Imperial Sugar Rebuilds on Web Services

 
 
By Sean Gallagher  |  Posted 2002-03-18
 
 
 

At the outset of 2001, life at Imperial Sugar was about to turn bitter. As sugar prices collapsed, so did the Sugar Land, Texas, company, filing for bankruptcy protection.

PDF Download It was hardly the ideal time to start a bleeding-edge technology initiative.

But that's exactly what CIO George Muller undertook. Before the phrase "Web services" had sunk into the information system lexicon, he took the bankruptcy as a demarcation point to use technology to improve the company's business. His first project: Give customers direct access to information about the status of their orders via the Web. This "customer-facing extranet" would be the first step in a move toward integrating Imperial directly into its customers' supply chains.

With sugar prices doubling to 11 cents a pound in 2000, then falling throughout 2001 to under 5.5 cents a pound at the end of February 2002, this would be a strategic pursuit on a shoestring. Imperial set out to do what in the past would have likely cost $3 million, using outside resources.

The tools were cutting edge: a server from SilverStream that transferred data from mainframes to Web pages using the elixir of the eXtensible Markup Language (XML) and Sun's Java 2 Enterprise Edition software technology, and desktop software that created those connections without users having to write a line of code. The approach would be to spend a few hundred thousand on internal development, with a modicum of coaching from the outside.

"I wanted to make an investment in our own people," Muller says.

As it turned out, the biggest hurdle the project had to clear wasn't technical or financial; it was the company's culture. "The choke point was overcoming the social issues," says Mark Clemmons, Imperial's Web and database manager.

Translation: Imperial's 20 customer service representatives had to buy in. Imperial's reps work with 40 large customers and brokers, who, in turn, represent more than 800 different customer offices. The self-service application would change the relationship with those customers.

"They've been doing business with their customers for a long time and were just unsure about how the changes would be accepted," says Clemmons.

Yet the company had to change. Imperial Sugar is the largest sugar refiner in the U.S., with $1.6 billion in sales in 2001—double that of its closest American rivals, Florida Crystals and American Crystal Sugar. But the company has been in the red for the last two years, with losses totaling more than $372 million.

With $250 million in bonds and more than $400 million in bank loans, Imperial pre-negotiated the terms of a bankruptcy with its creditors. In the midst of this, Muller and Clemmons started looking for ways to take the company's sales process onto the Web.

By giving customers a direct connection to the company's sales systems, Muller and Imperial's executives hoped to reduce the cost of selling to them, as well as getting a bigger share of their customers' business.

In the long term, Imperial wants to do collaborative forecasting of demand with its customers. That would lower its inventory costs. By making the purchasing process easier, Imperial hopes it can spend more of its sales calories getting a better understanding of the customer's needs. That would boost revenue, overall.

"In a commodity business like this," Muller says, "you have to add value to differentiate yourself."

Putting order-tracking online would give customers 24-hour access to information about coming shipments, helping them to plan their production better.

Muller began looking for a company that could supply the right tools to develop Web services, but would cut Imperial some slack on pricing during its capital crunch. "We were looking for a business partner, not someone who just wanted to sell us software," he says.

Enter SilverStream

After looking at "all the major vendors," Muller and Clemmons were drawn to SilverStream and its Composer software, a Java-based XML integration server. Composer could create applications that worked well with mainframe computers, not just servers, and required little training, asserts Fred Holahan, SilverStream's vice president and general manager of e-business integration products

Familiarity also came into play. SilverStream's Java 2 Enterprise Edition-based application servers were already used to serve up Imperial's internal Web applications.

SilverStream did a proof-of-concept deployment in a week, says Muller. The test convinced Muller and Clemmons that they could quickly bring Clemmons' team of four developers up to speed on the product.

The SilverStream approach also was a lot cheaper than using a PeopleSoft portal to interact with customers, an option it considered. Muller won't comment on which other products were tested.

While neither SilverStream nor Imperial will discuss costs, the software configuration required by Imperial is list-priced by SilverStream at about $50,000 per processor on a server. Negotiated prices kept the project well under half-a-million dollars.

