Dario Scagliotti believes that growth through mergers and acquisitions (M&A), joint ventures and investment in new markets mean the business process and model must be 100 per cent centralised and standardised.

And Scagliotti, CIO of worldwide automotive manufacturer Pirelli, should know. Trucks, buses, sports cars, motorcycles and tractors from all the major automobile manufacturers use Pirelli tyres, which are manufactured in 12 countries and sold in 120. Most of the tyre division’s €3 billion (£2.17 billion) annual revenue comes from a worldwide network of 6,000 distributors and dealers.

Pirelli has experienced phenomenal expansion and growth into new markets, some due to M&A. Keeping his tyres on the ground, Scagliotti says: “At the end of the day, a tyre is a tyre. It doesn’t vary from country to country. So it’s extremely crucial, as a commodity, for production to have extremely cost-effective manufacturing and logistics. Especially when you have an operational group spread out all over the world, but with a need to manage it centrally.”

He explains: “At a time when the web was exploding, service companies and manufacturers of industrial products like ours were faced with a new opportunity. Tyres are a consumer product, but usually sold via a distribution network that also install, maintain and fit the tyres. Dating back to 2000, there was speculation that online could offer a sales and marketing arm that may well lead to getting rid of distributors.”

Deployment summary

Initial 18-month project to integrate 6,000 distributors for automated order entry and inventory management.
Pirelli integrates 2,500 distributors in Europe in four months.
Accenture provides assistance for business-to-business (B2B) implementation.
After the B2B distributor implementation, Pirelli expands its integration projects into consolidating and streamlining its SAP-based ERP operations.

Linking inventory and production to demand reduces inventory costs by 20 per cent.
Managed inventory levels increase sales by five per cent.
Improved dealer and customer service heightens brand loyalty.
Real-time information improves corporate decision-making and agility.

But Pirelli soon realised that, in a competitively crowded market, the internet could offer additional value to dealers in its distribution network and offer the company the best of both worlds. “We realised that, by improving service levels, dealers would not feel they were going to be cut out, so improving service levels to the consumer,” says Scagliotti.

Pirelli’s systems include supply chain management, production planning, and finance applications shared with Pirelli’s thousands of distributors around the world. To streamline supply chain management and cut operating costs, Pirelli needed to link these disparate applications and invest in integrating key aspects of its links with distributors. “This integration became the most important aspect of our dealings with our distribution network, where over 2,000 dealer networks worldwide now serve the brand,” he adds.

Among the challenges faced, the Pirelli integration team needed to establish compatibility among several different distributor systems, while many small, local dealers were still paper-based. The large, national, and regional distributors using sophisticated combinations of enterprise resource planning (ERP) and custom applications needed a common infrastructure for linking all of these systems and streamlining shared processes, eliminating the need for custom-developed interfaces.

TIBCO’s business integration systems join Pirelli’s internal business applications – including multiple instances of SAP software and home-grown applications – and provide a common conduit for sharing information. Using TIBCO’s business-to-business (B2B) portal, Pirelli now quickly integrates distributors with an online order entry and tracking system. On average, Pirelli can connect large distributors to the Pirelli system in two weeks and can bring small dealers online in as little as one hour by giving them access to a personalised web-based portal for self-service. In less than one year, Pirelli connected 2,500 distributors – an accomplishment that has accelerated the payback on its integration investment.

Complex integration survey and compliance pressures

Prompted by the Boston Consulting Group finding that over half (58.3 per cent) of M&A reduce shareholder value, data integration vendor Informatica recently sponsored Bloor Research to poll 56 members of the National Computing Centre (NCC) on the importance of IT integration.

Where NCC members represent 80 per cent of the IT spend in the UK, 54 per cent of those polled cited poor systems documentation, a lack of metadata, diverse and uncontrolled data sources and poor data quality as significant problems that hampered IT integration plans related to M&A activity alone in the last five years.

