BUSINESSWEEK ONLINE : NOVEMBER 20, 2000 ISSUE
BUSINESS WEEK E.BIZ -- WEB SMART COMPANIES

3M: Glued to the Web
The 98-year-old company's online database is generating New Economy efficiencies

Photo by Shawn C. Henry
Staples' Crosler now receives all the 3M products he orders.
David Crosier can't believe his good fortune. He's the guy who's supposed to keep Staples Inc. ( SPLS) in Post-it Notes and Scotch tape. These days, he's rolling in supplies. Not too long ago, the Staples vice-president for supply-chain management couldn't even find a Post-it Note to jot down his complaints about Post-it maker Minnesota Mining & Manufacturing Co. ( MMM) Staples' stores were consistently low on 3M products. Crosier would put in an order for 10,000 rolls of Scotch tape and get 8,000. It was always a crapshoot. Worse, 3M couldn't be counted on to get them to Crosier and his stores on time. The problem was causing ''stock-outs'' of popular 3M office products.

Then Crosier began using 3M's new online ordering system to buy office goodies. The Web site did away with the frustration of paper forms and countless phone calls--and helped 3M get rid of a lot of steps where potential errors had been taking place. Crosier won't reveal specific numbers, but in the 18 months since he has used the site, he says that 3M's fill rate has improved by 20%, and its on-time performance has almost doubled. ''The technology takes a lot of inefficiencies out of the supply-chain process,'' he says.

How did the 98-year-old 3M achieve such New Economy efficiency? Halfway across the country, in a nondescript office in the quiet town of St. Paul, Minn., Allen L. Messerli has the answer. He is showing off his baby, a fully loaded database stuffed with sales information, product descriptions, and customer records--all the corporate data you could possible want only a nanosecond away, thanks to the Internet. The 55-year-old information manager for 3M has spent five years building the system. If you don't believe it's fancy, he can show you a wall of awards to prove it. And if you don't believe the database is important, 3M execs swear that without it, they could not solve major management problems that have long plagued the company.

The issue was cooperation. A free-wheeling product-development environment helped 3M grow from a modest seller of sandpaper to a huge, $15.7 billion company that sells more than 50,000 products in 200 countries. But, truth be told, the company was stuck like glue when it came to getting all its parts to work together. For years, 3M had operated as 40 separate companies crammed under one roof, all with unique business practices and policies. Salespeople from different departments called customers independently, and each business unit collected its own sales and product information. Three years ago, 3M Germany lost a prominent customer, only to discover six months later that the customer was lured away by a competitor--3M France. ''If the CEO wanted to know all the business we did with a customer,'' says Messerli, ''it would be quicker to just ask the customer.'' When the CEO sought the information from within, it would take weeks, maybe months, to collect the data.

Snapshot. That changed when customers such as Staples began complaining. 3M execs began developing an online strategy around Messerli's newfangled database. Since 1997, the company has invested $30 million in the database, while ongoing maintenance costs have been $2.6 million a year. On the other hand, by junking old equipment used by each unit, such as PCs, software, and networking equipment, 3M is saving more than $10 million a year in maintenance and customer-service costs. Sales reporting that is more accurate and efficiently gathered is saving an additional $2.5 million a year, says Messerli. Meanwhile, the technology is helping boost sales-force productivity, sending worldwide sales per employee up 10% in 1999, to $220,000.

Now all 3M senior executives get their financial and sales information from Messerli's database, which is known as the Global Enterprise Data Warehouse ( GEDW). Clunky name aside, the data warehouse is delivering customer, product, sales, inventory, and financial data direct to the desktops of 3M workers and partners, who can access the info via the Net. The GEDW also is pumping data to the company's Web site, www.3m.com, where the public can read product descriptions on everything from cleaning pads to fiber optic cables.

Now 3M doesn't have to ask customers what they buy. Customer accounts from all 3M worldwide offices can be summarized to give a quick-as-a-snap, global picture. ''I couldn't live without GEDW and Al Messerli,'' crows Peter E. Davis, the tech manager for 3M's industrial markets division, which makes general-use and specialty tapes, adhesives, and abrasives.

