Business and IT have a shared vision at Eaton’s Vehicle Group South America.
by David Rosenbaum, May 2011
Many companies have mission statements, found framed and hung on cafeteria walls or lying on the desks of corporate officers, their stretch goals and earnest promises etched into Lucite knickknacks. Those statements, once written, are often soon forgotten, the knickknacks buried under spreadsheets on the executives’ desks.
But not at Cleveland, Ohio–based Eaton Corporation. The 70,000-employee, US$13.7 billion company is managed using the Eaton Business System (EBS)—a shared set of values, a common philosophy, and a standard set of tools and processes deployed throughout the highly diversified global power management enterprise. Eaton embeds the company’s core values in every facet of executive decision-making.
Promoting customer focus and a culture that emphasizes continuous improvement and the transfer of best practices and key learning across the organization, the EBS is how Eaton works as an integrated company. That same singleness of approach provided the philosophical platform that helped Eaton executives pursue an intensive effort to achieve a single instance of Oracle E-Business Suite in the century-old, US$2.5 billion Eaton Truck Group. This business serves major global truck, automobile, and agricultural supply manufacturers such as GM, Ford, Mercedes-Benz, John Deere, and Volkswagen, among others.
A Burning Platform for Change
The truck operations in Brazil were acknowledged to be a potentially difficult step in this transformation due to size, business complexity, and the significant number of localizations required. But the Eaton Truck Group in Brazil represents a significant portion of sales by the Eaton Vehicle Group, which also has responsibility for global automotive manufacturing. Motivated by what Eaton executives called a “burning platform for change,” leaders at the Valinhos, Brazil–based Vehicle Group South America (VGSA) needed to rationalize their highly fragmented and customized IT environment by integrating the multiple instances into a single Oracle instance for the entire group.
The effort began in 2002 with the development of a “build anywhere” strategy, which, according to Mark Tudor, then the group’s IT director, would allow Eaton to manufacture and assemble any machine part in any plant on the globe and bring the company’s products to customers anywhere in the world. “We determined that the best option was to build a single-instance environment so we could manufacture product from one organization to another without significant IT effort,” says Tudor, now vice president of IT in the Eaton Aerospace Group.
“We wanted to drive common processes through the utilization of a single technical environment,” Tudor continues. “The business wanted to use common planning, inventory management, and shipping, along with all the other processes within the manufacturing environment. We could help them do that. We could help enable the utilization of a single process through the use of a single application. And Oracle was the right tool.”
Before he became a business project lead on the single-instance implementation, Eaton Operations Services Manager Marcos Baccetto was a manager in the VGSA light duty business unit, producing transmissions for pickups and other smaller vehicles. Baccetto was responsible for manufacturing, quality control, and engineering—and he was not an entirely satisfied customer of the VGSA’s IT department.
“Our plant is very big,” explains Baccetto, “and the IT team was not so big. So often we had to struggle to have the systems we wanted implemented. And IT at that time did not have good portfolio management, so it did not understand the prioritization of projects, of what was important to us.”
Not only were IT systems out of sync with business operations; they also weren’t delivering the service levels necessary for Eaton to pull away from the competition. Failures in the inventory system resulted in shrinkage, which affected the bottom line. Scheduling spreadsheets in Brazil could not easily communicate with systems using electronic data interchange (EDI) standards in the U.S., making data collation a manual, error-prone process.
The lack of timely, reliable data in Brazil made it difficult for Eaton to plan for shop floor capacity. That led to stoppages and of course made it hard to satisfy Eaton’s customers—a primary focus of the company. “In 2009, our on-time delivery was in the range of 60 percent per Eaton internal no-offset metric,” says Patrick Randrianarison, who serves as both Eaton president, South America, and president of the VGSA. “That’s really bad.”
Eaton IT managers have a long history with Oracle; the company has used Oracle solutions since the 1990s. But according to Tudor, the worldwide Y2K remediation frenzy made IT staff more worried about migrating off the legacy environment than investing in a flexible, extensible IT environment. This led to a proliferation of multiple enterprise resource planning (ERP) instances, creating a lack of integration in many business areas—including order management, which according to Baccetto was “very dependent on many Excel spreadsheets and parallel department controls.”
Systems suffered from hundreds of customizations within the VGSA including the shared services centers, which centrally support finance and HR functions—many installed in the mid-1990s and left in place during the Y2K remediation. All these customizations made IT less agile and inevitably resulted in friction between IT and the business. “Any request from operations became very difficult for IT to achieve because there maybe was only one person in IT capable of doing the job,” says Randrianarison. And that person would have to pair with a subject matter expert in the lines of business to execute a change to the system, creating delays in deployment.
The vision of a single Oracle instance, minimizing customizations and, wherever possible, using out-of-the-box code, emerged from this profusion of systems and applications that continuously strained IT’s resources and stood in the way of the company being able to build anything, anywhere. But getting to that single instance was going to require a lot of change management. “Any change is always a barrier because people don’t like change,” says Randrianarison. “That’s human nature.”
Business and IT Intersect
To overcome that barrier, Baccetto was asked to be the project lead on the single-instance implementation. He says that as a business unit manager, his insight into planning, leadership, customer focus, data analysis, and process management provided the insight necessary for the project to be successful. And the IT group agreed: “The leadership of the project must be functional people,” says Tudor. “IT partners with them. We do the technical stuff like data conversions and code development, but the owner of the project is the business.”
It was equally critical to match Baccetto with IT support that understood information systems must reflect and complement business processes—not fight against them. Jesiele Lima, then the VGSA IT manager, was the right person for this role and joined Baccetto on the project.
