Full version Owens Corning Case Study

Owens Corning Case Study

This print version free essay Owens Corning Case Study.

Category: Technology

Autor: reviewessays 02 December 2010

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Owens-Corning Case Study

Table of contents

1. Case Study Questions........................................................................................................... 1

2. Owens-Corning's Enterprise System Struggle......................................................................1

1. Case Study Questions

Read the Owens-Corning Case Study and then consider the following questions:

1. Describe the problems Owens-Corning had with its information systems prior to

installing its enterprise system. What management, organization, and technology factors

were responsible for those problems?

2. What management, organization, and technology problems did Owens-Corning face in

putting their enterprise system into effect?

3. How did implementing an enterprise system change the way Owens-Corning ran its


4. Was installing an enterprise system the right solution for Owens-Corning? Explain.

2. Owens-Corning's Enterprise System Struggle

In the early 1990s Owens-Corning was a United States leader in the production and sale of

such building materials as insulation, siding and roofing, but management wanted the

company to grow. The company had only two possible paths to growth: offering a fuller

range of building materials, and/or becoming a global force. To increase its range of products

Owens-Corning decided to acquire other companies. To become a global force, management

realized the company would need to become a global enterprise that could coordinate the

activities of all of its units in many different countries.

Headquartered in Toledo, Ohio, Owens-Corning had been divided along product lines, such

as fiberglass insulation, exterior siding, roofing materials. Each unit operated as a distinct

entity with its own set of information systems. (The company had more than 200 archaic,

inflexible and isolated systems.) Each plant had its own product lines, pricing schedules, and

trucking carriers. Owens-Corning customers had to place separate telephone calls for each

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product ordered- one each for siding, roofing and insulation. The company operated like a

collection of autonomous fiefdoms.

Owens-Corning management believed that these problems could be solved by implementing

an enterprise system. The company selected enterprise software from SAP AG to serve as the

foundation for a broad company overhall. "The primary intent with SAP was to totally

integrate our business systems on a global basis so everyone was operating on the same

platform with the same information," answered Dennis Sheets, sourcing manager for the

insulation and roofing business. Sheets wanted to centralize purchasing. "Prior to SAP," he

said, "we were buying widgets all over the world without any consolidated knowledge of

how much we were buying and from whom. Now [using SAP's R/3 software] we can find out

how many widgets we're using, where they're being purchased, and how much we paid for

them, [allowing] us to consolidate the overall acquisition process." Now, he added, "we can. .

. make better business decisions and better buys." Sheets expected the company's material

and supply inventories to drop by 25 percent as a result.

However, the project to install SAP's enterprise system would ultimately cost

Owens-Corning about $100 million and take several years, too expensive and time

consuming to be justified only by the reasons given by Sheets. The company hoped that the

new system would also enable it to digest acquisitions more easily. Owens-Corning wanted

to acquire other companies to expand its product line so it could increase sales from $2.9

billion in 1992 to $5 billion within a few years. That meant that Owens-Corning would have

to digest it's the archaic, inflexible systems from the companies it purchased. If

Owens-Corning were to become a global enterprise, it would need a flexible system that

would enable the company to access all of its data in an open and consolidated way.

ERP experts point out that simply converting to ERP systems does not solve companies'

problems. "Unless a company does a lot of thinking about what its supply chain strategy is

and articulating what its business processes are, these tools are going to be of little use,"

explained Mark Orton, of the New England Supplier Institute in Boston.

Owens-Corning's project began with its insulation group, and those on the project team

understood this. They undertook a redesign process before implementing SAP's R/3. They set

up cross-functional teams because "We had to identify the handoffs and touch points between

the various functions," said Moke Morey, the division's ERP implementation project

manager. He explained "My team, for example, had accountability for the process that runs

from the time we need to buy something through the payment issuance to the supplier. Other

areas, such as logistics and accounting, touch this process." The teams also kept in close

touch with suppliers who needed to know what Owens-Corning would require of them. As a

result of the redesign, purchasing decisions were moved from the plants up to a regional

level, enabling commodity specialists to use their expertise and the leverage of buying for a

larger base to improve Owens-Corning's purchasing position. The teams also decided to

Information Systems in the Enterprise - Owens-Corning Case Study

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require that all suppliers have a capability to send the company digital information that could

be fed directly into its enterprise system.

How did the first ERP project go? Over a weekend in March 1997 a team of about 60 people

transferred legacy data into the SAP system, and on Monday morning the company went live.

