Three years ago, Gary Lenik assembled managers from seven key companies that provide parts and production services to PairGain Technologies Inc., a Tustin, California, maker of digital subscriber line networking systems. As director of material, Lenik wanted to put together a new kind of communications cooperative -- one that would let PairGain and partners operate as a single manufacturing unit. Engineering plans, product changes, and work orders would be exchanged as if they were sim-ply handed between cubicles. As Lenik outlined his vision, a manager from a supplier company shook his head in amazement. "Man, this is more than just teamwork," he exclaimed. "This is a super team."
The term stuck. Today, these eight companies call their alliance to produce PairGain's telecommunications gear the "Super Team." But this team plays in a virtual arena. They communicate via an extranet: a framework providing secure and protected Internet transactions.
Extranets are proving to be flexible, powerful tools, enabling imaginative companies to create new business structures--and fast. For PairGain and other high-tech companies, the new model is virtual manufacturing. Although it conceives, engineers, and sells its own branded and unique products, PairGain doesn't really make anything itself. Instead, it manages the production of outside contractors, efficiently coordinating the complex interactions that can tangle up even a single, unified corporation.
Other companies are using extranets to deploy new management models. Start-up food franchiser Sandella's LLC is covering the United States with restaurants, yet it keeps its overhead and operating expenses almost as low as they would be for the business office of a single, upper-crust restaurant. Sandella's operates as a lean, phantom franchiser. It uses an extranet to keep tabs on a virtual sales force of independent contractors; as it opens more outlets, Sandella's plans to extend extranet communications for unified control and support of the chain.
Even established businesses are using extranets to streamline and speed up operations. In the architecture-engineering- construction (AEC) trade, collaborative Web sites help companies finish even the biggest jobs on time and on budget. "The Internet is finally allowing us to do all the things we've always wanted to do with our clients," declares Ken Smith, technology manager of the Advanced Technology Division at $2 billion builder Black & Veatch Corp., in Kansas City, Missouri.
In all, the arrangements are adding up to a lot of commerce. Virtually all business-to- business Internet transactions occur over some form of secure, private extranet, states Laurie Orlov, senior analyst at Forrester Research Inc., an Internet advisory firm in Cambridge, Massachusetts. She forecasts that extranet transactions in the United States will amount to $1.3 trillion by 2003, from $43.1 billion last year and an estimated $109.3 billion in 1999. Big users will include computer and electronics manufacturers, the motor vehicle industry, and petrochemical companies, says Orlov.
Cheap, Easy, and Secure
Like all Internet-based communications schemes, extranets are comparatively cheap, and easy to assemble and use. Fundamentally, an extranet is a protected communication channel that piggybacks on the ubiquitous Internet. Just as companies establish intranets to conduct business transactions within corporate boundaries, they set up extranets by assigning selected partners the passwords and security clearances needed to get past a company's firewall. Once inside, they can use their host's Web-browser- accessible software applications.
Of course, extranets can be protected and enhanced with the same telecommunications and networking technologies used in other communications schemas. For example, to assure consistent communications, with bandwidth enough to support all interactions, a company can contract with an Internet access provider for a virtual private network. That provides specified paths across the Internet, eliminating much of the random routing of communications that can occasionally cause delays and interruptions. Also, extranets can be protected with such setups as proxy servers, which serve as gatekeepers that screen out intruders from a company's interior, application servers.
But basic extranet communication can be augmented by installing commercial, packaged software designed to manage information and coordinate activities among participants. As in the companies profiled below, a single hub, consisting of software and server, structures the interactions of the virtual teams using the extranet.
----------------------------------------------- --------------------------------- SANDELLA'S: Outsourcing the Sales Department
Company: Sandella's LLC
West Redding, CT
Business: Restaurant franchise
Extranet use: Virtual sales team
Hub system: SalesLogix CRM software (SalesLogix Corp.)
Sandella's, for example, uses a customer relationship management (CRM) system from SalesLogix Corp. to support and consolidate the efforts of its area development reps, via extranet. Sandella's outsources its sales function, in part because the selling process in this business is inherently unproductive, according to Mark Cirilli, vice president of finance and CFO. Of the approximately 500 first-time sales leads the franchiser gets each month, only about 1 percent eventually sign up. Yet the company needs sales muscle to churn through all 500 potentials.
