Potholes on the RoadBy Kim S. Nash | Posted 2003-02-01 Print
The $1.6 billion Pennsylvania company has spent the last three years taking knives to its $700 million budget for supplies. But first, it needed real data.to Wisdom">
One big problem was simply collecting all the data. Kennametal runs five different enterprise software applications, including SAP's R/3; two versions of Computer Associates' Ask Manman, which is late-1980s software for Hewlett-Packard and Digital Equipment minicomputers; and two older packages specific to industrial manufacturing.
"We really wanted to identify every dollar that leaves the company, so being able to get data from all those systems was critical," says Jim Cebula, director of global purchasing and travel in Steele's department.
A summer 2000 deal with one software company ended with Kennametal booting the company out.
The company had a package that could categorize purchasing data. But the package couldn't automatically talk to and extract data from Kennametal's various applications and, thus, put the data in the categories it created. Yet promises were made to find a way. Speed and low cost were Kennametal's top criteriatraits of which the vendor boasted.
But after several weeks, there was little progress. "We were frustrated with the pace and lack of project management," Steele says. Kennametal continued to work with the company, which he declines to name, but at the same time enlisted Tigris Consulting, a $10 million, 100-employee firm in New York.
Kennametal asked Tigris to deliver a fully functional purchasing database for three of its enterprise systems within eight weeks. If Tigris could do it, it got paid. If not, no pay. At the end of the two months, Tigris had done it.
"The other company still had not delivered a prototype," Steele says. "We disengaged them amicably but not pleasantly." Meaning there were no lawsuits, but nor were there many smiles and handshakes.
Tigris was hired in November 2000. But with a project budget "in the low six figures," the Kennametal deal wasn't going to be a playground for the consultancy. "We do this work for clients much larger than Kennametal. We were challenged to have this fit into their budget," says Brent Habig, chief executive at Tigris. Other customers are Unilever, a $46 billion consumer products company, and Pharmacia Corp., a $14 billion pharmaceutical firm.
One tack for the Kennametal project: simpler, less expensive software.
An Oracle database or data analysis tools from Hyperion or SAS Institute can cost upward of $100,000 each. Instead, Tigris chose Microsoft SQL Server database, which is in the $20,000 range, and Microsoft Access, which Kennametal already had, bundled with the Windows operating system. For the analysis tool, the choice was DataBeacon Inc.'s self-named package, which is priced at about $10,000. DataBeacon is a private software maker in Ottawa, Canada.
Another way around the time and money constraints was to have Tigris host the finished application for Kennametal, providing secured Web access to the system. That way, Kennametal's information-technology department avoided having to install new software and the system was up and going faster. "There was no capital cost or internal support requirement," Steele adds.
On the other hand, if Kennametal decides to take over the application, it will have to buy the software and spend money and time to train its people in how to work it. Right now, though, during the company's austerity program, Steele says it makes more financial sense to have Tigris host the system indefinitely, updating Kennametal's purchasing data every quarter.
Preparing Kennametal's data to be analyzed was a bear.
For example, different offices referred to supplier IBM in different ways: International Business Machines, IBM, IBM Corp., even Armonk, for the town in New York where the computer company has headquarters.
Similarly, units of measure had to be reconciled. One office, for example, accounted for envelope purchases in boxes of 50. Another recorded the number of cases. The company couldn't compare the price paid in each instance until the unit of measure was made comparable.
To make sure they were really seeing all dollars spent, Tigris and Kennametal matched accounts-payable records with purchase orders as much as possible. Purchase orders typically have nice, neat line-item detail. But an accounts-payable record can be as scant as a vendor name, an amount and a date. "That's where we had most of our bumps in the road," Cebula says.
To shed more light, Cebula and others from the project team cross-matched information by hand from general ledgers, such as supplier names and account numbers, with the names on accounts-payable files. The account numbers often could be traced backward to contracts for specific goods or services. Then old-fashioned interviews with factory managers or the employee who made the purchase helped uncover other details.
Some spending was harder to track, such as smaller purchases people put on credit cards, for which they were later reimbursed.
Still, uncategorized spendingthe portion of its 4 million annual transactions that Kennametal knows it has paid for but can't readily attribute to one of its 50 designated categorieswas 35% at that initial accounting. Since then, as the process has been refined and employees have become better about inputting records on what they buy, uncategorized spending has dropped to less than 5%, Cebula says.
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