From The TopBy Jennifer Zaino | Posted 07-11-2007
Valero Pumped On SOA
Valero Energy, North America's largest refiner, has been on a fast growth track for the past decade, mostly through corporate buyouts. From 2002 through 2005 alone, the company almost tripled in revenue, from $29 billion to more than $82 billion; last year it reported $90 billion in revenue. Among its major purchases: the 2005 $8 billion acquisition of Premcor that added four refineries to its portfolio, for a grand total of 18.
But many of the companies Valero bought were themselves products of multiple acquisitions. The result was a hodgepodge of applications that Valero had to somehow interconnect and integrate with its core SAP R/3 enterprise resource planning system and mySAP business applications suite, which includes customer and partner relationship management as well as human capital management modules. This generally required the use of proprietary interfaces--software exchange points enabling applications to communicate with each other.
"I think one of the largest cost creators and work creators for the IT shops that I know of--and I've talked to a lot of different people--is interfaces," says Valero Senior Vice President and CIO Hal Zesch. "It's probably the largest single time consumer and cost consumer of any of the IT tasks."
It costs about $50,000 to $100,000 per interface for every five to 10 years of use, according to industry estimates, in addition to the people, time and money to support each interface, update it when there are system changes, and store duplicate data moving between systems.
On average, Zesch says, each application includes about 10 interfaces, which must be rebuilt nearly from scratch for even minor variations. And any time IT makes a significant change to any one system, it can break all the interfaces coming into and going out of that system, leading to a perpetual break/fix cycle.
"That is the challenge we have with these acquisitions," Zesch says. "When we saw that there were so many different systems, each requiring multiple interfaces, we said we had to get reusability for all these interfaces."
The SOA Solution
The SOA Solution
Valero needed a solution--one that would serve it well as it grew. To that end, it embraced the concept of service-oriented architecture, which promises to let an enterprise make its applications and computing resources available as "services"--components that can be flexibly reused and recombined. These components advertise themselves on the corporate network as services that other applications can discover and use. An order management system might advertise a lookup service that would be useful to both a customer service application and a profitability analysis application, for example. This contrasts with point-to-point integration approaches, in which each application seeking data from the order system requires its own interface to the order system.
With a more efficient means of exchanging information and speeding execution of business processes, Valero thought it could run its business more efficiently and cut operating costs.
But Valero was also looking ahead. The energy company believed if it did SOA right, it could move to a self-service model, where its business units could build their applications using IT-developed services.
"That's a transformational change," says Zesch. Since Valero's 2004 roll-out of five core services for accessing information from its master customer, materials, vendors, pricing and plants data, it has delivered 90 services, with 20 asynchronous scenarios (in which responses to service requests are not provided immeimmediately), all built on SAP's NetWeaver Application Server Development Environment.
More striking is the fact that the company has achieved 50 percent reusability of these services and believes it's on track to achieve 70 percent to 80 percent reusability. Most companies using SOA based on enterprise Web services are demonstrating reuse in excess of about 30 percent, according to Forrester analyst Larry Fulton, clearly putting Valero's 50 percent at the high end. But getting there hasn't been easy--this is not a one-year or even a five-year project, but an ongoing effort that factors into every system implementation and upgrade at Valero.
Currently, some 5,000 customers and 22,000 employees are using these services through composite applications, which are built by combining multiple services.
From The Top
From The Top
To build its SOA, Valero, which had standardized on SAP's enterprise applications technology in 1996, decided to go with the NetWeaver platform and Web services standards--these include XML (eXtensible Markup Language, which facilitates data sharing over the Internet), SOAP (Simple Object Access Protocol, which provides a basic messaging framework) and UDDI (Universal Description, Discovery and Integration, the registry service for Web services).
"One of the cool things about Web services was the standards it provided," says Nayaki Nayyar, Valero's director of enterprise architecture and technology services, who's leading the company's Web services and SOA strategy. "I no longer had to depend on proprietary APIs [application programming interfaces, a specific method for programs to make requests of each other] from different software vendors to integrate from system to system."
Valero decides which enterprise services to tackle next based on the priority of its business projects. During the design of a service, Nayyar's team determines what new services it must build to address the project that could be reused for other projects and then published to Valero's services repository.
Valero uses SAP's business process management capability, including its modeling feature, to design the workflow for it service-driven business processes. It uses a custom tool for developers to discover and register for services. It uses Mindreef's Soap Scope maintenance and testing software, and Mercury's LoadRunner also for testing. (Mercury was acquired by HP last July.)
Valero's first composite application (now one of 40 such applications)--implemented in response to the business' request to let wholesale clients view account information via a portal--enabled customers to connect through the SAP NetWeaver Portal interface to their invoice, price, electronic funds and credit card transaction data stored in SAP's R/3 customer relationship management system data warehouse as well as non-SAP systems via Valero's implementation of the SAP NetWeaver Exchange Infrastructure (SAP XI). SAP NetWeaver Portal gives users a single view into integrated information, and SAP XI is a central hub for services that processes and centrally monitors real-time and other messages.
