Supply chain re-engineering lowers power cost

The desire to boost efficiency, standardize processes and cut costs in its supply chain led the Tennessee Valley Authority (TVA) to launch its largest IT project to date – and the return-on-investment results are already exceeding expectations.

The power generator’s supply chain re-engineering project began in 1996, with the hope that cost reductions would mean cheaper power for end users. Since going live after a weeklong big-bang implementation in July 2001, TVA has reaped US$23.5 million in savings, putting it a year ahead of schedule in its plan to cut US$54 million in costs in five years. Central to the system are applications from Indus International Inc., an Atlanta-based enterprise asset management software vendor.

“From the sheer magnitude, it was the largest undertaking in the agency’s history,” said Diane J. Bunch, senior vice-president of information systems at TVA, a nonprofit federal government corporation. The project required the agency to work closely with its customers to decide on the best implementation approach, which they eventually agreed should be a fast rollout. “This meant getting everything going at the same time,” Bunch says.

The big-bang approach was “very scary,” says Paul Lapointe, senior vice president of procurement at TVA. But what made it successful was the continual involvement of business experts at each of TVA’s locations, who took responsibility for the project’s success. End users were also key. “We tried to leave no one out,” Lapointe says.

In the process, TVA was able to eliminate 20 legacy homegrown and third-party applications, integrate 32 others and create an enterprisewide system that works in near real time. Instead of once-a-day updates generated from the nightly batch processes, users can now see TVA’s inventory across all its locations anytime.

The new system enables TVA to make companywide volume purchases and to cut the price of maintaining multiple older systems. It will also allow the pruning of 89 positions through attrition. Additionally, TVA installed logistics software from Manugistics Inc. in Rockville, Md., that has centralized its freighting operation and reduced mileage for its truck fleet.

Lapointe says there was extensive communication between the IT project staff and users throughout the process. The final rollout was kicked off during the week of July 4, when TVA’s activity was at its lowest.

In the new architecture, TVA runs a centralized version of Indus’ PassPort supply chain software, which connects to 17 copies of Indus’ Enterprise Maintenance Planning and Control (EMPAC) asset management software. An integration module built around IBM’s MQSeries middleware lets the two sets of applications communicate.

The project required loading 400,000 catalog items at each EMPAC site, and it engaged 5,000 end users, but “overall, from the operating side of the company, we felt very little pain,” says Lapointe.

“User buy-in is a critical success factor,” says Gartner Inc. analyst Karen Peterson. “That means going beyond the project team to every person who touches the applications being rolled out. Project teams that ignore this critical component will most likely fail.”