Headquartered in West Redding, Connecticut, Sandella's currently operates a dozen franchises, but it has visions of fast growth. "We have a window of opportunity that is probably about two to three years wide to establish ourselves in this healthy- alternative, fast-food segment," says Cirilli. In the last year, the company has signed deals with franchisees to establish more than 500 cafés, opening over the next 5 years. The parent's 10-year ambitions: 2,500 restaurants in the United States and an equal number internationally.
The company now supports 17 area development reps, and it's signing up more. Considering average salaries, Cirilli figures Sandella's already saves about $1 million annually in wages it would pay to a 17-member sales staff. In fact, the independent reps pay Sandella's for area development rights, typically investing $3,000 for each restaurant their territories are expected to support. Each contracts to land, say, 40 stores within five years, depending on the size and market potential of a territory, with the representative's buy-in investment at stake. "We want a highly incented sales staff that is a stakeholder in our development," Cirilli says.
For Sandella's, a risk of the arrangement "was that we were going to be cut off from our customers, the potential franchisees," says Cirilli. "I was going to have pockets of information with each development rep all across the country, and I was going to lose a valuable resource: my customer database."
His solution: keep the SalesLogix customer database and management system in Connecticut, but give sales contractors the full benefit of the application by letting them enter it via an extranet. Early this year, Sandella's bought SalesLogix's Web interface product, CommerceLogix, building a Web site that securely distributes information to the sales reps. The CRM software automatically creates action plans for the reps, and it handles responsibilities such as literature fulfillment. In effect, the extranet enables Sandella's reps to work from a virtual central office.
"All the leads are kept centrally in my database, and I can tell whether or not people are making phone calls when they should be," notes Cirilli. "If there are no updates in a file, then we know someone's not paying attention to it."
In keeping with its mantra of low overhead, lean operation (Sandella's has one full-time IT staffer), the company hired contractors to build and deploy the special-purpose Web site. For a server, it recruited a Compaq box that was gathering cobwebs in a corner. Total investment in hardware, software, and implementation was under $30,000, says Cirilli.
For franchise-support services like marketing and promotion, the franchiser will publish material just once, available to all via extranet. Cirilli is currently negotiating with a national chain printer to handle all promotions. Under the arrangement, a franchise operator would travel over Sandella's extranet to view available packages and place an order. The server would automatically pipe the order to the print contractor, which would pass it on to its outlet nearest the purchaser's café.
One advantage Cirilli expects of this arrangement is lower prices, due to economies of scale from a single, national account. Another is ease of management. "I have one, centrally located control point to manage, instead of many control points," he says. "I can make sure each restaurant has the right quality of reproduction hanging on the walls, because it's all coming from a central place."
----------------------------------------------- --------------------------------- REDBACK NETWORKS: Web of Allies
Company: RedBack Networks Inc.
Business: Intelligent networking devices
Extranet use: Virtual manufacturing
Hub systems: Baan IV ERP system
Workplace product data management software (now called Agile Anywhere; Agile Software Corp.)
Quick-opening market opportunities also light the fire beneath virtual manufacturing, a phenomenon still largely limited to electronics industries, where unpredictable technology changes demand quick reflexes. One company, RedBack Networks Inc., might have missed its chance altogether if it hadn't been able to quickly assemble an extranet manufacturing network.
RedBack began life in January 1997 in Sunnyvale, California, with plans for intelligent networking devices that help Baby Bells and Internet service providers better handle broadband data traffic. It's a hot, highly contested market. "We're trying to attract very established phone companies, with multiyear records of supplier selection," says Sean Laskey, vice president of operations for RedBack, which went public in May. "To prove ourselves to prospective customers, we need to be very competent in manufacturing."
No way it could build that competence from scratch--at least not in the short span it needed to get its product, the Subscriber Management System 1000, out the door. Therefore, RedBack partnered with San Jose, California-based contract manufacturer Electromax Inc. to do the principal production, and with Santa Clara, California- based Wyle Electronics to gather the parts. To give its partners instant access to sales orders and production plans, RedBack gives them extranet access to its Baan IV enterprise resource planning system.
How quickly did the alliance assemble? "From the time the engineers came up with the idea till we shipped our first product for revenue, just one year had elapsed," says Laskey.
RedBack uses software from Agile Software Corp., called Workplace (since changed to Agile Anywhere), to manage interactions involving the complex data that precisely describes and defines products. That includes engineering drawings from computer-aided- design systems; tables and text files, such as assembly instructions; and bills of materials. It also includes nettlesome engineering change orders, which typically travel through a complex, organizational maze to reach the individuals who must perform rework.
