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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.

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Alcoa's Obstacles

Despite the obstacles, Alcoa felt it needed to implement EBS to support operational improvements and minimize the impact of falling aluminum prices. Aluminum plunged from 76 cents a pound last year to around 60 cents a pound recently.

"If you can't control the price, the only thing you can control is your costs," Huber says.

Cost-cutting, in fact, is becoming ingrained in Alcoa's culture. CEO Belda's latest cost-reduction initiative comes on top of an earlier two-year, $1 billion cost-cutting program that was completed successfully in December 2000. While the earlier drive depended on business managers constantly striving to find ways to boost productivity and eliminate waste, much of the responsibility for this second round of cuts falls on the shoulders of Huber and his team of technology specialists.

Prior to the implementation of EBS, the various units of Alcoa's manufacturing operations, such as the extrusion group producing car bodies and the forged-products unit making wheels, all dealt with customers independently. The two groups could both be working for Ford, for example, with little knowledge of the other's business dealings with the carmaker.

While information from Alcoa's various businesses could be tied together with data-integration tools, Huber says a software platform with common definitions of data allows information to be shared quickly and easily with all of Alcoa's business managers. This cuts down on redundancy and eliminates waste. "By having common data, we can cut and slice data to understand profitability by customer, by product, by market—which we couldn't do if we always had different systems and different data," Huber says.

Some of The reductions resulting from Alcoa's streamlining are hard to pin down. But CFO Kelson says a lot of the savings drop to the selling, general and administrative expense line on Alcoa's income statement. SG&A was $277 million in the second quarter, down from $326 million last year.

"Where you really save is in the collapsing of back-office functionality—multiple divisions duplicating financial functions, purchasing functions, order-management functions," says Lawrence Crooks, a managing director at KPMG Consulting, which is helping Alcoa implement EBS.

Alcoa is deploying EBS in four phases. The first two phases address finance and purchasing, and are scheduled to be completed by the beginning of 2003. The goal is to allow business units to collectively gather and exchange financial and purchasing information so those functions can act as shared services. In the purchasing area, this will allow Alcoa to consolidate buying operations, eliminate transaction costs, and trim the number of people on the purchasing staff.

The other two phases, which the company hopes to have completed by the end of next year, cover human resources and order-to-cash, which includes everything from order management to process manufacturing. Here, the company says using a common set of applications—particularly in order management and fulfillment—will allow it to better collect and analyze data. This, in turn, will give Alcoa the ability to better manage inventories, assets, and plant maintenance, resulting in lower operating costs and headcount.

Still, cutting jobs is not the fundamental purpose of EBS. "Some jobs will be eliminated, but the goal is to be able to move people into new jobs—more analytical jobs," says Kevin Horner, Alcoa's EBS project manager. Alcoa, he says, "wants to reinvest the resources."

This article was originally published on 2002-10-11
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