Baccetto and Lima coordinated the efforts of five groups: Order Management, Supply Chain Management, Engineering, Finance, and Manufacturing. Over the 26-month project, they met daily with the team leaders, discussing the previous day’s progress and the mitigation of risks, among other things. They met weekly to set the agenda for the next two weeks, and they reported to the project steering committee, which included Patrick Randrianarison, every month.
To improve communication between business and IT, Tudor trained his IT staff in Lean-Six Sigma manufacturing principles. “In my opinion,” says Tudor, “if IT doesn’t speak the language, the business won’t listen to you . . . period. And one of the languages that manufacturing people speak is Lean.” (See “Business Insight, IT Execution.”)
The result was a coordinated team that knew how to meet Eaton’s greater business goals—aligning with the EBS and building enterprise IT that could support Eaton’s vision of building anything, anywhere. As Baccetto says, “The beauty of this project was to build a team composed of functional people, internal IT experts, and Oracle personnel. IT worked together with Oracle and built the functional needs into the system.”
“The knowledge Marcos brought to the project from beginning to end—from the initial customer order coming in until you do your receivables—was critical,” says Lima.
The single-instance project was completed in 2009, and the ROI has been rolling in ever since. An April 2010 headline from a Reuters financial report read: “Asia, Brazil Lift Eaton Profit Above Forecasts.” According to Lima, the implementation of a single IT instance of Oracle E-Business Suite for managing orders, scheduling, planning, production, supply chain, and shipping delivered to executives the unified, global view of Eaton’s truck business necessary to achieve that goal. That accurate single view of processes is in alignment with Eaton’s integrated operating philosophy. Now, managers can configure customer orders more efficiently, letting the company truly build anything, anywhere based on capacity, regional demand, and cost.
Tudor stresses that the benefits extend beyond reduced cost and increased access to new markets. He says this approach also improves quality. “In the past, if we needed to make an engineering change, we would have to utilize a manual process to make the bill of material the same,” he says. “Today we don’t have to do that. It’s all automatic.”
The group now operates from a global set of items and bills of material, which allows Eaton to operate engineering centers in different places—all working on the same system, on the same database master. Eaton executives can manage globally for cost, quality, and compliance, and can balance production across the globe. “You can optimize your production the same way you can optimize your logistics when you produce a particular product that can be sold in different parts of the world,” says Lima.
Randrianarison agrees. “When you have one unique process, you don’t need to reinvent when you grow,” he says. “For example, we have a new facility in China, and we can just implement the same Oracle solution there that we have everywhere.”
The Oracle single instance not only supported the implementation of “build anywhere” but also improved Eaton’s ability to serve customers. According to Randrianarison, on-time delivery of the VGSA products improved from 60 percent in 2009 to 90 percent and above in 2010. It’s a point that Tudor corroborates: “We increased our on-time delivery by four times at one plant.”
This is, in large part, because Eaton managers can count on a unified repository for enterprise data to see exactly what a customer needs. “Change management is easier; bill of materials management is easier; we can compare costs between each facility, wherever it is, and make the best decisions about manufacturing,” says Randrianarison.
According to Tudor, the single instance removed about 30 percent of those growth-constraining, resource-draining customizations from Eaton’s global technology stack, and about 60 percent from the Brazil-based VGSA. Indeed, Tudor says, during the implementation 56 percent of the data on customers found to be inactive was purged from the database, and 75 percent of the inactive supplier data was also purged. This led to gains in productivity as well as an increase in accuracy. Overall Lima estimates that Eaton has realized about US$700,000 in annual savings with the Brazil implementation.
These improvements also allowed Eaton management to repair one of the VGSA’s persistent inventory problems: shrinkage. The VGSA could retire the spreadsheets and receive data through EDI, allowing managers to optimize transactions on the shop floor using bar codes with the Oracle Mobile Supply Chain model. According to Lima, the use of bar codes eliminates the need for computers or terminals on the shop floor previously required for manual inventory movement. A scanner reads the item bar code and automatically relays the information to the supply chain system, giving managers a clear, accurate view of their resources at all times. This allows them to reconfigure and optimize the floor layout as production priorities change, not to mention providing “almost real-time inventory control, 24/7,” as Lima puts it. “That helps reduce discrepancies on inventory,” she adds, and it ameliorates the shrinkage problem.
A Singular Success
The savings and business opportunities the Truck Group has reaped from a single-instance implementation are impressive. But Randrianarison lights up when he discusses the transformation of the group’s business processes, the promise of global growth that transformation holds for the future, and the way the project supports Eaton’s customer-focused ethos. “Now,” Randrianarison says, “we can see exactly what our customer needs. I’d say that’s a tremendous driver for customer satisfaction.”
The project also helped cement the relationship between IT and the business, Randrianarison says, as together they have experienced “the birth” of the new system. And he expects that closeness to continue. “If, for example,” he says, “there’s an EDI issue, the business team understands what the issue is and the IT team knows its impact on the business. Now there’s a common language, a common understanding.”
Indeed, Randrianarison plans to keep the core of the single-instance project team together to leverage their hard-won experience and expertise. “We’re not finished with the single instance,” says Randrianarison. “We still have some facilities using a different ERP. So the goal for the next two years is to have everyone using Oracle. And now when we implement Oracle solutions, it will be easier because we have that core team capable of doing the job quickly.”
And, Randrianarison adds, “today, when we have an issue, it’s not a Brazilian issue, with limited resources to resolve it. It’s a global issue. And because it is a single instance, we can get support from other countries to resolve it.”
Most importantly, Randrianarison concludes, the single instance “makes us more agile. It makes us more global.”