Messerli wants more such converts among 3M's 70,000-plus employees. So far, his database averages only 10,000 users per day, mostly domestic workers. By the end of this year, when the database and the company's Web site are fully connected, Messerli hopes there will be 20,000 internal users and millions of consumers accessing the database through 3m.com. ''We want this tool to permeate all of 3M,'' he says.

Photo by Doug Knutson
"Remember, we're just starting to realize the potential of this thing"- Messerli
The database is forcing 3M to get its facts right. Gathering and concentrating company records into a central data warehouse made 3M aware of the sorry condition of its information. Because 3M has such a diversified product line and has operations scattered to the far reaches of the globe, the company has multiple sources of product and customer data, and much of it was inconsistent or just plain wrong. Products such as Post-it Notes were spelled half-a-dozen different ways, customer names and addresses were inconsistent, and no department adhered to any standards for abbreviations. Trillium Software Inc. was hired to clean up the mess and discovered that nearly 40% of 3M's U.S. customer accounts had invalid addresses.

Bad data were costing mightily. Wrong addresses delayed deliveries, and 3M paid a penalty to shippers such as FedEx Corp. ( FDX) for providing incorrect Zip codes. By the end of 1999, 3M got the rate of valid addresses up to around 90%. Now, 3M saves some $100,000 a year, plus $100,000 more in reduced surcharges from FedEx and the like.

Keeping the data clean is a constant battle. ''Zip codes are constantly changing, so we have to continue to scrub,'' says Wes Hillman, a project manager at 3M. Hillman is working on Web browser technology that will validate addresses as they are entered against a database of known U.S. street addresses. If no match is found, the user is alerted that it is an invalid address. The software will be ready later this year.

Getting cozy. Hard data on 3M's bottom line are now just a few clicks away. Earnings info is available by market sector, customer, and product. Unprofitable products, non-performing partners, and low revenue customers can be trimmed while management focuses on the most profitable opportunities. The results of price changes and marketing strategies are monitored, and the payoffs of new-product introductions can be calculated--a key metric for a company with a goal of producing at least 30% of each year's sales from products less than four years old.

The company won't hit that milestone unless it can better manage inventory. 3M has struggled with major changes in the retailing industry. Increasing numbers of independent hardware stores are giving way to huge office supply superstores, such as Staples. The superstores don't pack their warehouses with inventory; they expect suppliers, such as 3M, to do that. 3M has been flummoxed by the new world of inventory management. In 1998, it had to slow down its factories to reduce inventory levels. Because stores weren't stockpiling inventory, that caused a buildup in unsold goods, which squeezed profit margins. ''3M was not close enough to their customers to anticipate demand,'' says Goldman, Sachs & Co. analyst Jack L. Kelly.

Now, 3M is getting downright cozy with its customers. The data warehouse is generating a demand-planning system that monitors inventory levels for products and customers. Product demand is anticipated, and production planning is scheduled to deliver the right amount of supply. Since 1998, 3M has reduced inventory levels from almost four months to its target of little more than three months, which has added $437 million to 3M's cash flow. ''Integrating demand, supply, and production planning could be a major plus for 3M if they can pull it off,'' says Kelly.

The data warehouse isn't all about internal efficiency, though. It's good for looking over your partners, too. Some 3M executives have been eyeballing the Web sites of companies that sell 3M products and have not been too pleased by the descriptions. ''Our products have been misrepresented on the Web,'' says 3M's Davis. For example, Davis says 3M's polyurethane protective tape has been described as regular tape, making no mention that it's resistant to abrasion, erosion, scratch, puncture, and impact. His beef: Product differentiation was lost.

So, Davis has been writing product descriptions and digitizing photographs to put in the data warehouse. So far, about 30,000 have been stashed there. They can be downloaded easily into the online catalogs of such customers as W.W. Grainger Inc. ( GWW), which carries more than 6,000 3M products. That saves customers time and gives 3M control of the presentation of its goods online.

3M has taken bold steps toward wiring the company for the New Economy. Yet, Messerli, the proud papa of the company's data warehouse, thinks this is just the start. ''We're just starting to realize the potential of this thing.'' A sentiment worthy of a Post-it Note, in case anyone ever forgets.

By DARNELL LITTLE

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