Business Week e.biz -- Strategies
How an Intranet Opened Up the Door to Profits
Weyerhaeuser's door plant was on its last legs--until an in-house information network showed people how to work better and smarter
From its drab, corrugated-metal exterior, Weyerhaeuser Co.'s Marshfield (Wis.) door factory, deep in America's dairy belt, doesn't look like much. But inside, the 100-year-old timber giant is carving out its own piece of the Internet revolution.
Four years ago, the plant was on its last legs--what Weyerhaeuser Vice-President Jerry Mannigel had called a "dead dog" of a door plant, besieged by bloated costs, flagging sales, and bad morale. Even Mannigel, a Marshfield native who initiated a factory redesign in the mid-1980s, had to be begged to return from his job at another facility to see if things could be turned around. "The situation had gotten so bad that Marshfield was operating at half capacity but costing us the equivalent of full capacity," he says. And morale couldn't have been worse. Says Mannigel, whose father also used to work at the plant: "You had to practically beat people with a stick to get them to come back to work every morning."
What a difference the Internet has made. Today, the plant--which cuts, glues, drills, and shapes customized doors according to each buyer's desire--is profitable again, and revenues are growing at an annual 10%-to-15% pace. Better management has been key. But productivity experts give much credit to Weyerhaeuser's installation of a state-of-the-art in-house communications network that uses the Internet to compare prices in a heartbeat, boost on-time deliveries, and track orders as they move through the plant.NEW RULES. Since phase-in began in late 1995, the technology, dubbed DoorBuilder, has helped the plant to double production--to more than 800,000 doors annually. Tracking software has improved the plant's record for complete and on-time deliveries--up from 40% to 97%. The plant's share of the U.S. commercial door market has zoomed from 12% to 26%. And since 1993, the year Weyerhaeuser thought it might shut down the plant, the factory's return on net assets has grown from -2% to 27%--well beyond this year's companywide goal of 17%.
Now, Weyerhaeuser is taking DoorBuilder even further, rewriting the rules of the doormaking industry. In the past year, Weyerhaeuser has begun to experiment with extending its DoorBuilder network beyond the plant's borders to some of its most valued customers--key distributors. That communications link is speeding up the ordering process for customers, while eliminating costly errors, waste, and delivery snafus. The result: Weyerhaeuser can offer faster turnaround and, in some cases, lower prices that rival doormakers may have to match. At the same time, distributors that want to get in on the improvements are being forced to automate their shops so they can hook into Weyerhaeuser's network.
For many of Weyerhaeuser's distributors, the arrival of the Internet to their old-line businesses is jarring, and not altogether welcome. Charles Hummel, CEO of Pleasants Hardware Co. in Winston-Salem, N.C., the nation's largest door distributor and one of Weyerhaeuser's biggest customers, gripes that DoorBuilder will require him to put computers, extra phone lines, and trained tech staff in his 15 branch offices. Hummel is hoping he can hold out but concedes he may have to bite the bullet because of Weyerhaeuser's clout. "It's a love-hate relationship with Weyerhaeuser right now," he says. "If you're not on DoorBuilder, your lead times may actually increase."
Such upheaval is the inevitable by-product of E-engineering in the timber industry and just about everywhere else these days. High-tech and low-tech companies alike are scrambling to remake their businesses from top to bottom so they can tap into the power of the Net. At the heart of these efforts are communications networks much like Weyerhaeuser's, called intranets, that link all the workers in the company while plugging into vast databases of information, factory-floor operations, supplier inventory, price lists, and order-taking. According to International Data Corp., an estimated 52% or more of manufacturing companies with revenues of $1 billion or higher are considering, or already have, intranets. "From its original role as a data repository, the intranet has rapidly grown to become the central nervous system of the enterprise," says a May report from Concours Group, a research and consulting firm in Kingwood, Tex.
As essential as that may sound, not all intranets have paid off. Some companies have stopped with a Web site or have failed to exert the type of leadership and flexibility needed for the technology and the cultural changes it brings. Or, says Ernst & Young consulting's chief technologist, John Parkinson, "they end up costing far more than expected and drown managers in too much information." Even at Marshfield, Vice-President William Blankenship--who persuaded Weyerhaeuser's top brass to O.K. the plant's intranet, admits that "it has been a long haul." Weyerhaeuser's initial $2 million investment has more than quadrupled. And when Mannigel made the system fully operational last February, glitches and worker errors temporarily slowed deliveries and hampered production.CUSTOM CRAFT. Executives remain committed to Marshfield as one of a handful of examples of E-engineering that is working in the U.S. And Blankenship says Weyerhaeuser is just beginning to discover what DoorBuilder can do.
To understand just how dynamic DoorBuilder is, consider the dramatic changes it has brought to the single task of order-taking. At Weyerhaeuser, this has long been a painstakingly complex job, since each door is custom-built, according to an amazing 2 million different configurations--from size, style, and color to the veneer and hardware options. One door might have a round window and a core to withstand 40 minutes of fire; another could be laminated with white plastic stars, destined for a theater on Broadway. Before DoorBuilder, says Mannigel, "we had been buried in information, and our inability to handle it had become the bottleneck of this business. Every six or seven doors or so that we make here are likely to be different from those that come before and those that come after."
