Case study Greasing Mobil’s Orders
How many times does an organization
need to build an information system?
In the case of Mobil Oil’s lubricants
division the answer was to do it until
they got it right. Mobil, the Fairfax
Virginia
Corporation
had
1997
revenues of about $60 billion making it
the second largest U.S. oil company. It
ranks number 8 in the Fortune 500 list.
Mobil is the largest marketer of
finished lubricants in the United States.
The lubricants division’s major
products include bulk industrial oils
and greases motor oils and waxes.
These products are essential to the
functioning of virtually all machinery
because the lubricants can withstand
the intense heat and pressure
generated by combustion engines,
allowing machines to operate at high
speeds while virtually eliminating
friction.
The lubricants division distributes 60
to 70 percent of its product through
about 300 small regional oil
distributors. The division actually has
two types of sales: Direct purchases are
ordinary purchases by the distributors
using purchase orders and buybacks
occur when a distributor delivers
products from its own inventory to a
Mobil national account holder. In the
case of buybacks, once the delivery has
been made, the distributor requests
that Mobil “buy back” the inventory it
has delivered, the distributor is paid its
cost plus a commission. Distributors
submit 12 times as many buyback
orders as purchase orders.
Prior to 1995, the division processed
all purchase and buyback orders
manually. The manual system was
based on telephone, fax and mail-in
orders. All were paper based and
involved a great deal of handling and
filling. The process was very slow and
extremely costly. The costs of the
manual approach arose from paper,
printing,
mailing,
order
entry,
telephone charges and customer
telephone staff and its support.
In 1995 the division abandoned the
purely manual process and converted
to a DOS-based electronic data
interchange (EDI) system. It wanted to
input data electronically to facilitate
operations. As with other EDI systems,
Mobil’s new system was used to order
products,
submit
invoices,
and
exchange other business documents.
Although the system was an
improvement, it still had problems.
From the viewpoint of Mobil perhaps
the key issue was that too few
distributors used it. In fact…most new
orders were not entered through this
system. Another major concern was
that the cost for processing each order
was too high. The EDI system was
based on the use of a VAN (valueadded network), and for Mobil that
cost alone was more than $100,000 per
year. The system also required a great
deal of staff manual support, partially
because so many orders were still
submitted the old way. According to an
estimate by Forrester Research, under
the EDI system the total cost to Mobil
per order was $45. Mobil staff had
another major reason to dislike the EDI
system - it put lubricants into the
software business. Because it's 300
distributors were small, Mobil had to
maintain the EDI software for them distributing the correct versions,
ensuring that all are using the correct
version, and providing technical
support for upgrades. The distributors
were also unhappy with the system.
They had to pay a fee for each
workstation, and then they paid dial-up
costs for each usage. They also had to
pay their own VAN charges. However,
the primary reason so many avoided
the system was because they found it
difficult to use. One major problem was
that many orders were rejected by the
system for failure to meet Mobil's
complex business rules. These rules are
important, but the system had no way
to build in the business rules for each
order. For example, one rule sets the
maximum weight for shipment on a
single truck, another establishes a
minimum quantity for an order, and
several enforce intricate requirements
for product pallets. An order rejection
often meant a 24-hour delay because of
Mobil's four hour turn-around time for
reviewing orders. This problem was
particularly acute for distributors in
the west (Mobil's time zone is in the
east). For both Mobil and its customers,
rejections meant not only time delays
but also duplicate work preparing,
entering, and processing orders. The
lubricants staff recognized very quickly
that the DOS EDI system was a failure,
and so In 1996 they moved to a
Windows-based EDI system. The
specific goals of the new project were
to simplify the ordering process, to
reduce the number of order rejections,
and to cut costs. Using Windows, Mobil
was able to programs its business rules
into the software. The new system
would reject orders that did not
Meet Mobil’s business rules before the
distributor even submitted them to
Mobil.
According
to
Forrester
estimates the new system dramatically
cut costs, reducing Mobil’s cost per
order to $2.50 (1/18 of the DOS
Part 3 Building Information Systems. Contemporary Approaches
version cost).However, after 18
months Mobil had been able to
implement the system at only 38
distributors. Most were still using old
methods, including EDI, telephone and
fax. Those distributors did not want to
use computers and in fact many did not
even own a computer because the
purchase of a computer seemed a high
cost for using the system. In addition
each company had to pay the cost of a
software licensing agreement for each
seat and often distributors needed
more then one seat for product
ordering and buybacks. The companies
restructured
their
organizations,
establishing separate units that
combined purchases and buybacks.
Thus, Mobil’s software was now
driving the organization structure of
many of its customers. Mobil had other
problems with the system. It found
itself still in the burden business of
distributing,
maintaining
and
supporting the EDI software for its
customers, The new system also
resulted in many data entry errors
because Mobil was still using legacy
systems to process and store the
information. These systems required
redundant data entry. Also the new
system did not support invoicing. In
addition, Mobil’s inventory data were
updated only weekly so that both Mobil
and the distributors lacked real time
inventory information. In the end the
new Windows EDI system did not
increase the percentage of new orders
entered through EDI. Late in 1996,
Mobil made its third try it three years
to fix its problems. Lubricants had
several goals in moving to yet another
system. It wanted orders to be
processed as they arrived and errors
corrected at once without much
intervention. The system had to be
extremely easy to use so that
distributors would be willing to adopt
it. It also had to be easy to distribute in
order to relieve Mobil from the
software support business for its 300
distributors. Further, the new system
had to reduce costs for both Mobil and
the distributors. This time they turned
to a whole new concept (for Mobil): a
Web-based extranet the new system
was dubbed Pegmost. ("Peg" is short
for Mobil's Pegasus logo and "most" is
the acronym for Mobil Online
Subscriber Toolbox.)