Agile calls its software a product content management system, but it is often classed with the established application category called product data management (PDM). Traditionally, PDM software was restricted to document-indexing duties within engineering departments. Agile's applications take a more expansive view. For one thing, they come equipped to support intranet and extranet transactions. For another, they build in workflow capabilities that help companies distribute and coordinate the exchange of product information.
To process an engineering change order, a system may send automatic notifications to the staffers who must review the product revision. And it may collect all the needed approvals online. Since any authorized party can grab any change document electronically, at any time and from any location with a Web browser, work can occur simultaneously, instead of following the step-by-step, sequential route of paper-based change procedures.
----------------------------------------------- --------------------------------- PAIRGAIN TECHNOLOGIES: Ten Times Faster
Company: PairGain Technologies Inc.
Business: Digital subscriber line systems
Extranet use: Virtual manufacturing
Hub system: Workplace (now called Agile Anywhere; Agile Software Corp)
A Workplace system is also the hub running on a Windows NT server at PairGain Technologies, whose extranet encompasses 400 individual users. Most are internal staff, including the full engineering force. But 15 partners also have clearance to enter and interact with the system. Naturally, that includes the seven Super Team members of parts suppliers and contract manufacturers that make PairGain's digital transmission equipment.
Surging demand for the products pushed PairGain to its virtual production strategy about three years ago. Order volumes were growing at 80 percent annually, recalls Gary Lenik; "We couldn't add infrastructure fast enough." Contract manufacturers promised the plant capacity PairGain needed, but Lenik expected coordination to be tough.
"This market is highly competitive, with a rapid rate of change," he says. "The ability to respond to technical changes and get into production is critical." What's more, the constant revisions threatened to saddle manufacturing partners with large inventories of unused parts.
Both hurdles fell to the speed inherent in virtual manufacturing partnerships, tied together by extranets and workflow software. The procedure for preparing a new product design for manufacture is now 10 times faster, while engineering changes now move with similar efficiency. "It used to take at least a couple of weeks to go through all the considerations to manage a change," says Lenik. "Now we do it that same day."
Production changes occur so quickly that the stocks of any prepurchased parts rendered obsolete remain low. In fact, Lenik says, coordination among PairGain and the Super Team partners is so precise that the operation runs very close to direct-demand replenishment of inventory. And because PairGain specifies standardized components, its partners can sell any leftovers to other customers (as their contracts with PairGain specify).
The price for the arrangement: under $200,000, estimates Lenik, most of that for the management resources needed to put together the partnership. An analysis showed that PairGain either saved or avoided costs totaling $8 million in the first 18 months of Super Team manufacturing. The bottom line? Says Lenik: "We couldn't compete effectively using another model in today's market." -- Jeffrey Zygmont writes on business and technology from Salem, New Hampshire.
----------------------------------------------- --------------------------------- Quick Web Sites for Projects
Many extranets, like those at PairGain Technologies Inc. and Sandella's LLC, act as portals to strategic information-management systems. By contrast, a new class of software lets companies set up freestanding Web sites for collaborative projects.
Ken Smith, technology manager of the Advanced Technol-ogy Division of Black & Veatch Corp., a Kansas City, Missouri-based builder that specializes in large-scale facilities like high-tech manufacturing plants and power plants, doesn't consider the networks surrounding the 20-odd project sites he administers true extranets. Why? "There's no direct link between our project Web sites and the information inside of our firewall," he explains. Each site contains only information relevant to the project it supports. And the information has to be transferred there by users and site administrators.
But communications are encrypted, and access is still restricted to assigned users with passwords and log-on names. What's more, the software supporting each site--Black & Veatch uses several products, such as ActiveProject from Framework Technologies Corp.--manages the access level for each user. The software also provides automatic notification, tracks assigned tasks, monitors project schedules, and keeps information up-to-date.
Conventional project sites are static, limited- access Web sites; a Webmaster must code information submitted. By contrast, Black & Veatch's sites are fully interactive, automatically coding material.
Black & Veatch's sites are set up by a marketing staffer, sandwiched between his ordinary duties. A site for a small project may go up in four hours; more complicated sites may take two days.
Black & Veatch's sites each connect an average of about 20 users--from project managers and engineers to contractors and customers. One project unites nearly 30 different partners, at locations in the United States, the Czech Republic, the Middle East, and elsewhere.
Black & Veatch has been using the technology less than a year, but it's paying off, as customers demand faster responses and lower expenses. "We've been seeing changes in our business," says Smith, "and this is changing how we can do our business."