Valero's services are developed by the company's technical team, overseen by Nayyar, and made available throughout the enterprise to functional IT service management teams that support the company's major business units, such as refining and financials.
Today these teams can request new functionality as part of new projects, or better yet, reuse existing services as they plan or refine business processes and applications. "One of the slogans we used from the beginning was that we want to do the work once, do it right the first time, and then share the results wherever they're needed across the whole company," says Zesch.
Nayyar created a central enterprise services repository, which is the first place the IT team turns when it's looking to enhance or deliver business processes and projects to the company's various departments.
"In our group we have to be very much aware of what those Web services are today," says Kirk Hewitt, Valero's director of IS reporting and financial systems, who works closely with the company's CFO. "Our first inclination will be: What can I use that I've already got, what can I start with to replace this old interface?"
Taking The SOA Challenge
Taking The SOA Challenge
SOA and Web services afford many benefits, but also can present many challenges, particularly when it comes to governance.
Early on, Valero developers, like their counterparts at many companies, became so enthralled by the power and ease of SOA that they quickly churned out 300 services--minus the reusability. "It was like giving a kid a new hammer," Zesch says. "They start nailing things to the trees, to the walls, to the car--you have to set up a governance model."
Nayyar wrested control, jettisoning services she deemed unnecessary and collapsing the remaining services down to a total of 50 before moving forward with new builds. "Unless you can catalog, find and use these services," she says, "you just end up with a virtual junk drawer of services. "
Indeed, governance is critical, yet it's one of the key items people tend to overlook during SOA implementations, when they are focused on the technology. "The technology is the easy part," says Richard Mark Soley, executive director of the SOA Consortium advocacy group and chairman and CEO of the Object Management Group. (The SOA Consortium comprises end users, service providers and technology vendors committed to helping Global 1000 companies adopt SOA, and the OMG is non-profit industry consortium whose task forces develop enterprise integration standards.)
The NetWeaver platform provides a good method of managing and controlling the development and changes to services, Zesch says--that's another reason Valero chose NetWeaver. The Java Development Infrastructure integral to NetWeaver provides a change management service that centralizes administration and quality management tasks. "The change management structure is something a fair number of people don't think about," he says.
Seeing SOA Savings
Little by little, the savings from doing away with proprietary interfaces add up. But Valero has also realized big savings in one fell swoop, thanks to an enterprise services-enabled application that provided visibility into tanker transportation schedules and enabled Valero to save nearly a half-million dollars in demurrage fees incurred when ships sit idle at a dock. Previously, Valero didn't have an effective way to monitor the docking and unloading of its oil tankers at ports worldwide, so some wound up at the same port simultaneously, even though they couldn't load or unload cargo at the same time. Now, Valero's transportation department employees, located at its San Antonio headquarters, can monitor tankers and then communicate with employees at the refineries where docks are located. The application, which provides an easy-to-read graphical interface to show conflicts, enables Valero to make more informed docking decisions, avoiding scheduling conflicts and saving time and money.
Also thanks to SOA, Valero now can monitor and troubleshoot business processes with a few XI screens, on which a process is laid out like a diagram with details on progress and problems highlighted. Valero can track how long it takes to get from one step of a business process to another, and can coordinate business and technology teams to improve performance.
Indeed, every day Valero benefits from SOA, often getting the information and functionality it needs in real time. But in most cases, employees don't realize it. "A lot of people in the operations area, the finance area, the marketing area.... they would not know, nor would they want to know, how it was accomplished," says Zesch. "They just want to know that it was accomplished, and works well for their part of the business."
In November, Valero plans to upgrade its core SAP ERP system, which will enable the company to use the pre-built Web services SAP is beginning to deliver on that system. Valero is also evaluating SAP's Visual Composer and other tools designed to help IT's technical and functional service manager teams more quickly build reusable applications from enterprise Web services. (Visual Composer provides drag-and-drop model-driven application-building capabilities.)
Toward the end of the decade, the company hopes to push these capabilities out to business users, so they can build their own applications with the help of enterprise services provided by IT; they'll add their own logic, post the programs on their own Web pages, and maintain them independently.
"There are a lot of users out there itching to control their own destiny, to not have to come to IT for all the requirements," says Nayyar.
And that, in turn, frees IT to focus on developing the core enterprise capabilities that will be strategic for the business, rather than remaining bogged down in the nuances of each business unit's application demands.
Self-service is the wave of SOA's future, according to the SOA Consortium's Soley. "Success will be defined by IT being the innovators and business being able to orchestrate the services they need," he says.