The research also highlights the advent of new European Union (EU) regulations, dubbed EuroSox, which will test companies’ integration mettle in 2008. The EU version of US accounting regulation, Sarbanes-Oxley (SOX) will require a newly merged entity to disclose consolidated financial information within three months of joining forces.

The convenience of Pirelli’s online order system results in distributors transacting more business with Pirelli – an important competitive edge. The system provides easy access to the latest pricing information, fast and simple online order entry, and immediate confirmation. Best of all, distributors know exactly when shipments will arrive and can track orders online themselves. With real-time information about order status, distributors can serve their own customers better.

“TIBCO’s solution has enabled us to create a more complete, richer way of working together with our distribution partners,” says Scagliotti. As a result, every time Pirelli has integrated a distributor into the system, the company’s sales have increased.

Not only has the B2B dealership portal paid dividends in Pirelli’s early adoption of integration strategies and technologies, Scagliotti also says it has enabled the company to become more aggressive in using the web, extending its use to fleet management, car rental companies and truck fleet managers.

For example, as Pirelli finances inventory at distributor locations, excess inventory could be financially devastating. However, if inventory is too low, Pirelli risks losing sales to its competitors. The integrated system makes Pirelli more competitive by enabling the company to ensure that the right tyres are in stock when a consumer walks into a store. Pirelli can now match inventory to sales by automating order entry and processing. The system alerts distributors when their inventory of high-volume products is low and automatically generates replenishment orders. This capability reduces the time required to deliver replacement tyres into the distributor’s inventory, maintaining the distributor’s stock levels without carrying excessive inventory.

Since implementing its integrated supply chain management system, Pirelli has reduced distributor inventories by 20 per cent and cut its own costs accordingly. Pirelli rarely loses a sale because a tyre is out of stock or back ordered. As a result, sales have already climbed, increasing Pirelli’s market share.

Scagliotti also says the integration work Pirelli has carried out and expertise it has developed as a result has become the basis for a more standardised approach to ERP. “The TIBCO integration was moving forward when we were capitalising on SAP in the supply chain for an adaptive environment of automated real-time interfaces between the two systems, while continuously improving the TIBCO platform on the sales side,” he says. Pirelli’s integrated supply chain management system has improved forecasting and production planning, giving Pirelli the agility to respond and adapt faster to market dynamics.

Pirelli once required 70 days to poll its thousands of distributors for sales forecasts, collect the information that trickled in on paper, aggregate the information, and manually generate production plans. Now, with up-to-the-minute information on orders and inventory levels, the entire process is completed in just 30 minutes. In addition to this, Pirelli no longer depends on quarterly forecasts. Using real-time sales data, the supply chain can adjust production rapidly to match sales.

The solution taps the system for instantaneous key performance indicators (KPIs) about Pirelli, its business units and the individual products. With real-time information available throughout the enterprise, Scagliotti adds that decision makers can now take more informed action more quickly, leading to a cultural shift towards embracing adaptation and change. So much so, that after working with systems integrator, Accenture in the early stages of the first B2B portal implementation, Pirelli took management of IT integration wholly in-house and became a TIBCO competency centre in 2005.

“We have been able to spread an integration culture and the opportunity it offers to deliver within the overall IT function,” says Scagliotti. “I had the opportunity to discuss my vision with the chief executive of the group and found it very interesting that all the values he had in mind were exactly the same as we’re adopting in response to the group IT function’s needs today: to become faster in response to market cycles that also grow faster year-on-year.

“We have to be able to turn in another direction as fast as we can and not have to completely re-engineer something to do so. As such, most IT projects must be delivered faster than three to six months.”

But Scagliotti doubts the commonly held perception that CIOs must continue to do more with less, instead suggesting that IT working in support of the business goals and vision will actually earn the confidence, along with fiscal support, of the board. “On the other side of using integration to run cheaper, we’re not only reducing the IT overhead, but increasing the IT budget both in opex and capex [operational and capital expenditure] terms, as an investment for strengthening IT services,” he says. “Despite the fact we’re bigger, we’re cheaper because we’re doing more with less.”