Composer is broken down into three components: an integration design tool, which runs on desktop computers, and an integration server and data source connectors, which run on the application server. Developers use the design tool to create code that runs on the server by using live terminal sessions on mainframe applications and connections to back-end databases, to map where data comes from and goes to. The resulting XML-based applications can be set up as Web applications, or they can be turned into pure Web services, which would allow customers' purchasing systems to connect directly to the integration server. While the generated applications are written in Java, little, if any, Java programming is required.

Software "connectors" translate processes between different applications and data sources. Data captured by the connectors is translated into XML request and response documents, so that customers don't have to worry where information on their orders resides; it just gets delivered to their screens. SilverStream provides connectors for IBM mainframe 3270 applications and electronic document data streams, as well as relational databases.

To build the order-status checking service, Clemmons' team used a 3270 screen emulation within Composer's design tool to run the legacy sales applications that the data came from. By dragging and dropping data from the sugar sales applications onto a digital pallet, the team was able to quickly map where data would come from in two separate legacy systems, and how it would then appear on Web pages that customers would use.

Just as Imperial emerged from bankruptcy in August, the self-service application was ready to be rolled out to initial customers. Using it, sugar buyers now can log into the system from any Web browser on any Internet-connected computer and find out the status of an order, 24 hours a day.

But there was another constituency to sell this to: Imperial's human customer service representatives. "The salespeople were reluctant to change," says Clemmons.

Since Imperial was formed over 90 years ago from a family-run sugar plantation, the company has relied on personal connections to sell sugar to confectioners, bakers and bulk sugar dealers. While larger customers can submit orders electronically, Imperial's primary interaction with its customers is still through its staff of 20 customer service representatives.

The representatives manually enter orders and status inquiries into two separate mainframe applications. Prior to the rollout of the self-service system, a customer service representative could spend as much as five hours of the workday on the phone handling customer inquiries.

The self-service application threatened their relationship with customers. But that began to change as Clemmons' team started bringing customers onto the secure extranet and giving them access to the self-help application. For the salespeople who were early adopters, the time spent on status inquiries dropped from five hours to two hours or less. Soon, the customer service reps were clamoring for Clemmons to get more customers online.

By halving the phone workload, Imperial nearly doubled its effective salesforce (in man-hours)—and let customer service representatives take a more consultative approach to sales.

The next project for Clemmons' team is to allow customers to place orders over the Web. While that project is still in its earliest phases, it's already had an impact on Imperial's bottom line. Muller has been able to use the Web services effort as a bargaining chip in negotiations with the network companies who currently handle Imperial's connections for the older technology known as electronic document interchange or EDI. With a free service in the wings that could conceivably replace them, the EDI network vendors were willing to strike a deal.

As a result, Imperial has been able to reduce the cost of operating its existing EDI services. Imperial's chief financial officer, Chris Brewster, declined to provide specific cost savings, although savings on communications costs alone could pay for Composer within a year.

The results are just beginning to affect the company's financial statements anyway. Imperial has posted only one full quarter of results since the self-service application kicked in and the bigger savings won't kick in until Clemmons' team deploys online order-taking. In fact, there's been a small uptick in sales, general and administrative costs since the software was rolled out.

However, any savings help. The company just eked out its first operating profit in six quarters: $669,000 on net sales of $322.3 million. That's probably the only metric at Imperial that matters right now.

Imperial Sugar Base Case

Headquarters: 1 Imperial Square, Sugar Land, Texas

Phone Number: (281) 491-9181

Business: The largest processor and marketer of refined sugar in the United States and a distributor of sugar, sauces, seasonings, drink mixes and desserts to the food-service industry

Chief Information Officer: George Muller

Financials in 2001: $1.55 billion in net sales, $322.8 million in net losses in fiscal year ending in September (combining results before and after bankruptcy)

Challenge: Return a company still heavily in debt to profitability in an industry with only 1%-2% annual growth and product prices at 15-year-lows

Baseline Goals:

  • Avoid default on $230 million of post-restructuring debt
  • Meet bank loan covenants, including minimum ratio of "liquid" assets to current liabilities. At end of fiscal year, company had $1.54 of cash-like assets for each $1 of immediate liabilities
  • Reduce order-processing costs through automated self-service over the Web, improving operating margin from 1 cent on the dollar