December 19, 2001

Feature Article

Turning Challenges into Opportunities
Corporate IT managers have a distinct role in helping keep corporations in top form, especially during periods of economic slowdown when it's critically important to streamline business processes and keep a lid on infrastructure costs.

By Stephen Schuchert

Times are tough? Of course they are and many companies will cut back. Yet, economic uncertainty catalyzes some companies to reassess and reevaluate aspects of their business where changes can produce significant results. During lean times, the primary goal must be to equip the company to survive while the market is weak and be positioned to take advantage of the inevitable up-turn when it comes.
At Kennametal, a prominent Latrobe, PA-based company that makes and markets metalcutting and toolholding devices for the metalworking, electronics, mining and highway construction and energy industries, we were faced with the same economic and market issues as most other manufacturing companies. Our markets were and are very competitive, highly price-sensitive, and our customers expect a high level of service, performance and quality from our products. Customer satisfaction is paramount in our business, including a focus on after-the-sales service for the users of our consumable products. And globalization is a primary corporate objective.
In 1995, we recognized that we were facing a critical juncture with our information systems. Actions taken since then have set the stage for a successful approach to orchestrating IT resources and capabilities at Kennametal. As was the case for many other global companies in the industry, Kennametal's systems had grown highly fragmented and localized, with little information sharing among them and a lot of manual effort required to extract and present national or global information. In addition, few of these systems were Y2K compliant. So, we developed a five-year plan to not only replace these systems with a single, coordinated corporate approach to information processing, but also to incorporate a program of implementing "best practices" for operational performance improvement leveraged on top of the improved information availability.
As we progressed toward our goals and got closer to the Y2K calendar deadline, the manufacturing industry was increasingly impacted by global economic woes. Kennametal, however, showed continuing improvements in productivity and service levels, due in large part to the improvements generated through our five-year plan. We finished the fiscal year that spanned the centennial turnover with increased market share and sales and earnings in line with our plan.

A New View of Opportunity

Our company has not viewed this system replacement project as simply a necessary expense or just another cost of doing business. It is an opportunity to improve the way we manage all of our resources and enable Kennametal to proactively exploit business opportunities on a global basis. As such, this was not a one-time, "get it done and move on to other things" kind of project. We have now gone through 4 upgrades since the initial implementation and have undertaken a number of customizations, subsequent implementations and extensions to keep the system current and adapt to the times and challenges as the economic conditions continued to decline.
We now support autonomous, site-specific operations with eight SAP applications on a single instance through our global wide-area network. Throughout 2000 and 2001, in the midst of other business challenges industry wide, the IT group has continued to implement a complete upgrade of the system. This involved new HP servers to support a single instance of SAP's latest version of R/3, 4.6C, and the implementation of additional SAP modules to support the needs of more than 3,300 users at 116 sites in 27 countries. This latest upgrade was completed in just over eight months. The hardware infrastructure incorporates several large HP servers to support the database and SAP applications, and an Oracle database of 1.8 Terabytes in size.
This kind of constant planning, transitioning, and optimizing of the information environment is, perhaps, a requisite to being a top quartile financial performer in any industry. Certainly corporate executives at Kennametal support this view of aggressive IT responsibilities. For any company taking a customer-service focus, it is especially important for the corporate solutions to advance in-step with the supply chain and customer world. As such, the successful model for IT groups is to grow capabilities and capacity safely in advance of market growth — doing this as cost-effectively as possible — in order to gain market share.

The Good News for Customer Service
Experience at Kennametal illustrates how global information systems are a key factor in an ability to achieve these goals. Yet, the IT group is well aware that it is not just systems technology and performance of the HP servers that have been deployed that will allow the company to do that. Effective processes and operational excellence must be built in concert with the IT infrastructure. Kennametal, for example, is basing the business on best practices incorporated into the dozen or so SAP modules being used department-by-department throughout the company.
As an example of how the systems have helped us improve customer service, we routinely use fax and e-mail to respond to customer requests for quotes, invoices and acknowledgements. Before our systems improvements, it took hours and sometimes as much as 2 days to get these documents out. Now, fax and e-mail documents can be generated directly by the system and sent out to the customer within a minute or two, making us much more responsive. In the next phase of our continual improvement process, we will be implementing some of the engineering collaboration capabilities that are contained in release 4.6C and a module of the mySAP.com. This should reduce a current two-week process of viewing and redlining drawings to about 2 days.
Perhaps surprisingly, the system is proving to be especially helpful for smaller facilities in developing areas. We can provide them with immediate access to best practices like global inventory visibility that they would not have had otherwise. This allows us to route orders to where the inventory happens to be, rather than moving the inventory to the order. We can ship direct to the customer — anywhere in the world — and avoid the expense and delays of repositioning of inventories to cover for lack of information.
Large scale, on-time and under-budget transitions such as this are clearly challenging. The process we used at Kennametal included strategies for mitigating risk. The IT applications group developed a comprehensive implementation plan, with help from HP and SAP technical consultants at appropriate stages. That provides a good model of (implementation) best-practices and a timetable for other corporate IT groups to leverage.
"The nature and extent of the consulting and planning provided to Kennametal reveals something that's unique for projects of this size and significance," observed Randy Churchfield, HP Account Manager. The company safeguards its IT operations from outside disruptions by being exceptionally self-reliant. "This mode extends across many areas of disciplines within the company, including the IT realm. As such, our goal went beyond traditional implementation planning and configuring of server platforms for the SAP applications and databases, and collaborated with the Kennametal network operators so that they were very familiar with the entire HP/SAP platform and proficient in the mission-critical service provisioning of their corporate information infrastructure."
Interestingly, various HP OpenView products are utilized for monitoring of the SAP environment as well as all other Unix servers in the data center, and contributing significantly to the uptime and availability of the SAP environment. Alarms are set for problem situations such as files running out of space, and when necessary, system administrators are automatically paged. The network health is monitored by Network Node Manager. Proactively reacting to potential problem situations helps us maintain a high level of system availability.
When times are tough, many companies head for shelter and simply wait until things improve. Kennametal saw opportunity in the midst of the economic downturn and leveraged a necessary expense to deliver outstanding results, increased market share, and an improved ability to take advantage of the economic recovery when it does come.

About the Author
Steve Schuchert is Director of Applications in Global IT Organization for Kennametal. He has 20 years of experience in sales, marketing, manufacturing, and information technology domains, all associated with designing, building, and implementing business information systems.

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