Bob Dryburgh, president of Straightline, takes pains to point out that the company is not a dot-com.
It’s easy to see why he’d want to dispel that perception. Right or wrong, calling your company a dot-com start-up these days is about the same as calling it a flop.
Yet, e-commerce upstart Straightline occupies an edgy office space in the Strip District, where it’s already knocked down walls to expand in its first year of existence. The dress code is everyday casual. And except for the most confidential meetings, virtually any employee can listen in when the managers convene.
Launched last October by U.S. Steel Corp. with fewer than two dozen employees and operations in a few states, Straightline now operates in 23 states and has nearly 3,000 registered users. It also has a mandate to break even by mid-2003 and ultimately become a nationwide, multibillion-dollar business.
Sure sounds like an aspiring dot-com, doesn’t it?
Roy Dorrance, vice chairman and chief operating officer of U.S. Steel and the senior executive who took the lead on the Straightline venture, explains why it’s not.
“This really isn’t a dot-com,” says Dorrance. “This is using information technology in a traditional business to get efficiency out of it.”
And that might be the critical difference. Other large companies, like WalMart, for instance, have achieved good results by taking technology and applying it to a business model they understand in a comprehensive way. U.S. Steel went to school on the failures of the early dot-coms to create an opportunity to make its own e-commerce venture a success.
There is plenty of opportunity to squeeze waste out of the distribution end of the steel business. That’s where Straightline steps in. The company uses information technology in Web-enabled applications to manage the entire steel distribution process — from mill to customer — more efficiently, reducing costs and, it expects, increasing profits for itself.
To appreciate what Straightline is attempting to do, it’s critical to understand how the steel distribution system works. For large steel customers, sheet or coil steel is delivered in large quantities direct from a mill and cut and treated for use.
But for most users, it’s not cost-effective or practical to buy steel directly from the mill. For them, the steel must be processed and cut before it arrives at the plant. Coil steel is sold through steel service centers, facilities that cook, slice and dice the mill-fresh steel into a configuration that the end-user can stamp or shape into its final product.
Then there’s the transport of the steel from mill to service center to end-user. U.S. Steel sees lots of inefficiency in the process and overcapacity in the service center business — an area where it recognized a potentially lucrative opportunity.
“It’s a business that I think is ripe for the application of technology to bring more efficiency to the system,” says Dorrance.
Here’s an example of how an order might be processed by Straightline: A registered customer orders a coil of steel online. Straightline’s software then verifies that the order falls within the customer’s pre-determined credit line.
The order is processed using optimization software that takes into account the inventory of steel at service centers where Straightline inventory resides and that it meets the customer’s specifications. It also looks at whether the center has the capacity to fill the order and how the steel can be cut to allow minimum scrap.
Aggregation software interfaces with a third-party logistics provider to determine how the order will be shipped to minimize cost and to arrive in time for the customer’s needs.
One of Straightline’s customers, a Marconi plant in Greenville, Miss., fabricates steel cabinets for use in the telecommunications and cable TV industry. Before purchasing from Straightline, the plant bought steel coil and had it shipped to a nearby service center to be cut to size for final fabrication, then shipped back to Marconi.
Now, Straightline selects the appropriate steel from its inventory in a steel service center, cuts it and ships it ready for use to the Marconi plant.
Marconi is on a contract purchasing arrangement in which Straightline analyzes the plant’s needs and automatically coordinates the delivery of steel to maintain adequate inventory.
The upside for Marconi?
“It helps Marconi maintain a very low inventory,” says Brenda Hughes, steel planner at the Marconi plant.
And it frees Hughes from the telephone and paperwork required to arrange a single steel purchase, a process she says could otherwise take half a day. She says she can now spend that time investigating more cost-effective purchasing opportunities.
In 2000, U.S. Steel began to look at opportunities to develop its existing business and to create new ones, and hired a consultant to do an analysis of the company and come up with some business development strategies. One commitment that resulted was to re-establish U.S. Steel as a global business, a position it lost during the decline of the domestic steel industry that began in the 1970s.
