By Kim S. Nash Print this article Print

What did it take to get noticed last year, for better or worse? Big numbers.


$600 MillionAlcoa's savings so far in a plan to shave $1 billion that relies on a company-wide software standardization effort.

Consumers may buy more canned drinks and cars than ever. But airlines are flying fewer planes and construction companies are building fewer skyscrapers. Result: the aluminum industry faces per-pound prices that have sunk a good 20% since 2001.

At $20 billion in sales, Alcoa is the world's biggest aluminum company. With depressed prices persisting, Alcoa vowed two years ago to cut $1 billion from expenses.

Key to the quest is replacing a global mishmash of 3,000 applications with software from Oracle to do everything from human resources to order processing. Predictable roadblocks in getting users to change work habits initially hampered progress.

Alcoa Chief Information Officer Rudolph Huber says it's been hard to convince some managers to switch from systems that they've used for years. "Would everybody have chosen Oracle?" he asks. "Definitely not." Change management specialists and extensive pilot programs help ease the disruption.

Not as predictable were the bugs in the first version of the Oracle 11i suite. Forrester Research documented some 5,000 problems in Oracle 11i. Alcoa won't talk about the bugs it saw, but admits the glitches delayed the project by a couple of weeks. Alcoa is due to finish the Oracle rollout by the end of 2004.

Already, $600 million has been removed from Alcoa's annual operating costs and it hopes to reach its $1 billion goal sometime this year. The company will need a lot more savings. It reported a net loss of $223 million for the last quarter of 2002, after one-time charges.—Written with john mccormick

$450 MillionAmount suppliers have dropped prices SINCE United Technologies forced them to compete in online auctions.

As part of a mandate to cut procurement costs by $600 million per year, United Technologies Corp. started doing online auctions using software and services from FreeMarkets in Pittsburgh.

The $27.5 billion conglomerate makes Otis elevators, Pratt & Whitney airplane engines, Carrier heating and air conditioning systems, and other industrial products. Now pens and paper, gears, motors and wire, even legal, tax and information technology services are put out to bid.

United Technologies has purchased more than $2 billion worth of items online in roughly 3,000 auctions since 1996—and has cut its costs on purchases approximately 22.5%.

It pays FreeMarkets a cut of 1% to 2% of the value of the purchases, plus a per-user software license fee. But Mike Brown, United Technologies' VP of worldwide sourcing, sees the use of auctions as a way to determine what the real going rate is on a given product.

Through traditional contract negotiations with an incumbent supplier, United Technologies might extract a price cut of 3% or 4%, he says. "But put that incumbent in a pool with six or seven hungry suppliers who are willing to do their best to get the business, and your incumbent will come down 20% or 25% in the price." he says.

108 ProgramsThe number of business systems General Motors uses to engineer a car, down from 550 in 1996.

From concept sketch to prototype to mass manufacture, General Motors is digitizing as much of the car-making process as it can. The goal is to cut years from the design-to-production cycle, as well as win back market share with cars and trucks that entice drivers.

Minimizing the number of systems that engineers deal with is also key, so that making GM products is cheaper and just plain simpler. Since 1996, GM has cut the number of programs from 550 to 108—down 80%. The company wants to keep shaving 20% per year. The time it takes to go from design freeze to production is down from 48 months to 18.

Says David Cole, president of the Center for Automotive Research, "The same engineering team that did one product can do five in the same time."

Still, the development cycle at rival Honda is 14 months, on the way to 12. GM has to keep the pedal down if it hopes to win.

This article was originally published on 2003-01-01
Senior Writer
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.
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