Order Management Reengineering At Heatway

Heatway Systems lost a lengthy legal battle when a federal jury in Cleveland held Goodyear Tire Rubber Co. blameless for its role in manufacturing the rubber hose the radiant company marketed as Entran II. The jury reached its decision February 3 after three days of deliberation and after three weeks of testimony.

“Frankly, the outcome of this trial was a surprise to everyone-including Goodyear, if they were honest,” Heatway president Mike Chiles said the day after the verdict. Chiles had high praise for the evidence presented by his Cleveland legal team. During three days of testimony, for example, an expert witness from the Naval Research Laboratory pointed out that Goodyear used inadequate antioxidants, inappropriate volatile plasticizers and cheap clay fillers in making the hose. A second expert witness testified that Goodyear’s failure to properly test the Entran II product for radiant heat purposes led to the problems.

Meanwhile, mechanical contractors from Colorado and Alaska testified that they had employed exactly the same installation methods when installing Heatway’s other radiant brands-yet only experienced problems with Entran II hose.

Goodyear argued that the failures were due to Heatway’s radiant system design, as well as problems with installation and maintenance by contractors. It said that field inspections showed that leaks were caused by the wrong type of hose connectors and that the hose was damaged by highly acidic fluid. In addition, Goodyear said it had been using the same 20-year-old formula to make hose for other applications, such as air and water hose, without any problems.

In a statement about the jury’s decision, Goodyear says it is “obviously very gratified by the verdict. We always have believed that the Entran II hose was appropriate for use in radiant home heating systems when it was sold.”

Chiles said the numbers just didn’t add up for his side. “The jury looked at the fact that there had only been 658 cases of failure out of 10,000 installations,” he said, “and didn’t think that was a high enough failure rate. After the verdict, Chiles said his lawyers interviewed the jury and many expressed “the sentiment that if there had been two or three times as many cases of failure, we would have won.”

While Heatway lost this case, Goodyear’s “win” may be far from solid. “They’re not out of the woods at all,” Chiles said. “We have unearthed some ugly internal memos as a result of our discovery process. It’s our firm belief that Goodyear will pay for this problem-it’s just going to take a couple of more years and more litigation.”

Chiles added that the courtroom was packed with plaintiff attorneys from across the country who are in line to sue Goodyear next. Heatway failed on its claim of a “breach of implied warranty of merchantability.” However, Goodyear still faces a growing number of homeowner claims and will have to fight other legal theories of liability.

Heatway bought 25 million feet of the hose between 1989 and 1993. But the hose soon began to crack and leak, causing extensive damages. Entran II tubes started out orange and flexible, like garden hoses. Over time, the tube released plasticizers that hardened the tube, effectively dissolving in hot water, according to expert testimony. The first phase of the problem begins with leaks where the hose connects to the manifold, and continues until the tube spontaneously cracks and leaks elsewhere.

There are about 10,000 radiant heating systems in the Unites States that contain Entran II tubes, and Heatway has spent more than $6.5 million to settle more than 100 claims since 1992.

Despite the verdict against Heatway, Denver attorney William Maywhort has advised clients that the Ohio jury verdict for Goodyear does not prevent Colorado residents who have Entran II hose in their homes from suing Goodyear. ‘In fact, suing Goodyear and Heatway directly now may be the homeowners only option for recovering for the damage caused by Entran II,” said Maywhort, who represents more than a dozen Colorado homeowners who have experienced problems with the Entran II hose

What is BPR?

Business process re-engineering is a business management strategy, originally pioneered in the early 1990s, focusing on the analysis and design of workflows and processes within an organization. BPR aimed to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. In the mid-1990s, as many as 60% of the Fortune 500 companies claimed to either have initiated reengineering efforts, or to have plans to do so.

BPR seeks to help companies radically restructure their organizations by focusing on the ground-up design of their business processes. According to Davenport (1990) a business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering emphasized a holistic focus on business objectives and how processes related to them, encouraging full-scale recreation of processes rather than iterative optimization of subprocesses.

Business process re-engineering is also known as business process redesign, business transformation, or business process change management.

The role of information technology

Information technology (IT) has historically played an important role in the reengineering concept. It is considered by some as a major enabler for new forms of working and collaborating within an organization and across organizational borders[citation needed].

Early BPR literature identified several so called disruptive technologies that were supposed to challenge traditional wisdom about how work should be performed.

Shared databases, making information available at many places

Expert systems, allowing generalists to perform specialist tasks

Telecommunication networks, allowing organizations to be centralized and decentralized at the same time

Decision-support tools, allowing decision-making to be a part of everybody’s job

Wireless data communication and portable computers, allowing field personnel to work office independent

Interactive videodisk, to get in immediate contact with potential buyers

Automatic identification and tracking, allowing things to tell where they are, instead of requiring to be found

High performance computing, allowing on-the-fly planning and revisioning

In the mid-1990s, especially workflow management systems were considered as a significant contributor to improved process efficiency. Also ERP (Enterprise Resource Planning) vendors, such as SAP, JD Edwards, Oracle, PeopleSoft, positioned their solutions as vehicles for business process redesign and improvement.

BPR Success & Failure Factors

Critique

Many companies used reengineering as an pretext to downsize their companies dramatically, though this was not the intent of reengineering’s proponents; consequently, reengineering earned a reputation for being synonymous with downsizing and layoffs.

