The following case study/profile was originally published by BI Review. For similar industry implementations and profiles please visit BI Review's Web site.
From time to time you hear of a corporation you think you know nothing about until you realize you know it quite well. It is a somewhat tired joke to call The Hillman Group a nuts and bolts kind of business, but anyone who owns a house can thank this company for helping to hold it together. Hillman Group is an undisputed king of retail hardware, the company that sells a bulk of the nuts, bolts and other fasteners you buy at Home Depot, Lowe's, Sears, Ace and every other chain you've heard of right down to mom-and-pop hardware stores. It makes the keys and cutting machines that get you into your house and the "For Sale" sign you leave it with. It's likely that the nametag around your dog or cat's neck is a Hillman product.
Hillman is one of those American success stories, started with an Ohio couple's $2,000 franchise bet in 1964. A much larger private business was handed down to the founders' sons, who went on to acquire acquired Sharon Bolt and Screw and the Cole, Curtis and Axxess key-making companies. Current CEO Mick Hillman sold the company to raise capital but remained to run it, and with another sale and more acquisitions, Hillman Group today is an AMEX listed $395 million corporation of 1,800 employees that has grown revenues every year since founding. Hillman's model today is built on close relationships with more than 25,000 customers serviced by a sales and service force of more than 600.
If success was overwhelming at times, the reality was that Hillman had become a large company with a small company mindset, lacking formalized processes, documentation and clearly defined paths of communication. With growth and acquisition came the usual complement of IT infrastructure and systems needed to close the books and keep the business running. CEO Hillman reset the stakes, and two and a half years ago hired CIO Jim Honerkamp to lead the technology interface with the business, and backed him with the clout to ensure that a new approach would prevail.
"I was hired because the business was outpacing the technology portfolio, the applications, the infrastructure and the IT skills, and putting the business at risk," says Honerkamp. "We recognized that we had not spent enough on IT in recent years and needed to reinvent IT with a vision and a plan to turn IT into a strategic partner with the business."
Reporting Gains Momentum
As the business had grown complex, customers were demanding more automation and accuracy. Three separate transactional systems were supporting the business along product lines: there was J.D. Edwards World, for the letters, numbers, signs and engraving, a homegrown proprietary application for the fastener business and a third application for growing Canada and Mexico operations. There was no way to provide consolidated reporting. "Our executives were trying to piecemeal information together to make business decisions on spreadsheets," Honerkamp says. Finance had a definition of revenue, but so did sales and marketing, making a true corporate revenue report impossible. So, the first business application project addressed revenue, which was delivered with great effort after a common definition eventually came about through sit down meetings with multiple group representatives. The process revealed the fact that a major ERP implementation was needed to truly correct inherent deficiencies in infrastructure, and Hillman is in now into phase two of a four-phase ERP overhaul. But circumstances also dictated that the company was not in a position to wait for the project's completion to address some nagging issues. "We had to get some basic blocking and tackling done," says Honerkamp. "We decided that the best strategy was to find a tool we could layer on top of these disparate back-end systems that could drill down and produce consolidated reporting. I really felt the need to demonstrate some value add in a relatively short period of time."
After the usual due diligence and a search for a tool that could provide some consolidated reporting without heavy lifting on the back end, Hillman settled on Information Builders and its WebFOCUS enterprise tool. The first consolidated report offered a snapshot of daily revenue by product line and channel with a variety of drilldown capabilities. To spread the value, the reporting was offered via a Web-based corporate portal. If Honerkamp found the reporting tool to be the killer application he was looking for, he tends to address the portal and business intelligence in the same breath.
CEO Mick Hillman led the adoption charge, which spread by necessity to other executives facing areas of distribution, materials, operations, marketing, sales and the CFO's office. Each key stakeholder was addressed in turn with applications that now amount to more than 75 highly parameterized BI services. "Our CEO's participation is everything to our project," Honerkamp says. "The first thing he does when he arrives at 6:30 a.m. is to get on the portal and start looking at reports. He picks up the phone and starts calling my peers, the SVP of operations or the VP of distribution or the CFO and starts asking questions based on what he's seeing. Just by doing that he quickly forced everybody who reports to him to make us all more effective, a real trickle down thing."
