a global enterprise, it would need a flexible system that would enable the company to access all of its data in an open and consolidated way.
ERP experts point out that simply converting to ERP systems does not solve companies' problems. "Unless a company does a lot of thinking about what its supply chain strategy is and articulating what its business processes are, these tools are going to be of little use," explained Mark Orton, of the New England Supplier Institute in Boston.
Owens Corning's project began with its insulation group, and those on the project team understood this. They undertook a redesign process before implementing SAP's R/3. They set up cross-functional teams because "We had to identify the handoffs and touch points between the various functions," said Moke Morey, the division's ERP implementation project manager. He explained "My team, for example, had accountability for the process that runs from the time we need to buy something through the payment issuance to the supplier. Other areas, such as logistics and accounting, touch this process." The teams also kept in close touch with suppliers who needed to know what Owens Corning would require of them. As a result of the redesign, purchasing decisions were moved from the plants up to a regional level, enabling commodity specialists to use their expertise and the leverage of buying for a larger base to improve Owens Corning's purchasing position. The teams also decided to require that all suppliers have a capability to send the company digital information that could be fed directly into its enterprise system.
How did the first ERP project go? Over a weekend in March 1997 a team of about 60 people transferred legacy data into the SAP system, and on Monday morning the company went live. That morning Domenico Cecere, president of the roofing and asphalt unit, called the manager of his Medina Ohio plant to asked how it was going. "Better than expected," was the report. However, Owens Corning's director of global development, David Johns, later concluded, "When we first went live with SAP, it was a tough time." He said that overall productivity and customer service dropped sharply during the first six months. "When you put in something like SAP, it's not a mere systems change," he said. "You're changing the way people have done their jobs for the past 20 years."
The first problems that surfaced were technical. According to Johns, application response time had increased from seconds before ERP to minutes under the new system. Other technical problems also emerged. For example Johns said, "The functionality wasn't working the way it was supposed to." Johns believes the source of these problems was inadequate testing. "The first week [after going live] we just focused on the technical issues," said Johns. The team further tuned the software and over the next weeks response time reduced to an acceptable speed, and slowly the software began operating smoothly.
However, "after we fixed some of the technical problems, we started peeling back the onion and saw that this was much bigger than a technology problem," explained Johns. "We saw that there were problems in the business, problems with the way people's new roles had been defined, communication and change management issues, and business process issues." For example, the SAP system demanded that the entire corporation adopt a single product list and a single price list. Staff members initially resisted. Owens Corning employees had not been properly trained and they were overwhelmed, resulting in a lot of errors. Johns explained that at Owens Corning "we underestimated the impact that swapping out all our old systems would have on our people." Users had indeed been properly trained on their own functions, but ERP systems are integrated, and the users did not understand the impact their work was having on other departments.
ERP systems are complex and errors ripple throughout the system. When using the old systems, employees had time to correct data entry mistakes, and if they were not caught, they only affected the local function. However, now that they were using R/3, the databases are immediately updated. Thus, for example, the data flows instantly from sales to purchasing, production and logistics systems. Johns offered another example. "If you're at a warehouse, and you don't tell the system when a truck is leaving the dock, the truck can still leave, but the customer will never get an invoice for the goods. Accounting won't find out later because the transaction will never get to them." Such errors can be costly. Users needed to be more careful as they did their jobs. To motivate users to work with more care, they needed to understand the complexities of the system. They had to know how their errors would affect other workers and even company profitability.
To address this problem the company quickly instituted a new training approach. Training now would include information on the larger system and its complexities so users would understand the impact of their work. Under the new training regimen, all employees were denied access to the system until they had passed a test and became certified. Those who failed the test had to return to training until they could pass it. About 20% of Owens Corning employees never passed the test and had to change jobs. This job shifting was massive and time-consuming, causing organizational disruption. Whereas the original project training was budgeted for 7% of overall costs, training eventually consumed 13% of the budget.
Customers also suffered. Owens Corning had been known for its excellent customer service, but the quality of that service declined sharply after the SAP system went live. Many customers were shocked, and some began turning to other suppliers. Owens Corning began losing important customers. The company was forced to devote a great deal of personnel time rebuilding relations with its customers while simultaneously having to repair both its organization and the software installation.
