Case StudyCan Brady Corporation Redesign Its Systems for Success! The Brady Corporation, one of the oldest and most successful companies in Milwaukee, Wisconsin, was founded in 1915 and is a leader in high-performance labels, signs, and related industrial safety products. It produces ultra-thin identification labels for handheld electronic devices and an adhesive that when removed leaves a pattern police use to identify such stolen objects as laptop computers. Another label it manufactures protects electronic devices by dissipating their heat or static. Some labels work in temperatures colder than 50 below zero, others glow or emit sounds in the dark, laminate themselves, or even stick to oily or greasy products. In recent years, Brady has purchased many of its smaller competitors so that it now has 44 business units and produces and distributes its labels from 47 locations in 20 countries on five continents around the world, including the United States, the United Kingdom, Europe, Asia, and Australia. Brady has doubled its workforce from 1,500 in 1994 to 3,000 today. Its net sales increased from $260 million in 1994 to $479 million in 1999, while its 1994 net income grew from $18.5 million to $39.6 million in 1999. One unit, Seton Identification Products, does 30 percent of Brady's business with sales in 2000 of $150 million. Seton sells custom, made-toorder signs mostly directly to customers while other divisions mostly sell through distributors. Seton's average order size is $650. Despite its growing success, the company found it was running into trouble in the mid-1990s. Katherine Hudson, Brady's CEO since 1994, came to fear that her company was falling behind small nimble new competitors who could use the Internet to shave costs on already-low profit margins. Brady's clients, such as maintenance supplies distributor WW Grainger and abrasive and adhesive distributor R.S. Hughes, needed immediate and reliable sources of supply as they moved into Asian and Latin American markets. In 1997, Brady launched a major Web project in its Seton Identification Products division. The new digital system, called Web-to-Workbench, enabled customers to be able to deign and order their own signs online and the Web site would automatically forward the new order to the appropriate production facility. Management claims the project reduced online order processing costs by 88 percent. In 2000, about two-thirds of its online orders came from new customers. By December 2000, 20 percent of all orders were coming through the Internet. The success of Web- to- Workbench was, however, insufficient to solve all of Brady's problems. Brady relied heavily on information systems to support most of its business processes but its systems were antiquated and could not communicate with each other. Customers were not paying invoices on time, leaving too much money sitting in accounts receivable. Employees were making frequent errors, resulting in duplicated work, partly because Brady business processes had too many steps. In addition, the company had become "sprawling and fragmented. For example it had 19 separate databases, each with its own file servers and transaction software. And these platforms couldnt communicate with each other. Each unit had its own sales tracking system, causing confusion among Brady employees and customers. Customers found differing prices and discounts depending upon where they placed their order. Each plant used different product identification numbers for the same items. Moreover, Brady

had no way to determine its total business with a specific customer. For example a plant in Brazil might produce and ship the same products to the same customers as did a plant in New Hampshire, but no one would know. "We [have] to be much more customer-focused than we are," exclaimed Hudson. We needed much more information about our customers." She also saw that too much of Brady's work was being handled manually. Hudson's assessment at a management meeting in February 1999 was that the company could not continue growing because it was "stymied by an infrastructure that had reached well beyond its practical limits." She pointed out that the Internet enabled competition to come from anywhere, and so Bardys competitors were undercutting them. She said Brady's information technology controlled everything from production to payroll, but filling orders was expensive and very slow. Engineering was hampered in its efforts to develop new and profitable products because these systems could not communicate with each other. She concluded that the company must overhaul its business processes totally to move fully into the digital age. Brady needed to revamp all of its systems. Brady's goals became clear. It needed a "business-led project for the whole company," and not just a software or information technology project, according to David Schroeder, Brady's CFO. Management allocated $30 million for a new project called Eclipse (Earning Customer Loyalty through Integrated Processes and Systems Everywhere) and expected the project to pay for itself by 2003. Hudson called for an annual revenue growth of 15 percent, reaching $1 billion in sales by 2004. She wanted half of all orders to come through the Internet by 2003, thereby reducing operating expenses by 2 percent or $10 million annually. She called for all 44 Brady business units worldwide to be connected with each other and its 1,400 business processes to be integrated in a single system. Such integration would give the company an easier and faster production process. She called for globally unified price lists and distributor discounts, and corporate-wide processes for purchasing raw materials. With such integration management could track orders, analyze sales trends, and run financial reports while customers could obtain answers for at least 60 percent of their questions on their first calls. For example customers should no longer need to wait a week just to get a price quote. Eclipse's first and most fundamental task was to educate the key managers and employees