An early win came in the area of margin erosion, where a root problem had previously been difficult to locate. In short order, an application identified certain SKUs in the product fastener line where Hillman was able to turn up pricing and get back on target. Another quantitative win came in reporting on electronic data interchange (EDI) transactions in which Hillman was bleeding margin due to short shipment fines from one of the biggest big-box retailers. "Their system had indicated we owed still more penalties but using our fill rate BI application we proved to them that their own system that was incorrect," Honaker says. As a result, Hillman Group recovered $131,000 from a single retailer for just a two-month period. "Retailers can be very aggressive in their dealings so it's generally just so much better to have control of your data."
Overall, the system has about 800 users today, not bad considering that none of them understood what a portal was three years ago. In fact, anyone with a corporate email address at Hillman has secure access and permissions to a variety of materials. Education and acclimation are slowly replacing daily hard copy with more parametric reporting and collaboration including Web conferencing for a variety of functions. Still, most BI applications at Hillman today are still what Honerkamp calls "reactive," in that they help leaders understand what has happened after they hit the bottom line versus what might happen going forward. As is generally the goal, Hillman is looking at analytics to do a better job of forecasting against different scenarios before they reach the balance sheet. While that is ongoing, Hillman Group has a more immediate operational opportunity, which is really the other half of the story.
As an importer/manufacturer with 12 distribution centers and a large cadre of sales and support reps serving more than 25,000 customers in the U.S, Canada and Mexico, Hillman faces the usual variety of inventory optimization and logistics challenges. The most interesting projects under way now involve geographic information systems (GIS) technology, sometimes referred to as Location Intelligence. Hillman's technology inventory now includes a GIS product from ESRI Systems that, not coincidentally, integrates with the Information Builders WebFOCUS reporting tool. ESRI's ArcGIS is helping Honerkamp's team to develop a variety of optimization scenarios that cross lines of sales territory, inventory and third-party logistic provider optimization.
In practice, the system is used for scenario planning. In the area of route optimization, Hillman is using graphic technology to calculate straight-line distance variables for individual reps who travel different routes on a daily basis in order to reduce "windshield time." Territory optimization addresses traditional anomalies of sales "turf" to settle political spats by drawing concentric circles around a sales rep's home address and overlaying that against regional maps and bypasses around physical obstacles. Like the political practice of redlining, the technology can be used to tilt resources or reward performers toward the goals of the business.
An equally interesting GIS opportunity for Hillman Group lies in distribution optimization. In this case, a map of the United States and plots of distribution center locations is overlaid with UPS shipping zones radiating out to customer locations. "We've found examples where we've been shipping a customer out of Jacksonville, which is Zone 3 shipment with UPS when we could be shipping out of Dallas, which is Zone 2," says Honerkamp. The same thinking has everything to do with inventory allocation. In either case, without a fleet of its own, Hillman isn't waiting for its shipping partners to do this work for them.
Yet another valuable application being developed is called product penetration. With the GIS tool Honerkamp's team can map every major body of water in the U.S. and the location of hardware stores within a given radius of each. The obvious benefit is to allocate inventory to where stainless steel marine grade fasteners are in demand. Simple grid-based reporting can't reveal these insights; but with the spatial component laid on top it tends to jump out, says Honerkamp.
"We're getting into the sexy stuff now, having built a foundation that people are using. It's really too early from a distribution optimization perspective to see much, though some of our freight reporting has already saved us money on outbound freight. I am pretty confident we'll continue to find things that will differentiate us and provide competitive advantage."
Projects on the drawing board include true at-a-glance dashboards to augment and streamline executive reporting on a role-by-role basis. There have been feedback sessions with prime customers such as Lowe's, though most projects have been internal facing. Honerkamp can envision a point in time where Hillman would begin to expose more data and reporting to key customers through its portal, something that could easily be supported for external users but hasn't happened yet.
It's a mixed bag for the CIO, who says he was blessed on the operations side with a visionary who spent weeks shoulder to shoulder with developers to create many of the operational BI applications supporting the business. On the finance side Honerkamp says it has been more of a push for adoption, though all parties have agreed on the demand for results. Some applications actually led to confrontations and finger pointing between sales and operations. This is a constructive process in many companies; in Hillman's case the application itself provided the means to drill down and resolve disputes.
Many successes have been hard won, partly because industry solutions have so far not met Hillman's greater needs, though certain tools have been a big part of the company's technology progress. "I have been to some big conferences from which I've come away disappointed because they were geared for the really big customers and didn't have much for us," Honaker says. And, replacing proprietary systems with new ERP does occasionally keep Honerkamp up at night because it covers such a big part of Hillman's business. "We'll simplify the environment in the end but it's difficult because so much of what we have is not documented. With the BI stuff I couldn't afford to wait. The good news there is, that was the easier part for us."
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