ERP implementation problems of this type are common. According to Barry Wilderman of the Meta Group, ERP projects often result in a negative return-on-investment (ROI) for five or more years. Why? Because ERP systems are so complex. The company may not understand all that needs to be done in preparation. Moreover, these systems are expensive, and testing and training will often get cut for budgetary reasons. Not only do employees need to become accustomed to new ways of doing business, but customers and suppliers may need to change their business processes as well.
How successful was the whole project? Management believes it has been a success. Johns said "We made each mistake only once. Each deployment [in the rollout] got better." For instance, "We do a lot more testing now before we go live," he said, "to make sure that all the different pieces of the system work together." Mike Radcliff pointed out that customers now have a single point of contact for all orders. Moreover, he adds, "With our old system, we didn't know what inventory we had in stock. We would have to check around and get back to the customer." Today, he continues, "we can see what inventory is available, when it will be produced, and who is the lowest-cost carrier. We can commit to the customer before we hang up the phone." He noted, however, that the changes have been massive. He estimates that about 10,000 people were involved with the reengineering effort. "Just about everybody's role in the organization has changed."
The ERP systems rollout was completed in 2000. During those years, Owens Corning acquired and integrated 17 companies, successfully expanding their product offerings. Company sales have reached $5 billion annually. Because of the new system, Owens Corning has been able to reduce its inventory significantly, while centralizing coordination of various functions and divisions. Lot size and machine allocations have become more efficient. The company can perform production planning and control globally because it has one uniform system to work with. The integrated system lets the company leverage common carriers and take advantage of overlapping transportation routes. Managers can use the system to identify its biggest suppliers across the entire company and use that information to negotiate bulk discounts. A customer needs to call only one location to place an order. Factory production managers no longer have to concern themselves with taking customer orders, tracking logistics or after-sales service. Because centralization applied not only to United States operations but also to foreign activities, the corporation has been transformed into a truly globalized enterprise
Organizationally the role of Owens Corning's information systems department has changed dramatically. Prior to the enterprise system project, the information systems department saw its role as limited to technical support. It used to be that if there were problems with the system, the IS staff would check it to see if it was running properly, and if it was, it would throw the problem back to the business units to solve. Since transactions flowing through the enterprise system impact the entire business, the information systems department has become responsible for the entire business problem. However, the information systems department does not try to solve business problems alone. They only act on them if they have the full involvement of the business units.
Unfortunately, Owens Corning is facing a major problem unrelated to its information technology. On Thursday, October 5, 2000, Owens Corning filed a petition for reorganization under Chapter 11 bankruptcy protection. According to Owens Corning, the company "took this action in order to address the growing demands on its cash flow resulting from its multi-billion dollar asbestos liability. The filing will enable the company to refocus on operating its business and serving its customers, while it develops a plan of reorganization that will resolve its asbestos and other liabilities and provide a suitable capital structure for long-term growth." The company claims it will emerge from bankruptcy by 2003. However, Owens Corning has continued to build for the future. For example in December 2001, it purchased Denver Colorado's Wall Technology. Nonetheless, we will be unable to judge its IT success until after it emerges from bankruptcy.
Sources: "Wall Technology Bought by Owens Corning," The Denver Business Journal, December 4, 2001. Eileen Colkin, " Owens Corning Uses BroadVision Software To Personalize Web Site," InformationWeek.com, July 27, 2001; Rajagopal Palaniswamy and Tyler Frank, "Enhancing Manufacturing Performance with ERP Systems," Information Systems Management, Summer 2000; Christopher Koch, "From Team Techie to Enterprise Leader," CIO Magazine, October 15, 1999; Tom Stein, "Making ERP Add Up," InformationWeek, May 24, 1999 and "Key Work: Integration, Information Week, September 22,1997; Tim Minahan, "Enterprise Resource Planning: Strategies Not Included," Purchasing, July 16, 1998; Janice Fioravante, "ERP Orchestrates Change," Beyond Computing, October 1998; Bruce Caldwell and Tom Stein, "Beyond ERP" InformationWeek, October 12, 1998; John E. Ettlie, "The ERP Challenge," Automotive Manufacturing & Production, June, 1998; and
Joseph B. White, Don Clark and Silvio Ascarelli, "Program of Pain," The Wall Street Journal, March 14, 1997; and http://financialreorganization.owenscorning.com/.