In many circumstances, reengineering has not always lived up to its expectations. Some prominent reasons include:

Reengineering assumes that the factor that limits an organization’s performance is the ineffectiveness of its processes (which may or may not be true) and offers no means of validating that assumption.

Reengineering assumes the need to start the process of performance improvement with a “clean slate,” i.e. totally disregard the status quo.

According to Eliyahu M. Goldratt (and his Theory of Constraints) reengineering does not provide an effective way to focus improvement efforts on the organization’s constraint[citation needed].

Others have claimed that reengineering was a recycled buzzword for commonly-held ideas. Abrahamson (1996) argued that fashionable management terms tend to follow a lifecycle, which for Reengineering peaked between 1993 and 1996 (Ponzi and Koenig 2002). They argue that Reengineering was in fact nothing new (as e.g. when Henry Ford implemented the assembly line in 1908, he was in fact reengineering, radically changing the way of thinking in an organization).

The most frequent critique against BPR concerns the strict focus on efficiency and technology and the disregard of people in the organization that is subjected to a reengineering initiative. Very often, the label BPR was used for major workforce reductions. Thomas Davenport, an early BPR proponent, stated that:

“When I wrote about “business process redesign” in 1990, I explicitly said that using it for cost reduction alone was not a sensible goal. And consultants Michael Hammer and James Champy, the two names most closely associated with reengineering, have insisted all along that layoffs shouldn’t be the point. But the fact is, once out of the bottle, the reengineering genie quickly turned ugly.”

Introduction to Case

Problem before Allan Firestone, president of Heatway Cooperation’s Industrial Products Division and Bob Hemphill, a VP charged with designing and implementing a new process.

Design and implementation of a new process, named Proposal to payment (PTP) for selling and delivering Heatway products.

Change in organizational structure as well as IT architecture, and even a new philosophy of business.

Trouble between Hemphill and Firestone over the spending budget, where Hemphill demanded $35 million and Firestone was ready to spend only $15 million.

Funding Considerations before Firestone:

How money could be arranged for PTP without sacrificing the profit objectives?

Could corporate pay for the rest of amount?

Could some of the other international divisions that had expressed interest contribute?

Firestone himself believed that PTP was necessary and design for the new process, organization, and technology environment were very exciting.

But, the VP had doubts about the urgency to implement PTP.

So, firestone resolved to take one more look at the numbers, in hope to find some source of additional savings had been overlooked.

Background-Industrial Products

Industrial and consumer markets in 27 countries throughout the world.

Activities involved heating, ventilation, air conditioning(HVAC) products and services.

business heavily dependent on New Construction.

IPD sold to medium % large sized businesses.

Systems configured to suit the size, location and design of the businesses.

Had its own direct-sales & engineering groups.

Heatway engg worked with architects, contractors and tenants to configure an HVAC solution.

Reengineering at heatway

An early adopter of new approaches to business improvements

Quality based management approaches had been accepted in Manufacturing & engineering but lacking in Sales & Service

In late 1980’s radical changes to improvement in contrast to incremental changes using IT.

Sought order-of-magnitude improvements in

Time

Cost

Quality

Designing

First phase

Assess current state of order management

Create vision of new process

Work divided into two teams

Team A

8 members

Analyze current state of the processes

Understand the costs & time of doing business

Recommend short term improvements

Team B

10 internal managers& consultants

Create vision for future state of process.

Both teams were jointly responsible for managing the organizational changerequired for the initiative to succeed

Implications of New Process

Team created a large financial model to analyze the costs, benefits, and financial risks of implementing the new PTP process.

The new process was very expensive (around $150million)

Cost for prototype process efforts

Cost of SAP Implementation

Cost of fully implementing and operating the new workstations, networks, and SAP software

Cost for retaining, relocating, and removing employees

Return on the PTP investment appeared very high.

Prototypes and pilots was planned in the middle Atlantic states region.

Changes in Information technology

Mobile data network necessary

SAP installation

Sales force workstation

Not only the design’s adoption has to be justified in financial terms, but also the long process of changing had to be started.

Implications for Employees

Adoption of the new process.

Management, evaluation and compensation of their day to day work.

Communicated the nature of these changes through written communication.

Mixed Reaction

Performers loved the new process because of more freedom and less bureaucracy.

Less capable performers were worried about how they would fare

Dramatic change not only in how the field personnel did their work bt also how they were managed, evaluated and implemented

Reorganization at Heatway

Change in the management

Salada remain as chairman

Kacher would leave Heatway

Information systems function would be outsourced to an external firm with substantial SAP experience.

Reorganization could have been problematic for PTP

European groups would have less incentive to adopt the PTP design.

Want of new system provider to implement SAP without concern of PTP process vision

Concerns

Firestone concern

Difficulty in assessing how rapidly the construction and rollout of PTP capabilities should take place.

Other memebers of the operations committee were neither worried nor committed to PTP.

Change in the commitment by the key managers after t

He reorganization.

These are those managers whose functional areas would shrink with the adoption of PTP despite being offered important role at Heatway.

Financing for PTP

If all the resources are devoted then both revenue and profitability goals would not meet.

Decisions

Everyone understood that PTP implementation is a good investment.

Head of international said she wanted to wait to see how PTP worked in the U.S. before transferring resources from her budget.

Friestone tried unsucessfully at one one meeting to make PTP corporate initiative.

Its upto firestone and other executives to decide how quickly to roll out the new process and how to fund it