The new system was based on Mobil
Web server that both Mobil and
distributor employees could access
using Web browsers as front ends,
which meant that Mobil need not
support its distributors software. Mobil
also took advantage of its Web server
to embed its business rules into its
programs using Java applets so that
when business rules change, Mobil
need only reprogram them in one place.
Security was addressed by point-topoint encryption software sitting on
both Mobil and customer Web servers.
In addition all Mobil systems are
protected by a network firewall (see
Chapter 16).
demonstrating to the distributors other
valuable aspects of the Web, such as
Federal Express’s package tracking
facility. Rollout to all 300 distributors
was completed within a year.
The company decided temporarily to
retain its back-end EDI system. Orders
via Pegmost are processed through the
EDI system and then data are stored in
legacy mainframe COBOL IMS database
applications. Customer data are stored
in na Oracle database customer system.
This system contains records of both
past and present customer orders and
includes invoices. Mobil retained its
EDI system because it was in the
process of installing software to
replace its back-end systems with SAP
FRP (enterprise resource planning)
system. It wanted to complete that
project first, criminating the need to
build an interim back-end solution.
Mobil was in a rush because the SAP
system would solve Mobil’s Y2K
problems. Once the SAP system is in
and running, Mobil will replace the
legacy systems, using the SAP software
to both process and store its order data
However, on the whole, distributor
reactor to the new system was very
positive. First, it reducing their costs by
eliminating both Van and seat charges.
Some small distributors, those who
only placed orders a few times a year,
were able to avoid even computer and
ISP Expenses by using their public
libraries to access the web Distributors,
could enter partial orders and then
place them on hold, saving time and
reduced errors.
Development of Pegmost began
when lubricants built a prototype at
the end of 1996. The testing of the
prototype involved all Mobil units that
might have a stake in the system, which
helped the developers avoid some of
the problems that occurred in the first
two attempts. The system was also
actually tested with some distributors,
resulting in modifications. Early in
January 1997, after the testes were
completed, the staff began four months
of development. Then the rollout began.
Proxicom, s Reston, Virginia, Internet
consulting and development firm,
developed the system.
Mobil mandated that all purchase
and buyback orders were to be
submitted through Pegmost after a
given date. To facilitate this, Mobil
arranged training classes to make
certain that all distributors had the
skills to use the system. The one-day
classes offered training on Windows 95,
on browsing the Internet in general,
and on Mobil’s Pegmost system.
To build enthusiasm for the new
system, the trainers also spent time
At the beginning there was some
distributor
resistance.
Many
distributors were unwilling to change
the way they worked. For instance,
some were not committed to paperless
offices and demanded the ability to
batch-print orders in the old way. In
some cases management expressed
concerns that employees might waste
valuable company time using the web
for personal reasons or entertainment.
Second, some welcomed the web
interface because it was familiar to
them. Moreover, because the Internet
is based on open systems, individual
distributors could use whatever
hardware they wished, as long as it
could run Windows 95 and a web
browser.
Under the new system, orders are
approved in real-time, thanks to the
java programming.
Also, distributors are able to see the
status of their accounts, including their
current and past orders. The system
includes on- line access to Mobil
lubricant inventories. Given their
ability to enter orders quickly, easily,
and without rejection, distributors are
finding they are able to avoid entering
rush orders for which Mobil adds a
large special charge.
Third, distributor organizations
were affected positively by Pegmost.
Several people are able to access the
system
simultaneously,
enabling
companies to revert to their previous
organizational structures where in
separate people or departments are
assigned to handle purchases and
buybacks. Using the Web also
contributes to worker freedom,
enabling some employees to work from
home. At least one distributor is now
spending part of each day working
from home.
Distributors also like the ability to
work at night from home if needed.
One other benefit is that distributors
are all now connected to e-mail and
able to communicate with each other.
An informal distributor communication
network
was
developed
with
exchanges on shared problems,
marketing ideas, and strategic ideas.
For Mobil, the benefits are obvious. The
company is no longer in the software
business. In addition, most order
processing is now automated. Even
more basic, because Mobil made
Pegmost mandatory, distributors are
no longer using telephones and faxes to
enter orders. As for the bottom line, the
new system has further reduced the
processing cost per order by half again.
Forrester estimates that the cost is
now $1.25 per order, 1/36 of the
manual process cost of just three years
earlier. Proxicom’s analysis showed the
Mobil can expect a return on
investment (R01) of 194 percent in five
years.
Sours: Lori Piquet, “Slick Business” and
Patty Arnes, “Distributors Switch
Gears,” “Internet Business, November
1998; and Joe Mullich, “Mobil is Moving
EUI in an Intranet,” PC week, April 11,
1997.