That morning Domenico Cecere, president of the roofing and asphalt unit, called the manager

of his Medina Ohio plant to asked how it was going. "Better than expected," was the report.

However, Owens-Corning's director of global development, David Johns, later concluded,

"When we first went live with SAP, it was a tough time." He said that overall productivity

and customer service dropped sharply during the first six months. "When you put in

something like SAP, it's not a mere systems change," he said. "You're changing the way

people have done their jobs for the past 20 years."

The first problems that surfaced were technical. According to Johns application response

time had increased from seconds before ERP to minutes under the new system.

Other technical problems also emerged. For example Johns said, "The functionality wasn't

working the way it was supposed to." Johns believes the source of these problems was

inadequate testing. "The first week [after going live] we just focused on the technical issues,"

said Johns. The team further tuned the software and over the next weeks response time

reduced to an acceptable speed, and slowly the software began operating smoothly.

However, "after we fixed some of the technical problems, we started peeling back the onion

and saw that this was much bigger than a technology problem," explained Johns. "We saw

that there were problems in the business, problems with the way people's new roles had been

defined, communication and change management issues, and business process issues." For

example, the SAP system demanded that the entire corporation adopt a single product list and

a single price list. Staff members initially resisted. Owens-Corning employees had not been

properly trained and they were overwhelmed, resulting in a lot of errors. Johns explained that

at Owens-Corning "we underestimated the impact that swapping out all our old systems

would have on our people." Users had indeed been properly trained on their own functions,

but ERP systems are integrated, and the users did not understand the impact their work was

having on other departments.

ERP systems are complex and errors ripple throughout the system. When using the old

systems, employees had time to correct data entry mistakes, and if they were not caught, they

only affected the local function. However, now that they were using R/3, the databases are

immediately updated. Thus, for example, the data flows instantly from sales to purchasing,

production and logistics systems. Johns offered another example. "If you're at a warehouse,

and you don't tell the system when a truck is leaving the dock, the truck can still leave, but

the customer will never get an invoice for the goods. Accounting won't find out later because

the transaction will never get to them." Such errors can be costly. Users needed to be more

Information Systems in the Enterprise - Owens-Corning Case Study

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careful as they did their jobs. To motivate users to work with more care, they needed to

understand the complexities of the system. They had to know how their errors would affect

other workers and even company profitability.

To address this problem the company quickly instituted a new training approach. Training

now would include information on the larger system and its complexities so users would

understand the impact of their work. Under the new training regimen, all employees were

denied access to the system until they had passed a test and so became certified. Those who

failed the test had to return to training until they could pass it. About 20% of Owens-Corning

employees never passed the test and had to change jobs. This job shifting was massive and

time- consuming, causing organizational disruption. Whereas the original project training

was budgeted for 7% of overall costs, training eventually consumed 13% of the budget.

Customers also suffered. Owens-Corning had been known for its excellent customer service,

but the quality of that service declined sharply after the SAP system went live. Many

customers were shocked, and some began turning to other suppliers. Owens-Corning began

losing important customers. The company was forced to devote a great deal of personnel

time rebuilding relations with its customers while simultaneously having to repair both its

organization and the software installation.

ERP implementation problems of this type are common. According to Barry Wilderman of

the Meta Group, ERP projects often result in a negative return-on-investment (ROI) for five

or more years. Why? Because ERP systems are so complex.

The company may not understand all that needs to be done in preparation. Moreover, these

systems are expensive, and testing and training will often get cut for budgetary reasons. Not

only do employees need to become accustomed to new ways of doing business, but

customers and suppliers may need to change their business processes as well.

How successful was the whole project? Management believes it has been a success. Johns

said "We made each mistake only once. Each deployment [in the rollout] got better." For

instance, "We do a lot more testing now before we go live," he said, "to make sure that all the

different pieces of the system work together." Mike Radcliff pointed out that customers now

have a single point of contact for all orders. Moreover, he adds, "With our old system, we

didn't know what inventory we had in stock. We would have to check around and get back to

the customer." Today, he continues, "we can see what inventory is available, when it will be

produced, and who is the lowest-cost carrier. We can commit to the customer before we hang

up the phone." He noted, however, that the changes have been massive. He estimates that

about 10,000 people were involved with the reengineering effort. "Just about everybody's

role in the organization has changed."

The ERP systems rollout was completed in 2000. During those years, Owens-Corning

Information Systems in the Enterprise - Owens-Corning Case Study

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