DoorBuilder sorts through all that information and calculates the math in seconds. The days when distributors, builders, and Weyerhaeuser reps would haggle for weeks, if not months, to hammer out an order are gone. And, if customers are plugged into Weyerhaeuser's network, they can bypass Weyerhaeuser's reps altogether by typing in their order on the Marshfield plant's Web site. All orders are final once the customer pushes the "submit" button on their computer. Sometimes, handwritten substitutions were slipped into the process at the last minute, as a special favor to a particular customer. "Today, there are no special favors," Mannigel says. "Now, every order is equal."
Indeed, DoorBuilder's order-entry software is so sophisticated that it is based on the same system Boeing Co. uses to configure its complex 777 airplane wings. "If a certain hinge can't be used on a certain door in a certain city, then DoorBuilder will reject that as an option and tell you why," says Mannigel.
Converting orders from paper to bits also has reduced the number of errors. Previously, orders were stapled to each door and would inevitably get torn off or lost at various times during production. "We had one guy who used to collect these off the floor and put them in a big bin, and every two weeks or so, he would throw them out. We were having to redo orders like crazy," says Mannigel. Weyerhaeuser figures DoorBuilder has reduced errors drastically, cutting two to three weeks off turnaround times.
The new system is making the company a lot smarter--and tougher--about pricing, too. In the past, prices were based on hunches, special relationships, and haggling with customers and suppliers. "The questions of cost and price every month were a crapshoot," says Mannigel. With Doorbuilder, there is no more guesswork or favoritism. Thanks to more precise information about costs and lead times, doors are now priced according to what each option actually adds to the total cost of manufacture. Executives who had once prided themselves on their pricing prowess discovered that some of their generations-old calculations were faulty. In one case, Mannigel says, "a distributor who we thought was one of our best customers was actually costing us money." Says Lee Kirchman, the plant's vice-president for marketing and sales: "The machine knew more than we did."
The result: Weyerhaeuser now charges some customers more. If they balk, DoorBuilder can instantly offer up different options that are cheaper. "No way that would have worked without the data we got from DoorBuilder," Mannigel says. "For the first time, we had proof some orders weren't making any money, so we set out to fix that. Now we can show a customer precisely why we're asking for a higher price."
Ditto suppliers. Kirchman recalls that in the days before DoorBuilder, the company considered Columbia Forest Products Co. one of its best suppliers of veneers, both on price and quality. "But we did an analysis of them with DoorBuilder, and--surprise--they ranked way, way down on the chain," says Kirchman. So Weyerhaeuser went back to Columbia, showed the company the data and gave them six months to improve--or it would start buying most of its veneers elsewhere. Now, each quarter, Marshfield's purchasing staff sits down with each key supplier and shows them how they stack up on the value chart, hammering out prices accordingly.
The biggest surprise of all: Armed with this information, Weyerhaeuser actually refuses some customer orders now or redirects them to competitors--unimaginable before. Customers also are ranked by their creditworthiness, price demands, average order size, and their willingness to go along with the company's new way of doing things. That has weaned Weyerhaeuser's roster of door distributors down from roughly 500 in 1995 to approximately 200 this year--but with more volume and profit coming from each of the mostly larger customers that remain. "This idea of `whatever the customer wants' is gone now," says Mannigel.
What's more, customers now have to "put some skinny on the table," Kirchman says--just to be able to use DoorBuilder to place their orders. The 12 distributors starting to experiment with having a direct link to DoorBuilder have each shelled out between $3,000 and $5,000 for the software, a dedicated phone line, training, or the hiring of in-house order-placers. According to some, DoorBuilder has added an extra hour or two to the order-taking process on their end. "What Weyerhaeuser is doing is transferring some of its order work to the distributor," grumbles Hummel.
Other distributors see their investment in DoorBuilder as money well-spent. David Dirtzu, president of Glewwe Door in Eagan, Minn., says the extra expenses are a small price to pay to get on-time deliveries. "You can easily lose what we spent on DoorBuilder if your orders get delivered wrong or are late," says Dirtzu. "We figure DoorBuilder will pay for itself within the year." And it could help make distributors more efficient. Says Gerald Lenger, executive vice-president at H&G Sales Inc., a St. Louis distributor using DoorBuilder: "What DoorBuilder has started is like dominoes in this industry. And those who don't keep up will probably be left behind."
DoorBuilder has even had a hand in wiping out niggling problems with inventories. Previously, a shipment of, say, the wrong veneer couldn't be traced back to its supplier. Now, DoorBuilder can pinpoint which manager sold it--along with when and in what condition it arrived. Kirchman, for example, recalls that before the intranet, the plant had been buying 100 very expensive mahogany door veneers each year when they hadn't used up a single sheet of their old supply. "All that our old inventory system told us was that these items were gone and so we ordered some more," says Kirchman. "It's incredible how much this technology can challenge your basic assumptions about things." And DoorBuilder won't schedule any door for production unless the raw materials are available to build it.
Ultimately, E-business is changing the door business. It's not the first industry to feel the power of E-business. But Weyerhaeuser's experience suggests that even the most unlikely candidates for an E-engineering overhaul will have to open their doors to the information revolution--and maybe sooner than they'd like.By Marcia StepanekReturn to top