on the importance of the project and the way it would be accomplished. As Hudson put it, "We can't expect everybody else to follow us if we don't understand it." Leadership spent a great deal of time attending meetings, courses, and seminars. According to Dr. Michael Hammer, the famous reengineering expert who led the first Eclipse seminar, At Brady, a larger fraction of the managers really got into it. It wasn't a handful trying to push it down the throats of the rest." In May 1999, they began, finding "our best and brightest" to be the fulltime leaders in Eclipse, according to Hudson. Keith Kaczanowski was chosen to be the project leader. He was Brady's vice president of business process development and had very broad experience with Brady, including accounting information technology. Choosing other leaders was a problem because division managers had to be persuaded to give up some of their best employees to the project. However, Hudson believed that "If it didn't hurt to give up these people then we probably were not getting the right people for the project." Altogether 35 were selected and divided into six Eclipse groups. The six Eclipse teams moved to a new office several miles from Brady headquarters, and they immediately began setting very clear measurable goals. For example, converting orders to Cash (collecting payment from the sales) was 54 days, and their goal was to reduce it to 42 days. Inventory turnover was 4.39 rimes annual sales, but with Hudson's pushing, the new goal was set

at 15 times per year to turn a product into a sale. Fifty percent of sales were to be conducted electronically by 2003. The goals also reflected Brady's demand that Eclipse standardize processes throughout the company, making pricing and delivery more consistent. Whenever possible, Brady would use the Internet to facilitate dealing with suppliers, to make pricing and delivery time more consistent, and to increase sales of different products form different divisions to the same customer. Brady chose SAP software for planning and operations and then selected IBM Global Services for consultant support in integrating the new software. SAP was already installed in 17,000 companies in 160 countries, while IBM had consulted on SAP installations in 1,900 companies. The Eclipse team decided it must do very little customization of SAP software so as to prevent problems. However, the team did decide not to use SAP software in two key areas-product design and customer relationship management (CRM). It concluded SAP functionality was not adequate in both of these areas. So Eclipse rewrote some of its own systems in the SAP software development language so the Brady systems could communicate well with SAP. The project team then held 15 workshops with various experts in specific business functions to dissect key processes and diagram them. Brady discovered how inefficient and inconsistent the company really was in processing orders, with far too many steps and information handoffs. They also found that the average order was very small at about $250, indicating that Brady was selling to a large number of customers in small volume. Brady needed to centralize the price lists and computerize them. Kaczanowski had his teams focus on the actual processes in making a label, not on information systems, enabling them to eliminate many steps. In working on the cash conversion cycle, Maureen Casey's global training team worked on converting orders into cash by focusing on moving raw material through production to delivery and payment. This process had been extremely disorganized prior to Eclipse because Brady's manufacturing, delivery, and billing systems did not communicate with each other, resulting in orders being missed, late, or duplicated. The team simplified it and speeded it up. They developed a uniform system for price breaks while also eliminating minimum orders-a customer can even order just one of something, although with higher prices. They installed SAP's Variant Configurator system with product and pricing data, enabling sales reps to develop prices while making sales calls. By inputting the type of tag, its material, size, color and layout, the Configurator returned a price quote. Brady's leadership examined and reshaped how everyone, from executives to factory workers, did their job. For example, manufacturing engineer Mike Sweeney complained that the queries about existing orders generated standardized responses, and he wanted something more precise. On the other hand, the order processing team ended up with more SAP data on purchase order histories, raw materials schedules, and accounting figures than the customer reps could handle. Planning for demand was new and difficult to get used to because it required more rigor than in the past. The team learned it had to do very careful training so employees would know how to obtain just the information they needed. Eclipse was first implemented in October 1999 at Worldwide-Varitronics, a plant of 250 employees in Brooklyn, Minnesota. Its primary purpose was to shake-out problems and fix them before installing the systems in the other, larger units. While the pilot was considered a success, there were many problems. For instance there were large problems in SAP data, such as delivery time errors. Customer order problems also surfaced. For example, one customer ordered 25 cards and received 25 boxes of cards. The site's backlogs grew by 25 percent while on-time deliveries fell from 95 percent to 80 percent. Also the Variant Configurator software produced wrong prices. Many more customers called with problems or complaints. According to CFO Schroeder,

