Alcoa's Billion-Dollar Software Savings

By John McCormick Print this article Print

Alcoa can't dictate the prices of the aluminum it sells. So it's relying on software to help control costs.

Aluminum may be a soft metal, but it's a hard business.

PDF DownloadDemand has been hurt by the global economy, bloated inventories and falling prices. And the market is not expected to improve any time soon, as many big buyers—particularly airplane manufacturers and construction firms—continue to wrestle with problems in their own industries.

Market leader Alcoa, however, is increasingly counting on an aggressive cost-cutting campaign—one that relies on a software standardization effort begun in June 2000—to withstand the market's downward pressures.

Under the Enterprise Business Systems (EBS) software initiative, Alcoa is replacing most of its applications with a single Oracle software package that's designed to handle everything from financial management to order fulfillment to human resources. The EBS project is considered by some software analysts to be one of the more ambitious attempts by a Fortune 100 company to use a common set of software applications globally. At the beginning of the EBS initiative, Alcoa was running some 3,000 different software programs—from Ariba, Hyperion, PeopleSoft and Siebel, to name a few—on 1,400 servers in 510 locations.

Alcoa Chief Information Officer Rudolph Huber says employing a common applications set allows the company to more easily share knowledge, collect information, analyze business and financial performance, and improve internal processes—all of which adds up to lower operating and administrative costs.

Huber says EBS goes hand-in-hand with a companywide program initiated in January 2001 by Alcoa Chief Executive Alain Belda to reduce corporate costs by $1 billion by 2003. The company says it is on track to hit that goal.

Download a chart detailing Alcoa's financial progress. (Portable Document Format)

While Alcoa has shuttered some facilities and installed more efficient manufacturing equipment on its plant floors, EBS is one of the big reasons Alcoa is meeting its cost-reduction goals. Chief Financial Officer Richard Kelson calls EBS the "underpinning" of Alcoa's efficiency strategy.

using software to cut costs isn't just some alchemist's dream—it can work, but it's not easy. Alcoa has encountered numerous problems including project delays and cultural resistance. The most serious technical challenge, Huber says, was software stability. Alcoa brought in the Oracle software package—the 11i suite—about 2-1/2 years ago, when it was still showroom-new. And, like other companies that deployed the initial version of the package, Alcoa found itself slowed down by the software's bugginess.

Alcoa also ran into resistance from business-unit staffs reluctant to deviate from their usual processes and systems. "Individuals have to learn new ways and adjust to new processes," Huber says. "Change management is certainly something one can't underestimate." The company has an ongoing change-management program in place to bring the units along, but, Huber says, "it takes a lot of effort."

This article was originally published on 2002-10-11
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