Another decision, which spawned Straightline, was to leverage U.S. Steel’s considerable information technology assets to bring efficiency to the process of selling to large customers and to apply that experience to sell to smaller users. The company’s IT strengths, the consultant concluded, were world class and a firm foundation on which to build new business.
“We maintained that strength in an open, purposeful way because we realized that it was something that was important to us,” says Dorrance.
The focus in the past, however, had been on bringing technology to bear to improve service to very large customers. Meanwhile, most of the inefficiency and overcapacity in the supply chain laid in the underused capacity at the service center level.
With its strengths in distribution and information technology, U.S. Steel’s top brass decided to create an e-commerce solution that would link producers, processors and transportation providers in one system and maximize the capabilities of each, all without bricks and mortar and other capital investments.
“The idea was to use that capacity that existed but not to own it and not invest in it ourselves,” says Dryburgh.
In early 2001, when the dot-com boom was turning into a bust for a lot of ventures, Dorrance and about a dozen other U.S. Steel employees from a variety of disciplines took up quiet residence in U.S. Steel’s Pittsburgh Service Center, a nondescript white building on the South Side, to work out a plan for Straightline.
The company had already taken a peek at the e-commerce side of the steel distribution business with a small investment in e-STEEL, an e-commerce company that provides an online exchange for steel. And it took a hard look at similar ventures that had failed and tried to determine why they couldn’t do what U.S. Steel was proposing.
Dorrance says the ventures were mostly exchange models that simply offered a market for steel products but not much else. Most had failed to do any market research to find out what customers wanted.
To avoid those mistakes, U.S. Steel conducted focus groups to find out what customers were looking for in an online purchasing environment. It found that customers liked the ability to buy online, but wanted to be able to pick up the phone if they had a question or wanted to place an order with a company representative.
And they expected the party arranging the exchange to have accountability if there was a problem with an order.
Straightline borrowed some technology infrastructure, like its I-track system that manages the sale of steel to large users, from U.S. Steel.
“That’s a key engine that basically we lifted out of the system we’re using at U.S. Steel and dropped it into Straightline,” Dorrance says.
Straightline adopted a similar but upgraded version of an order management system U.S. Steel had been using and added tools to handle optimization and order aggregation. It established a network of field sales representatives and a customer service organization to handle customers that wanted to place orders by phone.
“We’ve taken those systems and we’ve added a whole bunch of other bells and whistles,” says Dryburgh.
In the end, an online venture’s success is tied substantially to the willingness of customers to use it, and Dryburgh says he’s pleased with the results thus far. He says about two-thirds of the orders placed by “spot” buyers, those who don’t have a contractual purchase agreement with Straightline, are completed online, and nearly two-thirds of those buyers are repeat customers.
An entrepreneurial bent
The company decided that if Straightline were to succeed, it would have to be structured from the outset to encourage a corporate culture markedly different from the type that prevails in a large public company. While about 15 percent of its workers are former U.S. Steel employees, the company has made a conscious effort to recruit from outside the company, benefiting from the dot-com slide by picking up technology workers cast off by failed tech ventures.
Dorrance says it was important to set up a company outside the U.S. Steel organization — both in work environment and location — with the independence that would encourage the entrepreneurial attitude new ventures require.
Straightline has independence even when it comes to where it purchases its steel products. There’s no requirement to buy from U.S. Steel mills; rather, there is an imperative to make purchases from whatever sources make the most sense from a business perspective.
Says Dryburgh: “Straightline was not created as a way to get U.S. Steel product into the marketplace.”
“It really works,” says Dorrance. “You really need to get the dynamic of people working together and really feeling that they’re part of something exciting, something new.” How to reach: Straightline, www.straightline.com; U.S. Steel, www.ussteel.com; Marconi, www.marconi.com