call wait times increased. The sales reps found that learning the two new pieces of software was extremely difficult. "There was a 'this isn't my problem' mentality,'" said Elizabeth Belmonte, global leader for customer value creation. "It has taken a year to 18 months to get to the point where they are now comfortable." The system required information the reps were not used to supplying, such as email addresses and verification of telephone numbers. Moreover, the screens were packed with quoting, ordering, and tracking information requiring that the reps take a quick course in accounting basics. The result was that where data had errors or were missing, people down the line had to deal with them. Also, during the first conversion they found that "SAP requires quite a bit more discipline than they're used to," said Chris McElfresh, the Eclipse global order-to-cash process leader. A major challenge they faced was that the team and the specific unit being converted needed to accomplish the project without losing even one day of operations. For example, in the first conversion at Worldwide-Varitronics, they closed the plant on a Friday afternoon, worked very hard over the weekend, and opened Monday morning with the new system. "We [the Eclipse team] basically took over the businesses for a week," commented John Cullen, Eclipse project leader for customer and order acquisition. However, 10 days later, all of the systems had been converted. Brady employees still had to work overtime in evenings and weekends during the first 60 days just to do their normal job while also helping to fix problems. The Eclipse team did take many steps during the conversion period to fix the problems. They held dozens of workshops so the employees would better understand how the processes worked. They recorded every step of every function, including even returned merchandise, and showed how the processes worked. They recorded suggestions from the employees and adopted them when they seemed useful. They had team members wear red shirts so they were easily identified when anyone needed help. Eventually the new systems worked fine at Worldwide-Varitronics, no customers were lost, and Brady learned a great deal for future installations. The cost of processing an order fell from $16 to $2. Worldwide-Varitronics experienced a 66 percent increase in new business while accounts receivables were greatly reduced by requiring on-line credit card payments. Previously an order took three people to fulfill, but now only a machine operator was required. Inventory size was greatly reduced, partly because many products are now digitally produced and so can be built to order. The CFO said he expects most inventory will almost be eliminated during 2003. The unit also experienced a great reduction of errors, which had cost millions of dollars in returns. Previously many orders were faxed, requiring several employees to type in the information, and then set the type prior to printing the sign. With the new system customers can design and input their own text online, viewing and approving it before it is printed. After completing the first installation, Brady took steps to prevent future problems, including loading the master data seven months early and verifying it several weeks before going live. The company updated cost data three weeks before conversion and then double-checked it in the Variant Configurator. Brady expanded training on the new system from 60 days to 90 days. _ Brady units, which have installed the new systems, are usually able to ship a new order within 24 hours. By mid-2002, more than 20 percent of monthly sales came from Web-to-Workbench. Sales reps usually are able to answer customers questions from a computer screen using SAP's Available to Promise (ATP) platform, eliminating many telephone calls to factories. Reps can now provide 60 percent of quotes on the first call and are aiming for 90 percent. Reps can now see and follow an individual's order from the beginning through delivery including the invoice.

The new system freed many employees from manual tasks such as most order-taking work, enabling them to be used in more productive, creative activities. The new production system includes scheduling, availability and purchase of raw materials, the manufacturing process, product reporting, and delivery. It has standardized product across factories, including the same product numbers in different plants. The system now is able to track raw material through the plants, automatically ordering replenishments through the Web when needed. It can initiate production when a new order is entered by Brady or by a customer. The system includes forecasting of future orders. The company is already seeing a saving of about 2 percent annually with a goal of 10 cent ($8.8 million) over seven years. Purchase order costs as a percentage of total purchases have been cut to 3 percent, with the eventual target of 1.5 percent of purchases. According to documents filed with the Securities and Exchange Commission, $30 million was budgeted for the Eclipse project-$15 million for consulting, $3 million for hardware, $4 million for SAP software licenses, and $8 million on project administration and training. As of the writing of this case, Brady has spent $25.6 million on Eclipse and expects to recoup its investment by 2003, primarily through savings generated by more frequent inventory turnover, reducing the time to convert sales to cash, cutting the cost to fill orders, and more efficient finance, sales, and marketing processes. But Brady's inventory turnover is still only five times annual sales, profits are at 1998 levels, and sales have recently declined, partly because of the slowdown in global economic activity. Will Brady make its gigantic system-building effort pay off? STUDY QUESTIONS 1. How well did Brady's systems support its business model? What management, organization, and technology factors were responsible for its problems? 2. Analyze the Internet as a source of problems and opportunity for Brady. 3. Was SAP's enterprise software package a good foundation for Brady's new systems? Explain your answer. 4. Describe the management, organizational, and technology changes Brady was making by its Web-to- Workbench and Eclipse projects. How extensive were they? Why do you think Brady took so long to implement its changes? 5. How successful were Brady Corporation's systems projects? How much value did they provide? Explain your answer.